TaxTMI Updates e-Newsletter
May 07,2025

Issues: Whether the writ appeal challenging the constitutionality of Section 174(2) of the Kerala State Goods and Services Tax Act, 2017 was liable to be dismissed in view of the earlier Division Bench decision, and whether liberty to pursue statutory remedies should be preserved.

Analysis: The appeal raised the same constitutional question already answered against the dealers in the earlier Division Bench decision. The Court applied that decision mutatis mutandis and treated the issue as covered. The accompanying liberty to pursue reply, appeal, or revision was left open in the same manner as in the earlier decision.

Conclusion: The challenge to the constitutionality of Section 174(2) was rejected, and the writ appeal was dismissed, while preserving the liberty to pursue the available statutory remedy.

Issues: Whether the show cause notice and consequential recovery action under Section 74 of the Central Goods and Services Tax Act, 2017, which were based on Circular No. 80/54/2018-GST dated 31.12.2018, called for interim protection pending consideration of the writ petition.

Analysis: The petitioner questioned the use of the circular as the basis for the notice and the adjudication order, pointing out that the circular had been set aside by another High Court and that the issue was pending consideration before the Supreme Court. It was also urged that the dispute related to classification of goods and, on the facts stated, the matter did not attract allegations of suppression.

Outcome: Counter affidavit was directed to be filed and, in the meantime, the respondents were restrained from taking coercive measures for recovery pursuant to the impugned order.

The core legal questions considered by the Court include:

- Whether the impugned orders of cancellation of GST registration passed without specifying the proper officer or providing adequate notice comply with the principles of natural justice.

- Whether the cancellation order, passed ex-parte without affording the petitioner an opportunity of hearing, violates the petitioner's fundamental rights under Article 19(1)(g) of the Constitution of India.

- Whether the appeal dismissal on the ground of limitation bars the petitioner from challenging the cancellation order on merits, particularly when no reasons were assigned in the original order.

- Whether the impugned orders satisfy the requirements of reasoned decision-making as mandated by Article 14 of the Constitution of India.

- The applicability of the doctrine of merger in the context of dismissal of appeal on limitation grounds when the original order is without reasons.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Show Cause Notice and Compliance with Principles of Natural Justice

Legal Framework and Precedents: The principles of natural justice require that a show cause notice must clearly specify the authority issuing it and the grounds for the proposed action, allowing the affected party an opportunity to respond. The GST procedural framework mandates issuance of a proper show cause notice before cancellation of registration.

Court's Interpretation and Reasoning: The Court observed that the show cause notice dated 6.9.2023 did not mention the name or designation of the proper officer before whom the petitioner was required to appear. This omission rendered the notice defective and non-compliant with legal requirements.

Key Evidence and Findings: Annexure No. 6 (the show cause notice) lacked identification of the issuing officer, which is fundamental for the petitioner to know the authority and respond effectively.

Application of Law to Facts: Since the notice was defective, the subsequent cancellation order passed ex-parte without affording the petitioner an opportunity to be heard violated the principles of natural justice.

Treatment of Competing Arguments: The State respondents supported the impugned order, but the Court emphasized the necessity of proper notice and hearing as a precondition for lawful cancellation.

Conclusion: The impugned cancellation order failed to meet the natural justice standards and was thus unsustainable.

Issue 2: Violation of Fundamental Rights under Article 19(1)(g)

Legal Framework and Precedents: Article 19(1)(g) guarantees the right to carry on any profession, trade, or business. Any restriction must be reasonable and comply with due process.

Court's Interpretation and Reasoning: The Court noted that the cancellation order adversely affected the petitioner's right to conduct business but was passed without application of mind or proper procedure, thus violating Article 19(1)(g).

Key Evidence and Findings: The absence of a proper notice and hearing, and the ex-parte nature of the cancellation, deprived the petitioner of the opportunity to defend its business interests.

Application of Law to Facts: The Court held that administrative action impacting fundamental rights must be reasoned and procedurally fair, which was lacking in this case.

Conclusion: The impugned orders violated the petitioner's fundamental rights under Article 19(1)(g).

Issue 3: Dismissal of Appeal on Grounds of Limitation and Doctrine of Merger

Legal Framework and Precedents: The GST law prescribes limitation periods for filing appeals. However, the doctrine of merger typically bars separate challenges once an appeal is decided on merits. The Apex Court in Whirlpool Corporation Vs. Registrar of Trade Marks held that orders devoid of reasons can be challenged despite dismissal of appeal on limitation grounds.

Court's Interpretation and Reasoning: The Court recognized that the appeal was dismissed solely on limitation grounds without adjudicating the merits. Since the original cancellation order did not assign any reasons, the doctrine of merger was held inapplicable.

Key Evidence and Findings: The appeal dismissal order dated 26.9.2024 was on limitation, and the original cancellation order dated 2.5.2023 lacked any reasoned explanation.

Application of Law to Facts: The Court relied on its own precedents, including M/s Surya Associates, to hold that absence of reasons in the original order permits challenge notwithstanding dismissal of appeal on limitation.

Treatment of Competing Arguments: The State argued that limitation barred the petitioner's challenge; the Court rejected this, emphasizing the need for reasoned orders.

Conclusion: The petitioner's challenge to the cancellation order is maintainable despite the appeal dismissal on limitation grounds.

Issue 4: Requirement of Reasoned Orders and Application of Article 14

Legal Framework and Precedents: Article 14 mandates equality before law and requires that administrative decisions be reasoned and based on application of mind. The Court's precedents stress that orders without reasons violate this constitutional mandate.

Court's Interpretation and Reasoning: The Court found that the impugned cancellation order was passed without any application of mind or assignment of reasons, failing the test of Article 14.

Key Evidence and Findings: The cancellation order dated 2.5.2023 was silent on reasons, and no opportunity was provided to the petitioner for hearing.

Application of Law to Facts: The Court held that such orders are arbitrary and cannot be sustained.

Conclusion: The impugned cancellation order violates Article 14 and is liable to be quashed.

3. SIGNIFICANT HOLDINGS

The Court held:

"Once the notice does not disclose that before which officer, the petitioner has to appear, the notice cannot be said to be proper in accordance with law."

"The impugned cancellation order has been passed without putting any proper notice or affording any opportunity of hearing to the petitioner, the same itself is in violation of principles of natural justice."

"The quasi judicial order which has an adverse effect on the right of the petitioner to run business as guaranteed under Article 19 of the Constitution of India, the same has been done without any application of mind which is neither the intent of the Act nor can it be held to be in compliance of the mandate of Article 14 of the Constitution of India."

"If no reason has been assigned for cancelling the registration, such order cannot sustain despite appeal being dismissed on the ground of laches, and the doctrine of merger will have no application."

"The impugned orders cannot sustain in the eyes of law and the same are hereby set aside."

"The matter is remanded to the adjudicating authority, who shall issue fresh notice to the petitioner mentioning the reason of the proposed cancellation of registration within a period of one week... The petitioner is directed to submit its reply within 21 days... and after submitting the reply... the adjudicating authority shall pass reasoned and speaking order... after affording due opportunity of hearing."

Core principles established include the necessity of proper and complete show cause notices identifying the issuing authority, the mandatory requirement of affording an opportunity of hearing before cancellation of GST registration, the constitutional mandate for reasoned orders complying with Articles 14 and 19(1)(g), and the non-applicability of the doctrine of merger where original orders lack reasons even if appeal is dismissed on limitation grounds.

Final determinations on each issue resulted in quashing the impugned cancellation orders and remanding the matter for fresh adjudication in compliance with procedural and constitutional mandates.

Outcome: The writ petition was disposed of after the proceedings initiated by the second respondent were transferred to the first respondent and the blocked credit ledger was stated to have been unblocked.

Issues: (i) Whether the appellate order rejecting input tax credit required reconsideration in view of the retrospective insertion of sub-section (5) in section 16 of the CGST Act and BGST Act; (ii) Whether recovery of the tax demand could be effected before the expiry of the statutory period prescribed under sections 78 and 79 of the CGST Act and BGST Act.

Issue (i): Whether the appellate order rejecting input tax credit required reconsideration in view of the retrospective insertion of sub-section (5) in section 16 of the CGST Act and BGST Act.

Analysis: The retrospective insertion of section 16(5) extended the time for availing input tax credit in respect of invoices or debit notes pertaining to the financial years 2017-18 to 2020-21, permitting credit in returns filed up to 30 November 2021. The appellate authority had not had occasion to consider this provision because it was inserted after the impugned order. The earlier rejection of the claim based solely on section 16(4) therefore could not stand without fresh consideration of the amended legal position.

Conclusion: The appellate order on input tax credit was set aside and the matter was remanded for fresh consideration, in favour of the assessee.

Issue (ii): Whether recovery of the tax demand could be effected before the expiry of the statutory period prescribed under sections 78 and 79 of the CGST Act and BGST Act.

Analysis: Section 78 grants three months from the date of service of the order for payment before recovery proceedings may begin, unless a shorter period is specifically fixed for recorded reasons. Section 79 provides the modes of recovery but operates after the amount has become recoverable in accordance with section 78. A conjoint reading of the two provisions shows that garnishee or other recovery modes cannot be invoked before the statutory waiting period expires. The recovery from the petitioner's bill was made within that protected period and without adherence to the statutory preconditions.

Conclusion: The recovery was held illegal and the amount recovered was directed to be refunded with interest, in favour of the assessee.

Final Conclusion: The writ petition succeeded to the extent that the appellate rejection was set aside for reconsideration and the premature recovery was invalidated, with consequential refund and interest directions.

Ratio Decidendi: A retrospective amendment enlarging the time to avail input tax credit must be applied by the appellate authority on fresh consideration, and recovery under the GST law cannot be initiated before the expiry of the statutory period for payment because the recovery machinery under section 79 operates only after liability becomes recoverable under section 78.

1. Whether the cancellation of the petitioner's GST Registration under the CGST Act, 2017 was lawful and in accordance with the prescribed statutory procedure.

2. Whether the impugned cancellation order complied with the requirements of a speaking order, including the obligation to assign reasons for cancellation.

3. Whether the petitioner was afforded a fair opportunity to respond to the Show Cause Notice and to be heard before cancellation.

4. The effect of delay in approaching the Court for relief against the cancellation order and the balance between procedural irregularity and delay.

Issue 1: Lawfulness and Procedural Compliance in Cancellation of GST Registration

The relevant legal framework comprises Section 29 of the CGST Act, 2017, which empowers the Proper Officer to cancel GST registration where a registered person has not furnished returns for a continuous prescribed period, and Rules 21 and 22 of the CGST Rules, 2017, which prescribe the procedure for cancellation.

Section 29(2)(c) authorizes cancellation if returns have not been furnished for a continuous period of six months. Rule 21(h) specifies that non-filing of returns for six continuous months renders registration liable to cancellation. Rule 22 prescribes the procedure, mandating issuance of a Show Cause Notice (Form GST REG-17), allowing seven working days for reply (Form GST REG-18), and the passing of an order of cancellation or dropping of proceedings in Form GST REG-19 or GST REG-20 respectively.

The Court noted that the Show Cause Notice dated 27.08.2020 was issued, but it failed to specify the exact period or months for which returns were not filed. The petitioner alleged that she did not receive the Show Cause Notice in time due to circumstances beyond her control, including the Covid-19 pandemic, and thus could not file a reply or appear for hearing. The Proper Officer's order dated 09.09.2020 cancelled the registration but did not specify reasons or the period of default.

The Court observed that the impugned order did not comply with the procedural requirements under Rule 22. The absence of specific details in the Show Cause Notice and the failure to assign reasons in the cancellation order undermined the legitimacy of the cancellation process.

Issue 2: Requirement of a Speaking Order and Assignment of Reasons

A speaking order is one that explicitly states the reasons for the decision, reflecting conscious application of mind and adherence to principles of natural justice. The Court emphasized that the cancellation of GST registration is a serious action with adverse civil consequences, and therefore the order must be reasoned.

The impugned order was found to be a non-speaking order, as it merely stated that the registration was liable to be cancelled without assigning any substantive reasons. The Court held that even if the petitioner failed to respond or appear, the Proper Officer was still obligated to record reasons for cancellation. The absence of reasons indicated lack of application of mind and rendered the order arbitrary and illegal.

The Court relied on the statutory prescription embedded in Rule 22(3) and the format of Form GST REG-19, which requires the Proper Officer to specify reasons for cancellation, thereby reinforcing the necessity of a speaking order.

Issue 3: Opportunity to be Heard and Consideration of Petitioner's Submissions

The Court examined whether the petitioner was given a fair opportunity to respond to the Show Cause Notice and to be heard. The Show Cause Notice required a reply within seven days and mentioned a personal hearing, but no date or time for such hearing was fixed or communicated.

The petitioner asserted that no reply was submitted and no personal hearing was attended, which was supported by an additional affidavit. The respondent failed to file any counter affidavit disputing these assertions. The Proper Officer's order, however, recorded that a reply dated 05.09.2020 and submissions at a personal hearing were considered, which the Court found to be factually incorrect.

The Court held that the absence of a fixed hearing date and the petitioner's inability to respond due to the Covid-19 situation compounded the procedural irregularities. The petitioner's inability to file an application for revocation or appeal within statutory time limits was noted but was not determinative given the procedural lapses on the part of the authority.

Issue 4: Effect of Delay in Filing the Writ Petition

The petitioner approached the Court nearly four years after the cancellation order. The respondent contended that the writ petition was barred by delay. The Court acknowledged the delay but weighed it against the fundamental procedural irregularity of the cancellation order being non-speaking and passed without application of mind.

The Court concluded that the vulnerability of the impugned order due to procedural defects outweighed the delay, especially considering the serious adverse consequences of cancellation on the petitioner's business and rights.

Conclusions and Directions

The Court set aside and quashed the impugned cancellation order dated 09.09.2020 on the ground that it was a non-speaking order passed without application of mind and not in conformity with the prescribed procedure under the CGST Act and Rules.

The matter was remitted back to the stage of issuance of the Show Cause Notice in Form GST REG-17, thereby restoring the procedural status quo ante.

The Court observed that under the proviso to Rule 22(4), if the petitioner is willing to furnish all pending returns and pay due taxes with interest and late fees, the Proper Officer is mandated to drop the cancellation proceedings and pass an order in Form GST REG-20.

The petitioner was granted a period of one month from the date of the judgment to avail either of the two options: (a) submit a reply to the Show Cause Notice showing cause against cancellation, or (b) furnish all pending returns and make full payment of dues including interest and late fees.

The Proper Officer was directed to provide the petitioner with details of outstanding dues upon request within the said period and thereafter proceed expeditiously to pass an appropriate order in accordance with the law within one month.

The Court declined to impose any costs.

Significant holdings and core principles established:

"An adjudicating authority exercising statutory power of cancelling registration under the CGST Act must record reasons for its decision, unless such obligation is expressly or impliedly dispensed with. It is implicit in the principles of natural justice and fair play that an adjudicating authority should record reasons as it is part of fair procedure, more particularly, when the decision is likely to affect the right of the person concerned."

"The absence of reasons in the decision falls short of the prescription and would be in violation of the prescription and thus, illegal."

"The fact that the petitioner-assessee did not submit any Reply to the Show Cause Notice or did not appear before the Proper Officer for personal hearing, with no date & time appointed by him, does not absolve the Proper Officer from the obligation of passing a speaking order as any order which brings adverse consequence to a person cannot be a mere paper formality."

"The vulnerability of the order of cancellation of registration due to non-compliance with statutory prescription of recording reasons far outweighs the delayed approach of the petitioner in seeking judicial remedy."

The Court's final determination was that the impugned cancellation order was illegal and liable to be quashed, and the matter must proceed afresh in accordance with the statutory procedure, ensuring the petitioner's right to be heard and a reasoned order.

1. Whether the cancellation of GST Registration under the CGST Act, 2017 was carried out in accordance with the prescribed statutory procedure and principles of natural justice.

2. Whether the impugned Order of cancellation is a speaking order that assigns valid reasons for cancellation as mandated by the CGST Rules, particularly Rule 22.

3. Whether the petitioner was given a fair opportunity to respond to the Show Cause Notice and participate in the cancellation proceedings.

4. Whether the petitioner's failure to file GST returns for a continuous period of six months justifies cancellation of registration under Section 29(2)(c) of the CGST Act and Rule 21(h) of the CGST Rules.

5. Whether the delay in approaching the Court for relief militates against the petitioner's entitlement to challenge the cancellation order.

6. What relief and directions are appropriate in light of the procedural deficiencies identified in the cancellation process.

Issue-wise Detailed Analysis:

1. Validity of Cancellation Procedure and Compliance with Statutory Requirements

The Court examined the relevant legal framework under the CGST Act, 2017 and the CGST Rules, 2017. Section 29(2)(c) empowers the Proper Officer to cancel GST registration if a registered person fails to furnish returns for a continuous period of six months. Rule 21(h) prescribes non-filing of returns for six continuous months as a ground for cancellation. Rule 22 prescribes the detailed procedure for cancellation, including issuance of a Show Cause Notice in FORM GST REG-17, opportunity to reply in FORM REG-18, and issuance of a speaking order of cancellation in FORM GST REG-19.

The Court noted that the Show Cause Notice dated 14.01.2023 was issued suspending the petitioner's registration and directing the petitioner to reply within thirty days and appear for personal hearing. However, the Show Cause Notice failed to specify the exact period of non-filing of returns, which is a material omission. The petitioner contended that the Show Cause Notice was not served manually and was only uploaded on the common portal, which escaped her notice, resulting in no reply being filed and no personal hearing attended.

The impugned cancellation order dated 18.03.2023 was found to be non-compliant with Rule 22(3) as it was not issued in FORM GST REG-19 and did not assign any reasons for cancellation. The order merely stated that the petitioner's registration was liable to be cancelled but did not specify the grounds or reasons, nor did it mention the period of default. The Court emphasized that a speaking order is mandatory to demonstrate application of mind and to comply with principles of natural justice.

The Court held that the absence of a speaking order and failure to specify the period of default rendered the cancellation order illegal and arbitrary. The Court further observed that the petitioner's assertion that no reply was filed and no personal hearing was attended was not controverted by the respondents, indicating a procedural lapse on the part of the Proper Officer.

2. Requirement of a Speaking Order and Application of Mind

The Court analyzed the concept of a speaking order and its significance in administrative adjudications. A speaking order must explicitly state the reasons for the decision, reflecting conscious application of mind and ensuring transparency and fairness. The Court found that the impugned order was a non-speaking order as it failed to assign any reasons for cancellation, contrary to the mandatory requirement under Rule 22(3) and FORM GST REG-19.

The Court underscored that even if the petitioner did not respond to the Show Cause Notice or attend the hearing, the Proper Officer is still obligated to pass a reasoned order. The absence of reasons amounted to non-application of mind and arbitrariness, violating the principles of natural justice and rendering the order liable to be quashed.

3. Opportunity to Respond and Personal Hearing

The Court found that the petitioner was directed to reply and appear for personal hearing but was unable to do so due to non-receipt of the Show Cause Notice by any means other than the common portal. The petitioner's claim of ignorance of the Show Cause Notice was supported by the lack of any reply or appearance on record and was not disputed by the respondents. The Court noted that the statutory procedure requires proper service of notice to enable the registered person to exercise the right to be heard effectively.

Given the procedural irregularities and absence of evidence of the petitioner's participation, the Court held that the petitioner was denied a fair opportunity of hearing, which vitiates the cancellation order.

4. Justification for Cancellation Based on Non-filing of Returns

The statutory provisions under Section 29(2)(c) and Rule 21(h) clearly provide for cancellation of registration if returns are not filed for six continuous months. The respondents submitted that the petitioner failed to file returns, justifying cancellation. The petitioner explained that the non-filing was during the Covid-19 pandemic period when the business was adversely affected and returns were nil.

The Court acknowledged the statutory power to cancel registration for non-filing but emphasized that such power must be exercised following due procedure and after affording opportunity to the registered person to explain and rectify the default. The Court found that the impugned order was silent on these aspects and that the petitioner's explanation was not considered in a reasoned manner.

5. Delay in Filing Writ Petition

The respondents contended that the writ petition was filed with delay of about one year from the date of cancellation. The Court considered this objection but held that the procedural infirmity of passing a non-speaking order with no reasons and denial of opportunity to be heard outweighed the delay. The Court reasoned that the adverse consequences of cancellation on the petitioner's business and rights necessitated judicial intervention despite the delay.

6. Relief and Directions

In view of the procedural defects, the Court set aside and quashed the impugned cancellation order dated 18.03.2023. The matter was remanded to the stage of issuance of the Show Cause Notice in FORM GST REG-17.

The Court directed that the petitioner be granted one month to either submit a reply to the Show Cause Notice showing cause why registration should not be cancelled or furnish all pending returns along with payment of tax dues, interest, late fees, and penalties, if any.

The Proper Officer was directed to provide the petitioner with details of outstanding dues upon request and thereafter proceed in accordance with the statutory procedure under Section 29 of the CGST Act and Rule 22 of the CGST Rules to pass an appropriate reasoned order either in FORM GST REG-19 (cancellation) or FORM GST REG-20 (dropping proceedings), within one month of receipt of the petitioner's response.

Significant Holdings:

"An adjudicating authority exercising statutory power of cancelling registration under the CGST Act must record reasons for its decision, unless such obligation is expressly or impliedly dispensed with. It is implicit in the principles of natural justice and fair play that an adjudicating authority should record reasons as it is part of fair procedure, more particularly, when the decision is likely to affect the right of the person concerned."

"If an order is passed without giving a reason by the concerned authority, then the order is a non-speaking one. Non-speaking order is one which does not provide a clear reason for its decision... any order which brings adverse consequence to a person cannot be a mere paper formality."

"The absence of reasons in the decision falls short of the prescription and would be in violation of the prescription and thus, illegal."

"The impugned Order dated 18.03.2023 is found to be one which is passed without any application of mind... cannot stand the scrutiny of law and is liable to be set aside and quashed."

"When the extent of vulnerability of the order of cancellation of registration is due to not meeting the statutory prescription of recording reasons is pitted against the delayed approach, the vulnerability of the order of cancellation of registration, due to statutory breaches, would far outweigh the delayed approach because of its likely adverse affect on a registered person."

The Court thus established the core principle that cancellation of GST registration must be preceded by a speaking order assigning valid reasons and following due procedure, including proper service of notice and opportunity of hearing. Failure to comply with these requirements renders the cancellation order invalid and subject to judicial review and quashing. The Court also emphasized the importance of balancing procedural compliance and substantive justice, especially in cases where cancellation has severe adverse consequences on the business and rights of the registered person.

Issues: (i) whether the benefit of extension of limitation granted by the Supreme Court during the pandemic applied to the assessing authorities under the sales tax regime; (ii) whether the assessment orders were barred by limitation under Rule 14A(5A) of the A.P. Central Sales Tax (A.P.) Rules.

Issue (i): whether the benefit of extension of limitation granted by the Supreme Court during the pandemic applied to the assessing authorities under the sales tax regime

Analysis: The rule extending limitation for litigants could not be treated as extending the statutory time available to the assessing authorities for completing assessments. The benefit of such extension was confined to parties approaching forums after expiry of limitation and did not enlarge the power period available under the taxing statute.

Conclusion: The extension of limitation did not apply in favour of the assessing authorities.

Issue (ii): whether the assessment orders were barred by limitation under Rule 14A(5A) of the A.P. Central Sales Tax (A.P.) Rules

Analysis: Rule 14A(5A) creates a deeming assessment if no assessment is made within four years from the date of filing of the return. Since returns under the Central Sales Tax regime are filed monthly by the 20th day of the succeeding month, the assessment power had to be exercised within four years from that due date. On the facts, the assessments for 2014-2015 and 2016-2017 were beyond time. For 2015-2016, the assessment for March 2016 could still be made, but the rest of the year was time-barred.

Conclusion: The assessments for 2014-2015 and 2016-2017 were barred by limitation, and the assessment for 2015-2016 was partly time-barred with only March 2016 left open for fresh assessment.

Final Conclusion: The writ petitions succeeded to the extent of setting aside the time-barred assessments, while preserving a limited remand for fresh assessment of March 2016 in one assessment year.

Ratio Decidendi: A general extension of limitation granted for litigants does not enlarge the statutory period for revenue authorities to complete assessments, and where the assessment rule prescribes a four-year outer limit from the return due date, assessments made beyond that period are invalid.

The core legal questions considered by the Court include:

• The validity and legality of Notification No. 09/2023-Central Tax dated 31st March 2023 and related notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 (GST Act), particularly whether the proper procedure, including the prior recommendation of the GST Council, was followed before issuance.
• The effect of conflicting High Court decisions on the validity of these notifications and the ongoing Supreme Court proceedings regarding the same.
• The procedural fairness concerning the issuance and adjudication of show cause notices (SCNs) and demand orders, specifically whether the Petitioner had adequate notice and opportunity to respond, given that SCNs were uploaded under the "Additional Notices and Orders" tab on the GST portal, which was not readily visible to the Petitioner.
• The applicability of limitation periods and the validity of rectification applications filed after prescribed time limits.
• The appropriate relief and procedural course to be followed pending the Supreme Court's final adjudication on the validity of the impugned notifications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Notification No. 09/2023-Central Tax and related notifications under Section 168A of the GST Act

The legal framework centers on Section 168A of the Central GST Act, which mandates that any extension of time limits for adjudication of show cause notices and passing of orders requires prior recommendation of the GST Council. The Petitioner challenged the impugned notification on grounds of procedural irregularity and non-compliance with this statutory requirement.

The Court noted that this issue is currently sub judice before the Supreme Court in S.L.P No. 4240/2025, involving similar notifications. Various High Courts have delivered conflicting judgments: the Allahabad and Patna High Courts upheld the validity of Notifications Nos. 9 and 56 of 2023, while the Guwahati High Court quashed Notification No. 56 of 2023. The Telangana High Court made observations on invalidity but did not conclusively decide the vires, and this matter is under Supreme Court consideration.

The Court refrained from expressing any opinion on the validity of the notifications, acknowledging the judicial discipline and the binding effect of the Supreme Court's forthcoming decision. The Punjab and Haryana High Court had similarly stayed proceedings pending Supreme Court adjudication, and this Court followed the same approach.

Issue 2: Procedural fairness in issuance and adjudication of show cause notices

The Petitioner contended that the show cause notice dated 26th September 2023 was uploaded on the GST portal under the "Additional Notices and Orders" tab, which was not prominently visible, resulting in the Petitioner not receiving actual notice and being unable to file replies or appear for hearings. This led to ex-parte orders and imposition of demands and penalties.

The Court relied on the precedent set in W.P.(C) 13727/2024 ('Neelgiri Machinery'), which dealt with a similar issue regarding the visibility of SCNs on the GST portal. The Court observed that the Department conceded the portal functions differently from the Department's side and the taxpayer's side, causing notices to be less visible to taxpayers.

Further reliance was placed on judgments in 'Satish Chand Mittal' and 'Anant Wire Industries', where under similar circumstances, matters were remanded to ensure fair opportunity to be heard. The Court emphasized the principle that orders should not be passed in default where there is ambiguity or lack of clarity in communication of notices.

Applying these precedents, the Court set aside the demand order dated 25th December 2023 and other impugned demand orders dated 23rd April 2024 and 5th December 2023. It directed that the Petitioner be given an opportunity to file replies within thirty days and that hearing notices be communicated not only by uploading on the portal but also by email to ensure actual notice.

Issue 3: Limitation and rectification application

The Petitioner's rectification application dated 15th February 2023 was noted to be barred by limitation. Nonetheless, the Department expressed willingness to consider it. The Court did not delve deeply into the merits of the rectification application but acknowledged its limitation-barred status and focused on ensuring procedural fairness in the ongoing adjudication process.

Issue 4: Relief pending Supreme Court decision

Given the pendency of the Supreme Court's decision on the validity of the impugned notifications, the Court adopted a pragmatic approach. It categorized pending cases and proposed that, without prejudging the validity of the notifications, Petitioners be afforded opportunity to place their stand before the adjudicating authorities. This approach balances the need to protect taxpayers' rights to be heard with the necessity to await authoritative determination of the legal validity of the notifications.

The Court ordered that the Petitioner be permitted to file replies to the show cause notices within thirty days, with personal hearings to be conducted via email communication. The adjudicating authority was directed to pass orders after hearing the Petitioner, subject to the outcome of the Supreme Court's decision in S.L.P No. 4240/2025.

3. SIGNIFICANT HOLDINGS

On the validity of the impugned notifications, the Court held:

"Since the challenge to the above mentioned notification is presently under consideration before the Supreme Court in S.L.P No 4240/2025 ..., the challenge made by the Petitioner to the impugned notification in the present proceedings shall also be subject to the outcome of the decision of the Supreme Court."

On the procedural fairness regarding SCNs uploaded under the "Additional Notices and Orders" tab, the Court observed:

"The Department concedes that the portal works differently from the Department's side and the tax payer's side. Insofar as the Petitioner is concerned, the Department was not being able to view them on the Notices tab. The Petitioner, in support of its case, has placed on record the print out from the portal which shows that the same was viewable only on Additional notice and orders Tab and hence, may have been missed by the Petitioner."

Further, the Court reiterated the principle that:

"The intention is to ensure that the Petitioner is given an opportunity to file its reply and is heard on merits and that orders are not passed in default."

Accordingly, the Court set aside the impugned demand orders and directed:

"The Petitioner shall file its replies within thirty days. The hearing notices shall now not be merely uploaded on the portal but shall also be e-mailed to the Petitioner and upon the hearing notice being received, the Petitioner would appear before the Department and make its submissions. The show cause notices shall be adjudicated in accordance with law."

Core principles established include:

• The necessity of prior GST Council recommendation under Section 168A for extension notifications, pending authoritative Supreme Court ruling.
• The requirement of clear and effective communication of show cause notices to taxpayers, including ensuring visibility on the GST portal and supplementary email communication.
• The fundamental right of the taxpayer to be heard and to file replies before passing adjudication orders, especially where procedural ambiguities exist.
• The importance of judicial discipline in refraining from deciding issues currently before the Supreme Court and adopting interim relief measures to protect parties' rights.

Final determinations:

• The challenge to the validity of the impugned notifications is deferred to the Supreme Court's decision.
• Demand orders passed without proper notice and opportunity to be heard are set aside.
• The Petitioner is granted an opportunity to file replies and be heard through personal hearings facilitated by email communication.
• The adjudicating authority shall pass orders after hearing the Petitioner, subject to the Supreme Court's ruling.

Issues: Whether the High Court should direct the concerned GST Commissionerate at Lucknow to examine the complaint regarding alleged misuse of the petitioner's PAN and decide the matter within a fixed time, with an opportunity of hearing to the petitioner.

Analysis: The petition was founded on alleged fraudulent use of the petitioner's PAN to obtain GST registration and the absence of action on the complaint already made. The Court noticed that the petitioner was based in Delhi and that the alleged misuse could affect the petitioner's GST account and liabilities, and therefore treated the grievance as requiring urgent administrative examination. It directed the concerned Commissionerate to hear the petitioner before passing any order and to take a decision expeditiously within the specified time.

Outcome: The matter was disposed of with a direction to the concerned authority to consider the complaint urgently, afford hearing to the petitioner, and pass an order within 45 days.

The core legal questions considered by the Court are:

• Whether the transferor company was entitled to claim Input Tax Credit (ITC) on IGST paid on imports despite discrepancies between GSTR-2A and GSTR-3B returns for the tax period April 2018 to March 2019;
• Whether the restriction on availment of ITC under sub-rule (4) of Rule 36 of the CGST Act, 2017 applies to invoices related to import of goods and other categories outside the ambit of sub-section (1) of Section 37;
• Whether the proper officer was justified in initiating proceedings and issuing show-cause notices against the transferor company without granting an opportunity of personal hearing as mandated under Section 75(4) of the CGST Act;
• Whether the prior proceedings and explanations submitted by the transferor company regarding the difference in ITC claimed were appropriately considered by the authorities;
• The procedural propriety and legality of the orders dated February 5, 2024 and May 15, 2024 passed under Section 73 of the CGST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to ITC on IGST paid on imports despite discrepancies in GSTR-2A and GSTR-3B

Relevant legal framework and precedents: The Court referred to Circular No.123/42/2019-GST dated November 11, 2019 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs. The circular clarifies that the restriction on availment of ITC under sub-rule (4) of Rule 36 of the CGST Act applies only to invoices/debit notes which suppliers are required to upload under sub-section (1) of Section 37. It explicitly excludes ITC claims related to IGST paid on imports, documents issued under Reverse Charge Mechanism (RCM), and credit from Input Service Distributors (ISD), provided eligibility conditions are met.

Court's interpretation and reasoning: The Court accepted the submission that the transferor company was entitled to claim ITC on imports since such invoices are not required to be uploaded by suppliers under Section 37(1). The difference of Rs. 1,84,15,984/- noted between GSTR-2A and GSTR-3B was largely attributable to ITC claimed on imports amounting to Rs. 1,80,46,140/-. The remaining difference of Rs. 3,69,844/- had been reversed by the transferor company in March 2019, thus explaining the discrepancy.

Key evidence and findings: The transferor company had explained the difference in response to a pre-show-cause notice (GST DRC-01A), and the authorities had initially accepted this explanation and dropped proceedings. However, subsequent show-cause notices were issued again on the same issue.

Application of law to facts: The Court found that the transferor company's claim of ITC on imports was legally permissible and the explanation for the difference in returns was valid.

Treatment of competing arguments: The respondents argued that since the transferor company did not respond to the later show-cause notice, the explanation was not considered. The Court noted this but emphasized the legal entitlement of the petitioner to claim ITC on imports and the necessity of allowing them to present their case.

Conclusions: The transferor company was entitled to claim ITC on IGST paid on imports notwithstanding the difference in GSTR-2A and GSTR-3B returns.

Issue 2: Applicability of restriction on ITC availment under Rule 36(4) and Section 37(1)

Relevant legal framework and precedents: The Court relied on Circular No.123/42/2019-GST and the provisions of the CGST Act, particularly Rule 36(4) and Section 37(1), which govern the uploading of invoices by suppliers and restrict ITC availment if invoices are not uploaded.

Court's interpretation and reasoning: The Court reiterated that the restriction on ITC applies only to invoices/debit notes that suppliers are mandated to upload under Section 37(1). ITC related to imports, RCM, and ISD credits fall outside this ambit and are not subject to such restrictions.

Application of law to facts: Since the ITC claimed by the transferor company was primarily on imports, the restriction under Rule 36(4) did not apply.

Conclusions: The restriction on ITC availment under Rule 36(4) is not applicable to ITC claimed on import of goods.

Issue 3: Failure to grant opportunity of personal hearing under Section 75(4) of the CGST Act

Relevant legal framework and precedents: Section 75(4) of the CGST Act mandates that before passing any order under Section 75, the proper officer must grant the person concerned an opportunity of being heard.

Court's interpretation and reasoning: The Court noted that the show-cause notices issued did not provide the transferor company an opportunity of personal hearing. This procedural lapse was significant as the opportunity to be heard is a mandatory requirement and a fundamental principle of natural justice.

Key evidence and findings: The respondents conceded that no personal hearing was offered before passing the impugned orders.

Application of law to facts: The Court held that the failure to grant a hearing vitiated the orders passed by the proper officer.

Treatment of competing arguments: While the respondents justified the orders based on the absence of response from the transferor company, the Court emphasized that the procedural safeguard of hearing cannot be bypassed.

Conclusions: The orders passed without granting personal hearing were liable to be set aside and the matter remanded for fresh consideration after hearing the petitioner.

Issue 4: Consideration of prior proceedings and explanations submitted by the transferor company

Court's interpretation and reasoning: The Court observed that the same issue had been raised previously and the transferor company's explanation was accepted, leading to dropping of proceedings. The re-initiation of proceedings on the same ground without considering the earlier acceptance was questionable.

Application of law to facts: The Court found that the transferor company's inability to respond to the later show-cause notice was due to the ongoing amalgamation process, which was a relevant fact to be considered.

Conclusions: The respondents ought to have taken into account the earlier acceptance and the peculiar circumstances before proceeding.

Issue 5: Legality and propriety of the orders dated February 5, 2024 and May 15, 2024

Court's interpretation and reasoning: Given the failure to grant hearing and the valid explanation for the difference in ITC claims, the Court found the impugned orders unsustainable.

Conclusions: The orders were set aside and the matter remanded for fresh decision on merits after providing the petitioner an opportunity of hearing.

3. SIGNIFICANT HOLDINGS

The Court held:

"The restriction of availment of ITC is imposed only in respect of invoices/debit notes, details of which are required to be uploaded by suppliers under sub-section (1) of Section 37 and which have not been uploaded. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under Reverse Charge Mechanism (RCM), credit revenue from ISD, etc., which are outside the ambit of sub-section(1) of Section 37, provided that eligibility conditions for availment of ITC are met in respect of the same."

"No opportunity of personal hearing was given, which is mandatorily required to be provided under Section 75 (4) of the said Act."

"The petitioner should be afforded with an opportunity to appropriately explain the discrepancy that had occurred including the difference in relation to the GSTR-2A and GSTR-3B filed by the transferor company."

Core principles established include:

• The entitlement to claim ITC on IGST paid on imports is not subject to the restrictions under Rule 36(4) and Section 37(1) of the CGST Act;
• Procedural fairness mandates that no order under Section 75 can be passed without granting the taxpayer an opportunity of personal hearing;
• Authorities must consider prior proceedings and explanations before initiating fresh proceedings on the same issue;
• Where procedural lapses occur, the appropriate remedy is to set aside the impugned orders and remand for fresh consideration on merits.

Final determinations:

• The orders dated February 5, 2024 and May 15, 2024 were set aside;
• The matter was remanded to the proper officer for fresh decision after granting personal hearing to the petitioner;
• The petitioner was directed to submit explanation and respond to the notice within the timeframe fixed by the proper officer;
• The petitioner was also directed to pay Rs. 50,000/- to the High Court Legal Services Authority as a condition for relief due to belated approach to the Court.

The core legal questions considered by the Court in this matter are:

• Whether the impugned Notifications Nos. 9 and 56 of 2023 issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) were validly issued, particularly whether the mandatory procedure, including prior recommendation of the GST Council, was complied with.
• Whether the extension of time limits for adjudication of show cause notices and passing of orders under Section 73 of the CGST Act and corresponding State GST Acts for the financial year 2019-20 could be validly effected by these notifications.
• The effect of conflicting judicial pronouncements by various High Courts on the validity of these notifications and the impact of the Supreme Court's pending decision on the same.
• The procedural fairness in adjudication proceedings initiated pursuant to the show cause notice dated 23rd September 2023, including the opportunity to file replies and avail personal hearings before passing final orders.
• The scope of relief available to petitioners in cases where adjudication orders have been passed ex-parte or without adequate opportunity to present their case.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Notifications Nos. 9 and 56 of 2023 under Section 168A of the CGST Act

Relevant legal framework and precedents: Section 168A of the CGST Act empowers the Central Government to extend the time limits prescribed for adjudication of show cause notices and passing of orders. The statute mandates that such extensions require prior recommendation of the GST Council. The impugned notifications were issued purportedly under this provision.

Several High Courts have adjudicated on the validity of these notifications with divergent outcomes. The Allahabad High Court upheld Notification No. 9, while the Patna High Court upheld Notification No. 56. Conversely, the Guwahati High Court quashed Notification No. 56. The Telangana High Court also expressed reservations about the validity of Notification No. 56 but did not conclusively decide the issue.

The Supreme Court has granted notice in S.L.P No. 4240/2025 to resolve these conflicting views, specifically addressing whether the time limits for adjudication under Section 73 of the CGST Act and corresponding State GST Acts for FY 2019-20 could be extended by the impugned notifications.

Court's interpretation and reasoning: The Court recognized the ongoing judicial divergence and the pendency of the Supreme Court's decision as determinative. It refrained from expressing any opinion on the vires of the notifications, deferring to the Supreme Court's eventual ruling. The Court noted the procedural irregularities alleged in issuance of Notification No. 56, particularly that ratification was given post issuance, contrary to the statutory requirement.

Application of law to facts: The Court observed that since the validity of the notifications is sub judice before the Supreme Court, the challenge to the impugned notification in the present petition would be subject to the Supreme Court's outcome.

Treatment of competing arguments: The Court acknowledged the conflicting High Court rulings and the submissions of counsel regarding procedural lapses in issuance of the notifications. It also took note of the interim orders passed by other High Courts and the Supreme Court's intervention.

Conclusion: The Court held that the question of validity of the impugned notifications is pending before the Supreme Court and the present petition's challenge to the notifications shall await the Supreme Court's decision.

Extension of time limits for adjudication under Section 73 of the CGST Act

Relevant legal framework: Section 73 prescribes the time limits for issuance of show cause notices and passing of adjudication orders for recovery of tax not paid or short paid. Section 168A permits extension of these time limits by notification, subject to GST Council recommendation.

Court's interpretation and reasoning: The Court noted that the impugned notifications purportedly extended the limitation period for adjudication of show cause notices issued for FY 2019-20. However, challenges have been raised on the ground that the extensions were granted without adhering to the mandated procedure under Section 168A.

Key evidence and findings: The Court observed that the Petitioner had filed a reply to the show cause notice but had not submitted supporting documents. The adjudication order passed was found to be sketchy and ex-parte in nature, raising concerns about procedural fairness.

Application of law to facts: The Court directed that the Petitioner be afforded an opportunity to file a fresh detailed reply along with relevant documents within 30 days. It further directed issuance of a notice for personal hearing to ensure the Petitioner's right to be heard before passing fresh orders on the show cause notice.

Treatment of competing arguments: While the Petitioner argued for relief on account of inability to file replies and avail personal hearings, the Department contended that the adjudication had proceeded as per law. The Court balanced these by emphasizing the need for procedural fairness irrespective of the validity of the notifications.

Conclusion: The Court set aside the earlier adjudication order and ordered fresh proceedings with due opportunity to the Petitioner to be heard and present evidence.

Effect of conflicting judicial pronouncements and pending Supreme Court decision

Relevant legal framework: The principle of judicial discipline and binding effect of Supreme Court decisions on subordinate courts.

Court's interpretation and reasoning: The Court noted that multiple High Courts have taken differing views on the validity of the impugned notifications. The Punjab and Haryana High Court had disposed of similar petitions, deferring to the Supreme Court's pending decision and directing interim orders to continue.

Application of law to facts: The Court held that in view of the pendency of the Supreme Court's decision, it would not express any opinion on the notifications' validity and would govern the present petitions in accordance with the Supreme Court's ruling.

Conclusion: The Court disposed of the petitions subject to the Supreme Court's final adjudication and interim orders as applicable.

Procedural fairness in adjudication proceedings

Relevant legal framework: Principles of natural justice require that a party against whom adverse orders are passed must be given a reasonable opportunity to present its case, including filing replies and personal hearings.

Court's interpretation and reasoning: The Court found that the Petitioner had filed a reply without supporting documents and was not afforded adequate opportunity for personal hearing. The adjudication order was passed ex-parte and was sketchy.

Application of law to facts: To remedy this, the Court directed that the Petitioner be allowed to file a fresh detailed reply with documents and be granted a personal hearing before the Adjudicating Authority. The Adjudicating Authority was directed to consider the submissions and pass fresh orders accordingly.

Conclusion: The Court emphasized the necessity of procedural fairness and set aside the earlier order to allow fresh adjudication with due process.

3. SIGNIFICANT HOLDINGS

"Since the challenge to the above mentioned notifications is presently under consideration by the Supreme Court in S.L.P No 4240/2025 titled M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax & Ors., the challenge made by the Petitioner to the impugned notification in the present proceeding shall also be subject to the outcome of the decision of the Supreme Court."

"The adjudication of the show cause notice dated 23.09.2023 may proceed but if the final order is passed against the petitioner, the same shall not be implemented."

"Considering the circumstances that no documents were filed by the Petitioner along with the reply to the SCN and keeping in mind the order dated 28th December, 2023 passed by this Court, this Court is of the opinion that the Petitioner shall be given an opportunity to file a fresh reply along with any relevant documents within a period of 30 days."

"Upon filing of the reply, the Adjudicating Authority shall issue upon the Petitioner, a notice for personal hearing... The reply filed by the Petitioner to the SCNs along with the submissions made by the Petitioner during the personal hearing proceedings shall be duly considered by the Adjudicating Authority and fresh orders with respect to the SCNs shall be passed accordingly."

Core principles established include:

• The validity of notifications extending limitation periods under Section 168A of the CGST Act requires strict compliance with statutory procedure, including prior GST Council recommendation.
• Divergent High Court rulings on such notifications necessitate Supreme Court adjudication for uniformity.
• Procedural fairness in adjudication under GST law is paramount, and parties must be given adequate opportunity to file replies and be heard before final orders are passed.
• Interim orders and directions can be issued to protect parties' rights pending final adjudication on the validity of notifications.

Final determinations on each issue are deferred to the Supreme Court's ruling, with this Court directing fresh adjudication proceedings to ensure fairness and compliance with natural justice principles.

The core legal questions considered by the Court in this matter include:

• Whether the impugned order dated 29.08.2024 passed by the respondent without affording a personal hearing to the petitioner is valid and in accordance with principles of natural justice.
• Whether the respondent was justified in rejecting the petitioner's rectification application dated 26.12.2024 on the ground of non-appearance and non-filing of reply despite issuance of notices and reminders.
• Whether the petitioner's contention regarding erroneous consideration of turnover figures and misclassification of values in GSTR-3B tables (Tbl:6A and Tbl:6I) was valid and whether such errors warranted rectification.
• Whether the respondent should have reconsidered the rectification application after providing an opportunity of hearing to the petitioner.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the impugned order dated 29.08.2024 passed without personal hearing

Relevant legal framework and precedents: The principles of natural justice mandate that no order affecting the rights of a party should be passed without affording that party an opportunity of being heard. This is a fundamental tenet applicable in quasi-judicial proceedings, including tax and revenue matters.

Court's interpretation and reasoning: The Court noted that the show cause notice dated 26.04.2023 was uploaded on the GST Portal but was not directly served on the petitioner. Consequently, the petitioner remained unaware and failed to file a reply. The respondent proceeded to pass the impugned order dated 29.08.2024 without affording the petitioner a personal hearing.

Key evidence and findings: The petitioner's failure to receive direct notice was a critical factor leading to non-participation in the proceedings. The respondent's unilateral action in passing the order without hearing was examined in light of the petitioner's right to be heard.

Application of law to facts: The Court found that the absence of personal service of the notice and the lack of opportunity for hearing rendered the impugned order procedurally defective. However, the Court did not set aside this order, indicating a nuanced approach considering the subsequent issues raised.

Treatment of competing arguments: The respondent justified the order on the basis of notices and reminders issued, but the Court emphasized the importance of actual service and hearing opportunity.

Conclusions: While the impugned order was passed without personal hearing, the Court did not wholly invalidate it but recognized procedural infirmity.

Issue 2: Justification for rejection of rectification application dated 26.12.2024

Relevant legal framework and precedents: Rectification applications under tax statutes are generally entertained to correct errors apparent on the face of record, subject to procedural compliance including opportunity to be heard.

Court's interpretation and reasoning: The respondent rejected the rectification application on the ground that despite issuance of ASMT-10, DRC-01 notices and three reminders, the petitioner neither filed a reply nor appeared for hearing.

Key evidence and findings: The petitioner contended that the notices were not properly served and that the rectification application raised genuine errors related to turnover figures and GSTR-3B table misclassifications.

Application of law to facts: The Court found that the rejection of the rectification application without affording an opportunity of hearing was improper, especially given the petitioner's claim of non-receipt of notices and the nature of the errors alleged.

Treatment of competing arguments: The respondent's reliance on procedural non-compliance was balanced against the petitioner's substantive claim of error and the procedural lapses in serving notices.

Conclusions: The Court set aside the rejection order and remanded the matter for fresh consideration with a direction to afford hearing.

Issue 3: Validity of petitioner's claim regarding erroneous turnover figures and GSTR-3B table misclassification

Relevant legal framework and precedents: Tax returns and related filings must be accurate, and errors in classification or reporting can be rectified through appropriate statutory mechanisms.

Court's interpretation and reasoning: The petitioner argued that the turnover for Assessment Year 2019-20 was wrongly taken as NIL and that values specified in GSTR-3B tables 6A and 6I were interchanged, leading to an erroneous conclusion regarding mismatches.

Key evidence and findings: The Court noted that the value that should have been specified in GSTR-3B (Tbl:6A) was incorrectly indicated in Tbl:6I and vice versa, which constituted an error apparent on the face of record.

Application of law to facts: The Court recognized that such errors are rectifiable and that the petitioner should be given an opportunity to explain and correct the discrepancies.

Treatment of competing arguments: The respondent did not dispute the possibility of error but relied on procedural grounds to reject rectification.

Conclusions: The Court found merit in the petitioner's claim of errors and emphasized the need for reconsideration after hearing.

Issue 4: Whether the respondent should reconsider the rectification application after hearing

Relevant legal framework and precedents: Principles of natural justice and statutory provisions governing rectification require that the affected party be heard before final orders are passed.

Court's interpretation and reasoning: Considering the procedural lapses and the substantive errors raised, the Court deemed it appropriate to set aside the rejection order and remand the matter for fresh consideration with an opportunity of hearing.

Key evidence and findings: The absence of personal hearing and direct service of notices was critical in the Court's decision to direct reconsideration.

Application of law to facts: The Court's order mandates that the respondent must pass orders afresh after hearing the petitioner, ensuring adherence to natural justice.

Treatment of competing arguments: The Court balanced the respondent's procedural concerns against the petitioner's right to be heard and substantive claims.

Conclusions: The matter was remanded for fresh consideration with directions to afford hearing.

3. SIGNIFICANT HOLDINGS

The Court held:

"Though this Court is not inclined to set aside the impugned order passed by the respondent dated 29.08.2024, however, considering the fact that the issue pertains to the wrong entries made in the GSTR-3B (Tbl:6A) and GSTR-3B (Tbl:6I), as the value that has to be specified in GSTR-3B (Tbl:6A) was wrongly indicated in GSTR-3B (Tbl: 6I) and vice versa and the said errors could be rectified if an opportunity of hearing is granted to the petitioner, this Court deems that it would be appropriate to set aside the order dated 26.12.2024 and remand the matter for re-consideration."

Core principles established include the necessity of affording an opportunity of hearing before passing orders affecting rights, especially in tax proceedings involving rectification applications. The Court emphasized that procedural compliance, including proper service of notices, is essential to ensure fairness.

The final determinations were:

• The impugned order dated 29.08.2024 was not set aside despite procedural irregularities but remains subject to reconsideration.
• The order rejecting the rectification application dated 26.12.2024 was set aside.
• The matter was remanded to the respondent for fresh consideration after affording the petitioner an opportunity of hearing.

Issues: Whether a direction should be issued to the appellate authority to consider and dispose of the stay petition filed along with the appeal within a specified time.

Analysis: The assessment for the relevant year had been completed under Section 73 of the Kerala General Sales Tax Act, 2017, and an appeal with an accompanying stay petition was already pending before the appellate authority. In these circumstances, the relief sought was confined to a time-bound consideration of the stay application, and the writ petition was found fit to be disposed of by issuing an appropriate direction.

Conclusion: The appellate authority was directed to consider and pass orders on the stay petition expeditiously, in any event within one month from receipt of the judgment, which is in favour of the petitioner.

1. Whether the assignment or transfer of long-term leasehold rights in industrial plots constitutes a taxable supply under the GST Act, 2017.

2. Whether the notifications issued-specifically Notification No. 09/2023 dated 31.03.2023 and Notification No. 56/2023-Central Tax dated 28.12.2023-are valid and within the jurisdiction of the authorities, or whether they are arbitrary, illegal, and violative of Section 168A of the CGST Act.

3. The legality and jurisdictional competence of the order passed under Section 73 of the GST Act demanding tax, interest, and penalty on the transfer fees received for assignment of leasehold rights.

4. Whether the amendment vide Notification 28/2019 dated 31.12.2019, which amended Entry No. 41 of Notification 12/2017 dated 28.06.2017 to exempt subsequent leases, is clarificatory and applicable retrospectively.

5. Whether recovery proceedings pursuant to the impugned order should be stayed pending final disposal of the petition.

Issue-wise detailed analysis:

1. Applicability of GST on transfer of leasehold rights of industrial land

The legal framework centers on the GST Act, 2017, particularly Section 7(1)(a) defining the scope of "supply," Section 9 dealing with levy of GST, and the relevant Schedules II and III which classify various transactions. The petitioner contended that the assignment of leasehold rights does not amount to a taxable supply under GST.

The Court relied heavily on its prior decision in Gujarat Chamber of Commerce and Industry Vs. Union of India, where it was held that the assignment or sale of leasehold rights of plots allotted by GIDC (Gujarat Industrial Development Corporation) does not constitute a supply of goods or services under the GST Act. The Court reasoned that such a transaction is essentially an assignment of benefits arising out of immovable property, which is outside the ambit of taxable supply as per the GST framework. Specifically, the Court noted:

"Assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/transfer of benefits arising out of 'immovable property'... provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable... and same would not be subject to levy of GST as provided under section 9 of the GST Act."

The Court also observed that since no GST liability arises, the question of utilizing input tax credit to discharge such liability does not arise.

Applying this precedent to the facts, the Court noted the undisputed fact that the petitioner transferred leasehold rights by a final transfer order issued by GIDC. This factual matrix squarely fell within the scope of the Gujarat Chamber decision, thereby negating the applicability of GST on the transaction.

2. Validity and jurisdiction of notifications impugned by the petitioner

The petitioner challenged Notification No. 09/2023 and Notification No. 56/2023-Central Tax as being ultra vires, arbitrary, and violative of Section 168A of the CGST Act. Section 168A deals with the power to issue notifications for certain amendments or clarifications.

The Court, while not extensively elaborating on the detailed legal framework of these notifications, implicitly found the notifications to be dehors and without jurisdiction by virtue of the primary finding that the transaction itself is not taxable under GST. Since the transaction is not a supply liable to GST, any notification purporting to impose such tax or clarify its applicability retrospectively becomes irrelevant and invalid.

3. Legality and jurisdiction of the order under Section 73 demanding GST, interest, and penalty

The impugned order under Section 73 of the GST Act demanded a tax amount of Rs. 25,32,746 along with interest and penalty aggregating to Rs. 49,26,850. Section 73 empowers the tax authorities to recover tax not paid or short paid due to reasons other than fraud or willful misstatement.

The Court found that since the transaction of assignment of leasehold rights is not a taxable supply, the issuance of the show cause notice and subsequent demand order lacked jurisdiction and was ex-facie illegal. The Court noted that the respondents failed to provide any substantive legal or factual basis to controvert the petitioner's submissions or the binding precedent.

Hence, the Court quashed and set aside both the show cause notice and the demand order, holding them to be without jurisdiction and illegal.

4. Retrospective applicability of Notification 28/2019 dated 31.12.2019

The petitioner argued that the amendment exempting subsequent leases under Entry No. 41 of Notification 12/2017 is clarificatory and should be applied retrospectively.

The Court, while not elaborating extensively on this point, accepted the petitioner's submission implicitly by quashing the demand and recognizing the amendment as applicable retrospectively. This aligns with the principle that clarificatory amendments are to be construed as having retrospective effect unless expressly stated otherwise.

5. Interim relief restraining recovery proceedings

The petitioner sought interim relief restraining the respondents from initiating recovery proceedings pending final disposal of the petition.

The Court granted this relief by quashing the impugned order and show cause notice, which effectively stayed any recovery action. The Court's decision to set aside the orders rendered any further recovery proceedings impermissible.

Competing arguments and treatment thereof

The petitioner's submissions were supported by binding precedents from this Court, notably Gujarat Chamber of Commerce and Industry and Alfa Tools Pvt. Ltd., which had been followed consistently. The respondents, particularly Respondent Nos. 1 and 2, did not controvert these submissions effectively, and the Assistant Government Pleader representing Respondent No. 3 failed to establish any contrary legal position or factual dispute.

The Court thus found no merit in the respondents' case and relied on the established legal position to reach its conclusions.

Significant holdings:

"Assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/transfer of benefits arising out of 'immovable property'... provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable... and same would not be subject to levy of GST as provided under section 9 of the GST Act."

The Court conclusively held that the transaction of assignment of leasehold rights does not constitute a taxable supply under the GST Act, thereby negating any GST liability, interest, or penalty thereon.

The Court quashed and set aside the show cause notice dated 28.05.2024 and the order dated 29.08.2024 demanding GST, interest, and penalty.

It further held that the impugned notifications relied upon by the respondents are without jurisdiction and violative of the statutory provisions.

The principles established reaffirm that the transfer of leasehold rights in industrial plots allotted by GIDC is outside the ambit of GST levy, and clarificatory amendments exempting such transactions have retrospective effect.

Issues: Whether approval under section 10(23C)(iii) could be denied merely because the application and provisional registration were made under the wrong sub-clause, when the assessee otherwise satisfied the substantive eligibility conditions.

Analysis: The assessee was an institution of national importance and its objects and activities were not in dispute. The refusal was founded only on a technical error in choosing the wrong sub-clause while applying for approval. The order treated the earlier provisional approval as invalid for that reason and declined final approval on the same technical basis. The legal position applied was that a legitimate claim should not fail merely because it was made under the wrong provision, where the underlying entitlement is otherwise established.

Conclusion: The approval could not be denied on the ground of a mistaken statutory reference. The denial was set aside and approval under section 10(23C)(iii) was directed to be granted to the assessee.

ISSUES PRESENTED AND CONSIDERED

1. Whether levy of late filing fee under section 234E of the Income Tax Act, 1961 can be effected by processing TDS returns under section 200A/section 201(1A) for TDS statements pertaining to periods prior to 01.06.2015.

2. Whether the amendment to section 200A (insertion of sub-clause (c)) with effect from 01.06.2015 operates retrospectively or prospectively with respect to the power to process TDS returns and levy fees under section 234E.

3. Whether intimation/demand raised under section 200A/section 201(1A) for levy of fees under section 234E beyond the statutory scope of those sections is maintainable.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Power to levy section 234E fee by processing TDS returns under section 200A/section 201(1A) for periods before 01.06.2015

Legal framework: Section 234E prescribes a late filing fee for delayed furnishing of TDS statements. Section 200A and section 201(1A) govern processing of TDS returns and consequential intimation/demand upon the tax deductor. An amendment inserting sub-clause (c) in section 200A came into effect on 01.06.2015.

Precedent Treatment: Earlier decisions have been divided. A coordinate Tribunal bench and at least one High Court have held that imposition of section 234E fees via section 200A/201(1A) for periods prior to 01.06.2015 is not sustainable; other authorities have taken an opposite view (as relied upon by the lower appellate authority).

Interpretation and reasoning: The Tribunal examined the statutory scheme and the temporal effect of the amendment to section 200A. It concluded that the amendment enabling processing for levy of section 234E fees was introduced w.e.f. 01.06.2015 and thereby does not empower processing of TDS statements and levy of fees for deduction periods prior to that date. Processing and automatic charging of section 234E in respect of earlier periods exceeds the statutory power available prior to amendment.

Ratio vs. Obiter: Ratio - imposition of section 234E fees by processing returns under section 200A/201(1A) for periods prior to 01.06.2015 is not sustainable because the enabling amendment is prospective. Obiter - observations regarding specific procedural facts (e.g., non-service of electronic order) are ancillary and not central to the legal holding.

Conclusion: Levy of section 234E fee for AY 2014-15 (period prior to 01.06.2015) by processing TDS returns under section 200A/201(1A) is unsustainable and is to be deleted.

Issue 2: Prospective effect of the 01.06.2015 amendment to section 200A (insertion of sub-clause (c))

Legal framework: Principles of statutory interpretation govern whether an amendment alters liability retrospectively or prospectively. Absent express retrospective language, amendments are treated as prospective, particularly when they enlarge or alter the assessing authority's powers.

Precedent Treatment: The Tribunal followed the view of a coordinate Bench and of a High Court that held the amendment prospective in effect and therefore not applicable to periods prior to 01.06.2015. The lower appellate authority had relied on contrary High Court authority but that view was not followed by the Tribunal.

Interpretation and reasoning: The Tribunal reasoned that the insertion of sub-clause (c) in section 200A created a new procedural power to process returns and compute late fees under section 234E; absent an express retrospective clause, such an empowerment cannot be read to reach back to periods before its commencement. Applying normal rules of construction, the amendment must be treated as prospective.

Ratio vs. Obiter: Ratio - the amendment is prospective and does not validate imposition of section 234E fees for periods anterior to 01.06.2015. Obiter - discussion of policy considerations underlying the amendment is ancillary to the interpretive conclusion.

Conclusion: The amendment to section 200A effective 01.06.2015 has prospective operation only; it does not authorize retrospective processing or levy of section 234E fees for tax deduction periods prior to that date.

Issue 3: Maintainability of intimations/demands under section 200A/201(1A) when used to levy section 234E fees beyond statutory scope

Legal framework: Intimations/demands under section 200A/201(1A) must conform to the authority granted by those provisions. Any charge outside the statutory scope is subject to being held invalid.

Precedent Treatment: The Tribunal relied on consistent decisions of a coordinate Bench and a High Court holding that demands raising section 234E fees for periods prior to the enabling amendment are not maintainable. Contrary authorities were noted but not followed.

Interpretation and reasoning: Because the statutory power to compute and levy section 234E via processing was not available before the amendment, intimations/demands issued under section 200A/201(1A) claiming such fees for pre-amendment periods are beyond jurisdiction. The Tribunal thus concluded the intimations/demands in question were not maintainable to the extent they sought to charge section 234E fees for the earlier period.

Ratio vs. Obiter: Ratio - intimations/demands under section 200A/201(1A) that purport to levy section 234E fees for periods prior to the amendment's commencement are invalid for being beyond statutory power. Obiter - procedural observations about electronic service and timing of appeals are collateral.

Conclusion: Intimations/demands under section 200A/201(1A) raising section 234E fee for pre-01.06.2015 periods are not maintainable and must be set aside.

Cross-references and Treatment of Conflicting Authorities

The Tribunal expressly followed earlier coordinating decisions and the cited High Court decision holding the amendment prospective and the pre-amendment levies unsustainable. The Tribunal declined to follow contrary authority relied upon by the lower appellate authority, treating the post-amendment enabling provision as not validating pre-amendment demands. The Tribunal noted the rule that conflicting decisions favorable to the assessee should be followed where applicable, and applied that approach.

Disposition

The Tribunal deleted the late filing fee under section 234E charged for the assessment year in question (a period prior to 01.06.2015) and allowed the appeal.

Regarding the inclusion or exclusion of Infosys BPO Limited as a comparable company, the Tribunal examined the functional comparability and business model similarity between Infosys BPO Limited and the assessee. The assessee contended that Infosys BPO Limited is functionally dissimilar due to its engagement in a wide array of high-end integrated services, including business platforms, customer service outsourcing, finance and accounting, human resources outsourcing, legal process outsourcing, sales and fulfillment sourcing, and procurement outsourcing. This contrasted with the assessee's provision of routine back-office support services, primarily data collection and analysis, characterized as low-end IT-enabled services and captive in nature. The assessee supported this argument by referencing the annual report of Infosys BPO Limited, highlighting the lack of clarity in revenue segmentation and the presence of technical service costs linked to consultancy charges, which indicated a fundamentally different business model involving outsourcing activities. Additionally, the assessee pointed to its own financial statements demonstrating the absence of outsourcing, reinforcing the functional disparity.

The Tribunal's analysis relied heavily on precedent, notably the decision of a coordinate bench for the assessment year 2012-13, where Infosys BPO Limited was excluded from the set of comparables. In that earlier decision, the Tribunal observed that Infosys BPO Limited's engagement in niche sectors such as insurance, banking, financial services, manufacturing, and telecom, coupled with its significant brand value as a subsidiary of Infosys, rendered it functionally dissimilar. The presence of brand-related expenses and substantial marketing expenditure to maintain brand image distinguished it from the assessee, which did not incur such costs. Furthermore, the acquisition of an Australian company by Infosys BPO Limited during the relevant year introduced an extraordinary event, further undermining comparability. The Tribunal also cited a similar exclusion in the case of Baxter India Pvt. Ltd., where Infosys BPO Limited was rejected due to functional dissimilarity and brand influence.

In applying these precedents and facts to the current appeal, the Tribunal found the circumstances substantially similar. It emphasized that the wide functional dissimilarity between Infosys BPO Limited and the assessee sufficed to exclude the former from the final set of comparables. The Tribunal stated: "Respectfully following the order of the coordinate bench, on identical facts, we direct the AO/TPO to exclude BPO Infosys Ltd. from the final set of comparables." This directive was grounded in the principle that comparability in transfer pricing requires similarity in functions, risks, and assets, and that inclusion of functionally dissimilar entities would distort the arm's length price determination.

On the issue of working capital adjustment, the assessee argued for its allowance based on details already submitted before the Dispute Resolution Panel and the Tribunal. The assessee requested a direction to the Assessing Officer/Transfer Pricing Officer (AO/TPO) to consider the working capital adjustment after verifying the submitted data. The Tribunal, while not deciding the quantum or specifics of the adjustment, directed the AO/TPO to examine the workings furnished by the assessee and grant appropriate relief in accordance with law, ensuring the assessee is afforded an adequate opportunity of being heard. This approach reflects the principle of procedural fairness and adherence to statutory mandates governing transfer pricing adjustments.

The Revenue's contention supporting the orders of the authorities below was considered but ultimately rejected in respect of the comparability of Infosys BPO Limited, given the binding nature of coordinate bench decisions and the persuasive factual matrix establishing functional dissimilarity. The Tribunal's reasoning underscores the importance of consistency in transfer pricing jurisprudence and the necessity to exclude comparables that do not meet functional similarity tests.

The significant holdings of the Tribunal can be summarized as follows:

"Respectfully following the order of the coordinate bench, on identical facts, we direct the AO/TPO to exclude BPO Infosys Ltd. from the final set of comparables."

"In so far as working capital adjustment is concerned, the AO/TPO is directed to look into the workings furnished by the assessee and appropriate relief may be granted in accordance with law after providing adequate opportunity of being heard to the assessee."

These holdings establish the core principles that (i) functional dissimilarity, including differences in business models, brand value, and extraordinary events, justifies exclusion of a company from the comparable set in transfer pricing analysis, and (ii) working capital adjustments, if substantiated, must be considered with due procedural safeguards.

In conclusion, the Tribunal partly allowed the appeal by excluding Infosys BPO Limited from the final comparables and directing the AO/TPO to consider the working capital adjustment upon verification, thereby ensuring adherence to transfer pricing principles and procedural fairness.

The core legal questions considered by the Court are:

• Whether the notice dated 23.07.2022 issued under Section 148 of the Income Tax Act, 1961 (the Act) for reopening assessment of AY 2015-16 is valid and sustainable in law.
• Whether the procedure prescribed under Section 148A of the Act was mandatorily required to be followed in issuing the reassessment notice dated 05.04.2021, and its impact on subsequent proceedings.
• Whether the concession made by the Revenue before the Supreme Court in Union of India and Ors. v. Rajeev Bansal (2024) applies to the present case, mandating dropping of notices issued on or after 1 April 2021 for AY 2015-16.
• Whether the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) applies to the limitation period for issuance of reassessment notices for AY 2015-16.
• The effect of the Supreme Court's decision in Deepak Steel and Power Ltd. v. Central Board of Direct Taxes (2025) on the validity of reassessment notices issued post 1 April 2021 for AY 2015-16.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of the reassessment notice dated 23.07.2022 under Section 148 for AY 2015-16

Relevant legal framework and precedents: Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reopen an assessment if income has escaped assessment. The procedure was amended by the Finance Act 2021, introducing Section 148A, which prescribes mandatory preliminary enquiry and opportunity before issuing a notice under Section 148. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) further affects limitation periods for reassessment notices.

Court's interpretation and reasoning: The AO issued a notice under Section 148 on 05.04.2021 but did not follow the procedure prescribed under Section 148A, as the notice was based on pre-31.03.2021 provisions. Subsequently, the AO issued another notice dated 23.07.2022 under Section 148 after passing an order under Section 148A(d). However, the Supreme Court's decision in Union of India and Ors. v. Rajeev Bansal clarified that for AY 2015-16, notices issued on or after 1 April 2021 fall outside the permissible period under TOLA and must be dropped.

Key evidence and findings: The petitioner's return was filed on 23.09.2015 declaring income of Rs. 13,63,47,964/-. The AO's initial notice was issued after 31.03.2021 without following Section 148A procedure. The subsequent notice dated 23.07.2022 was issued after the Supreme Court's decision in Ashish Agarwal but before the concession in Rajeev Bansal.

Application of law to facts: The Court found that the reassessment notices issued on or after 1 April 2021 for AY 2015-16 are not valid as per the limitation period read with TOLA, and the concession made by the Revenue before the Supreme Court in Rajeev Bansal applies directly to the present case.

Treatment of competing arguments: The Revenue initially relied on the pre-31.03.2021 provisions and the Supreme Court's decision in Ashish Agarwal to justify the notices. However, the petitioner relied on the subsequent Supreme Court concession in Rajeev Bansal and the decision in Deepak Steel and Power Ltd., which favored dropping such notices.

Conclusions: The Court held that the notice dated 23.07.2022 under Section 148 is liable to be quashed and set aside as it is barred by limitation and contrary to the concession made by the Revenue before the Supreme Court.

Applicability of TOLA and the concession in Union of India and Ors. v. Rajeev Bansal to AY 2015-16 reassessment notices

Relevant legal framework and precedents: The Finance Act 2021 introduced a new reassessment regime, and TOLA applies to extend or modify limitation periods. The Supreme Court in Rajeev Bansal (2024) clarified the applicability of TOLA and the limitation periods for notices issued for various assessment years including 2015-16.

Court's interpretation and reasoning: Paragraphs 19(e) and 19(f) of Rajeev Bansal were pivotal. The Court emphasized the Revenue's concession that for AY 2015-16, all notices issued on or after 1 April 2021 must be dropped as they do not fall within the period prescribed under TOLA.

Key evidence and findings: The tabulation in Rajeev Bansal showed that TOLA was not applicable for AY 2015-16 beyond 31.03.2022, and notices issued after 1 April 2021 would not be valid. The Revenue conceded this point before the Supreme Court.

Application of law to facts: The impugned notice dated 23.07.2022 was issued after 1 April 2021 and thus falls within the category of notices that must be dropped as per the concession and legal framework established in Rajeev Bansal.

Treatment of competing arguments: The Revenue's earlier reliance on the Ashish Agarwal decision was superseded by its own concession in Rajeev Bansal and the Supreme Court's subsequent ruling in Deepak Steel and Power Ltd.

Conclusions: The Court held that the reassessment notice for AY 2015-16 issued post 1 April 2021 is barred by limitation under TOLA and must be quashed.

Effect of Supreme Court decision in Deepak Steel and Power Ltd. on reassessment notices for AY 2015-16

Relevant legal framework and precedents: The Supreme Court decision in Deepak Steel and Power Ltd. (2025) arose from petitions challenging reassessment notices issued after 1 April 2021. The Supreme Court, relying on the concession in Rajeev Bansal, allowed the appeals and quashed such notices.

Court's interpretation and reasoning: The Court noted the Supreme Court's reliance on the Revenue's concession and its clear direction that reassessment notices issued on or after 1 April 2021 for AY 2015-16 are invalid.

Key evidence and findings: The Supreme Court's order explicitly referred to paragraph 19(f) of Rajeev Bansal and confirmed that notices issued after 1 April 2021 must be dropped.

Application of law to facts: The present case's impugned notice dated 23.07.2022 falls squarely within the category of notices invalidated by the Supreme Court's ruling in Deepak Steel and Power Ltd.

Treatment of competing arguments: The Court rejected any argument supporting the validity of the impugned notice based on procedural or substantive grounds, as the limitation bar and Supreme Court rulings take precedence.

Conclusions: The Court held that the impugned notice and all proceedings pursuant thereto are liable to be set aside in light of the Supreme Court's decision.

3. SIGNIFICANT HOLDINGS

"The Revenue concedes that for the assessment year 2015-16, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020." (Union of India and Ors. v. Rajeev Bansal, para 19(f))

"In view of the aforesaid, in such circumstances referred to above the original writ petitions filed before the High Court of Orissa stand allowed." (Deepak Steel and Power Ltd. v. Central Board of Direct Taxes, para 6)

The Court conclusively held that the impugned notice dated 23.07.2022 under Section 148 of the Income Tax Act for AY 2015-16 is barred by limitation and must be quashed and set aside.

The Court reaffirmed that the procedure under Section 148A must be followed for reassessment notices issued after 31.03.2021, and failure to do so renders the notice invalid.

The Court applied the Supreme Court's authoritative rulings and the Revenue's own concession to conclude that reassessment notices issued on or after 1 April 2021 for AY 2015-16 cannot be sustained.

Consequently, all proceedings initiated pursuant to the impugned notice are set aside.

The core legal questions considered by the Court in this appeal under Section 260A of the Income Tax Act, 1961, for Assessment Year 1990-91, are as follows:

(i) Whether the Tribunal was correct in disallowing the write-off of deposits and interest thereon as a business loss under Section 28 of the Act, amounting to Rs. 200.47 lakhs, incurred by the appellant company in the course of its business.

(ii) Whether the Assessing Officer (AO), while determining the book profit under Section 115J of the Act, can question the correctness of the profit and loss account prepared and certified by the statutory auditors of the appellant company as having been prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956.

(iii) Whether the Tribunal erred in not allowing miscellaneous expenses of Rs. 49,18,786 incurred by the appellant for Machinery Manufacturers Corporation Ltd. (MMC) under Section 37 of the Act on grounds of commercial expediency and preservation of the reputation of the assessee's estate and business.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) and (iii): Deductibility of write-off of deposits, interest, and miscellaneous expenses under Sections 28 and 37 of the Income Tax Act

Relevant Legal Framework and Precedents: The Court examined Section 28 of the Income Tax Act, which pertains to profits and gains of business or profession, and Section 37(1), which allows deduction of any expenditure (not being capital expenditure or personal expenses) laid out wholly and exclusively for the purposes of the business. The Supreme Court's decision in CIT vs. Delhi Safe Deposit Co. Ltd. (1982) was a key precedent, where it was held that expenditure incurred on commercial expediency, even if voluntary, may be deductible if it is wholly and exclusively for the purpose of business.

Court's Interpretation and Reasoning: The Court found that MMC was a subsidiary and group company of the appellant, with the appellant holding 27% equity capital and acting as managing agent until 1974. MMC was undergoing financial distress and was ordered to be wound up. The appellant incurred expenses and wrote off deposits and interest due from MMC as part of efforts to preserve MMC's business and goodwill, which was integral to the appellant's commercial interests.

The Court relied heavily on a recent Division Bench judgment of the same High Court in the appellant's own case for the preceding assessment year (MAHINDRA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME TAX), where similar claims were allowed. The Division Bench had held that the expenditure and write-offs were incurred for commercial expediency and were directly relatable to the business of the appellant. It further emphasized that the amounts were not gratuitous but were incurred to protect the business reputation and preserve the value of goodwill.

Key Evidence and Findings: The BIFR (Board for Industrial and Financial Reconstruction) orders and records showed that MMC was part of the appellant's group and that the appellant had invested substantial amounts to revive MMC. The appellant's Board of Directors had approved the expenditure and write-offs. The appellant's role as managing agent and the nexus between the two companies were undisputed.

Application of Law to Facts: The Court applied the principle from Delhi Safe Deposit Co. that commercial expediency justifies the deduction of such expenses. The nexus between the appellant and MMC, the nature of the losses as business losses, and the commercial rationale behind the expenditure supported the claim. The Court held that these expenses and write-offs should be treated as incurred wholly and exclusively for the purpose of business and thus deductible under Sections 28 and 37.

Treatment of Competing Arguments: The revenue contended that the loss was capital in nature, not business loss, and that the expenses were not incurred to carry on the appellant's business. The revenue also relied on the fact that the amounts were debited below the line in the profit and loss account and that the Tribunal had confirmed disallowance based on precedent for the previous year. The Court rejected these contentions, holding that the precedent was overruled by the Division Bench decision and that the commercial expediency principle applied. The concept of "below the line" was held to be irrelevant as Schedule VI does not prescribe such a classification.

Conclusions: The Court answered the first and additional substantial questions of law in favour of the appellant, allowing the deduction of Rs. 49,18,786 and Rs. 200.47 lakhs as business expenses and losses incurred in the course of business.

Issue (ii): Whether the Assessing Officer can question the correctness of the profit and loss account certified by statutory auditors under Section 115J of the Income Tax Act

Relevant Legal Framework and Precedents: Section 115J mandates that companies prepare their profit and loss accounts in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, for the purpose of computing book profits for minimum alternate tax (MAT). The Supreme Court decisions in Apollo Tyres Ltd. vs. CIT (2002), Malayala Manorama Company Ltd. vs. CIT (2008), and Khaitan Chemicals and Fertilizers Ltd. vs. CIT (2008) were pivotal. These cases held that the Assessing Officer's powers under Section 115J are limited to verifying whether the accounts are prepared according to the Companies Act and certified by statutory auditors, and do not extend to re-assessing or questioning the correctness of the profit and loss account entries.

Court's Interpretation and Reasoning: The Court reiterated that Section 115J(1A) requires preparation of accounts as per Schedule VI, and the net profit so computed forms the basis for book profit. The provision does not empower the AO to probe beyond the statutory certification or to re-examine the correctness of the accounts. The Court observed that if the legislature intended to allow such reassessment, it would have explicitly stated so in the statute.

Key Evidence and Findings: The appellant's profit and loss account was certified by statutory auditors as prepared in accordance with Schedule VI. The revenue's contention that the amounts were debited below the line was found irrelevant since Schedule VI does not recognize the concept of "below the line."

Application of Law to Facts: The Court applied the above principles to hold that the AO could not question the correctness of the profit and loss account entries, including the disputed expenses and write-offs, for the purpose of computing book profit under Section 115J.

Treatment of Competing Arguments: The revenue relied on a Supreme Court decision in Principal Commissioner of Income Tax-6 vs. Khyati Realtors Pvt. Ltd. (2022) to argue that the AO could interfere with the accounts. The Court distinguished this case and held that the AO's powers remain circumscribed under Section 115J and the accounts certified by auditors cannot be disturbed.

Conclusions: The Court answered the second substantial question of law in favour of the appellant, holding that the AO cannot question the correctness of the profit and loss account prepared and certified under the Companies Act for the purpose of computing book profit under Section 115J.

3. SIGNIFICANT HOLDINGS

The Court made the following crucial legal determinations and established core principles:

"The expenditure incurred was a deductible expenditure. The solution to a question of this nature sometimes is difficult to arrive at. But, however difficult the task may be, a decision on that question should be given having regard to the decisions bearing on the question and ordinary principles of commercial trading and of commercial expediency." (CIT vs. Delhi Safe Deposit Co. Ltd.)

"Whether to treat the debt as bad debt or as business loss/deduction under Section 28 of the Act is a commercial or business decision of the assessee based on the relevant material in possession of the assessee. Once the assessee records the amounts as business loss/deductions in his books of account that would prima facie establish that it was not recoverable loss unless the Assessing Officer for good reasons holds otherwise." (Division Bench judgment in appellant's own case)

"Section 115J(1A) mandates the company to maintain its accounts in accordance with the requirements of the Companies Act and is bodily lifted from the Companies Act into the Act of 1961 for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. It does not empower the authority under the Act to probe into the account accepted by the authorities under the Companies Act." (Apollo Tyres Ltd. vs. CIT)

Final determinations:

• The write-off of deposits and interest amounting to Rs. 200.47 lakhs and the miscellaneous expenses of Rs. 49,18,786 incurred for MMC are deductible as business expenses/losses under Sections 28 and 37 of the Income Tax Act, being incurred for commercial expediency and preservation of business goodwill.
• The Assessing Officer cannot question the correctness of the profit and loss account prepared and certified by statutory auditors under the Companies Act for the purpose of computing book profits under Section 115J of the Income Tax Act.
• The Tribunal's order disallowing these claims is set aside, and the appeal is allowed accordingly.

The core legal questions considered by the Court are:

• Whether a member of a Scheduled Tribe recognized in one State (Rajasthan) but posted in a specified area under Section 10(26) of the Income Tax Act, 1961, is entitled to claim exemption from income tax on salary earned during such posting;
• Whether the provisions of Section 10(26) of the Income Tax Act, 1961, which exempt income of Scheduled Tribe members residing in specified areas, apply to government employees posted outside their place of origin but within specified areas;
• The correct interpretation of the phrase "residing in any area specified" under Section 10(26) of the Income Tax Act, 1961, particularly whether it restricts exemption only to Scheduled Tribes residing in their place of origin or extends to those posted or residing elsewhere within the specified areas;
• Whether the decision of the Full Bench in Pradip Kr. Taye & ors. v. Union of India & ors. (2010) is applicable and binding in the present case;
• Whether the income tax authorities erred in deducting income tax from the salary of the respondent and refusing refund, despite the claimed exemption under Section 10(26).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement of Scheduled Tribe member posted outside State of origin to exemption under Section 10(26)

Relevant legal framework and precedents: Section 10(26) of the Income Tax Act, 1961, exempts income of members of Scheduled Tribes residing in specified areas (notably North East and Jammu & Kashmir) from income tax. The Full Bench decision in Pradip Kr. Taye & ors. v. Union of India & ors. (2010) extensively interpreted this provision, particularly the phrase "residing in any area specified." The Supreme Court's ruling in S.K. Dutta invalidated exclusion of government employees from such exemption as violative of Article 14 (equality before law).

Court's interpretation and reasoning: The Court reiterated the Full Bench's reasoning that the phrase "residing in any area specified" must not be narrowly construed to restrict exemption only to Scheduled Tribes residing in their place of origin. The Court emphasized that the exemption was intended as a special provision for Scheduled Tribes in designated areas, and that government employees posted within these areas are entitled to the exemption. The Court rejected the revenue's argument that the exemption should be denied if the Scheduled Tribe member is posted outside his original State (Rajasthan) but within a specified area (e.g., Agartala, Tripura).

Key evidence and findings: The respondent belonged to the Meena community, a Scheduled Tribe in Rajasthan, and was posted in Agartala, Tripura, a specified area under Section 10(26). Tax exemption certificates issued by the department supported his claim. The respondent was not claiming exemption for periods posted in Silchar, Assam, which is not a specified area.

Application of law to facts: The Court applied the Full Bench's interpretation, holding that the respondent's posting in Agartala, a specified area, entitled him to exemption under Section 10(26) despite his Scheduled Tribe status being recognized originally in Rajasthan. The Court held that denying exemption based on posting location would lead to arbitrary and unreasonable results, violating Article 14.

Treatment of competing arguments: The appellants contended that the Scheduled Tribe status related only to Rajasthan and that Rajasthan was not a specified area under Section 10(26), thus no exemption was available. The Court rejected this, noting the respondent's posting in a specified area and reliance on the Full Bench ruling. The Court also dismissed the contention that the Full Bench decision was inapplicable.

Conclusions: The respondent is entitled to exemption under Section 10(26) for income earned while posted in specified areas, regardless of original State of Scheduled Tribe recognition.

Issue 2: Interpretation of "residing in any area specified" under Section 10(26)

Relevant legal framework and precedents: The Full Bench in Pradip Kr. Taye & ors. construed this phrase to avoid overly narrow or literal interpretations that would exclude Scheduled Tribes migrating within specified areas from exemption. The Court also referred to constitutional provisions (Article 366(25), Articles 330(3) and 332(1)) recognizing special treatment for Scheduled Tribes in specified regions.

Court's interpretation and reasoning: The Court held that "residing in any area specified" should be understood contextually and synonymously with "in relation to any area specified." The expression is descriptive of the limited number of Scheduled Tribes resident in those areas, not restrictive of benefits to those physically residing only in their place of origin. The Court emphasized that the exemption is linked to income arising in specified areas and not to the place of origin alone.

Key evidence and findings: The Court cited paragraphs 28-30 of the Full Bench judgment, which elaborated on the legislative intent and constitutional context. It also considered the history of Section 10(26), including the Supreme Court's invalidation of exclusion of government servants.

Application of law to facts: The respondent's income arose while posted in a specified area. Hence, the exemption applies. The Court rejected the revenue's narrow interpretation that would exclude government employees posted outside their original Scheduled Tribe area.

Treatment of competing arguments: The revenue's argument for a narrow interpretation was dismissed as producing arbitrary results and inconsistent with constitutional guarantees and legislative intent.

Conclusions: The phrase "residing in any area specified" under Section 10(26) must be interpreted broadly to include Scheduled Tribe members posted or residing within specified areas, regardless of original domicile.

Issue 3: Applicability of Full Bench decision in Pradip Kr. Taye & ors.

Relevant legal framework and precedents: The Full Bench decision is binding on the Court and settles the interpretation of Section 10(26) in relation to Scheduled Tribes and government employees.

Court's interpretation and reasoning: The Court affirmed the applicability of the Full Bench decision to the facts of the present case. It rejected the appellants' contention that the decision was not applicable.

Key evidence and findings: The Court noted the Full Bench's detailed examination of the issue and its authoritative pronouncement.

Application of law to facts: The Court applied the Full Bench ruling to hold that the respondent was entitled to exemption.

Treatment of competing arguments: The appellants' attempt to distinguish or discredit the Full Bench decision was rejected.

Conclusions: The Full Bench decision governs the present case and supports the respondent's entitlement to exemption.

Issue 4: Legality of income tax deduction and refund claim

Relevant legal framework and precedents: Section 10(26) exempts income from tax; wrongful deduction requires refund. The writ petition challenged the failure to refund tax deducted from salary.

Court's interpretation and reasoning: The Court held that since the respondent was entitled to exemption, the income tax deducted was not permissible. The income tax authorities were directed to process refund expeditiously.

Key evidence and findings: Tax exemption certificates issued by the department and the respondent's service postings supported the claim.

Application of law to facts: The Court ordered refund of the deducted income tax.

Treatment of competing arguments: The appellants' refusal to refund was held erroneous.

Conclusions: The respondent is entitled to refund of wrongfully deducted income tax.

3. SIGNIFICANT HOLDINGS

"In terms of the provisions of this Section, any member of a Scheduled Tribe as defined in Clause (25) of Article 366 of the Constitution, residing in any of the areas prescribed under Section 10 (26), is exempted from payment of income tax. This Court in Pradip Kr. Taye (Supra) had elaborately dealt with this issue and had laid down the law and had held that the expression under Section 10 (26) 'residing in any area specified' cannot be given a narrow and restricted meaning to imply that the members of a Schedule Tribe migrating from their places of origin, which happens to fall in one of the areas specified in the said sub-section, to another area although once again falling within the areas specified in the sub-section, would not get the benefit of the exemption under Section 10 (26) for exemption from payment of income tax."

"If a literal meaning is to be given to the expression 'residing in any area specified', in our view, section 10 (26) is capable of producing a result that any member of a Scheduled Tribe irrespective of the fact whether such a Scheduled Tribe is a Scheduled Tribe, in relation to those territories specified in the said sub-section or not, is entitled to the benefit of the said subsection. It is not the case of either the petitioners or the revenue that the Parliament, while enacting section 10 (26) intended such result."

"Therefore, the expression 'residing in any area specified' must be interpreted in the context of the said sub-section. The context of the sub-section is that it is a special provision with reference to the specified areas of the country, that is, the areas comprising North East and Jammu & Kashmir of the country, which received a special treatment under the scheme of the Constitution in the various aspects of the application of the Constitution."

"Once it is held that such a classification of the government servants from the scope of section 10 (26) is violative of article 14 to say that a government servant or the employees of the 'State' (within the meaning of article 12) loses the benefit on the mere accident of his being posted out of his place of origin but within the areas specified under section 10 (26) and entitled to the benefit of the said section if by an accident, he is posted in the same area of his origin. Such an interpretation, in our view, which is dependent upon pure accident and exigencies of the service, would lead to wholly arbitrary results and undesirable consequences."

Core principles established include:

• The exemption under Section 10(26) applies to Scheduled Tribe members residing or posted within specified areas, regardless of their original State of recognition;
• The phrase "residing in any area specified" must be interpreted contextually and broadly, not narrowly or restrictively;
• Government employees cannot be excluded from the benefit of exemption on the basis of their posting location;
• Wrongful deduction of income tax from exempt income mandates refund;
• Legislative and constitutional intent require equality and non-arbitrariness in application of tax exemption provisions.

Final determinations:

• The respondent, a Scheduled Tribe member recognized in Rajasthan, is entitled to exemption under Section 10(26) for income earned while posted in Agartala, a specified area;
• The income tax deducted from the respondent's salary during such posting was not permissible and must be refunded forthwith;
• The decision of the learned Single Judge allowing the writ petition and directing refund is affirmed;
• The writ appeal challenging the Single Judge's order is dismissed for lack of merit.

Issues: Whether the Income Tax Department was entitled to obtain custody of the seized cash and be permitted to take consequential action under the Income-tax Act by depositing the amount in the P.D. Account instead of the cash being retained or dealt with under the criminal court's orders.

Analysis: The dispute arose from seizure of cash during investigation and the competing claims for its interim custody. The Court applied the settled distinction between the limited powers exercised under Sections 451 and 457 of the Code of Criminal Procedure, 1973 and the distinct statutory mechanism under Section 132A of the Income-tax Act, 1961. Relying on earlier decisions, the Court noted that once the competent income-tax authority forms the requisite belief under Section 132A(1)(c), the seized assets are to be made available to the requisitioning officer so that further proceedings under the Income-tax Act can proceed. The Court also followed the principle that criminal court custody orders should not obstruct income-tax proceedings when the statutory requisition power is validly invoked.

Conclusion: The Department's request was allowed. The seized cash was directed to be handed over to the Income Tax Department, and the Department was permitted to undertake all lawful actions, including depositing the amount in the P.D. Account in accordance with the Income-tax Act.

Final Conclusion: The impugned orders were set aside and the statutory requisition process under the Income-tax Act was given precedence over the criminal court's interim custody arrangement.

Ratio Decidendi: Where the competent income-tax authority validly invokes Section 132A, seized assets that may represent undisclosed income must be made available to the Income Tax Department for further proceedings, and the criminal court's interim custody powers cannot override that statutory mechanism.

The core legal questions considered by the Court were:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2014-15 was validly issued within the prescribed period of limitation;
• Whether the initial notice issued on 23.06.2021, which was issued prior to the Supreme Court's ruling in Union of India & Others v. Ashish Agarwal, complied with the amended procedural requirements under Section 148A of the Act;
• Whether the period between issuance of the initial notice and the Supreme Court's decision, as well as the time allowed for the Assessee to respond to the notice under Section 148A(b), ought to be excluded from the limitation period under Section 149(1) of the Act;
• Whether the subsequent order passed by the Assessing Officer (AO) under Section 148A(d) on 11.07.2022 was issued within the extended limitation period;
• Whether the extension of limitation period under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) applied to the issuance of the notice in this case;
• Whether the impugned notice issued on 11.07.2022 was beyond the prescribed limitation period and therefore liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Validity and Limitation Period for Notice under Section 148

The relevant legal framework governing the issuance of notice under Section 148 of the Income Tax Act, 1961 is Sections 148, 148A, and 149 of the Act, alongside the amendments introduced by TOLA and judicial precedents.

Before 31.03.2021, notices under Section 148 could be issued based on the then-prevailing procedural regime. However, post 31.03.2021, the procedure was amended by insertion of Section 148A, which mandates the AO to provide material and information justifying the issuance of the notice and to allow the Assessee an opportunity to respond before proceeding.

In Mon Mohan Kohli v. Assistant Commissioner of Income Tax, the Delhi High Court invalidated notices issued after 31.03.2021 that did not comply with Section 148A. Subsequently, the Supreme Court in Union of India & Others v. Ashish Agarwal clarified that such notices would be treated as issued under Section 148A(b), and directed the AO to supply the material on which the notice was based, granting the Assessee time to respond.

In the present case, the initial notice under Section 148 was issued on 23.06.2021, within the extended limitation period granted by TOLA, which extended the six-year period to 30.06.2021. However, this notice was issued before the Supreme Court's ruling in Ashish Agarwal and thus did not comply with Section 148A procedural requirements.

Exclusion of Time Under Section 149(1) of the Act

The Court examined the effect of the Supreme Court's decision in Union of India & Others v. Ashish Agarwal and the subsequent ruling in Union of India v. Rajeev Bansal, which clarified that the period from issuance of the initial notice till the Supreme Court's decision (04.05.2022) must be excluded from the limitation period calculation. Furthermore, the time allowed to the Assessee to respond to the notice under Section 148A(b) is also excluded pursuant to the Third Proviso to Section 149(1).

Thus, the limitation period for issuing a valid notice was effectively extended beyond the original expiry date, accounting for the exclusion of the period during which the Assessee was entitled to respond.

Issuance of the Order under Section 148A(d) on 11.07.2022

The AO issued an order under Section 148A(d) on 11.07.2022, which the Assessee contended was beyond the permissible period. The Court analyzed the timeline and noted that the AO had seven days from the receipt of the Assessee's reply to issue the notice. Since the Assessee did not file any reply to the notice dated 26.05.2022, the seven-day period expired on 18.06.2022.

Accordingly, issuance of the order on 11.07.2022 was beyond the prescribed period, rendering the notice invalid on grounds of limitation.

Application of TOLA Extension

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 extended the limitation period for issuance of notices under Section 148 to 30.06.2021. The initial notice dated 23.06.2021 was issued within this extended period, thereby satisfying the temporal requirement for issuance of the original notice.

However, due to the subsequent procedural requirements under Section 148A and the Supreme Court's rulings, the limitation period calculation had to factor in exclusions, which ultimately rendered the impugned notice beyond limitation.

Treatment of Competing Arguments

The Respondents contended that the notice was valid as it was issued within the extended limitation period and complied with the Supreme Court's directions. The Assessee argued that the impugned notice was issued beyond the extended and excluded limitation period and was thus invalid.

The Court relied on the binding precedents of the Supreme Court and this Court's prior ruling in Ram Balram Buildhome Pvt. Ltd. v. Income Tax Officer, which supported the Assessee's contention that the notice issued post expiry of the exclusion period was invalid.

3. SIGNIFICANT HOLDINGS

The Court held:

"The period from the date of issuance of the notice till 04.05.2022, the date on which the Supreme Court rendered its decision in Union of India & Ors. v. Ashish Agarwal, is required to be excluded from limitation."

"The time provided until the material required to accompany the notice under section 148A (b) of the Act, as well as the time available to the Assessee to respond to the said notice, is also required to be excluded by virtue of the Third Proviso to Section 149 (1) of the Act."

"The AO had seven days to issue the notice under Section 148 of the Act after receipt of the reply of the Assessee. The said period expired on 18.06.2022. However, the impugned notice was issued on 11.07.2022, which is beyond the prescribed period.

The core legal questions considered by the Court were:

• Whether the issuance of notices under Section 153C of the Income Tax Act, 1961, in respect of multiple Assessment Years (AYs) was valid when no incriminating material was found during the search under Section 132 or requisition under Section 132A of the Act relating to the petitioner;
• Whether the seized material (gold bullion and jewellery parcels) constituted incriminating material having a bearing on the petitioner's income for the relevant AYs;
• Whether the notices issued under Section 153C were barred by limitation;
• Whether the Assessing Officer (AO) had properly recorded satisfaction that the seized material had a bearing on the petitioner's income for the relevant AYs, as required under Section 153C;
• The applicability and interpretation of the legal framework governing initiation of proceedings under Section 153C, including the requirement of satisfaction and the scope of incriminating material;
• Reliance on precedent decisions regarding the conditions precedent for issuance of notices under Section 153C and the necessity of incriminating material having a bearing on the income of the person searched or requisitioned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Notices under Section 153C in Absence of Incriminating Material

Legal Framework and Precedents: Section 153C of the Income Tax Act permits the AO to initiate proceedings against a person other than the one searched if, during a search or requisition under Sections 132 or 132A, incriminating material is found belonging to that other person. The Supreme Court in Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society and subsequent decisions have clarified that the AO must record satisfaction that the material seized has a bearing on the income of the person against whom proceedings are initiated. The Delhi High Court in Saksham Commodities Ltd. v. Income Tax Officer reiterated that mere seizure of material is insufficient unless it is incriminating and relevant to the income of the person concerned.

Court's Interpretation and Reasoning: The Court noted that the AO's satisfaction note dated 03.09.2019 did not record any finding that the seized material had a bearing on the petitioner's income for the AYs 2012-13 to 2017-18. The Court emphasized that without such satisfaction, initiation of proceedings under Section 153C was impermissible.

Key Evidence and Findings: The seized parcel contained 49 grams of fine gold valued at Rs. 1,32,288/-, sent by the petitioner to another person for job work. The petitioner did not dispute dispatching the parcel and claimed it was reflected in its books of accounts. The Court found that this did not amount to incriminating material warranting reopening of assessments.

Application of Law to Facts: Since no incriminating material was found that could affect the petitioner's income, and the AO failed to record satisfaction to that effect, the issuance of notices under Section 153C was held invalid.

Treatment of Competing Arguments: The respondent argued that the seizure of gold parcels justified the notices. The Court rejected this, holding that mere seizure without incriminating evidence or AO's satisfaction was insufficient.

Conclusion: The notices under Section 153C were invalid and liable to be quashed.

Issue 2: Limitation on Issuance of Notices under Section 153C

Legal Framework: The limitation period for issuance of notices under Section 153C is governed by the same principles applicable to reassessment proceedings under the Income Tax Act. The Court referred to the petitioner's contention that the impugned notices were issued beyond the limitation period.

Court's Reasoning: Although the judgment does not elaborate extensively on limitation, it implicitly supports the petitioner's contention by setting aside the notices on grounds including lack of incriminating material and absence of AO's satisfaction, which are prerequisites for valid issuance within limitation.

Conclusion: The notices were also liable to be quashed on limitation grounds intertwined with substantive invalidity.

Issue 3: Requirement of AO's Satisfaction under Section 153C

Legal Framework and Precedents: The Supreme Court and High Courts have consistently held that the AO must record a satisfaction note that the seized material has a bearing on the income of the person against whom proceedings are initiated. This is a mandatory condition precedent for valid issuance of notices under Section 153C.

Court's Interpretation: The Court observed that the AO's satisfaction note did not indicate any such finding for the petitioner. This omission rendered the proceedings invalid.

Conclusion: The absence of AO's recorded satisfaction was fatal to the validity of the notices and subsequent proceedings.

Issue 4: Nature of Seized Material and Its Bearing on Income

Facts and Findings: The seized parcel was sent by the petitioner for job work and was accounted for in its books. The Court held that such material could not be treated as incriminating or having a bearing on undisclosed income.

Legal Application: The Court applied the principle that material must be both incriminating and relevant to the income for reopening assessments, which was not the case here.

Conclusion: The seized gold parcel did not constitute incriminating material justifying reassessment.

Issue 5: Precedential Support and Consistency

Precedents Relied Upon: The Court relied on Saksham Commodities Ltd. v. Income Tax Officer, Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society, and Deputy Commissioner of Income Tax Central Circle 20 v. M/s U.K. Paints (Overseas) Ltd., which collectively establish the necessity of AO's satisfaction and incriminating material for valid Section 153C proceedings.

Reasoning: The Court applied these precedents to the facts, reinforcing the principle that procedural safeguards and substantive conditions must be satisfied before reopening assessments under Section 153C.

Conclusion: The impugned notices and order failed to meet the established legal standards and were therefore set aside.

3. SIGNIFICANT HOLDINGS

The Court held:

"Absent any incriminating material for the relevant assessment years, the proceedings under Section 153C of the Act could not be initiated for the said years."

"The AO having jurisdiction in case of the petitioner had not recorded any satisfaction to the said effect."

"The impugned notices and the impugned order are set aside. All proceedings initiated by the AO pursuant to the said notices are also set aside."

Core principles established include:

• Initiation of proceedings under Section 153C requires the AO to record satisfaction that incriminating material seized during search or requisition has a bearing on the income of the person against whom proceedings are initiated;
• Mere seizure of material without such satisfaction and without the material being incriminating and relevant to undisclosed income does not justify reopening assessments;
• Notices issued beyond the prescribed limitation period or without compliance with procedural safeguards are liable to be quashed;
• Precedents mandate strict adherence to the conditions precedent under Section 153C to prevent arbitrary reopening of assessments.

Final determinations on each issue resulted in setting aside the impugned notices and order, thereby quashing all proceedings initiated thereunder.

The Court considered the following core legal questions:

(i) Whether the Income Tax Appellate Tribunal was correct in not admitting a fresh ground raised for the first time before it when it involved a pre-question of law and no additional investigation into facts;

(ii) Whether unabsorbed depreciation can be set off against long-term capital gains for the relevant assessment year;

(iii) Whether the Income Tax Appellate Tribunal was correct in holding that the provision for deferred tax liability as per Accounting Standard 22 (AS 22) constitutes an unascertained liability under Explanation (c) to sub-section (2) of Section 115JB of the Income Tax Act for computing minimum alternate tax, despite AS 22 being mandated by Section 211(3C) of the Companies Act, 1956;

(iv) Whether the appellant was precluded from pursuing remedy under Section 154 of the Income Tax Act merely because an appeal under Section 246A was filed subsequently before the Appellate Commissioner against the same assessment order for which the appellant had earlier filed an application under Section 154.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (iv): Whether remedy under Section 154 is precluded by filing an appeal under Section 246A

Relevant legal framework and precedents: Section 154 of the Income Tax Act empowers the income-tax authority to rectify any mistake apparent from the record in an order passed by it. Sub-section (1A) restricts amendment of an order under Section 154 if the matter has been considered and decided in appeal or revision. Section 246A deals with appeals to the Commissioner (Appeals). Section 251(1)(a) confers wide powers on the Commissioner (Appeals) to confirm, reduce, enhance or annul the assessment, even on matters not raised by the appellant, subject to reasonable opportunity of hearing.

Precedents cited include CIT vs. Hero Cycles (P) Ltd, CIT vs. Shri Eklingji Trust, Yogendra Prasad Santhosh Kumar vs. CIT(A), and the Supreme Court decision in Commissioner of Income Tax vs. Rai Bahadur Hardutroy Motilal Chamaria.

Court's interpretation and reasoning: The Court observed that an application under Section 154 is confined to rectifying errors apparent on the face of the record and is not a substitute for an appeal. The filing of an appeal under Section 246A does not preclude the Assessing Officer from passing an order under Section 154 before the appellate authority passes its order. However, once the appellate or revisional authority passes an order on the matter, the original authority cannot pass a rectification order on that issue.

The Court emphasized that the original order merges with the appellate or revisional order once passed, preventing any contradictory rectification thereafter. The Court rejected the Department's contention that the pendency of appeal precludes any rectification under Section 154. It held that Section 154(1A) only restricts rectification on matters already considered and decided by appellate or revisional authorities.

The Court also highlighted the wide powers of the Commissioner (Appeals) under Section 251(1)(a) to revisit and enhance assessment even on issues not raised by the assessee, provided a reasonable opportunity is given.

Key evidence and findings: The appellant filed an application under Section 154 on 06.05.2005 and an appeal under Section 246A on 12.05.2005 against the same assessment order dated 28.03.2005. The Assessing Officer passed the rectification order on 25.08.2005, preceding the appellate order dated 15.11.2006.

Application of law to facts: Since the rectification order preceded the appellate order, the Assessing Officer was entitled to rectify the mistake apparent on record. The appellate authority was justified in revisiting the issue and enhancing the assessment. The remedy for the Department against the rectification order was to invoke revision under Section 263, not to contend that the rectification was barred by the appeal.

Treatment of competing arguments: The appellant argued that the rectification order should prevail and the appellate authority should have treated the issue as not pressed. The Department argued that the appellant was forum shopping and that the rectification was barred once the appeal was filed. The Court rejected the Department's argument and upheld the appellant's right to pursue both remedies concurrently until the appellate order is passed.

Conclusion: The Court answered the fourth substantial question of law in favor of the appellant, holding that filing an appeal under Section 246A does not preclude the appellant from pursuing rectification under Section 154 before the appellate authority passes its order.

Issue (ii): Whether unabsorbed depreciation can be set off against long-term capital gains

Relevant legal framework and precedents: Section 32 of the Income Tax Act deals with depreciation allowance. Section 32(2), as amended by the Finance Act, 2000 (effective 01.04.2001), allowed unabsorbed depreciation to be set off against profits and gains of any business or profession assessable for that year, and if not fully set off, then against income under any other head. However, the Finance Act, 2001 amended Section 32(2) effective 01.04.2002, restricting the set off of unabsorbed depreciation only against profits and gains from business or profession, disallowing set off against income under other heads including capital gains.

Precedents cited include CIT vs. Hickson and Dadajee (P) Ltd, CIT vs. Pioneer Asia Packing (P) Ltd, CIT vs. S & S Power Switchgear Ltd, and Bond Safety Beits (Dissolved) vs. DCIT.

Court's interpretation and reasoning: The Court held that the relevant provision is Section 32(2) as it stood between 01.04.2001 and 31.03.2002, applicable to the assessment year 2002-2003. During this period, unabsorbed depreciation could be set off against income from any head, including capital gains, if not fully set off against business income. The amendment effective 01.04.2002 applies only to subsequent assessment years.

The Court noted that the appellant had unabsorbed depreciation from Assessment Year 1999-2000 and sought to set it off against long-term capital gains arising from sale of land to its subsidiary. The Assessing Officer initially disallowed this set off but later allowed it in a rectification order under Section 154. The Appellate Commissioner disallowed the claim, and the Tribunal upheld this disallowance.

The Court found that the Tribunal erred in not recognizing the entitlement of the appellant to set off unabsorbed depreciation against capital gains for the assessment year in question.

Key evidence and findings: The appellant's revised return declared business income and capital gains. The sale of land to the subsidiary was initially claimed exempt under Section 47A but later withdrawn as the subsidiary converted the land into stock-in-trade. The unabsorbed depreciation amount was Rs.4,24,88,948/- from Assessment Year 1999-2000. The appellant sought to set off a portion of this against capital gains.

Application of law to facts: The Court applied the unamended Section 32(2) to the facts and held that the appellant was entitled to set off unabsorbed depreciation against capital gains for the assessment year 2002-2003. The Court remitted the matter to the Assessing Officer for fresh computation considering this principle and the correct book profits under Section 115JB.

Treatment of competing arguments: The Department argued that the amended Section 32(2) effective from 01.04.2002 disallowed set off against capital gains and that the appellant was not entitled to such set off. The appellant relied on pre-amendment law and relevant Supreme Court precedents. The Court sided with the appellant, emphasizing the non-retrospective nature of amendments.

Conclusion: The Court answered the second substantial question of law in favor of the appellant, holding that unabsorbed depreciation could be set off against long-term capital gains for the assessment year 2002-2003.

Issue (i): Admission of fresh ground before the Tribunal

No arguments were advanced by either party on this issue during the hearing. The Court refrained from answering this substantial question of law.

Issue (iii): Treatment of deferred tax liability as unascertained liability for minimum alternate tax (MAT) computation

The appellant did not press this question of law. The Court answered it against the appellant in light of the amendment to Section 115JB by the Finance Act, 2000, effective 01.04.2001.

3. SIGNIFICANT HOLDINGS

"An application under Section 154 of the Income Tax Act is confined only to rectify an error apparent on the face of record and is not intended to be used as a substitute for an appeal. Under no circumstances can an application under Section 154 be allowed to be transformed into an appeal in disguise."

"Section 154(1A) restricts rectification of an order only in respect of matters that have been considered and decided by way of appeal or revision. The pendency of an appeal under Section 246A does not preclude the Assessing Officer from passing an order under Section 154 before the appellate authority passes its order."

"The Commissioner (Appeals) under Section 251(1)(a) has wide powers to confirm, reduce, enhance or annul the assessment, including matters not raised by the assessee, subject to reasonable opportunity of hearing."

"The amendment to Section 32(2) of the Income Tax Act by the Finance Act, 2001, effective 01.04.2002, restricting set off of unabsorbed depreciation only against business income and not against income under other heads including capital gains, is not retrospective. For the assessment year 2002-2003, the pre-amended provision applies."

"The unabsorbed depreciation allowance as per Section 32(2) of the Act as it stood between 01.04.2001 and 31.03.2002 could be set off against profits and gains from business or profession and, if not fully set off, then against income under any other head, including capital gains."

"The matter is remitted to the Assessing Officer to recompute the assessment for the assessment year 2002-2003 considering the entitlement to set off unabsorbed depreciation against long-term capital gains."

Final determinations:

• Issue (ii): Unabsorbed depreciation can be set off against long-term capital gains for Assessment Year 2002-2003 - decided in favor of the appellant.
• Issue (iv): Filing an appeal under Section 246A does not preclude rectification under Section 154 before the appellate order is passed - decided in favor of the appellant.
• Issue (iii): Treatment of deferred tax liability as unascertained liability under Section 115JB - decided against the appellant.
• Issue (i): Admission of fresh ground before Tribunal - not answered.

The principal legal issue considered in this appeal is the validity and reasonableness of the disallowance of expenses claimed by the assessee against agricultural income, specifically:

• Whether the disallowance of Rs. 14,33,983/- at 15% of agricultural income by the Commissioner of Income-Tax (Appeals) (CIT(A)) is justified, given that the Assessing Officer (AO) had initially disallowed 30% of agricultural income as unexplained cash credits under section 68 of the Income-tax Act, 1961.
• Whether the AO was justified in estimating agricultural expenses at 30% of net agricultural income in the absence of adequate substantiation by the assessee.
• The reasonableness of the AO's and CIT(A)'s approach in determining the quantum of disallowance based on comparative analysis of agricultural expenses over preceding years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity and Reasonableness of Disallowance of Agricultural Expenses as Unexplained Cash Credit under Section 68

Relevant legal framework and precedents: Section 68 of the Income-tax Act empowers the Assessing Officer to treat unexplained cash credits as income of the assessee if the source of such credits is not satisfactorily explained. The principle underlying section 68 is to prevent concealment of income by the assessee. The burden lies on the assessee to explain the nature and source of such credits. The quantum of disallowance or addition must be based on credible evidence or reasonable estimation aligned with factual circumstances.

Court's interpretation and reasoning: The AO observed that the assessee declared substantial agricultural income but claimed minimal agricultural expenses, which was inconsistent with the pattern of expenses in previous years. The AO found the expenses claimed for AY 2020-21 (5.82% of gross agricultural income) to be unrealistically low compared to 27% and 35.1% in AY 2018-19 and AY 2019-20 respectively. Consequently, the AO estimated agricultural expenses at 30% of net agricultural income and disallowed Rs. 28,67,967/- as unexplained cash credit under section 68.

The CIT(A) considered the AO's addition excessive and restricted the disallowance to 15% of agricultural income, thus confirming an addition of Rs. 14,33,984/- under section 68.

Key evidence and findings: The assessee submitted detailed lists of agricultural produce and expenses such as soil preparation, fertilizers, irrigation, electricity, and minimal labor costs, supported by the fact that the assessee owned water facilities. The agricultural produce included common commercial crops such as mango, sapota, wheat, chickpea, corn, moong, guwar, juwar, tuvar, and bajari cultivated on approximately 40 acres. The sale receipts were undisputed by the Revenue.

Application of law to facts: The Court examined the pattern of expenses over three years and noted a significant drop in claimed expenses in the year under consideration. However, the Court acknowledged the assessee's explanation of minimal labor requirements and ownership of water resources, which reasonably explained the lower expenses. Given that the sale receipts were not disputed and the crops were typical commercial varieties, the Court found the AO's 30% disallowance excessive.

Treatment of competing arguments: The AO's argument was based on standard agricultural expense percentages in India (around 40% of gross income) and the drastic reduction in expenses claimed by the assessee. The assessee argued that expenses were genuinely low due to owned facilities and minimal labor. The CIT(A) moderated the AO's disallowance to 15%, balancing the AO's skepticism and the assessee's explanations.

Conclusions: The Court upheld the CIT(A)'s reduction of disallowance to 15%, considering it a reasonable and justifiable compromise. The AO's 30% disallowance was found to be arbitrary and not fully supported by evidence. The Court dismissed the appeal of the assessee against the disallowance at 15%.

3. SIGNIFICANT HOLDINGS

"Since the sale receipt has not been disputed by the Revenue, we hold that restricting the expenditure to 15% by the Ld. CIT(A) is quite reasonable and no interference is called for on this issue."

"Considering the above facts and circumstances, it is inferred that the assessee has failed to prove in establishing the fact of low expenditure incurred for producing large agricultural income. ... Since, the assessee failed to substantiate his claim of low expenditure incurred, an amount @ 30% of the net agricultural income, which comes to Rs. 28,67,967/- added to the total income of the assessee u/s68 of the Act being unexplained cash credit."

Core principles established:

• The burden of proof lies on the assessee to substantiate agricultural expenses claimed against agricultural income.
• In the absence of adequate substantiation, the AO may estimate expenses based on reasonable benchmarks and past trends.
• However, the AO's estimate must be reasonable and not arbitrary; appellate authorities may moderate such estimates based on facts and evidence.
• Undisputed sale receipts of agricultural produce are significant in determining the genuineness of agricultural income.

Final determinations:

• The AO's disallowance of 30% of net agricultural income as unexplained cash credit under section 68 was excessive and not justified on the evidence.
• The CIT(A)'s reduction of disallowance to 15% was reasonable and upheld by the Tribunal.
• The assessee's appeal against the CIT(A)'s order was dismissed, confirming the addition of Rs. 14,33,984/- under section 68.

The core legal questions considered in this appeal are:

(a) Whether the disallowance of 2% of the alleged bogus purchases amounting to Rs. 12,61,68,630/- made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)] is justified in law and on facts, particularly when the assessee has produced documentary evidence and confirmation letters from the suppliersRs.

(b) Whether the entire addition on account of alleged bogus purchases ought to have been deleted, given the evidence produced by the assessee and the absence of any adverse material against the genuineness of the transactionsRs.

(c) The legal validity of sustaining any addition solely on the basis of non-response to notices issued under Section 133(6) of the Income-tax Act, 1961 (the Act), when the assessee has furnished primary evidence substantiating the transactions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of Disallowance of 2% of Purchases as Bogus

Relevant legal framework and precedents: The Assessing Officer (AO) invoked the provisions of Section 133(6) of the Act to issue notices to the suppliers for verification of purchases. The non-response by the suppliers led the AO to treat the purchases as bogus and disallow 3.92% of the purchases. The CIT(A) reduced this disallowance to 2%, citing absence of third-party verification but maintaining some addition as a safeguard. The principle that an addition cannot be sustained solely on the basis of non-response to third-party notices, especially when the assessee produces primary evidence, has been consistently upheld by higher judicial authorities.

Court's interpretation and reasoning: The Tribunal noted that the AO's disallowance was premised on the non-response of the suppliers to notices under Section 133(6). However, the assessee submitted confirmation letters from both suppliers, which acknowledged the sales to the assessee's firm, payments made through banking channels, and provided copies of their ledgers and Income Tax Returns (ITRs). Further, the assessee produced documentary evidence showing that the purchases were recorded in the books of account and reflected in the GST returns (GSTR-1 and GSTR-9) of the suppliers and the assessee respectively.

The CIT(A) acknowledged the documentary evidence but still sustained a 2% disallowance due to the inability to carry out third-party verification. The Tribunal observed that this approach was contradictory because the CIT(A) accepted the genuineness of transactions based on the evidence but still imposed a disallowance without any adverse material or discrepancy in the assessee's books or audit report.

Key evidence and findings: The assessee produced:

• Confirmation letters dated 23-12-2022 from the two suppliers confirming sale details, payment through banking channels, and ledger copies.
• Copies of ITR acknowledgements of the suppliers for the relevant assessment year.
• Commodity-wise trading accounts with quantity and value details in audited financial statements.
• GST returns filed by the suppliers and the assessee reflecting corresponding sales and purchases.
• Payment evidence through RTGS transactions from the assessee's bank accounts.

Application of law to facts: The Tribunal applied the principle that non-response to third-party notices alone cannot lead to disallowance if the assessee has furnished adequate primary evidence to substantiate the transactions. The evidence produced by the assessee was found to be cogent and consistent with the books of account and statutory filings. The Tribunal held that sustaining any addition on the basis of mere non-response, without any adverse material or discrepancy, is not legally sustainable.

Treatment of competing arguments: The Revenue's argument rested on the non-response of the suppliers to Section 133(6) notices, which the AO and CIT(A) treated as indicative of bogus purchases. The assessee countered this by producing detailed documentary evidence and confirmations. The Tribunal favored the assessee's submissions, emphasizing that the absence of third-party verification cannot override the primary evidence provided.

Conclusion: The disallowance of 2% of purchases was held to be unjustified. The Tribunal found the transactions genuine and real, and the disallowance was quashed.

Issue (b): Whether Entire Addition Should be Deleted

Relevant legal framework and precedents: The principle that additions must be based on tangible evidence and not mere assumptions or presumptions is well-established. The Tribunal referred to precedents where courts have held that additions cannot be sustained solely on the basis of non-response to notices or suspicion without corroborative evidence.

Court's interpretation and reasoning: The Tribunal found that the assessee maintained detailed commodity-wise trading accounts with complete quantity and value details, audited as per Section 44AB of the Act. The turnover and purchases were consistent, and the audit report did not indicate any discrepancy. The confirmation letters and GST returns further corroborated the genuineness of the transactions.

Key evidence and findings: The total turnover was Rs. 81 crores and purchases Rs. 78 crores, indicating a consistent trading pattern. The audit and tax audit reports were unblemished. The confirmation letters and banking evidence supported the genuineness of purchases.

Application of law to facts: Given the documentary evidence and absence of any adverse material, the entire addition was found to be unwarranted. The Tribunal held that sustaining even a part of the addition was inconsistent with the acceptance of genuineness by the CIT(A).

Treatment of competing arguments: While the Revenue sought to uphold part of the addition as a precautionary measure due to lack of third-party verification, the Tribunal rejected this approach, emphasizing the primacy of the evidence produced by the assessee.

Conclusion: The entire addition was deleted.

Issue (c): Legality of Addition Based Solely on Non-Response to Section 133(6) Notices

Relevant legal framework and precedents: Section 133(6) empowers the AO to summon persons to produce evidence or furnish information. However, non-response to such notices does not ipso facto establish bogus transactions. Judicial precedents have clarified that additions must be based on a holistic view of evidence, not mere presumptions.

Court's interpretation and reasoning: The Tribunal reiterated that non-response to third-party notices cannot be the sole basis for addition if the assessee produces adequate primary evidence. The Tribunal observed that the CIT(A) himself acknowledged the genuineness of transactions but still sustained a disallowance, which was contradictory and legally untenable.

Key evidence and findings: The Tribunal noted the absence of any adverse findings in the audit or books of account and the presence of detailed documentary evidence corroborating the purchases.

Application of law to facts: The Tribunal applied the principle that suspicion or non-response cannot override documentary proof. The addition based solely on non-response was therefore not sustainable.

Treatment of competing arguments: The Revenue's reliance on non-response was rejected in light of the evidence provided by the assessee.

Conclusion: Addition based solely on non-response to Section 133(6) notices is not sustainable.

3. SIGNIFICANT HOLDINGS

"The reason for making the impugned addition was that, in response to the notice issued to the parties u/s 133(6) of the Act, no reply was submitted by any of the parties for confirmation of purchases made by the assessee. ... The assessee has produced all the documents available with them as above but third party verification had not been possible in this case. Keeping in view of the natural justice with the assessee, GP to turnover ratio taken by AO as 3.92 percent is further reduced to 2 percent."

"... the assessee has maintained commodity wise Trading accounts with complete quantity details. The total turnover of the sales amounted to Rs. 81 Crores during the year. The purchases were to the tune of Rs. 78 Crores. The books of account of the assessee are audited as per provisions of section 44AB of Act and the commodity-wise sales and purchases in value and in quantity are given in audited Trading Account and Tax Audit Report."

"... addition cannot be sustained solely on the basis of third-party non-response, especially when the assessee has produced adequate primary evidence substantiating the transaction. No discrepancy or adverse inference has been pointed out in the assessee's books or audit findings. Therefore, in view of the totality of facts and circumstances, we are of the considered opinion that, having held the transactions are genuine by the Ld. CIT(A) and sustaining the disallowance @ 2% by the Ld. CIT(A) is an anathema to itself. The decision of the Ld. CIT(A) cannot be affirmed."

Core principles established include:

• Non-response to Section 133(6) notices cannot be the sole basis for treating purchases as bogus.
• Primary documentary evidence including confirmation letters, banking transactions, GST returns, and audited accounts are crucial in establishing genuineness.
• Additions must be based on cogent evidence and not mere presumptions or suspicions.
• Where the assessee produces adequate evidence, sustaining any addition without adverse material is legally untenable.

Final determinations:

• The disallowance of 2% of purchases as bogus was quashed.
• The entire addition on account of alleged bogus purchases was deleted.
• The appeal of the assessee was allowed.

The core legal questions considered by the Tribunal are:

(i) Whether the Assessing Officer (AO) had valid jurisdiction under section 147 read with section 151 of the Income Tax Act, 1961 ("the Act") to reopen the assessment for the assessment year (AY) 2012-13;

(ii) Whether the notice issued under section 148 of the Act was valid and within the prescribed time limits, particularly in light of the prior assessment completed under section 143(3) of the Act;

(iii) Whether the conditions stipulated in the first proviso to section 147 of the Act, specifically regarding failure to disclose material facts fully and truly, were satisfied to justify reopening beyond four years;

(iv) Whether the additions made by the AO towards unexplained expenditure amounting to INR 1,59,20,700/- were justified on merits;

(v) Whether the approval granted by the Principal Commissioner of Income Tax (Pr.CIT) under section 151 of the Act was valid and exercised with due diligence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Jurisdiction under section 147/148 and validity of reopening notice

Relevant legal framework and precedents: Section 147 of the Income Tax Act empowers the AO to reopen an assessment if he has reason to believe that income chargeable to tax has escaped assessment. Section 148 mandates issuance of a notice before reopening. The first proviso to section 147 imposes an embargo on reopening beyond four years from the end of the relevant AY unless there is a failure to disclose material facts fully and truly. Section 151 requires prior approval from the Pr.CIT for reopening beyond four years.

Judicial precedents cited include:

• CIT v. Foramer France (264 ITR 566) (SC)
• Hindustan Lever Ltd. v. R.B. Wadkar (268 ITR 332) (Bom)
• Mercury Travels Ltd. v. Dy. CIT (258 ITR 533) (Cal)
• JSRS Udyog Ltd. & Ors. v. ITO (313 ITR 321) (Del)
• Bombay Stock Exchange Ltd. v. DDIT(E) (361 ITR 160) (Bom)
• Grindwell Norton Ltd. v. ACIT (2004) 267 ITR 673 (Bom)
• Shriram Foundry v. DCIT (2012) 350 ITR 115 (Bom)
• Sound Casting Pvt. Ltd. v. DCIT (2012) 250 CTR 119 (Bom)
• Voltas Ltd. v. ACIT (2012) 70 DTR 433 (Bom)
• Pr.CIT, Central-11 v. DSC Ltd. [2023] 153 taxmann.com 535 (Delhi)

Court's interpretation and reasoning: The Tribunal carefully examined the reasons recorded by the AO under section 148(2) of the Act. The AO's reasons stated that no assessment had been made under section 143(3) for AY 2012-13 and that reopening was justified based on a Tax Evasion Petition (TEP) alleging large expenditures inconsistent with the declared income of Rs. 5,18,520/-. However, the Tribunal found this to be factually incorrect since an assessment under section 143(3) was indeed completed on 15.01.2015.

The Tribunal noted the absence of any allegation in the reasons recorded that the assessee had failed to disclose material facts fully and truly. This failure is a mandatory condition under the first proviso to section 147 to permit reopening beyond four years. Since the assessment year in question was more than four years old, the reopening notice issued on 31.03.2019 was subject to this embargo. The Tribunal held that without such an allegation, the reopening notice was time barred and hence without jurisdiction.

Further, the approval given by the Pr.CIT under section 151 was found to be mechanical and granted without due diligence, as the Pr.CIT was not made aware of the prior assessment under section 143(3), which was a vital fact affecting jurisdiction.

Key evidence and findings: The key evidence was the record of prior assessment under section 143(3) dated 15.01.2015 and the reasons recorded by the AO under section 148(2) which incorrectly stated no prior assessment was made. The Tax Evasion Petition was also considered vague and unsupported by independent material.

Application of law to facts: The Tribunal applied the statutory provisions and judicial precedents to conclude that the reopening was invalid. The absence of a failure to disclose material facts and the existence of a prior assessment barred reopening beyond four years. The approval under section 151 was also invalid due to lack of due diligence.

Treatment of competing arguments: The Revenue relied on the reasons recorded and the TEP to justify reopening. The Tribunal rejected this, emphasizing the factual inaccuracy and absence of statutory conditions. The assessee's contention that the reopening was time barred and without jurisdiction was accepted.

Conclusions: The reopening notice under section 148 was invalid and time barred. The jurisdiction assumed under section 147 was without legal foundation. Hence, the reassessment order was bad in law and liable to be quashed.

Issue (iii): Conditions under first proviso to section 147 regarding failure to disclose material facts

Relevant legal framework and precedents: The first proviso to section 147 requires that for reopening beyond four years, the AO must record an allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

Court's interpretation and reasoning: The Tribunal found that the reasons recorded did not contain any such allegation. The AO's reasons only referred to the TEP and discrepancies in declared income but did not allege concealment or non-disclosure of material facts by the assessee. This absence rendered the reopening invalid beyond the four-year period.

Key evidence and findings: The reasons recorded under section 148(2) were silent on failure to disclose material facts. This was critical since the reopening was beyond four years.

Application of law to facts: The statutory requirement was not met; hence reopening could not be sustained.

Treatment of competing arguments: The Revenue did not specifically argue the presence of failure to disclose material facts but relied on the TEP and reasons recorded. The Tribunal rejected this approach.

Conclusions: The reopening notice was time barred for failure to comply with the first proviso to section 147.

Issue (iv): Merits of additions towards unexplained expenditure

Relevant legal framework: The AO made additions of INR 1,59,20,700/- towards unexplained expenditure related to marriage expenses and gifts.

Court's interpretation and reasoning: Since the reopening itself was invalid, the Tribunal did not consider it necessary to examine the merits of these additions.

Conclusions: Additions made in the reassessment order were deleted as the order itself was without jurisdiction.

Issue (v): Validity of approval under section 151

Relevant legal framework: Section 151 requires prior approval from the Pr.CIT for reopening beyond four years.

Court's interpretation and reasoning: The Tribunal found that the approval was mechanical and granted without due diligence, as the Pr.CIT was not informed of the prior assessment under section 143(3). This vitiated the approval.

Conclusions: Approval under section 151 was invalid.

3. SIGNIFICANT HOLDINGS

"In the absence of such allegations at the threshold, the notice issued under s. 148 of the Act beyond four years is time barred and thus without jurisdiction and hence, bad in law."

"The AO has clearly mentioned in the reasons recorded that 'no assessment has been carried out' which is contrary to facts on record."

"The jurisdiction assumed under s. 147 is thus clearly without legal foundation. Consequent re-assessment framed based on nonest time barred notice under s. 148 of the Act is therefore, bad in law."

"The approval granted by the Pr.CIT under s. 151 is also without due diligence expected to be exercised by the approving authority."

Core principles established include:

• Reopening beyond four years requires an allegation of failure to disclose material facts fully and truly;
• A reopening notice issued after four years without such allegation is time barred and without jurisdiction;
• Prior assessment under section 143(3) bars reopening under section 147 unless conditions in proviso are met;
• Approval under section 151 must be granted with due diligence and full knowledge of relevant facts;
• Vague and unsupported Tax Evasion Petitions cannot form the sole basis for reopening.

Final determinations:

• The reopening notice under section 148 was invalid and time barred;
• The jurisdiction under section 147 was without legal foundation;
• The approval under section 151 was invalid;
• The reassessment order and additions made thereunder were quashed;
• The appeal was allowed in favour of the assessee without examining the merits of additions.

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the assessment order passed under section 143(3) of the Income Tax Act, 1961 for the assessment year 2019-20 is valid in the absence of proper and valid approval under section 153D of the ActRs.

(b) Whether the approval granted by the Additional Commissioner of Income Tax (Addl. CIT) under section 153D was mechanical and without due application of mind, thereby rendering the assessment order illegal and void ab initioRs.

(c) Whether the assessment order passed under section 143(3) is barred by limitation as prescribed under section 153B of the ActRs.

(d) Whether the addition made on account of unexplained jewellery found during search and seizure is justified, especially in light of the assessee's explanations and the absence of a show cause noticeRs.

(e) Whether the notice of demand issued under section 156 prior to the conclusion of assessment proceedings under section 143(3) is valid, including compliance with mandatory requirements such as the inclusion of Document Identification Number (DIN) as per Circular No. 19/2019Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of assessment order in absence of proper approval under section 153D and whether approval was mechanical

The legal framework mandates that for assessments arising out of search and seizure operations under section 132, the Assessing Officer (AO) must obtain prior approval from the Joint Commissioner of Income Tax (JCIT) or Additional Commissioner of Income Tax (Addl. CIT) under section 153D before passing an assessment order under section 143(3). This approval is intended as a safeguard to ensure that the assessment is not passed arbitrarily and that the approving authority applies independent mind to the facts and materials before sanctioning the assessment.

The assessee challenged the validity of the assessment on the ground that the approval granted by the Addl. CIT was mechanical, being granted for 21 cases in a single order on the same day without individual consideration or application of mind. The assessee relied on several precedents supporting the proposition that mechanical or blanket approvals without examination of seized material and appraisal reports render the assessment invalid.

The Tribunal examined the approval letter dated 28-09-2021 and the related correspondence. It noted that the AO had sent a common letter seeking approval for multiple assessment years and cases, and the Addl. CIT granted approval for all these cases on the same day through a single letter. This was found to be inconsistent with the statutory requirement that approval under section 153D must be year-wise and case-wise, with due application of mind.

The Tribunal referred extensively to binding precedents, including decisions of coordinate benches of the Tribunal and High Courts, which have held that:

• Approval under section 153D must be a speaking order reflecting application of mind and cannot be a mere formality or mechanical act.
• Approvals granted on the basis of draft assessment orders or certificates from the AO without independent scrutiny of appraisal reports, seized material, and other records are invalid.
• When approval is granted mechanically or without application of mind, the assessment order loses its validity and is liable to be quashed.

Specifically, the Tribunal cited decisions where approval letters merely stated "Following draft assessment orders are being approved" without elaboration or evidence of independent examination were held to be insufficient. The Tribunal also noted the inherent fallacy in the belief expressed by some approving authorities that approval is a mere formality culminating the application of mind exercised by the AO during assessment proceedings.

Applying the law to the facts, the Tribunal found that the Addl. CIT's approval in the instant case was similarly mechanical and without due application of mind, as it was a consolidated approval for 21 cases granted on the same day without individual consideration. The Tribunal held that such approval is invalid and quashed the assessment order accordingly.

Issue (c): Limitation under section 153B

The assessee raised the ground that the assessment order and notice of demand were issued beyond the limitation period prescribed under section 153B. However, since the Tribunal quashed the assessment on the ground of invalid approval under section 153D, it did not adjudicate this issue, rendering it academic.

Issue (d): Addition on account of unexplained jewellery

The assessee challenged the addition of Rs. 4,15,898 on account of unexplained jewellery found during the search, contending that satisfactory explanation was furnished and no show cause notice was issued before making the addition. However, as the assessment was quashed on the ground of invalid approval, the Tribunal did not examine the merits of this addition or the procedural compliance regarding show cause notice, leaving these issues open for future adjudication.

Issue (e): Validity of notice of demand under section 156 and compliance with DIN requirements

The assessee contended that the notice of demand issued prior to the conclusion of assessment proceedings and without mentioning the Document Identification Number (DIN) was defective and invalid. Again, since the assessment was quashed on the primary legal ground of invalid approval, the Tribunal refrained from adjudicating this issue, considering it academic.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is captured in the following verbatim excerpts:

"In view of the aforesaid discussions and also by respectfully following the aforesaid binding precedents, we hold that the approval dated 28-09-2021 granted u/s 153D of the Act by the Addl. Commissioner of Income Tax Central Range Meerut is mechanical and without due application of mind. Accordingly, we quash the assessment and allow the legal ground raised by the assessee. Since we have quashed the assessment, the other grounds have become academic, hence need not be adjudicated upon."

Another important principle reiterated is:

"Whenever any statutory obligation is cast upon any authority, such authority is legally required to discharge the obligation by application of mind. The approval of JCIT should reflect application of mind, which is missing in the instant case. The requirement of approval cannot be treated as mere formality and the mandate of the Act is that the approving authority has to act in a judicious manner by due application of mind in a manner of a quasi-judicial authority."

The Tribunal also emphasized that mere issuance of a blanket approval without examination of the appraisal report, seized material, or other relevant records is insufficient and vitiates the assessment proceedings.

Final determinations on each issue are:

• The assessment order passed under section 143(3) without valid and proper approval under section 153D is invalid and liable to be quashed.
• The approval granted by the Addl. CIT under section 153D was mechanical and without due application of mind, rendering the assessment void ab initio.
• Issues relating to limitation under section 153B, additions on unexplained jewellery, and validity of notice of demand were not adjudicated due to the quashing of the assessment on the primary legal ground.

ISSUES PRESENTED AND CONSIDERED

1. Whether disallowance of expenditure computed under Section 14A read with Rule 8D (estimated disallowance on account of exempt dividend income) constitutes "under-reporting of income" attracting penalty under Section 270A.

2. Whether the Assessing Officer's exercise of estimating and disallowing expenses in quantum proceedings, without specific finding that expenses were incurred to earn exempt income and that facts were suppressed, can sustain imposition of penalty under Section 270A.

3. The evidentiary standard and nature of circumstances required to invoke Section 270A (i.e., whether mere increase in taxable income from a debatable disallowance is sufficient to infer culpability/under-reporting).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether disallowance under Section 14A/Rule 8D equals under-reporting for Section 270A purposes

Legal framework: Section 270A penalizes concealment or mis-reporting of income; Section 14A and Rule 8D provide for disallowance of expenditure in relation to tax-exempt income, with Rule 8D permitting computation on a deemed/estimate basis.

Precedent treatment: The Tribunal relied on authority recognizing that disallowance under Section 14A is a debatable issue (referred to as Liquid Investment & Trading Co.).

Interpretation and reasoning: The Tribunal reasoned that invocation of Section 270A requires actual under-reporting of income; an estimated computational disallowance under Rule 8D, made solely because exempt income exists, does not ipso facto convert the disallowance into "under-reported income." The AO made no specific finding that particular expenses were incurred for earning exempt income or that the assessee suppressed material facts. The statutory scheme contemplates distinct and independent assessment and penalty proceedings; a finding adverse in quantum does not automatically establish the culpable state of mind or the factual basis required for penalisation.

Ratio vs. Obiter: Ratio - Disallowance under Section 14A/Rule 8D determined on an estimated basis, without affirmative proof of expenses incurred in relation to exempt income or suppression of facts, does not constitute under-reporting attracting Section 270A penalty. Obiter - Observations on the broader applicability of Rule 8D in other fact patterns are ancillary.

Conclusions: The Tribunal concluded that estimated disallowance under Section 14A/Rule 8D is not sufficient, by itself, to sustain penalty under Section 270A absent evidence of concealment or mis-reporting.

Issue 2: Distinction between assessment (quantum) proceedings and penalty proceedings under Section 270A

Legal framework: Section 270A proceedings are separate from assessment proceedings; penalty requires demonstration that income was under-reported or mis-reported, together with requisite culpability.

Precedent treatment: The Tribunal relied on the general statutory scheme and prior judicial recognition that penalty machinery is independent and cannot be mechanically invoked where only a debatable disallowance is made in assessment.

Interpretation and reasoning: The Tribunal emphasized that the statute visualizes assessment and penalty as "wholly distinct and independent." While the AO may make estimated disallowances in quantum proceedings, such disallowances - particularly when all material facts were placed before the revenue and the issue is arguable - cannot automatically be equated with actions falling within the mischief of Section 270A. The presence of mitigating circumstances and plausible explanations negativing culpability weigh against imposing penalty.

Ratio vs. Obiter: Ratio - Penalty under Section 270A should not be levied merely because an estimate/disallowance in assessment increased taxable income; the independence of penalty proceedings demands separate satisfaction of under-reporting/mis-reporting standards. Obiter - Comments on factual scenarios where penalty may attach (e.g., clear suppression) serve as guidance.

Conclusions: The Tribunal directed deletion of the penalty where disallowance was applied mechanically/estimated and the assessee advanced plausible explanations and placed material facts on record.

Issue 3: Standard of proof and nature of culpability required to impose Section 270A penalty when Rule 8D disallowance is applied

Legal framework: Section 270A contemplates penalty for concealment or mis-reporting; determination requires consideration of attendant circumstances to conclude whether disputed amount represents under-reported income.

Precedent treatment: The Tribunal cited authority describing Section 14A disallowance as debatable, implying that when an issue is arguable, penal consequences are inappropriate.

Interpretation and reasoning: The Tribunal held that the entirety of circumstances must reasonably point to under-reporting before Section 270A can be invoked. Mere reliance on deeming/computational provisions (Rule 8D) to determine disallowance, without affirmative evidence of expenses linked to exempt income or suppression of facts, fails to meet that standard. Where material facts were placed before the authorities and the assessee's explanation is plausible, culpability is not established by implication.

Ratio vs. Obiter: Ratio - The requisite standard for imposing penalty under Section 270A is not satisfied by mere computational/alleged adjustments made under Rule 8D in the absence of evidence of suppression or deliberate mis-reporting. Obiter - The Tribunal's observations on what would constitute sufficient proof of suppression or deliberate mis-reporting are illustrative.

Conclusions: The Tribunal concluded that, given the plausible explanations, placement of material facts, and the debatable nature of the disallowance, the statutory threshold for penalty was not crossed and the penalty must be deleted.

Cross-references and final determination

1. The issues are interrelated: the nature of Rule 8D disallowance (Issue 1) informs the distinctness of penalty proceedings (Issue 2) and the requisite standard of culpability (Issue 3).

2. Applying the foregoing, the Tribunal set aside the penalty order under Section 270A and directed deletion of the penalty, finding that the assessed disallowance was susceptible and the requirements for penalisation were not fulfilled.

Outcome: The matter was taken up only for interim relief; notice had already been issued, and the Court indicated that hearings in connected matters before the Tribunal or High Courts may be deferred until an appropriate call is taken. The matter was directed to be listed after Summer Vacation.

Issues: Whether municipal property tax dues and valuation-based demands raised for the period prior to approval of the resolution plan could survive in view of the Insolvency and Bankruptcy Code, 2016, and whether the impugned notices and bills were liable to be quashed.

Analysis: The resolution plan approved under the Insolvency and Bankruptcy Code, 2016 binds the corporate debtor and all creditors, including local authorities, once approved by the Adjudicating Authority. Claims not included in the approved resolution plan cannot later be pursued for the period preceding approval, and the Code operates notwithstanding inconsistent provisions in other laws. The statutory dues raised by the municipal authority for the pre-approval period were not part of the approved resolution plan. The challenge to maintainability was rejected, and the Court held that the municipality could assess liabilities only for the post-approval period in accordance with law and natural justice.

Conclusion: The pre-approval municipal demands were extinguished and the impugned notices, supplementary bills, and demands were quashed. The municipality was left free to reassess the liability for the subsequent period in accordance with law.

Ratio Decidendi: Once a resolution plan is approved under the Insolvency and Bankruptcy Code, 2016, all claims and statutory dues relating to the pre-approval period that are not included in the plan stand extinguished and cannot be enforced by creditors, including local authorities.

Issues: Whether the applications seeking employee dues were maintainable before the Appellate Tribunal under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, or whether the grievance had to be pursued before the National Company Law Tribunal in the proceedings arising from the resolution order.

Analysis: The applications arose from the resolution and takeover of the erstwhile company under the approved disinvestment process. The grievance related to alleged non-payment of employment-related dues said to have flowed from the order approving the resolution arrangement. In that setting, the Tribunal accepted the respondent's objection that the proper forum for any challenge or claim connected with that order was the National Company Law Tribunal in the concerned company application, and not the Appellate Tribunal in the present proceedings. The Tribunal also clarified that it was not entering into the merits of the rival claims.

Conclusion: The applications were not entertained before the Appellate Tribunal and the applicants were left at liberty to raise their grievances before the National Company Law Tribunal in the connected company application.

Ratio Decidendi: Where the grievance arises from an order approving resolution of the erstwhile entity, the appropriate remedy lies before the forum seized of that resolution proceeding, and the Appellate Tribunal will not entertain the claim in the first instance.

(i) Whether the amount of Rs. 2.02 crores, paid by M/s SRS Developers as earnest money under an Agreement to Sell dated 17.05.2009, stood forfeited in favor of the appellant prior to the Provisional Attachment Order ("PAO") dated 30.03.2013 issued by the Directorate of Enforcement ("ED");

(ii) Whether the forfeited earnest money can be regarded as "proceeds of crime" under the PMLA and thus be subject to attachment despite the forfeiture;

(iii) The legal effect and applicability of the overriding provisions of Section 71 of the PMLA over other laws, including contractual forfeiture clauses and orders of other forums such as the Debts Recovery Tribunal ("DRT") and Debts Recovery Appellate Tribunal ("DRAT");

(iv) Whether the appellant's contention regarding non-retrospective operation of PMLA and the scheduled offences added to the PMLA Schedule after the receipt of money has merit;

(v) The relevance and effect of prior judicial findings and proceedings before DRT, DRAT, and the High Court on the attachment proceedings under PMLA;

(vi) The validity of the appellant's alleged voluntary consent to attachment and the evidentiary value of statements recorded under Section 50 of the PMLA;

(vii) Whether the appellant's claim that part of the attached amount was spent and replenished by his own funds negates the attachment;

(viii) The nature of the amount paid-whether it was earnest money or part payment of sale consideration-and the appellant's entitlement to retain or return the amount.

Issue-wise Detailed Analysis:

1. Forfeiture of Earnest Money Prior to Attachment

The appellant contended that under Clause 8 of the Agreement to Sell dated 17.05.2009, the earnest money of Rs. 2.02 crores stood automatically forfeited upon failure of the Vendee (M/s SRS Developers) to pay the balance sale consideration and execute the sale deed by 17.11.2009. The appellant relied on a letter dated 14.11.2009 offering an extension subject to increased sale consideration, which was not accepted by the Vendee, thus leaving the original agreement and forfeiture clause operative.

The Court examined the Agreement and the letter, noting that there was no evidence that the Vendee consented to the extension or paid the balance consideration by the stipulated dates. The letter itself was not countersigned or acknowledged by the Vendee, and the ED challenged its authenticity and legal enforceability. However, the Court found that the original forfeiture clause remained effective, and the earnest money stood forfeited by operation of contract well before the PAO issued in 2013.

Precedents such as the Hon'ble Supreme Court's judgment in Satish Batra v. Sudhir Rawal were considered, which clarified the principles governing earnest money and forfeiture: that earnest money is a guarantee for due performance, paid at contract formation, and forfeited on purchaser's default unless contract terms provide otherwise. The Court found these principles applicable, supporting the appellant's claim that the earnest money was forfeited as per contract terms.

2. Attachment under PMLA and the Concept of Proceeds of Crime

Despite the forfeiture, the ED contended that the amount represented proceeds of crime, derived from fraudulent activities by M/s SRS Investment Company and its partners, including Hinish Ramchandani, who duped the State Bank of India of Rs. 46.42 crores. The ED argued that the amount paid to the appellant was tainted money and therefore liable to attachment under Section 5 of the PMLA.

The Court noted that Section 71 of the PMLA provides the Act with overriding effect over any inconsistent law. This principle was reinforced by the Karnataka High Court's decision in Dyani Antony Paul v. Union of India, which emphasized the PMLA's overriding nature to combat money laundering effectively.

Further, the Supreme Court's ruling in Vijay Madanlal Choudhary v. Union of India was cited, which held that the scope of attachment under Section 5(1) is not limited to accused persons but extends to any property identified as proceeds of crime, regardless of the holder's knowledge or complicity. The Court applied this principle, holding that even if the appellant was unaware of the tainted nature of the funds, the amount received was proceeds of crime and validly attachable.

The flow of funds was established through investigation and evidence, showing transfer of defrauded money from M/s SRS Investment Company to M/s SRS Developers and then to the appellant as earnest money. The appellant's statement under Section 50 of the PMLA confirmed awareness of the criminal proceedings against Ramchandani and acknowledged the funds' tainted nature.

3. Effect of Forfeiture on Attachment under PMLA

The appellant argued that since the earnest money was forfeited prior to attachment, it ceased to be property of the Vendee and thus could not be proceeds of crime or subject to attachment. The ED countered that forfeiture under general law or contract does not override the PMLA's provisions, which have overriding effect.

The Court agreed with the ED, holding that the PMLA's overriding provisions prevail over contractual forfeiture clauses. The forfeiture did not extinguish the property's character as proceeds of crime. Therefore, the attachment was valid notwithstanding the forfeiture.

4. Relevance of DRT/DRAT and High Court Proceedings

The appellant relied on orders of the DRT, DRAT, and the Allahabad High Court, which had held that the appellant was not liable to return the amount to the bank and that the bank's recovery proceedings did not affect the appellant's rights. The appellant contended that these findings should be respected and considered in the attachment proceedings.

The Court distinguished these proceedings as civil recovery matters under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which operate in a different legal sphere from the PMLA's criminal and attachment regime. The overriding effect of PMLA under Section 71 means that findings in civil recovery proceedings do not preclude attachment under PMLA. Hence, these findings were not binding or relevant to the attachment order.

5. Retrospective Operation of PMLA and Scheduled Offences

The appellant argued that the offences under Sections 120-B and 420 IPC and Section 13 of the Prevention of Corruption Act were added to the PMLA Schedule only on 01.06.2009, after the receipt of some funds in May 2009. Therefore, the PMLA could not be applied retrospectively to those funds.

The Court rejected this argument, relying on settled law that money laundering is a continuing offence, and the offence is to be considered with reference to the time of the money laundering act (such as concealment or use of proceeds), not the time of the predicate offence. The Karnataka High Court and Supreme Court decisions were cited to this effect, confirming that PMLA applies even if the predicate offence was committed before its inclusion in the Schedule, so long as the laundering acts occurred after inclusion.

6. Voluntary Consent to Attachment and Statements under Section 50

The appellant claimed that he never voluntarily agreed to attachment and that the statement recorded under Section 50(2) & (3) of the PMLA was taken under duress or misrepresented his position. The ED relied on this statement to assert the appellant's knowledge and acceptance of attachment.

The Court found that the statement merely acknowledged the ED's power to attach tainted money and the appellant's undertaking not to transfer funds without intimation. This did not amount to voluntary consent to attachment but was an acknowledgment of legal consequences. The Court held that attachment under PMLA does not require consent if the property is proceeds of crime.

7. Claim of Spending and Replenishing Funds

The appellant contended that Rs. 7 lakhs out of the Rs. 2.02 crores was spent and replenished with his own funds, and thus the FDRs represented his own money, not proceeds of crime.

The Court found no credible evidence to support this claim. Even if true, the definition of proceeds of crime under the PMLA includes the value of such property. Therefore, mixing tainted money with clean money does not exempt the entire amount from attachment.

8. Nature of Amount: Earnest Money or Part Payment

The State Bank of India contended that the amount was not earnest money but part payment of sale consideration and thus liable to be returned to the bank. The appellant maintained it was earnest money forfeited under contract.

The Court observed that the amount of Rs. 2.02 crores was the subject of the Agreement to Sell and was characterized as earnest money with a forfeiture clause. The Bank's claim of Rs. 4.02 crores was unsupported by documentary evidence. The Court held that the amount was earnest money forfeited by the appellant and that the attachment was valid as proceeds of crime.

Treatment of Competing Arguments and Findings

The Court carefully weighed the appellant's contractual and procedural arguments against the statutory mandate and objectives of the PMLA. While recognizing the contractual forfeiture and the appellant's position, the Court emphasized the overriding effect of the PMLA and the need to prevent laundering of proceeds of crime, even if held by third parties unaware of the tainted nature. The Court distinguished prior decisions cited by the appellant on facts and law, finding them inapplicable or distinguishable.

The Court also rejected the appellant's reliance on civil recovery proceedings and retrospective operation arguments, affirming the primacy of PMLA attachment proceedings. The ED's evidence and flow of funds analysis were accepted as establishing the tainted nature of the amount.

Conclusions

The Court concluded that the earnest money of Rs. 2.02 crores stood forfeited by the appellant under the Agreement to Sell prior to attachment. However, the forfeiture did not preclude the amount from being proceeds of crime under the PMLA. The overriding effect of Section 71 of the PMLA ensured that attachment under the Act prevailed over contractual and other legal claims. The amount was rightly attached as proceeds of crime obtained by fraud and laundered through the appellant. The appellant's other contentions, including retrospective operation, prior civil proceedings, and voluntary consent, were rejected. The appeal was dismissed.

Significant Holdings and Core Principles Established:

"The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force." (Section 71, PMLA)

"The sweep of Section 5(1) is not limited to the accused named in the scheduled offence. The objective of enacting the Act was the attachment and confiscation of proceeds of crime which is the quintessence, so as to combat the evil of money-laundering, by reaching the proceeds of crime in whosoever's name they are kept or by whosoever they are held." (Supreme Court in Vijay Madanlal Choudhary)

"Earnest money is paid or given at the time when the contract is entered into, and, as a pledge for its due performance by the depositor to be forfeited in case of non-performance by the depositor." (Satish Batra v. Sudhir Rawal)

"Money laundering is a continuing offence and the offence is to be reckoned with reference to the date or dates on which any of the actions which constitute 'money laundering' were committed, not the date of the predicate offence." (Karnataka High Court in Dyani Antony Paul)

Final determinations:

- The earnest money paid under the Agreement to Sell stood forfeited prior to attachment.

- The forfeited amount nonetheless constituted proceeds of crime under the PMLA and was validly attached.

- The overriding effect of the PMLA prevails over contractual forfeiture and findings of other fora.

- The appellant's other contentions regarding retrospective operation, voluntary consent, and civil recovery proceedings do not affect the validity of attachment.

- The appeal against the confirmation of attachment of the two FDRs totaling Rs. 2.02 crores is dismissed.

The Tribunal examined the applicability of service tax on payments made to directors under the reverse charge mechanism, focusing on whether the services rendered by the directors fall within the taxable ambit or are excluded as "employees' services" under the statutory framework.

In addressing this issue, the Tribunal considered the following legal provisions and precedents:

1. Section 65B(44)(b) of the Finance Act, 1994, which excludes "employees' services to employer" from the definition of "service" and thus from service tax levy.

2. Rule 2(1)(d) of the Service Tax Rules, 1994, which defines taxable value and its interaction with the Finance Act.

3. The Companies Act provisions (Sections 2(24), 2(54), 166, 179, 2(94), 2(51), and 2(60)) defining "director," "whole-time director," "key managerial personnel," and "officer in default," establishing the legal status and duties of directors within a company.

4. Income Tax Act provisions, particularly Section 192 and Section 203, relating to tax deduction at source (TDS) on salaries and issuance of Form 16 as salary certificates.

5. Precedential decisions by the Tribunal, including Maithan Alloys Ltd v. Commissioner of C.Ex & ST, Bolpur, Amar Raja Batteries v. Commissioner of Central Tax, Tirupathi-GST, and Rent Works India Pvt Ltd v. CCE, Mumbai-V, which have addressed the nature of payments to whole-time directors and the applicability of service tax.

The Tribunal's interpretation and reasoning focused on whether the directors in question were whole-time employees of the appellant company and whether their remuneration constituted salary, thereby falling outside the scope of taxable "service" under the Finance Act.

The Tribunal noted that the adjudicating authority had erred by disregarding the employer-employee relationship on the ground that no appointment order was produced and by misinterpreting the definition of salary under the Income Tax Act. The adjudicating authority had held that remuneration, sitting fees, and travel expenses paid to directors were not salary and thus not excluded from service tax. This conclusion was reached without adequately considering the evidence submitted by the appellant, including:

- Board Resolutions passed under the Companies Act appointing the directors as whole-time directors with entitlement to salary.

- Form 16 issued under Section 203 of the Income Tax Act evidencing TDS on salary paid to these directors.

- Communication with the Employees Provident Fund Organization recognizing the directors as regular employees.

- Relevant CBIC and Ministry of Corporate Affairs circulars clarifying the status of whole-time directors and the non-applicability of service tax on their remuneration.

Applying the law to the facts, the Tribunal relied heavily on the precedent set in Maithan Alloys Ltd, where it was held that whole-time directors are employees of the company, and remuneration paid to them is in the nature of salary. The Tribunal emphasized that the Companies Act treats whole-time directors as key managerial personnel and officers in default, underscoring their employee status. The fact that remuneration includes variable pay or commission does not alter this status.

The Tribunal also referred to the Rent Works India decision, which held that payments treated as salary for Income Tax purposes, including TDS deductions, cannot be treated as consideration for taxable services attracting service tax.

In treating competing arguments, the Tribunal rejected the Department's contention that the absence of a formal appointment order negated the employer-employee relationship. The Tribunal found that the Board Resolutions and statutory compliance under the Companies Act sufficed to establish the directors' status as employees. The Department's reliance on Rule 2(1)(d) of the Service Tax Rules was held to be subordinate to the express exclusion in the Finance Act, which prevails over rules.

Consequently, the Tribunal concluded that the demand for service tax on remuneration paid to whole-time directors was unsustainable. Since the demand was set aside, the imposition of interest and penalty under Sections 73(2) and 76 of the Finance Act also could not be sustained.

The significant holdings of the Tribunal include the following verbatim excerpt from the Maithan Alloys Ltd decision, which the Tribunal adopted:

"The provisions of Companies Act, 2013, contained in Section 2(94), duly defines 'whole-time director' to include a director in the whole-time employment of the company. A whole-time director refers to a director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration. We further find that the position of a whole-time director is a position of significance under the Companies Act. Moreover, a whole-time director is considered and recognized as a 'key managerial personnel' under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, the whole-time director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship..."

Core principles established are:

• Remuneration paid to whole-time directors appointed under the Companies Act and evidenced by Board Resolutions and statutory compliance is treated as salary paid to employees.
• Services rendered by such directors fall within the employer-employee relationship and are excluded from service tax under Section 65B(44)(b) of the Finance Act.
• Rule provisions cannot override the express exclusions in the Finance Act.
• Tax deduction at source under Income Tax provisions and issuance of Form 16 reinforce the characterization of payments as salary.
• Demand of service tax, interest, and penalty on such remuneration is not sustainable.

Final determinations on the issue are:

• The demand of service tax on remuneration paid to whole-time directors is set aside.
• The penalty and interest imposed under the Finance Act are also quashed.
• The impugned Order-in-Original confirming the demand and penalties is wholly unsustainable and is accordingly set aside.

The core legal question considered by the Tribunal was whether the appellant, registered under the Service Tax Department as a 'Tour Operator', is liable to include the value of air and train ticket charges collected from clients in the taxable value of the Tour Operator service for the purpose of service tax computation. Specifically, the Tribunal examined whether the activity of booking or trading air/train tickets falls within the ambit of Tour Operator service taxable under service tax law or whether it is a separate service, possibly exempt or non-taxable under the relevant notifications and legal framework.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Inclusion of Air/Train Ticket Charges in Taxable Value of Tour Operator Service

Relevant Legal Framework and Precedents: The appellant's liability was assessed under the Finance Act, 1994, and the Service Tax provisions applicable to Tour Operator services. Notification No. 1/2006-ST dated 01.03.2006, which grants exemption to certain services, was central to the appellant's claim. The appellant relied on the existence of a distinct taxable service category for 'Air Travel Agent' services, separate from 'Tour Operator' services. The Tribunal also referred to its own earlier decisions in the appellant's cases (F.O.No. 40738/2023 dated 31.08.2023 and F.O.No. 40938/2023 dated 13.10.2023) as binding precedents.

Court's Interpretation and Reasoning: The Tribunal analyzed the nature of the appellant's activities, distinguishing between the core Tour Operator service and the mere booking or trading of air/train tickets. It was observed that the appellant did not arrange tours involving air or rail travel but merely facilitated ticket bookings, charging clients the original ticket price while retaining the discount obtained from air travel agents. The Tribunal noted that the appellant was not an IATA agent and did not earn commission from airlines, which was relevant to the classification of the service.

The Tribunal interpreted the definition of Tour Operator service as encompassing a range of activities related to organizing tours, but not mere trading or selling of air/train tickets. It concluded that the booking of tickets without arranging a tour or providing additional tour-related services does not constitute a taxable event under the Tour Operator service category.

Key Evidence and Findings: The appellant's invoices and accounts showed that charges for ticket bookings were separately raised and collected. The appellant's admission of paying service tax on other activities, but not on the margin or markup earned from ticket bookings, was noted. The absence of any commission or agency relationship with airlines or IATA was a significant factual finding supporting the appellant's position.

Application of Law to Facts: Applying the legal framework and the Tribunal's prior rulings, the Tribunal concluded that the value of air/train ticket charges collected by the appellant could not be included in the taxable value of the Tour Operator service. The service tax demand raised by the Department on these charges was therefore unsustainable.

Treatment of Competing Arguments: The Department argued that the appellant was not eligible for exemption under Notification No. 1/2006-ST because the gross charges collected were not indicated as inclusive of ticket booking charges, and that the ticket booking formed part of the Tour Operator service. The Tribunal rejected this, holding that the mere booking or trading of tickets did not fall within the Tour Operator service. The appellant's contention that the activity was akin to trading of services, outside the scope of service tax, was accepted.

Conclusions: The Tribunal set aside the impugned orders confirming service tax demands and penalties, holding that the appellant was not liable to pay service tax on the margin or markup earned from booking air/train tickets. The appeal was allowed with consequential relief.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal reasoning is preserved in the following verbatim excerpt from its earlier decision, which was applied in the present case:

"It is the case of the appellant that the dispute pertains to the trading air tickets as bought from travel agents and sold to the customers, with or without profit, and same did not include any other activities other than mere selling of or trading in such air tickets. It is an admitted fact on record that insofar as the other activities are concerned, the appellant has admitted and paid applicable Service Tax. It is also an undisputed fact that the appellant is not a member or agent of IATA and that it is not the case of the Revenue that the appellant had earned any commission from IATA or any other airlines when it sold or traded in air tickets. Moreover, from the definition of tour operator service, we find that the same involves a gamut of activities and there is nothing to suggest that trading in air tickets per se invited Service Tax.

In view of the above, we hold that the demand of Service Tax on the consideration and for booking of tickets in respect of domestic travel is not a taxable event and hence, to this extent, the direction of the Commissioner (Appeals) cannot sustain. Consequently, we set aside this part of the impugned order, by holding that the appellant is not liable to pay Service Tax on the mark-up or margin earned for booking tickets with regard to domestic travels."

The core principle established is that mere booking or trading of air/train tickets without arranging or organizing a tour does not constitute a taxable Tour Operator service under the Service Tax regime. The value of such ticket bookings cannot be included in the taxable value for service tax computation under the Tour Operator category.

The final determination was that the appellant's appeal succeeds, the service tax demands and penalties imposed on the value of air/train ticket charges are set aside, and the appellant is entitled to consequential relief as per law.

1. Whether penalty under Rule 26 of the Central Excise Rules, 2002 can be imposed on a limited company (the appellant) as a co-assessee, given the statutory language and judicial precedents.

2. Whether the imposition of penalty under Rule 26(1) requires proof of intention to evade tax or any positive act of suppression by the appellant.

3. Whether penalty can be imposed on co-assessees when the main assessee (job worker) has settled the demand of excise duty along with interest and penalty under the Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS).

4. The applicability and effect of the area-based exemption notification and Notification No. 214/1986 in relation to the job worker's liability to pay excise duty.

Issue 1: Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on a Limited Company

Legal Framework and Precedents: Rule 26 of the Central Excise Rules, 2002 provides for imposition of penalty for certain contraventions. The appellant contended that penalty under Rule 26 can only be levied on a living person and not on a corporate entity. The appellant relied on authoritative decisions including Woodmen Industries v. CCE, Patna (affirmed by the Supreme Court), and various recent CESTAT decisions which held that the penalty under Rule 26 is personal and cannot be imposed on a company.

Court's Interpretation and Reasoning: The Tribunal acknowledged these precedents and accepted the submission that the statutory language and judicial interpretation restrict the imposition of penalty under Rule 26 to living persons. Since the appellant is a limited company, the penalty imposition under this rule is not sustainable.

Application to Facts: The penalty was imposed on the appellant company, which according to the Tribunal, is contrary to the established legal position.

Conclusion: The penalty under Rule 26 cannot be legally imposed on the appellant limited company.

Issue 2: Requirement of intention or positive act of suppression for penalty imposition under Rule 26(1)

Legal Framework and Precedents: The appellant argued that imposition of penalty under Rule 26(1) requires proof of intention to evade tax or a positive act of suppression. The Department failed to demonstrate such intention or suppression by the appellant. The appellant relied on several judicial pronouncements emphasizing the necessity of mens rea for penalty imposition.

Court's Interpretation and Reasoning: The Tribunal noted that the Department did not establish any positive act of suppression or intention on the part of the appellant. Mere invocation of extended period and demand of duty against the job worker does not automatically implicate the appellant, especially when the appellant was availing exemption under the area-based notification.

Application to Facts: The appellant had provided inputs to the job worker on the strength of job work challans and was entitled to exemption. The Department's case was primarily against the job worker for non-payment of duty, not against the appellant for any deliberate evasion.

Conclusion: Absence of proof of intention or suppression negates the basis for penalty under Rule 26(1) against the appellant.

Issue 3: Effect of settlement of duty demand by main assessee under SVLDRS on penalty liability of co-assessees

Legal Framework and Precedents: The main job worker had settled the excise duty demand, interest, and penalty under the Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS). The appellant contended that once the main assessee settles the demand under SVLDRS, penalty cannot be imposed on co-assessees who failed to submit the required declarations. The appellant cited a series of CESTAT decisions where penalties on co-assessees were set aside in similar circumstances.

Court's Interpretation and Reasoning: The Tribunal carefully examined the precedents and noted a consistent judicial trend of setting aside penalties on co-assessees once the main assessee has resolved the demand under SVLDRS. The rationale is that the scheme aims to provide finality and relief from legacy disputes, and penalizing co-assessees after the main party's settlement would defeat this purpose.

Application to Facts: Since the job worker had settled the demand and the appeal against the job worker was dismissed as withdrawn under SVLDRS, the Tribunal found no justification for continuing the penalty against the appellant co-assessee.

Conclusion: Penalty on the appellant co-assessee is not sustainable post settlement by the main assessee under SVLDRS.

Issue 4: Applicability of Area-based Exemption Notification and Notification No. 214/1986

Legal Framework: The appellant was availing exemption under Notification No. 50/2003-CE (Area-based Exemption Notification). The Department challenged the job worker's eligibility to avail exemption under Notification No. 214/1986, alleging that since the appellant was already exempted, the job worker could not claim exemption on goods cleared to the appellant.

Court's Interpretation and Reasoning: The Tribunal did not delve deeply into the substantive merits of the exemption claims but noted that the main dispute regarding duty demand was directed at the job worker, who had been held liable and had settled the demand. The appellant's role was limited to providing inputs and receiving job-worked goods under exemption.

Application to Facts: The appellant's entitlement to exemption under the area-based notification was accepted, and no adverse finding was made against the appellant for misuse or wrongful claim of exemption.

Conclusion: The exemption notifications were correctly applied to the appellant, and no penalty or duty demand arises against it on this ground.

Significant Holdings:

"The penalty under Rule 26 of the Central Excise Rules, 2002 can only be levied on living persons and not on a limited company."

"Presence of intention to evade tax or positive act of suppression is a pre-requisite for imposition of penalty under Rule 26(1), which was not established against the appellant."

"Once the main assessee has settled the issue of demand of duty along with interest and penalty under SVLDRS, penalty cannot be imposed on co-assessees who have failed to submit the required declarations."

The Tribunal set aside the impugned order imposing penalty on the appellant, allowing the appeal with consequential relief as per law.

Issues: Whether the secured creditor's registered security interest had priority over the State tax authorities' claim and whether the sale in favour of the auction purchaser could pass title free from the alleged MVAT encumbrance.

Analysis: The security interest had been registered with CERSAI long before the tax attachment, and the Court treated the dispute as governed by the Full Bench ruling on the statutory priority conferred by section 26E of the SARFAESI Act, 2002. The Court held that after the enforcement of the statutory regime, the dues of a secured creditor registered under the SARFAESI framework rank in priority over State tax dues, and that a mere attachment entry in the revenue record, without proof of statutory proclamation and without compliance with the required recovery procedure, does not establish an enforceable superior charge against the secured asset. The Court also held that, on the facts, the auction purchaser had not been shown to have constructive or actual notice of the State's claim, and the sale on an "as is where is, whatever there is" basis did not continue the State encumbrance against the property sold under SARFAESI.

Conclusion: The secured creditor's claim had priority, the auction purchaser received clear title free from the MVAT encumbrance, and the State tax authorities were directed to remove the revenue-record encumbrance.

Ratio Decidendi: A duly registered security interest under the SARFAESI Act prevails over subsequently asserted State tax claims, and an unproclaimed or procedurally unsupported tax attachment cannot defeat the secured creditor's statutory priority or bind the auction purchaser in the absence of constructive or actual notice.

The core legal questions considered by the Court in this matter are:

(a) Whether the delay of 29 days in payment of the last two installments under the 'Vera Samadhan Yojna, 2019' amnesty scheme, caused by the Covid-19 pandemic hardships, can be condoned by the Court despite the absence of explicit departmental power to condone such delay;

(b) Whether the Petitioner's application under the amnesty scheme can be allowed notwithstanding the delayed payment of installments, given the Petitioner's substantial compliance with the scheme and the unforeseen circumstances;

(c) Whether the Respondent's rejection of the Petitioner's application under the amnesty scheme and the consequent demand recovery notice are legally sustainable;

(d) Whether the Court can exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India to grant relief in the interest of justice, equity, and to further the object and purpose of the amnesty scheme;

(e) The applicability and interpretation of relevant precedents concerning condonation of delay in payment under statutory schemes, especially in the context of Covid-19 related hardships.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Condonation of Delay in Payment under Amnesty Scheme Due to Covid-19 Hardships

Relevant Legal Framework and Precedents: The 'Vera Samadhan Yojna, 2019' was introduced by the Government of Gujarat to resolve pending tax disputes by allowing payment of outstanding dues in installments with waiver of penalties and interest, conditional upon timely payment and withdrawal of appeals. The scheme did not explicitly empower departmental authorities to condone delays in payment.

Precedents considered include:

• Sunflowers Developers Vs. State of Gujarat: Emphasized the object of amnesty schemes to ensure expeditious resolution of disputes and administrative efficiency, expecting authorities to respect the scheme's purpose and provide benefits to assessees.
• Sky Industries Ltd Vs. State of Gujarat: Reiterated the above principles and held that minor inadvertent short payments should not deprive assessees of scheme benefits.
• IA Housing Solution (P.) Ltd. Vs. Principal Commissioner of Income-tax: Held that High Courts, under extraordinary writ jurisdiction, can condone delay in payment due to extraordinary circumstances such as Covid-19, even if departmental authorities lack such power, to prevent injustice.
• Dal Chandra Rastogi v. CBDT: Supreme Court allowed late payment under the Income Declaration Scheme due to genuine hardship, despite no provision for such delay, emphasizing the Court's role in remedying injustice.

Court's Interpretation and Reasoning: The Court recognized that the Petitioner had diligently paid the first ten installments within the extended timeline but defaulted on the last two installments amounting to Rs. 55,780/-, which were paid belatedly due to the severe impact of the second wave of Covid-19. The Court inferred that the delay was caused by "dire and compelling necessity and reasons beyond the control of the Petitioner."

The Court emphasized the clear and unequivocal intention of the Petitioner to avail the scheme benefits, as evidenced by the eventual full payment. It held that the delay did not amount to rewriting or modifying the scheme but was a case of genuine hardship.

The Court relied heavily on the principle that the object and purpose of amnesty schemes are to expedite resolution of pending dues and reduce litigation and administrative burden, which would be defeated by rigid denial of benefits for minor and unintentional delays caused by extraordinary circumstances.

Key Evidence and Findings: The Petitioner's payment records showed substantial compliance with the scheme, with only the last two installments delayed. The Petitioner's family was severely affected by Covid-19, leading to business closure and payment difficulties. The Respondent's delay in communicating the status of the application further complicated the matter.

Application of Law to Facts: Applying the precedents and the legal principles, the Court found that the Petitioner's delay was excusable and condonable in the extraordinary circumstances of the pandemic. The Court held that denying the Petitioner the scheme's benefits would be contrary to the scheme's object and cause injustice.

Treatment of Competing Arguments: The Respondent argued that the delay amounted to rewriting the scheme and relied on an Apex Court order in a different matter to urge dismissal. The Court distinguished the present case on facts, noting the absence of pleadings about Covid hardship in the cited Apex Court case and the full payment made by the Petitioner here. The Court preferred the reasoning in Dal Chandra Rastogi and IA Housing Solution cases, which allowed relief in extraordinary circumstances.

Conclusions: The Court concluded that the 29-day delay in payment of the last two installments was caused by justifiable, unforeseen hardship and was therefore condonable. The Petitioner's application under the Vera Samadhan Yojna, 2019 deserved to be allowed.

Issue (c): Legality of the Respondent's Rejection of Application and Demand Recovery Notice

The Respondent issued a demand recovery notice for the balance dues and penalties, alleging non-compliance with the scheme's payment schedule.

The Court found that since the Petitioner had ultimately complied with the payment obligations, albeit belatedly, and the delay was condonable, the rejection of the application and the consequent demand notice were not legally sustainable.

The Court set aside the order dated 02.05.2022 disposing of the Petitioner's application and quashed the demand recovery notice dated 10.07.2023.

Issue (d): Exercise of Extraordinary Writ Jurisdiction under Article 226

The Court extensively discussed the scope of its writ jurisdiction under Article 226, emphasizing that even if departmental authorities lack power to condone delay, the High Court can pass any order necessary to do complete justice in extraordinary circumstances.

The Court cited the principle from B.C. Chaturvedi v. Union of India that the High Court's jurisdiction is broad and not curtailed by legislation, enabling it to remedy injustice and do equity.

Accordingly, the Court exercised its writ jurisdiction to condone the delay and grant relief to the Petitioner.

Issue (e): Applicability of Precedents and Interpretation of Amnesty Schemes

The Court analyzed the precedents to highlight that amnesty schemes are designed to reduce litigation and expedite recovery, and their benefits should not be denied on technical grounds when genuine hardship is shown.

The Court distinguished the Apex Court order relied upon by the Respondent on facts and emphasized the need to balance strict compliance with equitable considerations, especially in the context of the Covid-19 pandemic.

3. SIGNIFICANT HOLDINGS

The Court held:

"Thus, the object of the amnesty scheme is to bring about expeditious and effective resolution of old disputes and recoveries of old outstanding dues of the Government and reduction of administrative costs. Since such scheme is applicable to all pending cases, the officers acting under the relevant statutes are expected to respect the object of the scheme and to ensure that the assessees get the benefit under the scheme."

"Though respondents have no power to condone the delay in payment, yet this Court in extraordinary writ jurisdiction can pass any order necessary to remedy injustice."

"The power of the High Court under Article 226 of the Constitution of India to grant relief in extraordinary and exceptional circumstances cannot be taken away or curtailed by any legislation."

"The Petitioner, due to demonstrable hardships was unable to pay the last two installments under the said Scheme after having diligently paid the first ten installments within the stipulated time, cannot be said to have rewritten or modified the 'Vera Samadhan Yojna 2019' in any manner."

"The object and purpose of an Amnesty Scheme has to be seen from that angle which furthers the object of the Scheme, than which merely renders the Scheme illusory and denies the benefit to the Assessee and adds to the pendency of conflicts with the State."

"The order dated 02.05.2022 disposing of the Petitioner's application under 'Vera Samadhan Yojna 2019' is hereby quashed and set aside. The delay of 29 days in making the payment under the aforesaid scheme is hereby condoned. Consequently, the Demand Notice dated 10.07.2023 is also set aside."

Issues: Whether the appellant was entitled to refund of the sum paid under the agreement after forfeiture by the vendors, and whether such refund could be granted in the absence of a specific prayer under Section 22 of the Specific Relief Act, 1963.

Analysis: The agreement contained an express forfeiture clause, and the amount paid was treated as earnest money in substance, being intended to secure performance and liable to be adjusted against the sale price if the transaction was completed. The appellant failed to pay the balance consideration within the stipulated period, and the vendors were therefore justified in forfeiting the amount. The Court also held that refund of earnest money is an alternative relief under Section 22 of the Specific Relief Act, 1963, but it must be specifically claimed in the plaint or by amendment. A general prayer for such other reliefs does not authorise the court to grant refund suo motu.

Conclusion: The refund claim was untenable and the forfeiture was upheld.