TaxTMI Updates e-Newsletter
Jun 29,2020

Summary order. Notice issued; counter-affidavits to be filed within four weeks, rejoinder within four weeks thereafter; matter listed on 16th September, 2020; order uploaded and copies sent to counsel.

Summary order. Notice issued; respondents permitted to accept notice. Counter-affidavits to be filed within four weeks, rejoinder within a further four weeks. Matter listed on 16th September, 2020; order to be uploaded and copies e-mailed to counsel.

Summary order. Petition seeking declarations regarding carry forward of electronic credit ledger in respect of stock as on appointed day (30th June 2017), vires of Rules 117 and 120A of the CGST Rules, 2017, and challenge to retrospective amendment to Section 140(1) was listed; notice issued to respondents, counsels accepted notice, timelines for filing counter-affidavits and rejoinder fixed (four weeks each), matter listed for hearing on 16th September, 2020.

Summary order. Petition admitted for hearing; notice issued to respondents; counter-affidavits to be filed within four weeks and rejoinder within four weeks thereafter; matter adjourned to 16th September, 2020 to await the judgment of the Supreme Court in Union of India Vs. Brand Equity Treaties Limited & Ors., SLP (C) 7425-7428/2020 = 2020 (6) TMI 517 - SC ORDER.

Classification of goods - essential character test - application of Chapter and Chapter Notes for tariff classification - classification under Chapter 10 (Rice) vs Chapter 19 (Prepared foods) - condonation of delay in filing appeal - scope of Advance Ruling / AAR to determine classification with indication of present duty structure

Condonation of delay in filing appeal - The appellant's request for condonation of delay in filing the appeal was allowed and the appeal admitted for final disposal. - HELD THAT: - The Advance Ruling dated 28.11.2019 was received on 03.12.2019 and the statutory 30 day period expired on 01.01.2020. The electronic appeal was filed on 06.01.2020 showing a delay of five days, which the appellant attributed to technical glitches on the portal. The Appellate Authority exercised the discretionary power under the proviso to Section 100(2) of the CGST Act to condone the delay, finding the circumstances satisfactory, and admitted the appeal for consideration on merits. [Paras 3]

Delay condoned and appeal admitted for final disposal.

Scope of Advance Ruling / AAR to determine classification with indication of present duty structure - The challenge that the AAR lacked jurisdiction to decide the rate was rejected; the AAR made a ruling on classification and indicated the present duty structure. - HELD THAT: - The Appellants contended that fixing the quantum of levy is a policy matter beyond the AAR's competence. The Appellate Authority observed that the AAR's order was a ruling on classification of the goods, accompanied by an indication of the applicable duty rates. The appellant's contention reflected a misreading of the AAR's order; the AAR determined classification and noted the present rate structure rather than purporting to effect a policy change. [Paras 12]

AAR's determination on classification with an indication of current duty structure does not amount to an exercise beyond its jurisdiction.

Classification of goods - essential character test - application of Chapter and Chapter Notes for tariff classification - classification under Chapter 10 (Rice) vs Chapter 19 (Prepared foods) - Fortified Rice Kernels (FRK) are not classifiable under Chapter 10 (heading 1006) and are correctly classifiable under Chapter 19, subheading 19049000. - HELD THAT: - The Appellants argued that FRK retained the essential character of natural rice and thus fell within Chapter 10 (heading 1006), relying on Chapter Note 1(B) which preserves certain processed rice forms within heading 1006. The Authority examined the manufacturing process and found that natural rice is converted to flour, mixed with vitamin mineral premix and then extruded back into granule form. This process removes rice grains and their essential characteristics as contemplated by Chapter Note 1(A), so the product cannot be treated as rice or as forms of rice (husked, milled, parboiled, broken etc.) which retain grain presence. Chapter 19 heading 1904 applies to cereals or cereal products "otherwise prepared" to an extent beyond Chapter 10 or 11; Note 4 to Chapter 19 defines "otherwise prepared" accordingly. Given the degree of processing and the appellant's own admission that FRK is a distinct product intended to be blended with traditional rice (ratio 1:100), FRK lacks the essential character of natural rice and falls within the scope of Chapter 19. Therefore, the AAR's classification of FRK under 19049000 (prepared foods otherwise prepared) is sustained. [Paras 13, 14, 15, 17, 18]

FRK does not qualify as rice under Chapter 10 and is classifiable under Chapter 19 subheading 19049000.

Final Conclusion: Delay in filing the appeal was condoned and, on merits, the Appellate Authority upheld the AAR's classification that Fortified Rice Kernels do not retain the essential character of natural rice and are classifiable under Chapter 19 (subheading 19049000); the challenge to AAR's jurisdiction to indicate applicable rates was rejected.

Definition of "goods" under the CGST Act - definition of "money" under the CGST Act - contextual construction of statutory definitions ("unless the context otherwise requires") - transportation of cash as baileement/transport of goods - availability of Input Tax Credit on motor vehicles used for transportation of goods - section 17(5)(a)(ii) - exception to blocked credit for transportation of goods - Rule 138(14) - goods exempted from e-way bill requirement (including currency)

Definition of "goods" under the CGST Act - definition of "money" under the CGST Act - contextual construction of statutory definitions ("unless the context otherwise requires") - Rule 138(14) - goods exempted from e-way bill requirement (including currency) - bailee relationship and contractual prohibition on use of cash - Whether currency transported by the appellant in cash carry vans is to be treated as "goods" for purposes of the CGST Act. - HELD THAT: - The Authority examined the statutory definitions and the factual matrix of the appellant's operations. The definitions in Section 2 start with the clause "In this Act, unless the context otherwise requires", permitting contextual departure from literal meanings. The definition of "money" in Section 2(75) applies when currency is used as consideration or for exchange; where currency is transported but not used as legal tender (as in the appellant's case acting as bailee under contract clauses forbidding use of cash), the context requires treating the transported currency as goods. Support for this contextual construction is drawn from Rule 138(14) and its annexure, which lists "money" among items in the e way bill exclusions, and from the contractual terms showing the appellant cannot use the cash. The special handling/security requirements imposed by RBI do not alter this legal character; regulatory safeguards do not preclude statutory classification of the transported currency as goods in the context of the appellant's services. Applying these principles to the facts, the Authority concluded that, in the circumstances of the appellant's business, the currency transported in cash carry vans is to be regarded as "goods" rather than "money" for GST purposes. [Paras 37, 38, 40, 41, 42]

Currency transported by the appellant in cash carry vans, on the facts and contracts before the Authority, is to be treated as "goods" for the purposes of the CGST Act.

Section 17(5)(a)(ii) - exception to blocked credit for transportation of goods - availability of Input Tax Credit on motor vehicles used for transportation of goods - transportation of cash as baileement/transport of goods - Whether Input Tax Credit of GST paid on purchase and fabrication of motor vehicles (cash carry vans) is allowable to the appellant. - HELD THAT: - Having held that the currency transported by the appellant constitutes "goods" in the context of their services, the Authority applied Section 17(5)(a)(ii), which bars ITC on motor vehicles except where they are used for transportation of goods. Because the cash carry vans are used for transportation of goods (the transported currency) the statutory exception applies and input tax credit of the tax paid on purchase and fabrication of such vehicles is admissible. The Authority rejected the revenue's contention that RBI guidelines or the special nature of vehicles would preclude classification as goods; those regulatory features do not negate the statutory exception permitting ITC when vehicles are used for transportation of goods. [Paras 41, 43]

Input Tax Credit on GST paid for purchase and fabrication of motor vehicles converted into cash carry vans is available to the appellant under Section 17(5)(a)(ii) as the vehicles are used for transportation of goods.

Final Conclusion: The Appellate Authority holds that, on the facts before it, the currency transported by the appellant in cash carry vans constitutes "goods" for GST purposes, and accordingly the appellant is entitled to claim Input Tax Credit on GST paid for purchase and fabrication of those motor vehicles under the exception in Section 17(5)(a)(ii).

Interim relief - reopening of portal - manual acceptance of GST TRAN-1 - verification of input tax credit - access to electronic tax payment mechanism

Interim relief - reopening of portal - manual acceptance of GST TRAN-1 - verification of input tax credit - access to electronic tax payment mechanism - Grant of interim protection directing respondent to reopen the portal or, failing that, to accept and decide the petitioner's GST TRAN-1 manually after verification and to permit electronic payment of taxes. - HELD THAT: - On being informed of an interim order in a similar pending matter, the Court granted comparable interim protection to the petitioner. The Court directed respondent no.3 to reopen the portal within two weeks; if the portal is not reopened, respondent no.3 is to entertain the petitioner's GST TRAN-1 manually and pass orders thereon after due verification of the input tax credits claimed. The Court further directed that the petitioner be permitted to pay its taxes through the regular electronic system maintained for utilization of the credit that may be considered. The Court also ordered interlocutory procedural steps: the petitioner to file a counter-affidavit within four weeks and the respondents to file a rejoinder within two weeks thereafter, and listed the matter for hearing after six weeks. These directions constitute interim relief and are granted in parity with the interim protection noted in the other pending matter.

Interim protection granted: portal to be reopened within two weeks or GST TRAN-1 to be accepted and decided manually after verification; petitioner to be allowed to pay taxes electronically; matter listed after six weeks; procedural timelines for affidavits fixed.

Final Conclusion: Petition granted interim relief in parity with a similar pending matter: respondent directed to reopen portal or manually process the petitioner's GST TRAN-1 after verification and to permit electronic tax payment; interim directions subject to further hearing after six weeks, with affidavits to be filed within prescribed timelines.

Rectification under section 154 - applicability of CBDT Instruction No.1725 in giving effect - power of first appellate authority to set aside assessment - effect of tribunal order setting aside assessment on subsequent proceedings - academic nature of orders after fresh assessment

Applicability of CBDT Instruction No.1725 in giving effect - rectification under section 154 - Whether CBDT Instruction No.1725 could be relied upon by the Assessing Officer to modify orders passed under section 154. - HELD THAT: - The Tribunal examined the text and scope of CBDT Instruction No.1725 and observed that the Instruction is directed to the practice of giving effect to orders of the first appellate authority (CIT(A)). The Instruction prescribes uniform practice where appellate orders partially set aside assessments by the CIT(A) and gives guidance for raising/keeping in abeyance demand relating to remanded points when giving effect. Since the Instruction relates specifically to giving effect to appellate orders of the first appellate authority, it cannot be invoked by the Assessing Officer as a standalone basis to pass rectification orders under section 154 in circumstances not covered by that practice. The Tribunal further noted that, by reason of legislative amendment to the erstwhile power of the first appellate authority to set aside assessments, the premise of the Instruction (that the CIT(A) can set aside matters to the AO) is not applicable as it stood when the Instruction was framed; consequently the Instruction could not justify the AO's orders under section 154 in the facts of these appeals. [Paras 9, 10]

CBDT Instruction No.1725 could not be the basis for the AO's rectification orders under section 154 in the present proceedings and is inapplicable to justify those orders.

Effect of tribunal order setting aside assessment on subsequent proceedings - rectification under section 154 - Whether proceedings under section 154 were maintainable after the Tribunal had set aside the original assessment and directed de novo framing of assessment by a competent officer. - HELD THAT: - The Tribunal had earlier in ITA No.631/Bang/2013 set aside the assessment framed by the ITO and directed that a competent officer (ACIT/DCIT) should frame the assessment de novo. Once the assessment order sought to be rectified no longer subsisted (having been set aside by the Tribunal), any subsequent proceedings under section 154 purporting to rectify that non-existent order were misconceived. The Tribunal concluded that rectification proceedings based on an order which had been annulled by a higher adjudicatory order could not stand and therefore were liable to be quashed. [Paras 11]

The section 154 proceedings were invalid because they sought to rectify an order which had already been set aside by the Tribunal; such proceedings were misconceived and liable to be quashed.

Academic nature of orders after fresh assessment - rectification under section 154 - Whether the impugned section 154 orders remained operative after a fresh assessment order was passed by the competent officer. - HELD THAT: - Subsequent to the section 154 orders, a fresh assessment was framed by the competent officer under section 254 r.w.s. 143(3), determining the assessee's total income. That subsequent assessment superseded prior determinations of income and tax payable. In view of the fresh, operative assessment order, the earlier section 154 orders stood rendered academic. The Tribunal noted that because the fresh assessment replaced prior computations, the rectification orders had no practical effect and therefore quashing them was appropriate. [Paras 12]

The impugned section 154 orders were rendered academic by the subsequent fresh assessment and thus had to be quashed.

Final Conclusion: Both appeals are allowed and the two orders passed under section 154 dated 6.4.2017 and 28.4.2017 are quashed on the grounds that the CBDT Instruction relied upon was inapplicable to the circumstances, the orders attempted to rectify an assessment already set aside by the Tribunal, and they were rendered academic by the subsequent fresh assessment.

Allowability of business expenditure under section 37(1) - Genuineness of commission payments - Expenditure laid out wholly and exclusively for business - Evidence required to establish agency services (agreements, account-payee payments, Form 26AS, returns) - Related party receipt of commission not ipso facto indicative of bogusness

Genuineness of commission payments - Allowability of business expenditure under section 37(1) - Evidence required to establish agency services (agreements, account-payee payments, Form 26AS, returns) - Related party receipt of commission not ipso facto indicative of bogusness - Commission payments made to specified agents were genuine and allowable as business expenditure for the assessment year. - HELD THAT: - The Tribunal examined whether the commission payments satisfied the conditions for deduction under section 37(1), namely that there was expenditure, it was not of the nature excluded by sections 30-36, not capital or personal, and was laid out wholly and exclusively for business. The assessee produced agreements detailing appointment and scope of work, payments were made by account payee cheques, agents submitted summaries of commission receipts from multiple companies, and Form 26AS entries and the agents' inclusion of the receipts in their returns established a live link between the assessee's business and the payments. The Revenue's adverse inference rested on relatedness of some payees and an undeveloped suspicion of diversion of profits; no independent evidence supported that allegation nor showed funds returned to the assessee. On these facts the Tribunal found the services were rendered and the payments were revenue in nature and wholly for business purposes, and therefore deductible under section 37(1). [Paras 7, 8]

Commission expenditures held to be genuine and allowable; AO directed to allow the claimed commission expenditure.

Final Conclusion: Appeal allowed; commission payments disallowed by the authorities are to be allowed as business expenditure for Asstt.Year 2014-15 and the AO is directed to give effect to this decision.

Appropriation of deposit towards tax demand - adjustment of tax recovery deposit between multiple assessment years - Kar Vivad Samadhan Scheme - Certificate of Intimation under the Kar Vivad Samadhan Scheme - computation of penalty and interest up to date of deposit - stay of recovery subject to deposit

Appropriation of deposit towards tax demand - adjustment of tax recovery deposit between multiple assessment years - stay of recovery subject to deposit - Validity of the respondent's appropriation of part of the Rs.6,00,000 deposit towards the crystallised tax demand for assessment year 1987-88 and consequent liability for interest on that tax demand. - HELD THAT: - The Court examined the common order dated 13.08.1991 which stayed the composite demand notice subject to the petitioner depositing Rs.6,00,000. The deposit was made in October 1991 and the Revenue thereafter adjusted/appropriated Rs.3,11,206 (part of the earlier crystallised tax demand for AY 1987-88) out of the deposit. The Tribunal's dismissal of the petitioner's quantum appeal made the tax demand final. The Court found that because the tax component for AY 1987-88 had been satisfied by appropriation from the deposit made in October 1991, the petitioner could not be made liable thereafter for interest on that tax amount which had already been appropriated; the Department had been in possession of Rs.6,00,000 since October 1991. On that basis the Court concluded that the petitioner is not liable to pay interest on the tax amount appropriated by the Tax Recovery Officer from the deposit. [Paras 13]

Appropriation of the deposit towards the tax demand for AY 1987-88 is recognised and the petitioner is not liable to pay interest on the appropriated tax amount.

Kar Vivad Samadhan Scheme - Certificate of Intimation under the Kar Vivad Samadhan Scheme - computation of penalty and interest up to date of deposit - Validity of the Certificate of Intimation dated 26.02.1999 under the KVSS insofar as it levies penalty and interest for AY 1987-88 and the scope of adjustment from the earlier deposit. - HELD THAT: - The petitioner had applied under the KVSS for AY 1987-88 and the Revenue issued a Certificate of Intimation determining 50% liability towards penalty and interest at a specified lump sum. The Court observed that the Certificate did not specify the precise period for which penalty and interest were computed and that liability for tax for AY 1987-88 had already been satisfied by appropriation from the Rs.6,00,000 deposit made in October 1991. Consequently, the Court set aside the Certificate insofar as it conferred liability for penalty and interest without accounting for the earlier appropriation. The Court directed the Revenue to compute and intimate any outstanding penalty and interest, if payable, only up to the date of deposit (October 1991), and to adjust any such liability from the balance, if any, of the Rs.6,00,000; any remaining balance thereafter was to be adjusted towards the outstanding liability for AY 1985-86. The computation and quantification of penalty and interest up to the deposit date was left to the Revenue to be completed and intimated within eight weeks. [Paras 11, 14]

Certificate of Intimation dated 26.02.1999 is set aside insofar as it levies penalty and interest without accounting for the earlier appropriation; Revenue to compute penalty and interest only up to date of deposit and adjust from the deposited amount, with any remaining balance applied to AY 1985-86.

Final Conclusion: The petition is allowed in part: the Certificate of Intimation dated 26.02.1999 is set aside to the extent indicated; the petitioner is not liable for interest on the tax amount appropriated from the Rs.6,00,000 deposit; the Revenue is directed to compute any penalty and interest payable only up to the date of deposit, to adjust such amounts from the deposit, and thereafter to apply any remaining balance to the outstanding liability for AY 1985-86; rule discharged and parties to bear their own costs.

Deduction under Section 10A - interest on margin money as profits derived from export - set-off of losses between STP/EC units for computation of Section 10A deduction - application of amendment to Section 10A by Finance Act, 2000

Interest on margin money as profits derived from export - deduction under Section 10A - The Tribunal's finding that interest earned on deposits kept as margin money is part of profits derived from export and is eligible for deduction under Section 10A was not reopened and is affirmed in favour of the assessee. - HELD THAT: - The parties informed the Court that this question has been authoritatively answered by a Full Bench of this Court in Commissioner of Income Tax v. Hewlett Packard Global Soft Ltd. The Court accepted that enunciation and therefore answered the substantial question against the revenue and in favour of the assessee.

The interest on margin money is to be treated as part of export profits for the purpose of deduction under Section 10A; question answered against the revenue.

Set-off of losses between STP/EC units for computation of Section 10A deduction - deduction under Section 10A - The Tribunal's conclusion that losses of EC 1 and EC 2 units cannot be set off against the profits of the EC 3 unit for computing deduction under Section 10A was accepted and the question is answered in favour of the assessee. - HELD THAT: - Counsel for the parties pointed out that the Supreme Court in Commissioner of Income Tax v. Yokogawa India Ltd. has addressed and decided the legal question raised by the revenue. Having regard to that authoritative pronouncement, the Court answered the substantial question against the revenue, upholding the Tribunal's treatment.

Losses of other EC/STP units are not to be set off against the exporting unit's profits for computing Section 10A deduction as contended by the revenue; question answered against the revenue.

Application of amendment to Section 10A by Finance Act, 2000 - set-off of losses between STP/EC units for computation of Section 10A deduction - deduction under Section 10A - The contention that the Tribunal erred in not applying the amendment to Section 10A (Finance Act, 2000 w.e.f. 01.04.2001) so as to require set off of losses from any STP/non STP unit against income of other STP units before allowing deduction was rejected; the question is answered in favour of the assessee. - HELD THAT: - The parties relied on the Supreme Court's decision in Commissioner of Income Tax v. Yokogawa India Ltd. as dispositive of this contention. The High Court accepted that authority and accordingly answered the substantial question against the revenue, negating the revenue's contention regarding the effect of the 2000 amendment in the circumstances of this case.

The Tribunal was not in error in the manner contended by the revenue regarding the 2000 amendment to Section 10A; question answered against the revenue.

Final Conclusion: In view of binding judicial precedents relied upon by the parties, the substantial questions of law are answered against the revenue and in favour of the assessee; the appeal is dismissed.

Stay of demand - condition of deposit for grant of stay - conditional stay subject to deposit - exercise of powers under Section 226(3) of the Income Tax Act - judicial precedent regarding stay conditions

Condition of deposit for grant of stay - judicial precedent regarding stay conditions - Validity of the condition of payment of 25% imposed as a condition for grant of stay of demand in the stay order Ext.P3 - HELD THAT: - The Court examined the stay order Ext.P3 which directed the petitioner to deposit 25% of the total amount by 15.03.2020 with the balance stayed for six months or till disposal of the appeal. The Court noted that the Division Bench order in W.A.No.1536/2019 had directed that while entertaining applications for stay, the condition of 20% (by reliance on a July 2017 circular) could not be imposed; however, such orders imposing 20% or 25% are sometimes passed without notice of that Division Bench order. In exercise of supervisory jurisdiction the Court found the imposition of the 25% condition in Ext.P3 unsustainable and set aside the impugned order, substituting its own condition for deposit.

Impugned condition of 25% in Ext.P3 set aside; original stay order vacated and replaced by a different deposit condition.

Stay of demand - conditional stay subject to deposit - exercise of powers under Section 226(3) of the Income Tax Act - Directions for further conduct of the appeal and the substituted condition for continuation of stay - HELD THAT: - Having set aside Ext.P3, the Court directed the Commissioner of Income Tax (Appeals), Kozhikode to hear the appeal within six months. The Court imposed a substituted condition that the petitioner shall deposit 12.5% of the total amount within one month from the date of the order; if the petitioner complies, the appeal shall be heard, and if not, the Commissioner is at liberty to pass any appropriate order in accordance with law. The Court observed the practical difficulties faced by the revenue due to the Covid-19 pandemic but framed a proportionate deposit condition and an express time-bound direction for hearing.

Commissioner directed to hear the appeal within six months; petitioner to deposit 12.5% within one month for the stay to continue; non-compliance permits the Commissioner to pass appropriate orders.

Final Conclusion: The writ petition is allowed to the extent that the stay order Ext.P3 imposing a 25% deposit is set aside; the petitioner is directed to deposit 12.5% within one month and the Commissioner of Income Tax (Appeals) is directed to hear the appeal for Assessment Year 2012-2013 within six months, failing which the Commissioner may pass orders as permissible by law.

Reopening of assessment - reason to believe - failure to disclose fully and truly all material facts - change of opinion - reasons recorded under section 148 - limitation for reopening within six years - recorded reasons cannot be supplemented by affidavit

Reopening of assessment - reason to believe - failure to disclose fully and truly all material facts - change of opinion - Validity of the notice dated 31.03.2019 under section 148 read with section 147 insofar as it seeks to re-open assessment for assessment year 2012-13 - HELD THAT: - Respondent's recorded reasons rely on information from a search in the premises of Shri Naresh Jain indicating that the petitioner traded in the scrip of Scan Steels Ltd. and received Rs. 23,98,014/-, which was characterised as income that escaped assessment. The record of the original assessment shows that the petitioner had disclosed the transactions and furnished documentary details and explanations in response to multiple notices under section 142(1), and the assessing officer concluded the assessment by accepting the returned income. The court applied the settled test that both (i) a reason to believe that income escaped assessment and (ii) a reason to believe that this was by reason of the assessee's failure to disclose fully and truly all material facts must co-exist. Where primary facts were disclosed to the assessing officer and the officer drew an inference accepting the assessee's case, mere subsequent dissatisfaction or a different inference based on the same material amounts to a change of opinion and does not justify reopening. The reasons recorded do not establish that the petitioner failed to make full and true disclosure of primary facts; therefore there was no valid foundation for formation of a belief under section 147 and the notice under section 148 is not sustainable. [Paras 36, 37, 39]

Impugned notice under section 148 and the order rejecting objections are unsustainable as the petitioner had disclosed the primary facts and reopening amounts to a change of opinion.

Reasons recorded under section 148 - recorded reasons cannot be supplemented by affidavit - Whether the reasons recorded for reopening can be supplemented or enlarged by subsequent affidavits filed by the Revenue - HELD THAT: - The court reiterated the principle that the validity of formation of belief under section 147 must be judged with reference to the reasons recorded by the assessing officer at the time of issuing the notice; those recorded reasons distinguish an objective from a subjective exercise and guard against arbitrariness. Subsequent affidavits which attempt to traverse beyond or to improve upon the recorded reasons cannot be relied upon to sustain the reopening. The respondents' attempt to justify reopening by material and contentions in the affidavit, not reflected in the reasons furnished to the petitioner, is therefore impermissible. [Paras 38]

Recorded reasons alone are to be considered; affidavits cannot be used to supplement or cure deficiencies in the recorded reasons.

Final Conclusion: Writ petition allowed; the notice dated 31.03.2019 issued under section 148 and the order dated 26.08.2019 rejecting objections are set aside; no order as to costs.

Block assessment - undisclosed income - evidence found as a result of search or requisition of books of account - reliance on statements recorded under Section 131 of the Act - primary or independent evidence requirement for additions in block proceedings - concurrent findings of fact - scope of appellate interference under Section 260A of the Act

Sale of Naphtha on premium - evidence found as a result of search or requisition of books of account - reliance on statements recorded under Section 131 of the Act - Deletion of the addition made on account of sale of Naphtha on premium was sustainable. - HELD THAT: - The Tribunal and the High Court upheld the CIT(A)'s deletion of the addition because the Assessing Officer had not produced any incriminating seized material from the search showing the assessee to be a quota holder or engaged in manufacture/sale of Naphtha, nor had the assessee been confronted with specific material used against him. The authorities concluded that the addition rested largely on the statement of Naresh B. Vora without documentary corroboration from the search records; block assessment under the statutory scheme must be founded on evidence found as a result of search or requisition and materials relatable thereto, which were absent here. The Tribunal found no illegality in CIT(A)'s detailed analysis and the High Court found no perversity in those concurrent findings. [Paras 15, 16, 17]

The deletion of the addition on account of sale of Naphtha on premium is upheld.

Sale on delivery orders / Reliance bills - primary or independent evidence requirement for additions in block proceedings - Deletion of the addition made on account of sale and delivery orders purchased from M/s. Reliance Industries Ltd. was sustainable. - HELD THAT: - The Tribunal agreed with the CIT(A) that the Assessing Officer failed to produce independent primary evidence linking the assessee to the Reliance bills; mere appearance of a name on two bills did not establish involvement and no reasoned material demonstrated that signatures belonged to the assessee. In block assessment proceedings the Assessing Officer must base additions on evidence found in search or documents directly relatable thereto; absent such primary corroboration, the estimated addition could not be sustained. The High Court found the Tribunal's and CIT(A)'s concurrent factual conclusions to be unimpeachable. [Paras 15, 16, 17]

The deletion of the addition based on sale and delivery orders (Reliance bills) is upheld.

Protective addition based on third party statements - nexus requirement between assessee and alleged concerns - Deletion of the protective addition made relying on the statement of Naresh B. Vora was sustainable. - HELD THAT: - The Assessing Officer made a large protective addition purporting a nexus between the assessee and certain Ahmedabad/Baroda concerns, but did not make inquiries with those alleged parties nor adduce documents proving the nexus. The Tribunal accepted the CIT(A)'s finding that the protective addition was unsupported by specific evidence recorded in the search or otherwise, and that the statement of Naresh B. Vora did not itself establish the claimed link. The High Court held these concurrent factual findings to be reasonable and not vitiated by perversity. [Paras 15, 16, 17]

The deletion of the protective addition is upheld.

Addition for foreign tour expenses - requirement of incriminating seized material to link expenditure to unaccounted income - Deletion of the addition on account of foreign tour expenses was sustainable. - HELD THAT: - The Tribunal agreed with the CIT(A) that no incriminating documents linking the foreign travel expenditure to unaccounted income were seized during search, and the assessment order did not identify material demonstrating that the foreign tour expenditure represented undisclosed income. In block assessment the Assessing Officer must rely on evidence coming into possession in the search or requisition; absent such material, the estimated addition could not be sustained. The High Court found no error in these concurrent factual findings. [Paras 15, 16, 17]

The deletion of the addition for foreign tour expenses is upheld.

Addition for household expenses based on diary entry - nexus requirement between seized document and assessee or family members - Deletion of the addition on account of household expenses was sustainable. - HELD THAT: - The Tribunal held, agreeing with the CIT(A), that the Gandhi diary entry used by the Assessing Officer was not seized during search, was not in the handwriting of the assessee or his family members, and thus lacked nexus to the assessee. The Assessing Officer had failed to consider total withdrawals by all family members and relied on conjecture to attribute the withdrawals to the assessee alone. Given the absence of incriminating documentary evidence tying the diary entries to the assessee, the estimated addition could not be maintained. The High Court found these concurrent conclusions to be reasonable and not manifestly erroneous. [Paras 15, 16, 17]

The deletion of the addition for household expenses is upheld.

Final Conclusion: The High Court found no substantial question of law arising from the Tribunal's order and dismissed the Revenue's appeal, upholding the CIT(A) and Tribunal's concurrent factual findings that the five challenged additions were unsupported by seized material or independent primary evidence and therefore could not be sustained.

Section 68 - unexplained cash credit (identity, genuineness and creditworthiness) - onus of proof under Section 68 - reopening proceedings under section 147/notice under section 148 - formation of belief / tangible information - proviso to Section 68 (requirement to explain source of source) not applicable to pre 2013 assessment years - investigation wing report - need for corroborative material before making additions - duty of Assessing Officer to investigate and dislodge assessee's evidence - Rule 34(5) ITAT Rules - exclusion of lockdown period for pronouncement of orders

Section 68 - unexplained cash credit (identity, genuineness and creditworthiness) - onus of proof under Section 68 - investigation wing report - need for corroborative material before making additions - Deletion of addition of Rs.10,20,00,000 made under Section 68 on account of unexplained cash credit. - HELD THAT: - The Tribunal affirmed the view of the CIT(A) that the assessee had discharged the primary onus under Section 68 by producing confirmation, ledger and bank statements, financial statements and assessment orders of the lender M/s Minaxi Suppliers Pvt. Ltd., proving identity, genuineness and creditworthiness. The AO relied primarily on the investigation wing's report but did not bring independent, cogent corroborative material to dislodge the documentary evidence produced by the assessee; additions founded on suspicion, surmise or conjecture cannot be sustained. As the evidence showed the amounts were routed through banking channels and the lender's finances (including liquidation of investments) were recorded, the Tribunal found revenue failed to rebut the assessee's case and therefore upheld deletion of the addition u/s 68. [Paras 4, 5]

Addition under Section 68 of Rs.10,20,00,000 deleted; appellate order in favour of the assessee confirmed.

Reopening proceedings under section 147/notice under section 148 - formation of belief / tangible information - Validity of reassessment proceedings initiated by issuance of notice under section 148. - HELD THAT: - The Tribunal held that the reassessment was validly initiated within four years of assessment upon receipt of tangible information from the investigation wing indicating possible escapement of income. The material before the AO furnished sufficient reasons to form a belief that income had escaped assessment and no infirmity was found in reopening the assessment. The assessee's cross objection challenging the validity of reassessment was therefore dismissed. [Paras 6]

Reassessment notice under section 148 upheld; cross objection dismissed.

Proviso to Section 68 (requirement to explain source of source) not applicable to pre 2013 assessment years - Section 68 - scope (assessee not required to prove source of source for AY 2011-12) - Whether the assessee was required to prove the 'source of the source' of funds for AY 2011-12. - HELD THAT: - The Tribunal recorded that the proviso to Section 68-imposing an additional requirement to explain source of source where credits consist of share application money, capital or premium-was inserted w.e.f. 01/04/2013 and is not retrospective. It therefore does not apply to AY 2011 12 and, in any event, the proviso is directed to share capital and related receipts and not to unsecured loans/deposits as in the present case. Consequently, the assessee was not required to prove source of source for the year under consideration; proving identity, genuineness and creditworthiness sufficed and, having done so, the assessee's burden was discharged. [Paras 5]

Proviso to Section 68 inapplicable to AY 2011 12; assessee not obliged to prove source of source for the impugned receipt.

Rule 34(5) ITAT Rules - exclusion of lockdown period for pronouncement of orders - Whether delay in pronouncement of the Tribunal's order beyond 90 days was justified. - HELD THAT: - The Tribunal explained the delay and applied the reasoning of coordinate decisions to exclude the nationwide COVID 19 lockdown period when computing the 90 day limit under Rule 34(5). Given the unprecedented disruption caused by the pandemic and extensions/notifications by higher courts and authorities, the bench treated the lockdown period as extraordinary and excluded it for the purpose of computing the time for pronouncement; consequently the order could be pronounced after accounting for that exclusion. [Paras 7]

Delay in pronouncement justified by exclusion of lockdown period; order pronounced accordingly.

Final Conclusion: The Tribunal dismissed the revenue appeal and confirmed deletion of the addition under Section 68 for AY 2011 12, upheld the validity of reassessment proceedings, held that the proviso to Section 68 (requiring proof of source of source) did not apply to the year in issue, and excused the delay in pronouncement by excluding the COVID 19 lockdown period under Rule 34(5).

Allowability of deduction by way of sales return and effect of journal correction entry - tax impact of inter-year journal correction and stock adjustments - revisional powers under Section 263 of the Income Tax Act and effect of remand - finality of revisional order and collateral challenge to fresh assessment

Revisional powers under Section 263 of the Income Tax Act and effect of remand - finality of revisional order and collateral challenge to fresh assessment - Whether non-challenge of a revisional order under Section 263 precludes the assessee from contesting the assessment made pursuant to that revisional order when the revisional order contains no conclusive finding on the disputed issue - HELD THAT: - The Tribunal held that where the Principal Commissioner in the revisional proceedings did not record a conclusive finding on the substantive question but only set aside the original assessment and remitted the matter to the Assessing Officer for fresh enquiry and determination, the revisional order did not attain finality on that point. The A.O.'s subsequent decision made after conducting enquiries pursuant to the remand is therefore open to challenge in appeal; non-challenge of the revisional order will not operate as a bar when the revisional order itself left the issue undecided. The Tribunal distinguished cases where a revisional authority has recorded categorical findings and only remitted for ministerial recomputation, noting that in such situations the point is finally determined and cannot be collaterally contested in an appeal against the order giving effect to that revisional order. [Paras 4, 5]

Non-challenge of a revisional order under Section 263 does not preclude the assessee from agitating before the Tribunal an assessment order made pursuant to that revisional order when the revisional order contained no conclusive finding and merely remitted the matter for fresh enquiry.

Allowability of deduction by way of sales return and effect of journal correction entry - tax impact of inter-year journal correction and stock adjustments - Whether the addition of the amount claimed as sales return (repurchase of flat) could be sustained where the assessee treated the entry as a correction of an earlier year and the transaction increased stock without affecting profit for the year under appeal - HELD THAT: - On the facts, the Tribunal noted that the sale to the purchaser occurred earlier, the repurchase (sales return) was effected before the year under appeal but the bookkeeping correction entry was passed in the year under appeal. The Tribunal accepted the CIT(A)'s finding that the entry in the year under appeal was a corrective journal rectifying the earlier year and that the sales return increased stock while leaving the profit and loss unaffected (being recorded both as sales return and as part of closing stock). The Tribunal observed that, except for the element of profit/loss timing which could have been claimed in the earlier year, there was no substantial revenue effect in the year under appeal; moreover, potential tax consequences (e.g., carryforward of loss or taxation at marginal rate) would mitigate any adverse impact. Applying these conclusions, the Tribunal found no justification for sustaining the addition and upheld deletion by the CIT(A). [Paras 6, 7]

The deletion of the addition was upheld: the payment/repurchase entry was a corrective journal affecting inter-year stock accounts and did not materially affect the assessee's profit for the assessment year 2011-12, so the disallowance was not justified.

Final Conclusion: Revenue's appeal dismissed; the Tribunal upheld the CIT(A)'s deletion of the addition for the assessment year 2011-12 and held that the assessee could challenge the assessment made pursuant to a Section 263 remand where the revisional order did not decide the issue on merits.

Disallowance of employees' contribution to PF and ESIC under Section 36(1)(va) read with the definition in Section 2(24)(x) - Re-characterisation of share subscription as loan for transfer pricing - TPO's power to re-characterise transactions and requirement of evidence of sham or concealment - RBI Master Circular permitting 180 days for allotment of equity and charging interest only for the period of delay beyond permissible limit

Disallowance of employees' contribution to PF and ESIC under Section 36(1)(va) read with the definition in Section 2(24)(x) - Validity of addition disallowing employees' contribution to PF and ESIC and entitlement to relief for contributions paid within statutory due dates. - HELD THAT: - The AO disallowed employees' contribution to PF and ESIC treating them as not allowable under the relevant provisions. The assessee produced payment proofs and a chart showing that, except for limited instances, the employees' contributions were paid within the due dates prescribed under the concerned Acts; only a small amount was paid late. On the materials on record (including payment proofs at pages 1-12 of the paper book) the Tribunal found force in the assessee's submissions and set aside the issue to the AO to examine the entire details filed by the assessee and allow relief for those contributions actually paid within the statutory due dates, taking into account the jurisdictional High Court authority cited by the parties. The Tribunal therefore did not sustain the blanket disallowance and directed reconsideration limited to amounts demonstrably paid in time. [Paras 3]

First ground partly allowed; matter remitted to the AO to give relief in respect of employees' contributions proven to have been paid within the prescribed due dates.

Re-characterisation of share subscription as loan for transfer pricing - TPO's power to re-characterise transactions and requirement of evidence of sham or concealment - RBI Master Circular permitting 180 days for allotment of equity and charging interest only for the period of delay beyond permissible limit - Whether the share subscription by the assessee in its Associated Enterprise could be re characterised as a loan for transfer pricing purposes and, if not, whether any transfer pricing adjustment should be confined to interest for the period of delay beyond 180 days. - HELD THAT: - The TPO treated the share application money as an advance/loan and computed a notional interest adjustment. The assessee's case was that the amounts were bona fide share application monies which were ultimately converted into allotted share capital and, absent any material showing the transaction was sham or intended to conceal its true nature, the TPO could not disregard the form of the transaction or substitute a loan characterization. The Tribunal relied on the reasoning of the Hon'ble Bombay High Court in an analogous decision to hold that re characterisation is impermissible without exceptional material showing sham or concealment and that the TPO cannot question the commercial expediency of the transaction. Separately, applying the RBI Master Circular which permits 180 days for allotment, the Tribunal accepted the assessee's alternate contention that, if any interest is to be charged, it should be limited to the period of delay beyond 180 days. On the facts, the relevant delay for which interest could be charged was confined to 80 days; interest was applied at 2% for that period, resulting in the restricted transfer pricing adjustment. The AO was directed to give effect to this treatment. [Paras 5, 6, 7, 8, 9]

Second ground partly allowed by restricting the transfer pricing adjustment to interest @2% for 80 days (addition limited to the amount computed thereon); AO to give effect.

Final Conclusion: The assessee's appeal is partly allowed: the disallowance of employees' PF/ESIC contributions is set aside and remitted to the AO for verification and relief in respect of amounts paid within statutory due dates, and the transfer pricing re characterisation is not sustained but, as an alternate measure, the Tribunal restricted any interest adjustment to the period of delay beyond the 180 day RBI limit (80 days at 2%), directing the AO to give effect to the order.

Registration under section 12AA - approval under section 80G - charitable nature of objects - genuineness of activities - remand for fresh consideration and verification of activities - withdrawal of earlier application not amounting to decision on merits

Registration under section 12AA - charitable nature of objects - genuineness of activities - withdrawal of earlier application not amounting to decision on merits - Whether registration under section 12AA could be sustained in view of the assessee's stated charitable objects and the absence of documentary evidence of genuine charitable activities. - HELD THAT: - The Tribunal observed that grant of registration under section 12AA requires satisfaction of two conditions: that the objects are charitable in nature and that the activities are genuine. The Tribunal noted the assessee's reliance on its memorandum of association and submissions about working with government programs, but also recorded the CIT(E)'s finding of non-submission of corroborative documentary evidence (MOUs/agreements/communications) and receipt of donations purportedly for technical assistance without evidence of performance of the claimed activities. The Tribunal held that the earlier withdrawal of an application did not constitute a decision on the merits and was therefore not determinative. Because the CIT(E) had rejected registration solely on the ground of non-genuineness as concluded from absence of evidence, and given that the assessee before the Tribunal accepted that activities have been carried out and could be evidenced, the Tribunal considered it appropriate to remit the matter to the CIT(E) to examine the genuineness of activities afresh and directed the assessee to submit necessary documentary particulars supporting the activities. The Tribunal distinguished the authority relied upon by the assessee (Baburam Education Society) as inapplicable on facts where activities had in fact been claimed to have commenced and therefore required verification. [Paras 6]

Registration under section 12AA was not finally decided on merits and the matter was restored to the CIT(E) for fresh consideration of genuineness of activities, with a direction to the assessee to furnish supporting evidence.

Approval under section 80G - registration under section 12AA - remand for fresh consideration and verification of activities - Whether the application for approval under section 80G could be upheld in the absence of registration and substantiation of charitable activities. - HELD THAT: - The Tribunal recorded that approval under section 80G is consequential upon registration under section 12AA. As the question of registration was remitted to the CIT(E) for fresh scrutiny of the genuineness of activities supported by evidence, the Tribunal also remitted the 80G application to the CIT(E) to be decided afresh after the outcome of the registration enquiry. [Paras 7]

The appeal against rejection of approval under section 80G was restored to the CIT(E) for fresh decision consequential to the reconsideration of registration under section 12AA.

Final Conclusion: Both appeals were allowed for statistical purposes and both matters (registration under section 12AA and consequential approval under section 80G) were remitted to the Commissioner of Income-tax (Exemption) for fresh consideration of the genuineness of the assessee's activities, with a direction to the assessee to produce supporting evidence.

Deduction under section 80P(2)(a)(i) - business income versus income from other sources - eligibility of a cooperative society engaged in providing banking or credit facilities to its members - inapplicability of precedent where facts materially differ

Deduction under section 80P(2)(a)(i) - business income versus income from other sources - eligibility of a cooperative society engaged in providing banking or credit facilities to its members - Interest income earned by the Thrift and Credit Society from deposits and bank accounts is business income attributable to activities of providing banking/credit facilities to members and is eligible for deduction under section 80P(2)(a)(i). - HELD THAT: - The Tribunal found that the assessee is a registered cooperative society which accepts deposits from and grants loans to its members only; the Assessing Officer did not find lending to non-members. Section 80P(2)(a)(i) covers cooperative societies carrying on either or both activities of providing banking facilities to members or providing credit facilities to members; the two activities need not be alternative and income attributable to such activities is eligible for deduction. Accordingly, interest earned on bank fixed deposits and savings accounts that directly relate to the society's business of lending and accepting deposits from members is business income linked to those member-related activities and falls within the scope of deduction under section 80P(2)(a)(i). The Tribunal rejected the application of the ratio in Bangalore Club as factually distinguishable and observed that the Totagars decision was not applicable on the facts of the present case. The CIT(A)'s conclusion treating the said interest as income from other sources and denying exemption was therefore erroneous.

Appeal allowed; interest income treated as business income and eligible for deduction under section 80P(2)(a)(i).

Final Conclusion: The assessee's appeal is allowed: the interest income in question is attributable to member-related banking/credit activities of the cooperative society, is business income and eligible for deduction under section 80P(2)(a)(i); the CIT(A) was incorrect in treating that income as income from other sources and denying the exemption.

Effect of omission of a statutory provision - Distinction between omission and repeal - Saving clause and continuity of pending proceedings - Applicability of Section 6 of the General Clauses Act - Revisional jurisdiction under section 263 of the Income Tax Act - Bench marking of specified domestic transactions and transfer pricing reference to TPO

Effect of omission of a statutory provision - Revisional jurisdiction under section 263 of the Income Tax Act - Bench marking of specified domestic transactions and transfer pricing reference to TPO - Validity of the Principal CIT's exercise of revisional jurisdiction under section 263 based on clause (i) of section 92BA which stood omitted w.e.f. 01.04.2017 - HELD THAT: - The Tribunal examined whether clause (i) of section 92BA - which formerly brought certain expenditures within the definition of specified domestic transactions - could support initiation of section 263 proceedings after its omission with effect from 1.4.2017. The Bench found that clause (i) was unconditionally omitted without any saving provision preserving pending proceedings or liabilities. Applying the settled principle that an unconditionally omitted provision is treated as obliterated from the statute book absent a saving, the Tribunal held that jurisdiction predicated on that omitted clause could not be validly exercised after the omission. The order of the Principal CIT cancelled the assessment on the ground that the AO had not referred the specified domestic transactions to the TPO for benchmarking under the now omitted clause; but because the clause was treated as never having existed post omission, the basis for invoking section 263 in relation to those transactions ceased to exist and the revisional action was therefore invalid. [Paras 12, 22]

The exercise of jurisdiction by the Principal CIT under section 263 insofar as it was based on clause (i) of section 92BA (omitted w.e.f.1.4.2017) is null and the order passed by the Principal CIT dated 08.03.2019 is quashed.

Distinction between omission and repeal - Applicability of Section 6 of the General Clauses Act - Saving clause and continuity of pending proceedings - Whether Section 6 of the General Clauses Act or other doctrines of continuity could validate continuation of proceedings initiated under clause (i) of section 92BA after its omission - HELD THAT: - The Tribunal analysed authoritative precedents distinguishing 'omission' from 'repeal' and the scope of Section 6 and related provisions of the General Clauses Act. It observed that Section 6 operates in the context of repeal and where a saving or continuity provision exists; omission without a saving clause cannot be equated to a repeal that preserves past or pending proceedings. Because clause (i) of section 92BA was omitted unconditionally and no statutory saving or re enactment with continuity was made, Section 6 could not be invoked to sustain proceedings begun or to be taken after the omission. The Tribunal considered and applied the reasoning of the Supreme Court decisions cited in the judgment to conclude that pending or future proceedings relying on the omitted provision cannot be continued in the absence of a saving provision. [Paras 13, 14, 20]

Section 6 of the General Clauses Act does not save the continuation of proceedings based on clause (i) of section 92BA after its unconditional omission; accordingly, such proceedings lapse in the absence of a saving clause or re enactment providing continuity.

Final Conclusion: The appeals are allowed: the Principal CIT's order dated 08.03.2019 under section 263, insofar as it proceeded on the basis of clause (i) of section 92BA (omitted w.e.f. 01.04.2017), is quashed as void because the omitted provision (in the absence of any saving or continuity provision) cannot support continuance of revisional proceedings initiated after its omission.

Depreciation under section 32 - ownership and asset used for the purposes of business - date of acquisition and asset put to use - integrated plant and parity principle

Depreciation under section 32 - ownership and asset used for the purposes of business - date of acquisition and asset put to use - integrated plant and parity principle - Entitlement to claim depreciation in respect of Solar Power Plant for the assessment year 2013-14 where AO disputed acquisition before year-end and user for business purpose. - HELD THAT: - The Tribunal examined whether the assessees had established ownership of their respective portions of the composite 16-block Solar Power Plant and that those assets were put to use for business before 31.03.2013 so as to qualify for depreciation under section 32. The Assessing Officer raised multiple discrepancies regarding invoices, transportation, installation and inspection reports and disputed that the assets were acquired and put to use in the relevant year. The CIT(A) allowed the claims by observing parity with the decision in favour of another co-owner (Aditya Medisales Ltd.) whose identical facts were accepted and whose order was not challenged by the department. The Tribunal noted the AO's pointed discrepancies and that they created some suspicion, but accepted the factual matrix that the 16-block plant was established pursuant to a contract awarded by MP Power Management Co. Ltd., subsequently acquired by Real Gold Developers LLP and apportioned among five purchasers who treated their portions as parts of an integrated plant. The Tribunal gave weight to the unchallenged acceptance of similar blocks in the companion case (AMSL) and to the fact that the AO himself allowed depreciation in the subsequent year, concluding that the parts owned by the assessees should be treated as integrated elements of the installed plant. On that basis, and in absence of a contrary finding on the ability of the purchased parts to operate independently, the Tribunal found no justification to interfere with the CIT(A)'s allowance of depreciation and dismissed the revenue appeals. [Paras 5, 6, 9, 10, 11]

Appeals dismissed; allowance of depreciation by the CIT(A) upheld.

Final Conclusion: The Tribunal upheld the CIT(A)'s allowance of depreciation claimed on the Solar Power Plant for Asst.Year 2013-14, treating the assessees' portions as integrated parts of the commissioned 16-block plant and dismissing the revenue appeals.

Release of drawback amount - No Objection Certificate - DRI clarification of no pending inquiry - failure to act despite departmental communication - imposition of costs for inaction

Release of drawback amount - DRI clarification of no pending inquiry - No Objection Certificate - Respondent No.1 to take immediate steps to release the drawback payable to the petitioner in respect of the Shipping bill dated 09.10.2015 and respondent No.2/DRI to file its earlier communication clarifying that no inquiry was pending. - HELD THAT: - The Court found that the drawback amount withheld by respondent No.1 had been restrained at the instance of respondent No.2/DRI but that the DRI had, by letter dated 19.03.2019, informed respondent No.1 that no inquiry was pending at the DRI and that respondent No.1 was free to take necessary action. In view of that clarification there was no subsisting basis to continue withholding the drawback amount due to the petitioner. The Court therefore directed respondent No.2/DRI to produce the said letter along with proof of receipt and furnished copies to the parties. The Court recorded its surprise that no steps had been taken by respondent No.1 to release the amount despite the DRI communication and gave respondent No.1 an opportunity to obtain instructions; it warned that if it transpired that respondent No.1 had received the DRI letter and nonetheless failed to act, the Court would be inclined to impose costs. [Paras 2, 3, 4, 6]

Respondent No.2/DRI directed to file the letter dated 19.03.2019 with proof of receipt and copies to parties; respondent No.1 directed to take steps to release the drawback amount payable to the petitioner and warned of costs in case of inaction.

Final Conclusion: The petition was directed to be listed after production of the DRI communication; the Court required respondent No.1 to act to release the drawback amount in light of the DRI's clarification and warned of costs if the department had failed to act despite receiving that communication.

Oppression and mismanagement - delay and laches - continuous oppression exception - removal of directors for non attendance - notice, service and procedural fairness - certificate of posting - statutory presumption and rebuttal - increase of authorised share capital - validity and procedural compliance in altering memorandum and articles - allotment of shares and bona fides - offer to existing shareholders - rectification of register of members and relief under section 111(5)(a) - appointment of independent auditor/accountant to investigate accounts

Delay and laches - continuous oppression exception - oppression and mismanagement - Maintainability of the company petition filed after delay of about four years - HELD THAT: - The Tribunal considered whether the petition should be dismissed for inordinate delay. Noting that no specific limitation period is prescribed for petitions under the relevant provisions and that the petitioners had been pursuing remedies since 2010, the Tribunal applied the principle that delay is not fatal where oppressive conduct is continuous. Relying on authoritative guidance that oppression is essentially a question of fact and that continuous acts of oppression disentitle respondents to take advantage of delay, the Tribunal found the petition to be maintainable and proceeded to decide the merits. [Paras 44]

The petition is maintainable despite the delay; delay does not bar relief where continuous oppression and mismanagement are established.

Removal of directors for non attendance - notice, service and procedural fairness - certificate of posting - statutory presumption and rebuttal - oppression and mismanagement - Validity of removal of the petitioners as directors for alleged failure to attend three consecutive board meetings - HELD THAT: - The Tribunal examined the evidence of notices and the circumstances of the board meetings relied upon to effect cessation. It observed suspicious proximity of meeting dates and material discrepancies between the minutes and the filings made with the Registrar of Companies (differences in time, chairman recorded, and absence of a resolution in the minutes). While certificates of posting attract a statutory presumption of service, that presumption is rebuttable. On the record before it, including inconsistencies in annexures and lack of proof of effective notice to the promoter director, the Tribunal concluded that proper procedure had not been followed and that the removal was tainted by impropriety. [Paras 47]

The removal of the petitioners as directors on the alleged ground of non attendance is illegal and void; the removals are set aside.

Increase of authorised share capital - validity and procedural compliance in altering memorandum and articles - allotment of shares and bona fides - offer to existing shareholders - rectification of register of members and relief under section 111(5)(a) - oppression and mismanagement - Validity of the increase of authorised share capital and subsequent allotment of additional shares to respondents Nos. 2 and 7, and whether such acts amounted to oppression - HELD THAT: - The Tribunal scrutinised the notice and the single composite resolution said to alter both the memorandum and the articles, observing that the item was placed under 'special business' but was recorded and treated as passed by simple majority; alteration of articles requires observance of the statutory procedure. The Tribunal also found no evidence that the increased share capital was offered to other shareholders and noted that the entire increased capital was apportioned to two persons, producing a grossly altered shareholding pattern. Applying precedent that an allotment without proper procedure or bona fides and without offering shares to existing members can constitute oppression, the Tribunal held the increase and allotments to be illegal and oppressive. [Paras 50, 51, 52]

The increase of authorised share capital and the allotment of the 2,000 shares to respondents Nos. 2 and 7 are illegal and set aside; the register of members is to be rectified to restore the pre increase shareholding.

Final Conclusion: The petition under the provisions addressing oppression and mismanagement is allowed. The Tribunal declared the increase of authorised share capital and the subsequent allotment to respondents Nos. 2 and 7 illegal and set them aside; the removals of the petitioners as directors were held void and set aside; the company is directed to rectify its register of members, file revised forms with the Registrar of Companies, and the reconstituted board is to nominate an independent chartered accountant to verify the accounts and report to shareholders. No order as to costs.

Refund of amounts recovered pursuant to set-aside order - retention of amounts after appellate setting aside is without authority of law - right to appeal does not justify retaining refunded amounts - undertaking as condition for refund - interest for delayed refund

Refund of amounts recovered pursuant to set-aside order - retention of amounts after appellate setting aside is without authority of law - right to appeal does not justify retaining refunded amounts - Legality of SEBI withholding amounts recovered pursuant to the Adjudicating Officer's order after the Tribunal set that order aside. - HELD THAT: - The Tribunal held that once the Adjudicating Officer's order imposing penalty was set aside, there remained no amount to be recovered; consequently any sum recovered pursuant to the AO's order could not lawfully be retained by SEBI. The fact that the Tribunal had not issued an explicit direction for refund was immaterial: the setting aside of the AO's order itself eliminated the basis for recovery and required immediate refund. Although SEBI retains the statutory right to file an appeal to the Supreme Court, that right does not provide lawful authority to continue holding funds recovered after the AO's order has been quashed, particularly where SEBI had not taken steps to file an appeal before the lockdown and the appellant furnished an undertaking to comply with any future stay or order of the Supreme Court. [Paras 8, 9]

Retention of the recovered amount by SEBI after the Tribunal set aside the AO's order was unlawful and the amount must be refunded.

Undertaking as condition for refund - interest for delayed refund - Relief to be granted: ordering refund, treatment of the appellant's undertaking, and interest on delayed payment. - HELD THAT: - Having found retention unlawful and noting the appellant's undertaking to place the amount back if the Supreme Court grants a stay, the Tribunal directed SEBI to refund the recovered sum by a specified date. The Tribunal recorded that failing payment by that date would render SEBI liable to pay interest from the date of recovery until payment at the rate specified in the order. The appellant's undertaking was accepted as a reasonable condition to allay SEBI's concern about any future stay in a proposed appeal. [Paras 10]

SEBI directed to refund the recovered amount by the date fixed in the order, failing which interest at the prescribed rate would be payable; the appellant's undertaking accepted as a condition for refund.

Final Conclusion: The Tribunal held that retention of sums recovered under the AO's order was unlawful once that order was set aside, and accordingly directed SEBI to refund the amount by the date specified, failing which SEBI must pay interest; the appellant's undertaking was accepted as a condition for refund.

Approval of resolution plan - appeal under section 61(3) grounds - material irregularity in exercise of the powers by the resolution professional - no right to renegotiation by a lower-ranked resolution applicant - evaluation in accordance with the Request for Resolution Plan

No right to renegotiation by a lower-ranked resolution applicant - evaluation in accordance with the Request for Resolution Plan - A resolution applicant ranked below the cut-off under the prescribed evaluation criteria is not entitled to renegotiation or participation in negotiations with the Committee of Creditors. - HELD THAT: - The Tribunal held that the Request for Resolution Plan (RFRP) provided the evaluation process and expressly confined negotiations to the top three resolution applicants. The appellant, having been ranked sixth after evaluation, could not claim a right to renegotiate or to be admitted into the negotiated round. The e-mail from the appellant expressing willingness to negotiate was vague and did not constitute a concrete revised financial proposal or a revised resolution plan for the Committee of Creditors to consider. The evaluation and negotiation process followed by the resolution professional and the Committee of Creditors, as per the RFRP, therefore did not confer on the appellant any enforceable right to further negotiation. [Paras 6, 7, 9]

The appellant, ranked sixth, had no entitlement to renegotiation and the communications relied on did not amount to a valid revised resolution plan.

Approval of resolution plan - appeal under section 61(3) grounds - material irregularity in exercise of the powers by the resolution professional - The appellate interference with an Adjudicating Authority's approval of a resolution plan is limited to the specific grounds enumerated under section 61(3); absent any such ground, the Tribunal will not interfere with the approved plan. - HELD THAT: - The Tribunal reproduced the statutory grounds under section 61(3) which permit challenge to an approved resolution plan, including contravention of law, material irregularity by the resolution professional, non-provision for operational creditors as specified, priority non-compliance for insolvency resolution process costs, or non-compliance with criteria specified by the Board. Finding that none of these statutory grounds was established by the appellant, the Tribunal declined to reassess commercial aspects or the Committee of Creditors' evaluation-matters reserved to the Committee under established precedent-and dismissed the appeals. [Paras 11, 12]

No ground under section 61(3) was made out; appeals dismissed and the approved resolution plan left undisturbed.

Final Conclusion: The appeals by Kundan Care Products Ltd. were dismissed: the appellant, ranked sixth under the RFRP, had no enforceable right to renegotiate and no statutory ground under section 61(3) was shown to impugn the approval of the successful resolution plan.

Ineligibility under section 29A of the Insolvency and Bankruptcy Code, 2016 - related party / connected person disqualification - commercial wisdom of the Committee of Creditors - validity of rejection of a resolution plan and scope of judicial interference - attendence/notice to resolution applicant and compliance with section 30(5) - liquidation on expiry of the insolvency resolution period

Ineligibility under section 29A of the Insolvency and Bankruptcy Code, 2016 - related party / connected person disqualification - The appellant is a related party to the suspended director of the corporate debtor and therefore ineligible under section 29A of the I&B Code. - HELD THAT: - The Tribunal found on the evidence that the suspended director of the corporate debtor had operated the bank accounts of the appellant as an authorised signatory and that the appellant admitted temporary authorisation for signing cheques. The appellant also admitted purchase of the corporate debtor's vehicle and use of the corporate debtor's brand name. These facts led the Tribunal to conclude that the appellant stood in a relationship of a connected/related person with the suspended director who was in management of the corporate debtor. On that basis the appellant was held to be ineligible to submit a resolution plan under the disqualification principles embodied in section 29A of the Code. [Paras 17, 19]

Appellant held to be a related party and ineligible under section 29A.

Commercial wisdom of the Committee of Creditors - validity of rejection of a resolution plan and scope of judicial interference - liquidation on expiry of the insolvency resolution period - The Committee of Creditors lawfully considered and rejected the appellant's resolution plan by 100% voting, and the Adjudicating Authority's order directing liquidation is not interfered with. - HELD THAT: - The Tribunal recorded that the resolution plan was placed before the Committee of Creditors, which in its commercial wisdom rejected the plan by unanimous voting. The Tribunal emphasised that the COC's commercial decision to reject a plan cannot be lightly interfered with by the Adjudicating Authority or this Appellate Tribunal, particularly where the insolvency resolution period was nearing statutory expiry and the process could not be kept pending indefinitely. The Tribunal noted that the reasons for rejection were recorded in the COC minutes and communicated to members, and therefore the Adjudicating Authority's decision to order liquidation on the basis that no acceptable plan existed was sustainable. [Paras 5, 20, 21]

COC's unanimous rejection upheld; liquidation order sustained and not interfered with.

Attendence/notice to resolution applicant and compliance with section 30(5) - related party / connected person disqualification - Non-invitation of the appellant to the COC meeting did not vitiate proceedings where the appellant's authorised signatory (the suspended director) attended and was aware of the proceedings, and the appellant's related-party status precluded challenge. - HELD THAT: - The appellant contended it was not called to the COC meeting where its plan was considered, invoking section 30(5). The Tribunal found that the suspended director, who had been an authorised signatory for the appellant's bank accounts and thereby established as related, attended the 7th COC meeting. Given that attendance and the appellant's established related-party nexus, the Tribunal held that the appellant could not fault non-invitation and that the presence of its authorised representative rendered the challenge to the COC proceedings untenable. [Paras 17, 18]

Lack of direct invitation to appellant did not invalidate COC proceedings where appellant's authorised signatory attended and appellant was a related party.

Final Conclusion: The Appellate Tribunal found the appellant to be a related/connected person and therefore ineligible under section 29A; the Committee of Creditors' unanimous rejection of the resolution plan and the Adjudicating Authority's liquidation order were upheld, and no interference with those orders was warranted.

Admission under section 7 of the Insolvency and Bankruptcy Code, 2016 - financial debt and default - existence of dispute not relevant under section 7 - corporate insolvency resolution process - moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of interim resolution professional

Financial debt and default - admission under section 7 of the Insolvency and Bankruptcy Code, 2016 - The Financial Creditor proved the existence of financial debt and default and the application under section 7 is complete and admits initiation of CIRP against the Corporate Debtor. - HELD THAT: - The Tribunal found that the Applicant advanced funds under three facility agreements and produced hypothecation agreements and registration of charge to establish the financial debt. The records show the last payment received on 24-11-2017, the demand notice dated 24-04-2017 was served, and the TransUnion CIBIL report classifies the assets as sub-standard. On these materials the Tribunal concluded that the Corporate Debtor failed to repay as per the repayment schedules and that default is established. The application filed under sub-section (2) of section 7 was held complete and, having regard to the proved existence of financial debt and default exceeding the statutory threshold, the application deserved admission. [Paras 5, 6, 7, 10, 14]

Application under section 7 is admitted as financial debt and default are established.

Existence of dispute not relevant under section 7 - The contention that the debt is disputed is not a bar to admission of the section 7 application. - HELD THAT: - Relying on the precedent cited in the order, the Tribunal stated that where a corporate debtor commits default of a financial debt the adjudicating authority need only examine the records or other evidence produced by the financial creditor to satisfy itself that a default has occurred. The Court held that the existence of a dispute does not prevent admission under section 7 when the debt is otherwise shown to be due. [Paras 11, 12]

The plea of disputed debt is not maintainable to defeat the section 7 application.

Appointment of interim resolution professional - moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - corporate insolvency resolution process - An Interim Resolution Professional is appointed and moratorium under section 14 is declared with consequential directions upon admission of the CIRP. - HELD THAT: - The Applicant proposed a registered insolvency professional and provided the requisite declaration. Upon admission of the section 7 application the Tribunal appointed the proposed professional as Interim Resolution Professional to perform functions under the Code, directed compliance with IBBI regulations for fee, and declared the moratorium prohibiting suits, transfer or encumbrance of assets, enforcement of security, and recovery by owners/lessors, with additional directions regarding supply of essential goods and public announcement as required by the Code. The order specifies the moratorium's duration and other consequential directions. [Paras 13, 14]

Mr Srigopal Choudhary is appointed as Interim Resolution Professional and moratorium under section 14 is declared with the stated consequential directions.

Final Conclusion: The Tribunal admitted the section 7 application against the Corporate Debtor, holding that financial debt and default were proved, that a plea of disputed debt does not bar admission, appointed the nominated Interim Resolution Professional, and declared the moratorium with consequential directions to commence the corporate insolvency resolution process.

Pre-existing dispute - admission under section 9 of the Insolvency and Bankruptcy Code, 2016 - corporate insolvency resolution process - completion certificate not conclusive on existence of dispute - suppression of material correspondence in affidavit - imposition of costs for wrongful initiation of CIRP

Pre-existing dispute - admission under section 9 of the Insolvency and Bankruptcy Code, 2016 - completion certificate not conclusive on existence of dispute - Existence of pre-existing dispute between operational creditor and corporate debtor and consequent propriety of admitting the section 9 petition. - HELD THAT: - The Tribunal found on the material placed before the Adjudicating Authority - including contemporaneous emails, minutes of review meetings, expert enquiry notes and correspondence - that disputes regarding installation, quality of work and functioning of the plant existed prior to the filing of the section 9 application. The adjudicatory value of a completion or appreciation certificate does not automatically foreclose bona fide, pre-existing grievances as to quality, incomplete works and operational defects where contemporaneous records indicate ongoing disputes and unresolved corrective action plans. Given that such pre-existing disputes were on record and that the Adjudicating Authority nonetheless proceeded to admit the section 9 application ex parte, the admission was unsustainable and required setting aside. [Paras 11, 14]

The admission of the section 9 application was set aside and the initiation of CIRP quashed for want of exclusion of a pre-existing dispute.

Suppression of material correspondence in affidavit - imposition of costs for wrongful initiation of CIRP - Whether the authorized representative suppressed material correspondence and whether costs should be imposed. - HELD THAT: - The Tribunal recorded that the authorized representative filed an affidavit claiming that further communications were 'not retrievable' despite contemporaneous emails and other correspondence being available, and that such non-disclosure contributed to the initiation of CIRP. The Tribunal held that commencing CIRP against a functioning company is a serious step and parties must not withhold material records; the affidavit was found to be evasive and the conduct warranting penal consequences. On that basis, the Tribunal imposed compensatory costs on both the operational creditor and the authorized representative. [Paras 13, 16]

Costs were imposed: on the operational creditor and on the authorized representative for suppression/evasive conduct in the prosecution of the section 9 proceeding.

Final Conclusion: Impugned admission order dated July 26, 2019 is quashed; the CIRP against the corporate debtor is set aside and the IRP/RP directed to hand over assets and records to the corporate debtor/board; costs awarded against the operational creditor and its authorized representative.

Waiver of interest and penalty under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - declarations under SVLDRS - opportunity of hearing - treatment of writ petition as representation - disposal of representation with hearing

Waiver of interest and penalty under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - declarations under SVLDRS - opportunity of hearing - treatment of writ petition as representation - disposal of representation with hearing - Petition to challenge rejection of SVLDRS declarations was to be treated as a representation and directed to be disposed of after giving an opportunity of hearing. - HELD THAT: - The petitioner challenged communications rejecting its declarations for waiver of interest and penalty under the SVLDRS scheme for the period October 2013 to September 2016 on the ground that taxes were fully paid and declarations correctly showed nil tax liability in accordance with the CBIC circular dated 25th September, 2019. The petitioner pointed out that declarations for the later period (October 2016 to June 2017) were processed after an oral hearing and submitted that a single assessee having one registration ought to have uniform processing for the entire period. Respondent's counsel accepted notice and did not object to treating the petition as a representation. In view of these circumstances, the Court directed that the petition be treated as a representation and that respondent No.2 dispose of it after giving an opportunity of hearing to an authorised representative of the petitioner on the specified date and time, with disposal to be completed by the stipulated deadline. [Paras 8, 9]

Writ petition treated as representation; respondent No.2 directed to afford hearing and dispose of the representation by 30th June, 2020 (hearing on 29th June, 2020 at 11:30 A.M.).

Final Conclusion: The petition was converted into a representation; respondent No.2 was directed to hear the petitioner's authorised representative and decide the declarations concerning waiver of interest and penalty under the SVLDRS by the prescribed date, with other rights and contentions left open.

Discharge Certificate - final settlement under Sabka Vishwas Scheme - release of bank lien - withdrawal of lien on insurance policy - administrative inaction and judicial direction to clear file

Discharge Certificate - final settlement under Sabka Vishwas Scheme - release of bank lien - withdrawal of lien on insurance policy - Respondent directed to defreeze the petitioner's bank account and withdraw lien on LIC policy after issuance of Discharge Certificate in settlement under the Sabka Vishwas Scheme. - HELD THAT: - The petitioner had applied under the Sabka Vishwas Scheme, 2019 and, after verification, accepted the settlement amount fixed by the Designated Committee which was deposited with the respondent. A Discharge Certificate dated 11.03.2020 was thereafter issued in full and final settlement of the tax dues. Despite the Discharge Certificate, the respondent had not taken steps to defreeze the petitioner's saving bank account or to withdraw the lien on the LIC policy. On notice, counsel for the respondent acknowledged that the petitioner's file had been put up to the Competent Authority and was under process but could not state when that had occurred or when the action would be completed. Having regard to the admitted inaction after issuance of a Discharge Certificate and the lapse of over three months, the Court considered it appropriate to issue a firm direction for administrative clearance. The Court ordered that the respondent clear the file within three working days and defreeze the specified bank account and withdraw the lien on the specified LIC policy, and preserved the petitioner's right to seek further relief if the grievance persisted. [Paras 8, 9]

Direction issued to respondent to clear the file within three working days and to defreeze the petitioner's bank account and withdraw the lien on the LIC policy; petition disposed of subject to further recourse if non-compliance continues.

Final Conclusion: Petition disposed of with directions that the respondent shall, within three working days, clear the petitioner's file, defreeze the specified bank account and withdraw the lien on the specified LIC policy following issuance of the Discharge Certificate; liberty to approach the Court if non-compliance continues.