TaxTMI Updates e-Newsletter
Apr 21,2020

Commensurate reduction in prices - profiteering - passing on benefit of tax reduction to recipients - methodology for computation of profiteering - limitation under Rule 128(1) of the CGST Rules, 2017

Reduction in the rate of tax - commensurate reduction in prices - Whether the GST rate on the complained product was reduced and the benefit was required to be passed to recipients - HELD THAT: - The Authority found as a matter of fact that the GST rate on the product was reduced from 28% to 18% w.e.f. 15.11.2017 and that, under Section 171(1), any reduction in rate of tax must be passed on to recipients by way of a commensurate reduction in prices. The Authority held that this statutory prescription is the mechanism to ensure benefit reaches consumers and that the Respondents were obliged to pass the benefit on each supply/unit. (Findings recorded at paras 14, 31, 32, 45.) [Paras 14, 31, 32, 45]

GST rate reduction w.e.f. 15.11.2017 applied to the complained product and the Respondents were required to pass on the benefit by way of commensurate reduction in prices.

Methodology for computation of profiteering - commensurate reduction in prices - Whether the DGAP's methodology of computing profiteering by comparing pre-reduction average base price with post-reduction invoice-wise base prices was correct - HELD THAT: - The Authority examined the DGAP's method - computing average base price for short pre-reduction period (01.11.2017-14.11.2017) separately for distribution channels and comparing that with actual post-reduction invoice-wise base prices - and held that the approach was logical, reasonable and consonant with Section 171(1). The Authority rejected the Respondents' contention that post-reduction averaging or other alternate averaging would be appropriate because that would exclude buyers who purchased at higher post-reduction base prices and thereby deny benefit. The Authority also observed that no single mathematical formula fits all cases but the DGAP's methodology had been repeatedly approved in similar matters. (Findings recorded at paras 42, 45, 46, 47.) [Paras 42, 45, 46, 47]

DGAP's methodology for computation of profiteering is upheld as appropriate and correctly applied in this case.

Limitation under Rule 128(1) of the CGST Rules, 2017 - Whether the complaint was referred and investigated beyond the period of limitation - HELD THAT: - The Authority reviewed the Standing Committee records and the sequence of communications. It found that the initial complaint emailed on 30.07.2018 had been returned to the complainant in August 2018 for resubmission, and a fresh complaint was considered by the reconstituted Standing Committee on 11.03.2019 which treated the complaint as received in February 2019 and referred it to DGAP within the two-month limitation stipulated in Rule 128(1). Consequently the objection that the Standing Committee acted beyond limitation was rejected. (Findings recorded at paras 34-37.) [Paras 34, 35, 36, 37]

Limitation objection under Rule 128(1) is rejected; the referral for investigation was within the prescribed period.

Passing on benefit by non-monetary methods - commensurate reduction in prices - Whether the Respondents validly discharged their obligation under Section 171(1) by passing benefit through increased grammage or promotional schemes - HELD THAT: - While recognising that increased grammage can, in principle, constitute passing of benefit if adequately evidenced, the Authority found the Respondents failed to furnish requisite particulars - base and post-reduction base prices, quantities before and after, date of commencement, invoice-level evidence, or promotional communications - to establish that additional quantity was proportionate and supplied on account of the tax reduction. Consequently the claim of passing benefit by increased grammage/promotions was not accepted on the available record. (Findings recorded at paras 51-53, 52-53.) [Paras 51, 52, 53]

Non-monetary measures (grammage/promotional schemes) were not established on evidence and therefore do not absolve the Respondents from their obligation under Section 171(1).

Profiteering - amount to be deposited in Consumer Welfare Fund - Whether Respondent No. 1 & Respondent No. 2 profiteered and the quantum to be disgorged, with directions for deposit and interest - HELD THAT: - On application of the upheld methodology to the disclosed outward supplies for the relevant period, the Authority accepted DGAP's calculations and determined net higher sales realization (profiteered amount) as Rs. 63,14,901 for Respondent No.1 and Rs. 2,33,456 for Respondent No.2 for the period 15.11.2017-31.03.2019. The excess price collected included GST on the increased base price and was therefore included in the profiteered amount. The Authority ordered commensurate price reduction, directed deposit of the respective profiteered amounts into the Central and relevant State Consumer Welfare Funds with 18% interest from dates amounts were realised, to be deposited within three months, failing which recovery provisions apply; state-wise breakup for Respondent No.1 and Delhi-specific direction for Respondent No.2 were given. (Findings and directions recorded at paras 19, 21, 58, 59.) [Paras 19, 21, 58, 59]

Profiteered amounts accepted as determined by DGAP: Rs. 63,14,901 for Respondent No.1 and Rs. 2,33,456 for Respondent No.2; amounts to be deposited in CWFs with 18% interest and directions to reduce prices commensurately.

Penalty under Section 171(3A) of the CGST Act, 2017 - Whether the Respondents are liable for penalty for profiteering and the consequential procedural step - HELD THAT: - Having concluded that the Respondents denied the benefit of tax reduction to customers in contravention of Section 171(1) and profiteered as per the Explanation to Section 171, the Authority held both Respondents are apparently liable for penalty under Section 171(3A). Accordingly, it directed issuance of show-cause notices asking why the prescribed penalty should not be imposed. (Finding recorded at para 60.) [Paras 60]

Show-cause notices to be issued to both Respondents for imposition of penalty under Section 171(3A).

Final Conclusion: The Authority found that the GST rate on the complained product was reduced w.e.f. 15.11.2017 and that the Respondents failed to pass on the benefit by way of commensurate reduction in prices. DGAP's computation methodology and results were upheld: profiteering determined at Rs. 63,14,901 (Respondent No.1) and Rs. 2,33,456 (Respondent No.2) for the period 15.11.2017 to 31.03.2019; the amounts are to be deposited in the Consumer Welfare Funds with 18% interest within three months, price reduction ordered, and show-cause notices issued for penalty under Section 171(3A).

Profiteering under Section 171(1) of the CGST Act, 2017 - commensurate reduction in prices - denial of Input Tax Credit impact calculation as percentage of taxable turnover - inclusion of tax component in computation of profiteered amount - no netting off/zeroing of benefits across different recipients or supplies - continuing violation and period of investigation - penalty under Section 171(3A) of the CGST Act, 2017

Profiteering under Section 171(1) of the CGST Act, 2017 - commensurate reduction in prices - no netting off/zeroing of benefits across different recipients or supplies - Whether the Respondent contravened Section 171(1) by not passing on the benefit of GST rate reduction/denial of ITC to recipients - HELD THAT: - The Authority found that Notification No. 46/2017 reduced the GST rate on restaurant services from 18% to 5% w.e.f. 15.11.2017 and concomitantly denied availability of input tax credit for such supplies. Section 171(1) mandates that any reduction in rate of tax or benefit of ITC must be passed to recipients by way of commensurate reduction in prices, measured in money terms for each supply. The DGAP's examination of product-wise invoices and returns established that the Respondent increased base prices of a number of items after 15.11.2017 and charged lower tax rates on those increased bases so that consumers did not receive a commensurate reduction in the total price payable. Contentions by the Respondent-relating to franchise royalty/advertising charges, inflation, business strategy, or Article 19(1)(g)-do not alter the statutory obligation under Section 171(1) to pass on the tax/ITC benefit on each supply; such commercial costs cannot be netted-off against the statutory benefit. Likewise, the Authority rejected the Respondent's plea for 'netting off' positive and negative price variations across SKUs, holding that every recipient is entitled to the benefit and no cross-appropriation is permissible. The Authority therefore concluded that the Respondent denied the benefit to recipients and committed profiteering as defined in Section 171(1). [Paras 18, 21, 22, 23, 27]

The Respondent contravened Section 171(1) of the CGST Act, 2017 by not passing on the commensurate benefit of the reduction in GST rate/denial of ITC to his recipients; the allegation of profiteering is upheld.

Denial of Input Tax Credit impact calculation as percentage of taxable turnover - inclusion of tax component in computation of profiteered amount - continuing violation and period of investigation - penalty under Section 171(3A) of the CGST Act, 2017 - Quantum of the additional benefit (profiteered amount) to be passed on and ancillary consequences - HELD THAT: - The DGAP computed the ratio of ITC to net taxable turnover for the pre-reduction period (July-October 2017) as 6.32% and used product-wise average pre-reduction base prices (derived from the Respondent's own invoices) to compare with actual post-reduction selling prices. Where base prices were increased by more than 6.32%, the excess constituted profiteering; the computation included the GST element on the excess base so that the final price payable by consumers is properly reflected. The DGAP's item-wise computation, exemplified in the report and reconciled with GSTR-1/GSTR-3B returns, produced a net higher sale realization (profiteered amount) for the investigation period. The Respondent's challenges to specific inputs in the computation-incorrect mapping of an alleged 'Sub of the Day' price, adjustment for increased royalty/advertisement payouts, exclusion of a notional 5% GST component, limitation of the period of computation, and alleged price reductions on some SKUs-were examined and rejected where inconsistent with Section 171, unsupported by invoices, or legally irrelevant (royalty/advertisement being internal contractual costs). The Authority also held that the offence continued until compliance was shown and therefore the investigation period (15.11.2017 to 31.03.2019) was appropriately adopted for computing profiteering. On this basis the DGAP's computed amount was accepted. [Paras 21, 24, 27, 28, 29]

The net profiteered amount is determined as Rs. 1,49,896/-, to be addressed by commensurate price reduction and deposit in consumer welfare funds; a notice for imposition of penalty under Section 171(3A) is to be issued to the Respondent.

Final Conclusion: The Authority upheld the DGAP's findings that the Respondent contravened Section 171(1) by not passing on the benefit of GST rate reduction/denial of ITC and accepted the DGAP's computation of the profiteered amount as Rs. 1,49,896/-. The Respondent is directed to reduce prices commensurately, deposit the determined amount in the Central and Maharashtra State Consumer Welfare Funds as ordered, pay interest as directed, and show cause why penalty under Section 171(3A) should not be imposed.

Commensurate reduction in prices - profiteering - benefit of input tax credit - Section 171 of the CGST Act, 2017 - anti-profiteering - Procedure and Methodology under Rule 126 of the CGST Rules, 2017 - deposit in Central and State Consumer Welfare Funds - penalty under Section 171(3A) of the CGST Act, 2017

Commensurate reduction in prices - benefit of input tax credit - profiteering - Section 171 of the CGST Act, 2017 - Whether the respondent passed on the commensurate benefit of reduction in the rate of GST and denial of ITC to his customers - HELD THAT: - The Authority found that GST on restaurant services was reduced from 18% to 5% w.e.f. 15.11.2017 and that input tax credit available to the respondent for the pre-rate reduction period (Jul 2017-Oct 2017 / up to 14.11.2017) amounted to 9.05% of net taxable turnover. Profiteering must be determined on each supply by comparing actual transaction values in the post-rate reduction period with the prevailing base prices in the pre-rate reduction period and by factoring the impact of denial of ITC. Discounts and promotional offers form part of the effective transaction value and, where reflected in invoices, were used by the DGAP to compute average pre-rate reduction base prices; gratuitous items or internal commercial arrangements (such as royalty/advertisement percentages or composition scheme consequences) do not alter the statutory computation of profiteering. The Authority accepted the DGAP's methodology of (a) deriving reference base prices from invoiced taxable values (post-discount) for 01.11.2017-14.11.2017 and, where items were not sold then, from July-Oct 2017 data; (b) computing the ratio of ITC to net taxable turnover for the pre-rate reduction period and applying it to determine the commensurate adjustment; and (c) comparing per-invoice post-rate reduction prices with the commensurate prices to identify only those transactions where prices exceeded the commensurate level. On this basis, the Authority concluded that the respondent increased base prices more than necessary to offset the loss of ITC and therefore did not pass on the commensurate benefit to customers. [Paras 22, 24, 25, 30, 31]

Profiteering stood established: the respondent did not pass on the commensurate benefit of the tax rate reduction and denial of ITC to his customers for the period under investigation.

Section 171 of the CGST Act, 2017 - anti-profiteering - penalty under Section 171(3A) of the CGST Act, 2017 - deposit in Central and State Consumer Welfare Funds - Whether the respondent violated Section 171 of the CGST Act, 2017 and the consequential relief/penal measures to be imposed - HELD THAT: - Having determined that the respondent appropriated the benefit of tax reduction instead of passing it to recipients, the Authority held that the respondent contravened Section 171(1). The profiteered amount was computed by the DGAP in Annexure-11 and accepted by the Authority. Because the recipients were not identifiable, the Authority directed deposit of the aggregate profiteered amount in two equal parts into the Central Consumer Welfare Fund and the Maharashtra Consumer Welfare Fund, with interest at 18% from the dates the amounts were realised till deposit. Further, as the offence under Section 171(3A) is attracted, the respondent was issued a notice to show cause why penalty under Section 171(3A) should not be imposed. The Commissioner SGST Maharashtra was directed to supervise compliance and to report back. [Paras 20, 33, 37, 38, 39]

The respondent violated Section 171 and is directed to deposit the profiteered amount as ordered with interest; a show-cause notice for penalty under Section 171(3A) is to be issued.

Final Conclusion: The Authority confirmed profiteering of Rs. 20,80,087/- for the period investigated (15.11.2017 to 31.03.2019; reference pre-period 01.07.2017 to 14.11.2017), directed the respondent to deposit the amount in equal halves into the Central and Maharashtra Consumer Welfare Funds with interest at 18% within three months, and issued a notice to the respondent to explain why penalty under Section 171(3A) should not be imposed; compliance is to be monitored by the SGST Commissioner.

Section 171(1) of the CGST Act - commensurate reduction in prices - profiteering - denial of input tax credit (ITC) - methodology for computation of profiteering - transaction value under Section 15 - consumer welfare fund

Section 171(1) of the CGST Act - commensurate reduction in prices - denial of input tax credit (ITC) - transaction value under Section 15 - Whether the Respondent passed on the commensurate benefit of the reduction in GST rate and thereby complied with Section 171(1) of the CGST Act - HELD THAT: - The Authority construed Section 171(1) as mandating that any benefit from a reduction in tax rate or the benefit of input tax credit must be passed on by way of a commensurate reduction in price on each supply (each SKU/unit and each invoice). The DGAP's methodology of computing average pre-rate-reduction base prices (derived from actual invoiced taxable values after discounts for the period 01.11.2017-14.11.2017 and, where not available, from July-October 2017) and comparing them with actual post-rate-reduction transaction prices for the period 15.11.2017-31.03.2019 was upheld as consistent with the statutory requirement to assess commensurate reduction on each transaction. The Authority rejected the Respondent's contentions that discounts should be ignored, that internal cost increases (royalty/advertisement/capital goods) or inflation justified non-passing of benefit, and that promotional offers (BOGO) or unilateral withdrawal of discounts could be netted off against the requirement to pass on benefit to each buyer. The Authority also held that the transaction value principles under Section 15 require use of the effective (discounted) price on which tax was levied, and that amounts of excess GST collected on excess base prices form part of the benefit denied and therefore of the profiteered amount. The Authority found that the denial of ITC (computed as 7.39% of net taxable turnover for the pre-rate-reduction period) was established and that the Respondent had increased base prices by more than that percentage, thereby not passing on the commensurate benefit. [Paras 30, 31, 32, 33, 34]

The Respondent did not pass on the commensurate benefit of the reduction in GST rate and thereby violated Section 171(1) of the CGST Act.

Computation of profiteered amount - methodology for computation of profiteering - consumer welfare fund - remedial direction - Quantum of profiteering and consequential remedial directions - HELD THAT: - Relying on the DGAP's reconciled product-wise sales registers, GSTR-1 and GSTR-3B returns and the ratio of ITC to net taxable turnover for the pre-rate-reduction period, the Authority accepted the DGAP's computation of the net higher sale realization (including GST on the base profiteered amount). The DGAP's Annexure-10 computation, which included only those invoices where post-rate-reduction transaction prices exceeded the commensurate base prices (and included the GST collected on such excess), was accepted. The Authority declined to entertain the Respondent's alternative reduced calculations based on alleged corrected base rates, increased internal costs, BOGO adjustments, inflation adjustments or exclusion of later months, observing that the offence continued through the investigation period and that no evidence was produced to show passing of benefit earlier. Consequently the profiteered amount as computed by the DGAP was adopted and remedial directions were issued to reduce prices commensurately and to deposit the determined profiteered sum into the Central and State Consumer Welfare Funds as per Rules. [Paras 12, 13, 14, 34, 35]

Profiteered amount accepted as computed in the DGAP Report (Annexure-10) and fixed at the amount determined by the DGAP; Respondent directed to reduce prices commensurately and deposit the profiteered amount into the Central and State Consumer Welfare Funds and report compliance.

Final Conclusion: The Authority held that the Respondent contravened Section 171(1) by failing to pass on the commensurate benefit of the GST rate reduction; the DGAP's computation of the profiteered amount for the period 15.11.2017 to 31.03.2019 (based on pre-rate-reduction ITC ratio for 01.07.2017-14.11.2017) was accepted, the profiteered amount as computed was fixed, the Respondent was directed to reduce prices commensurately and to deposit the determined amount into the Central and State Consumer Welfare Funds with compliance reporting.

Competency of appeal under section 249(4)(b) - obligation to pay advance tax where income is below taxable limit - reinstatement of appeal for fresh adjudication - right to a fair opportunity of hearing

Competency of appeal under section 249(4)(b) - obligation to pay advance tax where income is below taxable limit - Whether the CIT(A) rightly held the appeal to be not competent for want of compliance with section 249(4)(b) when the assessee contends that his income was below taxable limit and there was no obligation to pay advance tax - HELD THAT: - The Tribunal found that the CIT(A) dismissed the appeal solely on the ground of non-compliance with section 249(4)(b) without adjudicating the merits. The assessee maintained that his income was below the taxable limit and therefore there was no obligation to pay advance tax; this position was supported by an affidavit filed before the Tribunal. In view of the absence of a decision on merits and the assessee's claim that no statutory obligation to pay advance tax arose, the Tribunal considered it inappropriate to sustain a dismissal on competency grounds without examining substantive issues. Acting in the interest of justice and fair play, the Tribunal concluded that the appeal should be restored for adjudication on merits rather than being rejected as not competent. [Paras 7, 8]

Appeal restored to the files of the CIT(A); the order of non-admission is set aside and the assessment order is not to be treated as finally confirmed by reason of the prior dismissal.

Reinstatement of appeal for fresh adjudication - right to a fair opportunity of hearing - adjudication on merits - Direction to the CIT(A) to decide the appeal afresh on the grounds raised after affording the assessee a reasonable and fair opportunity of being heard - HELD THAT: - Given that the CIT(A) did not decide any grounds on merits due to non-admission, the Tribunal directed that the appeal be restored and the CIT(A) must adjudicate the grounds originally raised by the assessee. The CIT(A) is required to afford the assessee a reasonable and fair opportunity of hearing before deciding the appeal on merits. The Tribunal treated the appeal as allowed for statistical purposes to give effect to the restoration and fresh consideration. [Paras 7, 8]

CIT(A) directed to decide the appeal afresh on the grounds raised, after providing a reasonable and fair opportunity of hearing to the assessee; appeal treated as allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the CIT(A)'s order of non-admission under section 249(4)(b), restored the appeal to the files of the CIT(A) and directed fresh adjudication of the grounds raised after affording the assessee a reasonable and fair opportunity of hearing; appeal treated as allowed for statistical purposes.

Income from House Property - Income from Business - letting out simplicitor - businessman's point of view test - object clause of partnership deed not determinative - principle of consistency

Income from House Property - Income from Business - letting out simplicitor - object clause of partnership deed not determinative - businessman's point of view test - principle of consistency - Whether the rental income of the assessee is taxable under the head Income from House Property or under the head Income from Business - HELD THAT: - The Tribunal held that the AO and CIT(A) relied solely on the objects clause of the partnership deed to treat the receipts as business income, but an object clause by itself is not a conclusive basis to determine the head of income. Applying the test reiterated by the Constitution Bench in Sultan Bros. and followed by the Apex Court in Raj Dadarkar & Associates, the Tribunal examined the lease deeds and found that the assessee merely let out properties (letting out simplicitor) without providing additional services that would convert the activity into a business. The Tribunal noted that Raj Dadarkar had considered and distinguished the earlier decision in Chennai Properties and Investment Ltd., and, on the facts being similar, directed that Raj Dadarkar be followed. The Tribunal also observed that in the subsequent year the AO accepted the assessee's claim (albeit without detailed discussion), and, having regard to the facts and the principle of consistency, concluded that the receipts should be assessed as income from house property rather than business income. [Paras 4, 5]

Rental income is taxable under the head Income from House Property; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that on the facts and lease deeds the receipts are from mere letting out of property and are taxable as Income from House Property; reliance was placed on Raj Dadarkar & Associates and the Sultan Bros. test, and the AO's treatment as business income was set aside.

Reopening of assessment under section 147 - reasonable belief based on information from investigation and sales tax records - addition on account of bogus purchases arising from accommodation entries - estimation of profit element embedded in alleged bogus purchases - reliance on sales tax departmental investigation

Reopening of assessment under section 147 - reasonable belief based on information from investigation and sales tax records - Validity of reopening assessment for AY 2007-08. - HELD THAT: - The Tribunal found that the Assessing Officer had sufficient material to form a reasonable belief that income had escaped assessment. The material comprised information received from the DGIT(Inv), corroborated by reports of the Maharashtra Sales Tax Department identifying suspicious dealers who issued accommodation entries, and the assessee's inclusion in the list of beneficiaries. In these circumstances the reopening under section 147 was held to be valid and the legal ground challenging the reopening was rejected. [Paras 5]

Reopening of assessment for AY 2007-08 upheld as valid.

Addition on account of bogus purchases arising from accommodation entries - estimation of profit element embedded in alleged bogus purchases - reliance on sales tax departmental investigation - accommodation entries - Quantum of addition to be made where purchases are held to be from alleged hawala/accommodation dealers. - HELD THAT: - The assessing officer had made 100% additions treating the entire alleged purchases as bogus on the basis of sales tax findings and investigation, while the Commissioner (Appeals) reduced the addition to 25% by applying a profit-element approach. The Tribunal observed that neither side produced conclusive evidence to fully establish or disprove the genuineness of the purchases and that the AO had not carried investigations to a logical conclusion. Applying the consistent view of coordinate authorities and the principle that only the profit element embedded in such purchases should be taxed (with the exact percentage depending on facts of each case), the Tribunal found the extremes adopted below unsupported by evidence. In the exercise of appellate jurisdiction and having regard to the nature of the business and precedents, the Tribunal directed the AO to estimate the taxable profit element at 12.50% on the alleged bogus purchases. [Paras 6, 7, 8]

Addition sustained in principle but reduced; AO directed to compute addition at 12.50% profit on the alleged bogus purchases.

Final Conclusion: Appeal partly allowed: reopening under section 147 sustained; addition for alleged bogus purchases reduced and directed to be quantified at 12.50% of the said purchases for AY 2007-08.

Disallowance of expenditure attributable to exempt income (Section 14A / Rule 8D) - presumption as to application of own funds versus borrowed funds for investments - interest disallowance under Rule 8D(2)(ii) - direct expenditure attributable to exempt income and its add-back in book profits - limitation of indirect expenditure disallowance to investments yielding exempt income - treatment of Section 14A disallowance in computation of book profits under Section 115JB

Presumption as to application of own funds versus borrowed funds for investments - interest disallowance under Rule 8D(2)(ii) - Interest disallowance under Rule 8D(2)(ii) deleted where assessee's own funds exceeded investments and no nexus of borrowed funds with investments was shown. - HELD THAT: - The Tribunal found on the facts that the assessee's year-end share capital and free reserves substantially exceeded the investments and that incremental reserves exceeded incremental investments, establishing that investments were out of own funds. In absence of any nexus shown by the AO between borrowed funds and investments, the presumption favoured the assessee and the interest disallowance computed under Rule 8D(2)(ii) was not warranted. Reliance on binding precedents led to deletion of the interest component. [Paras 5]

Interest disallowance under Rule 8D(2)(ii) deleted.

Direct expenditure attributable to exempt income and its add-back in book profits - treatment of Section 14A disallowance in computation of book profits under Section 115JB - Direct expenditures directly related to earning exempt income are disallowed for normal income computation and must be added back while computing book profits under Section 115JB as per explanation 1(f). - HELD THAT: - The assessee identified demat and securities transaction charges as direct expenses relatable to exempt dividend income and had offered these as suo moto disallowance in computing normal income. The Tribunal held these are properly disallowed for normal income. However, clause (f) to Explanation 1 to Section 115JB requires such amounts to be added back in computing book profits; consequently the AO was directed to add back the direct expense while computing book profits. [Paras 6]

Direct expenditure disallowance sustained for normal computation and directed to be added back in computation of book profits under Section 115JB.

Limitation of indirect expenditure disallowance to investments yielding exempt income - treatment of Section 14A disallowance in computation of book profits under Section 115JB - Indirect expenditure disallowance under Rule 8D(2)(iii) to be computed only in respect of those investments which actually yielded exempt income during the year; such disallowance is not to be added back while computing book profits under Section 115JB. - HELD THAT: - The Tribunal directed the AO to restrict the Rule 8D(2)(iii) disallowance to only those investments which yielded exempt income in the relevant year and to add back that disallowance while computing income under normal provisions. Relying on the Special Bench view in ACIT v. Vireet Investment (P.) Ltd., the Tribunal held that this disallowance should not be added back when computing book profits under Section 115JB and directed the AO accordingly. [Paras 7]

Indirect expenditure disallowance restricted to investments yielding exempt income for normal assessment; such disallowance not added back in computation of book profits under Section 115JB.

Final Conclusion: Both appeals for AY 2013-14 and AY 2014-15 are partly allowed; the interest disallowance under Rule 8D(2)(ii) is deleted, direct expenses are to be added back in computing book profits, indirect disallowance is confined to investments yielding exempt income and not to be added to book profits, and the AO is directed to recompute income and book profits in accordance with the above directions.

Estimation of profit element on alleged bogus purchases - accommodation entries / hawala dealers - burden of proof and evidentiary requirement to establish genuineness of purchases - reasonableness of percentage estimation (12.50%) as a proxy for profit element - reliance on investigation and Sales Tax Department information - condonation of delay in filing appeal

Condonation of delay in filing appeal - Condonation of delay in filing the appeals for AY 2009-10 and AY 2011-12 was to be granted so that the appeals could be heard on merits. - HELD THAT: - The assessee filed applications for condonation of delay (198 days for AY 2009-10 and 180 days for AY 2011-12) supported by affidavit attributing the delay to a mistake by the accountant. The Revenue did not oppose the applications. Having considered the explanations and submissions of both parties, the Tribunal found it appropriate in the interests of justice to condone the delay and admit both appeals for adjudication on merits. [Paras 3, 4]

Delay in filing the appeals for both AYs was condoned and the appeals were admitted for hearing on merits.

Estimation of profit element on alleged bogus purchases - accommodation entries / hawala dealers - burden of proof and evidentiary requirement to establish genuineness of purchases - reasonableness of percentage estimation (12.50%) as a proxy for profit element - reliance on investigation and Sales Tax Department information - Addition of 12.50% of the alleged bogus purchases as taxable profit element was upheld and the appeals challenging that addition were dismissed. - HELD THAT: - The assessment under scrutiny proceeded from information that the assessee had taken accommodation entries from persons identified by Sales Tax authorities as hawala/bogus-bill providers. The AO estimated and added 12.50% of the alleged non-genuine purchases as representing the profit element; the CIT(A) affirmed that estimation after considering precedent where courts and tribunals, on similar factual matrices, taxed only the profit element and not the entire purchase amount. The Tribunal noted that neither party conclusively proved its case: the assessee produced some records (books, stock details, bank statements) but did not fully satisfy the AO's concerns; the AO relied on investigatory material and Sales Tax findings but did not complete independent inquiries to a logical conclusion. Despite these evidentiary gaps, the Tribunal found that the rate of 12.50% adopted by the AO (and confirmed by the CIT(A)) was reasonable having regard to the nature of the assessee's trading business and consistent with approaches in coordinate decisions which have estimated gross profit in the range of 10%-15% in comparable circumstances. The Tribunal rejected the assessee's reliance on other authorities as inapposite in the absence of proof that the factual matrices matched, and therefore saw no reason to interfere with the concurrent view taken by the AO and the CIT(A). [Paras 7, 8, 9, 10, 11]

The addition of 12.50% on alleged bogus purchases was held to be reasonable and was sustained; the appeals for AY 2009-10 and AY 2011-12 were dismissed.

Final Conclusion: The Tribunal condoned the delays in filing the appeals and, on merits, sustained the addition of 12.50% as the profit element on alleged bogus purchases based on the reasonableness of the percentage and supporting investigative material; accordingly both appeals were dismissed.

Capital gains on transfer of development rights - transfer of additional FSI / TDR by a cooperative housing society - cost of acquisition and its relevance to chargeability of capital gains - operation of Section 50C in valuation of transfer of development rights - precedential application of B.C. Srinivasa Setty principle

Capital gains on transfer of development rights - transfer of additional FSI / TDR by a cooperative housing society - cost of acquisition and its relevance to chargeability of capital gains - operation of Section 50C in valuation of transfer of development rights - Whether consideration received on transfer of additional FSI/TDR by the cooperative housing society constitutes taxable capital gains for A.Y.2015-16. - HELD THAT: - The Tribunal found that the society, which acquired the land and constructed the original building in 1972, became entitled to additional FSI under the Development Control Regulations (1991) and transferred that entitlement (TDR) to developers for consideration. The society did not part with the underlying land or building and had not incurred any separate cost of acquisition for the additional FSI/TDR. Applying the principle in B.C. Srinivasa Setty and following earlier Tribunal and Bombay High Court decisions (including New Shailaja Co-operative Housing Society Ltd. and CIT-18 v. Sambhaji Nagar Co-op. Hsg. Society Ltd.) the Tribunal held that where a capital asset (here, the right to additional FSI/TDR) has no cost of acquisition and is not one of the assets to which section 55(2) applies, no capital gains are chargeable on its transfer. The AO's assessment treating the amount as short-term capital gain and reliance on valuation under Section 50C was held not justifiable on these facts. Consequently the addition was deleted. [Paras 5, 6]

Addition of short-term capital gain on transfer of additional FSI/TDR deleted and the appeal allowed in favour of the assessee.

Final Conclusion: The Tribunal allowed the appeal, set aside the CIT(A)'s confirmation, and deleted the addition of short-term capital gain in respect of the transfer of additional FSI/TDR for A.Y.2015-16 on the ground that the society had no cost of acquisition of the transferred right.

Disallowance on accommodation entries - estimation of gross profit ratio for quantifying additions - reliance on Coordinate Bench precedents for assessing bogus purchases - reopening assessment on information of hawala/accommodation transactions

Disallowance on accommodation entries - estimation of gross profit ratio for quantifying additions - Extent of disallowance to be made on alleged bogus/accommodation purchases - HELD THAT: - The Assessing Officer treated the purchases as accommodation entries and made an addition by estimating 12.5% of such purchases. The Commissioner (Appeals) reduced the disallowance to 3.75% by following a Coordinate Bench decision which had applied a higher declared GP ratio. The Tribunal examined the assessee's declared GP ratio of 2.97% for the year and the Coordinate Bench decision relied upon by the CIT(A) (Mehul K. Mehta), which estimated GP at 12.5% and allowed credit for the declared GP to result in a net addition. The Tribunal found no reason to follow the lower allowance granted by the CIT(A) and declined to standardise profit margins across varied steel products. Applying the principle of estimating gross profit to measure leakage while allowing the declared GP, the Tribunal held that the correct net disallowance is 12.5% less the declared GP of 2.97%, i.e., 9.53%, and directed the AO to disallow that amount.

Disallowance restored in part: AO to disallow 9.53% of the alleged bogus purchases.

Reliance on Coordinate Bench precedents for assessing bogus purchases - Whether the Coordinate Bench decision relied upon by the assessee (Vaishali Prakash Muni) mandating a uniform lower GP rate applies to the facts of this case - HELD THAT: - The assessee relied on a Coordinate Bench decision that observed a normal GP rate of about 4% in certain steel trading cases and directed a lower disallowance. The Tribunal distinguished that decision on facts: the present assessee dealt in various types of iron and steel products and declared a different GP (2.97%). The Tribunal held that profit margins cannot be standardised across different types of steel businesses and therefore the precedent invoked by the assessee was not applicable to compel a similar reduction.

Assessee's reliance on the Vaishali Prakash Muni decision rejected; its contention for a standardised lower disallowance not accepted.

Final Conclusion: The revenue appeal is partly allowed: the Tribunal directs disallowance of 9.53% of the alleged bogus/accommodation purchases for AY 2009-10, rejecting the assessee's contention for a further reduction and dismissing the cross-objection as infructuous.

Indexed cost of acquisition for inherited property - Computation of indexed cost with reference to the year the previous owner first held the asset - Exemption under section 54 of the Income tax Act - Temporal applicability of Finance Act, 2014 amendment to section 54/54F

Indexed cost of acquisition for inherited property - Computation of indexed cost with reference to the year the previous owner first held the asset - Assessee entitled to compute indexed cost of acquisition of inherited property with reference to the earlier date (including base year 01-04-1981) when the previous owner held the asset. - HELD THAT: - The Assessing Officer treated the date of acquisition as the date when the assessee inherited the property and allowed indexation only from that date. On appeal the CIT(A) followed the ratio of the Hon'ble Bombay High Court in CIT v. Manjula J Shah, holding that where a property was acquired under a will, gift or by inheritance and the earlier owner had held the asset prior to 01-04-1981, indexation is to be given with effect from 01-04-1981. The Tribunal, after considering the orders below and the precedent relied upon by the CIT(A), found no infirmity in that conclusion and upheld the CIT(A)'s allowance of indexation from the earlier date (01-04-1981) for the inherited asset. [Paras 6]

First issue decided in favour of the assessee; indexation allowed from the earlier date as held by CIT(A).

Exemption under section 54 of the Income tax Act - Temporal applicability of Finance Act, 2014 amendment to section 54/54F - Assessee entitled to claim exemption under section 54 despite purchase of residential property outside India for the year in question; the 2014 amendment restricting the exemption to a house constructed/converted in India applies prospectively from 01-04-2015 and does not affect the assessment year under consideration. - HELD THAT: - The Assessing Officer denied exemption under section 54 on the ground that the assessee purchased a residential house outside India. The CIT(A) granted relief by following the decision of the Hon'ble Gujarat High Court in Leena J Shah, and other authorities, holding that the amendment (inserting words to restrict benefit to a house in India) enacted by the Finance Act, 2014 is applicable with effect from 01-04-2015 and therefore does not apply to the assessment year before the Tribunal. The Tribunal examined the orders below and the precedents relied upon, agreed with the CIT(A)'s conclusion that the amendment is not applicable to the assessee's assessment year, and accordingly sustained the grant of exemption. [Paras 9]

Grounds 3 to 8 dismissed; exemption under section 54 allowed for the assessment year in issue.

Final Conclusion: Revenue's appeal dismissed. The Tribunal upheld the CIT(A)'s allowance of indexation from the earlier acquisition date for the inherited property and sustained the grant of exemption under section 54 on the ground that the Finance Act, 2014 amendment limiting the relief to a house in India is prospective (effective 01-04-2015) and does not apply to the assessment year under consideration.

Registration under Section 12A and Section 12AA - charitable purpose - irrelevance of tax deduction at source for registration - irrelevance of mode of salary payment for registration - permissibility of belated application for registration - requirement of speaking and relevant reasons for rejection

Registration under Section 12A and Section 12AA - charitable purpose - requirement of speaking and relevant reasons for rejection - Assessee's application for registration under Section 12A read with Section 12AA was wrongly rejected and must be granted. - HELD THAT: - The Tribunal found it undisputed that the assessee is engaged in education, which qualifies as a charitable purpose within the meaning of the Act. The impugned order of the Commissioner of Income Tax (Exemption) contains no reference to any facts or materials showing non-fulfillment of the conditions for registration under Section 12A and Section 12AA. The rejection rested on inapposite considerations (non-deduction of tax at source, part cash/part cheque salary payments, and a perceived change of mind) and was a conclusory finding made without a speaking order or identification of how statutory requirements were unmet. The Tribunal emphasised that any refusal to grant registration must be supported by a speaking order stating in clear terms the manner in which the statutory conditions are not satisfied; absent such reasons, the rejection is unsustainable.

Impugned rejection set aside and Ld. CIT(E) directed to grant registration under Section 12A read with Section 12AA.

Irrelevance of tax deduction at source for registration - irrelevance of mode of salary payment for registration - permissibility of belated application for registration - Non-deduction of TDS, payment of salary partly in cash and partly by cheque, and prior filing as a business do not, by themselves, preclude registration under Section 12A/12AA. - HELD THAT: - The Tribunal accepted the assessee's submission that for the purpose of granting registration under Section 12A and Section 12AA it is immaterial whether tax was deducted at source from employees' salaries or whether salaries were paid partly in cash and partly by cheque. Likewise, there is no legal bar on making a belated application for registration merely because earlier returns were filed treating activities differently; what matters is fulfillment of statutory conditions at the time of application. The considerations relied upon by the Commissioner were therefore irrelevant to the statutory test for registration.

Such considerations cannot justify rejection; they were held irrelevant and cannot be the basis to deny registration.

Final Conclusion: The Tribunal allowed the appeal, set aside the CIT(E)'s order rejecting registration, held the cited grounds (non-deduction of TDS, mode of salary payment, and change of mind) irrelevant to registration under Section 12A/12AA, and directed the grant of registration to the assessee.

Admission of additional grounds raising pure questions of law - Compliance with Rule 46A of the Income-tax Rules, 1962 - Duty of appellate authority to record reasons for admitting additional evidence - Obligation to afford the Assessing Officer reasonable opportunity to examine additional evidence and to file remand report - Power of appellate authority under Rule 46A(4) to call for documents

Admission of additional grounds raising pure questions of law - Admission of the revenue's additional ground challenging the CIT(A)'s alleged non-compliance with Rule 46A - HELD THAT: - The Tribunal held that the additional ground raised a purely legal question capable of being decided on the materials already on record and therefore, in exercise of its discretion under Rule 11 of the ITAT Rules and in view of the Supreme Court's decision in NTPC, the additional ground raising non compliance of Rule 46A was fit for admission. The Tribunal observed that determination of that legal issue did not require fresh factual investigation beyond the record before the authorities and accordingly admitted the additional ground for adjudication on merits. [Paras 6, 7]

Additional ground admitted for adjudication

Compliance with Rule 46A of the Income-tax Rules, 1962 - Duty of appellate authority to record reasons for admitting additional evidence - Obligation to afford the Assessing Officer reasonable opportunity to examine additional evidence and to file remand report - Power of appellate authority under Rule 46A(4) to call for documents - Whether the CIT(A) erred in admitting and considering enclosures not placed before the AO without complying with Rule 46A and without giving the AO opportunity to examine and report - HELD THAT: - On inspection of the assessment record and the first appellate order, the Tribunal found that enclosures numbered 1 to 8 appearing in the CIT(A)'s order were not part of the assessment record and were, therefore, produced for the first time before the CIT(A). Rule 46A(1)-(3) permits additional evidence only in specified circumstances, requires the appellate authority to record reasons for its admission and mandates that the AO be given a reasonable opportunity to examine the evidence and to produce rebuttal. Sub rule (4) preserves the power of the appellate authority to call for documents, but that power was not invoked in the CIT(A)'s order. The Tribunal concluded that the CIT(A) admitted and considered the additional enclosures without recording the requisite reasons and without allowing the AO an opportunity to examine and comment or to file a remand report, thereby breaching the mandatory requirements of Rule 46A. Consequently, the relief granted by the CIT(A) could not be sustained. [Paras 13, 14, 15, 16, 19]

CIT(A)'s order set aside; matter restored to CIT(A) to provide AO and assessee proper opportunity and to re decide the appeal in accordance with law

Final Conclusion: The Tribunal admitted the revenue's additional legal ground challenging non compliance with Rule 46A; having found that the CIT(A) admitted and acted upon documents not before the AO without recording reasons or allowing the AO an opportunity to examine and report, the CIT(A)'s order was set aside and the appeal was restored to the CIT(A) for fresh adjudication in accordance with Rule 46A and applicable law; other grounds rendered academic.

Agricultural income - income from other sources - absentee landlord - burden of proof for classification of receipts - precedent and consistency in appellate orders - estimation of agricultural income in absence of detailed evidence

Agricultural income - income from other sources - burden of proof for classification of receipts - estimation of agricultural income in absence of detailed evidence - Whether the amount declared by the assessee as agricultural income should be accepted as agricultural income or treated as income from other sources. - HELD THAT: - The Tribunal noted that the assessee proved ownership of agricultural lands but did not furnish particulars of cultivation, yields, expenditure or receipts to substantiate the quantum of claimed agricultural receipts, which led the Assessing Officer to treat part of the claim as unexplained income. The CIT(A) had allowed a notional benefit of Rs.10,000 per acre and treated the balance as unexplained receipts. Having regard to earlier Tribunal decisions in the assessee's own case for a subsequent year (where 75% of declared agricultural income was allowed) and the need for consistency in appellate treatment, the Tribunal followed its earlier approach and the principle that once ownership of agricultural land is established it is unfair to presume absence of any agricultural income; however, in the absence of detailed evidence the quantum may be estimated. Relying on that precedent and on the interest of consistency, the Tribunal allowed 75% of the declared agricultural income as income from agriculture and directed that the balance be treated as income from other sources. [Paras 6]

Appeal partly allowed - 75% of the declared agricultural income for the impugned year is accepted as agricultural income; the remaining portion to be brought to tax as income from other sources.

Final Conclusion: The appeal is partly allowed: for ay: 2008-09 the Tribunal, following its prior order and for reasons of consistency, accepts 75% of the declared agricultural receipts as agricultural income and directs the Assessing Officer to treat the balance as income from other sources.

Section 69B - unexplained investment - co-ownership and share determination - taxability of investment in year of acquisition - remand for verification of payment dates and amounts

Co-ownership and share determination - registered deed vs unregistered agreement - Whether the assessee's share in the acquired property should be treated as 10% as per an alleged earlier agreement or as 50% as reflected for assessment purposes. - HELD THAT: - The assessee relied on an unregistered agreement dated 31.12.2010 to contend he had only 10% interest. The agreement was executed on stamp paper purchased in 2005 but was not registered and the registered sale deed dated 15.06.2012 does not record the parties' respective shares. The Tribunal found the purported earlier agreement to be an afterthought and observed that the sale deed gives no indication of separate shares. In the absence of admissible evidence establishing a 10% share, the Tribunal upheld the treatment of the assessee as co-owner to the extent adopted by the revenue. [Paras 4]

Assessee's contention of a 10% share rejected; the assessee is to be treated as holding 50% share for the purposes of assessment.

Section 69B - taxability of investment in year of acquisition - remand for verification of payment dates and amounts - Extent of investment to be brought to tax under Section 69B in A.Y.2013-14 and whether the entire consideration paid earlier should be taxed in that year or only payments made in the year under consideration. - HELD THAT: - The registered sale deed dated 15.06.2012 records payments towards the consideration in different financial years, of which only a portion (Rs. 5,50,000) was paid in the financial year relevant to A.Y.2013-14; stamp duty of Rs. 21.09 lakhs was also incurred in the relevant year. Section 69B applies where an assessee is found to be the owner of investments for which no satisfactory explanation of source is offered. The Tribunal held that only the investment made in the impugned assessment year (together with stamp duty incurred in that year), apportioned according to the assessee's 50% share, is exigible to tax for A.Y.2013-14. Consequently, the Tribunal concluded that 50% of the aggregate amount paid in the relevant year is taxable but remitted the matter to the Assessing Officer for verification of actual dates and payments to determine the correct quantum to be brought to tax. [Paras 7]

50% of the investment and stamp duty attributable to payments actually made in the impugned assessment year is exigible under Section 69B; matter remitted to the Assessing Officer to verify actual dates and amounts and to give effect to the addition accordingly (limited remand).

Final Conclusion: Appeal partly allowed: the Tribunal upheld treatment of the assessee as 50% co-owner but restricted taxability under Section 69B in A.Y.2013-14 to the assessee's 50% share of the consideration and stamp duty actually paid in the relevant year, and remitted the matter to the Assessing Officer for verification of dates and payments to quantify the addition.

Commercial or trade advances not constituting deemed dividend - deemed dividend under section 2(22)(e) of the Income Tax Act - CBDT Circular No.19/2017 dated 12.06.2017 - related party transactions and arm's length requirement - verification of genuineness of transactions on remand

Commercial or trade advances not constituting deemed dividend - CBDT Circular No.19/2017 dated 12.06.2017 - Advances received by the assessee from M/s Lalith Mohan Spices Pvt. Ltd. are commercial/trade advances and not taxable as deemed dividend under section 2(22)(e). - HELD THAT: - The Tribunal found documentary material in the paper book showing that advances received from the company were used to procure chillies through M/s Religare Commodities Ltd. and that supplies to the company, recorded in the account copy, closely corresponded to the advances. The CBDT, by Circular No.19/2017 dated 12.06.2017, clarified that advances in the nature of commercial transactions are outside the ambit of section 2(22)(e). The Tribunal observed that the facts as placed on record establish the commercial character of the transactions and noted supporting High Court decisions. On this basis the Commissioner (Appeals) was correct in deleting the addition made by the Assessing Officer treating the receipts as deemed dividend.

Deletion of addition under section 2(22)(e) upheld to the extent the advances constitute genuine commercial/trade transactions.

Verification of genuineness of transactions on remand - related party transactions and arm's length requirement - Limited remand to the Assessing Officer for verification of the genuineness of sales and supporting books of accounts. - HELD THAT: - Although the paper book contained account copies and records of supplies, the Tribunal noted that the Assessing Officer did not have that material at the time of assessment. In the interest of justice the Tribunal remitted the issue to the AO for limited verification: if the sales are supported by the books of accounts of both the assessee and the company, the transactions shall not be treated as deemed dividend in view of the Board's circular; if not so supported, the AO is at liberty to decide the matter on merits after affording the assessee an opportunity of being heard.

Matter remitted to the file of the Assessing Officer for limited verification of the genuineness of the transactions; AO to proceed as indicated.

Final Conclusion: The order of the CIT(A) deleting the addition under section 2(22)(e) is provisionally affirmed insofar as the advances are shown to be genuine commercial/trade transactions; however, the issue is remitted to the Assessing Officer for limited verification of the genuineness of sales and supporting books. The Revenue's appeal and the assessee's cross objections are disposed of for statistical purposes.

Penalty under section 271(1)(c) for concealment of income - Explanation 1 to section 271(1)(c) - rebuttable presumption - Estimation of income / peak credit based on bank deposits - Confirmatory addition does not automatically justify penalty - Treatment of bank account as retail business account under section 44AF - Unexplained deposits treated as unexplained investment under section 69

Penalty under section 271(1)(c) for concealment of income - Explanation 1 to section 271(1)(c) - rebuttable presumption - Estimation of income / peak credit based on bank deposits - Confirmatory addition does not automatically justify penalty - Treatment of bank account as retail business account under section 44AF - Whether the penalty imposed under section 271(1)(c) for unexplained cash deposits in the assessee's bank account is sustainable. - HELD THAT: - The Tribunal examined the pattern of month-wise withdrawals and cash deposits in the assessee's ICICI bank account and the assessee's explanation that the deposits represented sales of Art Silk Cloth and the account should be treated as a retail business account with income clubbed under section 44AF. The Tribunal followed coordinate-bench and High Court decisions holding that where additions are made on the basis of peak-credit/estimated turnover and the explanation offered is not shown to be false or deliberately unsubstantiated, penalty under section 271(1)(c) cannot be imposed merely because an addition is sustained. Explanation 1 to section 271(1)(c) raises a rebuttable presumption which the assessee can discharge on balance of probabilities; the Tribunal found that revenue did not undertake independent enquiries or produce tangible material to establish that the deposits represented concealed income or that the assessee's explanation was false. In these circumstances, and having regard to precedents where penalties were deleted in cases of estimation or substitute estimates, the Tribunal concluded that the penalty did not survive and directed its deletion. [Paras 10, 11]

Penalty under section 271(1)(c) deleted; ground allowed.

Final Conclusion: For Assessment Year 2008-09 the Tribunal deleted the penalty imposed under section 271(1)(c) and partly allowed the assessee's appeal.

Admission of application under section 9(5) of the Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution Process - Moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - Appointment of Interim Resolution Professional - Operational Creditor's entitlement on undisputed operational debt - Limitation and statutory minimum threshold for invoking corporate insolvency - Territorial jurisdiction based on registered office

Admission of application under section 9(5) of the Insolvency and Bankruptcy Code, 2016 - Operational Creditor's entitlement on undisputed operational debt - Application under section 9 of the I&B Code filed by the Operational Creditor is admitted and CIRP is to be initiated against the Corporate Debtor. - HELD THAT: - The Tribunal examined the application, accompanying bills, the Letter of Agreement and the demand notice, and found that the Corporate Debtor had not replied to the demand notice and had not disputed the claim; counsel for the Corporate Debtor conceded unsuccessful settlement efforts and effectively did not contest liability. The claim fell within the prescribed limitation period and exceeded the statutory minimum amount required to file under the Code. In view of these facts and the documentary record, the Tribunal concluded that the requirements for admission under section 9(5) are satisfied and ordered initiation of the Corporate Insolvency Resolution Process. [Paras 4, 8, 9, 10, 11]

Application is admitted under section 9(5) of the IBC and CIRP against the Corporate Debtor is initiated.

Appointment of Interim Resolution Professional - Insolvency and Bankruptcy Board of India list of Resolution Professionals - An Interim Resolution Professional (IRP) is appointed, subject to statutory disclosures and absence of disciplinary proceedings. - HELD THAT: - Because the Operational Creditor did not propose an IRP, the Tribunal appointed a named professional from the list furnished by the Insolvency and Bankruptcy Board of India. The appointment was made conditional upon the IRP making the disclosures required under the relevant regulations and there being no pending disciplinary proceedings against her, to be completed within one week of the order. [Paras 11]

Ms. Srividhya Subramanian is appointed as Interim Resolution Professional subject to required disclosures and absence of pending disciplinary proceedings.

Moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - Scope and duration of moratorium - Moratorium under section 14 is declared with its statutory scope and duration from the date of the order until completion of CIRP, subject to statutory exceptions. - HELD THAT: - Upon admission of the section 9 application, the Tribunal applied section 14 and set out the prohibitions on institution or continuation of suits, transfer or encumbrance of assets, enforcement of security interests and recovery of properties occupied by the Corporate Debtor. The Tribunal also recorded the exceptions and continuity provisions in subsections (2), (3) and (4) relating to essential supplies, transactions notified by the Central Government and cessation of moratorium upon approval of a resolution plan or liquidation order. [Paras 11, 12, 13]

Moratorium under section 14 is effective from the date of the order until completion of the CIRP, subject to the statutory exceptions.

Limitation and statutory minimum threshold for invoking corporate insolvency - Territorial jurisdiction based on registered office - The claim was within the period of limitation, exceeded the statutory minimum amount, and the Tribunal had territorial jurisdiction. - HELD THAT: - The Tribunal examined the documentary record and concluded that the claim fell within the three-year limitation period and exceeded the minimum amount prescribed under the Code for initiation by an Operational Creditor. It also noted that the Corporate Debtor's registered office falls within the State of Tamil Nadu, making the Chennai Bench territorially competent to hear the application. [Paras 10]

The application satisfies limitation, amount threshold and territorial jurisdiction requirements.

Fee/deposit to Interim Resolution Professional - The Operational Creditor is directed to pay an initial amount to the Interim Resolution Professional to meet immediate expenses. - HELD THAT: - In accordance with the regulations governing the insolvency process and to enable the Interim Resolution Professional to perform statutory functions, the Tribunal directed the Operational Creditor to deposit a specified sum with the IRP upon her filing the requisite declaration under the Code. [Paras 14]

Operational Creditor to pay the directed sum to the Interim Resolution Professional to meet out expenses for performing her functions.

Final Conclusion: The Tribunal admitted the section 9 application, initiated the Corporate Insolvency Resolution Process against the Corporate Debtor, declared the statutory moratorium, appointed an Interim Resolution Professional subject to disclosures and absence of disciplinary proceedings, required the Operational Creditor to make the directed initial payment to the IRP, and directed communication of the order to the parties and IBBI.

Prosecution under Section 138 of the Negotiable Instruments Act not hit by sub section (2) of Section 69 of the Indian Partnership Act - bar of non registration of firm confined to civil suits enforcing contractual rights - penal nature of the offence under Section 138 and independent criminal remedy - distinction between enforcement of contractual rights in civil courts and initiation of criminal prosecution

Prosecution under Section 138 of the Negotiable Instruments Act not hit by sub section (2) of Section 69 of the Indian Partnership Act - bar of non registration of firm confined to civil suits enforcing contractual rights - penal nature of the offence under Section 138 and independent criminal remedy - Prosecution of accused under Section 138 of the Negotiable Instruments Act is not barred by sub section (2) of Section 69 of the Indian Partnership Act, 1932. - HELD THAT: - Section 69(2) of the Indian Partnership Act creates a temporary disability preventing an unregistered firm from instituting a suit to enforce rights arising from contract; its object is to promote registration and to confine relief to civil enforcement. That bar is confined to civil suits and does not alter the inherent character of the right which remains enforceable by law once registration is effected. Section 138 of the Negotiable Instruments Act is a penal provision enacted to secure faith in banking transactions by creating a distinct criminal remedy on dishonour of cheques; the offence is complete once statutory conditions are satisfied and may be prosecuted independently. Unlike civil procedure, there is no provision in criminal procedure analogous to withdrawal with liberty to re file (or to apply limitation extension under Section 14 of the Limitation Act) which would permit curing the formal defect of non registration in criminal complaints; nonetheless, the statutory bar in Section 69(2) cannot be stretched to confer immunity from criminal prosecution. The view of the larger Bench of the Andhra Pradesh High Court in A.V. Ramanaiah, to the effect that Section 69 does not apply to actions under Section 138, is persuasive and supports confining the non registration bar to civil enforcement of contractual obligations. [Paras 18, 19, 20, 21, 22]

The prosecution under Section 138 of the Negotiable Instruments Act is not barred by sub section (2) of Section 69 of the Indian Partnership Act, 1932.

Final Conclusion: The reference is answered in the affirmative for the applicant: prosecution under Section 138 N.I. Act is maintainable notwithstanding non registration of the firm under Section 69(2) of the Partnership Act; the matter is placed before the appropriate Bench.