TaxTMI Updates e-Newsletter
May 06,2022

Exhaustion of alternative remedies - availability of statutory appeal under Section 107 of U.P. Goods and Service Tax Act, 2017 - entertainment of writ petition despite alternative remedy - principles of natural justice

Availability of statutory appeal under Section 107 of U.P. Goods and Service Tax Act, 2017 - exhaustion of alternative remedies - entertainment of writ petition despite alternative remedy - Writ petition not to be entertained in view of the availability of a statutory appeal under Section 107 of the U.P. Goods and Service Tax Act, 2017; petitioner granted liberty to pursue the statutory remedy. - HELD THAT: - The Court observed that a statutory remedy of appeal under Section 107 of the U.P. Goods and Service Tax Act, 2017 is expressly available against the impugned order and, in the absence of a demonstrated breach of principles of natural justice, the rule of exhaustion of alternative remedies applies. The petitioner's contention that the writ may be entertained where natural justice is violated was noted, but the Court declined to adjudicate on whether the show cause notice was served or an opportunity of hearing was afforded, holding that those contentions can be raised before the Appellate Authority in the statutory appeal. Consequently, the High Court declined to exercise writ jurisdiction and disposed of the petition while expressly granting leave to prefer the statutory appeal or pursue other legal remedies; any such appeal is directed to be decided on merits expeditiously.

Writ petition dismissed with liberty to prefer appeal under Section 107 of the U.P. Goods and Service Tax Act, 2017 or pursue other legal remedies; appellate authority to decide any appeal on merits expeditiously.

Final Conclusion: The petition is dismissed on the ground that an adequate statutory remedy exists; the petitioner is permitted to initiate the statutory appeal under Section 107 of the U.P. GST Act, 2017 or other legal remedies, and any such appeal shall be decided on merits expeditiously.

Moratorium on payment of instalments - modification of court-ordered instalment schedule - deemed default and enforcement rights of revenue - one-time indulgence - refusal to reschedule overdue amounts over remaining instalments

Moratorium on payment of instalments - one-time indulgence - Grant of temporary moratorium on instalment payments in light of alleged storm damage to petitioner's manufacturing facility - HELD THAT: - The Court accepted that there was apparent damage to the petitioning assessee's manufacturing facility and, notwithstanding adverse commentary on the petitioner's prior conduct, exercised its discretion to grant a limited, one-time moratorium. The moratorium was confined to two months: the instalment due in April 2022 is not to be treated as a default and the instalment due in May 2022 need not be paid by the 15th of that month. The Court expressly limited the indulgence as a one-time measure and made clear that future similar prayers were unlikely to be entertained. [Paras 6]

Two-month moratorium granted: April 2022 instalment not treated as default; May 2022 instalment payment deferred.

Modification of court-ordered instalment schedule - refusal to reschedule overdue amounts over remaining instalments - Whether the deferred instalments would be spread over the remaining instalments of the schedule - HELD THAT: - The petitioner sought to add the amounts due for the deferred months onto the remaining instalments, thereby spreading the overdue sums over the balance of the schedule. The Court declined this form of rescheduling, directing instead that the April 2022 amount be paid along with the June 2022 instalment and the May 2022 amount be paid along with the July 2022 instalment, thereby modifying the earlier orders only to the extent indicated and refusing to alter the total number or distribution of future instalments. [Paras 6]

Prayer to spread deferred amounts over the rest of the instalments refused; specific consolidation timetable ordered.

Deemed default and enforcement rights of revenue - Consequences of failure to comply with the modified payment directions - HELD THAT: - The Court provided that upon the first default in making payment as per the modified directions, the petitioning assessee would be deemed in default of the entire amount then due and the Department would be entitled to take immediate appropriate steps in accordance with law without further reference to the Court. This condition was imposed as a safeguard given the petitioner's prior conduct and to ensure enforceability of the modified schedule. [Paras 7]

On first default under the modified order, the Department may immediately take lawful enforcement action and the assessee will be deemed in default of the entire amount then due.

Modification of court-ordered instalment schedule - Modification of earlier orders dated December 7, 2021 and March 23, 2022 - HELD THAT: - The Court modified the prior orders to give effect to the two-month moratorium and the payment consolidation directions for the deferred months, and recorded that further prayers for extension were unlikely to be granted. The earlier orders were therefore varied only as expressly indicated. [Paras 8, 9]

December 7, 2021 and March 23, 2022 orders modified as indicated; WP (C) No.158 of 2022 disposed of.

Final Conclusion: The High Court, while noting the petitioner's past conduct, granted a limited two-month moratorium on instalment payments (April and May 2022) with specified consolidation into June and July 2022 payments, refused broader rescheduling of deferred amounts over remaining instalments, and directed that any subsequent default will permit immediate enforcement by the Department and will render the entire outstanding amount due.

Principles of natural justice - physical verification of business premises - notice and opportunity to be heard before inspection - revocation of cancellation of GST registration - reinstatement of cancelled GST registration - retrospective effect of cancellation

Principles of natural justice - notice and opportunity to be heard before inspection - physical verification of business premises - Validity of the cancellation order dated 09.12.2020 and the revocation-rejection dated 18.02.2021 in the light of alleged denial of notice, non-consideration of the petitioner's reply and non-compliance with inspection procedure. - HELD THAT: - The Court found that the petitioner had sought and obtained an extension for responding to the show cause notice and filed a substantive reply on 23.11.2020 which set out reasons for retaining registration. The cancellation order of 09.12.2020 does not refer to or deal with that reply. The Court further noted that the inspection reported in the revocation-rejection order was carried out without giving notice to the petitioner as required by the rules, so the inspection was not in the presence of the person whose premises were being inspected. In these circumstances the authorities failed to afford the petitioner the requisite notice and opportunity and did not consider material representation filed by the petitioner. For these reasons the orders impugned were set aside for breach of the rules of natural justice and non-compliance with the inspection procedure. [Paras 8]

Impugned orders dated 09.12.2020 and 18.02.2021 set aside for failure to afford notice and to consider the petitioner's reply, and for non-compliance with inspection requirements.

Revocation of cancellation of GST registration - reinstatement of cancelled GST registration - retrospective effect of cancellation - Relief to be granted following setting aside of the impugned orders and incidental observations on consequences of prior retrospective cancellation. - HELD THAT: - Having set aside the cancellation and the order rejecting revocation, the Court directed that the petitioner's GST registration be revived. The Court observed that a subsequent communication dated 09.03.2022 proceeds on the basis that cancellation had been effected with retrospective effect w.e.f. 01.07.2019; that communication was ordered to be scanned and placed on file for record. The Court recorded the petitioner's undertaking that it will apply for de-registration suo motu once the stated purpose of maintaining registration is accomplished. [Paras 10, 11, 12, 14]

Petitioner's registration to be revived; Registrar to upload the 09.03.2022 document; petitioner permitted to apply for de-registration subsequently.

Final Conclusion: The High Court set aside the cancellation order dated 09.12.2020 and the revocation-rejection dated 18.02.2021 for breach of natural justice and non-compliance with inspection procedure, directed revival of the petitioner's GST registration, and ordered the 09.03.2022 communication to be placed on record while noting the petitioner's undertaking to seek de-registration when appropriate.

Classification of goods by common parlance test - Exemption under entry for Papad (Entry No.96 of Notification No.2/2017-CT) - Advance Ruling and Appellate Authority observations - Validity of show cause notice under Section 74 of the CGST Act - Constitutional challenge to Section 103(1)(b) of the GST Act as violative of Articles 14 and 19(1)(g) - Interim stay of proceedings pursuant to pending writ

Classification of goods by common parlance test - Exemption under entry for Papad (Entry No.96 of Notification No.2/2017-CT) - Advance Ruling and Appellate Authority observations - Whether the products manufactured by the petitioners (unfried fryums of different shapes and sizes) are classifiable as "Papad" for the purpose of exemption under Entry No.96 and the bearing of the Appellate Authority for Advance Ruling's observations on that classification. - HELD THAT: - The Court recorded the Gujarat Appellate Authority for Advance Ruling's conclusion that products of varied shapes and sizes commonly called "Fryums" in trade do not change the basic character of the product and may be regarded as papad for classification under the exemption entry, applying the common parlance test for classification. The Court observed that those appellate observations would have a bearing on the petitioners' challenge to the show cause notice which alleges denial of exemption. The Court did not adjudicate the classification on merits but treated the Appellate Authority's reasoning as a material factor warranting further consideration by the respondents in the course of adjudication of the show cause notice. [Paras 6, 7]

Appellate Authority's observations noted as having prima facie bearing; classification issue not finally decided and to be considered in proceedings.

Validity of show cause notice under Section 74 of the CGST Act - Interim stay of proceedings pursuant to pending writ - Whether the impugned show cause notice dated 28.02.2022 and Form GST DRC 01 dated 07.03.2022 should be stayed pending adjudication of the writ petition. - HELD THAT: - Although ordinarily a writ at the stage of a show cause notice would not be entertained, the Court exercised its discretion in view of the Appellate Authority's ruling and the challenge to statutory provisions, and granted ad interim relief. The Court ordered an interim stay of further proceedings pursuant to the impugned show cause notice in terms of the petitioners' prayer for interim relief, permitting direct service. [Paras 4, 9, 10]

Ad interim stay of proceedings pursuant to the impugned show cause notice granted.

Constitutional challenge to Section 103(1)(b) of the GST Act as violative of Articles 14 and 19(1)(g) - Whether the challenge to the constitutional validity of Section 103(1)(b) of the GST Act (alleged arbitrariness and violation of Articles 14 and 19(1)(g)) should be noticed and placed for joint hearing with a related petition. - HELD THAT: - The Court noted that the constitutional validity of Section 103(1)(b) is already the subject matter of a related writ (Special Civil Application No.16172 of 2021) and directed that the present petition be heard along with that matter. Notice was ordered to respondents and to the Attorney General of India because of the constitutional challenge. No adjudication on the merits of the constitutional challenge was undertaken at this stage. [Paras 8, 11, 12]

Notice issued; matter to be heard along with Special Civil Application No.16172 of 2021 and Attorney General to be served; constitutional challenge not finally decided.

Final Conclusion: Notice issued to respondents and the Attorney General; ad interim stay granted of proceedings under the impugned show cause notice; classification and exemption question noted as materially affected by the Appellate Authority for Advance Ruling and left open for consideration in the adjudicatory proceedings, and the constitutional challenge to Section 103(1)(b) to be heard along with the related petition.

Income escaping assessment - Reassessment proceedings - Section 148A - show cause procedure as condition precedent to issuance of notice under section 148 - Time limit for reassessment and safeguards in substituted provision - Retrospective application of benevolent remedial provisions - Article 142 - power to pass a single order to govern similar proceedings PAN INDIA

Reopening of assessment u/s 147 - Scope of new provision section 148A - Validation of notices after quashed by various High Courts - conducting of enquiries or issuance of show-cause notice or passing of order under section 148A - Scope of amendment by the Finance Act, 2021 which has amended Income Tax Act by introducing new provisions i.e. sections 147 to 151 w.e.f. 1st April, 2021 - HELD THAT: - The Court held that the Finance Act, 2021 substituted sections governing reassessment (including the newly enacted section 148A) are remedial and benevolent and their benefit must be made available in respect of reassessment proceedings where a notice under section 148 was issued on or after 1st April, 2021. Although the notices in many cases were issued under the unamended provision by reason of bona fide mistake or misapprehension arising from extension notifications, those notices ought not to have been issued under the unamended law. Rather than rendering the Revenue remediless or extinguishing reassessment proceedings entirely, the proper course is to treat such impugned notices as deemed to be show cause notices under section 148A and to permit the Revenue to proceed subject to compliance with the procedural safeguards and the statutory defences available under the substituted provisions. The Court therefore directed a fixed, limited procedure: assessing officers must supply the information and material relied upon within thirty days; assessees shall have two weeks to reply; assessing officers shall then decide under section 148A(d) and may thereafter issue notices under section 148 (as substituted), with all rights and defences under the Finance Act, 2021 and section 149 preserved. As a one time measure, the Court dispensed with the requirement of conducting any enquiry with prior approval of the specified authority under section 148A(a) for those notices issued under the unamended section 148 from 01.04.2021 till date, including those quashed by High Courts. [Paras 8, 10]

Impugned notices issued under unamended section 148 on or after 1st April, 2021 are to be deemed to be issued under section 148A and treated as show cause notices; assessing officers must provide material within thirty days, assessees given two weeks to reply, AO to pass orders under section 148A(d) and may thereafter proceed under the substituted provisions, with procedural defences preserved and a one time dispensation of prior approval enquiry requirement.

Article 142 - power to pass a single order to govern similar proceedings PAN INDIA - Reassessment proceedings - Whether this Court can, in exercise of Article 142, issue a binding, uniform direction to modify similar High Court judgments nationwide? - HELD THAT: - Noting the multiplicity of substantially similar writ petitions and judgments across High Courts (involving approximately 90,000 reassessment notices and thousands of writs), the Court invoked Article 142 to pass a single order which would govern all like cases nationwide. The order modifies and substitutes the impugned High Court orders to the limited extent specified, so as to balance the rights of the Revenue and assessees and to avoid thousands of further appeals and duplication of litigation. The Court clarified that the present direction applies PAN INDIA to all judgments and orders in which similar notices issued after 01.04.2021 under section 148 were set aside, and also governs pending writ petitions raising the same issue. [Paras 2, 11]

By exercise of Article 142 the Court issued a single PAN INDIA order modifying/substituting the impugned High Court orders to the limited extent directed, thereby governing all similar judgments and pending writs concerning notices issued on or after 1st April, 2021.

Final Conclusion: Appeals allowed in part. High Court orders quashing reassessment notices issued under unamended section 148 on or after 1st April, 2021 are modified: such notices are deemed to be show cause notices under section 148A, the Revenue must furnish material within thirty days and assessees given two weeks to reply, AOs to decide under section 148A(d) and may thereafter proceed under the substituted reassessment regime; one time dispensation of prior approval enquiry requirement is granted for the impugned cohort; all statutory defences and rights under the Finance Act, 2021 remain available; the direction is given PAN INDIA under Article 142 to govern similar matters.

Territorial jurisdiction of High Court under Article 226 - Cause of action wholly or in part arises - Forum conveniens - Reopening of assessment under Section 148/Section 147 of the Income tax Act - Service of notice and its relevance to cause of action

Territorial jurisdiction of High Court under Article 226 - Cause of action wholly or in part arises - Service of notice and its relevance to cause of action - Forum conveniens - Maintainability of the writ petition before this High Court in view of territorial jurisdiction where the reassessment notice under Section 148 was issued and the assessment affairs are located. - HELD THAT: - The Court examined whether a part of the cause of action for challenging the notice under Section 148/assessing action for A.Y. 2015-16 arose within the territorial jurisdiction of this High Court. The material facts as pleaded and on record show that the impugned notice under Section 148 was issued at Cuttack; the return for A.Y. 2015-16 was filed at Cuttack; the assessment order for that year was passed at Cuttack; and the assessee is assessed consistently at Cuttack with PAN there. A notice under Section 143(2) having been served at the assessee's Ahmedabad address and a reply filed at Ahmedabad did not, by itself, render the cause of action to have arisen within this Court's territorial jurisdiction. Applying the settled tests in the decided authorities, the mere occurrence of an incidental event (service of a Section 143(2) notice at Ahmedabad) unconnected in substance with the lis is insufficient to confer jurisdiction. Even if a fraction of cause of action could be said to arise elsewhere, the doctrine of forum conveniens permits decline of jurisdiction where the dispute is properly connected to another High Court; on the facts the appropriate forum is the High Court of Orissa at Cuttack. For these reasons the Court declined to entertain the petition and relegated the petitioner to file an appropriate petition before the High Court having territorial jurisdiction over the Assessing Officer. [Paras 33, 34]

Writ petition not maintainable before this High Court; petitioner relegated to file appropriate writ before the High Court of Orissa at Cuttack and the petition stands rejected on jurisdictional grounds.

Interim relief - Continuation of the ad interim relief granted earlier while the petitioner seeks appropriate remedy before the forum having territorial jurisdiction. - HELD THAT: - Although the writ petition is not entertained on jurisdictional grounds, the Court recognised the existing ad interim protection and permitted a limited continuation to enable the petitioner to approach the appropriate High Court. The Court ordered that the ad interim relief in terms of paragraph 7(c) of the petition continue for a short specified period to permit filing of an appropriate petition in the High Court of Orissa. [Paras 35]

Ad interim relief continued for two weeks from the date of the order to enable the petitioner to avail appropriate remedy before the competent forum.

Final Conclusion: The writ petition challenging the notice under Section 148 for A. Y. 2015-16 is refused on territorial jurisdiction grounds and the petitioner is directed to approach the High Court of Orissa at Cuttack; the existing ad interim relief is continued for two weeks to permit filing in the appropriate forum; no opinion expressed on the merits.

Validity of reassessment under Section 148 - Compliance with Section 144B-requirement of show-cause-cum-draft assessment order - Obligations under GKN Driveshafts-furnishing reasons and disposal of objections by a speaking order - Filing of return after issuance of notice under Section 148

Obligations under GKN Driveshafts-furnishing reasons and disposal of objections by a speaking order - Filing of return after issuance of notice under Section 148 - Impugned assessment order is vitiated for failure to comply with the procedural obligations of furnishing reasons and disposing of objections in accordance with the law laid down in GKN Driveshafts (India) Ltd. - HELD THAT: - The Court noted that the petitioner filed a return on 27th April, 2021 after issuance of the Section 148 notice. The reasons for reopening were, however, supplied only on 26th March, 2022. Although objections were filed on 28th March, 2022, the assessment order dated 30th March, 2022 was passed without allowing proper consideration and disposal in the manner mandated by the Supreme Court in GKN Driveshafts. The reasoning in GKN requires that the assessee, on filing a return after a Section 148 notice, be furnished reasons within a reasonable time and be permitted to file objections which must be disposed of by a speaking order before a final assessment is framed. The facts on record demonstrate non-compliance with that procedure, rendering the assessment process flawed. [Paras 7, 8, 9]

Assessment order set aside for non-compliance with the procedural requirements of furnishing reasons and disposing of objections as required by GKN Driveshafts.

Compliance with Section 144B-requirement of show-cause-cum-draft assessment order - Validity of reassessment under Section 148 - Remedial direction and consequential setting aside of assessment, demand and penalty notices dated 30th March, 2022, with remand to the Assessing Officer to decide objections afresh. - HELD THAT: - The Court found that the assessment, demand and penalty notices dated 30th March, 2022 were passed contrary to the mandated procedure and therefore set them aside. The matter was remitted to the Assessing Officer to decide the objections dated 28th March, 2022 in accordance with law within ninety days. The Court permitted the Assessing Officer to issue further notices or seek additional information if required, and expressly left open the rights and contentions of the parties. [Paras 9, 10]

Impugned assessment, demand and penalty notices set aside; Assessing Officer directed to decide objections within ninety days and may take further steps in accordance with law; parties' rights left open.

Final Conclusion: The assessment, demand and penalty orders dated 30th March, 2022 for AY 2013-14 are set aside for procedural non-compliance; the matter is remitted to the Assessing Officer to decide the objections filed on 28th March, 2022 in accordance with law within ninety days, with liberty to issue further notices or seek information and with parties' rights reserved.

Limitation for sale of attached property - Rule 68B of the IInd Schedule - deemed vacatur of attachment on expiry of limitation - power to initiate fresh attachment proceedings - alternate recovery methods under Rule 4 - liability of assessee survives despite expiry of period for sale

Rule 68B of the IInd Schedule - limitation for sale of attached property - deemed vacatur of attachment on expiry of limitation - Sale of the attached immovable property carried out after the period of limitation prescribed by Rule 68B is impermissible and the attachment stands vacated by efflux of the limitation prescribed therein. - HELD THAT: - At the relevant time Rule 68B prescribed a three year period from the end of the financial year in which the order giving rise to the demand became conclusive. The facts show the property was attached after the block assessment arising from the survey and the impugned proclamation of sale was issued well beyond the limitation period as then existing. The court held that where the sale is not made in accordance with sub rule (1) the attachment order in relation to the property is deemed to have been vacated on expiry of the time of limitation specified under the rule. Applying that provision to the material facts, the petition succeeds in respect of the impugned auction notice issued beyond the prescribed period and relief was granted accordingly. [Paras 2, 11, 13]

Writ petition allowed; impugned auction/proclamation of sale issued beyond the limitation under Rule 68B cannot be sustained and the attachment is treated as vacated in that respect.

Power to initiate fresh attachment proceedings - alternate recovery methods under Rule 4 - liability of assessee survives despite expiry of period for sale - Expiry of the limitation for making a sale under Rule 68B does not preclude the Department from resorting to other recovery mechanisms or from initiating fresh proceedings, including fresh attachment, to recover the tax and interest due. - HELD THAT: - The court observed that Rule 4 and other provisions of the IInd Schedule provide alternative methods for recovery such as arrest, appointment of a receiver or fresh attachment and sale. The tax liability of the assessee does not get effaced by the lapse of the specific period for sale under Rule 68B. Accordingly, while the impugned sale/proclamation is set aside for being beyond the period prescribed by Rule 68B, the respondents retain the statutory powers to proceed afresh under the Rules to recover the tax and interest, and liberty was granted to the Department to do so. [Paras 12, 13]

Respondents permitted to initiate fresh recovery proceedings, including fresh attachment and other methods under the IInd Schedule, to recover the tax and interest due.

Final Conclusion: Writ petition allowed insofar as the auction/proclamation of sale issued beyond the limitation under Rule 68B is concerned and is set aside; however, the Income Tax Department is permitted to initiate fresh proceedings, including fresh attachment or other recovery measures under the IInd Schedule, to recover the outstanding tax and interest.

Opportunity of personal hearing - mandatory nature of personal hearing under Section 144B(7)(vii) of the Income Tax Act - construction of the word "may" as command where discretion affects civil consequences - invalidity of administrative classification distinguishing disputed questions of fact and law by Circular

Opportunity of personal hearing - mandatory nature of personal hearing under Section 144B(7)(vii) of the Income Tax Act - construction of the word "may" as command where discretion affects civil consequences - Failure to grant a requested personal hearing rendered the assessment order contrary to principles of natural justice and unlawful. - HELD THAT: - The Court held that where a quasi judicial authority is conferred discretion affecting civil rights, the expression "may" in the provision relating to personal hearing cannot be read as leaving the matter to mere whim; it must be construed as imperative to secure a reasonable opportunity of personal hearing. Applying that principle, the Court found that the petitioner had requested personal hearing which was not afforded, thereby violating the requirement of natural justice. The Court relied on its earlier reasoning that discretion of this character must be exercised so as to give the assessee a real opportunity to be heard and that failure to do so vitiates the assessment order. [Paras 5]

Impugned assessment order set aside for want of personal hearing; requirement of personal hearing held mandatory in the circumstances.

Invalidity of administrative classification distinguishing disputed questions of fact and law by Circular - opportunity of personal hearing - The matter was remitted for fresh consideration after affording a personal hearing, with the classification in the Circular disallowing personal hearing in certain categories held not legally sustainable. - HELD THAT: - The Court observed that the Circular attempting to differentiate matters involving disputed questions of fact from questions of law so as to deny personal hearing was not legally tenable. In view of the failure to grant the requested personal hearing, the assessment under challenge could not stand. Consequently, the Court quashed the order and remanded the matter to the assessing authority to pass a fresh assessment in accordance with law after granting the petitioner a personal hearing. [Paras 5, 6]

Matter remanded to the assessing authority for fresh decision in accordance with law after giving the petitioner a personal hearing.

Final Conclusion: Writ petition allowed; assessment order dated 28th March, 2022 for assessment year 2016-17 quashed and matter remitted to the respondent to decide afresh after affording the petitioner a personal hearing; rights and contentions of parties left open.

Reopening of assessment - applicability of substituted reassessment scheme under Section 148A and Section 149 from 01.04.2021 - time limits for issuance of notice for reassessment - invalidity/ultra vires of CBDT explanatory notifications issued under the Relaxation Act, 2020

Reopening of assessment - applicability of substituted reassessment scheme under Section 148A and Section 149 from 01.04.2021 - time limits for issuance of notice for reassessment - invalidity/ultra vires of CBDT explanatory notifications issued under the Relaxation Act, 2020 - Validity of the notice of reassessment dated 15.04.2021 for Assessment Year 2015-16 - HELD THAT: - The Court applied the reasoning of the Division Bench in Sudesh Taneja (DB) and held that the reassessment scheme substituted by the Finance Act, 2021 (introducing the enquiry procedure under Section 148A and revising limitation periods under Section 149) operates from 01.04.2021 and therefore governs any notice issued after that date. The Court accepted that notices issued after 01.04.2021 must comply with the new statutory procedure and could not rely on the larger limitation period now provided under the substituted provision to revive notices which had become time barred prior to 01.04.2021. Further, the Court held that the CBDT notifications of 31.03.2021 and 27.04.2021 issued under the Relaxation Act, 2020 could not, by way of an explanatory clarification, alter or defer the statutory substitution effective 01.04.2021; those explanations exceeded the delegated power and were therefore unconstitutional and invalid. Applying these principles, the impugned notice issued on 15.04.2021 was found to have been issued without complying with the substituted reassessment procedure and contrary to the statutory scheme, and hence invalid. [Paras 38, 39, 40, 41, 42]

The notice of reassessment dated 15.04.2021 for AY 2015-16 is invalid and is quashed.

Final Conclusion: Writ petition allowed; the impugned reassessment notice is quashed and the petition is disposed of.

Depreciation under section 32 of the Income Tax Act - perpetual lease and ownership rights - bifurcation of consideration into land and cost of construction - allocation on the basis of contemporaneous stamp duty valuation

Depreciation under section 32 of the Income Tax Act - perpetual lease and ownership rights - bifurcation of consideration into land and cost of construction - Entitlement to depreciation claimed by the assessee in respect of four units taken on extended lease for assessment year 2010-11. - HELD THAT: - The Tribunal examined the lease and sub lease deeds and found that MIDC constructed the building and the assessee was allotted unit Nos. 301-304 on the third floor by way of an indenture of sub lease for a term of 95 years renewable for a further 95 years, with a one time premium and nominal yearly ground rent of Re.1/-. The Tribunal held that such an extended and renewable lease operates as a perpetual lease and, in substance, confers on the assessee ownership like rights in the allotted units. Consequently the total consideration paid by the assessee could reasonably include both the cost of construction and a component attributable to proportionate land. The Tribunal endorsed the CIT(A)'s approach to bifurcate the total consideration between land and construction and found the use of contemporaneous stamp duty rates to determine the proportionate land component to be reasonable. On that basis the Tribunal affirmed the CIT(A)'s order granting depreciation only on the cost of construction while excluding the land component, and dismissed the assessee's grounds challenging the partial disallowance. [Paras 11, 12, 13, 14, 15]

Assessee entitled to depreciation only on the cost of construction of the four units for AY 2010-11; the component attributable to land is not eligible for depreciation and the CIT(A)'s bifurcation using stamp duty basis is upheld.

Depreciation under section 32 of the Income Tax Act - bifurcation of consideration into land and cost of construction - Entitlement to depreciation claimed by the assessee in respect of the same units for assessment year 2011-12 and correctness of total income computation. - HELD THAT: - The Tribunal noted that the facts and documentary position for AY 2011-12 are identical to AY 2010-11. Having upheld the CIT(A)'s approach in AY 2010-11 to allow depreciation only on the construction component after bifurcation, the Tribunal directed that the Assessing Officer grant depreciation on the cost of construction of the units for AY 2011-12 on the same basis. Separately, the Tribunal directed the Assessing Officer to compute total assessable income after adopting the correct figure of total income as per the assessee's computation filed with the return, thereby correcting the AO's starting figure. [Paras 16, 18, 19]

For AY 2011-12 the assessee is to be granted depreciation only on the construction component of the consideration for the units; the AO is directed to recompute total income using the correct computation filed by the assessee.

Final Conclusion: Appeal for AY 2010-11 dismissed (partial allowance of depreciation on construction component affirmed); appeal for AY 2011-12 partially allowed - depreciation to be allowed on construction component on the same basis and Assessing Officer directed to recompute total income using the correct computation.

Reopening of assessment - best judgment assessment under section 144 - exemption under section 54 for reinvestment of long term capital gains on residential property - unexplained investment under section 69C - admission of evidence under Rule 46A - service of notice at old/incorrect address - remand for verification of factual sources

Exemption under section 54 for reinvestment of long term capital gains on residential property - unexplained investment under section 69C - admission of evidence under Rule 46A - remand for verification of factual sources - Whether the sum of Rs.37,43,100 confirmed as unexplained investment in the purchase of the new residential property required adjudication or verification by the Assessing Officer. - HELD THAT: - The Tribunal noted that the assessee sold the old residential property and purchased a new residential property and that the Ld.CIT(A) accepted the claim for exemption under section 54 to the extent records established reinvestment, but treated a shortfall of Rs.37,43,100 as unexplained investment under section 69C after adjusting amounts used to discharge a loan. The assessee filed additional documents and a cash flow statement before the Tribunal which were not placed before the Ld.CIT(A) due to serious family illness; the assessee offered to substantiate that sources (including an unsecured loan and amounts for stamp duty/registration) would explain the shortfall. Because the matter turns on verification of factual sources and documents (a factual aspect requiring AO verification), the Tribunal held that it was appropriate to remit the matter to the Assessing Officer for limited verification of the source of the Rs.37,43,100 and related stamp duty/registration amounts, and directed that if the AO is satisfied after verification no addition be made. [Paras 9, 10]

Confirmation of Rs.37,43,100 as unexplained investment set aside and issue remanded to the Assessing Officer for verification of the source; if verified satisfactorily, no addition to be made.

Gifts as unexplained income - admission of evidence under Rule 46A - remand for verification of factual sources - Whether the sum of Rs.26 lakhs treated as addition in the hands of Smt. Shehla Akhtar on account of alleged unexplained gift required further verification. - HELD THAT: - The Tribunal recorded that the assessee produced bank statements and gift letters evidencing transfers of Rs.20 lakhs from a paternal uncle and approximately GBP 6,050 from a brother in law, which were not placed before the Ld.CIT(A) because of the donor's illness and death. Given the documentary material now before the Tribunal and the factual nature of the dispute, the Tribunal found that the issue should be verified by the Assessing Officer. The Tribunal directed remand for limited verification of the gift receipts and letters and observed that the assessee should be given sufficient opportunity during verification. [Paras 12]

Impugned confirmation of Rs.26 lakhs set aside and the matter remanded to the Assessing Officer for verification of the gift receipts; if verified, no addition to be made.

Final Conclusion: Both appeals allowed for statistical purposes by setting aside the confirmations challenged and remanding the disputed factual issues - the Rs.37,43,100 unexplained investment (and related stamp duty/registration amounts) and the Rs.26 lakhs alleged gift - to the Assessing Officer for limited verification; if the AO is satisfied after verification, no additions shall follow.

Revision under section 263 - Change of opinion - Application of mind by Assessing Officer - Preclusion on revisional jurisdiction where Assessing Officer has taken a plausible view - Seized document and statements recorded under section 132(4) vis-a -vis statement under section 131

Revision under section 263 - Change of opinion - Application of mind by Assessing Officer - Preclusion on revisional jurisdiction where Assessing Officer has taken a plausible view - Lawfulness of the Pr. Commissioner of Income Tax invoking revisionary jurisdiction under section 263 to substitute the Assessing Officer's view in respect of alleged unaccounted receipts. - HELD THAT: - The Tribunal found that the Assessing Officer had specifically examined the seized loose sheet, furnished the assessee with the statement and seized document, allowed cross-examination of the witness and, after exhaustive deliberation, accepted the assessee's explanation and refrained from drawing any adverse inference. Where the AO has applied his mind and arrived at a possible and plausible view after enquiries and cross-examination, the Pr. CIT cannot, by invoking section 263, substitute his opinion merely because he holds a different view. The exercise of revisionary power in such circumstances was held to be impermissible and amounted to change of opinion which section 263 does not authorise. [Paras 8, 10, 12, 13, 14]

Pr. CIT's revision under section 263 set aside and the AO's assessment order restored.

Seized document and statements recorded under section 132(4) vis-a -vis statement under section 131 - Application of mind by Assessing Officer - Evidentiary weight of the seized loose sheet and the witness's earlier statement recorded during search when later retracted on cross-examination, and whether these justified revisional interference. - HELD THAT: - The Tribunal recorded that the incriminating loose sheet seized from the witness's residence was confronted in assessment proceedings, the witness on oath under section 131 described the entries as rough notings/estimations and retracted earlier statements made under stress during the search. The Assessing Officer, after receiving the document and allowing cross-examination, accepted the retraction and the assessee's explanation. Given this factual matrix and the AO's positive exercise of discretion, the mere existence of seized entries or earlier statements did not justify substitution of the AO's conclusion by the Pr. CIT. [Paras 5, 7, 10, 11, 12]

Seized notings and the earlier statement retracted on cross-examination did not warrant revisional interference once the AO had accepted the assessee's explanation.

Revision under section 263 - Change of opinion - Whether failure to refer to the relevant clause of Explanation 2 (as pleaded in impugned grounds) vitiated the revision order. - HELD THAT: - Although the Pr. CIT relied on the seized document and the witness's initial statement to hold the assessment prejudicial to revenue, the Tribunal concluded that the AO had considered and rejected the incriminating notings after giving the assessee opportunity and after cross-examination of the witness. The revisional order did not validly substitute the AO's view; accordingly, any omission to refer to a particular clause of Explanation 2 did not salvage the revisional exercise when the primary infirmity was impermissible change of opinion. [Paras 5, 7, 13, 14]

Grounds challenging omission to refer to Explanation 2 were allowed insofar as the revisional order itself was set aside for being an impermissible change of opinion.

Final Conclusion: The appeal is allowed: the Pr. CIT's order under section 263 is set aside and the assessment order framed by the Assessing Officer under section 143(3) r.w.s. 153A for AY 2013-14 is restored, the revisional exercise being an impermissible substitution of the AO's plausible view.

Application of section 68 (cash credits) - onus of proof under section 68 - treatment of opening balances versus credits of the previous year - rejection of balance confirmations in absence of depreciative material - absence of obligation on assessee to produce creditors in person - powers under sections 131 and 133 to summon witnesses or documents - directive nature of time limit under section 250(6A) and consequences of inordinate delay

Application of section 68 (cash credits) - onus of proof under section 68 - rejection of balance confirmations in absence of depreciative material - absence of obligation on assessee to produce creditors in person - treatment of opening balances versus credits of the previous year - Validity of the addition made under section 68 in respect of alleged cash credits and whether the assessee discharged the onus to explain such credits. - HELD THAT: - The Tribunal examined whether sums credited in the trust's books attracted section 68. It observed that section 68 applies only to sums credited during the previous year and not to opening or brought forward balances, and the assessment order did not clearly state whether the entries were newly credited or carried forward. The assessee produced balance confirmation certificates from six of the twenty-five creditors during assessment and appellate proceedings; these satisfied the initial onus of explanation. The AO and CIT(A) rejected the confirmations solely because the creditors were not produced in person, without identifying any depreciative material or articulating why the explanations were unsatisfactory. The Tribunal held that there is no provision imposing an absolute obligation on the assessee to produce creditors personally; if the authorities considered personal appearance necessary, they should have exercised statutory powers under sections 131/133 to secure attendance or other evidence. Once the primary onus was discharged by the assessee, the burden shifted to the revenue to rebut the explanation by independent evidence; absent any depreciative material or proper exercise of summonsing powers, the adverse inference taken by the tax authorities rested on conjecture and was impermissible. Applying these principles, the Tribunal concluded that the addition under section 68 was without merit and deserved deletion. [Paras 9, 10]

Addition under section 68 deleted; appeal allowed.

Directive nature of time limit under section 250(6A) and consequences of inordinate delay - Significance of delay in disposal by the first appellate authority under section 250(6A) was noted and criticised. - HELD THAT: - The Tribunal recorded that the appeal before the CIT(A) was disposed of after an inordinate delay of nearly twenty years following the Tribunal's earlier direction for de novo adjudication. Section 250(6A) prescribes a one-year period for disposal by the CIT(A) 'where it is possible'; while the provision is directory, undue delay frustrates remedy and equates to denial of justice. The CIT(A) was expected to justify the long adjournment or delay but did not do so; the departmental representative offered no explanation. The observation was made to emphasize obligations of the appellate authority to adjudicate within the intended timeframe, though no separate remedial order was directed on this ground. [Paras 7, 9]

Delay in adjudication by the CIT(A) was noted and criticised; no separate relief other than the consequential observations was granted.

Final Conclusion: The Tribunal allowed the appeal, deleted the addition made under section 68 on the grounds that the assessee discharged the initial onus and the tax authorities failed to rebut the explanation with depreciative material or by proper use of summonsing powers; the Tribunal also recorded serious criticism of the almost twenty-year delay in appellate adjudication under section 250(6A).

Long Term Capital Gain exemption u/s 10(38) - accommodation entries and sham transactions - unexplained expenditure treated under section 69C - reliance on regulatory findings of SEBI and revocation of restraint - rule of consistency in treatment of identical transactions

Long Term Capital Gain exemption u/s 10(38) - accommodation entries and sham transactions - reliance on regulatory findings of SEBI and revocation of restraint - rule of consistency in treatment of identical transactions - Deletion of addition made by the AO disallowing the claim of exemption of long term capital gain arising from sale of shares of M/s Kailash Auto Finance Ltd. - HELD THAT: - The Tribunal examined whether the LTCG claimed by the assessee was a genuine exempt receipt or a sham accommodation entry. The AO had disbelieved the transaction because of an unusually large return over a short period and adverse material relating to price manipulation of the scrip; the CIT(A) sustained the addition. The Tribunal found that the assessee had produced purchase and sale documentation, payments by account-payee cheque, and transactions routed through a demat account and the Bombay Stock Exchange, and that the assessee's earlier sale of part of the holding had been accepted by the Revenue, invoking the rule of consistency. Crucially, the Tribunal followed the Coordinate Bench decision which relied upon SEBI's final order revoking the interim restraint and recording absence of adverse findings against the relevant class of entities; on that basis SEBI did not find prima facie evidence of price manipulation in respect of the scrip. In the absence of specific material implicating the assessee or any departmental inquiry showing the assessee as beneficiary of accommodation entries, general observations about modus operandi were insufficient to impeach the documented purchase and sale. Applying these findings, the Tribunal held that the LTCG was genuine and eligible for exemption under the provision relied upon, and accordingly set aside the addition. [Paras 10, 11, 12]

Addition of Rs.18,81,961 made by the AO by rejecting claim under section 10(38) is deleted; the LTCG is held to be genuine and exempt.

Unexplained expenditure treated under section 69C - accommodation entries and sham transactions - Deletion of addition made under section 69C being commission charged as unexplained expenditure for alleged accommodation entry. - HELD THAT: - The addition under section 69C was consequential on the AO's finding that the LTCG arose from accommodation entries. Having deleted the primary addition by holding the LTCG genuine and not an accommodation entry, the Tribunal found no basis to sustain the separate addition under section 69C. The Tribunal therefore directed deletion of the expenditure addition as it flowed from the disallowed characterization of the main transaction. [Paras 12]

Addition of Rs.94,099 under section 69C is deleted as consequential on the deletion of the primary addition.

Final Conclusion: Appeal allowed: the Tribunal set aside the orders of the lower authorities, deleted the addition disallowing the LTCG claimed under section 10(38) and consequentially deleted the addition under section 69C; matter remitted to AO only for giving effect to this order.

Concealment of particulars of income - furnishing of inaccurate particulars of income - penalty under Sec. 271(1)(c) of the Income Tax Act - show cause notice under Sec. 274(1) - opportunity of being heard - non-application of mind - quashed for want of jurisdiction

Show cause notice under Sec. 274(1) - concealment of particulars of income - furnishing of inaccurate particulars of income - penalty under Sec. 271(1)(c) of the Income Tax Act - non-application of mind - opportunity of being heard - quashed for want of jurisdiction - Validity of the show cause notice and consequent jurisdiction to impose penalty under Sec. 271(1)(c) where the notice failed to specify whether penalty was for concealment or for furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal found that the show cause notice dated 27.12.2010 did not specify which limb of Sec. 271(1)(c) - 'concealment of particulars of income' or 'furnishing of inaccurate particulars of income' - the proceedings were founded upon. Since the two defaults are distinct and operate independently, it was incumbent on the Assessing Officer to specify the particular charge so that the assessee could meaningfully exercise the statutory right of explanation under Sec. 274(1). The failure to do so amounted to non-application of mind and defeated the purpose of affording an opportunity of being heard. Reliance was placed on the settled principle that penalty proceedings are quasi criminal in nature and the assessee must know the exact charge; the Tribunal noted pertinent judicial decisions recognizing the distinction between the two limbs and holding that omission to specify the limb renders the notice bad in law. In consequence, the omission vitiated the jurisdiction of the Assessing Officer to impose penalty in the present case, and the order sustaining the penalty could not be upheld. The Tribunal therefore set aside the CIT(A)'s order and quashed the penalty without adjudicating the substantive merits of the charge. [Paras 10, 11, 12, 15, 16]

The show cause notice was invalid for failing to specify the limb of Sec. 271(1)(c); penalty of Rs.3,13,172/- imposed by the Assessing Officer is quashed for want of jurisdiction.

Final Conclusion: The appeal is allowed: penalty imposed under Sec. 271(1)(c) is quashed because the show cause notice failed to specify whether proceedings were for concealment of income or for furnishing inaccurate particulars, thereby vitiating jurisdiction and depriving the assessee of a valid opportunity of being heard.

Allowability of provision for bad and doubtful debts under section 36(1)(viia) - treatment of provision for overdue interest on NPA accounts and applicability of section 43D - accounting treatment and quantification of provisions vis-a -vis RBI provisioning norms - reopening of assessment - validity of recorded reasons to believe

Allowability of provision for bad and doubtful debts under section 36(1)(viia) - Admissibility of provision against standard assets (provision for bad and doubtful debts) claimed by the cooperative bank. - HELD THAT: - The Tribunal held that a provision against standard assets is a provision for bad and doubtful debts and is allowable under the statute so long as it does not exceed the amount computed by the formula in section 36(1)(viia) (read with provisos). The method of making and adjusting such provision (either maintaining a provision and charging actual bad debts to P&L when they crystallize, or reversing and re-providing) are equivalent for tax purposes. The Assessing Officer's disallowance of the provision relating to standard assets as being merely a contingent liability inadmissible under section 37(1) was therefore incorrect and the first appellate authority was right to delete that disallowance. [Paras 4]

Disallowance of provision for bad and doubtful debts relating to standard assets deleted; claim under section 36(1)(viia) accepted.

Treatment of provision for overdue interest on NPA accounts and applicability of section 43D - accounting treatment and quantification of provisions vis-a -vis RBI provisioning norms - Whether provision for overdue (unrealised) interest on NPA accounts is admissible and whether section 43D (as amended) applies for the years under appeal; and related need for verification of accounting treatment and quantification. - HELD THAT: - The Tribunal found that the Finance Act, 2018 insertion which includes cooperative banks in section 43D has no basis for being treated as retrospectively applicable back to 1991 (or 1999) and that no sufficient material was placed to justify such wide retrospectivity; consequently reliance on section 43D does not, as drafted, assist the assessee for the relevant years. Separately, in principle the Tribunal accepted that derecognition of unrealised interest on NPAs (and corresponding provisioning) may be consistent with accrual/accounting principles and precedents which disallow accrual where realization is uncertain. However, the claim as presented raised a substantial accounting question: the assessee's bookkeeping appeared to treat unrealised interest in a way that produces an income implication neutralised only by a provision for overdue interest, potentially producing double or excess provisioning. Given this, the Tribunal accepted the claim in principle but restored the matter to the Assessing Officer to verify, by examining the actual accounting entries and balances, that (a) income has been treated in conformity with mandatory accounting prescriptions for NPAs, (b) there is no double provisioning or provision in excess of 100% of the overdue interest for the year, and (c) the provision for overdue interest is correctly quantified after adjusting amounts reflected as provision for bad and doubtful debts. The AO is directed to issue a speaking order after hearing the assessee and to restrict allowance to the correct amount in law. [Paras 4]

Applicability of section 43D for the relevant years not accepted as retrospectively available; in principle provision for overdue interest may be allowable but the claim is restored to the AO for verification of accounting treatment and for quantification, with directions to disallow any excess arising from double counting or improper accounting.

Reopening of assessment - validity of recorded reasons to believe - Validity of reassessment proceedings for AY 2009-10 insofar as reasons recorded related to the provision claimed (bad and doubtful debts and overdue interest). - HELD THAT: - The Tribunal examined the reasons recorded for reopening. It held that a reason which alleges inadmissibility of the provision for bad and doubtful debts without reference to section 36(1)(viia) is not a valid ground for reopening, because cooperative banks may claim such provisions under that section and the AO's reasons failed to advert to that statutory position. However, insofar as the recorded reason related to the provision for overdue interest, the Tribunal held that a bona fide, prima facie reason to believe escapement of income existed because the accounting treatment could result in excess provision (and thus escapement) and required verification. Accordingly the ground relating to overdue interest justified reopening, while the other two recorded reasons did not. The Tribunal did not pre-determine the merits but sustained the reopening as bona fide in respect of the overdue interest component. [Paras 5]

Reopening of assessment for AY 2009-10 is valid only in respect of the provision for overdue interest; other recorded reasons for reopening are not valid.

Final Conclusion: The Tribunal upheld the allowability of provisions for bad and doubtful debts relating to standard assets under section 36(1)(viia); however, it rejected retrospective application of the Finance Act, 2018 amendment to section 43D for the years in dispute and restored the claims for provision for overdue interest to the Assessing Officer for detailed verification of accounting treatment and quantification to ensure no double or excess provisioning. Reassessment for AY 2009-10 was held valid only insofar as it concerned the provision for overdue interest; other grounds for reopening were invalid.

Bogus purchases - genuineness of purchases - evidentiary value of invoices, delivery challans, transportation bills and bank payments - reliance on statements recorded during search and survey - assessment under section 143(3) read with section 143A

Bogus purchases - genuineness of purchases - evidentiary value of invoices, delivery challans, transportation bills and bank payments - reliance on statements recorded during search and survey - Deletion of addition of purchases of Rs.5,10,43,140/- made on account of alleged bogus purchases from M/s Neelanchal Sales & Suppliers Pvt. Ltd. is upheld. - HELD THAT: - The Tribunal accepted the findings of the CIT(A) that the assessee produced purchase invoices, delivery challans, transportation bills, bank payments and supplier confirmation which supported the transactions. The statement of Shri Suhel Saraf recorded during search did not state that the assessee's purchases were not genuine but only reflected lack of detailed knowledge; further, the assessee was not permitted to cross-examine that witness. The Assessing Officer rejected the documentary evidence without examination and based the addition primarily on conjecture. The fact that the supplier did not maintain a godown was not held to render the purchases bogus because the invoices show delivery from La Trendz Fabrica Private Ltd. to the assessee, and no independent evidence was produced by Revenue to disprove genuineness. On these grounds the Tribunal found no infirmity in the CIT(A)'s conclusion deleting the addition. [Paras 12, 13, 14, 15]

Order of the CIT(A) deleting the addition was confirmed and the appeal of the Assessing Officer is dismissed.

Final Conclusion: The appeal filed by the Assessing Officer is dismissed; the addition on account of alleged bogus purchases is deleted and the CIT(A)'s order for Assessment Year 2017-18 is confirmed.

Reassessment under section 147/148 - validity of reopening - bogus accommodation entries - genuineness of purchases - rejection of books under section 145(3) - disallowance limited to gross profit element - use of industry average gross profit for estimating disallowance

Reassessment under section 147/148 - validity of reopening - Validity of reopening of assessment and issuance of notice under section 148 for the stated assessment years - HELD THAT: - The CIT(A) had upheld the validity of reopening after consideration of material and judicial precedents and the Tribunal, after hearing parties, found no infirmity in the initiation of reassessment proceedings. The Tribunal expressly recorded that the Assessing Officer initiated action under section 147/148 as per law and applied the same finding mutatis mutandis to the appeals for both assessment years, rejecting the assessee's challenge to reopening in respect of the matters decided on merits. [Paras 4, 13]

The reopening under section 148/147 is upheld.

Rejection of books under section 145(3) - genuineness of purchases - Validity of rejection of the assessee's books of account under section 145(3) as a consequence of failure to prove genuineness of purchases - HELD THAT: - The Assessing Officer rejected the books of account after recording discrepancies and deficiencies in the assessee's records and evidentiary support. The assessee did not specifically challenge those findings before the Tribunal or demonstrate that the AO's observations were perverse. Having regard to the material on record and the absence of effective challenge, the Tribunal affirmed the rejection of books of account under section 145(3). [Paras 8]

Rejection of books of account under section 145(3) is affirmed.

Bogus accommodation entries - disallowance limited to gross profit element - use of industry average gross profit for estimating disallowance - Whether the disallowance of purchases shown to have been made from hawala/bogus dealers should be the entire amount or limited to the profit element (and, if limited, at what rate) - HELD THAT: - The Tribunal accepted the settled principle that where purchases are shown from hawala or bogus operators the proper approach is to disallow only the profit element embedded in such transactions to prevent revenue leakage rather than to disallow the entire turnover. The CIT(A) had restricted the addition to 5% of the impugned purchases relying on industry averages and earlier decisions; the Tribunal, applying a consistent view from its own bench in similar cases and considering that the assessee reported very low declared income, concluded that the addition should be enhanced slightly and fixed the disallowance at 6% of the disputed purchases for consistency and to appropriately reflect the profit element. This conclusion was applied mutatis mutandis to both assessment years. [Paras 9, 10, 13]

The disallowance is limited to the profit element and is fixed at 6% of the impugned purchases; revenue appeals are partly allowed to that extent and the assessee's cross objections/appeals are dismissed.

Final Conclusion: The Tribunal upheld the validity of reopening under section 147/148 and affirmed rejection of books under section 145(3). On merits, recognising the principle that only the profit element in transactions with hawala/bogus operators should be disallowed, the Tribunal increased the CIT(A)'s 5% estimate to 6% of the disputed purchases and partly allowed the revenue appeals; the assessee's cross objections and appeals were dismissed.

Obligations of a Customs House Agent under the Customs House Agent Licensing Regulations (CHALR) - revocation of CHA licence for contravention of CHALR obligations - duty to verify exporter and requirement of direct authorization from the exporter - liability for acts of unapproved employees and supervisory obligation under Regulation 19(8) - admissibility and evidentiary value of statement recorded under Section 108 of the Customs Act - proceedings under CHALR distinct from penalty proceedings under the Customs Act - doctrine of proportionality in administrative punishment

Obligations of a Customs House Agent under the Customs House Agent Licensing Regulations (CHALR) - revocation of CHA licence for contravention of CHALR obligations - duty to verify exporter and requirement of direct authorization from the exporter - liability for acts of unapproved employees and supervisory obligation under Regulation 19(8) - Whether the appellant's CHA licence could be revoked for violations of Regulation 13(b), 13(d) and Regulation 19(8) of the CHALR on the material on record. - HELD THAT: - The Court held that the CHALR imposes strict, non delegable obligations on a CHA to obtain direct authorization from the exporter, transact business only personally or through employees approved by Customs, advise the client (i.e. the exporter) to comply with the Act and to exercise supervision over employees. The appellant admitted receiving authorization from the freight forwarder (not the exporter) and that the persons who handled dock clearance were not shown to be approved employees of the CHA. Those admissions, together with the absence of documentary proof that authorized employees were employed and supervised, established violation of Regulation 13(a)/13(b)/13(d) and Regulation 19(8). The regulatory scheme treats a CHA's obligations as integral to the licence and breaches, even absent mens rea, may attract the sanctions prescribed including revocation. The tribunal and adjudicating authority applied these principles to the admitted facts and sustained revocation. [Paras 12, 13, 24, 31, 32]

Findings upholding revocation of the CHA licence for contravention of the CHALR obligations are affirmed.

Admissibility and evidentiary value of statement recorded under Section 108 of the Customs Act - revocation of CHA licence for contravention of CHALR obligations - Whether the statement of the Managing Director recorded under Section 108 could form the basis for action under CHALR when a later retraction was made. - HELD THAT: - The Court accepted that a statement recorded under Section 108 is admissible and may, if voluntary and truthful, form the basis for action. The record showed statements were recorded on two occasions and no contemporaneous retraction was made; the first meaningful retraction was raised only in the reply to the show cause notice and was vague. The adjudicating authority and Tribunal were entitled to disbelieve the belated and unparticularised retraction and to rely on the original recorded statements as part of the material supporting the conclusion that the CHA's obligations were breached. [Paras 13, 14, 15]

The adjudicator rightly treated the Section 108 statements as admissible evidence and rejected the late, vague retraction; reliance on those statements in upholding revocation was justified.

Proceedings under CHALR distinct from penalty proceedings under the Customs Act - proceedings under CHALR distinct from penalty proceedings under the Customs Act - Whether the order dropping penalty proceedings under the Customs Act (against the appellant) precluded or rendered impermissible the separate proceeding under CHALR to revoke the CHA licence. - HELD THAT: - The Court examined the order dated 05.01.2012 which dropped penalty proceedings under Section 114(i) against the appellant and its Managing Director. That order recorded factual conclusions and also accepted that, at best, the CHA could be proceeded against under the Regulations. The adjudicator on remand correctly interpreted the two tracks as distinct: an order dropping penalty under the Customs Act does not amount to an exoneration that prevents independent regulatory action under CHALR. The Tribunal's remand to consider the preventive order was honoured; the Commissioner on fresh adjudication explained why the dropped penalty did not negate the regulatory findings and proceeded to revoke the licence based on CHALR non compliance. Consequently the earlier dropping of penalty had no dispositive effect on the licence revocation proceedings. [Paras 14, 15, 16, 17, 24]

The order dropping penalty proceedings under the Customs Act does not bar separate regulatory action under CHALR; the revocation on CHALR grounds was sustainable.

Doctrine of proportionality in administrative punishment - revocation of CHA licence for contravention of CHALR obligations - Whether revocation of the CHA licence was disproportionate punishment in the facts of the case. - HELD THAT: - Applying established principles of proportionality and Wednesbury/CCSU review, the Court observed that proportionality review is limited and intervention is warranted only where a decision is illegal, procedurally improper, irrational or outrageously disproportionate. On the facts the appellant had admitted not receiving authorization directly from the exporter, allowed unapproved persons to handle clearance, and the documentary authorization was suspicious. The adjudicator had considered mitigating authorities (including decisions raising proportionality concerns) but found aggravating factors such as lending the licence and failing supervisory duties in a context of attempted smuggling of a rare natural resource. The Court found no perversity, illegality or irrationality in the decision making process and declined to substitute its own view of penalty; revocation was not shown to be disproportionate. [Paras 29, 30, 31, 33, 34]

The penalty of revocation (and forfeiture of security) is not disproportionate on the material before the authorities and is accordingly upheld.

Final Conclusion: The High Court affirms the Tribunal and the adjudicating authority: the CHA licence was lawfully revoked and the security forfeited for breach of CHALR obligations; the Section 108 statements were admissible and belated retraction was rightly rejected; the earlier dropping of penalty under the Customs Act did not preclude separate regulatory action; and the punishment of revocation was not disproportionate.

Dispensation of meetings under Section 230(9) - Consent affidavits of shareholders and creditors - Scheme of Amalgamation - Compliance with notice requirement under Section 230(5) and Rule 8

Dispensation of meetings under Section 230(9) - Consent affidavits of shareholders - Meetings of shareholders of the applicant companies dispensed with - HELD THAT: - The Tribunal recorded that all shareholders of the applicant companies had filed consent affidavits agreeing to the proposed Scheme of Amalgamation. Having considered the affidavits and documents placed on record, the Tribunal found that the statutory condition for dispensing with convening meetings of shareholders under Section 230(9) of the Companies Act, 2013 is satisfied and therefore the meetings of the shareholders could be dispensed with. [Paras 16]

Meetings of shareholders of the applicant companies are dispensed with under Section 230(9).

Dispensation of meetings under Section 230(9) - Consent affidavits of secured creditors - Meeting of secured creditors of the applicant/transferee company dispensed with - HELD THAT: - The Tribunal noted that the secured creditors had filed consent affidavits agreeing to the proposed Scheme. On that basis the Tribunal concluded that the requirement to convene a meeting of secured creditors may be dispensed with in terms of Section 230(9) of the Act. [Paras 17]

Meeting of secured creditors of the applicant/transferee company is dispensed with under Section 230(9).

Dispensation of meetings under Section 230(9) - Consent affidavits of unsecured creditors - Meetings of unsecured creditors of the applicant companies dispensed with - HELD THAT: - The Tribunal found that the unsecured creditors had given consent affidavits in favour of the Scheme. Consequently, the Tribunal held that the meetings of unsecured creditors could be dispensed with pursuant to Section 230(9) of the Companies Act, 2013. [Paras 18]

Meetings of unsecured creditors of the applicant companies are dispensed with under Section 230(9).

Compliance with notice requirement under Section 230(5) and Rule 8 - Scheme of Amalgamation - Direction to send statutory notices to specified authorities and period for representations - HELD THAT: - The Tribunal directed compliance with the notice and filing obligations under sub section (5) of Section 230 and Rule 8 of the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016. The applicant companies were ordered to send the prescribed notices with a copy of the Scheme, explanatory statement and disclosures to the Regional Director (South Eastern Region), Registrar of Companies, Income Tax Authorities and the Official Liquidator by Registered Post/Speed Post/Hand Delivery as required. The authorities were afforded thirty days from receipt of such notice to make any representation to the Tribunal; failure to do so would be treated as absence of objection. [Paras 19]

Applicant companies to send statutory notices as directed and authorities given 30 days to file representations, failing which no representation will be deemed to exist.

Final Conclusion: The Company Application CA(CAA) No. 2/230/AMR/2022 is allowed and disposed of; meetings of shareholders, secured creditors and unsecured creditors are dispensed with as directed, and the applicant companies are directed to comply with the statutory notice requirements permitting authorities thirty days to respond.

Dispensing with convening of meetings under Sections 230-232 of the Companies Act, 2013 - Dispensation of creditors' meetings where 90% value creditors assent under Section 230(9) - Consent-affidavits constituting unanimous shareholder approval in lieu of meetings - No requirement to convene meetings where no secured creditors exist - Tribunal's power to sanction schemes of amalgamation on record and affidavits

Dispensing with convening of meetings under Sections 230-232 of the Companies Act, 2013 - Consent-affidavits constituting unanimous shareholder approval in lieu of meetings - Dispensation of convening and holding meetings of shareholders of the Transferor and Transferee companies. - HELD THAT: - The Tribunal examined the consent affidavits filed on behalf of all equity shareholders of the Transferor Company (constituting 100% in value and number) and of the Transferee Company (constituting 100% in value and number). Having perused the affidavits and the documents filed with the Scheme, and considering the settled law that permits dispensing with meetings where shareholders have given consent, the Tribunal directed that the requirement to convene and hold meetings of shareholders of both companies is dispensed with. [Paras 14]

Meetings of shareholders of both the Transferor and Transferee companies are dispensed with.

Dispensation of creditors' meetings where 90% value creditors assent under Section 230(9) - No requirement to convene meetings where no secured creditors exist - Whether meetings of secured and unsecured creditors of the Applicant companies must be convened or may be dispensed with. - HELD THAT: - The Tribunal found that the Transferor Company has no secured creditors and that the Transferee Company has no secured creditors; therefore, convening meetings of secured creditors did not arise. As to unsecured creditors, the Transferor Company's unsecured creditors and the Transferee Company's unsecured creditors had placed consent affidavits on record. Relying on Section 230(9) and settled principles, the Tribunal held that where creditors (or a class of creditors) whose concurrence in value meets the statutory threshold have filed affidavits of consent, the Tribunal may dispense with calling meetings of such creditors. Consequently, the necessity of convening meetings of unsecured creditors in respect of both companies was dispensed with. [Paras 14]

No meetings are to be convened for secured creditors (none exist) and meetings of unsecured creditors are dispensed with in both companies.

Tribunal's power to sanction schemes of amalgamation on record and affidavits - Consent-affidavits constituting unanimous shareholder approval in lieu of meetings - Power of the Tribunal to permit filing and sanction of the Scheme of Amalgamation on the record produced and to allow the application CA (CAA) 20 (ND) of 2022. - HELD THAT: - The Tribunal considered the application under Sections 230-232 of the Companies Act, 2013 and the Rules, the statutory auditors' certificates confirming accounting treatment, the audited financial statements, and the No Objection Letter from the Reserve Bank of India. Satisfied that statutory requirements and supporting certifications were in order, and having dispensed with the convening of required meetings on the basis of unanimous consent affidavits and absence of secured creditors, the Tribunal exercised its power to permit the filing and sanction proceedings and allowed CA (CAA) 20 (ND) of 2022. [Paras 13, 14, 15]

Application CA (CAA) 20 (ND) of 2022 is allowed and directions given to permit sanctioning of the Scheme on the record produced.

Final Conclusion: The Tribunal, having considered the scheme, affidavits of unanimous shareholder and creditor consent, auditors' certificates and RBI no-objection, dispensed with convening meetings of shareholders and unsecured creditors of both companies (secured creditors being non-existent) and allowed CA (CAA) 20 (ND) of 2022 to proceed for sanction of the amalgamation.

Extinguishment of pre-CIRP debts by approved Resolution Plan - primacy of the Insolvency and Bankruptcy Code over inconsistent laws (Section 238) - licensee's rights to recover dues and to withhold reconnection under the Electricity Act (Section 56) - pendency of an appeal does not operate ipso facto as a stay - waiver/estoppel by acceptance of payment - obligation to supply electricity under the Electricity Act (Section 43)

Extinguishment of pre-CIRP debts by approved Resolution Plan - primacy of the Insolvency and Bankruptcy Code over inconsistent laws (Section 238) - Pre-CIRP electricity dues claimed by the licensee survive or are extinguished upon approval of the Resolution Plan by the NCLT. - HELD THAT: - The court held that where disconnection occurred prior to commencement of CIRP the dues claimed under the Electricity Act pertain to that juncture and are therefore pre-CIRP debts. Applying the scheme of the IBC and the principles in decisions such as Essar Steel and Ghanshyam Mishra, approval of a Resolution Plan by the NCLT extinguishes pre-CIRP debts of the corporate debtor as to the successful resolution applicant. Section 238 gives the IBC primacy over inconsistent provisions of other laws; consequently, although the Electricity Act confers rights on a licensee to recover dues and withhold reconnection, those rights become illusory if the underlying dues have been extinguished by the approved Resolution Plan. The court therefore concluded that the DVC's claim to pre-CIRP dues did not survive the approval of the Resolution Plan. [Paras 30, 31, 32, 33, 34]

All pre-CIRP electricity dues of the petitioner-company stand extinguished by the NCLT-approved Resolution Plan; the DVC has no surviving claim to withhold reconnection on that ground.

Pendency of an appeal does not operate ipso facto as a stay - Whether the pendency of the appeal before the NCLAT against approval of the Resolution Plan prevents implementation of the approved Plan. - HELD THAT: - The court observed that mere pendency of an appeal does not operate automatically as a stay of the impugned order. In the absence of any specific stay being granted by the appellate forum, the approved Resolution Plan remains operative and the successful resolution applicant may seek its implementation. Thus pendency of the DVC's appeal before the NCLAT does not, by itself, bar restoration of electricity in accordance with the approved Plan. [Paras 35]

The pendency of the appeal before the NCLAT does not restrain the petitioners from enforcing the approved Resolution Plan in the absence of an express stay.

Waiver/estoppel by acceptance of payment - Whether the DVC's acceptance of the tendered amount operates as a waiver or estoppel against claiming pre-CIRP dues or withholding reconnection. - HELD THAT: - The court noted that the DVC accepted a payment from the petitioners after the NCLT's approval of the Resolution Plan. Such acceptance was treated as capable of constituting a waiver of any right the DVC might have had to discontinue supply or insist upon pre-CIRP dues, thereby supporting the petitioners' entitlement to restoration of supply. [Paras 38]

Acceptance by the DVC of the tendered amount after approval of the Resolution Plan can be construed as waiver of any right to discontinue supply on the basis of pre-CIRP dues.

Contempt undertaking distinct from implementation remedies - Whether the petitioners' undertaking before the NCLAT not to initiate contempt proceedings precludes the writ court from directing implementation of the approved Resolution Plan. - HELD THAT: - The court differentiated contempt jurisdiction from execution or implementation of orders, observing that a submission not to initiate contempt proceedings is distinct and does not bar the petitioners from seeking implementation of the validly approved Resolution Plan until and unless it is set aside by the appellate forum. The undertaking was therefore not a bar to the present writ relief. [Paras 36]

The undertaking before the NCLAT not to initiate contempt proceedings does not prevent the petitioners from seeking and obtaining implementation of the approved Resolution Plan in the writ court.

Obligation to supply electricity under the Electricity Act (Section 43) - licensee's rights to recover dues and to withhold reconnection under the Electricity Act (Section 56) - Whether the DVC is obligated to restore electricity supply to the petitioner-company in view of the approved Resolution Plan and other attendant circumstances. - HELD THAT: - Balancing the parties' positions and considering that the approved Resolution Plan extinguished pre-CIRP dues, the absence of a stay of the Plan, the limited nature of the petitioners' undertaking, and the DVC's acceptance of payment (construed as waiver), the court found the balance of convenience in favour of restoration. Restoration would allow the resolution plan to operate and prevent the going concern from being undone; restoration, if subsequently required, would not be irreversible to the DVC. The court therefore directed immediate restoration subject to payment of reconnection charges and subject to the final result of the pending appeal which, if successful, may affect the Plan's operation. [Paras 25, 37, 39]

DVC directed to restore electricity supply within four weeks on payment of reconnection charges, subject to the final result of the pending appeal which may affect the approved Resolution Plan.

Final Conclusion: The writ petition was allowed: the Court held that the NCLT-approved Resolution Plan extinguished pre-CIRP electricity dues, that mere pendency of the appeal does not stay implementation, that the DVC's acceptance of post-approval payment amounted to waiver, and accordingly directed restoration of electricity to the petitioner-company within four weeks on payment of reconnection charges, subject to the outcome of the pending appeal.

Priority payment of operational dues post-CIRP - public sector enterprise and public interest in funding of CIRP - duty of Committee of Creditors to consider interim commercial payments to operational creditors - leave to amend to add necessary party

Priority payment of operational dues post-CIRP - public sector enterprise and public interest in funding of CIRP - duty of Committee of Creditors to consider interim commercial payments to operational creditors - Committee of Creditors directed to reconsider payment to MSEDCL and convene a meeting to give instructions on payment of dues - HELD THAT: - The Court recorded that MSEDCL is a State Government enterprise and that any loss suffered by it on account of non-payment for power supply would ultimately be borne by the general public; consequently the Court suggested that the COC should seriously consider paying MSEDCL all dues arising after commencement of CIRP on a priority basis from sale proceeds. The COC's decision of 22.04.2022 not to pay further amounts was noted, but the Court rejected the contention that logistical difficulty would prevent an emergency meeting. Accordingly the COC was directed to convene a meeting by 9.00 a.m. on 02.05.2022 and give instructions to its counsel, with the clear statement that no further time would be granted and the Court would proceed thereafter. The direction is precautionary and operative to secure reconsideration by the COC in light of public interest concerns, whilst preserving the adjudicatory process in the NCLT regarding the resolution plan. [Paras 5, 6, 7]

COC directed to hold a meeting by 9.00 a.m. on 2.5.2022 to reconsider and give instructions regarding payment to MSEDCL; the Court emphasised public interest considerations and refused further adjournment.

Leave to amend to add necessary party - Leave to amend the petition to add the Committee of Creditors as respondent No.4 granted - HELD THAT: - The petitioner tendered a draft amendment to add the Committee of Creditors as respondent No.4; the Court took the amendment on record, marked the draft for identification and granted leave to amend. The amendment was directed to be carried out by 30.4.2022, and only the relevant cause-title page needed to be supplied to the respondents who already had copies of the petition. [Paras 8, 9]

Amendment allowed; Committee of Creditors to be added as respondent No.4 and amendment to be completed by 30.4.2022.

Final Conclusion: The High Court, invoking public interest concerns arising from MSEDCL being a State enterprise, directed the Committee of Creditors to urgently reconvene and reconsider payment of post CIRP dues to MSEDCL, and granted leave to the petitioner to amend the petition to add the Committee of Creditors as a respondent.

Dissolution of corporate debtor under Section 54 of the Insolvency and Bankruptcy Code, 2016 - liquidator's report on completion of liquidation process - treatment of long standing loans and advances as bad debts - stakeholders' consultation under Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016 - compliance with Regulation 45 and Regulation 47 of the IBBI (Liquidation Process) Regulations, 2016 - direction for payment of outstanding CIRP and liquidation expenses by sole stakeholder - updating corporate status and consignment of records to Registrar of Companies

Dissolution of corporate debtor under Section 54 of the Insolvency and Bankruptcy Code, 2016 - liquidator's report on completion of liquidation process - Whether the corporate debtor should be dissolved on completion of the liquidation process. - HELD THAT: - The Tribunal considered the liquidator's application under Section 54 of the Code and the material placed on record including the preliminary report, the expert report on recoverability of assets, the stakeholders' consultation, closure of bank accounts and the Form H compliance report. It was found that the corporate debtor had no movable or immovable assets aside from certain trade receivables and loans and advances which were reported as not recoverable; the liquidation process had been conducted in accordance with the prescribed regulations and there was nothing remaining to be realized. In light of these findings and the Stakeholder Consultation Committee's concurrence that recovery was doubtful and dissolution was appropriate, the Tribunal concluded that there was no impediment to granting dissolution and ordered the corporate debtor to stand dissolved from the date of the order. [Paras 16, 17]

Application under Section 54 is allowed and the corporate debtor M/s. SAKA Limited is dissolved.

Treatment of long standing loans and advances as bad debts - stakeholders' consultation under Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016 - Whether the loans and advances shown in the books could be treated as irrecoverable and the effect of the Stakeholders Consultation Committee's decision. - HELD THAT: - An expert report by chartered accountants concluded that loans and advances (and certain excise duty) were not recoverable and should be considered bad debts. The liquidator issued demand notices to the debtors; two notices were returned undelivered and one delivered notice received no response. The report and the recoverability position were placed before the Stakeholder Consultation Committee, which-being a sole stakeholder-agreed with the expert opinion, authorised recovery steps for the remotely recoverable sum but accepted that overall recovery was doubtful and authorised the liquidator to seek dissolution. The Tribunal took these proceedings and the committee's concurrence into account in concluding that assets could not be realized. [Paras 6, 8, 9, 10, 11]

The loans and advances were treated as not recoverable in the liquidation exercise, and the Stakeholder Consultation Committee's concurrence supported the decision to seek dissolution.

Compliance with Regulation 45 and Regulation 47 of the IBBI (Liquidation Process) Regulations, 2016 - liquidator's report on completion of liquidation process - Whether the liquidation process and statutory compliance required for dissolution were fulfilled. - HELD THAT: - The liquidator filed the compliance report in Form H and stated that the liquidation process was conducted as per timelines indicated in Regulation 47, with Form H placed on record as required by Regulation 45(3). Bank accounts had been closed and no proceedings for avoidance of preferential transactions were pending. On this basis the Tribunal was satisfied that the necessary procedural and regulatory steps for completing liquidation had been complied with, supporting the order for dissolution. [Paras 12, 13, 14, 15]

The liquidation process and statutory compliance under the relevant IBBI Regulations were found to be fulfilled.

Direction for payment of outstanding CIRP and liquidation expenses by sole stakeholder - Whether the sole stakeholder should be directed to pay outstanding CIRP and liquidation expenses. - HELD THAT: - The record showed outstanding CIRP expenses and liquidation expenses remaining unpaid by the sole stakeholder. Having found dissolution appropriate and that limited expenses remained outstanding, the Tribunal directed the sole stakeholder (Adonis Electronics Private Limited) to pay the remaining CIRP cost and specified liquidation expenses to the liquidator. [Paras 13, 18]

The sole stakeholder is directed to pay the outstanding CIRP cost and liquidation expenses as ordered.

Updating corporate status and consignment of records to Registrar of Companies - Post dissolution administrative actions to be taken by the Tribunal and Registry. - HELD THAT: - Upon dissolution and finding that no proceedings were pending, the Tribunal directed the Registry to close the case file, consign proceedings to records, and furnish a copy of the order to concerned authorities and the Registrar of Companies for updating the corporate debtor's master data and for further action as prescribed by law. [Paras 19]

Registry directed to close the file, consign records and forward order to authorities and Registrar of Companies for updating records.

Final Conclusion: The Tribunal allowed the liquidator's application under Section 54, found that the liquidation process and regulatory compliance had been completed, treated the remaining loans and advances as not recoverable with the Stakeholder Consultation Committee's concurrence, ordered dissolution of M/s. SAKA Limited, directed the sole stakeholder to pay outstanding CIRP and liquidation expenses, and directed administrative steps for consignment of records and updating the Registrar of Companies.

Operational debt - default under Section 9 of the Insolvency and Bankruptcy Code, 2016 - pre-existing dispute - appointment of interim resolution professional - declaration in Form 2 for eligibility of IRP - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016

Operational debt - default under Section 9 of the Insolvency and Bankruptcy Code, 2016 - There exists an operational debt due from the Corporate Debtor and the Corporate Debtor has defaulted in making payment of the amount due and has accepted the default. - HELD THAT: - The Tribunal noted the pleadings, documents and oral submissions and recorded that the Corporate Debtor, through its counsel and on instructions, admitted the debt and default during proceedings. Having considered the contract, invoices, communications and the conduct of the parties, the Adjudicating Authority concluded that an operational debt was due and payable and that default had occurred and been acknowledged by the Corporate Debtor. [Paras 5, 6]

Operational debt established and default admitted; entitlement to proceed under Section 9 established.

Pre-existing dispute - There was no pre-existing dispute between the parties which would bar the petition under Section 9. - HELD THAT: - The Tribunal examined the Corporate Debtor's contention that contractual terms were one-sided and that a dispute existed. It observed that the Corporate Debtor had executed, extended and amended the contract in 2014 and subsequent years and had not raised any such dispute prior to filing the reply. In absence of any contemporaneous or pre-existing dispute on record, the claim of a dispute was rejected. [Paras 6]

No pre-existing dispute found; defence of pre-existing dispute is not available to the Corporate Debtor.

Appointment of interim resolution professional - declaration in Form 2 for eligibility of IRP - The Interim Resolution Professional proposed by the Operational Creditor was confirmed as IRP after noting his Form 2 declaration and absence of disciplinary proceedings. - HELD THAT: - Relying on the statutory framework requiring the Adjudicating Authority to appoint the Resolution Professional proposed by the Operational Creditor where no disciplinary proceedings are pending, the Tribunal noted that Mr. Vinod Radhakrshnan Nair submitted the requisite declaration in Form 2 and agreed to accept appointment. The Bench therefore confirmed his appointment and directed him to take steps as required under the Code and file his report within thirty days. [Paras 6]

Proposed IRP confirmed and directed to perform duties and file report within the prescribed time.

Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - A moratorium in terms of Section 14 of the Code was imposed with immediate effect. - HELD THAT: - Upon admission of the application and confirmation of the IRP, the Tribunal imposed the statutory moratorium. The order specified the usual prohibitions on institution or continuation of suits and proceedings, transfer or disposal of assets, enforcement of security interests and recovery of property, and noted exceptions and the temporal effect tied to completion of the CIRP or approval of a resolution plan or liquidation order. [Paras 6]

Statutory moratorium imposed forthwith and to continue until completion of CIRP or as otherwise provided by the Code.

Final Conclusion: The Tribunal admitted the Section 9 application, holding that an operational debt existed and default was admitted by the Corporate Debtor, found no pre-existing dispute, confirmed the Operational Creditor's proposed IRP on production of Form 2 declaration, and imposed the statutory moratorium with directions for communication of the order.

Approval of Resolution Plan under Section 31 of the Insolvency and Bankruptcy Code - Compliance with requirements of Section 30(2) of the Insolvency and Bankruptcy Code - Payment to Operational Creditors under Section 30(2)(b) and liquidation-value floor - Limited role of the Adjudicating Authority and deference to Committee of Creditors' commercial wisdom - Compliance with CIRP Regulations including Regulation 38, Regulation 39 and Form H certification - Resolution Plan must not contravene existing law (Section 30(2)(f))

Compliance with requirements of Section 30(2) of the Insolvency and Bankruptcy Code - Approval of Resolution Plan under Section 31 of the Insolvency and Bankruptcy Code - Compliance with CIRP Regulations including Regulation 38, Regulation 39 and Form H certification - Resolution Plan approved by the Adjudicating Authority after satisfaction that it meets the requirements of Section 30(2) and related CIRP Regulations. - HELD THAT: - The Tribunal examined the Resolution Plan against the statutory checklist in Section 30(2) and the regulatory requirements under Regulation 38 and Regulation 39. The Resolution Professional filed the Form H compliance certificate and the record showed provision for payment of 100% CIRP costs, vesting of management with the Resolution Applicant, implementation and monitoring mechanisms including a Monitoring Committee, and certification that the Plan does not contravene any law. The Liquidation Value and the quantum proposed in the Plan were considered; the Plan proposes payments and infusion far in excess of the Liquidation Value and was approved by the sole financial creditor holding 100% votes. Relying on the limited role of the Adjudicating Authority to test statutory compliance and not to substitute commercial wisdom of the CoC, the Tribunal found that statutory and regulatory requirements were satisfied and the Plan could be approved under Section 31. [Paras 12, 13, 16, 17]

Application for approval of the Resolution Plan (IA-2946/2021) is allowed and the Resolution Plan approved; the Plan shall become effective from the date of this order.

Payment to Operational Creditors under Section 30(2)(b) and liquidation-value floor - Limited role of the Adjudicating Authority and deference to Committee of Creditors' commercial wisdom - Objection by the Operational Creditor that the Resolution Plan is discriminatory for not providing payment to Operational Creditors was rejected and the objection dismissed. - HELD THAT: - The Operational Creditor contended that the Plan must provide to operational creditors not less than what they would receive on liquidation. The Tribunal noted that the Resolution Plan contains no provision for payment to Operational Creditors, but on review found the Plan proposes overall realisations exceeding the Liquidation Value, was approved by the CoC with 100% vote, and does not contravene the Code. The Tribunal emphasised its limited role and that it cannot interfere with the commercial decision of the CoC where statutory requirements are met. On that basis the objection under Section 60(5) was rejected. [Paras 14, 15]

IA-4103/2021 filed by the Operational Creditor is dismissed and the objection to the Resolution Plan is rejected.

Resolution Plan must not contravene existing law (Section 30(2)(f)) - Consequences upon approval: cessation of moratorium and filing of records with IBBI - Consequential and administrative actions on approval: adherence to applicable laws, cessation of moratorium, forwarding of CIRP records to IBBI, and effectiveness of the approved Plan. - HELD THAT: - The Tribunal clarified that the Resolution Applicant must adhere to all applicable laws under the approved Plan and that any reliefs or concessions will be provided only as permitted by law. The Bench recorded that any pending avoidance-transaction proceedings, if decided in favour of creditors, will benefit the creditors as determined by the CoC. The moratorium under Section 14 ceases with this order. The Resolution Professional was directed to forward CIRP records and the approved Plan to IBBI for recording, and the approved Plan shall form part of the order and become effective from the date of the order. [Paras 18, 19, 20, 21, 22]

The Resolution Applicant must comply with applicable laws; moratorium ceases from the date of this order; RP to forward CIRP records to IBBI; the approved Resolution Plan is effective immediately and is made part of the order.

Final Conclusion: The Tribunal found that the Resolution Plan satisfied the statutory requirements of Section 30(2) and applicable CIRP Regulations, the Committee of Creditors had approved the Plan with 100% voting, the objection by the Operational Creditor was dismissed, and the Plan is approved under Section 31 and will become effective immediately; the moratorium stands vacated and the RP shall forward records to IBBI.

Operational Debt as defined under Section 5(21) of the IBC - Lease/Rental Dues arising from use of immovable property - Provision of services versus lease of immovable property - Corporate Insolvency Resolution Process - Binding precedential effect of recent NCLAT decisions - Leave and Licence/Service Agreement termination notice and notice period

Operational Debt as defined under Section 5(21) of the IBC - Lease/Rental Dues arising from use of immovable property - Provision of services versus lease of immovable property - Binding precedential effect of recent NCLAT decisions - Rental dues arising from use of office space do not constitute an operational debt under Section 5(21) of the Insolvency and Bankruptcy Code, 2016. - HELD THAT: - The Tribunal examined competing views of the National Company Law Appellate Tribunal. Earlier benches in M. Ravindranath Reddy and Jindal Steel & Power Ltd. held that rent of immovable property is not within the definition of operational debt, which is confined to claims in respect of provision of goods, provision of services (including employment) or statutory dues. A contrary view was taken in Anup Sushil Dubey, where lease rentals for commercial use were treated as a service. The Tribunal noted that the NCLAT in Promila Taneja has subsequently upheld the view in M. Ravindranath Reddy and held that lease of immovable property cannot be considered supply of goods or rendering of services and thus does not fall within operational debt. Although Promila Taneja is the subject of a pending appeal before the Supreme Court, no stay has been granted; consequently the Tribunal treated Promila Taneja as the binding position. Applying that binding precedent to the Service/Leave and Licence Agreements and the claim for unpaid rent, the Tribunal concluded that the claimed rental/lease dues do not qualify as operational debt and therefore the petition under section 9 for initiation of corporate insolvency resolution process was not maintainable.

Company Petition CP (IB) No. 99/BB/2021 dismissed as the rental dues do not constitute operational debt; petitioner free to pursue other remedies in law.

Final Conclusion: The petition under Section 9 IBC seeking initiation of corporate insolvency resolution process on account of unpaid rental dues is dismissed because such rental dues do not qualify as operational debt under the binding NCLAT precedent; no order as to costs, without prejudice to other legal remedies available to the petitioner.

Extended period of limitation - misrepresentation as a ground for invoking extended limitation - CENVAT credit set-off against service tax collected from customers - demand confirmed under the proviso to Section 73(1) of the Finance Act, 1994 notwithstanding reference to Section 73A - liability to deposit tax collected in cash where service tax was not leviable - refund or restitution to identifiable recipients of wrongly collected tax

Extended period of limitation - misrepresentation as a ground for invoking extended limitation - The Tribunal ruled against the appellant's plea to invoke the extended period of limitation on the ground of misrepresentation. - HELD THAT: - The Tribunal examined the appellant's contention that the extended period under the relevant law could be invoked because the respondent had misrepresented facts. The Tribunal rejected that contention and did not allow invocation of the extended limitation period in favour of the revenue. The High Court recorded this conclusion of the Tribunal in the impugned order and treated the point as disposed by the Tribunal. [Paras 3]

Tribunal's conclusion that extended limitation could not be invoked on the ground of misrepresentation was noted and left undisturbed by the High Court at this stage.

CENVAT credit set-off against service tax collected from customers - demand confirmed under the proviso to Section 73(1) of the Finance Act, 1994 notwithstanding reference to Section 73A - liability to deposit tax collected in cash where service tax was not leviable - The Tribunal did not confirm a demand under Section 73A and the demand in the order-in-original was affirmed under the proviso to Section 73(1), while the appellant contended that the tax collected should have been deposited in cash if service tax was not leviable. - HELD THAT: - The record shows that although the order-in-original refers to Section 73A and the Service Tax Rules, the demand was ultimately confirmed under the proviso to Section 73(1). The appellant argued alternatively that the tax collected from flat buyers was not leviable and therefore the entire amount should have been deposited in cash rather than adjusted by utilising unutilised CENVAT credit. The Tribunal did not accept the contention for invoking Section 73A, and the High Court noted this position in the impugned order without adjudicating the substantive merits of the alternative contention. [Paras 4, 5]

Tribunal did not confirm demand under Section 73A; the demand recorded in the order-in-original stands confirmed under the proviso to Section 73(1), and the appellant's alternative contention regarding deposit in cash was noted but not finally decided by the High Court.

Refund or restitution to identifiable recipients of wrongly collected tax - Whether money collected as service tax from flat buyers should be returned to those buyers, if they are identifiable, where the service tax was not leviable during the relevant period. - HELD THAT: - The High Court observed that a significant question arises with respect to restitution: if the service tax was not leviable for the period in question, the money collected from flat buyers ought to be returned to them where they can be identified. The Tribunal had not examined this aspect. The High Court therefore issued notice and directed the respondent to file a counter-affidavit addressing, among other matters, whether the purchasers of flats during the relevant period are identifiable, thereby requiring fresh consideration of restitution to buyers. [Paras 6, 9]

The question of returning the collected tax to identifiable flat buyers was not decided on merits and was directed to be examined afresh; parties to file affidavits addressing identifiability and related issues.

Final Conclusion: The High Court admitted the appeal, noted the Tribunal's rejection of invocation of the extended period and its not having confirmed a demand under Section 73A (the demand being recorded under the proviso to Section 73(1)), and remitted for fresh consideration the unexamined question whether tax collected from flat buyers (for July 2008 to January 2009) must be returned to identifiable purchasers; notice issued and directions given for affidavits, matter listed for further hearing.

Cenvat credit - Reversal of proportionate Cenvat credit - Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - Maintenance of separate records - Limitation - Appropriation of amounts - Imposition of penalty - Remand for fresh adjudication

Appropriation of amounts - Limitation - Remand for fresh adjudication - Whether the demand of Rs.16,17,000/- (April 2009 to May 2009) raised under Rule 6 read with Rule 14 can be finally adjudicated by the Tribunal or requires fresh examination by the original authority. - HELD THAT: - The Tribunal observed that the impugned order records payment by the appellant and appropriation of that payment, but it is not clear from the record whether a protest or specific objection was filed when the payment was made or the reason for payment. The adjudicating authority did not clearly address the appellant's contention that the demand is time-barred. Given these lacunae-uncertainty about protest, reason for payment and the limitation plea-the Tribunal held that the matter should be returned to the original authority for proper examination of these factual and legal aspects, including any claim for refund and the related penalty issues. [Paras 6, 11]

Demand set aside for reconsideration and remanded to the adjudicating authority for examination of protest, limitation and related penalty issues.

Cenvat credit - Reversal of proportionate Cenvat credit - Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - Remand for fresh adjudication - Whether the demand of Rs.1,94,104/- (relating to inputs allegedly used exclusively in exempted goods) and the related penalties can be sustained without fresh examination of the appellant's documentary proof of reversal and maintenance of records. - HELD THAT: - The impugned order confirmed the demand and penalty but records show the appellant accepted part of the demand and contended that balance was under scrutiny; the adjudicating authority did not have before it conclusive documentary proof to decide the remainder. The Tribunal noted that appellants have maintained separate records and that alleged irregular credit was not utilised for clearance of final product. While the Tribunal expressed the view that penalty may not survive judicial scrutiny on these facts, it refused to decide penalties finally and directed that the original authority re-examine on merits with regard to proof of reversal, maintenance of records and the appropriateness of penalty. [Paras 7, 11]

Matter remanded to original authority to examine documentary evidence of reversal, maintenance of records and to decide demand and penalties afresh.

Cenvat credit - Maintenance of separate records - Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - Remand for fresh adjudication - Whether the demands of Rs.7,78,03,800/- (24/06/2009 to 21/05/2011) and Rs.2,97,56,551/- (January 2011 to March 2012) for non-compliance with Rule 6(3)(i) should stand where the appellants assert they proportionately reversed common credit and maintained separate records. - HELD THAT: - The Tribunal found that the appellating submissions recorded in the impugned order indicated that proportionate credit was reversed and that separate records were maintained, but the adjudicating authority did not verify those claims with documentary evidence or make explicit findings on reversal and record-keeping. Consequently, the Tribunal directed that the original authority must examine whether proportionate Cenvat credit was actually reversed and whether required records were maintained, and decide the demands accordingly. [Paras 8, 9, 11]

Demands remitted to the adjudicating authority for fresh consideration of reversal of proportionate credit and maintenance of records.

Limitation - Reversal of proportionate Cenvat credit - Remand for fresh adjudication - Whether the pleas of limitation and reliance on earlier Tribunal orders and judgments relied upon by the appellants were properly considered and require fresh adjudication. - HELD THAT: - The Tribunal observed that the original authority did not adequately address the appellant's contention that the demand is time-barred and that prior decisions (including the appellants' own Final Order No.20568/2016 dated 27/06/2016) support their position. Given the importance of limitation pleas and precedent relied upon, the Tribunal directed the adjudicating authority to re-examine the limitation issue and the case law placed before it while deciding afresh. [Paras 6, 10, 11]

Limitation and precedent submissions to be examined afresh by the adjudicating authority on remand.

Final Conclusion: The Tribunal allowed the appeal by setting aside the impugned order and remanding the entire matter to the adjudicating authority for fresh consideration of (i) whether payments were protested and limitation/refund claims, (ii) whether proportionate Cenvat credit was reversed and supported by documents, (iii) maintenance of required records, and (iv) the correctness of imposition of penalties; the adjudicating authority is directed to consider the evidence and case law relied upon by the appellant, grant opportunity of personal hearing and pass a reasoned order.

Valuation under Section 4A with reference to retail sale price - Exclusion from Packaged Commodities Rules for packages > 25 kg and for industrial/institutional consumers - Routing through dealers/stockists does not change the industrial character of the goods - Applicability of Legal Metrology (Packaged Commodities) Rules to retail packages - Invocation of extended period of limitation in excise assessments - Imposition of penalty for alleged suppression

Valuation under Section 4A with reference to retail sale price - Exclusion from Packaged Commodities Rules for packages > 25 kg and for industrial/institutional consumers - Routing through dealers/stockists does not change the industrial character of the goods - Impugned goods in packages weighing more than 25 kg, which are intended for industrial use and marked 'for industrial use only', are not liable to valuation under Section 4A (MRP basis) merely because some clearances are routed through channel partners/dealers. - HELD THAT: - The Tribunal accepted that the goods are excisable, sold in packages and are notified for purposes of Section 4A, but the real controversy was whether the exclusion in the Packaged Commodities Rules applies when goods are routed through dealers. Relying on the nature and technical usage of the goods and the Karnataka High Court decision in Ewac Alloys, the Tribunal found that the character of the goods as industrial products is not altered by sales through intermediaries; a dealer/stockist is not the 'ultimate consumer' and routing through dealers does not convert an industrial package into a retail package. The Legal Metrology Rules exclude packages >25 kg and packages meant for industrial consumers from the Chapter II requirements; where the package unambiguously indicates industrial use and the goods are not put to use by individual consumers, Section 4A valuation cannot be imposed solely because sales pass through channel partners. The department produced no evidence that the goods were used by individual consumers. Applying the High Court ratio, the Tribunal set aside differential duty demands insofar as they were based on treating >25 kg packages sold via channel partners as falling under Section 4A. [Paras 15, 16, 17, 18, 20]

Differential duty demand under Section 4A set aside in respect of packages weighing more than 25 kg sold for industrial use notwithstanding sales through channel partners.

Invocation of extended period of limitation in excise assessments - The department has not made out a case for invoking the extended period of limitation for the demands in issue. - HELD THAT: - The appellant contested invocation of the extended period, asserting absence of suppression or intent to evade duty and reliance on divergent judicial views. The Tribunal found the appellant's contentions acceptable, noting prior show-cause proceedings on similar facts for earlier periods and that the department had not demonstrated fraud or suppression to justify extended limitation. The Tribunal observed the principle in Nizam Sugar that extended period cannot be invoked when the issue is the subject of ongoing dispute and prior notices. Accordingly, the extended period was not invoked for the challenged demands. [Paras 10, 19, 20]

Extended period of limitation not invokable; demands cannot be sustained on that ground.

Imposition of penalty for alleged suppression - Penalty imposed in relation to the demands is set aside. - HELD THAT: - The Tribunal accepted the appellants' submission that there was no suppression or intention to evade duty. Given the rejection of extended period invocation and absence of evidence of fraud or suppression, the Tribunal concluded that the imposition of penalty was unsustainable and directed that the penalty be set aside. [Paras 10, 20]

Penalty set aside.

Final Conclusion: The appeal is allowed partly: differential duty demands based on applying Section 4A to packages exceeding 25 kg sold for industrial use through channel partners are set aside; other demands within the normal period are confirmed; extended period invocation is rejected and the penalty is set aside.

Validity of pre-revision order under Section 27 TNVAT Act - Requirement of personal hearing under Section 27 TNVAT Act - Application of JKM Graphics principle regarding comparison of counterpart dealers' particulars - Right to cross-examine third party dealers and supply of documents in pre-revision proceedings - Maintainability of writ petition in presence of alternate statutory remedy - Effect of unexplained delay on invocation of writ jurisdiction - Exceptions to the alternate remedy rule (Whirlpool/Commercial Steel)

Application of JKM Graphics principle regarding comparison of counterpart dealers' particulars - Right to cross-examine third party dealers and supply of documents in pre-revision proceedings - Whether the pre-revision exercise under Section 27 could be set aside for failure to compare counterpart dealers' particulars or for refusal to permit cross examination and supply of documents. - HELD THAT: - The Court examined the factual matrix and distinctions from the authorities relied upon by the petitioner. JKM Graphics and Mangalam Stores were held distinguishable on facts: unlike those cases, the petitioner here had filed only a terse three sentence reply to the first pre revision notice, did not respond to a subsequent notice, and did not avail an offered personal hearing. The Assessing Officer had proceeded on the basis of further verification. On these facts it could not be said that there was no proper enquiry or that the procedure in the cited precedents was ignored. The petitioner's contention that counterpart particulars were not compared or that cross examination was denied thus did not furnish grounds for quashing the order under Section 27. [Paras 8]

The challenge based on non comparison of counterparts and denial of cross examination/documents is rejected; the pre revision order is not vitiated on those grounds.

Requirement of personal hearing under Section 27 TNVAT Act - Whether a personal hearing is statutorily imperative in proceedings under Section 27 of the TNVAT Act. - HELD THAT: - Relying on earlier decisions of the High Court, the Court reiterated that the common proviso to sub sections (1) and (2) of Section 27 does not make a personal hearing statutorily mandatory and that giving sufficient opportunity to show cause will suffice. Even though a personal hearing is not mandatory, the Assessing Officer in this case had offered one, which the petitioner did not avail. Since the hearing was optional and was afforded but not availed, absence of a personal hearing did not invalidate the proceedings. [Paras 8]

Personal hearing is not a statutory prerequisite under Section 27; absence of personal hearing in the facts of this case does not vitiate the order.

Maintainability of writ petition in presence of alternate statutory remedy - Effect of unexplained delay on invocation of writ jurisdiction - Exceptions to the alternate remedy rule (Whirlpool/Commercial Steel) - Whether the writ petition is maintainable notwithstanding the availability of a statutory appeal and an unexplained delay of nearly two years in approaching the High Court. - HELD THAT: - The Court applied the alternate remedy principle with particular rigor in fiscal matters. The petitioner had an efficacious statutory remedy by way of appeal under the TNVAT Act but did not pursue it and approached the Court almost two years after service of the impugned order, offering only a general reference to the pandemic as explanation for delay. The Court found the delay unexplained and noted that exceptions to the alternate remedy rule (breach of fundamental rights, violation of natural justice, excess of jurisdiction, challenge to vires) were not established on the facts. Authorities including Dunlop, Satyawati Tandon, K.C. Mathew and the recent exposition in Commercial Steel were applied to conclude that interference in writ jurisdiction was not justified in these circumstances. [Paras 8]

The writ petition is not maintainable; the availability of an alternate statutory remedy and the unexplained delay preclude interference in writ jurisdiction.

Final Conclusion: The writ petition challenging the order dated 14.01.2020 under Section 27 TNVAT Act is dismissed: the court found no procedural infirmity warranting quashing (comparison/cross examination and personal hearing issues were not established), the petitioner had an alternate statutory remedy which was not availed, and the unexplained delay in approaching the Court further disentitled relief; consequential interim application is also dismissed with no order as to costs.

Offence under Section 138 of the Negotiable Instruments Act - legally enforceable debt or other liability - presumption under Section 139 of the Negotiable Instruments Act - post-dated cheque issued as advance or security - quashing of criminal proceedings under Section 482 Cr.P.C.

Offence under Section 138 of the Negotiable Instruments Act - legally enforceable debt or other liability - post-dated cheque issued as advance or security - quashing of criminal proceedings under Section 482 Cr.P.C. - presumption under Section 139 of the Negotiable Instruments Act - Whether the complaint under Section 138 of the Negotiable Instruments Act is liable to be quashed at the threshold on the ground that the cheque was issued as a security or as an advance and therefore there was no legally enforceable debt. - HELD THAT: - The Court examined the statutory test that Section 138 penalises dishonour of a cheque issued in discharge of a legally enforceable debt or other liability, and that the presumption under Section 139 operates in favour of the holder once a cheque is shown to have been issued. However, whether a particular cheque was issued as a security or as an advance (and therefore whether a legally enforceable liability subsisted on the date of drawal) is a question of fact and a defence to be explored at trial. It is premature in exercise of power under Section 482 Cr.P.C. to quash proceedings merely on the basis of the contention that the cheque was furnished as security or advance; the drawer cannot, at the threshold, dictate the nature of the subsequent remedy. The Court accordingly refused to decide the factual contention that the cheque was a security or advance at this stage and held that such contentions must be adjudicated in the trial court, noting the statutory scheme embodied in Sections 138 and 139 and the established approach that factual disputes on these aspects are ordinarily not amenable to summary quashing. [Paras 8, 9, 10, 11, 12]

The petition to quash the complaint is dismissed and the allegation that the cheque was issued as security/advance is to be tried; continuation of the criminal proceedings is not barred at this stage.

Final Conclusion: The Criminal Petition under Section 482 Cr.P.C. seeking quashment of the complaint under Section 138 of the Negotiable Instruments Act is dismissed; the contested factual pleas that the cheque was post dated/issued as security or advance and that no legally enforceable debt subsisted must be determined at trial.

Prospective operation of Section 143A and interim compensation - Completion of offence under Section 138 - proviso clauses and the 15 day requirement - Distinction between commission of offence and accrual of cause of action - Reading precedent in context - ratio decidendi versus obiter

Completion of offence under Section 138 - proviso clauses and the 15 day requirement - Prospective operation of Section 143A and interim compensation - Reading precedent in context - ratio decidendi versus obiter - Whether the amended Section 143A (providing for interim compensation) was applicable to the complaint in Criminal Complaint No.1050 of 2018 in view of the dates on which the cheque was dishonoured, notice was served and the Amendment came into force. - HELD THAT: - The Court examined the interplay between the date of dishonour, service of notice and the date on which the offence under Section 138 is completed. Relying on the principle that all ingredients of Section 138 (as explained in Kusum Ingots and in Yogendra Pratap Singh) - including presentation, return of cheque, notice and the drawer's failure to pay within 15 days - must be satisfied for an offence to be said to be committed, the Court held that the offence is completed only after the 15 day period following receipt of notice expires without payment. The Court distinguished the observations in Dashrath Rupsing Rathod, noting that those statements that a cheque is "returned unpaid" constitute commission of the offence were made in the specific context of territorial jurisdiction; such observations must be read in context and not divorced from the issue then under consideration. Applying the substantive interpretation in Yogendra Pratap Singh, the Court noted the undisputed chronology: cheque dishonoured on 13.08.2018, notice received by accused on 20.08.2018, and the 15 day period expired on 04.09.2018. As the Negotiable Instruments (Amendment) Act, 2018 (including Section 143A) came into force on 01.09.2018, the offence in the present case was completed after the amendment came into force. Consequently Section 143A was properly invoked by the trial and revisional courts to direct interim compensation. [Paras 10, 32, 33]

The orders of the trial court and revisional court directing deposit of interim compensation under Section 143A were correct; the petition is dismissed.

Final Conclusion: The High Court dismissed the petition, holding that the offence under Section 138 was completed after expiry of the 15 day period (04.09.2018) and therefore the amended Section 143A, having come into force on 01.09.2018, applied; the orders directing interim compensation were upheld.

Quashing of summoning order under Section 482 Cr.P.C. - Prima facie case test - Offence under Section 138 Negotiable Instruments Act - Dishonour of cheque due to insufficiency of funds - Summoning for offence under Section 420 IPC - Abuse of process of court

Quashing of summoning order under Section 482 Cr.P.C. - Prima facie case test - Offence under Section 138 Negotiable Instruments Act - Dishonour of cheque due to insufficiency of funds - Summoning for offence under Section 420 IPC - Abuse of process of court - Validity of the Chief Judicial Magistrate's summoning order (dated 9.6.2000) in Criminal Case No.1609 of 2000 insofar as it summons the applicant for offences under Section 138 N.I. Act and Section 420 IPC, and whether the proceedings amount to an abuse of process warranting quashing under Section 482 Cr.P.C. - HELD THAT: - The High Court applied the prima facie test applicable at the stage of summoning and held that the learned Magistrate rightly examined the materials on record and was justified in concluding that a prima facie case was made out. The bank memo returned with the cheque indicated more than one ground for dishonour, including insufficiency of funds, and that reason is reflected in the complaint; therefore the contention that dishonour was solely due to overwriting (requiring drawer's attestation) and not insufficiency of funds raises triable issues but does not negate the existence of a prima facie case. Defences urged by the applicant - that the cheque was post dated, that no material was supplied, that the account was a cash credit account, and that the cheque was misused - relate to factual matters and merits which cannot be adjudicated in a Section 482 Cr.P.C. petition at the summoning stage. The Court further noted that the accused was also summoned for an offence under Section 420 IPC, which the applicant did not challenge; on the totality of materials there was nothing to demonstrate that continuation of the criminal proceedings would amount to an abuse of process or fall within the illustrative categories in State of Haryana v. Bhajan Lal warranting quashing.

The summoning order is lawful; no illegality or abuse of process is shown and the petition to quash the proceedings is dismissed.

Final Conclusion: The application under Section 482 Cr.P.C. seeking quashing of the summoning order is dismissed; the summoning for offences under Section 138 N.I. Act and Section 420 IPC stands and the contested factual and legal defenses are to be raised and decided in the trial court.

Conviction under Section 138 of the Negotiable Instruments Act - Admissible contemporaneous admission in insolvency proceeding as corroborative evidence - Factual findings of Trial and Appellate Courts not to be disturbed in absence of perversity - Benefit of set off for period spent in custody under Section 428 of the Code of Criminal Procedure - Default sentence in lieu of fine and its effect on applicability of set off under Section 428

Conviction under Section 138 of the Negotiable Instruments Act - Admissible contemporaneous admission in insolvency proceeding as corroborative evidence - Factual findings of Trial and Appellate Courts not to be disturbed in absence of perversity - The conviction of the petitioner for the offence under Section 138 of the N.I. Act and the rejection of her defence that the cheques were misused. - HELD THAT: - The petitioner admitted her signatures on the dishonoured cheques but maintained that she had not borrowed money and that the cheques were misused. The Trial Court relied upon the petitioner's admission in an insolvency petition that she was indebted to various persons including the respondents and owed them a sum, thereby finding the defence improbable and convicting her under Section 138. The Appellate Court confirmed these findings. On review of the judgments of the Trial and Appellate Courts, no ground of sufficient merit or perversity was shown to disturb the concurrent factual findings; therefore the courts below were held to have rightly rejected the defence and sustained the conviction. [Paras 3]

Conviction under Section 138 N.I. Act upheld; concurrent factual findings of Trial and Appellate Courts are not interfered with.

Benefit of set off for period spent in custody under Section 428 of the Code of Criminal Procedure - Default sentence in lieu of fine and its effect on applicability of set off under Section 428 - Whether the petitioner is entitled to set off under Section 428 Cr.P.C. for the period spent in custody in execution of default sentence in lieu of fine. - HELD THAT: - Section 428 Cr.P.C. permits setting off the period spent in custody against a sentence of imprisonment. The Trial Court did not impose a substantive sentence of imprisonment but directed simple imprisonment only in the event of default in payment of fine. The petitioner was taken into custody for failure to deposit the fine and has been serving the default sentence. Because the custody relates to enforcement of a default sentence (consequential imprisonment for non payment of fine) and not to an original substantive sentence of imprisonment, the court held that the period spent in such custody cannot be set off under Section 428. Accordingly, the submission for grant of set off under Section 428 was declined. [Paras 4, 5]

Benefit under Section 428 Cr.P.C. refused where custody is by virtue of serving default sentence in lieu of fine; no set off granted.

Final Conclusion: The revision petitions are dismissed; the conviction and concurrent factual findings under Section 138 N.I. Act are upheld and the petitioner is not entitled to set off under Section 428 Cr.P.C.; connected interim applications are disposed of.