TaxTMI Updates e-Newsletter
Jun 25,2026

Provisional attachment of bank account - Formation of opinion under Section 83 - Mechanical exercise of draconian power - Validity of provisional attachment of the petitioner's bank account under Section 83, in the absence of any disclosed formation of opinion by the competent authority - HELD THAT: - The Hon’ble Apex Court in Radha Krishan Industries Vs. State of Himachal Pradesh & Ors.[2021 (4) TMI 837 - SUPREME COURT], held in clear terms that the law under Section 83 of the Act of 2017 being draconian in nature, the requirement of the competent authority to form an opinion prior to invoking the said provision is mandatory. The same is necessary in view of the fact that exercise of unguided discretion would leave the citizens and their legitimate business activities to the peril of arbitrary power. Therefore, the ingredients provided under Section 83 of the Act of 2017 must be strictly applied before a provisional attachment on the property of an assessee can be levied.

On examining the impugned attachment order, the Court found that it merely stated that the bank account was being attached to protect revenue and by exercise of power under Section 83, without disclosing that the authority had formed the mandated opinion. Applying the settled position that this power is draconian and requires strict observance of statutory preconditions, the Court found the order to have been passed mechanically and not in compliance with the mandatory requirement preceding attachment. [Paras 10, 11, 12]

The provisional attachment order was held unsustainable in law and was set aside, with a consequential direction to the bank to de-freeze the petitioner's bank account.

Final Conclusion: The Court allowed the writ petition and set aside the provisional attachment of the petitioner's bank account. It held that, in the absence of the mandatory prior formation of opinion under Section 83, the attachment order was mechanically issued and could not be sustained.

Principles of natural justice - Non-consideration of show cause reply - seeking to quash the Order-in-Original - petitioner's reply to the show cause notice, though filed through the departmental portal, was not taken into account by the adjudicating authority before passing the order - HELD THAT: - The Court held that once the show cause reply had in fact been filed, the adjudicating authority was required to take note of it before deciding the proceedings. The order itself showed that the authority was unaware of the reply, and the department also accepted that the reply filed through the portal had not been transmitted to the adjudicating officer due to a communication gap. The determinative defect, therefore, was non-consideration of the petitioner's reply, which resulted in violation of the principles of natural justice and caused prejudice to the petitioner. The Court did not examine the merits of the dispute and confined its decision to this procedural infirmity. [Paras 7, 8]

The impugned Order-in-Original was set aside and the matter was remanded for fresh consideration after taking the show cause reply into account and after granting a fresh hearing to the petitioner.

Final Conclusion: The writ petition was disposed of by setting aside the impugned Order-in-Original solely on the ground of violation of natural justice arising from non-consideration of the petitioner's show cause reply. The matter was remitted to the adjudicating authority for a fresh decision, with all contentions on merits kept open.

Maintainability of writ petition despite alternate statutory remedy - Relegation to statutory appeal under GST law - Writ petition challenging the adjudication order confirming common input tax credit demand - HELD THAT: - The Court held that the impugned order was appealable under the statutory appellate mechanism and found no cogent justification for bypassing that remedy in exercise of writ jurisdiction. While noting the petitioner's contention that, in similar fact situations, the departmental authorities had taken a view in its favour for other years, the Court held that such contentions could appropriately be urged before the appellate authority, which was directed to decide the appeal independently on merits and by a reasoned order. [Paras 7, 8, 9, 11, 12]

The petitioner was relegated to the statutory appeal, with liberty to raise all contentions there, and the respondents were directed not to take coercive action until the appeal is decided and for two weeks thereafter.

Final Conclusion: The writ petition was disposed of by directing the petitioner to avail the statutory appellate remedy against the impugned GST order. Interim protection against coercive action was continued till disposal of the appeal and for a limited period thereafter, while all merits were kept open.

Entitlement to restoration of GST registration - cancellation for non-filing of returns - HELD THAT:- Referring to Order of a Co-ordinate bench passed in TREASURE REALTORS [2026 (6) TMI 750 - BOMBAY HIGH COURT], wherein, relief was granted to a similarly situated Petitioner, directing restoration of the GST registration on payment of all outstanding dues.

This Court quashed the orders cancelling the petitioner's GST registration and dismissing the appeal for non-appearance, and directed restoration of the registration upon determination and payment of the outstanding GST dues with applicable interest, late fees and penalty within the stipulated time.

Personal hearing under adjudication proceedings - Principles of natural justice - Challenged to the adjudication order on the ground that no opportunity of personal hearing was provided before passing the order under Section 73 - HELD THAT: - The Court recorded the petitioner's specific case that no opportunity of personal hearing had been granted. In view of the petitioner's readiness to deposit the entire amount demanded under the original order, the Court, in the interest of justice, treated the matter as requiring fresh consideration after hearing the petitioner. The determinative basis of interference was the procedural grievance relating to personal hearing, and the matter was directed to be decided afresh after fixing a date for hearing, with the deposit remaining subject to the final outcome. [Paras 7]

The original adjudication order and the appellate order were set aside subject to deposit of the entire demanded amount, and the matter was remitted for fresh decision after fixing a date of hearing.

Final Conclusion: The writ petition was disposed of by setting aside the adjudication and appellate orders on the petitioner's depositing the entire demanded amount within the time granted, and by directing fresh adjudication after providing a hearing.

Rectification of GSTR-1 returns - Correction of clerical or arithmetical errors in GST filings - Software limitations in tax compliance portal - Entitlement to upload a rectified GSTR-1 statement for the relevant tax periods and obtain consequential processing of input tax credit - HELD THAT: - The Court followed the co-ordinate Bench decision on an identical issue Co-ordinate Bench of this Court, in the case of Deepa Traders [2025 (4) TMI 1009 - MADRAS HIGH COURT], following the judgments in Sun Dye Chem [2020 (11) TMI 108 - MADRAS HIGH COURT] and Pentacle Plant Machineries Pvt. Ltd. [2021 (3) TMI 524 - MADRAS HIGH COURT], and the observations of the Honourable Supreme Court [2025 (4) TMI 101 - SC ORDER] as against the order passed in Aberdare Technologies Pvt. Ltd. [2024 (8) TMI 142 - BOMBAY HIGH COURT] holding that the right to correct clerical or arithmetical mistakes cannot be denied without good justification. The Court accepted the principle that software limitation in the GST portal is not by itself a valid reason to refuse correction, since the compliance system is meant to facilitate, and not defeat, legitimate rectification. [Paras 4, 5, 6]

The Department's appeal was dismissed, and the respondent was permitted to upload the rectified GSTR-1 statement, whereafter the Department was directed to take an appropriate decision and extend consequential input tax credit entitlement.

Final Conclusion: Following the earlier co-ordinate Bench view and the precedents relied on therein, the Court upheld the direction permitting rectification of the respondent's GSTR-1 filings. The intra-court appeal was dismissed, and the Department was directed to enable uploading of the rectified returns and process consequential input tax credit in accordance with entitlement.

Wrongful availment and utilisation of input tax credit - Interest on delayed payment of tax - discrepancy between GSTR-3B and GSTR-2A - Electronic credit ledger - Electronic cash ledger - Writ interference - Statutory interpretation​​​​​​​ - benefit of circular - HELD THAT: - The Court held that Section 50(1) deals generally with belated payment of tax, whereas Section 50(3) specifically governs cases of wrongly availed and utilised ITC and therefore prevails in such cases. Since the statute does not confine the expression "wrongful availment and utilisation" to fraudulent claims or claims made in bad faith, any availment and utilisation of credit to which the registered person was not entitled would fall within that expression. The discrepancy between GSTR-3B and GSTR-2A had led the assessing officer to conclude that the petitioner had availed ineligible credit, and Rule 88B(3) expressly prescribes the manner of computing interest from the date of utilisation of such wrongly availed credit till reversal or payment. The Court also noted that in such a situation the utilisation is through the electronic credit ledger, and therefore the proviso to Section 50(1), which limits interest to the portion paid through the electronic cash ledger, had no application. [Paras 4, 6, 7, 8]

The levy of interest was upheld as a valid consequence of wrongful availment and utilisation of ITC, and no interference was warranted.

Final Conclusion: The Court dismissed the writ petition and sustained the impugned order insofar as interest was concerned. It held that the case fell within wrongful availment and utilisation of ITC, attracting interest under the specific statutory scheme.

Entitlement to bail - Director of the company -fraudulently availed and utilized the input tax credit (ITC) - Documentary evidence already seized - Further custodial detention unnecessary -HELD THAT: - The Court found that the prosecution case rested on documentary evidence and that the relevant materials had already been seized by the investigating agency. Having regard also to the nature of the offence alleged, the prescribed punishment, and the period already spent in custody, the Court held that continued judicial detention would serve no useful purpose and would only adversely affect the petitioner's business. [Paras 21, 22, 23]

Bail was granted on conditions, as further detention was held to be unnecessary.

Final Conclusion: The bail application was allowed. The Court directed release of the petitioner on bail, holding that in a case founded on documentary evidence already seized, continued custody was not warranted.

Entitlement to bail - fraudulently availed and utilized the input tax credit (ITC) - principles of law -HELD THAT:- Bail was granted in the complaint under the Central Goods and Service Tax Act, 2017, subject to conditions regarding cooperation with the trial and non-interference with witnesses.

Seeking permission to be withdrawn - Alternate statutory remedy before the competent forum - HELD THAT:- It is evident from the reliefs prayed in the writ application that the petitioner was aggrieved by and dissatisfied with the notice in Form GST DRC-13. His contention in the writ petition was that a notice has been issued without considering and deciding the petitioner’s rectification applications and without granting him a proper opportunity of hearing.

In the circumstances, the writ petition was permitted to be withdrawn with liberty to file statutory appeals against the rectification orders within the time granted, and any question of limitation was directed to be considered in light of the pendency of the writ petition. All contentions were left open.

Seeking permission to be withdrawn - Alternate statutory remedy before the competent forum - HELD THAT:- The writ petition was permitted to be withdrawn with liberty to the petitioner to avail the statutory remedy of second appeal under Section 112 of the CGST/BGST Act, 2017, and the Court clarified that it had expressed no opinion on the merits.

Validity of Show cause notice under section 73 - Summary in Form DRC-01 not a substitute for show cause notice - Authentication by proper officer - Exclusion of limitation for de novo proceedings

Show cause notice under section 73 - HELD THAT: - The Court held that the controversy stood covered by Construction Catalysers Private Limited [2024 (10) TMI 279 - GAUHATI HIGH COURT] Adopting the reasoning extracted from that decision, it held that section 73 requires issuance of a show cause notice by the proper officer and that the summary in Form DRC-01 cannot substitute that statutory notice. The extracted reasoning further recognised that notice, statement and order must bear authentication of the proper officer, and in the absence of such compliance they are ineffective. On that basis, the order in original was quashed, while the summary already issued was not set aside and liberty was granted to issue a proper show cause notice under section 73(1). [Paras 5, 7]

The order in original was set aside, and the proper officer was directed to issue a fresh show cause notice in accordance with section 73(1).

Exclusion of limitation for de novo proceedings - Relation back of fresh show cause notice - HELD THAT: - Following the course adopted in Construction Catalysers Private Limited (supra), the Court treated the defect as a technical irregularity in the manner of initiating proceedings. It therefore preserved the summary already issued, directed that the fresh show cause notice should date back to the date of that summary, and ordered exclusion of the period from issuance of the summary until service of the certified copy of the present order while computing limitation for passing the order under section 73(9) read with section 73(10). [Paras 6, 7]

Fresh proceedings were permitted with relation back to the date of the summary, and the specified intervening period was excluded from limitation.

Final Conclusion: The writ petition was disposed of by quashing the order in original on the ground that a summary could not substitute the statutory show cause notice under section 73. The proper officer was given liberty to issue a fresh notice, with relation back to the earlier summary and exclusion of the intervening period for limitation.

Waiver of interest and penalty - Eligibility under proceedings initiated for non-fraud demand - Section 73 and Section 74 distinction - input tax credit had been availed from non-existing taxpayers, cancelled dealers and return defaulters - HELD THAT: - The Court held that, since an assessment order had already been issued and no appellate order had been passed, the petitioner's application fell within clause (b) of Section 128A(1). The application also related to a period covered by that provision. The reason assigned in the rejection order was that the petitioner had availed input tax credit from non-existing taxpayers, cancelled dealers and return defaulters. The Court held that, if that were the basis, proceedings ought to have been initiated under Section 74; however, the record showed that the proceedings were initiated under Section 73. On that reasoning, the ground of rejection was held not to sustain the impugned order. [Paras 5, 6]

The rejection order was set aside, and the respondent was directed to reconsider the waiver application and pass a fresh order in the light of the Court's observations.

Final Conclusion: The writ petition was disposed of by setting aside the order rejecting waiver and directing fresh consideration of the petitioner's application. The Court held that the stated ground of ineligibility could not support rejection when the proceedings had been initiated under Section 73.

Works contract GST reimbursement - Contractual dispute in writ jurisdiction - Alternate remedies - Claim for reimbursement of GST paid on works contracts entered into prior to 01.07.2017 was not examined in writ proceedings. - HELD THAT: - The Court held that the question whether the contractor was entitled to reimbursement of GST paid on supplies arose from the terms of the contract between the parties. Since adjudication of that claim involved questions of fact, the Court considered it inappropriate to examine the controversy in the present writ petition and declined to entertain it. [Paras 4]

The writ petition was dismissed, leaving it open to the petitioners to avail other alternate remedies.

Final Conclusion: Confined to the prayer for refund or reimbursement of GST, the petition was not entertained as the claim was held to be a contractual dispute involving factual questions. The petitioners were left free to pursue other alternate remedies.

Right of cross-examination in quasi-judicial proceedings - Fraudulent availment of input tax credit - Availability of statutory appeal in factual disputes - Principles of natural justice

Cross-examination and natural justice - Proof of genuine supply for input tax credit - HELD THAT: - The Court held that in quasi-judicial proceedings the right of cross-examination is not absolute. Since the allegation was that input tax credit had been availed without genuine supply, the petitioners could meet that allegation by producing documentary material such as invoices, e-way bills and transportation receipts. In that factual setting, mere denial of cross-examination was not sufficient to invalidate the proceedings. [Paras 5]

The challenge founded solely on denial of cross-examination was rejected.

Statutory appellate remedy for factual disputes - HELD THAT: - The Court found that the controversy turned on factual aspects and that the petitioners might establish the validity of the availed input tax credit by placing material documents on record. Since the writ petitions had been filed shortly after expiry of the limitation period and within the condonable period, the Court considered it appropriate to permit recourse to the statutory appeal and directed the appellate authority to entertain such appeal if filed within the time granted, subject to pre-deposit requirements. [Paras 6, 7]

The petitioners were permitted to file statutory appeals within the time granted, to be received and decided on merits subject to compliance with pre-deposit requirements.

Final Conclusion: The writ petitions were not entertained on the ground that denial of cross-examination, by itself, did not invalidate the proceedings in the factual context of alleged fraudulent availment of input tax credit. The petitioners were relegated to the statutory appellate remedy, with protection for filing the appeals within the time granted by the Court.

Condonation of delay in filing Form 10-IC - Competent authority under Section 119(2)(b) - Scope of CBDT authorisation by circular

Whether Principal Commissioner was not the competent authority to entertain the application for condonation of delay in filing Form 10-IC for Assessment Year 2024-25 in the absence of a circular authorising him for that year? - HELD THAT: - The Court held that the circular relied upon authorised condonation of delay in filing Form 10-IC only for Assessment Years 2020-21, 2021-22 and 2022-23. As no corresponding circular existed for Assessment Year 2024-25, the authority of the Principal Commissioner did not extend to that year. On the Court's reading of Section 119(2)(b), the Board is the competent authority to issue directions and to consider such an application where no specific authorisation in favour of the Income-tax authority exists for the relevant year. The impugned rejection was therefore unsustainable, and the petitioner was directed to move the Board for consideration of the condonation request on merits after hearing. [Paras 11, 12, 13]

The impugned order was quashed, and the petitioner was directed to file an application before the Board, which was in turn directed to decide it by a reasoned order after granting hearing, without the Court examining the merits of the underlying claim.

Final Conclusion: The Court held that, for Assessment Year 2024-25, the condonation application for delayed filing of Form 10-IC could not be decided by the Principal Commissioner in the absence of specific Board authorisation for that year. The rejection order was set aside and the matter was directed to be placed before the Board for fresh consideration by a reasoned order after hearing the petitioner.

Unexplained investment in convention hall - assessee's statement recorded during search under section 132(4) -Retraction of statement under section 132(4) - Evidentiary value of search admission

Whether addition for unexplained investment in the convention hall could be sustained on the basis of the assessee's statement recorded during search, as the alleged retraction was neither validly made nor supported by credible material? - HELD THAT: - The Court held that the assessee had unequivocally admitted in the statement recorded during search that the unexplained investment was his additional income in his individual capacity for the relevant assessment year. Mere filing of the return of income contrary to that admission did not amount to retraction, since filing the return only declares income for the year and does not by itself withdraw the earlier statement. The Court further held that a statement under section 132(4) carries evidentiary value and can be retracted only at the earliest opportunity by showing that it was made under mistake, coercion, threat or duress, supported by affidavit or other cogent and credible material.

A belated and unsupported retraction could not be accepted. On the facts, the later explanation before the AO came about a year and a half after the statement and was therefore not a valid retraction. The Court also noticed the Tribunal's finding that the admission stood corroborated by the physical existence of the building and absence of material showing that the investment was made by other partners, and therefore found no ground to interfere with the restoration of the addition. [Paras 10, 11, 12, 13]

The statement recorded during search was treated as binding in the absence of prompt and substantiated retraction, and the addition for unexplained investment was rightly restored.

Final Conclusion: The High Court upheld the Tribunal's restoration of the addition for unexplained investment, holding that the assessee's search statement had evidentiary value and that the alleged retraction was belated and unsupported. The appeal was dismissed and the questions of law were answered in favour of the Revenue.

Non-compliance with binding judicial order - Delay in disposal of statutory appeal - Natural justice and speedy justice

Failure of the appellate authority to act on the Tribunal's direction to pass a speaking order in the assessee's appeal - HELD THAT: - The Court found that the Tribunal had specifically directed the appellate authority to pass a speaking order in the assessee's appeal for AY2015-16 and that the continued failure to do so amounted to non-compliance with a binding judicial order. It held that an assessee cannot be left remediless because of administrative inaction and that prolonged delay in disposal of the appeal offended the principles of natural justice and the right to speedy justice under Article 14.

As the respondents did not dispute the factual position and did not oppose the request for early disposal, the Court held that there was no impediment to directing expeditious consideration of the pending application and appeal. [Paras 6, 7, 8, 9]

The concerned respondent was directed to consider the application for early disposal within six weeks, pass a reasoned order after hearing the petitioner, and communicate the decision within a week thereafter.

Final Conclusion: The writ petition was disposed of by directing time-bound consideration of the petitioner's application for early disposal of the pending appeal for AY2015-16. The Court did so without entering into the merits of the underlying tax dispute.

Validity of reassessment order u/s 148A(3) - non-consideration of the assessee's replies and breach of natural justice - Formation of belief regarding escaped income - Violation of principles of natural justice

HELD THAT: - The Court held that the impugned order reflected only a partial notice of the materials furnished and did not deal with the explanation offered by the petitioners in their replies. It found that a mere reference to circular fund movement, without analysing the commercial rationale or the materials produced, could not sustain the formation of belief required u/s 148A(3).

Since the statutory mandate required consideration of the assessee's reply before deciding whether it was a fit case for issuance of notice, non-consideration of the specific replies vitiated the order. The Court therefore held that the genuineness and creditworthiness of the transactions required fresh examination after granting an opportunity of hearing. [Paras 13, 14, 15, 16, 17]

The impugned order and consequential notice were quashed, and the Assessing Officer was directed to reconsider the transactions and pass a reasoned order after affording hearing.

Final Conclusion: The writ petition was allowed to the extent that the order under Section 148A(3) and the consequential notice under Section 148 for Assessment Year 2020-21 were quashed for non-consideration of the petitioners' replies and failure to record a sustainable basis for escaped income. The matter was remitted to the Assessing Officer for fresh consideration after granting opportunity of hearing.

Interest income received governed by the principle of mutuality - entitled to deduction u/s 57(iii) in relation to Maintenance Expenses incurred against earning of interest income - appropriate portion of deduction under Section 57(iii)

Interest income was governed by the principle of mutuality - Whether ITAT erred in holding that the interest income received by the Appellant is not governed by the principle of mutuality and is taxable in the hands of the Appellant? - HELD THAT:- Aforesaid question is squarely covered by a decision of Secunderabad Club etc. v. Commissioner of Income-tax [2023 (8) TMI 925 - SUPREME COURT] Since question (i) is squarely covered by a decision of the Hon’ble Supreme Court, the same does not give rise to any substantial question of law and is not entertained.

Appeal is admitted only on question (ii) and (iii) reproduced.

II. Whether on the facts and in the circumstances of the case and in law, the ITAT having held that the Appellant was entitled to deduction under Section 57(iii) of the Act in relation to Maintenance Expenses incurred against earning of interest income, erred in restricting the same to the extent of 7.5%?

III. Whether on the facts and in the circumstances of the case and in law, the ITAT ought to have allowed the appropriate portion of deduction under Section 57(iii) of the Act as claimed by the Appellant?”

Bogus purchases - Estimation of disallowance on partly genuine purchases - Restriction of addition in respect of alleged bogus purchases to 25% - substantial question of law

HELD THAT: - The Court held that both the Commissioner (Appeals) and the Tribunal had concurrently recorded a finding of fact that the purchases were not entirely bogus, since documentary material showed actual movement and receipt of goods.

Once such factual satisfaction was reached, the approach of taxing only the profit element by restricting the addition to 25% of the purchase amount could not be faulted. In that view, the challenge raised by the Revenue did not disclose any substantial question of law. [Paras 5, 6]

The Tribunal was justified in upholding restriction of the addition to 25%, and the Revenue's appeal did not give rise to any substantial question of law.

Final Conclusion: The High Court upheld the Tribunal's view that the alleged bogus purchases could not be added in full where the record showed genuine purchases supported by documents. Treating the matter as concluded by concurrent findings of fact, the appeal was dismissed for absence of any substantial question of law.

Reassessment notice for Assessment Year 2015-16 - Limitation on notices issued on or after 1st April 2021 - Revenue concession on limitation

HELD THAT: - The Court held that, in view of the order of the Hon'ble Supreme Court in RAJEEV BANSAL [2024 (10) TMI 264 - SUPREME COURT (LB)] recording the Revenue's concession that reassessment notices for Assessment Year 2015-16 would be time-barred, the only question requiring determination was whether the present matter related to that assessment year. Since it was admitted that the impugned notice was issued on or after 1st April 2021 and pertained to Assessment Year 2015-16, no further adjudication survived, and the notice had to be declared time-barred. [Paras 5, 6]

The petition was revived, the notice was declared time-barred, and all consequential action founded on it was quashed.

Final Conclusion: The Court held that, since the impugned reassessment notice was issued on or after 1st April 2021 and related to Assessment Year 2015-16, it was clearly time-barred in light of the position recorded by the Hon'ble Supreme Court. The notice and all consequential action were therefore set aside.

Validity of the order passed u/s 148A - Petitioner’s main grievance is the non-consideration of the plea for a personal hearing which has been raised in response to the show cause notices - respondent raises an objection to the maintainability of the writ petition and on the ground that the same has been filed at a pre-mature stage. AO is yet to arrive at a conclusive finding by passing any order of assessment

Reliance of respondent on judgment of Anshul Jain[2022 (6) TMI 1310 - PUNJAB AND HARYANA HIGH COURT] held that correctness of the order under Section 148A(d) is being challenged on the factual premise contending that jurisdiction though vested has been wrongly exercised. By now it is well settled that there is vexed distinction between jurisdictional error and error of law/fact within jurisdiction. For rectification of errors statutory remedy has been provided and Anshul Jain vs. Principal Commissioner of Income-tax and Anr. [2022 (10) TMI 3 - SC ORDER] wherein it has been held that for the if the petitioner has any grievance on merits the same must be agitated before the assessing officer in the reassessment proceedings

HELD THAT:- As petitioner seeks time to consider the judgment relied upon by the respondents.

Let this matter appear on 21.05.2026 under the heading “For Orders”.

Affidavit-of-service filed by the petitioner be kept on record.

Deduction u/s 80P(2)(a)(i) for interest income of a credit cooperative society - Attributable business income in relation to staff loans - Non-attributable commission income under section 80P - Deduction u/s 80P(2)(d) for dividend from cooperative bank

Interest from cooperative banks - Staff loan interest - Deduction u/s 80P(2)(a)(i) - Conflicting High Court decisions - Interest received from cooperative banks and interest received on loans advanced to staff eligibility for deduction as income attributable to the assessee's business of providing credit facilities - HELD THAT: - The Tribunal held that, for a cooperative society engaged in accepting deposits from and providing credit facilities to its members, the relevant test u/s 80P(2)(a)(i) is whether the income is attributable to that activity.

On the conflict between Karnataka High Court decisions cited by the parties, the Tribunal applied the principle adopted in coordinate bench decisions in TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED [2015 (2) TMI 995 - KARNATAKA HIGH COURT] and The Totagars Co-operative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT], that, where conflicting decisions of the same High Court exist, the decision whose facts are closer to the case before the Tribunal should be followed. On that basis, the authorities relied upon by the assessee were treated as governing the controversy. The interest from cooperative banks was accordingly held deductible, and the interest earned on staff loans was also treated as business income eligible for the same deduction. [Paras 10, 11]

The deduction claimed on interest from cooperative banks and on staff loan interest was allowed under section 80P(2)(a)(i).

E-stamping commissiondeductible under section 80P(2)(a)(i) or section 80P(2)(c) -Income not attributable to providing credit facilities - HELD THAT: - The Tribunal found that the e-stamping commission did not arise from, nor was it attributable to, the assessee's business of providing credit facilities to its members. It therefore did not satisfy the requirement for deduction under section 80P(2)(a)(i). The Tribunal further held that the claim was also not covered by section 80P(2)(c). [Paras 12]

The deduction claimed on e-stamping commission was disallowed.

Dividend from cooperative bank - Deduction under section 80P(2)(d) - HELD THAT: - The Tribunal held that the assessee's claim in respect of dividend income fell within section 80P(2)(d). On that basis, the dividend was treated as qualifying income for deduction. [Paras 13]

The deduction on dividend income from the cooperative bank was allowed.

Final Conclusion: The appeal was partly allowed. The Tribunal allowed deduction on interest from cooperative banks, staff loan interest and dividend from the cooperative bank, but sustained denial of deduction on e-stamping commission.

Penalty u/s 271DA - cash receipts in contravention of section 269ST - Requirement of finding on receipt from a person in a day or single transaction or one event or occasion

HELD THAT: - The Tribunal held that section 269ST is attracted only where the receipt of cash of the prescribed amount is shown to fall within any of the three statutory situations, namely receipt from a person in a day, receipt in respect of a single transaction, or receipt in respect of transactions relating to one event or occasion.

Though the assessee had admitted cash sales and the assessment had been completed by estimating profit thereon, the penalty order did not record any finding on these statutory conditions and proceeded only on the basis of the total cash sales admitted during the year.

In the absence of facts demonstrating violation of section 269ST in the manner required by the statute, levy of penalty under section 271DA was held to be unjustified. The same reasoning was applied mutatis mutandis to the other two assessment years as the facts and issue were identical. [Paras 5, 7]

The penalty under section 271DA was deleted for all the three assessment years.

Final Conclusion: The Tribunal allowed all three appeals and deleted the penalties, holding that mere admission of cash sales during the year was insufficient to attract section 271DA unless the order established the specific conditions constituting violation of section 269ST.

Validity of Sanction for reassessment notice - Mechanical approval u/s 151 - Validity of reopening for non-application of mind - Independent satisfaction of sanctioning authority

HELD THAT: - The Tribunal found that the approval recorded by the Principal Commissioner merely stated that, in view of the reasons recorded by the AO, it was a fit case for issue of notice, and did not reflect any independent examination of the material or application of mind.

Relying on Capital Broadways Pvt Ltd. [2024 (10) TMI 311 - DELHI HIGH COURT], CIT vs. Goyanka Lime & Chemical Ltd. [2015 (12) TMI 1334 - SC ORDER], and its own earlier orders, the Tribunal held that sanction u/s 151 is a jurisdictional safeguard and cannot be reduced to a ritualistic endorsement. Since the approval was invalid in law, the notice issued u/s 148 and the consequential reassessment could not be sustained.

In view of the reassessment being quashed on this legal ground, the remaining grounds on merits were left open and not adjudicated. [Paras 6, 7, 8]

The legal challenge to the assumption of jurisdiction succeeded, and the reassessment was quashed.

Final Conclusion: The Tribunal allowed the appeal by holding that the sanction under section 151 for issuance of notice under section 148 was mechanical and legally invalid. The reassessment was accordingly quashed, and the remaining grounds on merits were left open.

Stamp duty valuation on date of allotment - Section 56(2)(x)(b)(B) proviso for prior part-payment through banking channels - Admission of additional evidence for property valuation

Stamp duty valuation on date of allotment - Prior part-payment through banking channels - Immovable property purchased for consideration - Whether, for the purpose of section 56(2)(x)(b)(B) of the Income-tax Act, 1961, the stamp duty value was to be taken as on the date of registration or on the date of allotment/agreement? - HELD THAT: - The Tribunal held that the proviso to section 56(2)(x)(b)(B) requires adoption of the stamp-duty value as on the date of the agreement or allotment where the consideration, wholly or partly, had been paid through banking channels on or before that date. On the material placed before it, the Tribunal found that the flat had been booked earlier, an allotment letter had been issued by the promoter, and payment had been made through banking channels. In such circumstances, the lower authorities were not justified in proceeding on the stamp-duty value prevailing on the date of registration. Since the assessee also produced the ready reckoner value and valuation report showing the value as on the date of allotment, that material became directly relevant to the correct application of the statutory proviso. [Paras 8]

The findings of the Assessing Officer and the first appellate authority based on the registration-date stamp-duty valuation were held to be inconsistent with section 56(2)(x)(b)(B).

Additional evidence for property valuation - Remand for verification of valuation report - HELD THAT: - The Tribunal noted that the assessee had not furnished the valuation report before the lower authorities, but considered the document material for proper adjudication of the dispute regarding the relevant stamp-duty value. It therefore admitted the additional evidence and directed the Assessing Officer to examine and verify the authenticity and correctness of the valuation report and the applicable ready reckoner value as on the date of allotment, and thereafter to pass a reasoned order after giving adequate opportunity of hearing to the assessee. [Paras 8]

The impugned appellate order was set aside and the matter was remanded to the Assessing Officer for fresh examination of the valuation material and disposal in accordance with law.

Final Conclusion: The Tribunal held that, for the disputed addition on purchase of immovable property, the stamp-duty value relevant under section 56(2)(x)(b)(B) was the value on the date of allotment, subject to verification of the valuation material produced by the assessee. The additional evidence was admitted, the orders of the lower authorities were set aside on that issue, and the matter was restored to the Assessing Officer for fresh decision.

Receipts attributable to non-UK resident partners of a UK partnership firm -Fiscal transparency of partnership - Treaty entitlement of non-resident partners - Legal professional services and fees for technical services

Fiscal transparency of partnership- Taxability of receipts attributable to non-UK resident partners of a UK partnership firm - Treaty entitlement of non-resident partners - Partner-wise treaty analysis - India-UK DTAA - HELD THAT: - The Tribunal held that, under UK law, the partnership is tax transparent and its income is taxed in the hands of the partners according to their residential status. On a plain reading of Article 4(1)(b) of the India-UK DTAA, treaty protection extends only to the extent the partnership income is subject to tax in the UK as income of a resident, either in its own hands or in the hands of its partners. Consequently, non-UK resident partners cannot claim the India-UK DTAA merely because they are partners in a UK partnership.

Since the Assessing Officer had himself accepted the non-taxability of the UK partners' share under the India-UK DTAA and the taxability of the German partners' share with reference to the India-Germany DTAA, the same approach had to govern the remaining non-UK partners as well. Their taxability therefore required examination under the DTAAs with their respective countries of residence. [Paras 12, 13, 14, 17]

The matter was restored to the Assessing Officer to examine the tax liability of the non-UK resident partners with reference to the DTAAs of their respective countries of residence.

Taxing share of profit attributable to the partners based in Australia, France, Belgium, China and Japan, aggregating to 14.25%, by treating such receipts as FTS under the provisions of section 9(1)(vii) - Legal professional services and fees for technical services - Section 9(1)(vii) - HELD THAT: - Relying on its earlier decisions, the Tribunal held that the Act recognises a distinction between professional services and fees for technical services, and legal services fall in the former category. It further noted that Article 13 of the India-UK DTAA excludes payments to individuals or partnership firms for professional services covered under Article 15, including services rendered by lawyers, from the scope of fees for technical services. Similar exclusion was noted in DTAAs with other relevant countries. On that basis, the receipts from Indian engagements, being for legal professional services, could not be brought to tax as fees for technical services under section 9(1)(vii), and the addition on that footing was unsustainable. [Paras 15, 16, 17]

The addition made by treating the receipts attributable to non-UK partners as fees for technical services was deleted.

Final Conclusion: The Tribunal held that the receipts from legal services could not be assessed as fees for technical services under section 9(1)(vii). Since the assessee was a UK fiscally transparent partnership, the taxability of income attributable to non-UK partners had to be examined under the DTAAs of their respective countries of residence; the additions were deleted and the matter was remanded to the Assessing Officer for that limited examination for all three assessment years.

Fees for technical services tax rate u/s 115A(1)(b) - Beneficial provision u/s 90(2) - Education cess on DTAA rate

Fees for technical services tax rate u/s 115A(1)(b) - Automatic route approval - Beneficial provision under section 90(2) - Fees for technical services received by the non-resident assessee were taxable at 10% u/s 115A(1)(b) or 15% under Article 12 of the India-USA DTAA - HELD THAT: - The Tribunal held that, in the first round, it had already accepted that the receipts were in the nature of Fees for Technical Services and that the 10% rate under section 115A(1)(b) applied from 01.04.2016. On the surviving controversy regarding approval, it found that under the RBI Master Direction, prior approval was required only where remittances for consultancy services exceeded the prescribed threshold, whereas the assessee's receipts were below that limit. Since the governing FEMA and RBI framework permitted the remittance under the automatic route, the assessee could not be denied the concessional rate for want of a separate approval not contemplated by the regulatory scheme. The expression concerning approval by the Central Government had to be construed practically and reasonably, and not in a manner making compliance impossible. As the conditions of section 115A(1)(b) stood substantially satisfied, section 90(2) entitled the assessee to adopt the more beneficial domestic rate of 10% in preference to the 15% treaty rate. [Paras 5]

The Assessing Officer was not justified in taxing the receipts at 15% under the DTAA, and the assessee was held entitled to the 10% rate under section 115A(1)(b).

Education cess on DTAA rate - HELD THAT: - The Tribunal held that the issue was no longer res integra and decided it against the assessee. [Paras 6]

The ground relating to education cess was dismissed.

Final Conclusion: The Tribunal allowed the assessee's claim for taxation of Fees for Technical Services at 10% under section 115A(1)(b), holding that the absence of a separate approval letter could not defeat the benefit where the remittance was permissible under the RBI automatic route and the more beneficial domestic provision could be invoked under section 90(2). The ground relating to education cess was dismissed, and the interest ground was treated as consequential.

Penalty u/s 270A - under-reporting or misreporting of income - Rejected legal claim after full disclosure - Characterisation of receipts as royalty or fees for technical services

Levy of penalty u/s 270A on receipts disclosed by the assessee and claimed as not taxable in India where the dispute was only as to their characterisation as Royalty/Fees for Technical Services - HELD THAT: - The Tribunal held that the assessee had disclosed the entire receipts in its computation of income and had specifically stated that the receipts were not chargeable to tax in India as Royalty or Fees for Technical Services under the Act and the India-Hong Kong DTAA.

Addition made in assessment arose only from a different legal characterisation of the same disclosed receipts, and not from suppression, non-disclosure, or failure to furnish particulars. On that footing, none of the circumstances contemplated for misreporting u/s 270A(9) was shown to exist.

A mere rejection of the assessee's legal claim, or a different view of taxability taken by the AO, does not by itself establish under-reporting or misreporting so as to justify penalty. The deletion of penalty was therefore upheld. [Paras 3]

The penalty under section 270A was rightly deleted and the Revenue's challenge failed.

Final Conclusion: The Tribunal upheld deletion of penalty under section 270A, holding that the case involved only a disclosed claim on taxability and characterisation of receipts, without any material to show under-reporting or misreporting of income. The Revenue's appeal was dismissed, and the assessee's cross-objection was dismissed as infructuous.

Classification of Interactive Display Systems - Binding effect of appellate precedent - Judicial discipline in quasi-judicial adjudication - classifiable under tariff item 8471 4190 as Automatic Data Processing (ADP) Machines Or Not - HSN Explanatory Notes - General Rules for the Interpretation of Import Tariff (GRI) and Rule 3(c) - Principal function / specific use and trade parlance in classification - HELD THAT: - The Tribunal held that the classification issue was no longer open because it had already been settled in favour of the respondent in its own case. It noted that the assessment order itself recorded that the goods were identical to those considered in the earlier Tribunal decision in [2022 (2) TMI 308 - CESTAT NEW DELHI]. Once that earlier decision existed and had not been stayed, the Department was bound to follow it and could not reagitate the same dispute. The Tribunal further observed that subsequent decisions on similar goods had followed the respondent's earlier case and had also been allowed to stand. Applying the principle of judicial discipline, the Tribunal held that the assessment contrary to the earlier appellate decision was unsustainable, and that the claimed classification under Chapter Tariff Item 8471 4190 was correct. [Paras 9, 10, 11, 12, 13]

The imported goods were held classifiable under Chapter Tariff Item 8471 4190, and the Revenue's appeal was dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and affirmed that the respondent's imported Interactive Display Systems were classifiable under Chapter Tariff Item 8471 4190. It held that the Department was bound by the earlier Tribunal decision on identical goods in the respondent's own case and could not reopen the same classification issue.

Civil court jurisdiction bar - Oppression and mismanagement - Incidental and ancillary powers of NCLT - Incidental and ancillary powers of NCLT - Jurisdiction of civil court to entertain a suit and injunction application seeking restraint against access to company accounts and files, where parallel proceedings alleging oppression and mismanagement were pending before the National Company Law Tribunal - HELD THAT: - The Court held that Section 430 clearly excludes the jurisdiction of the civil court in respect of matters which the Tribunal is empowered to determine. Reading Sections 213, 241 and 242 together, the Tribunal's powers in oppression and mismanagement proceedings are of wide amplitude and include interim regulation of the company's affairs and such further directions as are just and equitable. Section 242(4) enables interim orders regulating the conduct of the company's affairs, while Section 242(2)(m), read with Rule 11 of the NCLT Rules and Section 424, recognises the Tribunal's incidental and inherent authority to grant equitable relief, including injunction, where the complained-of acts relate to the affairs of the company. The appellate court erred in treating alleged unauthorised access to company accounts, alteration of records and possible tampering of evidence as matters outside the Tribunal's purview merely because they were described as illegal acts; if such acts are connected with the alleged oppression and mismanagement, the relief must be sought before the NCLT. Since the suit sought no independent relief outside that controversy, the civil court's jurisdiction stood barred. [Paras 12, 13, 15, 16, 17]

The appellate order holding the suit maintainable was unsustainable; the trial court was right in declining interim relief on the ground that the matter lay within the exclusive jurisdiction of the NCLT.

Final Conclusion: The Civil Revision Petition was allowed. The Court held that the injunction sought in relation to company accounts and records was part of the oppression and mismanagement dispute already amenable to the NCLT, with the result that the civil court lacked jurisdiction and the trial court's view was restored.

Delegation of judicial power - Scope of Registrar's scrutiny under the NCLT Rules - Maintainability of company petition - Registrar's ministerial power in scrutiny - Non-maintainability arising from absence of proof of membership or non-compliance with statutory requirements - ​​​​​​​HELD THAT: - The Appellate Tribunal held that Rule 63, read with the scrutiny provisions and Rule 17 of the NCLT Rules, confines the Registrar's role to a ministerial and procedural exercise relating to registration, rectification of defects, and refusal to register only where procedural defects remain unremoved. No power is conferred on the Registrar to adjudicate legal issues affecting rights of parties or the maintainability of a petition. A question whether the petitioning shareholders satisfy the statutory threshold, or whether exemption under the proviso to Section 244(1) may be considered, involves judicial interpretation and adjudication, and therefore falls exclusively within the domain of the regularly constituted Bench on the judicial side. Consequently, treating such issues as scrutiny defects and declining registration under Rule 28(3) read with Rule 63 was beyond the Registrar's competence. The petition ought to have been numbered, objections if any noted, and the matter placed before the Bench for decision on maintainability. [Paras 7, 8, 9, 10, 11]

The impugned order was quashed, and the matter was remitted to the Registry to raise objections, if any, and place the petitions before the regular Bench, which alone would decide maintainability and any claim for exemption under Section 244(1).

Final Conclusion: The Appellate Tribunal held that the Registry had exceeded its limited scrutiny jurisdiction by rejecting the company petitions as non-maintainable. The order refusing registration was quashed, and the matter was directed to be placed before the regular Bench for judicial consideration of maintainability and the claim under Section 244.

Personal guarantor liability - Contract of guarantee - Section 95 insolvency proceedings - Non-production of a separate deed of guarantee - Definition of "personal guarantor" under Section 5(22) - HELD THAT: - The legislature has contemplated that the Personal Guarantor is an individual who is the “surety in a contract of guarantee to the Corporate Debtor”. It is a fact that, the Appellant has not denied that the letter of guarantee was executed.

The Appellate Tribunal held that, although a guarantor's liability is ordinarily determined by the deed of guarantee, the absence of a separately produced guarantee deed was not decisive in the facts of the case. The appellant had not denied execution of the letter of guarantee, had signed the loan agreement in the capacity of guarantor, and had never disputed his status as personal guarantor or raised any plea of fraud regarding the signatures appearing on the loan documents. The loan agreement itself recorded the guarantor's undertaking and the extent of liability, thereby serving the substantive purpose of a contract of guarantee. In these circumstances, the correlated documents on record sufficiently established that the appellant was a surety to the corporate debtor within the meaning of personal guarantor under the Code, and the proceedings under Section 95 could not be treated as invalid merely because the separate deed of guarantee was not filed. [Paras 17, 18, 19, 20, 21]

The challenge to admission of the Section 95 application failed, and the insolvency proceedings against the appellant as personal guarantor were held to be valid.

Final Conclusion: The Appellate Tribunal upheld the admission of the Section 95 proceedings against the appellant, holding that his admitted execution of the loan agreement and letter of guarantee sufficiently established his status and liability as personal guarantor. The appeal was accordingly dismissed.

Condonation of delay in appeal - Statutory limitation for appeal to Commissioner (Appeals) - Deemed service of adjudication order by registered post - Sufficient cause - Mandatory limitation period - HELD THAT: - The Tribunal held that under Section 85(3A), an appeal is required to be filed within two months from receipt of the adjudication order, and delay can be condoned only for a further period of one month on sufficient cause being shown. On the record, the Order-in-Original had been dispatched by registered post, and the Tribunal accepted the dispatch record as supporting deemed delivery in the normal course. Once the appeal was found to have been filed beyond not only the original period but also the statutorily permissible condonable period, the Commissioner (Appeals) had no authority to entertain it. Relying on M/s Singh Enterprises [2007 (12) TMI 11 - SUPREME COURT], and noticing the later Supreme Court observations on limitation and delay condonation, the Tribunal held that merits of the underlying dispute could not enlarge the statutory period of limitation. [Paras 3]

The dismissal of the appeal as barred by limitation was affirmed, and the appeal before the Tribunal was dismissed.

Final Conclusion: The Tribunal upheld the order dismissing the assessee's appeal as time-barred. It held that, once the appeal had been filed beyond the statutory period together with the limited condonable period, the Commissioner (Appeals) had no power to condone the delay.

Failure to consider coordinate Bench decisions - Business Auxiliary Service on commission of Amway distributors - Suppression of facts - Service tax on commission earned by distributors from sale and marketing of Amway products - HELD THAT: - The Tribunal found that the decision in Harvinder Kaur Malhotra [2025 (4) TMI 1395 - CESTAT NEW DELHI], relied upon by the Revenue, had been rendered without considering the earlier orders in Smt. Gopa Sarkar [2024 (7) TMI 1790 - CESTAT KOLKATA] and MT. Paramjit Kaur & Others [2015 (6) TMI 585 - CESTAT NEW DELHI] on the same issue. Since Smt. Gopa Sarkar had followed MT. Paramjit Kaur & Others and remanded similar disputes for fresh adjudication with directions regarding the nature of distributor commission and related aspects, the present appeals were also required to be dealt with in the same manner. The determinative ground was thus the need to follow the earlier coordinate Bench view already applied in an identical matter, rather than to decide the merits afresh on the basis of the later order.

The impugned order was set aside and the matters were remanded to the adjudicating authority for fresh decision in terms of the directions contained in the earlier Tribunal orders.

Final Conclusion: Following the earlier coordinate Bench orders governing the identical controversy, the Tribunal declined to affirm the demand on merits on the basis of the later decision cited by the Revenue. The impugned order was set aside and the appeals were disposed of by remand for fresh adjudication in accordance with the earlier Tribunal directions.

CENVAT credit on non-received inputs - Paper transactions through duty-paid invoices - Physical receipt of inputs as condition for credit - Penalty for fraudulent availment of CENVAT credit

Availment of CENVAT credit on waste and scrap - HELD THAT: - In terms of Rule 4(1) of the CENVAT Credit Rules, 2004, CENVAT Credit of inputs, to be used in the manufacture of final product is allowable to the manufacturer only on physical receipt of the goods along with invoices in the factory of the manufacturer. Moreover, a burden of proof is cast upon the manufacturer availing such credit, to establish the admissibility of such credit, in terms of Rule 4(5) ibid.

The Tribunal held that the subsequent decision in M/s. Saha Industries [2023 (11) TMI 608 - CESTAT KOLKATA] had conclusively established that the supplier was engaged only in paper transactions and had neither the facility nor the actual activity necessary to manufacture the goods said to have generated the waste and scrap covered by the invoices. In that background, entries in the appellant's own records or RG-23 Part-I could not, by themselves, prove actual receipt of inputs. Applying Rules 3 and 4 of the CENVAT Credit Rules, 2004, the Tribunal reiterated that physical receipt of inputs in the manufacturer's factory is a sine qua non for availment of credit, and invoices unbacked by actual goods do not confer eligibility. The remand ordered by the Commissioner (Appeals), which proceeded on the appellant's records and awaited the supplier-case outcome, became untenable once the supplier-case findings stood rendered against the existence of any genuine manufacture or movement of goods. [Paras 17, 18, 19, 20, 22]

The remand order was set aside, the denial of CENVAT credit was sustained, and the Order-in-Original was maintained.

Penalty for fraudulent availment of CENVAT credit - Mens rea in fictitious input transactions - HELD THAT: - The Tribunal found that the surrounding evidence established fictitious transactions undertaken with the intent to avail credit on inputs not received at the appellant's end. Since the supplier itself was found to be issuing only paper documentation without manufacture or clearance of goods, the downstream records were treated as a facade, and the appellant's conduct disclosed clear mens rea. On that basis, the penal consequences imposed by the adjudicating authority were held to be justified. [Paras 21, 22]

The penalty imposed on account of fraudulent availment of CENVAT credit was upheld.

Final Conclusion: The Tribunal held that the appellant had availed CENVAT credit on the strength of invoices unsupported by manufacture, movement or physical receipt of goods, and that the transactions were merely paper transactions. The order of remand passed by the Commissioner (Appeals) was set aside, the adjudication order denying credit with interest and penalty was restored, and the appeal was dismissed.

Entitlement to grant refund with statutory interest - Consideration of pending refund application - statutory interest - saving clause - repealed statute - HELD THAT: - The Court did not examine the petitioner's claim to refund on merits. On the State's statement that, if such refund application was pending, the competent authority would consider it and take a decision in accordance with law, the Court confined itself to directing the respondents to consider the statutory refund application and decide it within the stipulated time, leaving all merits open for determination by the department. [Paras 7, 8]

The refund application was directed to be considered and decided within the prescribed time, and, if refund is found payable, it was directed to be released with statutory interest.

Final Conclusion: The writ petition was disposed of without adjudicating the refund claim on merits. The respondents were directed to decide the pending refund application and, if the petitioner is found entitled, to grant refund with statutory interest.

Dishonour of cheque -Compliance with the statutory requirement of notice to the drawer - Presumption as to legally enforceable debt - Proof of complainant's financial capacity to advance loan - Conviction under Section 138 - complainant failed to establish the source of funds and financial capacity to advance the alleged loan

Statutory notice to drawer of cheque - Service of demand notice on another person - HELD THAT: - The judgment of the Hon’ble Apex Court in M. D. Thomas [2009 (4) TMI 1048 - SUPREME COURT] observed as, the notice of demand was served upon the wife of the appellant and not the appellant. Therefore, there is no escape from the conclusion that the respondent complainant had not complied with the requirement of giving notice in terms of clause (b) of proviso to Section 138 of the Act. Unfortunately, the High Court overlooked this important lacuna in the complainant’s case. Therefore, the conviction of the appellant cannot be sustained.

The Court found that the complainant's own cross-examination and the postal correspondence showed that the notice had been received by one Abhijit Murasingh and not by the petitioner. Applying the principle that compliance with the statutory requirement of notice to the drawer is mandatory, the Court held that the complainant had not established valid service of notice upon the petitioner and that the courts below failed to appreciate this defect. [Paras 12, 13]

The finding of guilt under Section 138 could not be sustained in the absence of proper statutory notice to the petitioner.

Proof of complainant's financial capacity to advance loan - Rebuttal of presumption as to legally enforceable debt - HELD THAT: - From the judgment of the Hon’ble Supreme Court in John K. Abraham [2014 (1) TMI 528 - SUPREME COURT], it is the settled position of law that in order to draw presumption under Section 118 read with Section 139 of NI Act, the burden was heavily upon the complainant to show that he/she had required funds for advancing money as loan to the petitioner-accused.

The Court noted that the complainant admitted that she had produced neither bank statement nor income-tax return nor any document showing her capacity or source of funds for the alleged loan. The Court held that, for drawing the presumption under Sections 118 and 139 of the Negotiable Instruments Act in the facts of the case, the complainant was required to show that she had the funds to advance the money. Since that foundational requirement was not satisfied, and the courts below had failed to consider this aspect, the conviction was held to suffer from infirmity. [Paras 12, 13]

The conviction was set aside as the complainant failed to prove the financial capacity and source of funds necessary to support the alleged legally enforceable debt.

Final Conclusion: The High Court allowed the revision and set aside the concurrent conviction under Section 138 of the Negotiable Instruments Act. It held that statutory notice to the drawer had not been duly proved and that the complainant had also failed to establish the source of funds and financial capacity to advance the alleged loan, resulting in acquittal of the petitioner.

Dishonour of cheque - legally enforceable debt - Compounding of offence under Section 138, at appellate stage - Applicability of modified compounding guidelines where complainant declines consent - Exercise of powers under Section 255(2) and Section 255(3) Cr.P.C. and benefit of Probation of Offenders Act - Rebuttable presumption - applications seeking acquittal in the cheque dishonour appeals - HELD THAT: - The Court held that the modified guidelines stated by the Supreme Court in Sanjabij Tari [2025 (9) TMI 1634 - SUPREME COURT] govern compounding of offences under Section 138 of the Negotiable Instruments Act not only before the trial court but also before the appellate and revisional courts. Under those guidelines, where the cheque amount is paid before the Sessions Court or the High Court in appeal or revision, the court may permit compounding on payment of 7.5% of the cheque amount as costs. Further, where the complainant is unwilling to consent to compounding, the court may consider the course indicated in paragraph 39 of that decision, namely suggestion to plead guilty and exercise of powers under Section 255(2) and/or Section 255(3) Cr.P.C., or the corresponding provision, and also extension of the benefit of the Probation of Offenders Act, 1958. Since the appellate court rejected the applications without considering them from that legal standpoint, its orders could not stand. [Paras 10, 11, 12]

The impugned orders were quashed and the applications were restored to the appellate court for fresh consideration in the light of paragraph 39 of Sanjabij Tari after deposit of the additional amount directed by the High Court.

Final Conclusion: The High Court held that the appellate court had failed to consider the accused's applications in accordance with the Supreme Court's modified framework for cheque dishonour cases where payment is offered at the appellate stage and the complainant does not consent to compounding. The rejection orders were therefore set aside and the matter was remitted for fresh consideration on that basis.

Dishonour of cheque - Legally Enforceable Debt - Proof of joint business liability - Fabricated agreement and supporting documents - Presumption and Rebuttal - Eschewing of partly cross-examined witness evidence - acquittal in the prosecution under Section 138 - fabrication or forging of signature

Proof of joint business liability - Fabricated agreement and supporting documents - HELD THAT: - The plaintiff in the suit is the accused and the fifth defendant is the complainant in the complaint filed under Section 138 of the NI Act. The plaintiff filed suit for recovery of money to the tune of Rs. 17,58,423.68/- as against the defendants 1 to 5 along with subsequent interest at the rate of 24% per annum from the date of suit till the realization of amount to the plaintiff. The specific case of the plaintiff is that the defendants 2 to 4 who are the partners of the first defendant and the fifth defendant are business associates and are doing business jointly. The plaintiff owed a sum of Rs. 17,25,293/- to the fifth defendant. Therefore, the plaintiff issued a cheque for the said sum dated 26.10.1999.

The Court found that the entire suit rested on the assertion that defendants 1 to 4 and the fifth defendant were jointly carrying on business and had undertaken the plaintiff's garment orders. That foundational case was not proved by any reliable evidence. The agreement relied on by the plaintiff was held unreliable because it bore a date earlier than the purchase of the stamp paper and the plaintiff admitted correction of the date. The plaintiff also failed to prove delivery of yarn or fabric to the defendants through any witness from the supplying mills, and there was no evidence that the fifth defendant instructed direct delivery to the first defendant. Several documents relied on to connect the fifth defendant were found to be fabricated or otherwise unreliable. Since the alleged supply of materials and the alleged joint arrangement were not proved, the consequential claim for processing charges and damages for non-supply of garments also failed. [Paras 28, 29, 30, 31, 37]

The money suit was held wholly unproved and liable to be dismissed.

Eschewing of partly cross-examined witness evidence - HELD THAT: - The Court held that there is no legal basis for wholly eschewing the evidence of a witness merely because further cross-examination did not take place later. In the present case, D.W.2 had already been examined and cross-examined, and the plaintiff sought reopening only at a much later stage along with an application to send documents for handwriting opinion. Once the application for handwriting expert's opinion was dismissed, no occasion survived for further examination of D.W.2. In those circumstances, the Trial Court ought to have assessed the probative value of the evidence already recorded instead of discarding it altogether. Its failure even to discuss D.W.2's evidence and the exhibits marked through him vitiated its approach. [Paras 32, 33, 34, 36, 37]

The evidence of D.W.2 and the connected exhibits could not lawfully be eschewed in entirety and had to be considered on their evidentiary worth.

Presumption under Section 138 of the Negotiable Instruments Act - Legally enforceable debt - HELD THAT: - The Appellate Court had acquitted the accused mainly by accepting the defence that the cheque liability stood adjusted under the alleged business arrangement and by relying on the Civil Court decree. Once the High Court found that the civil claim and the alleged agreement were not proved and that the supporting documents were unreliable, the very basis of the acquittal disappeared. The accused had admitted the liability underlying the cheque, and the defence of subsequent adjustment was unsupported. The Court further noted that the transactions pleaded in defence were said to have arisen only after the cheque had already been dishonoured, and that the accused had failed to rebut the statutory presumption by credible evidence. The complainant had therefore discharged the initial burden under Section 138, and the Trial Court's conviction was rightly sustainable. [Paras 39, 40, 41, 42]

The order of acquittal was set aside and the conviction and sentence under Section 138 were restored.

Final Conclusion: The High Court allowed the appeal suit and dismissed the plaintiff's recovery action in entirety, holding that the alleged joint business arrangement, supply transactions and supporting documents were not proved. It also allowed the criminal appeal by setting aside the acquittal and restoring the conviction and sentence under Section 138 of the Negotiable Instruments Act.