TaxTMI Updates e-Newsletter
May 14,2020

Benefit of Input Tax Credit - commensurate reduction in prices - profiteering - Section 171(1) - passing on benefit of input tax credit by commensurate reduction in prices - determination of profiteering at a given point of time under Rule 129(6) - interest on profiteered amount under Rule 133(3)(b) - imposition of penalty under Section 171(3A) read with Rule 133(3)(d)

Benefit of Input Tax Credit - determination of profiteering at a given point of time under Rule 129(6) - Whether the Respondent derived an additional benefit of ITC in the post-GST period and the period for determination. - HELD THAT: - On the material and computations in the DGAP report, the ratio of ITC to turnover during the pre-GST period (April 2016 to June 2017) was 1.33% and during the post-GST period (July 2017 to March 2019) was 5.17%, giving an incremental benefit of 3.84% of turnover. The Authority accepted the DGAP's methodology that profiteering must be measured up to a given cut-off (here, 31.03.2019) in terms of Rule 129(6) and that ITC attributable to unsold units has been excluded for the purpose of the computation. The DGAP's quantified increase in ITC and its application to amounts realised till 31.03.2019 was accepted as correct by the Authority. [Paras 10, 11, 12, 13, 31]

The Respondent obtained an additional ITC benefit of 3.84% in the post-GST period and profiteering is to be determined for the period 01.07.2017 to 31.03.2019.

Profiteering - Section 171(1) - passing on benefit of input tax credit by commensurate reduction in prices - Whether the Respondent violated the obligation under Section 171(1) by not passing on the ITC benefit to recipients. - HELD THAT: - Applying Section 171(1), the Authority observed that the additional ITC benefit accruing to the Respondent ought to have been passed on by way of commensurate reduction in prices. The DGAP computed the quantum of additional benefit and the Respondent admitted that the ITC benefit had not been passed on to certain buyers and agreed to pass on the DGAP-determined benefit. On these findings and the admitted position, the Authority concluded that the Respondent had contravened Section 171(1). [Paras 31, 32, 34]

The Respondent contravened Section 171(1) by not passing on the additional ITC benefit to buyers.

Profiteering - commensurate reduction in prices - interest on profiteered amount under Rule 133(3)(b) - Quantum of profiteering and directions for restitution including interest and recovery. - HELD THAT: - The Authority accepted the DGAP computation of total profiteering as Rs. 2,72,21,532 for the period 01.07.2017 to 31.03.2019. The DGAP verified that Rs. 2,04,77,678 had already been passed on (by reduction in demand letters/credit notes) and the balance profiteered amount of Rs. 73,61,288 was directed to be passed on forthwith to identified buyers as per Annexure-12. The Respondent was ordered to pay interest at 18% on the entire profiteered amount from the date the amount was profiteered until payment, and to pass the balance and interest within three months, failing which recovery to be effected by the jurisdictional CGST Commissioner under supervision of the DGAP; the jurisdictional Commissioners were directed to monitor compliance and report within four months. [Paras 34, 35, 36, 37, 39]

Total profiteering fixed at Rs. 2,72,21,532 for 01.07.2017-31.03.2019; balance of Rs. 73,61,288 to be returned forthwith; interest @18% on entire profiteered amount payable; payment/recovery and monitoring directions issued.

Imposition of penalty under Section 171(3A) read with Rule 133(3)(d) - Initiation of penalty proceedings for alleged offence under Section 171(3A). - HELD THAT: - Having found contravention of Section 171(1), the Authority observed that the conduct attracted liability under Section 171(3A). The Authority therefore directed that a notice be issued to the Respondent to show cause why penalty under Section 171(3A) read with Rule 133(3)(d) should not be imposed; the order does not itself impose the penalty but initiates the statutory notice process. [Paras 40]

Notice to be issued to the Respondent to explain why penalty under Section 171(3A) read with Rule 133(3)(d) should not be imposed.

Final Conclusion: The Authority accepted the DGAP's computation and found that the Respondent derived an additional ITC benefit of 3.84% post-GST, fixed total profiteering at Rs. 2,72,21,532 for 01.07.2017-31.03.2019, directed return of the unpaid balance of Rs. 73,61,288 to identified buyers forthwith, ordered payment of interest at 18% on the entire profiteered amount, required compliance within three months with recovery safeguards, and directed issuance of a show-cause notice for penalty under Section 171(3A).

Commensurate reduction in prices as the mechanism to pass on benefit of tax rate reduction or ITC - profiteering as the amount determined on account of not passing the benefit of reduction in rate of tax or ITC - determination and computation of profiteered amount by comparison of pre rate and post rate base prices (channel wise SKU level methodology) - investigation by the Director General of Anti Profiteering under Rule 129 and reporting to the Authority - deposit of unrefunded profiteered amount in Consumer Welfare Fund - penalty liability under Section 171(3A) for profiteering

Commensurate reduction in prices as the mechanism to pass on benefit of tax rate reduction or ITC - determination and computation of profiteered amount by comparison of pre rate and post rate base prices (channel wise SKU level methodology) - profiteering as the amount determined on account of not passing the benefit of reduction in rate of tax or ITC - Whether the Respondent failed to pass on the benefit of GST rate reduction w.e.f. 15.11.2017 and the amount of profiteering for the period 15.11.2017 to 31.03.2019 - HELD THAT: - The Authority found that the GST rate on the Respondent's goods was reduced from 28% to 18% w.e.f. 15.11.2017 and that Section 171 mandates passing the benefit by way of commensurate reduction in prices. The DGAP's channel wise, SKU level methodology - computing an average base price from the pre reduction period (01.11.2017 to 14.11.2017) and comparing it with actual invoice wise post reduction base prices to derive the excess charged per unit - was examined and accepted as reasonable and appropriate given differing channel pricing, differing purchasers and absence of one to one comparables. On the basis of the respondent's outward taxable supply data (excluding exports, CSD, stock transfers, new SKUs and scrap) the DGAP computed the net higher realization and arrived at the profiteered amount. The Authority concluded that the Respondent had increased base prices after the rate reduction to deny the statutory benefit to recipients and thus unjustly enriched himself. [Paras 11, 16, 17, 42, 58]

Profiteering established; amount determined as Rs. 25,73,82,482 for 15.11.2017 to 31.03.2019; Respondent directed to reduce prices as per Rule 133(3)(a) and deposit the profiteered amount with interest in Consumer Welfare Funds as directed.

Investigation by the Director General of Anti Profiteering under Rule 129 and reporting to the Authority - scope of investigation extending to all products impacted by the rate reduction - Whether the DGAP was entitled to investigate and report on all products of the Respondent impacted by the GST rate reduction or was limited to the single product named in the complaint - HELD THAT: - The Authority held that Section 171 read with Rule 129 and the DGAP's mandate (including the Office Order assigning duties to DGAP) empower investigation into whether the benefit of tax rate reduction or ITC has been passed on for all impacted supplies. The DGAP, as the investigating arm, is required to collect evidence and report on all products coming to its notice that have been denied the benefit; the scope is not restricted to only the specific product mentioned in the initial complaint. [Paras 48, 49, 50]

DGAP's broader investigation into all products affected by the rate reduction was lawful and the Report covering multiple impacted products is maintainable.

Exclusion of discounts from transaction value under Section 15(3) - treatment of credit note discounts in computation of transactional value - Whether discounts given by issuing credit notes during the relevant periods were to be excluded from the transaction value for computation of profiteering - HELD THAT: - The Authority examined Section 15(3) and concluded that discounts given after supply are excluded from value only if they satisfy the conditions therein (agreement entered into at or before supply and reversal of ITC by the recipient). The Respondent failed to prove satisfaction of those conditions for credit note discounts; accordingly such discounts could not be excluded from the value used for computing profiteering, and discounts not considered in the pre reduction base price calculations could not be taken into account later. [Paras 13, 14, 42]

Discounts by credit notes were not excluded from value; they do not reduce the profiteered amount absent compliance with Section 15(3) conditions.

Inclusion of tax component in determination of profiteered amount - deposit of unidentifiable recipients' refunds into Consumer Welfare Fund - Whether the excess GST collected on increased base prices forms part of the profiteered amount and the manner of disposition where recipients are not identifiable - HELD THAT: - The Authority accepted DGAP's position that the price paid by recipients includes both base price and tax; if a supplier increased base price post rate reduction, the excess price charged (including the GST on that excess) must be refunded or deposited as relief. Where recipients cannot be identified, the statutory scheme permits deposit of the profiteered amount with interest into the Central and State Consumer Welfare Funds in the prescribed ratio. [Paras 17, 32, 58]

Excess GST collected on increased base prices is included in the profiteered amount; the Respondent directed to deposit the determined amount with interest into the Central and State Consumer Welfare Funds as ordered.

Penalty liability under Section 171(3A) for not passing on the benefit - Whether the Respondent is prima facie liable for penalty under Section 171(3A) for profiteering - HELD THAT: - Having concluded that the Respondent denied the benefit of tax reduction and determined the profiteered amount, the Authority observed that such denial amounts to an offence under Section 171(3A) attracting liability for penalty. Consequently, the statutory requirement to issue show cause on imposition of penalty arises. [Paras 60]

A show cause notice to be issued to the Respondent to explain why penalty under Section 171(3A) should not be imposed.

Final Conclusion: The Authority accepted the DGAP Report, held that the Respondent did not pass on the benefit of GST rate reduction and determined profiteering at Rs. 25,73,82,482 for 15.11.2017 to 31.03.2019; directed reduction of prices, deposit of the profiteered amount with interest into Central and State Consumer Welfare Funds (50:50) within three months and initiation of penalty proceedings by issuing a show cause notice.

Passing on benefit of reduction in rate of tax / input tax credit - commensurate reduction in prices - methodology for computation of profiteering (average base price comparison) - inverted duty structure and blocked input tax credit - deposit of profiteered amount in Consumer Welfare Fund - penalty under Section 171(3A) of the CGST Act, 2017

Passing on benefit of reduction in rate of tax / input tax credit - commensurate reduction in prices - Whether the reduction in GST rate on Fly Ash Blocks from 12% to 5% w.e.f. 01.01.2019 required the Respondent to pass on the benefit to recipients by way of commensurate reduction in prices under Section 171 of the CGST Act, 2017 - HELD THAT: - The Authority found that the Central Government had, on recommendation of the GST Council, reduced the GST rate on the Respondent's product from 12% to 5% w.e.f. 01.01.2019 and that this fact was not disputed. In consequence, the statutory obligation to pass on the benefit of a tax-rate reduction by way of a commensurate reduction in prices applied. The Authority accepted the legal position that the only prescribed mechanism to pass on the benefit of rate reduction or ITC is a monetary reduction in the final price payable by the recipient and that commercial reasons or cost elements cannot be used to negate this statutory obligation at the moment the tax rate is reduced. The Respondent's contentions about timing of cost increases and commercial discretion to factor costs were rejected as not permitting retention of the statutory benefit due to recipients. [Paras 12, 13, 14, 43, 49]

The reduction in GST rate was binding and the Respondent was required to pass on the benefit by commensurate reduction in prices; failure to do so contravened Section 171(1).

Methodology for computation of profiteering (average base price comparison) - Whether the DGAP's methodology for quantifying profiteering (comparing average pre-rate-reduction base prices with actual post-reduction selling prices dimension-wise and computing excess) was appropriate and whether the Respondent had profiteered - HELD THAT: - The Authority examined the DGAP's method: computing average base price for each product-dimension for December 2018 (pre-reduction) and deriving a commensurate post-reduction price, then comparing it invoice-wise for supplies made from 01.01.2019 to 31.03.2019. The DGAP's approach of dimension-wise comparison was based on the Respondent's own outward supply details and invoices, which showed varying base prices across dimensions; hence a single per-cubic-metre rate was not established in the investigation material. The Authority held that averaging the pre-reduction base price for each SKU and comparing it with actual invoice prices post-reduction was reasonable, consistent with prior practice, and in consonance with Section 171(1). The Respondent's objections - including that prices rose due to raw-material cost increases, blocked ITC due to inverted duty structure, and freight not being considered - were examined and rejected on the record: (a) the timing and precise coincidence of price increases with the tax-rate reduction made the Respondent's explanation implausible; (b) refund restrictions and inverted duty structure did not justify selective retention of the tax benefit; and (c) freight was not shown separately in invoices during DGAP investigation and could not be treated as an afterthought. Accordingly the Authority accepted the DGAP's finding that the Respondent increased base prices and thereby denied the benefit to recipients. [Paras 48, 50, 51, 52, 54]

The DGAP's average base-price comparison methodology was appropriate and the Respondent profiteered by failing to pass on the commensurate reduction in prices.

Deposit of profiteered amount in Consumer Welfare Fund - penalty under Section 171(3A) of the CGST Act, 2017 - Quantification of the profiteered amount, consequential directions for deposit with interest, allocation between Central and State Consumer Welfare Funds, and initiation of penalty proceedings - HELD THAT: - Relying on the DGAP's computations (average pre-reduction base prices compared with actual post-reduction invoice prices across the impacted SKUs), the Authority determined the total profiteered amount for the period 01.01.2019 to 31.03.2019 to be Rs. 55,60,340/-. One recipient (the applicant) had received Rs. 299 and therefore that portion need not be paid back but must be deposited in the Consumer Welfare Funds. The Authority directed the Respondent to deposit the profiteered amount with interest at 18% from the date of collection until deposit, and ordered the amount (net of the applicant's 299) to be deposited in the Central and concerned State CWFs in a 50:50 ratio, furnishing a state-wise breakup. The Respondent was also held apparently liable for penalty under Section 171(3A) for resorting to profiteering and a Show Cause Notice was directed to be issued. Time-limits for deposit and supervisory recovery by Commissioners were specified. [Paras 19, 57, 58, 59]

Profiteered amount fixed at Rs. 55,60,340/- for 01.01.2019 to 31.03.2019; Respondent directed to deposit the amount with interest @18% into Central and State CWFs (50:50) within three months; Show Cause Notice for penalty under Section 171(3A) to be issued.

Final Conclusion: The Authority held that the GST rate on Fly Ash Blocks was reduced w.e.f. 01.01.2019 and the Respondent failed to pass on the statutory benefit by way of commensurate reduction in prices; adopting the DGAP's dimension-wise average-base-price methodology, profiteering of Rs. 55,60,340/- for the period 01.01.2019 to 31.03.2019 was determined, with directions to deposit the amount (with interest at 18%) into the Central and State Consumer Welfare Funds (50:50) and initiation of penalty proceedings under Section 171(3A).

Classification of goods - Carbonated Beverages with Fruit Juice - essential character test - common parlance test - FSSAI Regulation 2.3.30 - HSN Explanatory Notes - Customs Tariff Heading 2202 - tariff sub heading 2202 10 versus 2202 99 - Fitment Committee / GST Council recommendations

Carbonated Beverages with Fruit Juice - Customs Tariff Heading 2202 - tariff sub heading 2202 10 versus 2202 99 - FSSAI Regulation 2.3.30 - HSN Explanatory Notes - essential character test - common parlance test - Classification of the appellant's carbonated fruit juice beverages under CTH 2009 or CTH 2202 and, within CTH 2202, whether they fall under 2202 10 (waters/aerated waters) or 2202 99 20 (fruit pulp/fruit juice based drinks). - HELD THAT: - The Appellate Authority examined the product composition, FSSAI Regulation 2.3.30 (including para 3A), the Food Category System (Appendix A), the HSN explanatory notes and the Customs Tariff schedule. It was accepted that the products are not classifiable as 'Fruit Juices' under CTH 2009 and are non alcoholic beverages within CTH 2202. The products meet the definition of 'carbonated beverages with fruit juice' under para 3A of Regulation 2.3.30 (fruit content thresholds 2.5% for lime/lemon and 5-10% for other fruits) and are marketed and prepared as ready to drink carbonated beverages. The HSN notes show CTH 2202.10 covers waters (including aerated waters) often consisting of ordinary drinking water sweetened or flavoured, while CTH 2202.99 covers 'other non alcoholic beverages', including fruit pulp/juice based drinks. The Lower Authority's finding that the products are carbonated beverages with fruit juice and not fruit juices under 2009 is consistent with the FSSAI categorisation and the HSN explanatory notes; the large proportion of water in the product led to classification under CTH 2202 rather than 2009. The Authority considered and rejected the appellant's contention that coverage under Regulation 2.3.30 necessarily requires classification under 2202 99 20, noting that the Lower Authority had correctly applied the tariff structure, HSN notes and Food Category classification. The Appellate Authority also noted the Fitment Committee/GST Council stance as persuasive support for the classification applied by the Lower Authority. On this basis the Appellate Authority found no reason to interfere with the AAR's eight digit level classification under CTH 2202 (specifically the findings that certain items fall under 22021020 and others under 22021090 as determined by the AAR). [Paras 7, 8, 10, 11]

The Appellate Authority affirms the Advance Ruling: the appellant's products are not classifiable under CTH 2009 and there is no reason to disturb the AAR's classification under CTH 2202 (as answered by the AAR at the eight digit level).

Final Conclusion: Appeal dismissed; the Appellate Authority affirms the Advance Ruling and declines to interfere with the AAR's classification of the appellant's carbonated fruit juice beverages under CTH 2202 as determined by the lower authority.

Deduction from sale consideration in computation of long term capital gains - cost of improvement - exemption under section 54F - exemption under section 54 - related party transactions and acceptance of bona fide commercial transactions - assessment accepted under section 143(1) and implication for scrutiny

Deduction from sale consideration in computation of long term capital gains - cost of improvement - related party transactions and acceptance of bona fide commercial transactions - Allowability of compensation paid to M/s Shikhar Travels (India) Pvt. Ltd. as deduction from the assessee's sale consideration in computing long term capital gain - HELD THAT: - The Tribunal examined the AO's disallowance of the assessee's proportionate share of compensation paid to M/s Shikhar Travels (India) Pvt. Ltd., on grounds that the agreement was unregistered/notarised, parties were closely associated, and no valuation report was produced. The CIT(A) had allowed a limited amount (proportionate to an estimated structure value) and disallowed the balance as a device to shift taxable gain to the company. The Tribunal found that the payment and its receipt were not disputed, that the company had disclosed the amount in its Profit & Loss Account, and that the husband's return accepting the reduction under section 143(1) had not been reopened under section 147/148. The AO had not invoked section 40A(2). The Tribunal held that mere relatedness of parties, absence of registration/notarisation, or the AO's view on commercial expediency do not justify rejecting a bona fide transaction or the quantum of compensation where the transaction is otherwise not doubted. Consequently, the CIT(A)'s restriction of the compensation to a part figure was not justified and the assessee's claim in respect of the compensation paid was allowed. [Paras 15, 16, 17]

The disallowance made by the AO and the restriction imposed by the CIT(A) on the compensation paid to M/s Shikhar Travels (India) Pvt. Ltd. are set aside; the assessee's claim for deduction of the compensation from sale consideration for computing long term capital gain is allowed.

Exemption under section 54 - exemption under section 54F - Whether the assessee is entitled to exemption under section 54 (instead of section 54F) in respect of the transfer - HELD THAT: - The AO denied exemption under section 54 on the ground that the asset sold was merely a piece of land and not a residential house, and allowed relief under section 54F. The CIT(A) did not decide the assessee's specific challenge to denial of section 54 relief. The Tribunal found that material was placed before the CIT(A) to show existence of a residential unit on the farm house and that CIT(A) had allowed part deduction for building cost in relation to the compensation. In view of the absence of an adjudication by the CIT(A) on the section 54 claim, the Tribunal considered it appropriate to remit the issue to the CIT(A) for fresh adjudication after affording the assessee an opportunity of being heard and deciding in accordance with facts and law. [Paras 18]

The question of entitlement to exemption under section 54 is remitted to the CIT(A) for fresh adjudication with opportunity to the assessee; matter restored to file of the CIT(A).

Final Conclusion: The appeal is allowed in part: the Tribunal upheld the assessee's deduction of the compensation paid to M/s Shikhar Travels (India) Pvt. Ltd. for computation of long term capital gain, and remitted the disputed claim for exemption under section 54 to the CIT(A) for fresh decision; the appeal is disposed of for statistical purposes.

Revisional power under section 263 of the Income Tax Act, 1961 - prejudice to the interest of the Revenue - accounting presentation of gross sale consideration and cost of acquisition - payments to related parties covered under section 40A(2)(b) of the Act and arm's length requirement - direction to Assessing Officer to re-determine issues after verification

Revisional power under section 263 of the Income Tax Act, 1961 - accounting presentation of gross sale consideration and cost of acquisition - prejudice to the interest of the Revenue - Whether the Commissioner was justified in invoking revision under s.263 on account of the assessee presenting net sale consideration instead of separately showing gross sale receipts and cost of acquisition. - HELD THAT: - The Tribunal found that although the assessee had presented sale receipts netted with acquisition cost (showing a lower gross sale figure), the purchase costs aggregating to the difference were placed on record before the Assessing Officer during assessment. The netting resulted from an erroneous presentation of accounts, but there was no under reporting of income as the profit on sale is correctly determined after deducting corresponding purchase costs. Because the resultantly declared income was not understated and no manifest prejudice to Revenue was shown, the statutory conditions for exercise of revisional powers under s.263 were not satisfied in respect of this aspect. [Paras 6]

The revisional action under s.263 was set aside insofar as it related to the presentation of sale receipts; the assessment order was restored on this point.

Revisional power under section 263 of the Income Tax Act, 1961 - payments to related parties covered under section 40A(2)(b) of the Act and arm's length requirement - prejudice to the interest of the Revenue - direction to Assessing Officer to re-determine issues after verification - Whether the Commissioner was justified in setting aside the assessment and directing re examination of large payments made to related parties under the scrutiny of s.40A(2)(b). - HELD THAT: - The Tribunal agreed with the Revisional Commissioner that the Assessing Officer did not properly inquire into the nature, genuineness, reasonableness or arm's length character of payments made to the sister concerns. The agreements produced contained vague, non specific clauses and there was no objective evidence before the AO of actual services performed, capability of the recipients, or the pattern and substantiation of payments. The assessee's submission of alleged tax neutrality was unsupported by evidence showing corresponding tax consequences in the hands of the payees. The lack of application of mind by the AO on these material aspects caused prejudice to Revenue as contemplated by s.263. Accordingly the revisional exercise in this respect was held to be justified and the matter was directed to be re determined by the AO after proper verification. [Paras 8, 9]

The revisional order setting aside the assessment on payments falling within s.40A(2)(b) was sustained and the Assessing Officer was directed to re determine the issue after proper verification.

Final Conclusion: Appeal partly allowed: the Tribunal set aside the revisional action under s.263 in respect of the netting of sale receipts with acquisition costs and restored the assessment on that point, but upheld the Revisional Commissioner's direction to remand for fresh verification the payments to related parties falling under s.40A(2)(b), directing the Assessing Officer to re determine those issues in accordance with law.

Exemption under section 10(37) - interest under Section 28 of the Land Acquisition Act, 1894 is part of compensation - interest under section 34 is only for delay and not part of enhanced compensation - taxability as income from other sources under section 56(2)(viii) - application and scope of section 145A amendment in relation to interest on compensation

Exemption under section 10(37) - interest under Section 28 of the Land Acquisition Act, 1894 is part of compensation - taxability as income from other sources under section 56(2)(viii) - application and scope of section 145A amendment in relation to interest on compensation - Whether interest awarded under Section 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation and is eligible for exemption under Section 10(37) rather than being taxable as interest under the head "income from other sources" under Section 56(2)(viii). - HELD THAT: - The Tribunal examined the nature of the interest awarded under Section 28 of the Land Acquisition Act, 1894 and applied the ratio of the Supreme Court in CIT v. Ghanshyam (HUF) and the Gujarat High Court in Movaliya Bhikhubhai Balabhai v. ITO (TDS) & Another. Those authorities held that interest under Section 28 partakes the character of compensation and is an accretion to the enhanced value of the land, whereas interest under Section 34 is compensatory for post-determination delay and is different in character. The Tribunal noted the subsequent amendment to Section 145A and insertion of Section 56(2)(viii) by Finance (No. 2) Act, 2009 (applicable from AY 2010-11) was intended to change the year of chargeability and the head under which certain interest on compensation is assessed, but not to alter the characterisation of Section 28 interest as laid down by the Supreme Court. Relying on the co-ordinate Bench decision in ITO, Ward 1 v. Basavaraj M Kudarikannur and the Gujarat High Court's reasoning that the amended Section 145A must be read consistently with the Supreme Court's interpretation, the Tribunal concluded that the interest under Section 28 is part of compensation and therefore eligible for exemption under Section 10(37) insofar as the compensable land satisfies the statutory conditions. Applying these precedents to the admitted facts of the present case, the Tribunal found no reason to interfere with the CIT(A)'s allowance of exemption and directed the Assessing Officer to delete the disallowance of the interest component and grant relief to the assessee. [Paras 5, 6]

The interest awarded under Section 28 of the Land Acquisition Act, 1894 is an accretion to compensation and, on the facts admitted, is covered by exemption under Section 10(37); the Assessing Officer's disallowance is to be deleted and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that interest under Section 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation and is not taxable as interest under Section 56(2)(viii); the Assessing Officer is directed to delete the disallowance and grant the exemption under Section 10(37).

Allowability of business promotion expenses - disallowance of excessive interest under section 40A(2)(a) of the Income Tax Act - principle of consistency in group cases - assessment-year 2011-12 - assessment-year 2012-13 - administrative disposal under CBDT Circular No.17/2019

Allowability of business promotion expenses - Allowability of claimed business promotion and donation-related expenses in the assessment for A.Y. 2011-12 - HELD THAT: - The Tribunal examined receipts and the assessee's explanation that payments (including corporate membership of Mumbai Cricket Association, hoarding/advertising expenses and donations to various social/charitable bodies) were incurred for promotion of the business or were genuine charitable/social payments. The Bench applied the principle in the jurisdictional authority (Otis Elevator (supra)) that payments for club membership and similar promotion expenses made to improve business relations and prospects are allowable as business expenditure. Where genuineness was not disputed by lower authorities and payments related to advertising or charitable/social activities, these were treated as allowable. [Paras 8]

Disallowance of Rs. 9,59,300/- was deleted and the promotion/donation-related expenses were allowed for A.Y. 2011-12.

Disallowance of excessive interest under section 40A(2)(a) of the Income Tax Act - principle of consistency in group cases - Validity of disallowance of interest paid to sister concerns as excessive under section 40A(2)(a) for A.Y. 2011-12 and by consistency applied to A.Y. 2012-13 - HELD THAT: - The Tribunal considered whether the Assessing Officer established that rates charged by sister concerns were excessive or that payments were made to evade tax. The assessee demonstrated that funds were unsecured inter-group loans used for business, and that the lender had offered the corresponding interest income in its assessment. The Tribunal noted a coordinate-bench decision in the group's case (Puspanjali Realtors Pvt. Ltd.) where similar additions were deleted and that the AO had not recorded the interest as above market rate or shown tax-evasion motive. Respectfully following the coordinate-bench decision and on the facts before it, the Tribunal found no justification for sustaining the disallowance. [Paras 13, 19]

Disallowance of interest under section 40A(2)(a) was deleted for A.Y. 2011-12 and the same conclusion was applied to A.Y. 2012-13 by consistency.

Administrative disposal under CBDT Circular No.17/2019 - Disposition of the revenue's appeal for A.Y. 2012-13 in light of the monetary threshold prescribed by CBDT Circular No.17/2019 - HELD THAT: - The Tribunal recorded the assessee's submission that the tax effect in the revenue's appeal was below the monetary limit prescribed by CBDT Circular No.17/2019 (8th August 2019). The revenue sought liberty to revive the appeal if a larger tax effect emerged later. Having noted that the present tax effect was below the threshold, the Tribunal dismissed the revenue's appeal in accordance with the administrative circular. [Paras 21, 22]

Revenue's appeal for A.Y. 2012-13 was dismissed under the CBDT Circular as the tax effect was below the prescribed monetary limit; liberty granted to revive if future material shows higher tax effect.

Final Conclusion: The Tribunal allowed the assessee's appeals: deleted the disallowance of business promotion expenses for A.Y. 2011-12; deleted the disallowance of interest under section 40A(2)(a) for A.Y. 2011-12 and, following the same reasoning, for A.Y. 2012-13; and dismissed the revenue's appeal for A.Y. 2012-13 under CBDT Circular No.17/2019 subject to liberty to revive if the tax effect later exceeds the prescribed threshold.

Notional income - deemed income under section 69B - treatment of share application money as unexplained credit under section 68 - taxability in the relevant assessment year

Notional income - deemed income under section 69B - Whether notional interest on advances to a sister concern can be brought to tax as deemed income under section 69B in absence of a specific statutory provision. - HELD THAT: - The Assessing Officer treated notional interest on interest-free advances as deemed income. Section 69B applies where investments or acquisitions exceed amounts recorded in the books and the assessee offers no satisfactory explanation. In the present case the loan was recorded in the books and there was no contention of undisclosed investment or of disallowance under section 36(1)(iii). The Tribunal followed the Delhi High Court decision in Shivnandan Buildcon (P.) Ltd. v. CIT to hold that, in absence of any specific provision in the Act permitting taxation of notional interest on advances to a sister concern, such notional income cannot be brought to tax. The reliance placed by the Department on Punjab Stainless Steel was distinguished because, in that case, disallowance arose under section 36(1)(iii) in a different factual and legal context. [Paras 5]

Addition of notional interest as deemed income was deleted and the Assessing Officer's addition on this ground was set aside.

Treatment of share application money as unexplained credit under section 68 - taxability in the relevant assessment year - Whether the share application money added to income in Assessment Year 2012-13 was exigible in that year or belonged to the preceding year. - HELD THAT: - The CIT(A) found, and the Tribunal recorded, that the share application money had been received in the preceding assessment year (2011-12) and not in the year under appeal. The Assessing Officer was aware that the amount related to the earlier year and had himself contemplated reassessment for AY 2011-12. The amount was subsequently brought to tax in assessment year 2011-12 by an order under section 147 read with section 143(3). Since the impugned sum did not relate to AY 2012-13 and has already been assessed in AY 2011-12, it could not be added again for AY 2012-13. [Paras 5]

Addition of the share application money in Assessment Year 2012-13 was deleted as the amount related to and was assessed in Assessment Year 2011-12.

Final Conclusion: The departmental appeal was dismissed: the notional interest addition was disallowed for lack of statutory basis to tax notional interest, and the addition of share application money was deleted because the amount related to and has been assessed in the preceding assessment year.

Deduction under section 80IB - new industrial undertaking - substantial investment - integrated unit - taxability of payments to non-resident certification bodies - disallowance under section 40(a)(i) - business connection - credit of advance tax and self-assessment tax - recomputation of interest under section 234B

Deduction under section 80IB - new industrial undertaking - substantial investment - integrated unit - Whether the assessee established a new industrial undertaking capable of producing distinct products so as to qualify for deduction under section 80IB. - HELD THAT: - The Tribunal upheld the detailed findings of the Commissioner (Appeals) that the appellant failed to prove that a new undertaking had come into existence by substantial investment and that the unit was an integrated and distinct undertaking. The authorities examined the sequence of events, investment flow, invoices for plant and machinery, and documentary/evidentiary material and concluded that the post-acquisition purchases of plant and machinery were limited (shown as approximately Rs. 53.17 lakhs by the CIT(A)), representing only a small percentage of the total consideration paid in the acquisition, and were in the ordinary course of business expansion rather than constituting substantial new investment. The authorities further found no material support for the contention of novel technology or materially different machines; no separate books of account, separate muster rolls or stock registers; lack of physical segregation of machines and units; absence of a separate power connection during the year in question; and unreliable or insufficient external certification evidence. On the cumulative facts the Tribunal found no reason to interfere and dismissed the appeals on this issue for the assessment years as recorded.

Appeals on the claim of deduction under section 80IB dismissed for the stated assessment years; the Tribunal found no new undertaking by substantial investment and held the purchases to be expansionary.

Taxability of payments to non-resident certification bodies - disallowance under section 40(a)(i) - business connection - Whether payments made to foreign certification bodies (ASTA and China Inspection Company Ltd.) are taxable in India and subject to disallowance under section 40(a)(i). - HELD THAT: - The Tribunal accepted the assessee's contention that the impugned payments were for product certification services provided by non-residents outside India, that the foreign entities had no business connection in India, and that the services did not amount to technical, managerial or consultancy services taxable in India. Applying the principle that section 40(a)(i) and withholding obligations under section 195 arise only where the payment is taxable in India, the Tribunal held that the certification fees were not taxable in India and therefore not hit by section 40(a)(i). On this basis the Tribunal allowed the assessee's grounds challenging the disallowance in the relevant assessments.

Disallowance under section 40(a)(i) in respect of certification fees set aside; payments held not taxable in India and appeals in this respect allowed.

Credit of advance tax and self-assessment tax - recomputation of interest under section 234B - Whether the assessing officer should be directed to allow the correct credit for advance tax/self-assessment tax for AY 2008-09 and to verify/recompute interest under section 234B for AY 2010-11. - HELD THAT: - The Tribunal observed that the CIT(A) had not adjudicated certain grounds raised by the assessee concerning credit of taxes and computation of interest. The Tribunal therefore directed the assessing officer to examine and allow the correct credit of advance tax and self-assessment tax for AY 2008-09, and directed the AO to verify and recompute interest under section 234B for AY 2010-11. These matters were left to the AO for compliance and fresh computation as directed.

Directed remand to the assessing officer to allow correct tax credits for AY 2008-09 and to verify and recompute interest under section 234B for AY 2010-11.

Final Conclusion: The Tribunal dismissed the appeals on the section 80IB claim for assessment years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2009-10; allowed the assessee's challenge to disallowance under section 40(a)(i) in respect of foreign certification fees and set aside those disallowances; directed the assessing officer to allow correct tax credits for AY 2008-09 and to verify/recompute interest for AY 2010-11; the appeals for AY 2008-09 and 2010-11 were partly allowed for statistical purposes and the appeal for AY 2011-12 was allowed.

Power of a Single Member Bench to hear and decide appeals - Doctrine of Necessity - interpretation and clarification of earlier interlocutory orders - requirement of fresh reference for initiating investigations - non ouster of statutory investigatory powers by interim orders

Power of a Single Member Bench to hear and decide appeals - Doctrine of Necessity - vacancies not invalidating proceedings - Whether a Single Member Bench of the Appellate Tribunal can clarify/interpret or pass orders in relation to orders previously passed by a Division Bench in the circumstances of this case. - HELD THAT: - The Tribunal examined the statutory scheme governing constitution and functioning of the Appellate Tribunal, in particular the provisions dealing with composition of Benches, vacancies and continuity of proceedings. The word "may" in the provision for constitution of Benches confers discretionary power to the Chairperson to constitute Benches; statutory protection against invalidation of proceedings in case of vacancies or defects (Section 36) prevents automatic nullification of acts by a smaller Bench. Transitional and amended provisions, and analogous amendments to related legislation, were noted to support the view that appeals may be heard notwithstanding vacancies. The court also applied the Doctrine of Necessity as an alternate ground given the present vacancies and the need to prevent denial of justice. Viewing the matter in its factual matrix, the Single Member Bench was held competent to clarify the earlier Division Bench orders and to pass interlocutory directions necessary to meet the ends of justice. [Paras 33, 36, 37, 38, 42]

A Single Member Bench is empowered, in the facts and circumstances of these appeals and by application of the Doctrine of Necessity, to clarify and pass orders in relation to earlier Division Bench orders; proceedings before the Single Bench are not invalid by reason of vacancies.

Interpretation and clarification of earlier interlocutory orders - non ouster of statutory investigatory powers by interim orders - requirement of fresh reference for initiating investigations - Scope and effect of the interim orders dated 15 05 2019 and 13 08 2019 vis a vis the Respondent's power to issue notices and to proceed with investigations. - HELD THAT: - The Tribunal construed the operative language of the Division Bench order of 15 05 2019 and the subsequent ex parte order of 13 08 2019 together. The 15 05 2019 order was directed at restraining action "on the notice issued by the Initiating Officer" (i.e., extant notice then before the Tribunal) while expressly granting liberty to the respondent to initiate proceedings on the basis of a fresh reference and recording the respondent's undertaking to act after serving notice under the statute. The 13 08 2019 order merely directed that "no further step shall be taken by the respondent in view of the impugned order" and must be read with the clarified scope of the earlier order. Consequently, the interim orders did not impose a blanket bar on investigations or on issuing fresh notices in accordance with law; the respondent remains free to proceed provided a fresh reference is registered and statutory procedure is followed. [Paras 39, 40, 41, 43]

The interim orders did not bar the respondent from conducting investigations or issuing notices in accordance with law; the respondent must register a fresh reference and follow the procedure contemplated in the earlier order before taking further action.

Final Conclusion: The Single Member Bench is competent to clarify the Division Bench's interim orders in the circumstances of these appeals. The orders dated 15 05 2019 and 13 08 2019 restrained action only in respect of the specific notice then under challenge and did not preclude the respondent from initiating fresh proceedings or issuing notices in accordance with the statute; clarification is accordingly issued permitting investigations to proceed upon registration of a fresh reference and following the prescribed procedure.

Financial creditor - financial debt - default - limitation - section 7 of the Insolvency and Bankruptcy Code, 2016 - corporate insolvency resolution process - adjudicating authority's satisfaction of default

Financial creditor - financial debt - default - The appellants are financial creditors and a financial debt, together with default, exists such that an application under section 7 was maintainable. - HELD THAT: - The Tribunal examined the nature of the transaction shown in the records, including the Assistant Commissioner of Income-tax's finding that the second appellant advanced funds which were later reflected as share application money of the corporate debtor. The Court held that the advance made by the second appellant was disbursed for consideration for the time value of money and, despite conversion on paper into share application money, no shares were issued and the demand remained unpaid. Applying the statutory scheme governing financial debt and default, the Tribunal concluded that the appellants were not operational creditors and that the claim fell within the ambit of a financial debt with an existing default, making the subsequent filing under section 7 maintainable. [Paras 13, 14]

Application under section 7 was maintainable because the appellants are financial creditors and there is a financial debt with default.

Limitation - section 7 of the Insolvency and Bankruptcy Code, 2016 - The claim of the appellants was not barred by limitation. - HELD THAT: - The Tribunal reviewed the procedural chronology, including earlier proceedings under the Companies Act (winding up petition and related actions) and the timing of the demand notice and subsequent section 7 filing. Having regard to the appellants' earlier recourse to winding up proceedings and the legislative changes which deleted section 433 and led to the availability of remedies under the IBC, the Court found that the claim was not time-barred and that the appellants had a legitimate basis to pursue the claim under the Code. [Paras 10, 11, 12]

The appellants' claim is not barred by limitation.

Adjudicating authority's satisfaction of default - section 7 of the Insolvency and Bankruptcy Code, 2016 - corporate insolvency resolution process - The Adjudicating Authority erred in rejecting the section 7 application; the matter is remitted for admission after notice to the corporate debtor so that the corporate debtor may settle the claim prior to admission. - HELD THAT: - Having found that a financial debt and default existed and that the claim was not time-barred, the Tribunal concluded that the Adjudicating Authority wrongly held that the appellants were not financial creditors and rejected the section 7 application. In consequence, the Tribunal set aside the impugned order and remitted the matter to the Adjudicating Authority with directions to admit the application after giving notice to the corporate debtor, thereby enabling the corporate debtor to settle the claim before initiation of the corporate insolvency resolution process. [Paras 1, 6, 14, 15]

Impugned rejection set aside; matter remitted to Adjudicating Authority to admit the section 7 application after notice to the corporate debtor.

Final Conclusion: The appeal is allowed: the Tribunal holds that the appellants are financial creditors with an existing financial debt not barred by limitation, sets aside the Adjudicating Authority's rejection of the section 7 application, and remits the matter with directions to admit the application after notice to the corporate debtor so that the claim may be settled prior to initiation of the corporate insolvency resolution process.

Pre-existing dispute - limitation defence - communication of account balance showing nil - section 9 of the Insolvency and Bankruptcy Code, 2016

Pre-existing dispute - limitation defence - communication of account balance showing nil - section 9 of the Insolvency and Bankruptcy Code, 2016 - Whether there existed a pre existing dispute (including a plea of limitation) which disentitled the operational creditor from invoking the corporate insolvency resolution process under section 9. - HELD THAT: - The adjudicatory finding records that the corporate debtor had, by communication dated August 5, 2013, informed the operational creditor that the account balance was 'Nil', a position not contested by the operational creditor at that time. Thereafter, before the demand notice under section 8(1) was issued on December 26, 2017, the corporate debtor, in response to legal notices dated July 18, 2016 and July 17, 2017, specifically pleaded that the claim was barred by limitation. The Tribunal concluded that this amounted to a pre existing dispute which existed prior to the statutory demand notice and therefore disentitled the operational creditor from initiating the corporate insolvency resolution process under section 9. The court treated the communication of nil balance and the prior plea of limitation as determinative of the existence of dispute and upheld the Adjudicating Authority's dismissal on that basis. [Paras 5, 6, 7]

There was a pre existing dispute, including a limitation plea, prior to the demand notice; the section 9 application was rightly dismissed.

Final Conclusion: The appeal is dismissed; no interference is called for with the Adjudicating Authority's order dismissing the section 9 application for want of a debt due in view of the pre existing dispute and limitation plea.

Voluntary liquidation under the Insolvency and Bankruptcy Code, 2016 - declaration of solvency by directors - compliance with IBBI (Voluntary Liquidation Process) Regulations, 2017 - public announcement in Form A - absence of creditors and tax no-objection - dissolution of the corporate person - distribution of assets to contributors under regulation 35(3)

Voluntary liquidation under the Insolvency and Bankruptcy Code, 2016 - compliance with IBBI (Voluntary Liquidation Process) Regulations, 2017 - Whether the liquidator complied with the statutory requirements for voluntary liquidation under the Code and the IBBI Regulations prior to dissolution of the company. - HELD THAT: - The Tribunal examined the materials filed by the liquidator to determine compliance with the statutory scheme governing voluntary liquidation. The application and accompanying records show that the directors passed the required resolutions, a declaration of solvency was filed, the extraordinary general meeting approved voluntary liquidation, notifications were given to statutory authorities and the Registrar of Companies, and the liquidator carried out steps envisaged by the Regulations including meetings with contributors and verification of assets. On this basis the Tribunal concluded that the liquidator complied with section 59 of the Code read with the IBBI (Voluntary Liquidation Process) Regulations, 2017 and was entitled to move for dissolution of the corporate person. [Paras 4, 7, 11]

The liquidator complied with the statutory requirements for voluntary liquidation and proceeded in accordance with the Code and the IBBI Regulations.

Declaration of solvency by directors - Whether the directors filed the declaration of solvency as required for voluntary liquidation. - HELD THAT: - The Tribunal noted the directors of the company passed the resolution for voluntary liquidation and filed the declaration of solvency dated March 31, 2018 by the two directors. The affidavit and declaration required under the statutory provision were placed on record and satisfy the requirement that directors make a full inquiry into the affairs of the company and form the requisite opinion regarding solvency and absence of intent to defraud. [Paras 5, 6]

The declaration of solvency by the directors was filed as required and found to be in order.

Public announcement in Form A - intimation to statutory authorities - Whether the requisite public announcement and intimation to authorities were made in compliance with the Regulations. - HELD THAT: - The Tribunal observed that the erstwhile liquidator issued the public announcement in Form A in the specified newspapers and that copies of the announcement were filed. The company also notified the Registrar of Companies and intimated relevant authorities, and the liquidator informed the Income tax Department and banking entity about the change of liquidator. These steps satisfy the publicity and intimation obligations under the Regulations. [Paras 4, 7, 8]

Public announcement and statutory intimations were made in compliance with the Regulations.

Absence of creditors and tax no-objection - Whether there were creditors and whether the Income tax department had any objection to the liquidation. - HELD THAT: - The audited financials as on the liquidation commencement indicated no creditors, and the liquidator stated there were no creditors on the date of commencement. The Income tax Officer communicated by letter that there were no tax arrears outstanding and expressed no objection to the liquidation. These findings supported the conclusion that there were no outstanding creditor claims or tax objections preventing dissolution. [Paras 9, 10, 11]

There were no creditors recorded at commencement and the Income tax department raised no objection to the liquidation.

Dissolution of the corporate person - distribution of assets to contributors under regulation 35(3) - Whether the Tribunal should order dissolution of the company and record the proposed distribution of assets. - HELD THAT: - Having found compliance with the statutory requirements, absence of creditors, and receipt of the Income tax office's no objection, the Tribunal allowed the liquidator's application under the Code and Regulations and ordered dissolution. The liquidator had proposed distribution of the sole immovable asset to a contributor under the Regulations; while the Tribunal records that the liquidator decided to distribute the asset to the shareholder under regulation 35(3), the operative relief granted was dissolution of the corporate person effective the specified date and forwarding of the order to the registration authority. [Paras 2, 3, 11]

The company is ordered to be dissolved; the liquidator's proposed distribution to the contributor under regulation 35(3) is recorded and the dissolution is made effective as ordered.

Final Conclusion: The Tribunal found that the liquidator complied with the Code and the IBBI Regulations, there were no creditors and the Income tax department raised no objection, and accordingly ordered Good Earth Properties and Services P. Ltd. to be dissolved with effect from November 6, 2019, directing transmission of the order to the registration authority.

Corporate insolvency resolution process - default and operational debt - pre-existing dispute under section 8(2)(a) of the Insolvency and Bankruptcy Code, 2016 - admission under section 9(5) of the Insolvency and Bankruptcy Code, 2016 - moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of interim resolution professional - deposit to meet immediate expenses of the interim resolution professional

Default and operational debt - admission under section 9(5) of the Insolvency and Bankruptcy Code, 2016 - Operational creditor established default by the corporate debtor and the petition under section 9 fulfilled statutory requirements for admission. - HELD THAT: - The Tribunal considered the contract, the sequence of R.A. bills raised by the operational creditor and the ledger showing last part payment to conclude that the corporate debtor had failed to discharge its liability. The operational creditor produced the demand notice and the certificate under the Code as required. On the material placed before it, the Bench found that the statutory prerequisites for initiating corporate insolvency under section 9 were satisfied and therefore admitted the petition. [Paras 9, 10, 11, 15]

Petition under section 9 admitted and CIRP initiated.

Pre-existing dispute under section 8(2)(a) of the Insolvency and Bankruptcy Code, 2016 - Alleged pre-existing dispute raised by the corporate debtor was not established by documentary evidence and therefore did not bar admission. - HELD THAT: - The corporate debtor pleaded existence of disputes (including communications and alleged defects in materials and delay compensation). At final hearing counsel for the corporate debtor was unable to produce contemporaneous documentary evidence proving a dispute prior to the demand notice. The Bench recorded that assertions regarding sub-standard materials and other contentions were unsupported by documentary proof and thus did not merit further consideration for preventing admission. [Paras 12, 13, 14]

Pre-existing dispute not established; does not preclude initiation of CIRP.

Moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - Moratorium declared upon admission and the statutory prohibitions under section 14 were imposed. - HELD THAT: - Consequent to admission under section 9(5), the Tribunal declared moratorium in terms of section 14 and set out the statutory prohibitions (institution or continuation of suits or proceedings, transfer or disposition of assets, enforcement of security interest and recovery of leased property). The order directed compliance with these prohibitions as a necessary effect of initiating CIRP. [Paras 15, 18]

Moratorium declared and statutory prohibitions under section 14 imposed with immediate effect.

Appointment of interim resolution professional - deposit to meet immediate expenses of the interim resolution professional - An interim resolution professional was appointed from the IBBI list and the operational creditor was directed to deposit an amount to meet the IRP's immediate expenses. - HELD THAT: - As the operational creditor had not proposed an IRP, the Bench selected an IRP from the IBBI list subject to standard disclosures and absence of pending disciplinary proceedings. The IRP was directed to perform duties under the Code, and the operational creditor was ordered to deposit a specified sum to meet immediate expenses of the IRP, for which it would account. [Paras 16, 17]

IRP appointed subject to conditions; operational creditor directed to deposit funds for IRP's immediate expenses.

Final Conclusion: The Tribunal admitted the section 9 petition, initiated the corporate insolvency resolution process, declared moratorium under section 14, appointed an interim resolution professional from the IBBI list subject to disclosures, and directed the operational creditor to deposit funds to meet the IRP's immediate expenses; the corporate debtor's pleaded pre-existing dispute was found not established by evidence and did not prevent admission.

Moratorium under the Insolvency and Bankruptcy Code - rights of landowner to possession on termination of licence - duty of the resolution professional to adjudicate and admit claims promptly - abuse of position by the resolution professional - powers of the Tribunal under the Insolvency and Bankruptcy Code (section 60(5)) - termination of tenancy/licence on default of payment

Moratorium under the Insolvency and Bankruptcy Code - rights of landowner to possession on termination of licence - duty of the resolution professional to adjudicate and admit claims promptly - abuse of position by the resolution professional - powers of the Tribunal under the Insolvency and Bankruptcy Code (section 60(5)) - termination of tenancy/licence on default of payment - Whether the resolution professional's delay in adjudicating the applicant's claim and his continued occupation of the premises constituted an abuse of powers, entitling the landowner to immediate possession and payment of his claim despite the moratorium. - HELD THAT: - The Tribunal found that the applicant had filed his claim in Form B and that the resolution professional had not finally decided the claim for more than four months (para 13). It was undisputed that the land belonged to the applicant and that the applicant was thereby being deprived of the right to use his land (para 14). The Bench held that the resolution professional's inaction in not taking a decision on the claim amounted to an abuse of the powers conferred on him under the Code and was contrary to justice and public policy, and constituted an abuse of his dominant position (para 15). The Tribunal recorded that the licence agreement specified payment on the 7th of each month and entitled the owner to reclaim the property on non-payment; thus the tenancy/licence rights automatically stand terminated on default of payment (paras 17-18). The resolution professional's conduct in neither paying rent nor vacating the premises while purportedly preserving the asset as a going concern was held to be unacceptable and prejudicial to the landowner (paras 16-17). Exercising its powers under the Code, including section 60(5), the Tribunal directed that possession be handed over forthwith and that the claim as filed be paid within a week (paras 15, 19). The Tribunal also imposed costs on the resolution professional for the delay and withholding of possession (para 20). [Paras 16, 17, 18, 19, 20]

Application allowed; resolution professional directed to hand over possession of the premises forthwith and to pay the applicant's claimed amount within one week, and to pay costs to the applicant.

Final Conclusion: The Tribunal allowed the miscellaneous application, holding that the resolution professional's prolonged non-decision and retention of possession amounted to an abuse of power; possession was ordered to be returned to the landowner and the claim (and costs) paid within one week.

Liquidation under section 33(1)(a) of the Insolvency and Bankruptcy Code - appointment of resolution professional as liquidator under section 34(1) of the Insolvency and Bankruptcy Code - cessation of management and vesting of powers in the liquidator - public announcement of liquidation under the IBBI (Liquidation Process) Regulations - termination of moratorium on liquidation - bar on suits except as permitted under section 52 - liquidator's fees and liquidation cost under the IBBI (Liquidation Process) Regulations - preliminary report within prescribed time under regulation 13 of the IBBI (Liquidation Process) Regulations

Liquidation under section 33(1)(a) of the Insolvency and Bankruptcy Code - Order for liquidation of the corporate debtor on the ground that no resolution plan was submitted within the corporate insolvency resolution process period. - HELD THAT: - The Tribunal found that no resolution plan under section 30(6) was received within the CIRP period. In view of the mandate of section 33(1)(a) of the Code, where no resolution plan is received within the insolvency resolution process period the Adjudicating Authority is obliged to pass an order requiring liquidation of the corporate debtor. The Tribunal saw no alternative and ordered liquidation of M/s. Yag Mag Labs P. Ltd. in accordance with Chapter III of Part II of the Code. [Paras 6, 8]

Application allowed and corporate debtor ordered to be liquidated.

Appointment of resolution professional as liquidator under section 34(1) of the Insolvency and Bankruptcy Code - Appointment of the existing resolution professional as the liquidator. - HELD THAT: - Having passed the liquidation order, the Tribunal applied section 34(1) which provides that the resolution professional appointed for CIRP shall act as liquidator. The applicant, Mr. A. V. S. Krishna Mohan, having given his consent and holding the requisite IBBI registration, was appointed as liquidator. [Paras 7]

Mr. A. V. S. Krishna Mohan is appointed as liquidator.

Public announcement of liquidation under the IBBI (Liquidation Process) Regulations - cessation of management and vesting of powers in the liquidator - termination of moratorium on liquidation - bar on suits except as permitted under section 52 - liquidator's fees and liquidation cost under the IBBI (Liquidation Process) Regulations - preliminary report within prescribed time under regulation 13 of the IBBI (Liquidation Process) Regulations - Directions governing the conduct of the liquidation process and ancillary consequences of the liquidation order. - HELD THAT: - The Tribunal directed the liquidator to carry out the liquidation in accordance with Chapter III of Part II of the Code and the IBBI (Liquidation Process) Regulations, 2016. All powers of the board, KMP and partners cease and vest in the liquidator. The liquidator was directed to issue the public announcement of liquidation as required by regulation 12. The moratorium under section 14 ceases to have effect on liquidation. The order operates as notice of discharge to officers, employees and workmen as per section 33(7). No suit or legal proceedings shall be instituted by or against the corporate debtor except as permitted by section 52 or as instituted by the liquidator with prior approval of the Adjudicating Authority; specified exemptions notified by the Central Government remain unaffected. The Tribunal also directed payment of the liquidator's fee as provided by regulation 4 and required submission of a preliminary report within 75 days from the liquidation commencement date under regulation 13. [Paras 12, 13, 14, 15, 16]

Liquidator to conduct liquidation in terms of the Code and Regulations, to make public announcement, vesting of management powers in liquidator, moratorium ceases, suits barred save as permitted, fees to be paid as per regulations, and preliminary report to be submitted within 75 days.

Final Conclusion: The Tribunal allowed the application, ordered liquidation of M/s. Yag Mag Labs P. Ltd. for failure to receive a resolution plan within the CIRP period, appointed the incumbent resolution professional as liquidator with his consent, and issued directions for conducting the liquidation and ancillary consequences in accordance with the Code and the IBBI (Liquidation Process) Regulations, 2016.

Admission of application under section 9 of the Insolvency and Bankruptcy Code, 2016 - existence of debt and default as evidenced by conduct/settlement (tender of cheque) - notice of dispute / record of dispute under section 9(5)(i)(d) - application of the Mobilox principle in preliminary adjudication of disputes - moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of interim resolution professional on reference to IBBI panel

Admission of application under section 9 of the Insolvency and Bankruptcy Code, 2016 - existence of debt and default as evidenced by conduct/settlement (tender of cheque) - notice of dispute / record of dispute under section 9(5)(i)(d) - application of the Mobilox principle in preliminary adjudication of disputes - The company petition under section 9 of the Code is admitted. - HELD THAT: - The Tribunal held that the petition is otherwise complete and that the respondent had, by tendering a cheque for the outstanding amount and thereby admitting liability and default, removed any contention that payment had been made such as to preclude admission. Reliance was placed on the principle in Mobilox Innovations that at the admission stage the adjudicating authority must reject an application only if there is a plausible, non-spurious dispute or a record of dispute in the information utility; the court need only be satisfied that a real dispute exists, not decide its merits. The respondent's earlier contention about service of the demand notice was found unsustainable in view of the NCLAT view cited. Given the respondent's admission of liability by tendering the cheque and subsequent dishonour, and absence of a demonstrable, non-spurious dispute, the conditions for admission under section 9(5)(i)(a)-(d) were satisfied and the petition was admitted. [Paras 14, 15, 16, 17]

Petition under section 9 admitted as the respondent's conduct (tender and subsequent dishonour of cheque) evidenced debt and default and no viable dispute barred admission.

Moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - Moratorium is declared in terms of section 14 of the Code from the date of the order. - HELD THAT: - Upon admission of the corporate insolvency resolution process, the Tribunal declared the statutory moratorium: restraining institution or continuation of suits or proceedings against the corporate debtor, transfer or disposal of assets, actions to enforce security interests and recovery of property occupied by the corporate debtor, subject to the statutory exceptions for supply of essential goods and services and notified transactions. The moratorium's operative period was stated to run until completion of the corporate insolvency resolution process or until approval of a resolution plan or an order for liquidation. [Paras 18, 19, 20]

Statutory moratorium under section 14 imposed from the date of the order until completion of the CIRP or earlier orders as prescribed by the Code.

Appointment of interim resolution professional on reference to IBBI panel - An interim resolution professional is appointed from the IBBI-recommended panel in accordance with sections 16(3)(a) and 16(4) of the Code. - HELD THAT: - The operational creditor had not proposed an interim resolution professional. The Tribunal therefore made a reference to the Board and, on receipt of the IBBI panel valid for the relevant period, selected Ms. Mandeep Gujral from the panel. The Tribunal recorded that the IRP's credentials were checked and no adverse material was found. Directions were issued concerning the term, vesting of management powers, duties under section 18 and related provisions, public announcement, cooperation by the corporate debtor's management, constitution of the committee of creditors and progress reporting. [Paras 21, 22, 23, 24]

Ms. Mandeep Gujral appointed as interim resolution professional with directions for exercise of powers and discharge of duties under the Code.

Final Conclusion: The Tribunal admitted the section 9 petition on the ground that the respondent's conduct (tender and subsequent dishonour of a cheque) established debt and default and no viable dispute prevented admission; it declared the statutory moratorium and appointed an interim resolution professional from the IBBI panel with consequential directions.

Initiation of corporate insolvency resolution process by financial creditor - Existence of financial debt - Default in payment - Evidence of default and record produced by financial creditor - Limitation under the Limitation Act - effect of payment on account of debt - Article 62 and residuary Article 137 of the Limitation Act - Appointment of interim resolution professional and declaration of moratorium - Maintainability of application under section 7 of the IBC

Existence of financial debt - Default in payment - Evidence of default and record produced by financial creditor - Maintainability of application under section 7 of the IBC - Whether the petition under section 7 of the IBC is maintainable on the ground that a financial debt exists and the corporate debtor has defaulted. - HELD THAT: - The Adjudicating Authority examined the application, annexed documents and the counter-affidavit. The corporate debtor did not produce documents disproving the debt or the default and in the counter-affidavit admitted the debt while contesting possession of properties by the financial creditor. Authorities mandate that for a section 7 application the adjudicating authority must be satisfied from records of the information utility or other evidence produced that a default has occurred. The petition contains letters of acknowledgement, sanction letters, account statements and other documents evidencing the debt and default. On the material before it the Authority is satisfied that a financial debt exists and that the corporate debtor is in default. [Paras 6, 7, 8, 17, 18]

The section 7 application is maintainable and the financial creditor has established existence of financial debt and default; the application is admitted.

Limitation under the Limitation Act - effect of payment on account of debt - Article 62 and residuary Article 137 of the Limitation Act - Whether the application is within the period of limitation. - HELD THAT: - The Authority considered the deposits of amounts in 2016 and the filing date of the petition in 2018. Section 19 of the Limitation Act provides that a fresh period of limitation runs from the date of last payment on account of a debt; consequently the petitioner's reliance on section 19 was accepted. The Authority also considered the contention invoking Article 62 (suits to enforce mortgage) and relied on the Supreme Court's ruling that Article 62 applies to suits and not to an application under section 7, which falls within residuary Article 137. Therefore Article 62 is inapplicable to the section 7 application. On these bases the Authority found the petition to be within limitation. [Paras 11, 12, 13, 14, 15]

The application is within limitation: section 19 operates from last payment and Article 62 does not apply to a section 7 application.

Appointment of interim resolution professional and declaration of moratorium - Whether an interim resolution professional should be appointed and moratorium declared upon admission of the section 7 application. - HELD THAT: - The financial creditor proposed a named insolvency professional and filed the required declaration in Form 2 affirming registration and absence of pending disciplinary proceedings. The default amount exceeds the statutory threshold. Having admitted the application under section 7(5)(a), the Authority appointed the proposed IRP and declared the moratorium under the Code, listing the usual prohibitions on suits, transfer or enforcement of security and directions concerning supply of essential goods and co-operation with the IRP. [Paras 19, 20, 21]

The proposed IRP is appointed and a moratorium under the Code is declared.

Final Conclusion: The section 7 petition by the financial creditor is admitted: the Authority found that a financial debt existed and was in default, the application was within limitation (section 19 applicable; Article 62 inapplicable), the nominated interim resolution professional is appointed and the moratorium under the Code is imposed.

Corporate insolvency resolution process - operational creditor - default in payment - absence of dispute as to operational debt - section 9 application under the Insolvency & Bankruptcy Code, 2016 - jurisdiction of the Adjudicating Authority - appointment of Interim Resolution Professional - moratorium under the Insolvency & Bankruptcy Code, 2016

Jurisdiction of the Adjudicating Authority - Tribunal has jurisdiction to entertain the section 9 application. - HELD THAT: - The Tribunal examined the registered office of the Corporate Debtor and concluded that the Corporate Debtor's registered office lies within the territorial jurisdiction of the Tribunal. No challenge to territorial competence was sustained and the matter was held to be within the Tribunal's jurisdiction to try the application under the IBC, 2016. [Paras 10]

Proceedings admitted before this Tribunal as it has jurisdiction.

Default in payment - absence of dispute as to operational debt - operational creditor - section 9 application under the Insolvency & Bankruptcy Code, 2016 - There was a prima facie established default by the Corporate Debtor and no pre-existing dispute, warranting admission of the section 9 application. - HELD THAT: - On perusal of the documents filed, including invoices, the agreement providing for repayment in monthly cheques, return memos evidencing dishonour, and the Section 8 demand notice proved to have been received by the Corporate Debtor, the Tribunal found that payment was defaulted. The Applicant's affidavit under section 9(3)(b) stating no reply disputing the debt was on record and the Corporate Debtor did not file a substantive reply. In these circumstances the Tribunal drew the presumption of default and absence of a bona fide dispute and was inclined to admit the application under section 9. [Paras 4, 5, 6, 8, 11]

The section 9 application is admitted as the claim stands established prima facie and no dispute exists.

Appointment of Interim Resolution Professional - The Interim Resolution Professional nominated by the Applicant is appointed. - HELD THAT: - The Applicant named an IRP and filed the IRP's consent in Form 2 along with a statement that no disciplinary proceedings are pending against him. The Tribunal allowed the IA seeking appointment and appointed the named IRP to take over the affairs of the Corporate Debtor and perform duties under the IBC, 2016. [Paras 12]

Named IRP is appointed as Interim Resolution Professional.

Moratorium under the Insolvency & Bankruptcy Code, 2016 - corporate insolvency resolution process - Consequences of admission, including invocation of moratorium and directions to the IRP and Operational Creditor, were ordered. - HELD THAT: - Upon admission of the section 9 application and commencement of CIRP, the Tribunal invoked the moratorium as envisaged under the IBC, 2016. The IRP was directed to perform statutory functions including publication and calling for claims, and to file status reports. The Tribunal also directed the Operational Creditor to deposit an amount to defray IRP's expenses and fees within three days. Management powers of the Corporate Debtor were held to vest with the IRP and the personnel, promoters and directors were to extend cooperation to the IRP. [Paras 13]

Moratorium is imposed and consequential directions for conduct of CIRP and deposit for IRP's expenses are issued.

Final Conclusion: The section 9 petition filed by the Operational Creditor is admitted, the Tribunal having jurisdiction and finding prima facie default and no dispute; the named Interim Resolution Professional is appointed and the moratorium and related directions for conduct of the CIRP are ordered.

Interpretation of contract as an all-inclusive price - Service tax exemption for municipal solid waste collection - Deduction of payment by public authority without contractual basis - Subsequent conduct of parties as aid to contractual interpretation - Maintainability of writ for refund/recovery in public law cases

Interpretation of contract as an all-inclusive price - Subsequent conduct of parties as aid to contractual interpretation - Deduction of payment by public authority without contractual basis - The contractual rate of Rs. 1934/- per day per vehicle was an all inclusive fixed price and did not permit unilateral deduction by respondent on account of alleged non-payment of service tax. - HELD THAT: - The Court examined the work order and agreement which expressly stated that the negotiated rate was inclusive of service tax, labour cess and other charges and that escalation was permissible only for specified variations in fuel and minimum wages. There was no contractual provision linking payment to any change in service tax or providing for deduction on that account. The respondent's attempt to read into the contract a right to deduct amounts on the ground that service tax was not payable added words to the written agreement contrary to its clear terms. The parties' subsequent conduct - continuous invoicing by the petitioner without separate service tax mention and payment by the respondent from June 2012 until April 2015 without objection - corroborated the interpretation that the agreed rate was all inclusive and binding on the parties. [Paras 14, 15, 19, 20, 23]

Respondent had no contractual basis to deduct amounts from the agreed rate on account of alleged non-payment of service tax.

Service tax exemption for municipal solid waste collection - Deduction of payment by public authority without contractual basis - Service tax was not payable on the waste collection services at the relevant time and the respondent's audit based deduction premised on a non existing service tax was unjustified. - HELD THAT: - The petitioner pleaded, and the respondent did not controvert, that collection of municipal solid waste was not a taxable service when the tender was floated, during negotiation, at the time of the work order and when the agreement was executed. The audit objection relied upon by the respondent did not alter the legal position; the internal worksheets or post hoc calculations asserting a service tax component could not justify unilateral reduction of the negotiated all inclusive rate. The Court held that merely because the respondent's internal materials treated some element as service tax, that did not confer a right to reclaim or withhold payments already made under a contract that contemplated an all inclusive price. [Paras 16, 17, 18, 29]

Deductions made by respondent on the ground that service tax was not payable were illegal and unjustified.

Maintainability of writ for refund/recovery in public law cases - Deduction of payment by public authority without contractual basis - A writ petition under Article 226 seeking release of amounts withheld by a municipal authority is maintainable where the facts are not in dispute and the collection/retention is without authority of law; the Court may, in appropriate cases, order refund/release. - HELD THAT: - The Court referred to precedents establishing that although monetary claims ordinarily lie in civil suit, relief by way of writ for refund or payment may be granted sparingly where the lis has a public law character, facts are not in dispute, the collection was without authority of law and no undue enrichment results. Applying those principles, and on the admitted facts that service tax was not payable and the respondent had withheld payments based on an incorrect audit objection, the Court found that equitable exercise of writ jurisdiction was warranted to direct release of the withheld amounts. [Paras 26, 27, 29, 30]

Writ petition was maintainable in the circumstances and the Court ordered release of amounts wrongfully withheld.

Final Conclusion: Writ petition allowed. Respondent directed to release all pending payments withheld on the ground of non payment of service tax within two months; petition disposed.

Maintainability of complaint under Section 138 of the Negotiable Instruments Act when the drawer company has been ordered to be wound up - liability of directors under the legal fiction in Section 141 of the Negotiable Instruments Act where the company is in liquidation - effect of winding up orders and control by Official Liquidator on the drawer company's capacity to pay and on criminal proceedings - interaction between Companies Act winding up provisions and criminal proceedings under the Negotiable Instruments Act

Maintainability of complaint under Section 138 of the Negotiable Instruments Act when the drawer company has been ordered to be wound up - effect of winding up orders and control by Official Liquidator on the drawer company's capacity to pay - Complaint under Section 138 of the Negotiable Instruments Act filed after the company had been ordered to be wound up and after the Official Liquidator had taken possession is not maintainable. - HELD THAT: - The Court found that the cheque in question was presented and dishonoured and that the statutory notice was issued on 23/05/2018, after this Court had on 14/05/2018 permitted the Official Liquidator to take physical possession pursuant to winding up orders. Once winding up orders are in place and the Official Liquidator has taken control of the company's affairs, the company is precluded by the Companies Act regime from making payments and the directors cease to be in charge of day-to-day affairs. Consequently, the dishonour and the subsequent failure to make payment were events beyond the company's control and the statutory precondition for a Section 138 prosecution (a demand and failure to make payment attributable to the company) did not subsist in law. The Court rejected reliance on decisions treating the Negotiable Instruments Act as overriding without regard to the factual position that the company was already in liquidation when the cheque was presented or when the notice was sent, and held that where the winding up order precedes presentation/notice, criminal proceedings under Section 138 will not be maintainable. The Court relied on the legal principle that proceedings which would defeat the statutory objects of winding up or impinge on control exercised by the winding up authority cannot be allowed to proceed, and drew support from precedent recognizing that criminal proceedings may be barred where restraint or winding up orders render the alleged inability to pay beyond control and where the offence cannot be said to have been completed in law. [Paras 9, 14, 15, 18, 19]

The complaint under Section 138 NI Act filed after the company was ordered to be wound up and after the Official Liquidator took possession is not maintainable; therefore the summoning order is quashed.

Liability of directors under the legal fiction in Section 141 of the Negotiable Instruments Act where the company is in liquidation - when directors can be fastened with criminal liability for dishonour of cheque drawn by a company - Directors cannot be held liable under Section 141 for offence under Section 138 where, on the date of dishonour and demand, they were not in charge of the company's affairs because the company was in liquidation and the Official Liquidator had control. - HELD THAT: - The Court observed that Section 141 operates by legal fiction to fasten liability on persons in charge of the company's affairs only where the company has actually committed the offence. When the company is under winding up and control has passed to the Official Liquidator, the directors have ceased to be in charge of day-to-day management; the company's inability to pay is attributable to the statutory bar arising from winding up. Accordingly, it would be unjust to hold erstwhile directors criminally liable where the company could not lawfully make payment. The Court distinguished decisions permitting prosecutions where no winding up order had been made before presentation/notice, and relied upon authority recognizing that restraint or winding up orders affecting the company's capacity to pay may preclude criminal liability of directors. [Paras 3, 4, 9, 16, 17]

Directors who were not in charge of the company at the relevant time cannot be fastened with criminal liability under Section 141; they are not liable in the circumstances of this case.

Final Conclusion: The petition under Section 482 Cr.P.C. is allowed; Criminal Complaint No. 3732/2018 under Section 138 of the Negotiable Instruments Act is quashed because the statutory notice was issued after the company had been ordered to be wound up and taken into possession by the Official Liquidator, rendering the complaint and summons unsustainable in law.