TaxTMI Updates e-Newsletter
May 24,2021

Bail under Section 439 Cr.P.C. - custody duration as ground for bail - maximum sentence and parity with pre-trial detention - gravity of economic offence and alleged passing of input tax credit - conditions of bail - personal bond and sureties

Bail under Section 439 Cr.P.C. - custody duration as ground for bail - maximum sentence and parity with pre-trial detention - gravity of economic offence and alleged passing of input tax credit - conditions of bail - personal bond and sureties - Fourth bail application under Section 439 Cr.P.C. allowed subject to conditions. - HELD THAT: - The Court noted that the petitioner had remained in custody for about one year and seven months while the maximum sentence for the offences under the Central Goods and Services Tax Act, 2017 is five years. It observed that, of the listed twenty witnesses, statements of only one witness had been recorded so far. The Union opposed bail highlighting the alleged large-scale passing of input tax credit. Balancing the prolonged pre-trial detention, the limited progress in recording evidence and the gravity of the allegations, the Court exercised its discretion to grant bail. Bail was ordered on furnishing a personal bond and two sureties, with the stipulation of attendance on subsequent dates and at any Court to which the matter may be transferred. [Paras 3, 4, 6, 7]

Petitioner released on bail on furnishing a personal bond and two sureties and subject to appearance conditions.

Final Conclusion: Fourth bail application allowed; accused directed to be released on bail on specified bond and surety conditions and to appear as required by the trial Court or any Court to which the matter may be transferred.

Bail under Section 439 Cr.P.C. - Absconding and failure to appear before investigating authorities - Mastermind liability in economic/offences involving creation of fake firms - Wrongful availment and passing on of input tax credit

Bail under Section 439 Cr.P.C. - Absconding and failure to appear before investigating authorities - Mastermind liability in economic/offences involving creation of fake firms - Wrongful availment and passing on of input tax credit - Whether the petitioner should be released on bail in the criminal proceedings registered for alleged offences under the Central Goods and Services Tax Act, 2017. - HELD THAT: - The Court refused bail on the basis that the petitioner repeatedly failed to appear before the Department despite notices and, after filing of the complaint, remained absconded for about one year. The court further relied on material showing the petitioner, a chartered accountant by profession, to be the mastermind who allegedly got registered 38 fake firms and wrongfully availed/passed on input tax credit to the tune alleged by the Department. These factors - failure to cooperate with investigation, prolonged absconsion, and an alleged central role in a scheme of creation of fake firms and wrongful availment of ITC - led the Court to conclude that the petitioner was not entitled to bail under Section 439 Cr.P.C. The Court noted the existence of prior orders concerning co-accused but treated those releases as not outweighing the particular circumstances regarding the petitioner's conduct and alleged role. [Paras 6, 7, 8]

Bail application dismissed; no case made out for grant of bail under Section 439 Cr.P.C.

Final Conclusion: The petition for grant of bail under Section 439 Cr.P.C. is dismissed on grounds of failure to appear before authorities, prolonged absconsion, and the petitioner's alleged role as mastermind in creation of fake firms and wrongful availment of input tax credit.

Bail under Section 439 of Cr.P.C. - Bail on grounds of prolonged pre-trial custody and personal circumstances - Relevance of nature of allegations and charge-sheet particulars in bail consideration - Triability before Magistrate and sentencing ceiling as factor in bail - Professional involvement of a Chartered Accountant in alleged GST fraud

Bail under Section 439 of Cr.P.C. - Bail on grounds of prolonged pre-trial custody and personal circumstances - Relevance of nature of allegations and charge-sheet particulars in bail consideration - Triability before Magistrate and sentencing ceiling as factor in bail - Grant of bail to the accused petitioner charged under provisions of the Central Goods & Services Tax Act, having regard to custody period, personal circumstances and the charge-sheet particulars. - HELD THAT: - The Court considered the nature of the allegations that the petitioner, a Chartered Accountant, had been involved in creation and filing for firms alleged to have availed wrongful input tax credit, as set out in the complaint and charge-sheet. The Court noted the petitioner has been in custody since 23.01.2021 (approximately one year and five months) and took into account his personal circumstances, including that he has a child. The Court examined the charge-sheet particulars which recorded amounts alleged to have been received by the petitioner for registrations and filing of returns, and that the offence is triable by a First Class Magistrate with the maximum sentence identified in the charge-sheet as six months. While the Union of India pressed the seriousness of the allegations and the large input tax credit claimed for the implicated firms, the Court held that the prolonged pre-trial custody, the petitioner's personal circumstances and the charge-sheet particulars weighed in favour of release on bail. For these reasons the bail application was allowed subject to specified sureties and conditions to ensure attendance at trial. [Paras 8, 9]

Bail allowed on furnishing personal bond and two sureties, with conditions that the petitioner shall attend the trial court and any transferred court on all hearing dates and as required.

Final Conclusion: The petition for bail under Section 439 Cr.P.C. is allowed; the accused petitioner is ordered released on bail on the specified bond and sureties subject to attendance conditions.

Reopening of assessment under Section 147 - reason to believe - borrowed satisfaction - change of opinion - sanction for reopening under Section 151 - admissibility of affidavit to supplement recorded reasons

Reopening of assessment under Section 147 - reason to believe - Validity of reopening the assessment on the grounds recorded by the Assessing Officer that income chargeable to tax had escaped assessment - HELD THAT: - The Court examined the reasons recorded by the Assessing Officer and the material gathered after enquiries following information from the AIMS/Investigation wing that the assessee had sold shares of a penny stock and claimed LTCG as exempt. Applying settled authorities on the meaning of 'reason to believe', the Court held that the Assessing Officer need only have cause or justification for forming the belief and is not required to establish the matter by final adjudication or legal evidence at the notice stage. The Assessing Officer made enquiries, noted price movement inconsistent with fundamentals and concluded the transactions bore hallmarks of manipulation and accommodation entries; on this material the Court found there was a live link between the information and the belief of escapement of income and that the Assessing Officer had applied his mind. [Paras 17, 18, 24, 25, 26]

Reopening under Section 147 was based on a sufficient reason to believe and the Assessing Officer had material and applied his mind to form that belief, accordingly the initiation of reassessment was valid.

Change of opinion - Whether reopening constituted impermissible change of opinion by the Assessing Officer - HELD THAT: - The Court analysed whether the reassessment was merely a change of opinion. It noted the information concerning penny stock manipulation and accommodation entries came to the Assessing Officer after completion of the original assessment and was not available or on record at that earlier stage. Given the subsequent receipt of material not previously considered, the principle prohibiting reopening for change of opinion did not apply. [Paras 22]

Reopening did not amount to a change of opinion since fresh information, not available at the time of assessment, was the basis for forming belief.

Borrowed satisfaction - admissibility of affidavit to supplement recorded reasons - Whether the reasons were a mere borrowed satisfaction and whether the revenue could rely on affidavit to supplement or improve the recorded reasons - HELD THAT: - The Court considered that the Assessing Officer referenced information from the investigation wing and undertook enquiries. Relying on precedent, the Court permitted explanation or clarification of recorded reasons by affidavit so long as no new grounds or materials are introduced which were absent from the recorded reasons either expressly or by implication. On facts, the Court found the affidavit did not introduce a new ground but explained the information and modus operandi of penny stock manipulation, and therefore the contention that the reasons were merely borrowed satisfaction or impermissibly supplemented was rejected. [Paras 20, 21, 27]

The reasons were not mere borrowed satisfaction and the affidavit merely clarified the material; supplementation did not introduce new grounds so as to invalidate the reopening.

Sanction for reopening under Section 151 - Validity of sanction obtained for issuing notice beyond four years - HELD THAT: - The Court noted that sanction under Section 151 was furnished and a copy of the approval was provided to the assessee at the stage of disposal of objections. The authorities concerned had applied their mind and expressed satisfaction with the recorded reasons. There was therefore no infirmity in respect of sanction for issuance of notice under Section 148/151. [Paras 7, 28]

Sanction under Section 151 was validly obtained and does not vitiate the reassessment notice.

Final Conclusion: The High Court found that the Assessing Officer had material and applied independent mind to form a reason to believe that income had escaped assessment, that the reassessment was not a mere change of opinion, that the reasons were not a borrowed satisfaction and the affidavit did not introduce new impermissible grounds, and that sanction under Section 151 was obtained; the writ petition was dismissed.

Speaking order - reasons recorded - reopening of assessment - change of opinion - disposal of objections by speaking order - remand for fresh consideration - time-bound directions

Speaking order - reasons recorded - disposal of objections by speaking order - change of opinion - Validity of the order disposing of the assessee's objections to the notice under Section 148 and whether the AO applied his mind in a speaking manner - HELD THAT: - The Court found that the Assessing Officer, when disposing of the objections filed against the reasons recorded for reassessment, did not properly address the specific objections raised by the assessee and proceeded in a mechanical manner. Relying on the principle that an AO must furnish reasons and dispose of objections by a speaking order (as laid down in the decisions relied upon by the parties), the Court observed that paragraph 4 of the AO's order does not reflect proper application of mind to the objections and therefore cannot be treated as a reasoned disposal. The Court rejected the respondent's contention that the objections were duly considered, holding that the statutory and judicially prescribed practice requires the AO to deal with the objections with reasons and not by a perfunctory conclusion. The Court expressly refrained from expressing any view on the merits of the reassessment itself, limiting its conclusion to the inadequacy of the order disposing the objections. [Paras 12, 13]

Order disposing of the objections is set aside for failure to record a speaking and reasoned disposal.

Remand for fresh consideration - time-bound directions - no opinion on merits - Relief to be granted and directions on further course of action following setting aside of the disposal order - HELD THAT: - The Court remitted the matter to the Assessing Officer for fresh consideration of the objections raised by the assessee and directed the AO to pass a fresh speaking order dealing with the specific objections in accordance with law. The Court imposed a time limit of six weeks from receipt of the judgment for the AO to undertake this exercise. The Court clarified that it has not expressed any opinion on the merits of the reassessment and that, if the fresh order is adverse to the assessee, the assessee may challenge it before the appropriate forum; in such event the assessee shall be granted at least four weeks to avail the remedy. These directions are procedural and time-bound, preserving the assessee's right to challenge any adverse outcome on merits. [Paras 14, 15]

Matter remitted to the AO to consider objections afresh and pass a speaking order within six weeks; no opinion expressed on merits and four weeks' time to challenge any adverse order.

Final Conclusion: The order of the Assessing Officer disposing of the objections to the reassessment notice is set aside for lack of a speaking disposal; the matter is remitted to the AO to consider the objections afresh and pass a reasoned speaking order within six weeks, without the Court expressing any view on the merits, and preserving the assessee's right to challenge any adverse order with at least four weeks' time to take proceedings.

Principles of natural justice - best judgment assessment under Section 144(1) of the Income tax Act - First Proviso to Section 144(1) - opportunity to be heard - service of notice and proof of acknowledgment - technical defect in e portal communication does not vitiate service

Principles of natural justice - best judgment assessment under Section 144(1) of the Income tax Act - First Proviso to Section 144(1) - opportunity to be heard - service of notice and proof of acknowledgment - technical defect in e portal communication does not vitiate service - Validity of assessment framed under Section 144 for AY 2017-18 in light of alleged denial of opportunity and non-issuance/non-service of show cause notice. - HELD THAT: - The Court found that the petitioner had not filed the return within time and a notice under Section 142(1) was issued and noticed by the petitioner. The department issued a show cause/hearing notice dated 20.05.2019 and placed on record a copy of that notice together with an acknowledgment of service indicating receipt on 25.05.2019. The petitioner also appeared pursuant to a summons under Section 131 and deposed on 16.09.2019. The show cause notice expressly invoked the First Proviso to Section 144(1) to afford an opportunity of hearing before making a best judgment assessment. The Court held that the contention that no show cause notice was issued prior to completion of assessment was factually incorrect, since proof of manual service was available. The petitioner's reliance on an apparent omission on the e portal was held to be at best a technical error which did not vitiate the assessment where manual issuance and acknowledgment were proved. In these circumstances the assessment under Section 144(1) was not struck down for violation of principles of natural justice. [Paras 2, 3, 5, 6]

The assessment for AY 2017-18 under Section 144(1) was validly made after affording the requisite opportunity; the challenge on grounds of denial of natural justice and non service of show cause notice fails.

Final Conclusion: Writ petition dismissed; the assessment order dated 08.12.2019 for AY 2017-18 is upheld and no interference is warranted under Article 226.

Reopening of assessment under Section 147/148 - reason to believe - borrowed satisfaction - independent application of mind by Assessing Officer - sanction under Section 151 - supplementation of recorded reasons by affidavit - nexus between information received and escapement of income - penny stock / accommodation entries

Reopening of assessment under Section 147/148 - reason to believe - Validity of reopening the assessment for A.Y. 2012-13 under Section 147/148 based on the reasons recorded by the Assessing Officer. - HELD THAT: - The Court examined whether the AO had 'reason to believe' that income chargeable to tax had escaped assessment. The return had been processed under Section 143(1) and no scrutiny assessment under Section 143(3) was made; accordingly the proviso to Section 147 did not apply and the AO could form a reason to believe by examining the return and documents. The reasons recorded referred to information from the investigation wing that the assessee had sold shares of Karma Ispat Ltd. which were penny stock and that the transactions indicated accommodation entries. The AO made enquiries, examined the data and, upon due satisfaction, formed the opinion that the claimed long-term capital gains were susceptible to escapement. Applying established authority, the Court held that at the notice-issuing stage the AO is required only to have cause or justification to form a belief and not final proof; the Court's role is not to probe adequacy of material at that stage. On these facts there was sufficient material before the AO to constitute a 'reason to believe' and to justify issuance of the notice under Section 148/147. [Paras 15, 20, 21, 23]

Reopening under Section 147/148 was validly initiated as the AO had a sufficient reason to believe that income had escaped assessment.

Borrowed satisfaction - independent application of mind by Assessing Officer - nexus between information received and escapement of income - Whether the reasons recorded suffered from being mere borrowed satisfaction or lacked independent application of mind and nexus with escapement of income. - HELD THAT: - The Court analysed the record to see if the AO merely adopted the investigation wing's opinion without independent satisfaction. The reasons recorded expressly identified penny stock transactions in Karma Ispat Ltd. and noted enquiries and verification undertaken by the AO. The revenue's affidavit clarified the broader investigation into syndicates and accommodation entries, but the Court held that the affidavit did not introduce new grounds beyond what was implicit in the recorded reasons. Considering precedent, the AO's satisfied application of mind, coupled with specific information about the transactions and the AO's enquiries, established a live link between the information and the conclusion of escapement. The Court rejected the contention that the reopening was based on borrowed satisfaction or lacked nexus. [Paras 17, 18, 23, 24]

The AO applied independent mind and there existed a live nexus between the material gathered and the belief of escapement; the reopening was not a case of borrowed satisfaction.

Supplementation of recorded reasons by affidavit - Whether the revenue could sustain the reassessment by supplementing or improving the recorded reasons through an affidavit filed in Court. - HELD THAT: - The Court considered whether the affidavit in reply introduced new reasons or merely clarified the information already referenced in the recorded reasons. Relying on authority, the Court held that while the Department may explain or elaborate recorded reasons, it cannot introduce entirely new grounds absent from the recorded reasons. On the facts, the affidavit served to clarify the investigation material already implicitly referred to in the reasons; it did not supply new independent grounds that would invalidate the reopening. Thus supplementation by affidavit did not render the notice illegal. [Paras 17, 18]

Affidavit clarification was permissible to elaborate the material implicit in the recorded reasons and did not vitiate the reopening.

Sanction under Section 151 - Validity of the sanction required under Section 151 where more than four years have lapsed. - HELD THAT: - The Court noted the statutory requirement for prior sanction where the reopening is beyond four years. The record showed that the copy of the approval (sanction) was provided to the assessee at the stage of disposal of objections and the authorities had given approval after due application of mind. The Court accepted that sanction had been obtained and was not vitiated. [Paras 9, 25]

Sanction under Section 151 was obtained and did not invalidate the notice.

Final Conclusion: The writ petitions contesting the notices for reopening assessment for A.Y. 2012-13 were dismissed: the Court held that the Assessing Officer had sufficient reason to believe, applied independent mind (not merely borrowed satisfaction), the affidavit did not introduce new grounds, and the requisite sanction was obtained; consequently the reassessment notices under Section 147/148 are sustainable.

Reopening of assessment under Section 147 - reason to believe - reasons recorded - borrowed satisfaction - affidavit clarification of recorded reasons - sanction under Section 151 - penny stock accommodation entries

Reopening of assessment under Section 147 - reason to believe - penny stock accommodation entries - Validity of reopening the assessment for A.Y. 2012-13 under Section 147/148. - HELD THAT: - The Court held that Section 147 empowers the Assessing Officer to reopen an assessment if he has a reason to believe that income chargeable to tax has escaped assessment, subject to Sections 148-153. Where the original return was processed under Section 143(1) and no scrutiny assessment under Section 143(3) was made, the proviso to Section 147 is inapplicable and the AO need only have a reason to believe; he may form that belief from examination of the return and documents and need not have fresh tangible material. The reasons recorded refer to information received from the investigation wing indicating sale of 2,900 shares of Karma Ispat Ltd. (a penny stock) and the AO's enquiries revealed facts suggesting manipulation and use of the scrip to provide accommodation entries yielding alleged long term capital gain. The AO applied his mind to the information and enquiries and formed an opinion that the claimed long term capital gain was chargeable to tax and had escaped assessment. The Court held that at the stage of issuance of notice the adequacy or sufficiency of the material cannot be examined by the Court and, on the material before the AO, there was a live link between the information received and the belief of escapement of income, amounting to sufficient cause or justification to form a reason to believe and to initiate proceedings under Section 147. [Paras 15, 16, 21, 23, 26]

Reopening of assessment under Section 147/148 was validly initiated on the material and reasons before the Assessing Officer.

Borrowed satisfaction - reasons recorded - affidavit clarification of recorded reasons - Whether the reasons recorded suffer from borrowed satisfaction or impermissible supplementation by the revenue's affidavit. - HELD THAT: - The writ applicant contended that the reasons amounted to borrowed satisfaction and that the revenue impermissibly supplemented the recorded reasons by affidavit. The Court examined the recorded reasons and the affidavit and relied on precedent permitting the revenue to explain, elaborate or clarify the reasons recorded, provided no new grounds or materials not found in the recorded reasons (expressly or by implication) are introduced. The Court found that the affidavit did not introduce a new ground but clarified the information relied upon (investigations identifying syndicates and use of Karma Ispat Ltd. for accommodation entries) and that the Assessing Officer had applied his independent mind to the information before forming his belief. Consequently, the contention of borrowed satisfaction or impermissible supplementation was rejected. [Paras 18, 19, 24]

The reasons do not amount to borrowed satisfaction and the affidavit only clarifies the information relied upon without introducing new grounds; supplementation does not invalidate the reopening.

Sanction under Section 151 - reopening of assessment under Section 147 - Validity of sanction under Section 151 where more than four years have lapsed. - HELD THAT: - The Court noted that sanction required by Section 151 (where more than four years have elapsed) was provided by the competent authority and that a copy of the approval was supplied to the assessee at the stage of disposal of objections. The Court accepted that the approving authority had applied its mind and expressed satisfaction with the reasons recorded, rendering the sanction valid. [Paras 9, 25, 26]

Sanction under Section 151 was obtained and is valid; absence of prior production of the sanction does not invalidate the reopening where approval was given after due application of mind.

Final Conclusion: The writ petition challenging the notice for reopening the assessment for A.Y. 2012-13 is dismissed; the Court found sufficient material and independent application of mind by the Assessing Officer to form a reason to believe, rejection of the borrowed satisfaction and affidavit supplementation challenges, and validity of the sanction under Section 151.

Reopening of assessment under Section 147 - reason to believe - borrowed satisfaction - sanction under Section 151 - affidavit clarification of recorded reasons - penny stock and accommodation entries

Reopening of assessment under Section 147 - reason to believe - penny stock and accommodation entries - Validity of reopening the assessment for A.Y. 2013-14 on the basis of reasons recorded and information concerning penny stock transactions. - HELD THAT: - The Court held that Section 147 empowers reopening where the Assessing Officer has a 'reason to believe' that income chargeable to tax has escaped assessment and, where the return was processed only under Section 143(1), the proviso to Section 147 does not apply. The reasons recorded show that the Assessing Officer received information via the AIMS module that the assessee sold 30,000 shares of Tuni Textiles Ltd. (penny stock) for substantial consideration and that the price movement was prima facie not supported by financial fundamentals, indicating possible accommodation entries. The Assessing Officer made enquiries, applied his mind to the information and formed an opinion that income had escaped assessment. The Court reiterated that 'reason to believe' requires cause or justification and need not be based on final adjudicative proof; it is an administrative satisfaction judged only for irrationality. Applying these principles, the Court found sufficient material and a live nexus between the information and the conclusion that income chargeable to tax may have escaped assessment, and therefore the reopening was legally justified. [Paras 14, 15, 16, 21, 23]

Reopening under Section 147/148 for A.Y. 2013-14 was validly initiated on the materials available and the Assessing Officer had a reason to believe that income had escaped assessment.

Borrowed satisfaction - reason to believe - Whether the reasons recorded suffer from 'borrowed satisfaction' or lack independent application of mind by the Assessing Officer. - HELD THAT: - The Court examined the recorded reasons and the enquiries undertaken by the Assessing Officer. It found that the Assessing Officer did not merely adopt another authority's satisfaction but referred to information received from the investigation wing and conducted independent enquiries before forming an opinion. The Court observed that where the Assessing Officer applies his mind to information, reliance on investigation inputs does not automatically amount to borrowed satisfaction. On the facts, the Assessing Officer had applied independent judgment to the information on penny stock transactions and formed a satisfaction that was not irrational or vitiated by mere adoption of others' conclusions. [Paras 16, 23, 24]

The reasons do not reflect borrowed satisfaction; there was independent application of mind by the Assessing Officer.

Sanction under Section 151 - Whether the reopening was invalid for want of sanction under Section 151 where more than four years had elapsed. - HELD THAT: - The Court noted that sanction under Section 151 was required because more than four years had lapsed. The approval (sanction) was provided to the assessee at the stage of disposing the objections, and the Court accepted that the competent authority had applied its mind and expressed satisfaction in granting approval. There was therefore no merit in the contention that sanction was absent or invalidly obtained. [Paras 4, 25]

Sanction under Section 151 was obtained and the reopening cannot be impugned on the ground of lack of sanction.

Affidavit clarification of recorded reasons - Permissibility of the revenue furnishing an affidavit to clarify or elaborate reasons recorded for reopening. - HELD THAT: - The Court applied the principle that an affidavit may be used to explain, elaborate or clarify reasons recorded by the Assessing Officer but cannot introduce new grounds or new materials not found in the recorded reasons either expressly or by implication. On the material before it, the Court found that the affidavit filed by the revenue did not introduce new grounds but supplied clarificatory details about the information received and the modus operandi of penny stock accommodation entries. Consequently, the affidavit did not impermissibly expand the recorded reasons. [Paras 18, 19]

The affidavit by the revenue was allowable to clarify the recorded reasons and did not constitute introduction of new grounds.

Final Conclusion: The writ petition challenging the notice for reopening the assessment for A.Y. 2013-14 is without merit and is dismissed; the Assessing Officer's initiation of proceedings under Section 147/148 (with sanction under Section 151) was legally sustainable.

Reopening of assessment under Section 147 - reason to believe - proviso to Section 147 where return processed under Section 143(1) - borrowed satisfaction - affidavit in reply cannot introduce new grounds but may clarify recorded reasons - sanction under Section 151 - penny stock and accommodation entries as material for formation of belief

Reopening of assessment under Section 147 - proviso to Section 147 where return processed under Section 143(1) - reason to believe - Validity of reopening the assessment for A.Y. 2012-13 under Section 147. - HELD THAT: - The Court held that where the return was processed under Section 143(1) and no scrutiny assessment under Section 143(3) was made, the proviso to Section 147 does not prevent reopening beyond four years and it is not necessary for the Assessing Officer to have fresh tangible material beyond examination of the return and accompanying documents to form a 'reason to believe'. The reasons recorded show receipt of specific information about sale of penny stock shares and subsequent enquiries by the AO; the AO applied his mind to that information and formed an opinion that income chargeable to tax had escaped assessment. The court reiterated that at the stage of issuing notice it is not open to the court to test adequacy or sufficiency of the reasons beyond whether a rational basis existed for the belief. Applying settled authorities, the Court concluded there was sufficient material to initiate proceedings under Section 147. [Paras 14, 15, 16, 23, 26]

Reopening under Section 147 for A.Y. 2012-13 was validly initiated and the notice is sustainable.

Reason to believe - penny stock and accommodation entries as material for formation of belief - Whether the Assessing Officer had an independent application of mind and a legitimate 'reason to believe' that income had escaped assessment. - HELD THAT: - The Court analysed the reasons recorded and the enquiries made by the AO which identified sale of 30,000 shares in a penny stock scrip, noted abnormal price movement and alleged accommodation entries. Citing authorities on the meaning of 'reason to believe', the Court observed that the AO need not finally ascertain facts with legal evidence at the initiation stage; he must have cause or justification based on the material before him. The AO's enquiries and the specific information regarding penny stock transactions provided a live link between the material and the belief that claimed LTCG may be bogus. The Court found the AO had applied independent mind and the belief was not irrational or merely borrowed without inquiry. [Paras 16, 21, 22, 23]

The Assessing Officer had a valid independent application of mind and a valid 'reason to believe' that income had escaped assessment.

Affidavit in reply cannot introduce new grounds but may clarify recorded reasons - borrowed satisfaction - Whether the revenue's affidavit in reply impermissibly introduced new grounds or merely clarified the reasons recorded by the Assessing Officer. - HELD THAT: - The Court applied the principle that an officer's affidavit may elaborate or clarify recorded reasons but cannot introduce new grounds not found in the recorded reasons. It examined the affidavit and concluded the material therein did not amount to new grounds but served to clarify the information relied upon (identification of penny stock transactions and modus operandi). Consequently, the contention that the revenue had improved the reasons by affidavit and thereby vitiated the reopening was rejected. The Court also rejected the contention that the reopening was based on mere borrowed satisfaction, finding instead that enquiries had been made and materials gathered which justified the belief. [Paras 18, 19, 24]

Affidavit in reply only clarified the recorded reasons and did not introduce new impermissible grounds; the reopening was not attributable to mere borrowed satisfaction.

Sanction under Section 151 - Whether lack of prior sanction under Section 151 invalidated the reopening where sanction was provided subsequently and supplied to the assessee during disposal of objections. - HELD THAT: - The Court noted that the copy of the approval (sanction) was provided to the assessee at the stage of disposal of objections and that the competent authorities had given approval after application of mind and expressed satisfaction with the reasons recorded. On this basis the Court found no infirmity in respect of sanction under Section 151. [Paras 25]

The sanction under Section 151, though supplied post-issue of notice, was given after application of mind and did not vitiate the reopening.

Final Conclusion: The writ petition challenging the notice for reopening the assessment for A.Y. 2012-13 was dismissed; the Court found sufficient material and a valid exercise of jurisdiction by the Assessing Officer to initiate proceedings under Section 147 and declined to quash the notice.

Reopening assessment under Section 147 - reason to believe - borrowed satisfaction - sanction under Section 151 - penny stock accommodation entries / bogus long term capital gain

Reopening assessment under Section 147 - reason to believe - penny stock accommodation entries / bogus long term capital gain - Whether the notice issued under Section 148 read with Section 147 to reopen assessment was justified. - HELD THAT: - The Court held that Section 147 empowers the Assessing Officer to reopen where he has a reason to believe that income has escaped assessment and, where the return was processed under Section 143(1), the AO need not have fresh tangible material beyond examination of the return and information available to form such belief (paras 14-16). The reasons recorded referred to information from the investigation wing that the assessee had sold shares of a penny stock (Karma Ispat Ltd.) and that syndicates were providing accommodation entries resulting in bogus long term capital gains; the AO made independent enquiries, applied his mind and formed the opinion that the claimed LTCG was tainted and had escaped assessment (paras 16-17, 21-23). Applying settled authorities on the meaning of "reason to believe", the Court concluded there was sufficient cause or justification to initiate reassessment and that the AO's belief was not shown to be so irrational as to be without jurisdiction (paras 21-23). [Paras 15, 16, 17, 21, 23]

Notice under Section 148/147 for reopening the assessment was sustainable; there was sufficient material and a live nexus between information and the belief of escapement of income.

Borrowed satisfaction - Whether the reasons recorded were vitiated by being a mere borrowed satisfaction or impermissibly based on investigational material supplemented later by affidavit. - HELD THAT: - The Court examined the recorded reasons and the revenue's affidavit clarifications and applied the principle that an assessing officer may explain or elaborate recorded reasons in affidavit but cannot introduce wholly new grounds not found in the recorded reasons (para 18). It found that the affidavit did not introduce a new ground but provided permissible clarification of the investigation-derived information; the AO had referenced penny stock transactions and had independently applied his mind, so the reopening could not be impugned as mere borrowed satisfaction (paras 18-20, 23). [Paras 18, 19, 20, 23]

Reopening was not vitiated by borrowed satisfaction; the affidavit did not impermissibly supplement the recorded reasons with new grounds.

Sanction under Section 151 - Whether absence of prior sanction under Section 151 invalidated the notice to reopen beyond four years. - HELD THAT: - The Court noted that approval (sanction) required for issuance of notice beyond four years was furnished to the assessee at the stage of disposal of objections and that the competent authority had applied its mind and expressed satisfaction with reasons recorded (para 25). On that basis the challenge on ground of lack of sanction was rejected. [Paras 25]

The objection based on absence of sanction under Section 151 failed because sanction was obtained and furnished subsequently and was not shown to be vitiated.

Final Conclusion: Writ petition dismissed: the High Court concluded that the Assessing Officer had recorded sufficient reasons and applied his mind to information about penny-stock accommodation entries to form a 'reason to believe' under Section 147, the affidavit did not introduce a new impermissible ground, and the sanction under Section 151 was obtained; the notice under Section 148/147 was therefore sustained.

Reopening of assessment under Section 147 - Failure to disclose fully and truly all material facts - Reason to believe - Borrowed satisfaction / third party information - Application of mind by the Assessing Officer - Sanction under Section 151

Reopening of assessment under Section 147 - Failure to disclose fully and truly all material facts - Reason to believe - Validity of reopening beyond four years on ground of alleged failure to disclose material facts and formation of reason to believe that income had escaped assessment. - HELD THAT: - The Court held that reopening under Section 147 beyond four years is permissible only if the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The record shows that after completion of assessment tangible and specific information was received from the investigation wing regarding alleged accommodation entries involving M/s. Kalyan Exports Pvt. Ltd. The Assessing Officer, upon verification of that material, concluded that the transaction was an accommodation entry and that the assessee had not made full and true disclosure. Relying on established precedents, the Court distinguished mere re-interpretation of earlier-available material from acquisition of fresh, specific and reliable information exposing falsity of earlier disclosures, and found the fresh information and inquiries sufficient to constitute a viable basis for reason to believe that income had escaped assessment. [Paras 10, 12, 15, 21]

Reopening of assessment for A.Y. 2012-13 on the ground of non-disclosure and consequent escapement of income was justified.

Borrowed satisfaction / third party information - Application of mind by the Assessing Officer - Whether the reassessment proceedings were initiated merely on borrowed satisfaction based on third party information without independent application of mind by the Assessing Officer. - HELD THAT: - The Court examined the reasons recorded and material gathered from the investigation wing and concluded that the Assessing Officer did not act mechanically. The AO verified the information received from DCIT, conducted independent inquiries and applied his mind before forming the opinion that the transaction was an accommodation entry and that income had escaped assessment. The Court noted authorities holding that information from investigation agencies, if specific and reliable, can constitute relevant material and that the proper inquiry at the notice stage is limited to whether there was material on which a reasonable officer could form the requisite belief. [Paras 13, 14, 15, 24]

Proceedings were not based on mere borrowed satisfaction; the Assessing Officer applied independent mind and the initiation of reassessment is sustainable.

Sanction under Section 151 - Validity of sanction obtained under Section 151 prior to issuance of notice under Section 148. - HELD THAT: - The Court inspected the sanction papers and found that the Assessing Officer presented the reasons for approval through the Additional Commissioner and the Principal Commissioner, both of whom perused the reasons and recorded their satisfaction. The Principal Commissioner put a handwritten remark expressing satisfaction that it was a fit case to issue notice. The sanction was thus accorded before issuance of the notice dated 31.03.2019, satisfying the statutory requirement. [Paras 23]

Sanction under Section 151 was obtained prior to issuing the notice and is valid.

Final Conclusion: The writ petition challenging the notice for reopening the assessment for A.Y. 2012-13 is dismissed; the Court upheld the validity of the reasons for reopening, the Assessing Officer's application of mind to third party information, and the sanction under Section 151.

Reopening of assessment under Section 148 of the Income-tax Act, 1961 - change of opinion - failure to disclose material facts - reopening where claim was examined at original assessment

Reopening of assessment under Section 148 of the Income-tax Act, 1961 - change of opinion - failure to disclose material facts - reopening where claim was examined at original assessment - Validity of the notice under Section 148 for reopening assessment for Assessment Year 2011-12. - HELD THAT: - The Court examined whether the reopening was founded on failure to disclose material facts or was premised on a mere change of opinion. The material shows the original assessment under Section 143(3) was completed after examination of the relevant claims, including transfer pricing adjustment and unutilized CENVAT credit, and the Assessing Officer had made specific observations while framing the original assessment. Subsequent proceedings and the reasons given for reopening indicate a re-examination of issues already considered at the original assessment stage. Established law precludes reopening where the reassessment is in substance an attempt to substitute the Assessing Officer's original view by reappraising facts already examined; a mere change of opinion is not a valid ground for reopening. Applying this principle, the Court found the impugned notice to be unsustainable. [Paras 6, 7, 8]

Impugned notice under Section 148 quashed as based on change of opinion; writ allowed.

Final Conclusion: Writ petition allowed; the notice under Section 148 for AY 2011-12 is quashed and set aside on the ground that reopening amounted to a change of opinion rather than a failure to disclose material facts.

Unexplained cash payments treated as income from other sources - evidentiary value of loose papers and impounded documents - obligation of assessing officer to undertake independent enquiry before making additions - registered sale document not conclusive to attribute transaction without corroboration

Unexplained cash payments treated as income from other sources - evidentiary value of loose papers and impounded documents - obligation of assessing officer to undertake independent enquiry before making additions - registered sale document not conclusive to attribute transaction without corroboration - Validity of addition under the head 'income from other sources' by treating cash payments and brokerage recorded on impounded loose papers as unexplained income of the assessee. - HELD THAT: - The Tribunal examined the material seized during survey, including a registered agreement of sale in the name of M/s SMV Agencies Pvt. Ltd. and loose typed sheets recording cheque and cash payments. The assessing officer correlated the loose sheets with the registered agreement and, relying on statements recorded, concluded that the assessee made cash payments and treated those amounts as unexplained income. The Tribunal held that the impounded loose papers amounted to "dumb documents" whose evidentiary value is limited, particularly where there is no independent corroboration that the transaction was in fact effected by the assessee. The Tribunal noted that the registered agreement itself was not in the assessee's name and that the AO did not undertake basic independent enquiries (for example, inquiries with the vendors or confirmation from M/s SMV Agencies Pvt. Ltd.) to establish ownership or the true parties to the transaction. Applying the principle that additions cannot rest on conjecture or on uncorroborated documents, and following relevant precedents treating loose papers/electronic data as insufficient without corroboration, the Tribunal found the AO's conclusions to be unsubstantiated and the addition unjustified. Consequently, the Tribunal set aside the addition and directed deletion. [Paras 10]

The addition made by the assessing officer treating the cash payments and brokerage as unexplained income is deleted; the ground raised by the assessee is allowed.

Final Conclusion: Appeal partly allowed: the addition under the head 'income from other sources' on account of cash payments and brokerage recorded on impounded loose papers is deleted for AY 2006-07 for lack of corroborative evidence and failure of the AO to make independent enquiries.

Penalty under section 271(1)(c) of the Income-tax Act - notice under section 274 of the Income-tax Act - concealment or furnishing inaccurate particulars of income - requirement to strike out inapplicable limb in penalty notice - vitiation of penalty for defective notice

Penalty under section 271(1)(c) of the Income-tax Act - notice under section 274 of the Income-tax Act - requirement to strike out inapplicable limb in penalty notice - vitiation of penalty for defective notice - Validity of penalty where the section 274 notice did not strike out the inapplicable limb and the penalty order referred to both limbs though the case related only to furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal found that the notice issued under section 274 did not strike off either of the two limbs - 'concealed the particulars of income' and 'furnished inaccurate particulars of such income' - even though the penalty was in fact levied only on the limb of furnishing inaccurate particulars. The penalty order itself referred to both limbs when imposing the penalty. Following the Full Bench decision of the jurisdictional High Court in Mohd. Farhan A. Shaikh Vs. Dy. CIT and the decision in Pr. CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. , and having regard to the dismissal of Special Leave Petition against the latter by the Supreme Court as noted in the order, the Tribunal held that a defect in the notice - in particular, failure to strike out the inapplicable portion - vitiates the penalty even if satisfaction for levy of penalty was recorded in the assessment order. Applying that principle to the present facts, where the notice and penalty order failed to exclude the inapplicable limb, the penalty was held to be invalid and liable to be deleted. [Paras 3, 4]

Penalty under section 271(1)(c) deleted as the notice under section 274 was defective for not striking out the inapplicable limb; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the penalty imposed under section 271(1)(c) for assessment year 2011-12, and directed deletion of the penalty on the ground that the section 274 notice was defective for not striking out the inapplicable limb.

Mistake apparent from record - peak bank balance / unexplained investment - addition under section 69 - Tribunal as fact finding authority

Mistake apparent from record - peak bank balance / unexplained investment - Tribunal as fact finding authority - Whether the Tribunal committed a mistake apparent on the face of the record in confirming the addition of Rs. 2,02,067 relating to the peak balance in account no. 0041-093100-001 for the year under appeal. - HELD THAT: - The assessee contended that the peak balance of Rs. 2,02,067 was not contested before the Tribunal and hence the addition confirmed by the Tribunal was a mistake apparent from record requiring correction under section 254(2). The record shows that the Assessing Officer had recorded four account-wise peak balances for F.Y. 2005-06 (totaling Rs. 22,57,654) but mistakenly computed the total as Rs. 20,57,654 in his assessment order, thereby carrying forward an incorrect total to the CIT(A). The Tribunal, exercising its fact finding function, observed the discrepancy between the figures and the Assessing Officer's totaling, noted that the correct sum of the four figures is Rs. 22,57,654 and that the figure of Rs. 2,02,067 had been omitted in the AO's wrong totaling. The Tribunal therefore confirmed the addition in respect of the said peak balance. The Appellate Tribunal's action was based on rectifying an arithmetical/clerical error in the AO's computation as reflected in the assessment record and was not an impermissible adjudication of a matter that was outside the record before it. [Paras 6, 7, 8]

The Miscellaneous Application was dismissed; there was no mistake apparent from record justifying deletion of the addition of Rs. 2,02,067 and the Tribunal rightly adjudicated and confirmed the addition.

Final Conclusion: The Miscellaneous Application seeking correction was dismissed. The Tribunal correctly treated the discrepancy in the Assessing Officer's totaling as a factual error and was justified in confirming the addition in respect of the peak bank balance; no correction under the provision for mistake apparent on the face of the record was warranted.

Taxability of capital gain in the hands of the transferor despite subsequent amalgamation and slump sale - colourable device and lifting the corporate veil in tax matters - effect and finality of High Court sanctioned scheme of amalgamation - distinction between slump sale and demerger and applicability of Sec.72A - premium on redemption of debentures deductible by spreading over the period (tax treatment under Madras Industrial line) - treatment of provision for premium for computation of book profit under Sec.115JB - taxability and timing of interest received from escrow account - disallowance under Sec.14A read with Rule 8D and computation limited to investments earning exempt income - succession provisions under Sec.170 and assessment of income up to date of succession

Taxability of capital gain in the hands of the transferor despite subsequent amalgamation and slump sale - effect and finality of High Court sanctioned scheme of amalgamation - succession provisions under Sec.170 and assessment of income up to date of succession - colourable device and lifting the corporate veil in tax matters - Capital gain from sale of Kothari Pioneer AMC Ltd. shares is taxable in the hands of ITI Limited (old) (now renamed HFCL Infotel Ltd.) and not in the hands of Rajam Finance (now ITI Limited (new)). - HELD THAT: - The Tribunal examined the scheme of amalgamation, the slump sale/hiving off of the NBFC business and the chronology of events and sales. The Assessing Officer had fundamentally erred in misunderstanding which company amalgamated with which and in attempting to assess the same income in the hands of two different entities. The scheme was sanctioned by the respective High Courts and the CIT(A) at Chandigarh had already held the income to belong to ITI Limited (old) (assessed on substantive basis). Even accepting the Revenue's power to investigate colourable devices, the Tribunal found the AO's reasons for treating the scheme as an afterthought or sham to be factually and legally unsound: approvals, shareholder/creditor processes, auditor certificates and other statutory formalities were complied with; the slump sale and amalgamation were distinct transactions under law (slump sale governed by Sec.50B concepts, demerger by Sec.2(19AA)/Sec.72A) and the AO's attempt to treat the transfer as a demerger or to invoke succession under Sec.170 was misplaced where the predecessor remained on record and the sale of shares occurred prior to the hiving off. Consequently the AO exceeded jurisdiction in re taxing the income in the hands of the transferee. The Tribunal upheld the CIT(A) findings and dismissed the Revenue's grounds on this issue. [Paras 32, 33, 34, 38, 39]

Upheld that the capital gain is taxable only in the hands of ITI Limited (old) (now HFCL Infotel Ltd.) and not in the hands of Rajam/ITI Limited (new); Revenue's appeals dismissed on this issue.

Taxability and timing of interest received from escrow account - taxability of escrow principal as part of sale consideration - Interest from escrow account to be taxed in the year(s) to which it pertains (gross interest to be computed and apportioned); the escrow principal forming part of sale consideration was rightly assessed in the hands of ITI Limited (old) and cannot be re assessed in the hands of ITI Limited (new). - HELD THAT: - The Tribunal accepted the CIT(A)'s approach that the gross interest accruing on the escrow amount must be computed and apportioned to the year(s) in which it accrued (portion pertaining to Sept.2002-Mar.2003 to be brought to tax in AY 2003 04) and that the assessee's offer of the interest in AY 2005 06 did not alter the fact of accrual. As regards the balance sale consideration released from escrow, the Tribunal held it formed part of the consideration for the July 2002 sale and, having been taxed in the hands of ITI Limited (old), could not be taxed again in hands of Rajam/ITI (new). The CIT(A) deletion was therefore upheld. [Paras 46, 47, 48]

Interest to be apportioned and taxed in the year(s) of accrual (AO directed to compute gross interest for AY 2003 04 and other years); escrow principal not taxable in the hands of ITI Limited (new) as it was already taxable in ITI Limited (old).

Premium on redemption of debentures deductible by spreading over the period (tax treatment under Madras Industrial line) - treatment of provision for premium for computation of book profit under Sec.115JB - Provision for premium on redemption of debentures is to be spread over the life of the debenture and the portion pertaining to the relevant year is deductible under Sec.37; such provision is an ascertained liability and is not to be added back while computing book profit under Sec.115JB. - HELD THAT: - Relying on the Supreme Court precedents applied by coordinate benches (including the Tribunal's earlier decision in the assessee's own case) the Tribunal held that the premium obligation, though payable on redemption, is a liability whose cost is to be apportioned over the tenure of the debentures. The amount attributable to the relevant year is deductible under Sec.37. Consequently the provision is an ascertained liability and cannot be treated as an unascertained contingent item to be added back for book profit computation u/s 115JB. The Tribunal followed the CIT(A)'s deletion of the additions and sustained the view across the relevant assessment years considered. [Paras 41, 43, 44, 49, 53]

Provision for premium on redemption allowed spread over debenture period and deductible for the relevant years; no addition to book profit u/s 115JB; CIT(A) findings upheld.

Disallowance under Sec.14A read with Rule 8D and computation limited to investments earning exempt income - Disallowance under Rule 8D: interest disallowance under clause (2)(ii) deleted where no interest-bearing loans attributable to exempt income existed; for other expenses under clause (2)(iii) average value of investments for computation must include only investments that earned exempt income in the year. - HELD THAT: - On the challenge to the Rule 8D disallowance, the Tribunal found that the assessee had not incurred interest-bearing borrowings related to exempt income in the impugned year apart from bank charges, thus the interest disallowance under Rule 8D(2)(ii) was incorrect and directed its deletion. For other expenses under Rule 8D(2)(iii), the Tribunal applied settled principles that only investments which actually yielded exempt income in the relevant year should be considered for calculating the average investment value; the AO erred by including investments that did not earn exempt income. The matter was remitted to the AO for recomputation strictly in accordance with these directions. [Paras 51, 52]

AO directed to delete interest disallowance under Rule 8D(2)(ii) and to recompute other expense disallowance under Rule 8D(2)(iii) considering only investments that earned exempt income; reassessment remitted for computation.

Final Conclusion: The Tribunal dismissed the Revenue's appeals for Assessment Years 2003 04, 2004 05 and 2005 06 and partly allowed the assessee's appeal for Assessment Year 2009 10. It held that the capital gain on the July 2002 sale of shares is taxable only in the hands of ITI Limited (old) (now HFCL Infotel Ltd.); escrow proceeds forming part of that sale cannot be taxed again in the transferee; premium on redemption of debentures is to be spread and the year wise portion allowed as deduction (and not added back for MAT); interest from escrow to be apportioned to year(s) of accrual; and directed limited recomputation of Rule 8D disallowance in line with the principles stated.

Disallowance under section 14A - Rule 8D(2) computation - Book profit computation under section 115JB Clause(f) Explanation 1 - Interest under section 234D - Deduction under section 35DD for demerger - Taxability of interest under section 244A - Deductibility of education cess - Rectification under section 154 read with assessment under section 143(1)

Disallowance under section 14A - Rule 8D(2) computation - Extent and mode of disallowance under section 14A of the Act in respect of exempt dividend and mutual fund income for A.Y. 2008-09 (also applied to A.Y. 2009-10). - HELD THAT: - The Tribunal held that invocation of the mechanical computation under Rule 8D(2) would lead to absurdity in the facts of the case and directed the Assessing Officer to recompute disallowance under the normal provisions of section 14A by starting with the suo motu disallowance made by the assessee and by including specified common expenses omitted by the assessee. The Tribunal identified six common items (auditors' remuneration, KPMG international audit fees and expenses, other consultancy and certification fees, annual report printing and CD expenses, shareholders and board meeting expenses, and listing fees) which should be included in the total expenditure for apportionment in the ratio of exempt income to total income. The Tribunal found it unjust to disallow the entire expenditure debited to profit and loss account given the large proportion of taxable income and directed recomputation accordingly; the relief was granted partly and for statistical purposes. [Paras 2]

Directed recomputation of disallowance under section 14A on the basis of the assessee's suo motu disallowance (Rs. 10 lakhs) after including the six specified common expenses and applying the ratio of exempt income to total income; Rule 8D(2) mechanical computation not to be applied in the peculiar facts of the case; ground partly allowed for statistical purposes.

Interest under section 234D - Rectification under section 154 read with assessment under section 143(1) - Whether interest under section 234D is chargeable where a refund intimated under section 143(1) was subsequently rectified under section 154. - HELD THAT: - The Tribunal held that the order passed under section 154 dated 11/12/2009 was a rectification of the intimation under section 143(1) and therefore must be read with the original section 143(1) intimation. Consequently, where an effective refund was granted by virtue of the rectification of the section 143(1) intimation, interest under section 234D is leviable. The assessee's contention that section 234D cannot apply because the refund was purportedly granted only by a section 154 order was rejected. [Paras 3]

Assessee's ground dismissed; interest under section 234D held leviable as the section 154 rectification is to be read with the section 143(1) intimation.

Book profit computation under section 115JB Clause(f) Explanation 1 - Rule 8D(2) computation - Applicability of the Rule 8D(2) computation for disallowance under Clause(f) of Explanation 1 to section 115JB(2) while computing book profits. - HELD THAT: - Relying on the Special Bench decision in ACIT v. Vireet Investments, the Tribunal held that the mechanical computation under Rule 8D(2) should not be applied for working out disallowance under Clause(f) of Explanation 1 to section 115JB(2). Instead, the actual expenses attributable to earning exempt income should be disallowed under that clause. As the Tribunal directed recomputation of disallowance under the normal provisions of section 14A (including specified additional expenses), the same recomputed disallowance is to be applied for Clause(f) of Explanation 1 to section 115JB(2). [Paras 5]

Additional ground partly allowed; recomputed disallowance under section 14A to be applied for computing disallowance under Clause(f) of Explanation 1 to section 115JB(2).

Deduction under section 35DD for demerger - Entitlement to deduction under section 35DD in respect of demerger expenses and the period from which amortisation/deduction is to commence. - HELD THAT: - The Tribunal accepted in principle the assessee's contention that, by virtue of the retrospective 'appointed date' in the High Court approved demerger scheme, expenditure on demerger incurred in A.Y. 2009-10 is eligible for deduction commencing from the A.Y. 2008-09 on an amortisation basis (20% per year for five years). The Tribunal observed that the factual determination of the quantum of expenses eligible for deduction is a matter for the Assessing Officer and remanded the issue to the AO for quantification, noting that the assessee had already disallowed part of the expenditure in the return and that facts were on record. [Paras 6]

Assessee held entitled in principle to deduction under section 35DD commencing A.Y. 2008-09 for five years; quantum remitted to the Assessing Officer for factual determination.

Taxability of interest under section 244A - Whether interest on refund under section 244A already offered to tax in an earlier year can be taxed again in a later year (A.Y. 2009-10). - HELD THAT: - The Tribunal found that the Assessing Officer had taxed the entire enhanced interest on refund in A.Y. 2009-10 without accounting for the portion already offered to tax in A.Y. 1999-2000, resulting in potential double taxation. The Tribunal remanded the matter to the Assessing Officer for limited verification of whether the sum of Rs. 4,91,08,102/- was indeed offered to tax in A.Y. 1999-2000; if so, only the differential sum would be taxable in A.Y. 2009-10. [Paras 14]

Issue remitted to the Assessing Officer for verification; if the earlier offer to tax is verified, only the differential amount remains taxable in A.Y. 2009-10.

Deductibility of education cess - Claim for deduction of education cess paid by the assessee. - HELD THAT: - The Tribunal noted that the question is no longer res integra in view of the decision of the Jurisdictional High Court in Sesa Goa Ltd. v. JCIT and, respectfully following that decision, allowed the claim for deduction of education cess. [Paras 8, 17]

Additional ground allowed; deduction in respect of education cess permitted following the Jurisdictional High Court's decision.

Final Conclusion: Both appeals for A.Y. 2008-09 and A.Y. 2009-10 are partly allowed for statistical purposes: disallowance under section 14A to be recomputed by the Assessing Officer on the basis directed (including specified common expenses) rather than by mechanical application of Rule 8D(2); the same recomputed disallowance to be applied for book profit computation under section 115JB; interest under section 234D upheld; deduction under section 35DD allowed in principle but remanded for quantification; remand directed to verify prior offer of interest under section 244A to avoid double taxation; and deduction for education cess allowed following the Jurisdictional High Court decision.

Maintainability of appeal after dismissal for non-prosecution - Order VII Rule 13 CPC - Order IX Rule 13 CPC - striking off under Section 248(2) - restoration of company name - suppression of material facts

Maintainability of appeal after dismissal for non-prosecution - repetition of proceedings - The fresh appeal filed after dismissal of earlier Co. Appeal No. 172/2019 for non-prosecution is not maintainable. - HELD THAT: - The Tribunal recorded that Co. Appeal No. 172/2019 was dismissed for non-prosecution after giving the appellant opportunities to remove defects and appear (order dated 16.08.2019). The present appeal was filed about one and a half years after that dismissal. The record shows no provision permitting the appellant to file a fresh appeal in these circumstances and the prior dismissal demonstrates the appellant's failure to prosecute the earlier appeal. Having regard to these facts and the appellant's omission, the Tribunal held that the fresh appeal is not maintainable and reliance on the earlier dismissed proceeding precludes permitting the present revival application to proceed. [Paras 17, 20, 22]

Appeal rejected as not maintainable in view of the earlier dismissal for non-prosecution.

Order VII Rule 13 CPC - Order IX Rule 13 CPC - setting aside decree ex parte - The appellant's contention that the memo of appeal may be treated as a fresh plaint under Order VII Rule 13 or as a proceeding under Order IX Rule 13 CPC is untenable. - HELD THAT: - On plain reading the Tribunal found that Order VII Rule 13 (permitting presentation of a fresh plaint where a plaint is rejected on certain grounds) does not apply to the facts of this case. Similarly, Order IX Rule 13 (which allows setting aside a decree passed ex parte on proof of non-service or sufficient cause for non-appearance) is inapplicable because no sufficient cause for non-appearance was demonstrated and, in any event, such provisions do not authorize filing a fresh memo of appeal to circumvent the earlier dismissal. Accordingly, the legal routes invoked by the appellant to sustain the fresh filing were rejected. [Paras 19]

Contentions based on Order VII Rule 13 and Order IX Rule 13 CPC rejected; those provisions do not validate a fresh memo of appeal in the present circumstances.

Striking off under Section 248(2) - restoration of company name - suppression of material facts - The appellant's admission that the company was struck off under Section 248(2) after extinguishing liabilities, together with suppression of material facts regarding the company's mortgaged property, disentitles the appellant to restoration and supports dismissal with costs. - HELD THAT: - The Tribunal noted the appellant's own affidavit admitting that the company was struck off under Section 248(2) after a special resolution extinguishing liabilities. It further observed material facts indicating that the disputed land had been held and dealt with as company property (sale deed and mortgage records) and that proceedings before other fora (including bank applications and related suits) were pending. The Tribunal concluded that the appellant had suppressed these material facts and that the record prima facie established that the property belonged to the company and was subject to charges. For these reasons, and having found the appeal otherwise unmaintainable, the Tribunal dismissed the appeal and imposed costs for suppression of material facts. [Paras 22, 23, 24]

Restoration application refused; appeal dismissed and costs awarded for suppression of material facts.

Final Conclusion: The appeal seeking restoration of the company's name is dismissed as not maintainable in view of the prior dismissal for non-prosecution, the inapplicability of the invoked CPC provisions to revive proceedings, and the appellant's admission of striking off and suppression of material facts; costs awarded to be deposited in the Army Welfare Fund.

Exclusion of period of lockdown - Computation of liquidation period - Power of Adjudicating Authority to exclude time in liquidation - Liquidator's duty to take expeditious steps to finalize liquidation

Exclusion of period of lockdown - Power of Adjudicating Authority to exclude time in liquidation - Computation of liquidation period - Exclusion of the period 25.03.2020 to 22.07.2020 (120 days) from the liquidation process period was allowable and should be granted to the liquidator. - HELD THAT: - The Tribunal found the material facts undisputed and accepted that the national lockdown and related restrictions arising from the COVID-19 outbreak materially prevented the Liquidator from carrying out essential functions (such as meetings with prospective purchasers and conducting auctions), and that e-auctions conducted before and after the lockdown did not yield buyers. The Tribunal observed that regulation-making authority had introduced a provision excluding the lockdown period from computation of time for tasks in liquidation processes, and that the Adjudicating Authority is empowered to exclude certain periods for liquidation where suitable reasons are shown. Applying these principles to the facts-that the lockdown impeded completion of the liquidation and that the Liquidator had taken dilig ent steps including multiple e-auctions and engagement with prospective buyers-the Tribunal was satisfied that the reasons advanced justified excluding the specified 120-day period from the liquidation timeline and therefore allowed the application. [Paras 4, 5]

Application allowed; exclusion of 120 days (25.03.2020 to 22.07.2020) from the liquidation process period granted and the Liquidator directed to take expeditious steps to finalize the liquidation.

Final Conclusion: The Tribunal allowed the liquidator's application and excluded 25.03.2020 to 22.07.2020 (120 days) from the liquidation period, while directing the liquidator to expedite completion of the liquidation process.

Relief under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - Goods and Services Tax - mootness / infructuousness of relief - transfer of sale proceeds to the corporate debtor in liquidation

Relief under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - Goods and Services Tax - mootness / infructuousness of relief - transfer of sale proceeds to the corporate debtor in liquidation - Whether the application seeking direction to the secured creditor to deposit GST and related amounts into the corporate debtor's account should be granted. - HELD THAT: - The Liquidator filed the application under Section 60(5) seeking a direction for the Respondent No. 1 to deposit GST and related sums into the corporate debtor's account to enable compliance with GST obligations. During hearing, the Respondent informed the Tribunal that the GST component attributable to the assets had already been transferred to the corporate debtor's account managed by the Liquidator, and produced a letter and particulars of the payment. The Tribunal found that the specific relief sought had been rendered unnecessary by the respondent's compliance and that the factual grievance raised in the application stood redressed. Consequently there was no live controversy requiring adjudication on the merits of the claimed direction. [Paras 4, 5]

Application dismissed as infructuous since the respondent had already transferred the proceeds, including the GST component, to the corporate debtor's account.

Final Conclusion: The application under Section 60(5) is dismissed as infructuous because the respondent has already transferred the sale proceeds, including the GST element, to the account of the corporate debtor managed by the Liquidator.

Cooperation to Resolution Professional during CIRP - duty of directors and personnel of corporate debtor to assist IRP/RP - direction to hand over management and assets to Resolution Professional - withdrawal of interlocutory application

Cooperation to Resolution Professional during CIRP - duty of directors and personnel of corporate debtor to assist IRP/RP - direction to hand over management and assets to Resolution Professional - Respondent ordered to extend necessary cooperation to the Applicant/Resolution Professional in respect of the CIRP of the Corporate Debtor. - HELD THAT: - The Tribunal observed that once CIRP is initiated, all personnel of the corporate debtor, including Directors/Managing Director, are obliged to extend necessary cooperation to the IRP/RP in carrying out their duties. Noting that the Adjudicating Authority had already directed personnel of the corporate debtor to provide full cooperation, the Tribunal held that the Resolution Professional must discharge his duties effectively at ground level and may seek the Tribunal's assistance where necessary. In the circumstances, the Tribunal disposed of the interlocutory application by directing the Respondent to extend necessary cooperation to the Applicant in respect of the CIRP, and made no order as to costs. [Paras 4, 5]

IA No. 331/2020 disposed of by directing the Respondent to extend necessary cooperation to the Applicant in respect of the CIRP of the Corporate Debtor; no order as to costs.

Withdrawal of interlocutory application - Interlocutory application seeking travel restriction and deposit of passport dismissed as withdrawn at the Applicant's request. - HELD THAT: - The Applicant filed a memo seeking leave to withdraw the interlocutory application which sought directions restraining the Respondent from travelling outside India or the Tribunal's jurisdiction and to deposit his passport. The Tribunal, having taken the withdrawal memo on record and upon the Applicant's request to withdraw, permitted the withdrawal and dismissed the application as withdrawn, with no order as to costs. [Paras 8, 9, 10]

IA No. 330/2020 dismissed as withdrawn; no order as to costs.

Final Conclusion: The Tribunal directed the Respondent to extend necessary cooperation to the Resolution Professional for the CIRP and permitted withdrawal of the separate interlocutory application seeking travel restriction and deposit of passport, dismissing it as withdrawn; no orders as to costs.

Eligibility of cenvat credit on sales commission - nexus between sales commission and manufacture/sales promotion - declaratory nature and retrospective effect of the Explanation to Rule 2(l) of the Cenvat Credit Rules, 2004 inserted w.e.f. 03.02.2016

Eligibility of cenvat credit on sales commission - nexus between sales commission and manufacture/sales promotion - declaratory nature and retrospective effect of the Explanation to Rule 2(l) of the Cenvat Credit Rules, 2004 inserted w.e.f. 03.02.2016 - The cenvat credit availed on service tax paid on invoices raised for sales commission was eligible as input service and the Explanation to Rule 2(l) is declaratory and retrospective so as to cover the period in dispute. - HELD THAT: - The Tribunal found that commission paid on sales is directly attributable to sales and, by ordinary commercial understanding, amounts to sales promotion which has a direct nexus with manufacture since increased sales promote increased manufacturing activity. Applying this commercial-realistic nexus, the commission paid by the appellant to M/s Nicco Parks was held to be an input service eligible for cenvat credit. The Tribunal further followed the Division Bench decision in Essar Steel India Ltd. and held that the Explanation inserted in Rule 2(l) of the Cenvat Credit Rules, 2004 by Notification dated 03.02.2016 is declaratory in nature and therefore applies retrospectively to the period under consideration. Reliance was also placed on the view of the High Court of Punjab & Haryana in Commissioner of Central Excise, Ludhiana v. Ambika Overseas that sale and manufacture are inter-related and commission paid on sales falls within services related to sales promotion. In consequence, the adjudicating and appellate orders disallowing the credit were set aside and the appeal allowed. [Paras 7, 8, 9]

Impugned orders disallowing cenvat credit on sales commission are set aside; appeal allowed with consequential relief.

Final Conclusion: The appeal is allowed; the Tribunal held that the sales-commission-related service tax credit was admissible as input service for the contested years and that the Explanation to Rule 2(l) is declaratory and retrospective, accordingly setting aside the impugned orders.

Audit of business affairs - limitation for assessment and re-assessment - best judgment assessment - principles of natural justice - fraud vitiates every solemn act - interplay between audit and assessment provisions - alternative statutory remedy and writ jurisdiction

Fraud vitiates every solemn act - allegation of fraud - Allegations that the petitioners committed fraud depriving the revenue were not established. - HELD THAT: - The notice of audit dated 25.09.2020 merely recorded the Deputy Commissioner's satisfaction that an audit was required; it contained no allegation of fraud. The audit report of 12.10.2020 referred to discrepancies between refinery data and dealers' returns but did not record any finding of fraud against the petitioners. The respondents first raised fraud in their reply affidavit and in oral submissions; there was no pleading or material before the audit notice to put the petitioners on notice of fraud. Following authorities cited by the Court, a finding of fraud requires specific allegation, evidence and enquiry and cannot be inferred or introduced belatedly. On the materials and orders before the Court no intent to deceive was shown and the claim of fraud could not be accepted. [Paras 31, 32, 33]

There was no proved or recorded fraud by the petitioners; the respondents' contention of fraud is rejected.

Principles of natural justice - materials relied upon must be disclosed - The audit proceedings violated principles of natural justice by not disclosing the materials obtained from refineries to the petitioners. - HELD THAT: - The audit report relied on information said to have been obtained from refineries (letter dated 29.06.2020 and email dated 11.08.2020), but those documents were neither annexed to the reply affidavit nor furnished to the petitioners. It is a cardinal rule that material relied upon by the authority must be disclosed to the affected party to enable an effective defence. Precedent establishes that failure to disclose departmental material and to afford an opportunity to rebut it results in denial of a fair hearing. The Department's omission to supply or summarise the refinery data thereby vitiated the audit process. [Paras 37, 38, 39]

The audit procedure breached the principles of natural justice; the audit orders are vitiated for non-disclosure of material relied upon.

Interplay between audit and assessment provisions - limitation for assessment and re-assessment - Notices of audit and consequent orders under section 58 for the years in question were beyond the limitation for assessment/re-assessment and therefore without jurisdiction. - HELD THAT: - Section 58 authorises audit which, depending on results, may lead to confirmation of assessment or to assessment/re-assessment under sections 32/33; those assessment powers are subject to the limitation in section 34. For the tax periods 2010-11, 2011-12 and 2012-13 assessments had been concluded on 25.10.2013; the four-year limitation (extendable by two years in cases of concealment) had therefore expired well before the audit notice dated 25.09.2020. A time barred notice cannot bootstrap subsequent valid proceedings; once the notice is barred by limitation, any proceeding or order pursuant to it is without jurisdiction. Decisions relied upon by the respondents on separate statutory schemes (Gujarat cases) were held inapplicable because the provisions are not pari materia. [Paras 47, 52, 53, 57]

The audit notices and the consequential audit orders dated 12.10.2020 and 13.10.2020 are time barred and therefore without jurisdiction.

Alternative statutory remedy and writ jurisdiction - orders wholly without jurisdiction - Writ petitions were maintainable despite the availability of statutory appeals because the impugned proceedings were found to be without jurisdiction and violative of natural justice. - HELD THAT: - Although section 74 provides an appellate remedy, the High Court may exercise writ jurisdiction where the proceedings are wholly without jurisdiction or where principles of natural justice are violated. Having held the audit notices and orders to be both time barred (jurisdictional defect) and procedurally vitiated (non disclosure of material), the Court concluded that relegation to the statutory appellate forum was inappropriate. [Paras 59, 60, 61]

The availability of an alternative statutory appeal does not bar the writ petitions because the impugned actions were without jurisdiction and violative of natural justice.

Quashing of time barred and vitiated orders - Whether the impugned audit notices and orders should be quashed and set aside. - HELD THAT: - For the reasons given - absence of any proved fraud, violation of natural justice by nondisclosure of the refinery material, and that the notices and consequent audit orders were barred by limitation and thereby without jurisdiction - the Court held the impugned notices dated 25.09.2020 and audit orders dated 12.10.2020 and 13.10.2020 to be unsustainable in law. The cumulative defects warranted interference under Article 226. [Paras 62, 63]

The impugned audit notices and audit orders are set aside and quashed; the writ petitions are allowed with no order as to costs.

Final Conclusion: The High Court allowed the writ petitions: it held there was no established fraud, the audit proceedings violated principles of natural justice by failing to disclose refinery material relied upon, and the audit notices and consequent orders for 2010-11, 2011-12 and 2012-13 were time barred and thus without jurisdiction; accordingly the notices dated 25.09.2020 and the audit orders dated 12.10.2020 and 13.10.2020 were quashed and set aside, and the petitions were allowed with no order as to costs.

Principles of natural justice - opportunity of hearing - pre-revision notice - order of assessment set aside - de novo assessment - personal hearing or video-conference - interim stay of recovery

Principles of natural justice - pre-revision notice - opportunity of hearing - order of assessment set aside - de novo assessment - personal hearing or video-conference - Impugned assessment order passed without affording opportunity of hearing in violation of the principles of natural justice and consequent direction for fresh adjudication. - HELD THAT: - The Court found that the two pre-revision notices relied upon by the assessing authority were returned unserved and no subsequent notice was issued either calling for objections or fixing the matter for personal hearing. The assessment order was therefore passed without affording the petitioner any opportunity to be heard, amounting to a breach of the principles of natural justice. In view of this procedural infirmity the impugned order was set aside. The petitioner was directed to appear before the assessing officer on a specified date and, without requiring any further notice, to be heard either by video-conference or in person as may be convenient. The assessing officer was directed to consider any material filed by the petitioner and to pass a fresh assessment order de novo within four weeks thereafter in accordance with law. [Paras 3, 4]

Impugned assessment order set aside for violation of natural justice; petitioner to be heard and fresh de novo assessment to be passed within four weeks.

Final Conclusion: Writ petition disposed by setting aside the impugned assessment order for failure to afford opportunity of hearing; petitioner directed to be heard and a fresh assessment to be completed de novo within four weeks; connected petitions closed and no costs.

Penalty under Section 9-B(3) of the OST Act - liability to collect and pay sales tax on installed capacity - sales tax exemption under Industrial Policy Resolution - unauthorised collection of tax - consideration of relevant and irrelevant materials vitiating order

Penalty under Section 9-B(3) of the OST Act - unauthorised collection of tax - Imposition of penalty under Section 9-B(3) for 1994-95 and 1995-96 - HELD THAT: - The Court examined whether the penalty imposed by the Sales Tax Officer and sustained by the Tribunal for 1994-95 and 1995-96 was legally justified. The assessment and appellate records showed that the petitioner had deposited the tax collected for those years and that, with effect from 1st December 1993 the petitioner's installed capacity of 13500MT was no longer exempt and the petitioner was obliged to collect tax on sales of cement. The STO produced no credible evidence of illicit collection; the ACST accepted that the petitioner had deposited the tax collected. The Tribunal's conclusion sustaining penalty for these years was therefore unsustainable where collection and deposit reflected lawful liability rather than clandestine or unauthorised realisation of tax. [Paras 20, 21, 22, 23]

Penalty under Section 9-B(3) for 1994-95 and 1995-96 was not legally justified and is set aside.

Liability to collect and pay sales tax on installed capacity - sales tax exemption under Industrial Policy Resolution - Whether the Tribunal correctly found that the petitioner was not authorised to collect tax on cement sold from its installed capacity with effect from 1st December 1993 - HELD THAT: - The Court held that the exemption applicable to the installed capacity of 13500MT expired on 1st December 1993, after which the petitioner was required to collect tax on sales from that capacity. The petitioner in fact collected and deposited that tax for 1994-95 and 1995-96. The Tribunal's finding that the petitioner had illegally collected sales tax in respect of the installed capacity from that date was incorrect because collection and deposit were consistent with the statutory liability post-expiry of the exemption, and there was no credible proof of unauthorised collection. [Paras 20, 21, 22]

The Tribunal's finding that the petitioner had illegally collected sales tax w.e.f. 1st December 1993 is incorrect and not sustainable.

Consideration of relevant and irrelevant materials vitiating order - Whether the Tribunal's consideration of relevant and irrelevant materials together vitiated its order - HELD THAT: - The Court observed that the Tribunal combined matters relating to periods when exemption applied and periods when it did not, and in doing so treated relevant and irrelevant materials together in reaching its conclusions. That approach led to erroneous findings, particularly in relation to the years after the exemption expired. The Tribunal's failure to distinguish the differing legal positions applicable to the installed capacity before and after 1st December 1993 and to treat the expanded capacity separately vitiated its decision-making. [Paras 15, 21, 22]

The Tribunal's order is vitiated by consideration of relevant and irrelevant materials together and is legally unsustainable on that ground.

Final Conclusion: The Tribunal's order is set aside insofar as it sustained penalty against the petitioner for 1994-95 and 1995-96; the imposition of penalty under Section 9-B(3) for those years is held unjustified, the finding of illegal collection w.e.f. 1st December 1993 is reversed, and the Tribunal's order is vitiated for mixing relevant and irrelevant materials.

Taxability of packing material when separately billed - Integrated sale versus independent sale of packing material - Application of Raj Sheel test for packing materials - Exigibility of sales tax on containers supplied with goods

Taxability of packing material when separately billed - Application of Raj Sheel test for packing materials - Integrated sale versus independent sale of packing material - Whether gunny bags sold along with levy rice to the Food Corporation of India are exigible to tax at the higher rate applicable to jute products when the packing was separately sold and paid for. - HELD THAT: - The Court applied the principle laid down in Raj Sheel v. State of Andhra Pradesh that packing material may constitute an independent taxable commodity where the contract and surrounding facts indicate an intention to sell the packing separately. Relevant indicators include separate billing and payment for the packing, the packing having an independent identity, absence of change in the packing on use, and capability of reuse. On the material placed before it, particularly the books of account inspected by the Department showing that the new gunny bags were separately sold and paid for by the FCI, the Tribunal correctly held that the gunny bags were not merely incidental containers but independent goods taxable on their own footing. The Court found the ratio of decisions relied upon by the assessee distinguishing Raj Sheel inapplicable on the facts, and endorsed the Tribunal's application of the Raj Sheel test to conclude that the higher rate for jute products applies. [Paras 4, 8, 9, 10]

Gunny bags sold and separately paid for by the FCI are exigible to tax at the rate applicable to jute products; the Tribunal's conclusion in favour of the Department is affirmed.

Final Conclusion: Revision petition dismissed; in the facts of the case (AY 1990-91) the gunny bags supplied and separately paid for by the FCI are taxable at the higher rate applicable to jute products.

Classification of cough syrup containing codeine as a manufactured drug or an essential narcotic drug - therapeutic practice exception to notifications excluding certain preparations from 'manufactured drug' - application of gross weight rule for determining quantity in NDPS seizures - Section 8 prohibition and penal consequences under Sections 17/18/21/22 of the NDPS Act - requirement of documentary proof to invoke exemption under notifications - principles governing grant of bail in NDPS cases

Classification of cough syrup containing codeine as a manufactured drug or an essential narcotic drug - therapeutic practice exception to notifications excluding certain preparations from 'manufactured drug' - requirement of documentary proof to invoke exemption under notifications - application of gross weight rule for determining quantity in NDPS seizures - Whether the seized Welcyrex cough syrup containing codeine falls outside the scope of 'manufactured drug' or is exempt as an 'essential narcotic drug' so as to take it out of the penal provisions of the NDPS Act. - HELD THAT: - The Court examined the statutory definitions of 'manufactured drug', 'narcotic drug', 'opium derivative' and the notifications dated 14.11.1985 and 05.05.2015 together with Rule 52A and related rules. The notifications exclude from the 'manufactured drug' category preparations compounded with one or more ingredients containing not more than 100 mg of codeine per dosage unit and with concentration not more than 2.5% only if they are 'established in therapeutic practice' and intended for therapeutic use. The Central Government's S.O.2941(E) (18.11.2009) and binding Apex Court precedents require that for determining small or commercial quantity the gross weight of the seized mixture is to be taken into account, making percentage-content irrelevant for quantity computation. Absent documents or evidence that the seized 65 bottles (100 ml each) were possessed or transported for therapeutic practice or under valid authorization, the statutory exceptions do not apply. Consequently, such pharmaceutical preparations, when kept or transported otherwise than for therapeutic/authorized purposes, are to be treated as manufactured/narcotic drugs and attract the prohibitions and penal provisions of Section 8 read with Sections 17-22 of the NDPS Act. [Paras 25, 26, 27, 28, 34]

In the absence of proof that the seized cough syrup was meant for therapeutic practice or held under statutory authorisation, the exemption in the notifications cannot be invoked and the seized preparations fall within the scope of manufactured/essential narcotic drugs for purposes of the NDPS Act; quantity must be determined by gross weight as per governing notifications and precedents.

Principles governing grant of bail in NDPS cases - requirement of prima facie evidence to sustain custody under the NDPS Act - Whether the applicant Pappu Gupta is entitled to bail in the NDPS prosecution. - HELD THAT: - Applying settled principles on grant of bail in NDPS matters to the facts of this case, the Court noted the evidentiary material collected against the applicant: seizure was from the co-accused; nothing was recovered from the applicant; the memorandum of co-accused is not admissible against him without corroboration; call detail records alone were insufficient to establish his complicity. Considering the strength of the material on record, the custody period since 23/08/2020 and that charge-sheet has been filed, the Court found there were no reasonable grounds, prima facie, to hold that the applicant committed an offence under the NDPS Act or that he would abscond or re-offend if released. The Court therefore exercised discretion to grant bail while expressly reserving comment on merits and subjecting release to conditions to ensure attendance and non-interference with the investigation and trial. [Paras 35, 36, 37]

Bail granted to the applicant on furnishing bond and surety, subject to specified conditions including cooperation in trial and prohibitions on tampering with witnesses or leaving India without permission.

Final Conclusion: The court held that pharmaceutical preparations containing codeine are not exempt from the NDPS Act unless intended for therapeutic practice and supported by requisite authorization or documents, and that gross weight is to be considered in quantity determination; on the facts the applicant was granted bail as there was insufficient prima facie material to deny bail, subject to conditions.