TaxTMI Updates e-Newsletter
Apr 16,2024

Benefit of composition scheme under Section 10(1) of the GST Act - reasonable classification in taxation - Article 14 of the Constitution of India - GST Council's obligation to record reasons for policy decision - social and economic impact of taxation policy

Benefit of composition scheme under Section 10(1) of the GST Act - reasonable classification in taxation - Article 14 of the Constitution of India - GST Council's obligation to record reasons for policy decision - social and economic impact of taxation policy - Direction to the GST Council to reconsider exclusion of small-scale ice cream manufacturers from the benefit of Section 10(1) of the GST Act - HELD THAT: - The Court found that the GST Council's decision to exclude ice cream manufacturers from the composition scheme was taken without assigning reasons in the minutes, and that the socio-economic consequences and the tax-treatment of inputs (notably nil-rated milk) were not adequately considered. Applying the principle that taxation classifications must be reasonable and bear a nexus with the object of the tax (as expounded in Aashirwad Films and Ayurveda Pharmacy), the Court held that the classification placing ice cream manufacturers on par with products having social/physical hazards required fresh consideration. In light of the Delhi High Court's observation that reconsideration should include assessment of components used in the product and the GST payable thereon and similar goods with comparable tax effects, the present exclusion could not be sustained without re-evaluation. For these reasons, the matter was remitted to the GST Council for reconsideration, with an expectation that socio-economic effects and the rationale for the differential treatment be addressed. [Paras 12, 13, 14, 15, 16]

The petition is disposed of by directing the GST Council to reconsider, within three months, the exclusion of small-scale ice cream manufacturers from the benefit of Section 10(1) of the GST Act, taking into account the reasons for classification and the socio-economic effects of the taxation decision.

Final Conclusion: The petition succeeds to the extent that the GST Council is directed to reconsider its decision excluding small-scale ice cream manufacturers from the composition scheme (Section 10(1)) in light of the need for reasoned classification and socio-economic considerations; the court expects reconsideration preferably within three months.

Interim stay - stay of proceedings pursuant to notice - adjournment - clubbed hearing

Interim stay - stay of proceedings pursuant to notice - adjournment - clubbed hearing - Further proceedings pursuant to the notice dated 25.09.2023 are stayed until the next date of hearing; the petition is adjourned and directed to be heard along with CWP-12700-2023. - HELD THAT: - The Court recorded that the petitioner's counsel placed reliance on a similar issue pending before the Court in CWP-2687-2021 and that respondents' counsel accepted notice and sought time to file a reply. In light of these procedural developments the Court granted interim relief by staying further proceedings arising from the notice dated 25.09.2023 until the next hearing, directed supply of a copy of the petition to the respondents' counsel, adjourned the matter to the listed date and ordered that the petition be heard along with CWP-12700-2023. The order is procedural and interim in character, preserving the parties' rights for adjudication on the returnable date. [Paras 5, 6, 7]

Further proceedings pursuant to the notice dated 25.09.2023 are stayed till the next date of hearing; the matter is adjourned to 30.07.2024 and to be heard along with CWP-12700-2023.

Final Conclusion: Interim order: proceedings arising from the notice dated 25.09.2023 are stayed pending the next hearing; matter adjourned and to be heard with CWP-12700-2023.

Transfer of investigation - forum convenience - writ of mandamus - advance ruling application - direction to expedite decision

Transfer of investigation - forum convenience - Prayer to transfer the investigation from Kasaragod to Thiruvananthapuram rejected. - HELD THAT: - Petitioner, president of an association of private nursing colleges, sought transfer of GST investigation on grounds of inconvenience because the association's headquarters is at Thiruvananthapuram. The Court observed that Kasaragod lies within the territorial bounds of the State of Kerala and found no reason to transfer the investigation to Thiruvananthapuram. Consequently, the request for transfer was refused. [Paras 4]

Request for transfer of investigation from Kasaragod to Thiruvananthapuram declined.

Advance ruling application - direction to expedite decision - writ of mandamus - Prayer for a writ directing the advance ruling authority to dispose of the application in Ext.P6 was refused. - HELD THAT: - Petitioner's application for advance ruling (Ext.P6) was filed on 17.1.2024. The Court found that the application was recent and there was no basis to command the advance ruling authority to expedite or otherwise direct disposal of that application. Accordingly, no writ was issued compelling the authority to decide the application. [Paras 5]

No direction issued to the advance ruling authority to dispose of or expedite decision on Ext.P6.

Final Conclusion: Writ petition dismissed; prayers for transfer of the investigation and for a mandamus directing disposal or expedition of the advance ruling application were rejected. Pending interlocutory applications, if any, are dismissed.

Bail under section 439 CrPC - previous sanction of the Commissioner - prosecution under Section 132 of the Central Goods and Services Tax Act - forgery of signature - absence of prima facie material - trial commenced and attendance condition

Previous sanction of the Commissioner - prosecution under Section 132 of the Central Goods and Services Tax Act - Prosecution under the specified clauses of Section 132 of the CGST Act cannot be sustained in the absence of previous sanction of the Commissioner. - HELD THAT: - The Court noted that Section 132(6) of the Central Goods and Services Tax Act prohibits prosecution under Section 132 except with the previous sanction of the Commissioner. The record admittedly does not disclose any such prior sanction. In light of this statutory requirement, the Court found that there is no question of prosecuting the applicant for the offences under the relevant clauses of Section 132 without the prescribed sanction. [Paras 5, 6]

The Court treated the absence of prior sanction as a material lacuna in the prosecution case on the CGST offences.

Forgery of signature - absence of prima facie material - trial commenced and attendance condition - On the evidence on record (including admissions in cross-examination and comparison of signatures) there was a prima facie absence of concrete material against the applicant and sufficient ground to grant bail subject to conditions. - HELD THAT: - The Court observed that documents on record prima facie indicate that the applicant's PAN and Aadhaar were misused and that signatures on the documents differed from the applicant's original signatures. The witness P.W.1, during cross-examination, made admissions that limited knowledge of the investigation, had not verified returns or e-verification, and noted discrepancies in signatures. The Court also noted that no GST returns are placed on record with the charge-sheet and that the applicant had been in custody for over two years. Considering these factors together, the Court concluded that incarceration appeared to be without concrete material and that bail was appropriate while ensuring the applicant's attendance at trial. [Paras 7, 8, 10]

The applicant was released on bail subject to furnishing a P.R. bond with surety and conditions as to attendance; prosecution permitted to seek cancellation on two consecutive breaches.

Final Conclusion: Bail application allowed; applicant Sagar Dilip More released on furnishing a P.R. bond and one surety, directed to attend all trial dates where evidence has commenced; absence of prior sanction under Section 132(6) CGST and prima facie deficiencies in the prosecution case weighed in favour of bail, with liberty to prosecute to apply for cancellation upon two consecutive breaches.

Requirement of e-way bill for transportation of goods - strict compliance with statutory procedure in taxing statutes - penalty for non-compliance of e-way bill requirements - inadmissibility of alternative documents in lieu of prescribed statutory document

Requirement of e-way bill for transportation of goods - penalty for non-compliance of e-way bill requirements - Validity of the penalty imposed for transportation of goods without valid e-way bill linkage to the transporting vehicle - HELD THAT: - The adjudicating authority found that although an electronic copy of an e-way bill was produced, the vehicle number recorded in the e-way bill differed from the vehicle actually transporting the goods at the time of interception. The Court accepted the finding that there was no convincing explanation for the discrepancy and applied the statutory scheme which mandates that transportation be accompanied by the prescribed document. Given the role of procedural safeguards in taxing statutes to check evasion, the absence of correspondence between the e-way bill and the vehicle justified confirmation of the penalty. [Paras 2, 3]

Penalty upheld as justified on account of the mismatch between the e-way bill particulars and the vehicle actually transporting the goods.

Strict compliance with statutory procedure in taxing statutes - inadmissibility of alternative documents in lieu of prescribed statutory document - Whether alternate or parent documents could be accepted in place of the e-way bill prescribed by the GST Act and Rules - HELD THAT: - The Court reiterated the principle that where a statute prescribes the mode or manner in which a thing is to be done, it must be done in that manner and no other. In the context of the GST Act and Rules, there was no provision permitting acceptance of alternate documents in lieu of the e-way bill. The adjudicating authority therefore did not err in refusing to treat parent e-way bill details or other documents as equivalent when the transported consignment lacked an e-way bill matching the vehicle particulars. [Paras 3]

Alternate or parent documents cannot be accepted in lieu of the statutorily prescribed e-way bill; strict compliance is required.

Final Conclusion: The High Court dismissed the writ appeal and upheld the penalty imposed by the adjudicating authority, holding that statutory requirements regarding e-way bills must be strictly complied with and that a mismatch between vehicle particulars and the e-way bill justified confirmation of the penalty.

Benefit of Section 10(38) - Assessee to file revised returns if he omitted to make a claim - denial of an opportunity to cross examine the entry providers - as decided by HC [2023 (2) TMI 1289 - ORISSA HIGH COURT] ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter. Also, the CBDT circular that permitted to the Assessee to file revised returns if he omitted to make a claim was also not noticed by the AO, thus correctly dismissing the Revenue’s appeal

HELD THAT:- No case for interference is made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is, accordingly, dismissed.

Power to condone delay under Section 119(2)(b) - genuine hardship - liberal construction of genuine hardship - Section 154 rectification - duty to decide rectification application - personal hearing before disposal - requirement that CBDT orders be authored and signed by the Member who gave personal hearing

Power to condone delay under Section 119(2)(b) - genuine hardship - liberal construction of genuine hardship - requirement that CBDT orders be authored and signed by the Member who gave personal hearing - Impugned CBDT order refusing condonation of delay under Section 119(2)(b) and related formal defects - HELD THAT: - The Court held that the phrase 'genuine hardship' in Section 119(2)(b) must be construed liberally because the power to condone delay is conferred to enable authorities to do substantial justice by deciding claims on merits. Refusal to condone delay on a pedantic or unduly restrictive view can result in meritorious matters being dismissed at the threshold, whereas condonation only leads to adjudication on merits. Authorities, when considering condonation, must not mechanically focus on a single narrow factor; they should examine whether the applicant has a prima facie correct and genuine claim which is not bound to fail on apparent defects, without prejudging merits. The Court also reiterated the principle that where a personal hearing is given by a Member of the CBDT, the resultant order should be written, authored and signed by that Member; orders passed merely with the approval of a Member but signed by a subordinate are vulnerable to being quashed. Applying these principles, the Court found the impugned order unsustainable and quashed it. [Paras 12, 13, 14, 16]

Impugned CBDT order dated 1st September 2023 quashed and set aside; CBDT to reconsider the application in conformity with the principles on condonation and ensure any order is authored and signed by the Member who gave personal hearing.

Section 154 rectification - duty to decide rectification application - personal hearing before disposal - Failure of the Assessing Officer to decide the rectification application filed under Section 154 and directions for its disposal - HELD THAT: - The Court recorded that respondent no. 1 (the Assessing Officer) had not disposed the rectification application filed on 14th April 2018 despite the record showing the audit report/form being uploaded and repeated reminders over almost six years. The Assessing Officer was under a statutory duty to decide the Section 154 application; mere assertions in affidavit that no mistake apparent from record existed did not absolve the officer from passing an order. The Court expressed disapproval of the dereliction of duty and directed proactive disposal on merits, with a requirement of personal hearing to the petitioner before any order is passed. The Court also directed that a copy of its order be placed before the Principal Chief Commissioner so that disciplinary action may be considered for dereliction of duty. [Paras 15, 17]

Respondent no. 1 shall dispose of the pending Section 154 rectification application on merits by 31st May 2024 after giving petitioner a personal hearing with at least five working days' notice; copy of this order to be placed before the PCCIT for consideration of disciplinary action.

Final Conclusion: The CBDT order refusing condonation of delay is quashed and set aside; CBDT must reconsider the condonation application in a justice oriented manner consistent with a liberal construction of 'genuine hardship' and ensure any order is authored and signed by the Member who heard the matter. The Assessing Officer is directed to decide the pending Section 154 rectification application on merits after affording a personal hearing by 31st May 2024; the court's order will be placed before departmental superiors for appropriate action regarding dereliction of duty.

Profits in lieu of salary - ex gratia/voluntary payment not taxable under section 17(3)(i) - distinguishable precedents based on existence of contractual obligation - scope of Departmental Representative's arguments - no new grounds beyond AO/CIT(A)

Profits in lieu of salary - ex gratia/voluntary payment not taxable under section 17(3)(i) - distinguishable precedents based on existence of contractual obligation - Whether the lump-sum payment received by the assessee after termination and the amount for purchase of a car are taxable as profits in lieu of salary under section 17(3)(i). - HELD THAT: - The Tribunal examined the nature of the Rs. 2 crore receipt and the Rs. 13,08,444 payment and found them to be an out-of-court settlement and a voluntary payment by the employer rather than payments made pursuant to any contractual or statutory obligation. Madras High Court decisions relied upon by the Assessing Officer were based on facts involving an existing agreement and were therefore distinguishable on facts. The Tribunal applied the principle, as affirmed by the Delhi and Gujarat High Courts in the cited jurisprudence, that a purely voluntary or ex gratia payment by an employer, made without legal obligation or condition, does not qualify as "profits in lieu of salary" under sub-clause (i) of section 17(3). Having found the payments voluntary and not arising from any service rule or agreement, the Tribunal upheld the CIT(A)'s deletion of the additions made by the AO. [Paras 10, 12]

Additions of Rs. 2 crore and Rs. 13,08,444 were not taxable as profits in lieu of salary under section 17(3)(i) and were rightly deleted.

Scope of Departmental Representative's arguments - no new grounds beyond AO/CIT(A) - Whether the Departmental Representative could raise, for the first time on appeal, the applicability of a different provision not considered by the AO or CIT(A). - HELD THAT: - Relying on the Tribunal's coordinate-bench authority, the Tribunal held that the Departmental Representative is confined to supporting the impugned order and cannot set up an altogether new case on appeal that was not taken by the Assessing Officer or considered by the CIT(A). The point under section 17(3)(iii) was not considered by either the AO or the CIT(A) and therefore could not be introduced by the Departmental Representative in the appeal proceedings. [Paras 11]

The Departmental Representative cannot raise new grounds or a different case on appeal that was not canvassed by the AO or considered by the CIT(A); the point under section 17(3)(iii) was not admissible in these proceedings.

Final Conclusion: The Tribunal dismissed the Revenue's appeal, holding that the impugned receipts were voluntary/ex gratia and not taxable as profits in lieu of salary under section 17(3)(i), and that the Revenue could not advance a new contention not raised by the AO or considered by the CIT(A).

Reopening notice issued to a deceased person is invalid and vitiates jurisdiction - Jurisdictional requirement for notice under section 148 of the Income-tax Act - No statutory duty on legal representatives to intimate death of assessee - Section 159 inapplicable where proceedings were not initiated or pending against the assessee during lifetime - Section 292BB inapplicable to legal representatives where notice issued to a dead person

Reopening notice issued to a deceased person is invalid and vitiates jurisdiction - No statutory duty on legal representatives to intimate death of assessee - Section 292BB inapplicable to legal representatives where notice issued to a dead person - Jurisdictional requirement for notice under section 148 of the Income-tax Act - Validity of the appellate penalty order passed in the name of the deceased assessee and consequent jurisdictional effect on penalty proceedings - HELD THAT: - Tribunal found that the ld. CIT(A) issued notices and passed the penalty order in the name of the deceased assessee despite being informed by the legal heirs of the assessee's death. Reliance was placed on judicial authorities holding that a notice under section 148 must be issued to the correct person and that issuance to a dead person is a jurisdictional defect which cannot be cured by participation of legal heirs or by invoking provisions aimed at curing defective service. The Tribunal observed that there is no statutory obligation on legal representatives to intimate the death of the assessee, and that statutory provisions such as Section 159 or Section 292BB do not operate to validate proceedings where jurisdiction was never properly acquired because the notice was addressed to a deceased person. Given these conclusions the Tribunal held that the order of the ld. CIT(A) passed in the name of the dead person is not tenable and must be quashed; once the appellate order is quashed, the questions on merits of the penalty become academic. [Paras 10, 11, 12, 13]

Order of the ld. CIT(A) passed in the name of the deceased is quashed; consequentially the penalty proceedings' merits are rendered academic.

Final Conclusion: Appeal allowed: appellate order passed in the name of the deceased assessee is quashed and consequential penalty-related issues need not be adjudicated.

Mandatory procedure under Section 144C - draft assessment order versus final assessment order - issuance of demand notice under Section 156 as part of assessment - initiation of penalty proceedings during draft stage - curative scope of Section 292B - effect of non compliance with mandatory statutory procedure on jurisdiction

Draft assessment order versus final assessment order - mandatory procedure under Section 144C - issuance of demand notice under Section 156 as part of assessment - Whether the order dated 31.03.2022 framed by the Assessing Officer was a draft assessment order in terms of section 144C(1) or in substance a final assessment order in breach of the mandatory procedure. - HELD THAT: - The Tribunal found that although the Assessing Officer labelled the document as a 'draft assessment order', the concomitant actions on 31.03.2022-final quantification of taxable income, issuance of the tax computation sheet, service of a notice of demand under Section 156 and initiation of penalty proceedings-demonstrate that the proceedings were brought to an end on that date. The Tribunal applied the statutory sequence prescribed by Section 144C (noting the roles of subsections (3) and (13)) and followed authoritative precedents holding that the requirement to first forward a draft and afford the DRP the prescribed role is mandatory. Consequently, the AO's act of completing assessment-related steps on 31.03.2022 bypassed the mandatory steps under Section 144C and converted the purported draft into a final order in substance, thereby contravening the statutory procedure. The Tribunal rejected the Revenue's contention that participation by the assessee in subsequent proceedings or objections before the DRP cures the defect, observing that Section 292B cannot validate an order passed without jurisdictional compliance with mandatory statutory procedure. [Paras 7, 17, 22, 26]

The order dated 31.03.2022, though described as a draft, was in substance a final assessment order and was passed in violation of the mandatory procedure under Section 144C.

Effect of non compliance with mandatory statutory procedure on jurisdiction - initiation of penalty proceedings during draft stage - curative scope of Section 292B - Consequences of the Assessing Officer's breach of Section 144C(1) - whether subsequent DRP order and later assessment/penalty orders could stand. - HELD THAT: - Relying on precedents of the High Courts and the Supreme Court, the Tribunal held that non compliance with the mandatory requirement of first issuing a draft order under Section 144C(1) is not a mere irregularity but an incurable illegality which vitiates the resulting assessment actions. The Tribunal observed that issuance of demand notice and initiation of penalty proceedings on the same date as the purported draft brought the proceedings to a close and rendered all subsequent orders non est. The Tribunal further noted that Section 292B cannot cure an order that is void for want of jurisdiction arising from failure to follow mandatory statutory steps. Applying these principles to the facts, the Tribunal concluded that the DRP's order and the Assessing Officer's subsequent final assessment and penalty actions are invalid. [Paras 17, 22, 34, 36]

The DRP's order and all subsequent orders emanating after the completion of proceedings on 31.03.2022 are void (non est) and cannot be sustained.

Final Conclusion: Grounds 1 to 3 are allowed: the Tribunal set aside the impugned assessment/penalty proceedings found to have bypassed the mandatory procedure under Section 144C(1), holding the actions culminating on 31.03.2022 to be final in substance and all subsequent orders to be void; the appeal is allowed.

Exemption under section 11 of the Income Tax Act - charitable purpose and proviso to section 2(15) - exclusion for activities in nature of trade, commerce or business or rendering service for fee - dominant object test - incidental commercial activity - services rendered to members versus public at large - precedential value of coordinate bench/tribunal decisions

Exemption under section 11 of the Income Tax Act - dominant object test - incidental commercial activity - Assessee's entitlement to exemption under section 11 for Assessment Year 2017-18 - HELD THAT: - The Tribunal examined whether the activities of the assessee trust fell within charitable purpose and were eligible for exemption under section 11. Having noted that the assessee is registered under section 12A and that its dominant object is the advancement and development of the Fragrance and Flavours industry, the Tribunal accepted the view of the Coordinate Bench in earlier years that activities such as holding seminars, receiving subscriptions, sale of publications, workshops and conferences were incidental to and in furtherance of the dominant charitable object. The Tribunal observed that the surplus generated was incidental and was applied to the dominant object, not distributed among members. The Tribunal found that such activities, even though involving fees or displays by sponsor-members, could not be characterised as commercial where they advance the trust's primary object, and that the international seminar was not a regular, systematic commercial venture. On that basis the Tribunal upheld the CIT(A)'s deletion of the addition and allowed the exemption claim for the year under appeal.

Assessee entitled to exemption under section 11 for Assessment Year 2017-18; CIT(A) order upheld and Revenue appeal dismissed.

Charitable purpose and proviso to section 2(15) - exclusion for activities in nature of trade, commerce or business or rendering service for fee - services rendered to members versus public at large - Whether proviso to section 2(15) applies because the trust rendered services to members or earned fees from activities in nature of trade, commerce or business - HELD THAT: - The Tribunal considered the Revenue's contention that the trust was a mutual association serving members and therefore hit by the proviso to section 2(15). Relying on the Coordinate Bench's detailed examination of the assessee's activities and relevant judicial precedents cited therein, the Tribunal found that the activities in question were performed to further the dominant object of public utility and were not commercial in nature. The display of sponsors' products and receipt of subscriptions, sale of publications and similar receipts were held to be incidental to the charitable object and not services rendered in relation to trade, commerce or business for consideration so as to attract the proviso. Consequently, the proviso to section 2(15) was held inapplicable on the facts of the case.

Proviso to section 2(15) does not apply; activities held not to be commercial or services to members so as to deny charitable status.

Final Conclusion: The Tribunal upheld the CIT(A)'s finding that the assessee trust is eligible for exemption under section 11 for Assessment Year 2017-18, rejecting the Revenue's contention that the trust's activities were commercial or caught by the proviso to section 2(15); Revenue's appeal dismissed.

Condonation of delay - Deduction under section 54F - Joint ownership and eligibility for section 54F - Conflict of High Court decisions - follow view favourable to the assessee - Principle that rules of procedure are handmaid of justice

Condonation of delay - Principle that rules of procedure are handmaid of justice - Application for condonation of delay in filing the appeal - HELD THAT: - The assessee filed the appeal with a delay of 135 days and furnished an affidavit explaining non-receipt of the impugned order and hearing notices on registered communication channels, discovery of the order on the e filing portal and prompt steps thereafter to file the appeal. The Revenue raised no substantial objection. Applying the established test for sufficient cause and the principle that procedural rules must yield to substantial justice, the Bench found the reasons sufficient and exercised discretion to condone the delay. [Paras 2, 3]

Delay in filing the appeal is condoned.

Deduction under section 54F - Joint ownership and eligibility for section 54F - Conflict of High Court decisions - follow view favourable to the assessee - Whether joint ownership of more than one residential house on the date of transfer of the original asset disentitles the assessee from claiming deduction under section 54F - HELD THAT: - On the facts it was undisputed that the assessee was joint owner of two residential properties on the date of sale. Revenue relied on the Karnataka High Court decision in M.J. Siwani and the Departmental Representative referred to the Supreme Court having dismissed SLP in that matter. The Bench considered contrary authority of the Madras High Court in Dr. P.K. Vasanthi Rangarajan and several Tribunal precedents favouring the assessee, and observed that no adverse decision of the jurisdictional High Court was placed on record. Applying the editorially accepted principle when non jurisdictional High Courts differ, the view favourable to the assessee is to be followed, and construing the proviso to section 54F in that manner, joint ownership does not automatically render the assessee ineligible unless exclusive ownership is shown. Having accepted the assessee's position and the favourable precedents, the Bench overturned the disallowance made by lower authorities. [Paras 9, 15]

Disallowance under section 54F is set aside and the assessee's claim for deduction is allowed.

Natural justice and jurisdictional factual complaints - Other grounds alleging illegality, want of jurisdiction and breach of natural justice - HELD THAT: - The authorised representative requested that if relief be granted on the section 54F ground, the remaining grounds may be left open. The Bench acceded to this request and did not adjudicate grounds 1 and 2 on merits. [Paras 16]

Grounds 1 and 2 are left open for consideration and are not decided in this appeal.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and, on the merits, allowed the assessee's claim of deduction under section 54F by holding that mere joint ownership of more than one residential house on the date of transfer does not automatically disentitle the assessee where exclusive ownership is not established; other grounds were left open.

Additions in unabated/completed assessments without incriminating material - necessity of corroborative incriminating material for assessments under section 153A - reliance on statement recorded under section 132(4) - retracted confessions and admissibility of section 132(4) statements - jurisdictional limits of assessment/reassessment in search cases - CBDT circular restraining confession-taking during search

Additions in unabated/completed assessments without incriminating material - necessity of corroborative incriminating material for assessments under section 153A - Validity of additions/clubbing made in respect of unabated/completed assessment years 2014-15 to 2018-19 when no incriminating material was seized - HELD THAT: - The Tribunal held that assessment years 2014-15 to 2018-19 were unabated/completed on the date of search and that no incriminating material was seized from the assessee's premises. Relying on the judicial authorities including the decision of the Supreme Court in Abhisar Buildwell (P.) Ltd. and the ratio in Kabul Chawla and Saumya Construction, the Tribunal applied the principle that completed/unabated assessments cannot be disturbed by additions under section 153A in the absence of incriminating material unearthed during the search or requisition. The Tribunal observed that mere admissions recorded under section 132(4), without supporting seized material or other corroborative evidence, do not confer jurisdiction to make such additions for completed assessment years. Consequently the additions made solely on statements recorded under section 132(4) were held to be without jurisdiction and bad-in-law. [Paras 6]

Additions/clubbing for assessment years 2014-15 to 2018-19 quashed and appeals allowed.

Reliance on statement recorded under section 132(4) - retracted confessions and admissibility of section 132(4) statements - CBDT circular restraining confession-taking during search - Sustainability of additions in abated assessment years 2019-20 and 2020-21 where additions were based solely on statements under section 132(4) and retraction affidavits were filed - HELD THAT: - For the abated years 2019-20 and 2020-21 the Tribunal noted that additions were founded exclusively on statements recorded under section 132(4) and that retraction affidavits together with supporting material filed by the assessee, and returns filed by family members, were not given effect to by the Assessing Officer. The Tribunal referred to the CBDT Circular which restrains taking confessions during search, and to jurisprudence emphasising that statements under section 132(4) are admissible but not conclusive and require independent corroboration. In absence of any incriminating material seized or other cogent independent evidence, and having regard to the retractions, the Tribunal held that the assessments were without jurisdiction and the additions unsustainable. [Paras 7]

Additions for assessment years 2019-20 and 2020-21 quashed and appeals allowed.

Jurisdictional limits of assessment/reassessment in search cases - retracted confessions and admissibility of section 132(4) statements - Validity of reassessment under section 147 for Assessment Year 2013-14 where additions were made by clubbing wife's incomes based only on statements under section 132(4) - HELD THAT: - The Tribunal applied the same reasoning as in the other years to the reassessment for AY 2013-14. The reassessment notice and resulting additions were based solely on statements recorded under section 132(4) and ignored the retraction affidavits and supporting evidence. In absence of seized incriminating material or corroborative documentary evidence, the Assessing Officer lacked jurisdiction to reopen and make the additions. The Tribunal concluded that the reassessment under section 147 was bad-in-law for want of requisite material linking the additions to the search. [Paras 9]

Reassessment/order for AY 2013-14 quashed and appeal allowed.

Final Conclusion: All impugned additions and the reassessment, being founded solely on statements under section 132(4) without any incriminating material or independent corroboration and notwithstanding retraction affidavits, were held to be without jurisdiction; accordingly the appeals for AYs 2013-14 to 2020-21 are allowed and the assessment/reassessment orders are quashed.

Treatment of alleged rental income where the leased portion did not exist - addition as unexplained cash credit under section 68 - disallowance under section 40(a)(ia) and effect of the second proviso - disallowance under section 40A(3) for cash payments in excess of prescribed limit and proviso exception - malafide transactions to claim customs refund - disallowance of business expenses for personal element and permissible percentage adjustment

Treatment of alleged rental income where the leased portion did not exist - Deletion of addition of rental income attributed to a non-existent first floor - HELD THAT: - The Tribunal examined the assessment records, lease deed, sale-deed schedule, photographs, tenant confirmation and the Inspector's physical inspection which confirmed there was no first floor in the subject building. The assessee also filed an affidavit and evidence of subsequent mezzanine construction in a later year. On these materials the Tribunal held that the alleged rental income attributed to a first floor which did not exist could not be added to the assessee's income and directed deletion of the addition made by the AO/CIT(A). [Paras 6]

Addition of Rs. 60,75,000 on account of alleged rent for the non-existent first floor deleted; ground 1(i) allowed.

Addition as unexplained cash credit under section 68 - Treatment of Rs. 1,90,000 credited in books as unexplained cash credit for AY 2011-12 and protection against double taxation for AY 2014-15 - HELD THAT: - The assessee credited Rs. 1,90,000 in the year under consideration without satisfactory explanation before the authorities. The Tribunal found that the amount had been subsequently offered to tax by the assessee in AY 2014-15 (shown as 'unclaimed credits written back' and included in the return for AY 2014-15). Therefore, while upholding the addition as unexplained credit for the year under appeal (AY 2011-12) because no satisfactory explanation was furnished for that year, the Tribunal directed that to avoid double taxation the AO should delete the same sum for AY 2014-15 where it had been voluntarily offered to tax. [Paras 9]

Rs. 1,90,000 treated as unexplained credit for the year under appeal but the AO directed to delete the same sum for AY 2014-15 to avoid double taxation; ground 1(ii) disposed accordingly.

Disallowance under section 40(a)(ia) and effect of the second proviso - Disallowance of expenses for failure to deduct TDS where payees have declared receipts and paid tax-verification direction and application of second proviso - HELD THAT: - The assessee had paid certain processing/closure/exhibition charges without deducting tax at source. Before the CIT(A) the assessee produced certificates from chartered accountants and contended that payees had included receipts and paid taxes. The CIT(A) directed verification of these claims. The Tribunal observed that the CIT(A)'s direction accords with the second proviso to section 40(a)(ia) (having retrospective effect) and held that if the payees have included the receipts in their returns and paid requisite tax, disallowance should not be made in the hands of the assessee. The Tribunal allowed the ground for statistical purposes, subject to verification as directed. [Paras 11]

If payees have shown the receipts in their returns and paid tax, no disallowance under section 40(a)(ia) should be made; ground 1(iii) allowed for statistical purposes (verification by AO as directed).

Malafide transactions to claim customs refund - Sustenance of disallowance of loss from transactions with sister concern held to be entered into with malafide intention to claim customs refund - HELD THAT: - Transactions with M/s. Rovani Foods Pvt. Ltd were examined. The CIT(A) found the sales to that concern were made with a malafide intention to claim customs refund; the Tribunal noted the assessee did not contest that finding on appeal. Although the CIT(A) allowed the purchase value and disallowed only the loss arising (i.e., gave a concession), the Tribunal held that once malafide intention or fraud is established, no further concession was warranted by the assessee. On that basis the Tribunal dismissed the assessee's challenge to the disallowance and upheld the CIT(A)'s finding and limited relief as already granted. [Paras 14]

Assessee's challenge dismissed; disallowance in respect of transactions with Rovani Foods Pvt. Ltd sustained as held to be tainted by malafide intention.

Disallowance under section 40A(3) for cash payments in excess of prescribed limit and proviso exception - Validity of disallowance of salary paid in cash to a related person where bank facilities were available and no business exigency shown - HELD THAT: - The assessee paid salary in cash exceeding the statutory cash limit to a person related to the assessee and stationed in Delhi. The AO disallowed the salary under section 40A(3); the CIT(A) affirmed that finding observing availability of bank facilities in Delhi and absence of business exigency to warrant cash payment. The Tribunal accepted that the payment's genuineness and identity of the payee were established but held that to invoke the proviso to section 40A(3) the assessee must demonstrate lack of bank facilities at payee's place or pressing business emergency-neither of which was shown. The Tribunal also found no applicable exception under Rule 6DD of the Income Tax Rules and therefore confirmed the disallowance. [Paras 16, 17]

Disallowance under section 40A(3) of salary paid in cash confirmed; ground No. 3 dismissed.

Disallowance of business expenses for personal element and permissible percentage adjustment - Allowability of travelling expenses and adjustment of disallowance for telephone and vehicle-related expenses for personal use - HELD THAT: - The AO disallowed certain travelling expenses as not related to business and made a 20% disallowance on telephone, vehicle running/maintenance, interest and depreciation for personal use. The Tribunal reviewed the factual explanations provided for travel (repairs, business meetings, orders procured) which were not controverted by the revenue, and held that the travelling expenses were business-related and fully allowable. As to telephone and vehicle-related expenditures, the Tribunal found a personal element existed but reduced the disallowance from 20% to 10% (instead of the 20% sustained by the CIT(A)). [Paras 22, 23]

Travelling expenses allowed in full; disallowance on telephone and vehicle-related expenditure reduced to 10%; ground No. 4 allowed and ground No. 5 partly allowed.

Final Conclusion: The appeal is partly allowed: the rental addition for a non-existent first floor is deleted; the Rs. 1,90,000 is treated as unexplained credit for the year under appeal but the AO is directed to delete it for AY 2014-15 to avoid double taxation; disallowance under section 40(a)(ia) is subject to verification under the second proviso and allowed for statistical purposes if payees have declared and paid tax; the adverse finding on transactions with Rovani Foods is upheld; the disallowance under section 40A(3) for cash salary payment is confirmed; travelling expenses are allowed in full and the disallowance on telephone and vehicle-related expenses is reduced to 10%.

Lack of jurisdiction - power to proceed against property of a third party - prohibition of benami transactions - statements recorded under Section 108 of the Customs Act - power under Section 142 of the Customs Act to recover Government dues - absence of judicial or quasi judicial power to adjudicate ownership

Power to proceed against property of a third party - lack of jurisdiction - power under Section 142 of the Customs Act to recover Government dues - Validity of the communication by Customs preventing transfer of the petitioner's flat on the ground that it allegedly belonged to the investigated husband - HELD THAT: - The Court held that the Customs authority had no provision in law enabling it to proceed against or effectively attach the property of a third party (the wife) merely because investigations were pending against her husband. The Court found no statutory power that respondent No. 2 could invoke to issue the impugned communication, and specifically rejected reliance upon Section 142 of the Customs Act as a basis for issuing such communication in relation to property standing in the name of a third party. Consequently, the issuance of the communication was in patent lack of jurisdiction. [Paras 6]

The impugned communication is illegal for want of jurisdiction and cannot be sustained.

Prohibition of benami transactions - absence of judicial or quasi judicial power to adjudicate ownership - statements recorded under Section 108 of the Customs Act - Whether the Customs authority could, de hors the Benami Act, treat the flat as belonging to the husband and question the petitioner's ownership on the basis of the husband's statement - HELD THAT: - Even assuming statements of the husband recorded under Section 108 indicated that the flat was purchased by him though standing in the petitioner's name, the Court held that the Prohibition of Benami Property Transactions Act, 1988 (notably Section 3) prevents the Customs authority from adjudicating or declaring that the property belongs to the husband. Determination of such ownership/control is not vested in the Customs authority absent statutory adjudicatory power; only a civil court (or a forum empowered under the Benami regime) can make such a declaration. The Court endorsed the principle in the cited Kerala decision that the revenue cannot, by administrative communication, step into the shoes of the husband/defaulter and treat property in the name of another as belonging to the defaulter without approaching the proper forum and giving notice to affected parties. [Paras 7, 8, 9]

Respondent No. 2 had no jurisdiction to question or negate the petitioner's ownership on the basis of the husband's statement; the communication was impermissible.

Final Conclusion: The petition is allowed: the impugned communication issued by respondent No. 2 preventing transfer of the petitioner's flat was issued without jurisdiction and is illegal; the petitioner's challenge to that communication is upheld, while all other contentions relating to the separate adjudication/order in original are left open.

Exemption for Highly Specialized Equipment - Interpretation of exemption clause in Electronic and IT Goods (Requirements of Compulsory Registration) Order, 2021 - Restricted import under the Foreign Trade Policy - Provisional release of seized goods - Deposit of enhanced duty and bank guarantee as condition for release - Adjudication under Section 28 of the Customs Act, 1962

Exemption for Highly Specialized Equipment - Interpretation of exemption clause in Electronic and IT Goods (Requirements of Compulsory Registration) Order, 2021 - Restricted import under the Foreign Trade Policy - Multi-functional devices (MFDs) imported by the petitioners fall within the exempted category of 'Highly Specialized Equipment' under clause 8 of the Order, 2021 and thereby are not subject to the authorization requirement imposed by the Foreign Trade Policy. - HELD THAT: - The Court examined the sequence: Order, 2012 did not notify MFDs; Order, 2021 notified MFDs as restricted from 18.03.2021; amendment w.e.f. 01.07.2021 inserted clause 8 exempting Highly Specialized Equipment (HSE) meeting specified criteria. On plain and literal reading clause 8 provides an exemption for HSE without a stated bar for second hand imports. The Court accepted the petitioners' contention that the imported MFDs fall within the exempted category under clause 8 and relied on earlier decisions of this High Court and recent Madras High Court orders which permitted provisional release of similar consignments. The Court rejected the Department's submission that the exemption is inapplicable because the goods are general purpose or second hand, holding that the textual criterion in clause 8 governs applicability of the exemption. [Paras 21, 22, 23, 24]

The petitioners' MFDs are held to be within the HSE exemption in clause 8 of Order, 2021 and not mandatorily subject to authorization under the Foreign Trade Policy.

Provisional release of seized goods - Deposit of enhanced duty and bank guarantee as condition for release - Adjudication under Section 28 of the Customs Act, 1962 - The seized consignments are to be provisionally released subject to specified conditions while leaving open the Customs Department's right to proceed with adjudication. - HELD THAT: - Applying the legal conclusion on exemption and having regard to consistent orders in other High Courts, the Court directed the Customs authorities to consider and pass orders on the petitioners' pending applications for provisional release. Conditions imposed: payment/deposit of quantified enhanced duty (to be quantified by Customs within one week and paid forthwith), release within four weeks of payment, furnishing of a bank guarantee equal to 10% of the total price, maintenance of transaction/customer records if goods are sold after release, and objective consideration of any application for waiver of demurrage. The order expressly preserves the Department's right to continue adjudication proceedings including under Section 28 of the Customs Act, 1962. [Paras 25, 26, 27]

Provisional release of the goods is directed subject to quantification and deposit of enhanced duty, a 10% bank guarantee, record-keeping conditions, and without prejudice to ongoing adjudicatory proceedings.

Final Conclusion: Writ petitions allowed: the Court held that the imported MFDs fall within the Highly Specialized Equipment exemption of clause 8 of Order, 2021 and directed provisional release of the seized consignments on specified conditions (quantification and deposit of enhanced duty, 10% bank guarantee, record maintenance), while permitting the Customs Department to continue adjudication; no order as to costs.

Corporate guarantee - Corporate Insolvency Resolution Process - Section 7 application under the Insolvency and Bankruptcy Code - Security trustee and beneficiary's right to enforce - Privity and trusts created for third party beneficiaries - Section 186 of the Companies Act - prohibition and penal consequences for unauthorized guarantees - Co-existence of liability of principal borrower and guarantor - Lead bank/consortium authority to initiate recovery proceedings - Res judicata in respect of earlier challenge to guarantee

Section 186 of the Companies Act - prohibition and penal consequences for unauthorized guarantees - Corporate guarantee - Validity of the deed of guarantee dated 10.06.2016 in view of Section 186 of the Companies Act, 2013 - HELD THAT: - The Tribunal examined whether the corporate guarantee given by the Corporate Debtor far exceeded the limits calculable under Section 186. While it is admitted and found that the guarantee materially exceeded the limits prescribed by Section 186, the Tribunal rejected the Appellant's contention that the deed must be treated as void to absolve the guarantor of liability. The corporate debtor and the principal borrower are group companies controlled by the same family; the Tribunal held that treating the guarantee as void to enable avoidance of financial obligations would be a travesty of justice. At best, non-compliance with Section 186 attracts penal consequences under Section 186(13) and does not absolve the guarantor of its liability towards third party lenders or result in illegal enrichment. The Tribunal therefore did not accept the plea that the guarantee was void for purposes of resisting the Section 7 proceedings.

The deed of guarantee is not rendered void for the purposes of resisting liability under the Code; non-compliance with Section 186 may attract penalty but does not absolve the Corporate Debtor of its obligation under the guarantee.

Security trustee and beneficiary's right to enforce - Privity and trusts created for third party beneficiaries - Whether lack of direct privity between Respondent No.1 and the Corporate Debtor prevents invocation of the guarantee by the lender - HELD THAT: - The Tribunal analysed the tripartite commercial architecture - inter se agreement, security trustee agreement and deed of guarantee - executed to secure consortium lending. The deed and the trustee arrangement were executed for the benefit of the lenders; where a contract creates a trust for third party beneficiaries, those beneficiaries are not strangers and may enforce rights for their benefit. Reliance on established authorities and the terms of the agreements led to the conclusion that lenders, as beneficiaries of the trust created by the security arrangements and guarantee, have standing to invoke the guarantee and pursue remedies against the guarantor despite the involvement of a trustee.

Lenders have enforceable rights against the corporate guarantor notwithstanding the security trustee arrangement; lack of direct contractual privity with the trustee does not bar enforcement by beneficiaries.

Section 7 application under the Insolvency and Bankruptcy Code - Lead bank/consortium authority to initiate recovery proceedings - Whether only the security trustee could initiate proceedings under Section 7 against the corporate guarantor, or whether a lender (including the lead bank) could file a Section 7 application - HELD THAT: - Having regard to the cross-referenced clauses of the deed of guarantee and the security trustee agreement, the Tribunal held that the security documents operate together to protect lenders' rights and to record their entitlement to proceed against guarantors. The Tribunal followed precedent recognizing that where guarantees and trust arrangements are created for lenders' benefit, a lender may exercise its rights, including initiating a Section 7 petition, even though a trustee has been appointed. The Tribunal also relied on an earlier Appellate Tribunal decision with analogous facts to support the conclusion that a lender may maintain Section 7 proceedings despite existence of a trustee.

A lender, including the lead bank, is entitled to initiate a Section 7 application against a corporate guarantor despite the existence of a security trustee.

Lead bank/consortium authority to initiate recovery proceedings - Co-existence of liability of principal borrower and guarantor - Whether Respondent No.1 could proceed unilaterally without a formal meeting and specific authorisation of other consortium members - HELD THAT: - The Tribunal examined the allegation that Respondent No.1 acted without the consent or formal meeting of other lenders. The record, including intervention applications and open-court confirmations by other consortium members, established that the other lenders supported Respondent No.1's action and had endorsed the proceedings. The Tribunal distinguished the present facts from authorities where a non-lead bank had taken unilateral action without consortium support, noting that here the lead bank had the backing of other lenders. The Tribunal therefore found the contention of lack of consortium support to be baseless.

Respondent No.1's action was supported by other consortium lenders; filing of Section 7 could not be impugned for want of a formal meeting or authorisation in the circumstances.

Corporate Insolvency Resolution Process - Going concern and viability - Whether the Corporate Debtor should have been spared CIRP on the basis of viability or going-concern grounds (including reliance on Vidarbha precedent) - HELD THAT: - The Tribunal considered the Corporate Debtor's offers of settlement and the financial position. The offers made by the corporate guarantor were insubstantial relative to the guarantied exposure and the pleadings showed that the corporate debtor's financial health could not support the liability. The Tribunal found the Vidarbha precedent inapplicable given the material factual distinctions, and concluded that the corporate debtor had not made out a case demonstrating viability or a realistic restructuring proposal that would preclude initiation of CIRP.

The plea of viability/going-concern succeeds not: CIRP initiation was justified as the Corporate Debtor's financial position and settlement offers did not demonstrate viability to avoid CIRP.

Final Conclusion: The appeal is dismissed. The Tribunal rejected the contentions that the guarantee was void under Section 186, that lack of privity or the existence of a security trustee barred the lender from invoking the guarantee or filing a Section 7 petition, and that the Corporate Debtor's viability justified staying CIRP; the Adjudicating Authority's order initiating CIRP is upheld.

Liquidator's fee as per Regulation 4(2)(b) of IBBI (Liquidation Process) Regulations, 2016 - Role and powers of the Stakeholders' Consultation Committee to decide or advise on liquidator's fees - Applicability of the version of regulations prevailing on the date of the liquidation order - Entitlement to monthly remuneration where assets remain under attachment - Committee of Creditors' entitlement under Regulation 39D to fix liquidator's fee

Liquidator's fee as per Regulation 4(2)(b) of IBBI (Liquidation Process) Regulations, 2016 - Entitlement to monthly remuneration where assets remain under attachment - Whether the liquidator is entitled to a monthly remuneration for services rendered while the corporate debtor's assets are under attachment and cannot be auctioned, or whether fees are payable only as per Regulation 4(2)(b). - HELD THAT: - Having examined the Liquidation Process Regulations as they stood on the date the liquidation order was passed (15.10.2019), the Tribunal found that where the Committee of Creditors did not fix the liquidator's fee, the liquidator's entitlement is governed by sub-regulation (2)(b) of Regulation 4, i.e., a fee as a percentage of amounts realised and distributed. The regulations in force on the liquidation date did not provide for payment of a monthly remuneration in cases where CoC had not fixed the fee. The Tribunal therefore rejected the liquidator's plea for a fixed monthly fee during the period of attachment and held that fees are payable in accordance with the percentage-based mechanism prescribed by Regulation 4(2)(b). The adjudicating authority's reliance on the views recorded in the SCC meetings and its dismissal of the applications were affirmed, as no basis was shown to substitute the regulatory mechanism with a monthly remuneration in the circumstances of this case. [Paras 14, 15]

Fees to the liquidator shall be payable only in terms of Regulation 4(2)(b) (percentage on realisation and distribution); claim for monthly remuneration is not acceded to.

Applicability of the version of regulations prevailing on the date of the liquidation order - Committee of Creditors' entitlement under Regulation 39D to fix liquidator's fee - Role and powers of the Stakeholders' Consultation Committee to decide or advise on liquidator's fees - Which regulatory framework governs fixation of the liquidator's fee in this liquidation: the provisions as they existed on the liquidation date or subsequent amendments conferring roles on SCC/CoC? - HELD THAT: - The Tribunal confined its examination to the Liquidation Process Regulations as they stood on 15.10.2019 when the liquidation order was passed. At that date sub-regulation (1) contemplated fee in accordance with any decision of the CoC under Regulation 39D (as applicable), and sub-regulation (2) provided the percentage-based fee where CoC had not fixed the fee. Subsequent amendments (including provisions empowering SCC/CoC more directly) post-dated the liquidation order and therefore could not alter the entitlement applicable to this liquidation. Accordingly, because no fee had been fixed by the CoC prior to or on the liquidation date, the percentage-based mechanism of Regulation 4(2)(b), as it then stood, governed the liquidator's fee entitlement in this matter. [Paras 13, 15]

The version of the Liquidation Process Regulations effective on the liquidation date governs; since CoC had not fixed the fee then, Regulation 4(2)(b) applies.

Final Conclusion: Appeal dismissed; the Tribunal affirms that, for this liquidation (order dated 15.10.2019), the liquidator's remuneration is payable only under the percentage-based mechanism of Regulation 4(2)(b) of the IBBI (Liquidation Process) Regulations, 2016 and not as a fixed monthly fee; the Adjudicating Authority's order is upheld and the appeal is dismissed.

Invocation of guarantee - limitation period for proceedings on guarantee - proceedings against separate personal guarantors for same debt - pendency of CIRP against corporate debtor not a bar to action against personal guarantor - role of resolution professional under Sections 95 to 100 of the IBC

Proceedings against separate personal guarantors for same debt - pendency of CIRP against corporate debtor not a bar to action against personal guarantor - Whether pendency of CIRP against the principal corporate debtor or pendency of a resolution plan bars initiation of insolvency proceedings against the personal guarantor or precludes proceedings against other guarantors for the same debt. - HELD THAT: - The Tribunal recorded that there is no bar in the IBC to proceed against each separate personal guarantor for the same debt and that the pendency of CIRP against the principal borrower does not debar the lender from proceeding against a personal guarantor. Pendency of approval of a resolution plan was likewise held not to be a ground for dismissal of proceedings against the personal guarantor. These conclusions reflect the Tribunal's finding that actions against guarantors are distinct and may be pursued notwithstanding ongoing corporate insolvency proceedings against the principal borrower. (See findings at paragraph 13.) [Paras 13]

Proceedings against the personal guarantor may be validly initiated despite pendency of CIRP against the corporate debtor and other guarantors may be proceeded against for the same claim.

Invocation of guarantee - limitation period for proceedings on guarantee - Which event fixes the commencement of limitation for a claim on the guarantee and whether the petition filed on 21.12.2021 was time-barred. - HELD THAT: - The Tribunal held that the guarantee was invoked on 12.12.2017 when the Financial Creditor issued notice under Section 13(2) of the SARFAESI Act calling upon the guarantor to pay within 60 days, and that limitation commenced from that invocation date. The subsequent demand notice dated 31.10.2020 could not be relied upon to reset or extend the limitation period. Applying that principle, the Tribunal found the petition filed on 21.12.2021 to be beyond the applicable limitation period and therefore barred by limitation. (See findings at paragraphs 14-16.) [Paras 14, 15, 16]

Limitation began on 12.12.2017 upon invocation of the guarantee; the petition filed on 21.12.2021 is time-barred and must be rejected.

Final Conclusion: The Company Petition under Section 95 of the IBC against the personal guarantor is rejected as time-barred; the Tribunal also affirmed that pendency of CIRP or a resolution plan against the corporate debtor does not bar proceedings against a personal guarantor.

Application under Section 94(1) IBC - personal guarantor insolvency resolution process - report of the interim resolution professional - fraudulent or malicious filing to seek moratorium - SARFAESI Act recovery and possession - moratorium under Section 96 IBC - recall of order - bias of the resolution professional

Application under Section 94(1) IBC - personal guarantor insolvency resolution process - moratorium under Section 96 IBC - SARFAESI Act recovery and possession - Validity and admissibility of CP(IB) No.125/2022 and the IRP's report recommending initiation of resolution process against the personal guarantor - HELD THAT: - The Tribunal found that the corporate borrower had defaulted, the secured creditor had taken steps under the SARFAESI Act and obtained physical possession of the mortgaged property. The record showed that the present application was filed after possession was secured and that the debtor appeared to have filed the petition to obtain the benefit of moratorium under Section 96 IBC and to frustrate ongoing SARFAESI recovery. The IRP's function is fact-finding and limited to assisting the Tribunal; the report contained expressions indicating bias by the IRP. There was no material placed to show that the debtor took effective steps to settle or restructure the debt despite ample time including the intervening stay in higher courts. In view of these circumstances, acceptance of the IRP's report and admission of the petition would amount to permitting misuse of the insolvency process to thwart secured recovery. [Paras 16, 18, 19, 20, 21]

CP(IB) No.125 of 2022 and IA 1055 of 2022 are rejected and disposed of.

Recall of order - report of the interim resolution professional - Maintainability of IA 515/2022 seeking recall of the Tribunal's earlier order dated 30.05.2022 - HELD THAT: - The Tribunal observed that it does not possess power to recall a reasoned order in the manner sought and treated the IA as objections to the IRP's report. Having examined the materials and the nature of relief sought, the Tribunal declined to exercise any power to recall the prior order. [Paras 9, 22]

IA 515 of 2022 is dismissed.

Fraudulent or malicious filing to seek moratorium - personal guarantor insolvency resolution process - Allegation that the main petition was filed with fraudulent or malicious intention to obstruct creditor recovery - HELD THAT: - On consideration of the sequence of events - demand and possession under SARFAESI, pendency of DRT proceedings, filing of the insolvency petition after physical possession, and absence of evidence of any sincere attempt by the debtor to settle or restructure - the Tribunal concluded that the petition was instituted with intent to frustrate secured creditor's recovery and to obtain moratorium improperly. Accordingly the objection that the application was filed with fraudulent or malicious intent was sustained. [Paras 18, 19, 23]

Prayer (B) in IA 514 of 2022 is allowed and the main application is disposed of on that basis.

Final Conclusion: The Tribunal declined to admit the personal-guarantor insolvency petition and rejected the IRP's report, dismissed the application to recall the earlier order, and allowed the objection that the petition was filed with fraudulent or malicious intent to obtain moratorium and to thwart SARFAESI recovery; the main petition and connected IA 1055 are disposed of accordingly.

Power to arrest under Section 19 of PMLA - Necessity to arrest / reason to believe standard - Compliance with procedural safeguards in Pankaj Bansal - Interplay between Section 19 PMLA and Section 167 CrPC - Judicial duty while authorising remand under Section 167 CrPC - Admissibility and evidentiary value of statements under Section 50 PMLA - Approver statements and pardon under Section 164 CrPC - Offences by companies and vicarious liability under Section 70 PMLA

Power to arrest under Section 19 of PMLA - Necessity to arrest / reason to believe standard - Compliance with procedural safeguards in Pankaj Bansal - Validity of the arrest of the petitioner under Section 19 of PMLA - HELD THAT: - The Court examined whether the authorised officer had 'material in his possession' and 'reasons to believe' recorded in writing as required by Section 19 and the directions in Pankaj Bansal. The record discloses statements recorded under Section 50 PMLA and Section 164 Cr.P.C., digital material and other investigative material which the Court found, prima facie, amounted to material in possession and reasons to believe. The arrest memo ran into 28 pages, was supplied at the time of arrest, and material was forwarded to the Adjudicating Authority in compliance with Section 19(2). The Court rejected the contention that absence of direct recovery or the passage of time negated the sufficiency of material, observing that proceeds already spent may not be recoverable and that statements and corroborative digital/financial material can constitute prima facie basis for arrest. The Court further held that the petitioner's repeated non appearance despite nine summons under Section 50 PMLA was a contributory factor and that replies to summons were not equivalent to joining the investigation. Political timing alone, absent demonstrable mala fides, did not render the arrest unlawful. [Paras 104, 106, 107, 108, 114]

Arrest of the petitioner was lawful and complied with Section 19 of PMLA and the directions in Pankaj Bansal; challenge to arrest dismissed.

Interplay between Section 19 PMLA and Section 167 CrPC - Judicial duty while authorising remand under Section 167 CrPC - Validity of remand order dated 22.03.2024 (custody remand to ED) - HELD THAT: - The Court reviewed the remand order to determine whether the Special Court applied its mind and ensured compliance with Section 19 before authorising custodial remand under Section 167 Cr.P.C. The remand order expressly records perusal of grounds of arrest, notes that reasons for belief were recorded and approved, and details material relied upon (statements, money trail, digital evidence) and the purposes for custodial interrogation (confrontation, extraction of digital data, unearthing proceeds). Given the material placed before it and the Special Court's reasoned order, the High Court found no patently mechanical or routine exercise of jurisdiction and held that custodial remand was justified for the limited purposes stated. [Paras 116, 117, 118, 120, 126]

Remand order dated 22.03.2024 does not suffer from infirmity or illegality and is upheld.

Admissibility and evidentiary value of statements under Section 50 PMLA - Approver statements and pardon under Section 164 CrPC - Whether statements recorded under Section 50 PMLA and approver statements can be relied upon at the arrest/remand stage - HELD THAT: - The Court accepted the settled position that statements under Section 50 PMLA are admissible and can make out a formidable prima facie case. It distinguished statements recorded under Section 50 from approver statements recorded under Section 164 Cr.P.C., explaining that approver statements and pardons are judicial processes and their credibility is to be tested at trial. The Court held it is impermissible, and inappropriate at the remand stage, to conduct a mini trial into the veracity of approver statements or to discard them solely because they evolved over time; credibility and contradictions are matters for trial and cross examination. The Court also noted that non supply of unrelied documents is not a ground at the remand stage, as full disclosure is a matter for the trial stage under Section 207 Cr.P.C. [Paras 86, 88, 93, 100, 101]

Statements under Section 50 PMLA and approver statements cannot be brushed aside at the arrest/remand stage; their reliability is for trial.

Offences by companies and vicarious liability under Section 70 PMLA - Applicability of Section 70 PMLA to a political party and prima facie liability of the petitioner under Section 70 - HELD THAT: - The Court analysed the definition of 'company' in Section 70 (which includes 'association of individuals') and the definition of 'political party' under the Representation of Peoples Act as an 'association or body of individuals'. On the material before it (party constitution, statements indicating petitioner's role as National Convenor and control over party affairs, and witness statements about party funding and expenditure), the Court concluded that prima facie the petitioner, as National Convenor, could be treated as 'in charge of and responsible for' the association for the purposes of Section 70(1), subject to the proviso enabling him to prove lack of knowledge or due diligence at the appropriate stage. [Paras 62, 65, 66, 69, 70]

On prima facie material, Section 70 PMLA can apply to the Aam Aadmi Party as an 'association of individuals' and the petitioner may be prima facie liable under Section 70(1); defenses remain open for trial.

Effect of timing of arrest and political considerations - Duty of courts to apply law irrespective of political context - Whether timing of the arrest (proximate to elections) rendered it mala fide or unlawful - HELD THAT: - The Court recognised the petitioner's submission on prejudice to electoral 'level playing field' but held that timing alone, absent demonstrable mala fide in the record, does not invalidate an otherwise lawful arrest. It observed that the petitioner had been summoned repeatedly since October 2023 and had not joined investigation; he neither obtained interim judicial protection nor challenged the summons until late. The Court emphasised that courts must decide legality based on legal standards and material, not political rhetoric, and that permitting timing alone to vitiate arrests would allow non cooperation with investigation to be exploited. [Paras 128, 130, 150, 155, 156]

No illegality found in arrest by reason of timing; allegation of mala fide timing rejected on the record.

Final Conclusion: The writ petition challenging the arrest dated 21.03.2024 and the remand order dated 22.03.2024 is dismissed. The Court held that, on the material before it, the Directorate of Enforcement complied with Section 19 PMLA and the Special Court's remand was not mechanically passed; statements under Section 50 PMLA and approver statements may be relied upon prima facie and issues of credibility, Section 70 liability and other defenses are matters for trial.

Summary order. The Civil Appeals are dismissed as withdrawn with liberty to seek remedies in accordance with law; pending applications disposed of.

Extended period of limitation - Suppression of facts - Notification No.18/2009-ST (exemption procedure) - Form EXP1/EXP2 filing and certification - Burden on Revenue to prove suppression

Extended period of limitation - Suppression of facts - Burden on Revenue to prove suppression - Invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 in respect of service tax demand for 2009-10 - HELD THAT: - The Tribunal found that the Revenue's case rested on an audit objection and the allegation that facts required by Notification No.18/2009-ST were suppressed and came to its notice only during audit. The appellant, however, had filed the prescribed returns (Form EXP2) with the jurisdictional authorities and had made available the requisite documents, although some particulars (such as commission amount in the shipping bill) were not produced to the audit team on the spot. The court held that mere procedural non compliance or failure to produce documents instantly to auditors does not constitute deliberate suppression of facts for the purpose of invoking the extended period; when the relevant information and prescribed returns were on record with the Department, the Revenue could and should have verified these with jurisdictional officers prior to issuing the show cause notice. Reliance was placed on precedents holding that suppression implies a deliberate omission with intent to evade duty and that the burden to prove suppression lies on the Revenue. In view of these findings, the Tribunal concluded that the extended period was not rightly invoked and therefore the demand could not be sustained on limitation grounds. The Tribunal did not decide the merits of the demand beyond the limitation issue. [Paras 4]

Extended period of limitation not invokable; demand set aside on limitation ground and appeal allowed.

Final Conclusion: The appeal is allowed: the extended period of limitation could not be invoked as the appellant had filed the prescribed returns and the necessary information was available to the Department; the service tax demand for 2009-10 is therefore not sustainable on limitation grounds and the Tribunal did not examine the merits.

Failure to specify category of service in show cause notice - show cause notice as foundation of litigation - prejudice to right of defence from lack of particulars - vitiation of adjudication for want of specificity - unsustainability of service tax demand for lack of category-wise allegation

Failure to specify category of service in show cause notice - prejudice to right of defence from lack of particulars - show cause notice as foundation of litigation - unsustainability of service tax demand for lack of category-wise allegation - Whether the demand of service tax could be sustained when the show cause notice and the order-in-original did not specify the category of service or apportion the amounts under specific taxable service heads. - HELD THAT: - The Tribunal found that the show cause notice and the order-in-original did not specify the category of service under which the demand was raised nor did the annexure indicate the service-heads; it only contained descriptions of work in the invoices. The adjudicating authority confirmed the demand without discussing how amounts related to particular service categories or whether any portion was exempt (for example, certain road work). Relying on the principle that a show cause notice is the foundation of litigation and must contain necessary details to enable the assessee to defend the allegations, as stated by the Supreme Court in Commissioner of Central Excise v. M/s Brindavan Beverages, and on the Tribunal's earlier decision in CCE & ST Pondicherry v. A.M. Manickam where identical defects led to setting aside demands, the Tribunal concluded that omission of the service-category particulars caused prejudice to the appellant. Because the department failed to indicate the specific taxable service heads or apportionment, the proceedings were vitiated and the demand could not be sustained. [Paras 6, 7, 8, 9]

The demand is unsustainable for want of specification of service category; the impugned order is set aside and the appeal is allowed with consequential relief if any.

Final Conclusion: The Tribunal allowed the appeal, set aside the demand and the impugned order, holding that omission to specify the category of service and to apportion amounts in the show cause notice and adjudication vitiated the proceedings.

Summary order. Delay in filing the appeal is condoned. The civil appeal is dismissed. Pending application(s), if any, stand disposed of.