TaxTMI Updates e-Newsletter
Jul 05,2021

Detention of goods and vehicle - e-way bill validity - release on furnishing security and bond - adjudication by competent authority - protection of perishable goods

Detention of goods and vehicle - e-way bill validity - protection of perishable goods - Whether continued detention of the vehicle and perishable goods at the border check post should be maintained. - HELD THAT: - The Court found that continued detention would serve no purpose having regard to the circumstances: one e-way bill had expired during an unavoidable delay caused by vehicle breakdown, a fresh e-way bill was generated, and the consignee had paid the tax. The Court observed the goods were perishable and detention in unprotected conditions risked damage. Balancing these factors, the Court directed that continued detention be lifted subject to conditions designed to protect the revenue and ensure future adjudication is not prejudiced. The conditions require provisional financial security (deposit or bank guarantee for a portion of the possible duty with penalty) and a bond for the remaining probable liability; release follows compliance with these conditions.

Vehicle and goods released from detention on compliance with security (deposit or bank guarantee of 25% of possible duty with penalty) and furnishing of a bond for the remaining probable duty and penalty.

Adjudication by competent authority - release on furnishing security and bond - Whether the GST authorities are entitled to proceed with adjudication for any alleged infraction and unpaid duty after release. - HELD THAT: - The Court permitted the competent authority to continue assessment and adjudication if it forms the view that there has been an infraction of rules or statutory requirements. The release ordered is provisional and expressly made subject to the right of the authority to issue show cause notice, determine unpaid duty with interest and penalty, and complete adjudication. The petitioner is directed to cooperate with any such proceedings. Thus, the release does not impede the revenue's right to adjudicate the claim on merits.

GST authorities may proceed with adjudication and the petitioner must cooperate; the release is provisional and does not preclude recovery if adjudication finds liability.

Final Conclusion: The petition is disposed of by directing provisional release of the detained vehicle and perishable goods on specified financial security (deposit or bank guarantee for a portion and bond for the remainder); the GST authority remains entitled to adjudicate any alleged liability and the petitioner must cooperate with such proceedings.

Provisional blocking of input tax credit under Rule 86A(1) - power to restore debit of electronic credit ledger upon satisfaction under Rule 86A(2) - one year limitation on restriction under Rule 86A(3) - continuance of blockage beyond one year not permissible - unblocking of electronic credit ledger

One year limitation on restriction under Rule 86A(3) - provisional blocking of input tax credit under Rule 86A(1) - unblocking of electronic credit ledger - Whether the provisional blockage of the petitioner's electronic input tax credit ledger could lawfully continue beyond one year from the date of imposition. - HELD THAT: - The Court noted the statutory scheme in Rule 86A which permits provisional disallowance of debit from the electronic credit ledger where there are reasons to believe credit was fraudulently availed or is ineligible, and that the Commissioner may restore debit upon being satisfied the disallowance conditions no longer exist. Sub rule (3) expressly states that such restriction shall cease to have effect after expiry of one year from the date of imposing the restriction. On instructions, counsel for the respondents conceded that continuation of the blockage beyond one year is not supported by law. In view of that concession and the clear provision in Rule 86A(3) that the restriction ceases after one year, the Court held the continued blocking of the petitioner's input tax credit ledger after the one year period was unlawful and ordered unblocking, while leaving open the respondents' right to take any action permitted by law. [Paras 3, 4]

The provisional blockage could not lawfully continue beyond one year and the respondent is directed to forthwith unblock the petitioner's electronic input tax credit ledger; without prejudice to any lawful action the respondents may thereafter take.

Final Conclusion: Writ petition allowed: the Commissioner is directed to immediately unblock the petitioner's input tax credit in the electronic credit ledger, the order being founded on Rule 86A(3)'s one year limitation; respondents remain free to take any further action permissible under law.

Quashing of demand notices - demand communicated by electronic mail - reconciliation of tax/interest demands - opportunity to reply to a quantified demand - judicial restraint in interlocutory relief

Quashing of demand notices - demand communicated by electronic mail - judicial restraint in interlocutory relief - E-mails sent by revenue calling for payment of interest cannot be quashed at this interlocutory stage and the court will not intervene to set aside such communications. - HELD THAT: - The communications impugned are e-mails issued by the respondent calling for payment of interest, one of which elicited a reply from the petitioner. The court observed that these are pre-litigation or administrative communications and that it is appropriate for the parties to continue the conversation to arrive at a reconciliation of the amount, rather than seek immediate judicial interference. Given the administrative character of the correspondence and the availability of a process of reconciliation and response, there is no necessity for the court to intervene by quashing the e-mails at this stage. The court therefore exercised restraint in granting interlocutory relief. [Paras 3, 5]

Petition to quash the e-mail demands dismissed; court declines to intervene and directs parties to pursue reconciliation.

Reconciliation of tax/interest demands - opportunity to reply to a quantified demand - The matter of quantification of interest as stated by the respondents is to be met by the petitioner by filing a reply and the parties are to reconcile the amount in accordance with law. - HELD THAT: - In the respondents' counter the interest demand has been quantified for the period stated. The court recorded that the petitioner may file its reply to that quantification and that the parties should engage in the process of reconciliation to determine the correct amount, if any, payable. The court left the assessment of the claim to the administrative process between the parties, requiring the petitioner to respond to the quantified demand and the respondents to hear the petitioner in the reconciliation process. [Paras 4, 5]

Respondent's quantified interest demand to be answered by the petitioner; parties to reconcile the amount in accordance with law.

Final Conclusion: Writ petition disposed; no interference with the e-mail demands. Petitioner to file reply to the respondents' quantification and the parties to effect reconciliation; connected petitions closed with no costs.

Charitable purposes including education - exemption under Section 11 - business as defined in Section 2(13) - incidental business under Section 11(4A) - separate books of account requirement under Section 11(4A) - dominant purpose test

Incidental business under Section 11(4A) - business as defined in Section 2(13) - charitable purposes including education - dominant purpose test - Whether the assessee's activity of running hostel and charging hostel/mess fees is 'business' for the purposes of Section 11(4A) so as to disentitle it from exemption under Section 11. - HELD THAT: - The Court held that Section 2(13) defines 'business' broadly, but the applicability of Section 11(4A) presupposes income that is 'profits and gains of business' which must be tested against the dominant purpose of the institution. The determinative inquiry is whether the activity is an independent business venture or is integral and inseparable from the principal charitable activity of education. Applying the dominant purpose test to the facts, including the statutory mandate (Dental Council of India requirement) that the residential institution provide hostel accommodation and the undisputed position that hostel and mess facilities are provided only to students of the college and the income so derived is used for educational purposes, the Court concluded the hostel activity is an integral, subordinate and inseparable part of the educational activity. Consequently, the hostel receipts could not be characterised as profit and gains of a separate business within Section 11(4A), and the statutory pre-condition of separate books for a business was not attracted. The Court further observed that comparisons of fees with other institutions to infer a separate business were extraneous to the dominant purpose analysis.

Hostel and mess activities are integral to the assessee's educational charitable purpose and do not amount to 'business' under Section 11(4A); exemption under Section 11 is not excluded on that ground.

Separate books of account requirement under Section 11(4A) - exemption under Section 11 - Remand to the Assessing Officer to re-examine and recompute the assessment treating hostel fee income as income from charitable activity (not business) and to reconsider the accounts and ledger accordingly. - HELD THAT: - Although the Court decided that the hostel activity is not a separate business, it set aside the assessment order and the appellate affirmations and remitted the matter to the Assessing Officer for fresh examination in the light of the Court's legal conclusions. The Assessing Officer is directed to examine the income and expenditure particulars afresh, treating hostel receipts as subservient to and part of the educational charitable activity, and to compute tax/assessability (if any) consistently with that treatment. The remand is for verification and fresh consideration in accordance with the observations of the Court rather than for re-adjudication of the legal principle already settled by this order.

Assessment set aside and matter remitted to the Assessing Officer to examine and compute afresh treating hostel income as derived from the charitable educational activity, not as business income.

Final Conclusion: The appeal is allowed: the Tribunal and lower orders are set aside on the question of law that hostel/mess activity of the residential dental college is integral to its educational charitable purpose and not a separate 'business' under Section 11(4A); the assessment is remitted to the Assessing Officer for fresh examination and computation consistent with this conclusion.

Revision under Section 263 - erroneous and prejudicial to the interests of the revenue - allowability of depreciation on leased assets under Section 32 - assessment under Section 143(3) - change of opinion / two views principle - CBDT Circular No.2/2001

Revision under Section 263 - erroneous and prejudicial to the interests of the revenue - allowability of depreciation on leased assets under Section 32 - assessment under Section 143(3) - change of opinion / two views principle - CBDT Circular No.2/2001 - Whether the Principal Commissioner was justified in revising the assessment under Section 263 on the ground that the assessment order was erroneous and prejudicial to the interests of the revenue for having allowed depreciation on assets leased under finance lease - HELD THAT: - The Court examined the assessment order, the Principal Commissioner's revisional order and the Tribunal's decision and concluded that the Assessing Officer had made enquiries, called for and considered documentary evidence and witness statements, applied his mind to the finance lease agreements and, after detailed scrutiny and with reference to CBDT guidance and relevant Supreme Court authority, allowed the depreciation claim (albeit disputing the rate). The Principal Commissioner's view characterised the AO's order as inadequate; however the High Court agreed with the Tribunal that mere loss of revenue or a differing view by the Commissioner does not render an assessment order 'erroneous and prejudicial' within the meaning of Section 263 where the Assessing Officer has recorded reasons and conducted the requisite inquiries. The Court relied on precedent holding that where two reasonable views are possible and the AO has adopted one after enquiry, a change of opinion by the Commissioner is not a ground for revision under Section 263. The Court further observed that the clauses of the lease and authorities such as M/s ICDS Ltd. establish that the lessor could be treated as owner for purposes of Section 32 and thus entitled to depreciation; the issue was therefore not one of omission of necessary inquiry by the AO but of an arguable conclusion taken after inquiry. [Paras 14, 15, 18]

The revisional order under Section 263 was set aside; the Tribunal rightly allowed the assessee's appeal and the Principal Commissioner was not justified in treating the assessment order as erroneous and prejudicial to revenue.

Final Conclusion: The substantial question of law is answered in favour of the assessee: the Principal Commissioner's exercise of revisionary power under Section 263 was unjustified where the Assessing Officer had made requisite inquiries and taken a tenable view permitting depreciation on leased assets under Section 32; the appeal is dismissed.

Legal fiction created by Section 159(2) - liability of legal representative and continuity of proceedings - validity of assessment order passed after death of assessee - remand to Assessing Officer to issue notice to legal representatives

Legal fiction created by Section 159(2) - validity of assessment order passed after death of assessee - Whether an assessment order passed after the death of the assessee (who died after conclusion of arguments but before the order was passed) is ab initio void - HELD THAT: - The Court held that Section 159(2) of the Act creates a legal fiction by deeming proceedings taken against a deceased person to be proceedings against his legal representative and permitting continuation from the stage at which they stood on the date of death. The provision excludes the concept of abatement in such cases and thereby makes death of the party immaterial to the continuation of proceedings initiated during the life of the assessee. Applying the settled rule of construction for legal fictions, the Court concluded that where death occurs after conclusion of arguments but before the order is passed, the proceedings do not become void ab initio and the assessment could not be treated as a nullity on that ground. [Paras 6, 7, 8]

Order of assessment passed after the death of the assessee (post conclusion of arguments) is not ab initio void; Section 159(2) applies and preserves continuity of proceedings against legal representatives.

Liability of legal representative and continuity of proceedings - remand to Assessing Officer to issue notice to legal representatives - Whether the matter should be remitted to the Assessing Officer for issuance of notice to the legal representatives and for passing a fresh order - HELD THAT: - Although the proceedings are not ab initio void, the Court recognised that the legal representatives had not been brought on record and had not been afforded an opportunity of hearing. In view of the statutory scheme under Section 159 which deems proceedings to be against legal representatives, the Court quashed the Tribunal's annulment and remitted the matter to the Assessing Officer with a direction to issue notice to the legal representatives of the deceased and thereafter pass a fresh assessment order after affording them opportunity of hearing. [Paras 9]

Tribunal's order annulling the assessments is quashed; matter remitted to the Assessing Officer to issue notice to the legal representatives and pass a fresh order of assessment.

Final Conclusion: The Tribunal's annulment of the assessment on the ground that it was passed after the assessee's death was reversed. The proceedings survive by virtue of Section 159(2) and the matter is remitted to the Assessing Officer to issue notice to the legal representatives and pass a fresh assessment order after giving them an opportunity of hearing.

Reopening of assessment - reasons recorded for reopening - disposal of objections to notice under Section 148 - speaking order requirement - borrowed satisfaction

Disposal of objections to notice under Section 148 - speaking order requirement - Whether the Assessing Officer properly considered and disposed of the objections filed against the reasons recorded for reopening the assessments. - HELD THAT: - The Court examined the objections filed by the assessee and the orders disposing of those objections and found that the Assessing Officer did not deal with the objections in a meaningful or extensive manner. The Court relied on the principle that while disposing of objections to a notice under Section 148 the officer must pass a speaking order addressing the issues raised so that an assessee may demonstrate the absence of reasonable grounds for reopening. The impugned orders were found to be mechanical and lacking independent application of mind, contrary to the requirement articulated by the Apex Court in earlier precedent; therefore the orders disposing of the objections cannot stand. [Paras 16, 17]

Orders disposing of the objections dated 13.07.2018 are set aside insofar as they failed to deal with the objections in a speaking and meaningful manner.

Reasons recorded for reopening - reopening of assessment - borrowed satisfaction - Whether the reopening of assessment can be sustained without the Assessing Officer passing a fresh order dealing with the objections and reasons recorded. - HELD THAT: - The Court did not express any opinion on the merits of the validity of the reopening itself or on whether the material relied upon establishes escapement of income. Instead, having set aside the orders disposing of objections for being non-speaking, the Court remitted the matters to the Assessing Officer to reconsider the objections and to pass a fresh speaking order after application of mind. The Court emphasised that it is refraining from adjudicating the substantive merits and confined its direction to re-examination by the Assessing Officer within the stipulated time. [Paras 18]

Matters remitted to the Assessing Officer to consider the objections and pass a fresh speaking order in accordance with law within eight weeks; no opinion expressed on merits.

Final Conclusion: The writ applications succeed in part: the orders disposing of the objections to the notices under Section 148 are set aside for being non-speaking, and the matters are remitted to the Assessing Officer to reconsider the objections and pass fresh speaking orders within eight weeks; the Court has not adjudicated the substantive validity of the reopenings.

Deduction for operation and maintenance expenses - crystallization of liability - applicability of Section 115JB - Explanation 3 to section 115JB - substantial question of law - precedential effect of earlier Division Bench decisions

Substantial question of law - precedential effect of earlier Division Bench decisions - applicability of Section 115JB - No substantial questions of law remain for adjudication as framed; the appeal is dismissed. - HELD THAT: - The Court recorded that the Department did not press the first substantial question of law concerning entitlement to deduction for expenses claimed as crystallized in the relevant year. The Court further noted that the remaining substantial questions concerning the applicability of Section 115JB and Explanation 3 thereto had already been adjudicated in favour of the assessee by earlier Division Bench judgments in related proceedings. In view of those earlier decisions and the Department's stance, the Court held that there were no substantial questions left for consideration and therefore declined to entertain the appeal. [Paras 3, 5]

Appeal dismissed; no orders as to costs.

Final Conclusion: The appeal was dismissed as the first substantial question was not pressed and the other substantial questions had been previously decided in favour of the assessee by Division Bench precedents, leaving no substantial question of law for determination.

Interest on borrowed capital attributable to capital work-in-progress - Proviso to Section 36(1)(iii) - capitalization of interest - Distinction between 'extension' and 'expansion' of business for deductibility - Presumption that investments are made from interest-free funds when own funds suffice - Principle against permitting change of position across assessment years where a consistent factual finding has been allowed to prevail

Interest on borrowed capital attributable to capital work-in-progress - Proviso to Section 36(1)(iii) - capitalization of interest - Distinction between 'extension' and 'expansion' of business for deductibility - Presumption that investments are made from interest-free funds when own funds suffice - Validity of the Tribunal's upholding of disallowance of interest on borrowed capital under the proviso to Section 36(1)(iii) for AYs 2013-14 and 2014-15 where the proviso was said to be inapplicable and no part of the borrowed capital was shown to be used for work-in-progress. - HELD THAT: - The High Court held that the question was squarely covered by its earlier decision in ITA No.315/2018 (and connected matters) concerning the assessee for an earlier assessment year. That decision applied settled principles: where the assessee has sufficient interest-free own funds, the presumption arises that investments (or uses) were made from those funds and the revenue bears the burden to show use of borrowed funds. The Court further emphasised the statutory distinction between 'extension' and 'expansion' of business - prior to the 2016 amendment the proviso to Section 36(1)(iii) applied to extension and not to expansion - and found the setting up of new coffee shops to be an expansion, not an extension, therefore the proviso could not be invoked for the years in question. The Court also relied on the principle that where a fundamental factual position has been consistently accepted across assessment years and not effectively challenged, it is not appropriate to permit a change in subsequent years. The revenue did not dispute the coordinate-bench ruling; accordingly the Tribunal's reliance on the proviso and resultant disallowance could not stand.

The Tribunal's order upholding the disallowance of interest under the proviso to Section 36(1)(iii) for AY 2013-14 and AY 2014-15 is quashed; the substantial question of law is answered in favour of the assessee.

Final Conclusion: The appeal is allowed; the Tribunal's decision of 24.02.2020 insofar as it upheld the disallowance of interest on borrowed capital under the proviso to Section 36(1)(iii) for assessment years 2013-14 and 2014-15 is quashed, and the substantial question of law is answered in favour of the assessee.

Deduction under Section 80IB(10) - entitlement of a landowner-developer - developer versus builder status - outsourced construction / sub-contracting - distinction between developing and building - appeal rendered infructuous

Deduction under Section 80IB(10) - entitlement of a landowner-developer - developer versus builder status - outsourced construction / sub-contracting - distinction between developing and building - Assessee who is owner of the land and who undertakes development (while outsourcing construction) is eligible to claim deduction under Section 80IB(10). - HELD THAT: - Following the Division Bench precedents relied upon by the Court, the deduction under Section 80IB(10) is directed at the project of developing and building housing units and does not make ownership of land an indispensable criterion for entitlement. The Court noted that Section 80IB(10) distinguishes between 'developing' and 'building' and, on the facts as reflected in the joint development agreement, the assessee functioned as developer while construction activity was undertaken by a builder; mutual rights and obligations between the parties showed the assessee's involvement in the development project. The Tribunal's narrow observation that expenses were not reflected in the profit and loss account did not outweigh the factual matrix showing development activity. Reliance on earlier High Court and Supreme Court decisions confirming that developers (even where land ownership is not in the developer) qualify for the deduction was determinative of the decision. [Paras 8, 21]

Deduction under Section 80IB(10) allowed to the assessee-landowner-developer despite outsourcing of construction; assessee held eligible as developer.

Appeal rendered infructuous - procedural consequence of allowing assessee's appeal - Whether the Tribunal was correct in holding the Revenue's appeals to be infructuous after allowing the assessee's appeals; and the proper procedural consequence. - HELD THAT: - The Court observed that once the Tribunal set aside the order of the Commissioner of Income Tax and allowed the assessee's appeals, the Revenue's appeals should have been dismissed rather than treated as infructuous. The learned Senior Standing Counsel accepted that the legal questions were governed by binding Division Bench authority; applying that ratio the Court decided the substantial questions against the Revenue and dismissed the Revenue's appeals accordingly. The Court therefore rejected the Tribunal's characterization of the Revenue's appeals as infructuous and disposed of the appeals by dismissing them in favour of the assessee. [Paras 5, 6, 8]

Tribunal's treatment of Revenue's appeals as infructuous was incorrect; appeals dismissed in favour of the assessee in accordance with precedent.

Final Conclusion: Following binding Division Bench authority, the Court held that a landowner who undertakes development (even where construction is outsourced) qualifies for deduction under Section 80IB(10) for the assessment years 2006-07 to 2009-10, and accordingly dismissed the Revenue's appeals; the Tribunal's view treating the Revenue's appeals as infructuous was not sustained.

Validity of show cause notice issued during ongoing assessment proceedings - reasonable opportunity of hearing in assessment proceedings - jurisdictional fact for exercise of assessment jurisdiction - scope of writ jurisdiction where statutory remedy is available - duty to permit submission/hearing before final assessment order

Validity of show cause notice issued during ongoing assessment proceedings - reasonable opportunity of hearing in assessment proceedings - jurisdictional fact for exercise of assessment jurisdiction - scope of writ jurisdiction where statutory remedy is available - Impugned show cause notices dated 18.12.2018 and 21.12.2018 are not liable to be quashed on the grounds that they were issued during the course of assessment proceedings without jurisdiction or without affording reasonable opportunity. - HELD THAT: - The Court held that once a notice under Section 143(2) has been issued and the assessment remains at large, information subsequently received must form part of the ongoing assessment and may give rise to further show cause notices. The assessee did not contend that the original notice under Section 143(2) was time-barred. The record showed that additional information was received from the Investigation/Exemption wing and the Enforcement Directorate's findings were within the knowledge of the assessee; opportunities to reply and adjournments were granted and the assessment was ultimately centralized to Central Charge. The Court applied the principle that a show cause notice can be challenged by writ only if it is issued in absence of any jurisdictional fact; here no jurisdictional fact was absent. Reliance was placed on the principle that availability of an effective statutory remedy ordinarily precludes exercise of writ jurisdiction, and the Court found no cogent reason to displace the statutory remedy in the facts of the case. [Paras 11, 12, 13, 17, 18]

Writ petitions challenging the impugned show cause notices are rejected and the interim stay is vacated; no interference with the impugned notices.

Duty to permit submission/hearing before final assessment order - Opportunity to make submissions before the concerned authority in respect of the proceedings leading to Special Civil Application No.22471 of 2019 is to be afforded. - HELD THAT: - Although the Court declined to quash the show cause notices, it directed that insofar as the proceedings under challenge (special civil application No.22471 of 2019) have not reached finality, the concerned authority shall hear the writ applicant and permit the making of submissions before taking the final decision; this is subject to limitation. The Court clarified that even if the department considers the hearing concluded, it may still grant an opportunity to make submissions.

Concerned authority to hear the writ applicant and permit submissions before taking the final decision, subject to limitation.

Final Conclusion: Both writ applications are dismissed; the interim stay previously granted is vacated, but the authority is directed to hear the applicant and permit submissions before passing the final order in the proceedings concerning A. Y. 2017-18 (subject to limitation).

Value of perquisites - residential accommodation valuation under Rule 3(1) - concession in rent under Section 17(2) - obligation to deduct tax at source under Section 192 - distinction between Central/State Government employers and state instrumentalities

Residential accommodation valuation under Rule 3(1) - distinction between Central/State Government employers and state instrumentalities - Whether valuation at Sl. No.1 of the table to sub rule (1) of Rule 3 applies to the petitioner (NIT) - HELD THAT: - The Court held that the table in sub rule (1) of Rule 3 distinguishes employers who are the Central or the State Government (Sl. No.1) from all other employers (Sl. No.2). Sl. No.1 applies only where the employer is either the Central or the State Government. Bodies or corporations characterised as state instrumentalities for the purpose of Article 12 are not thereby equated with the Central or State Government for the purposes of Sl. No.1. Consequently, the valuation regime and the permissive treatment under Sl. No.1 cannot be invoked merely on the basis that an employer is a 'state' within Article 12.

Sl. No.1 of the table in sub rule (1) of Rule 3 is confined to employers that are the Central or the State Government; the petitioner does not fall within Sl. No.1 merely by being a state instrumentality under Article 12.

Value of perquisites - concession in rent under Section 17(2) - obligation to deduct tax at source under Section 192 - Whether the petitioner can avoid liability to deduct tax at source on the differential between statutory valuation and license fees charged to employees - HELD THAT: - The Court observed that even if the petitioner were treated as a 'state' under Article 12, that fact would not relieve it from the statutory obligation under Section 17 read with Rule 3(1) to value residential accommodation and treat any shortfall between the statutory valuation and the amount charged to the employee as a perquisite. Where the valuation computed under the Rules exceeds the license fees collected from employees, the differential constitutes a perquisite attracting TDS under the statutory scheme, and the employer is obliged to deduct and deposit tax accordingly.

The petitioner cannot escape the statutory liability to deduct tax at source on the differential valuation of rent under Rule 3(1) even if it is regarded as a state under Article 12.

Value of perquisites - obligation to deduct tax at source under Section 192 - Rectification of any error in computation of perquisite value or excess TDS deducted - HELD THAT: - The Court declined to embark on factual re computation in the writ petition. It noted the petitioner's contention that it may have, under a mistaken belief, taken the full valuation without deducting the license fee component already borne by employees. Since no quantified demand was before the Court, factual verification and rectification were left to the statutory processes: the petitioner may approach the tax authority for rectification where time permits, and affected employees may seek refunds of any excess tax deducted under the ordinary remedy provisions.

Factual disputes as to computation or rectification are not decided; petitioner may seek rectification from the authority or employees may pursue refund claims.

Final Conclusion: Writ petition dismissed; legal conclusion that Sl. No.1 of the table in Rule 3(1) is limited to Central or State Government employers and that any shortfall between statutory valuation and license fees charged constitutes a perquisite attracting TDS; factual issues of computation left to rectification or refund proceedings.

Validity of reassessment under section 147/148 - Reasons recorded for reopening assessment - Quashing of reassessment where reasons for reopening are unsustainable - Effect of annulment/cancellation of transaction on escapement of income - Explanation 3 to Section 147 - Assessing Officer making additions on other grounds - GKN Driveshafts principle on confrontation of reasons and dual adjudication

Validity of reassessment under section 147/148 - Reasons recorded for reopening assessment - Effect of annulment/cancellation of transaction on escapement of income - Quashing of reassessment where reasons for reopening are unsustainable - Reopened assessment framed under section 147/148 was invalid and the reassessment proceedings were to be quashed. - HELD THAT: - The Assessing Officer's sole recorded reason for reopening was that the assessee had made transactions in selling of properties in FY 2008-09 and had not filed return for AY.2009-10. The Tribunal found on the material on record that the relevant sale deed had been cancelled by the Forest Department/DFO on 20-11-2008, and no other sale deed was executed by the assessee; consequently, the foundational premise that taxable income had escaped assessment no longer subsisted. In the circumstances, the reasons recorded by the AO failed to sustain the formation of belief contemplated by section 147/148. The Tribunal applied the principle that anticipated profit is not to be brought to account where sale is annulled, and relied on the coordinate reasoning in Joginder Singh and the framework in GKN Driveshafts that reasons recorded for reopening must be confronted and are subject to dual scrutiny; where reasons are shown to be incorrect during reassessment and are uncontroverted on further appeal, the natural corollary is to quash reassessment. The Revenue's reliance on Explanation 3 to Section 147 (power to make additions on other grounds discovered during reassessment) was held inapposite on these facts because the very reasons recorded were held incorrect and those findings were final and unchallenged, making continuation of reassessment unsustainable in law. As a result, the Tribunal quashed the reassessment and held that all other merits became infructuous. [Paras 4, 6, 7]

Reassessment proceedings under section 147/148 were quashed as the recorded reasons for reopening were unsustainable in law; consequential issues rendered infructuous.

Final Conclusion: On the facts, the Tribunal quashed the reassessment initiated for AY.2009-10 because the AO's sole reason for reopening failed (the sale deed was annulled and no taxable income had escaped assessment); the appeal is allowed and other pleas stand rendered infructuous.

Setting up of business - commencement of commercial production - deductibility of revenue expenditure incurred in exploration - accumulation and amortisation of prospecting expenditure under section 35E - carry forward of business losses

Setting up of business - commencement of commercial production - deductibility of revenue expenditure incurred in exploration - Whether the assessee had 'set up' its business of mineral exploration such that the revenue expenses incurred in the years under consideration could be treated as allowable business expenditure. - HELD THAT: - The Tribunal observed the settled legal distinction between 'setting up of business' and 'commencement of production', holding that generation of revenue is not the sole criterion for determining when a business is set up. In businesses involving exploration and extraction of minerals, exploratory activity may legitimately precede revenue generation, and revenue expenditure incurred after setting up is ordinarily deductible. The financial statements showed employment of personnel and commencement of exploration activities, and one shareholder had obtained a reconnaissance licence; on these facts the Tribunal found merit in the assessee's contention that the business had been set up. However, the Tribunal did not finally adjudicate the claim on merits because the question of deductibility for the years in issue could not be considered in isolation from the special scheme for prospecting expenditure under section 35E, and because, on the facts, the statutory period for carrying forward business losses under the ordinary provisions had already lapsed for the years concerned. [Paras 10, 11, 12]

The Tribunal recognised that the assessee appears to have set up its business but did not finally decide the claim of deductibility for the years under consideration; the question was left open for consideration in light of the special provisions applicable to prospecting expenditure.

Accumulation and amortisation of prospecting expenditure under section 35E - carry forward of business losses - Whether the expenditure incurred in the years under consideration should be dealt with under the special scheme of section 35E (accumulation and amortisation of prospecting expenditure) or under the ordinary provisions relating to business losses. - HELD THAT: - The Tribunal noted that section 35E permits accumulation and ten year amortisation of revenue expenditure incurred in the year of commencement of commercial production and in the four immediately preceding years, thereby recognising the long lead time in exploration activities. The AO and CIT(A) had not examined applicability of section 35E to the assessee's case. The appellant contended that section 35E applies only to the four years preceding commencement of production and that ordinary provisions should govern older expenditure. The Tribunal observed that the applicability of section 35E to expenditure beyond the four year window, or the converse application of ordinary loss provisions, is debatable on the facts. It therefore proposed restoration to the file of the AO for fresh examination in terms of section 35E so that the special scheme is considered before any determination under ordinary loss provisions is made. The Tribunal also recorded that, on the material before it, the statutory period for carrying forward business losses under ordinary provisions had expired for the years in question, rendering formal remand potentially academic as regards immediate relief. [Paras 8, 11, 12, 13]

The matter was directed to be examined afresh by the AO in terms of section 35E; the Tribunal left open the question of whether section 35E or ordinary loss provisions apply to the years in issue and noted that, because the carry forward period has expired, adjudication for these years would be academic unless considered in an appropriate year.

Final Conclusion: The Tribunal found merit in the assessee's contention that its mineral exploration business had been set up but did not decide the deductibility issue finally; it directed that the AO examine the matter afresh in terms of section 35E, left open the question whether section 35E or ordinary loss provisions govern the disputed years, and treated both appeals as dismissed for statistical purposes.

Disallowance under section 14A of the Income-tax Act - Computation under Rule 8D of the Income-tax Rules - Disallowance under section 40(a)(ia) of the Income-tax Act - Disallowance of depreciation on capitalised software - Tax withholding liability on software payments and retrospective application - Additions arising from mismatch with Form No.26AS

Disallowance under section 14A of the Income-tax Act - Computation under Rule 8D of the Income-tax Rules - Whether the disallowance under section 14A (as computed under Rule 8D) was correctly made by the A.O./CIT(A). - HELD THAT: - The Tribunal noted that the assessee claimed exempt share income and the A.O. computed a Rule 8D disallowance. The assessee relied on factual contentions (availability of own funds and interest free funds exceeding investments) and on precedents (Micro Labs Ltd. and Vireet Investments) which, if established on facts, would affect the applicability/amount of disallowance under Rule 8D(2)(ii) and 8D(2)(iii). Those contentions require fact finding and verification at the assessment stage. The Tribunal therefore did not decide the disallowance on merits but directed fresh examination by the A.O. in the light of the cited decisions. [Paras 7]

Order of the CIT(A) on this issue set aside and matter restored to the file of the A.O. for fresh examination and verification in accordance with the decisions in Micro Labs Ltd. and Vireet Investments.

Disallowance under section 40(a)(ia) of the Income-tax Act - Disallowance of depreciation on capitalised software - Tax withholding liability on software payments and retrospective application - Whether depreciation (or the cost of software) could be disallowed under section 40(a)(ia)/40(a)(i) for non deduction of tax at source on purchase of software completed prior to the Karnataka High Court decision, and whether TDS liability could be fastened retrospectively. - HELD THAT: - The Tribunal followed coordinate bench precedents holding that where a payment for software has been capitalised and depreciation is claimed, the statutory deduction under section 32 cannot be disallowed by invoking section 40(a)(i) (or 40(a)(ia) by parity). Further, where the software purchase was completed prior to the judicial decision and prior to retrospective statutory clarification, earlier judicial precedents supported the assessee's bona fide view that TDS was not then required; liability to deduct tax at source cannot be imposed retrospectively for past transactions. Applying these principles to the facts, the Tribunal held there was no justification to treat capitalised software cost as revenue expenditure so as to attract retrospective TDS liability and consequent disallowance. [Paras 10, 13]

CIT(A)'s direction treating the software cost as revenue expenditure and disallowing it under section 40(a)(ia) set aside; AO directed to treat the software cost as capital expenditure and delete the disallowance.

Additions arising from mismatch with Form No.26AS - Whether the addition made by the A.O. on account of a difference between book income and Form No.26AS is sustainable without further enquiry. - HELD THAT: - The Tribunal observed that the assessee contended the amount was offered in the subsequent assessment year and relied on Supreme Court authority for tax neutral treatment; the Revenue asserted the matter required further examination. Given factual aspects and explanations to be verified, the Tribunal found it appropriate to remit the issue to the A.O. for fresh enquiry after affording the assessee opportunity of being heard. [Paras 17]

Issue restored to the file of the A.O. for examination of the assessee's explanations and decision in accordance with law after giving opportunity of hearing.

Final Conclusion: The Tribunal set aside the CIT(A)'s orders on the section 14A and Form No.26AS addition issues and restored those matters to the A.O. for fresh factual examination; on the section 40(a)(ia)/depreciation issue the Tribunal deleted the disallowance, directed that software cost be treated as capital expenditure, and deleted the impugned addition. The appeal is treated as allowed for statistical purposes.

Disallowance under section 37(1) as business expenditure - amalgamation and succession to liabilities - burden of proof and verification by the Assessing Officer - remand for verification of documents and transactions - limitation on power to set aside under section 251(1)(a) (omission by Finance Act, 2001) - verification of TDS and advance tax claims

Disallowance under section 37(1) as business expenditure - amalgamation and succession to liabilities - burden of proof and verification by the Assessing Officer - remand for verification of documents and transactions - Whether the claimed interest of Rs. 94,28,655/- is allowable as business expenditure or is to be disallowed and verified by the Assessing Officer in light of amalgamation and the documents filed. - HELD THAT: - The Tribunal accepted that the High Court-approved amalgamation scheme, effective from the appointed date, makes the assessee successor to liabilities of the transferor company which had borrowed the principal earlier. The assessee subsequently filed audited financial statements, Form-26AS of the creditor for the relevant year and the amalgamation scheme, but the material was such that factual verification was necessary. The Tribunal agreed that the Assessing Officer's concerns (absence earlier of year wise working, documentary agreement, complete bank evidence and TDS proof) justified factual scrutiny. Rather than finally deciding the allowability on merits, the Tribunal restored the issue to the Assessing Officer for verification as per law and within three effective opportunities of hearing. [Paras 4]

Interest disallowance remanded to the Assessing Officer for factual verification; issue accepted as restored for statistical purposes.

Verification of TDS and advance tax claims - limitation on power to set aside under section 251(1)(a) (omission by Finance Act, 2001) - remand for verification of documents and transactions - Whether the CIT(A) could set aside the assessee's claim of TDS and advance tax of Rs. 50,32,183/- and whether the matter should be remitted for verification. - HELD THAT: - The Tribunal held that the power to 'set aside' previously exercised by appellate authorities is no longer available in view of the omission effected by Finance Act, 2001. The assessee's submission that the CIT(A) lacked power in that respect was accepted in principle. Consequently, instead of finally adjudicating entitlement, the Tribunal restored the claim to the Assessing Officer to verify the factual correctness of the TDS and advance tax claims contemporaneously with the other verifications. [Paras 5]

TDS and advance tax claims remanded to the Assessing Officer for verification; restored to AO for factual examination.

Final Conclusion: Both the interest disallowance and the claims for TDS and advance tax for AY.2013-14 are remitted to the Assessing Officer for factual verification (the interest issue to be verified within three effective hearings); the appeal is disposed of as allowed for statistical purposes.

Deduction under section 80IB(10) - on-money as income from sale of flats - classification of income as business income versus income from other sources - doctrine of approbate and reprobate - treatment of surrendered income disclosed during survey under section 133A

Deduction under section 80IB(10) - on-money as income from sale of flats - doctrine of approbate and reprobate - Whether the amount of Rs. 5.57 crores surrendered as 'on-money' in respect of flat bookings qualifies for deduction under section 80IB(10). - HELD THAT: - The assessee, a developer, surrendered Rs. 5.57 crores as 'on-money' received on flat bookings during a survey and included the amount in total income, thereafter claiming deduction under section 80IB(10) in a revised return. The Assessing Officer denied the deduction on the ground that purchasers, when examined, denied payment of on-money and therefore the sum was not proved to arise from sale of flats. The Tribunal noted the assessee's contemporaneous statements recorded at survey admitting receipt of on-money and the inclusion of that amount in its return. Applying the principle that the Revenue cannot accept one legal consequence of a factual admission (inclusion in income) and simultaneously reject another directly flowing from the same admission (entitlement to deduction), the Tribunal held that once the amount was accepted as on-money arising from flat bookings it must be treated as income from the same source for purposes of section 80IB(10). The purchasers' denials, without positive material to the contrary, could not negate the assessee's admitted position taken at survey and in the return. Consequently the denial of deduction by the AO and the CIT(A) was overturned and the deduction under section 80IB(10) was allowed on the said amount. [Paras 4, 5]

Deduction under section 80IB(10) allowed on the Rs. 5.57 crores surrendered as on-money; impugned orders set aside on this point.

Final Conclusion: Appeal allowed: the Tribunal set aside the denial of deduction under section 80IB(10) and directed allowance of the deduction on the Rs. 5.57 crores admitted as on-money received on flat bookings.

Retrospective amendment and tax withholding liability - Deduction of tax at source under section 195 - Disallowance under section 40(a)(i) - Fees for technical services

Retrospective amendment and tax withholding liability - Deduction of tax at source under section 195 - Disallowance under section 40(a)(i) - Whether a retrospective amendment permitting taxation of certain non-resident receipts can be relied on to fasten a prior tax deduction (withholding) obligation and consequent disallowance under section 40(a)(i) for Assessment Year 2008-09. - HELD THAT: - The Tribunal accepted the coordinate bench view that, although Finance Act 2010 inserted an explanation with retrospective effect (from 01/04/1976) expanding the scope of income deemed to accrue or arise in India, a taxpayer's obligation to deduct tax at source under section 195 must be determined by the law as it stood at the time the payment was made or credited. The tax withholding duty arises "at the time of credit of such income to the account of the payee or at the time of payment", and cannot be retroactively imposed on the payer by a later legislative amendment which could not have been foreseen. Applying that principle to the facts, the Assessing Officer was not justified in invoking section 40(a)(i) for AY 2008-09 by relying on the retrospectively inserted explanation; accordingly the addition made for non deduction of tax on the global account coordination cost was to be deleted. [Paras 8, 9]

Addition for non deduction of tax under section 40(a)(i) deleted; appeal allowed.

Final Conclusion: The Tribunal held that a retrospective statutory amendment cannot be used to impose, with retrospective effect, a tax withholding obligation on payments made/credited prior to the amendment for AY 2008-09; the disallowance under section 40(a)(i) was therefore deleted and the appeal allowed.

Refund under Notification No.102/2007-C - Condition D of Notification No.102/2007 - manufacture or process - identity of goods - cutting/sawing not amounting to manufacture - benefit of 4% additional duty - precedential effect of CC v. Variety Lumbers upheld by the Supreme Court

Manufacture or process - identity of goods - cutting/sawing not amounting to manufacture - refund under Notification No.102/2007-C - benefit of 4% additional duty - Whether cutting imported Sappan Billets into smaller pieces for local marketing amounted to manufacture or process so as to disentitle the importer from refund under Notification No.102/2007 dated 14.09.2007 (Condition D). - HELD THAT: - The Tribunal found that the appellant merely cut imported Sappan Billets into smaller pieces for sale and that such cutting did not produce a new product nor change the identity of the goods. The Tribunal applied earlier decisions holding that mere reduction in size by sawing or cutting for trade does not amount to manufacture or processing that would deprive an importer of the exemption/refund; in particular the Division Bench's view in Agarwalla Timbers and the decisions in CC v. Variety Lumbers (as affirmed by the Supreme Court) were held squarely applicable. The Tribunal distinguished authorities relied upon by the Revenue (including Seven Hills Solvents and Proflex System) on the factual basis that in those cases actual manufacturing/processing produced a new product, which is not the situation here. Having regard to the Notification's conditions, the Board Circular and the cited precedents, the Tribunal concluded that Condition D was not breached by the mere cutting of the imported billets. [Paras 6]

Impugned order rejecting the refund claim under Notification No.102/2007 on the ground of violation of Condition D set aside; appeal allowed with consequential relief.

Final Conclusion: The appeal is allowed: cutting imported Sappan Billets into smaller pieces for sale did not amount to manufacture or process altering the goods' identity, and therefore the appellant is entitled to the refund under Notification No.102/2007; the impugned order is set aside with consequential relief.

Pre-existing dispute - plausible contention requiring further investigation - spurious defence - section 8 demand notice compliance - section 9 admission of operational creditor - debt due and payable - joint measurement and certification of RA bills - prima facie satisfaction of adjudicating authority - Corporate Insolvency Resolution Process (CIRP) to proceed

Pre-existing dispute - plausible contention requiring further investigation - spurious defence - section 8 demand notice compliance - Existence of a pre-existing dispute between the Corporate Debtor and the Operational Creditor prior to the Section 8 demand notice - HELD THAT: - The Tribunal examined whether the Corporate Debtor had, within ten days of the Section 8 demand notice, brought to the Operational Creditor's notice a pre-existing dispute as required by Section 8(2)(a). The adjudicatory standard applied was the Mobilox dictum, namely whether there was a plausible, non-spurious contention requiring further investigation. The Corporate Debtor relied on two letters said to evidence disputes about sub-standard work and abandonment, but those letters were not referred to in the Corporate Debtor's reply to the Section 8 notice or in its written reply to the Section 9 application and were tendered only late in the proceedings. The Operational Creditor denied receipt and treated the letters as an afterthought. In the absence of corroboration and given that the Corporate Debtor did not invoke these communications in the mandatory reply to the demand notice, the Tribunal found the claimed dispute to be unsubstantiated and not a pre-existing dispute within the meaning of Section 8(2)(a). [Paras 6, 8, 16, 17, 19]

No pre-existing dispute existed prior to the Section 8 demand notice; the contention of a pre-existing dispute is rejected as unsubstantiated.

Section 9 admission of operational creditor - debt due and payable - joint measurement and certification of RA bills - prima facie satisfaction of adjudicating authority - Corporate Insolvency Resolution Process (CIRP) to proceed - Whether the Adjudicating Authority was correct in admitting the Section 9 application and initiating CIRP - HELD THAT: - Having found no pre-existing dispute, the Tribunal proceeded to consider whether the debt claimed in the Section 8 notice was prima facie due. The Corporate Debtor's objections regarding joint measurements, alleged improper certification of RA bills, and non-issuance of completion certificate were held to be matters irrelevant to the limited prima facie inquiry under Section 9, particularly where the contract placed duties on the employer to undertake joint measurements and the Corporate Debtor did not demonstrate it had undertaken the requisite verification. The contention of payments allegedly made through a third party was not established so as to negate admission; even after accounting for disputed adjustments, the admitted outstanding amount exceeded the threshold for admission. In these circumstances the Adjudicating Authority's admission of the Section 9 application was upheld and the CIRP directed to proceed. The period during which stay was granted in the appeal was ordered not to be counted towards the CIRP timeline. [Paras 11, 12, 13, 18, 19]

The Section 9 application was correctly admitted; the claimed operational debt was prima facie due and payable and the CIRP shall proceed as required under law.

Final Conclusion: The appeal is dismissed; the finding of the Adjudicating Authority that no pre-existing dispute barred admission under Section 9 is affirmed and the Corporate Insolvency Resolution Process shall continue, with the period of stay in the appeal excluded from the CIRP timeline.

Withdrawal of insolvency petition under Section 12A - Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations - requirement to hear affected creditors before allowing withdrawal - constitution of Committee of Creditors - collective proceeding / proceeding in rem

Withdrawal of insolvency petition under Section 12A - Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations - constitution of Committee of Creditors - Validity of the Adjudicating Authority's order allowing withdrawal of the Section 9 petition under Section 12A read with Regulation 30A prior to constitution of the Committee of Creditors. - HELD THAT: - The Tribunal recorded that Form FA under Regulation 30A was filed and received by the Interim Resolution Professional on 10.03.2021 and the IRP had received the prescribed expenses. The Adjudicating Authority exercised its discretion under Section 12A together with Regulation 30A(1)(a) and allowed withdrawal of the main petition before constitution of the Committee of Creditors. Having considered the facts and the impugned order, and applying the discretionary jurisdiction available to the Tribunal under the Code and regulations (including the framework in Swiss Ribbons that parties may be heard where appropriate), the Tribunal concluded that the Adjudicating Authority's exercise of judicial discretion in permitting withdrawal and dismissing the petition was free from legal infirmity. The Tribunal therefore found the appeal on this ground to be without merit. [Paras 15, 16, 17]

The order allowing withdrawal of the petition under Section 12A read with Regulation 30A before constitution of the Committee of Creditors is upheld; the exercise of discretion is free from legal flaws.

Requirement to hear affected creditors before allowing withdrawal - collective proceeding / proceeding in rem - Whether the Appellant/Financial Creditor was entitled to have its objections heard and whether failure to do so vitiated the withdrawal order. - HELD THAT: - The Appellant contended that, because CIRP had been triggered, the proceeding was collective and creditors whose rights were affected must be heard before allowing withdrawal. The Tribunal noted the contention and the jurisprudence that an Adjudicating Authority should hear concerned parties when deciding withdrawal applications. On the facts, however, the Tribunal found that the Adjudicating Authority had acted within the scope of Section 12A and Regulation 30A and that there was no legal flaw in allowing withdrawal in the circumstances; accordingly the asserted omission to hear the appellant did not render the impugned order unsustainable. [Paras 15, 17]

The contention that the failure to hear the Appellant vitiated the withdrawal order is rejected; the withdrawal order is sustained.

Impleading applicants - Whether IA/241/2021 for impleadment of proposed Respondents 3 and 4 should be entertained. - HELD THAT: - The Tribunal considered the application for impleadment made to avoid multiplicity of litigation and declined to entertain IA/241/2021. No further relief was granted in respect of the impleading application. [Paras 18]

IA/241/2021 for impleading proposed Respondents 3 and 4 is not entertained.

Final Conclusion: The Company Appeal is dismissed as devoid of merit; the Adjudicating Authority's order permitting withdrawal under Section 12A read with Regulation 30A is upheld. IA/241/2021 is not entertained. No costs; IA/88/2021, IA/89/2021 and IA/90/2021 are closed.

Settlement under SVLDRS - Form SVLDRS-3 - tender of payment - extension of payment date - equitable relief for failed acceptance of payment

Settlement under SVLDRS - Form SVLDRS-3 - tender of payment - extension of payment date - equitable relief for failed acceptance of payment - Relief to petitioner where payment under SVLDR scheme was tendered on the extended due date but was not accepted and was recredited. - HELD THAT: - The petitioner opted for settlement under the SVLDR scheme and filed the requisite declaration in Form-1. With reference thereto, Form SVLDRS-3 was issued requiring payment by the original due date; the government subsequently extended the date of payment. The petitioner tendered payment on the extended due date and the amount was debited from the petitioner's account but subsequently recredited. The factual position that payment was tendered on the extended due date and was not accepted, through no fault of the petitioner, is not in dispute. In these circumstances the Court exercised its equitable jurisdiction to grant the relief sought in prayer clause (c) so as to put the petitioner in the position contemplated by the settlement scheme where the payment had in fact been tendered but not accepted. [Paras 2, 3]

Writ petition allowed in terms of prayer clause (c); petition disposed of accordingly.

Final Conclusion: Where a petitioner duly tendered payment under the SVLDRS on the extended due date but the amount was not accepted and recredited through no fault of the petitioner, the High Court granted relief in terms of the petitioner's prayer to give effect to the settlement.

Refund of unutilized Cenvat credit - transition of Cenvat credit to GST via TRAN-1 - reversal of credit in GSTR-3B - compliance with Notification No.27/2012 condition to debit refund amount from Cenvat credit account - procedural lapse versus substantive condition - traversing beyond the show-cause notice

Refund of unutilized Cenvat credit - compliance with Notification No.27/2012 condition to debit refund amount from Cenvat credit account - reversal of credit in GSTR-3B - procedural lapse versus substantive condition - Whether the appellant had complied with the condition in Notification No.27/2012 by debiting the claimed refund from its Cenvat credit account and whether subsequent reversal in GSTR-3B remedied the inadvertent transition to TRAN-1 so as to entitle the appellant to refund. - HELD THAT: - The Tribunal found on the record that the appellant, a 100% exporter of services, had debited the claimed refund from its Cenvat credit account before filing the refund claim as required under Condition 2(h) of Notification No.27/2012 and produced documentary evidence (Exhibit B) of such reversal. The Tribunal held that there was no requirement under the Notification to debit the service tax return and that the original adjudicating authority and Commissioner(Appeals) had misconstrued this requirement. The Tribunal further found that the appellant had inadvertently transitioned the credit into TRAN-1 on account of a bona fide mistake but thereafter voluntarily reversed the transitioned credit by filing GSTR-3B for May 2018, and that the credit had not been utilized for any output liability. Viewing the transition as a procedural lapse rectified by the appellant, the Tribunal applied the principle that technical procedural mistakes should not defeat a substantive right to refund and concluded that the appellant satisfied the Notification conditions and was entitled to refund. [Paras 6, 7]

The appellant had complied with the Notification requirement and the subsequent reversal in GSTR-3B remedied the inadvertent transition, entitling the appellant to the refund.

Transition of Cenvat credit to GST via TRAN-1 - traversing beyond the show-cause notice - procedural lapse versus substantive condition - Whether the adjudicating authorities erred in rejecting the refund on the ground of transition into TRAN-1 and in travelling beyond the scope of the show-cause notice without properly considering the appellant's submissions and evidence. - HELD THAT: - The Tribunal held that the original authority rejected the refund partly on the ground that the appellant had transitioned the credit into TRAN-1 and that Section 142(4) would preclude refund. However, the Tribunal found that (i) the appellant had informed the department and, after realizing the inadvertent error, reversed the transitioned credit prior to the adjudication order by filing GSTR-3B in May 2018, and (ii) the authorities below failed to appreciate documentary evidence showing reversal in the Cenvat credit account. The Tribunal also found that the adjudicating order traversed beyond the show-cause notice and did not consider the appellant's submissions and documents. For these reasons the Tribunal concluded that the adjudicating authorities ought to have taken a liberal view of the bona fide mistake and should not have denied the refund on that basis. [Paras 6, 7]

The authorities erred in rejecting the refund on the ground of transition to TRAN-1 and in travelling beyond the show-cause notice; the appeal is to be allowed.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the appellant's refund claim for April 2016 to June 2016 is allowed with consequential relief, the Tribunal holding that the Cenvat credit was debited as required, the inadvertent transition to TRAN-1 was rectified by reversal in GSTR-3B, and the denial of refund on procedural grounds was erroneous.

Construction of residential complex as declared service - competent authority for issuance of completion certificate - validity of completion certificate after quashing of statutory notification - point of taxation under Taxation Rules, 2011 - interest on delayed payment of service tax - extended period of limitation / time barred show cause notice - bona fide belief and absence of suppression or fraud

Competent authority for issuance of completion certificate - validity of completion certificate after quashing of statutory notification - construction of residential complex as declared service - The completion certificate dated 22.2.2013 issued by Gram Panchayat, Chota Bangarda in favour of the appellant is valid and the Show Cause Notice based on its alleged invalidity is void. - HELD THAT: - The appellant obtained permission and the completion certificate from Gram Panchayat, Chota Bangarda. Although a Government notification dated 5.2.2013 briefly transferred jurisdiction to the Municipal Corporation, that notification was quashed by the High Court on 3.2.2014. The construction activity commenced in 2011 and, except for the 17-day period between 5.2.2013 and 22.2.2013, the Gram Panchayat was the competent authority. Once the notification was quashed, the consequence is that the notification is treated as if never existent for purposes relevant here and the Gram Panchayat's competence stands reinstated. In view of Section 66E(b) (which makes construction of a complex a declared service except where entire consideration is received after a completion certificate from the competent authority), the completion certificate issued by the Gram Panchayat was valid at the time relevant to the proceedings and the Show Cause Notice premised on its invalidity is therefore void. [Paras 9, 10, 11]

Completion certificate of Gram Panchayat is valid; consequent Show Cause Notice is void insofar as based on the alleged incompetence of the Gram Panchayat.

Point of taxation under Taxation Rules, 2011 - interest on delayed payment of service tax - bona fide belief and absence of suppression or fraud - No interest is payable because point of taxation arises on receipt of payment/advance and the appellant discharged service tax on receipt of instalments; sale deed date is not the relevant point of taxation. - HELD THAT: - Rule 3 of the Taxation Rules, 2011 prescribes that point of taxation is when invoice is issued, or where invoice is not issued, the date of completion of provision of service, and that receipt of payment (including advances) determines point of taxation to the extent of such payment. The appellant issued receipts on receipt of each instalment and did not issue invoices; possession and completion are tied to receipt of consideration. The record and calculations show that service tax was discharged when instalments were received; the Department produced no evidence to the contrary and bore the burden of proof. Consequently, there is no late payment of service tax and imposition of interest is unsustainable. [Paras 12, 13]

Interest demand set aside; no late payment as point of taxation was on receipt of instalments and tax was discharged accordingly.

Extended period of limitation / time barred show cause notice - bona fide belief and absence of suppression or fraud - The Show Cause Notice issued in 2017 raising demands for the period from 2012 onwards is time barred and the extended period of limitation cannot be invoked in the absence of fraud, collusion, wilful misstatement or suppression of facts. - HELD THAT: - The appellant consistently discharged tax as instalments were received and there is no evidence of mala fide intent or positive acts of suppression. Penalty and invocation of the extended period under the proviso to Section 73 (and related provisions) require proof of fraud, collusion, wilful misstatement or suppression, which is absent. Precedent of this Tribunal indicates that without such positive evidence penalty under Section 78 and extension of limitation cannot be sustained. Therefore the Department could not validly invoke the extended period and the demand is barred by time. [Paras 14, 15]

Show Cause Notice and demand for earlier years are time barred; extended limitation period not invokable in present facts.

Final Conclusion: All issues decided in favour of the appellant: the completion certificate issued by the Gram Panchayat is valid; no interest is payable as tax was discharged on receipt of instalments; and the Show Cause Notice raising demands for 2012 onwards is time barred. The impugned findings of the lower authority are set aside and the appeal is allowed.

Refund of service tax in export under Notification No.41/2012-ST - limitation period for refund claims - one claim per quarter - date of export (LEO) versus end of quarter - harmonious reading of notifications - disbursement of refund with interest

Refund of service tax in export under Notification No.41/2012-ST - limitation period for refund claims - one claim per quarter - date of export (LEO) versus end of quarter - harmonious reading of notifications - Refund claim filed on 27.12.2016 in respect of exports made in the quarter 1st October, 2015 to 31.12.2015 was within the prescribed one year limitation - HELD THAT: - The Tribunal construed Notification No.41/2012 ST in conjunction with earlier notifications including Notification No.41/2007 ST and Notification No.5/2006 CE (NT). The scheme contemplates that only one refund claim is to be filed for each quarter, which requires treating the relevant limitation period from the end of that quarter rather than from the date of individual LEOs. Consequently, the one year period for filing a refund claim for the quarter ending 31.12.2015 is to be counted from 1.1.2016, and the claim filed on 27.12.2016 falls within that period. The adjudicating authorities erred in computing limitation from the date of the last LEO within the quarter and rejecting the claim solely on that ground.

Impugned order set aside; refund claim held to be within limitation and entitled to grant.

Disbursement of refund with interest - Relief and administrative direction following allowance of the refund claim - HELD THAT: - The Tribunal observed that the refund had been rejected only on the ground of limitation. Having allowed the appeal on that basis, it directed the Adjudicating Authority to disburse the refund within 45 days of receipt of the order and to pay interest as per the Rules for the period beginning 27.03.2017 (three months ending the date of claim) until the date of grant of refund.

Adjudicating Authority directed to pay the refund within 45 days with interest as specified.

Final Conclusion: The appeal is allowed: the refund claim filed on 27.12.2016 for exports in the quarter 1st October, 2015 to 31.12.2015 is within the one year limitation under the relevant notifications; the earlier order rejecting the refund on limitation grounds is set aside and the Adjudicating Authority is directed to disburse the refund with interest within 45 days.

Remand for fresh consideration - opportunity of hearing before adjudicating authority - consideration on merits - compliance with procedural requirements - liberty to file appropriate reply

Remand for fresh consideration - liberty to file appropriate reply - opportunity of hearing before adjudicating authority - consideration on merits - Petition disposed by directing the petitioner to approach the adjudicating authority with an appropriate reply and permitting the adjudicating authority to reconsider the matter on merits. - HELD THAT: - The High Court recorded that developments during pendency and favourable judicial decisions justified permitting the petitioner to seek adjudication before the original forum. The petitioner was granted liberty to file an appropriate reply in the prescribed format and to comply with procedural requirements within four weeks from receipt of the order. On receipt of any such reply the adjudicating authority is directed to consider the documents and submissions and decide the matter on merits in accordance with law. The Court remitted the controversy to the adjudicating authority for fresh consideration and determination, requiring expeditious disposal without expressing any appellate or substantive view on the merits.

Writ petition disposed by remitting the matter to the adjudicating authority with liberty to the petitioner to file a reply within four weeks and with a direction that the adjudicating authority consider and decide the matter on merits expeditiously.

Final Conclusion: The writ petition is disposed of by remanding the dispute to the adjudicating authority; the petitioner may file an appropriate reply within four weeks and the adjudicating authority shall consider the same on merits and pass orders expeditiously.

Penalty under Section 11AC for wilful mis-statement or suppression of facts - Wilful suppression with intent to evade payment of duty - CENVAT Credit Rules - clearance of capital goods and corresponding payment obligation - Failure to declare production and clearance in ER-1 returns - Invocation of extended period where wilful suppression is alleged

Penalty under Section 11AC for wilful mis-statement or suppression of facts - Wilful suppression with intent to evade payment of duty - CENVAT Credit Rules - clearance of capital goods and corresponding payment obligation - Failure to declare production and clearance in ER-1 returns - Whether the penalty under Section 11AC read with Rule 15(2) of the CENVAT Credit Rules, 2004 was correctly imposed on the appellant for the periods 2013-14 and 2014-15. - HELD THAT: - The Tribunal found that the departmental audit conducted between February and April 2017 disclosed specific contraventions: CENVAT credit availed on capital goods that were cleared as such without payment as required by the CENVAT Credit Rules, failure to pay duty in the prescribed manner, and non-declaration of production and clearance of Limenite ground in ER-1 returns. These material findings indicated suppression and contravention which, but for the audit, would have remained undetected. The appellant remediated the duty liability only after detection and recorded the payment in the ER-1 return for April 2017. The authority had also invoked the extended period on the ground of wilful suppression, and the appellant did not challenge invocation of the extended period. The Tribunal distinguished relied-on decisions as factually different (including Service Tax cases and instances where duty was quantified or paid prior to show-cause notice) and observed that Section 11AC specifically penalises non-levy or short-levy where fraud, collusion, wilful mis-statement or suppression with intent to evade duty is found. Given the audit findings, the post-detection payment, the absence of a challenge to invocation of the extended period, and the clear contraventions of the CENVAT Credit Rules and Central Excise Rules, the Tribunal held that the ingredients of Section 11AC were satisfied and the penalty was rightly confirmed. [Paras 5, 6, 8]

Appeal dismissed; penalty under Section 11AC read with Rule 15(2) upheld for the periods 2013-14 and 2014-15.

Final Conclusion: The Tribunal dismissed the appeal and upheld the penalties imposed under Section 11AC read with Rule 15(2) of the CENVAT Credit Rules, 2004, concluding that audit-discovered suppression and contraventions satisfied the statutory ingredients for levy of penalty for the tax periods 2013-14 and 2014-15.

Refund of duty paid on stock at debonding - export after debonding - drawback claim versus refund - requirement of documentary proof for refund - non-speaking order - interest on delayed refund - 100% EOU

Refund of duty paid on stock at debonding - export after debonding - requirement of documentary proof for refund - 100% EOU - Entitlement of the appellant to refund of duty deposited at the time of debonding in respect of finished goods lying in stock on the date of debonding which were subsequently exported. - HELD THAT: - The Tribunal found that the appellant, being a 100% EOU, had deposited duty on 153 finished goods lying in stock on the date of debonding (27.07.2015) to obtain NOC and subsequently exported the goods, as evidenced by ARE-I, shipping bills, invoices, packing lists and bill of lading. The adjudicating authority and Commissioner (Appeals) rejected the refund claim on conjecture that the exported consignment may not have included the specific stock existing at debonding, despite the appellant producing documentary proof. The Tribunal held that the rejection rested on surmise and a non-speaking approach without adverse material to displace the documentary evidence, and that the export within days after debonding established the claimed export of the stock. Consequently the appellant was held entitled to the refund of the duty paid on those goods. [Paras 5]

Refund claim allowed; appellant entitled to refund of the duty paid on the stock lying at the time of debonding.

Interest on delayed refund - drawback claim versus refund - Entitlement to interest on the refunded amount and treatment of prior drawback claim in relation to refund. - HELD THAT: - The Tribunal directed refund with interest, applying the rate of 12% p.a. from 18.08.2016 until date of refund, following the Division Bench view cited by the Tribunal. The Tribunal rejected the respondent's reliance on the fact that drawback had been claimed as a basis to deny refund, observing that the authorities proceeded without adducing material to show that the specifically deposited duty could not be refunded in view of the export and documentary evidence. The direction for interest follows the Tribunal's reliance on precedent applying interest at 12% p.a. on delayed refunds. [Paras 5, 6]

Refund to be paid with interest at 12% p.a. from 18.08.2016 until payment; appeal allowed with consequential relief.

Final Conclusion: The impugned order rejecting the refund was set aside. The appellant, a 100% EOU, is entitled to refund of the duty deposited on the stock as on debonding which was subsequently exported, together with interest at 12% p.a. from 18.08.2016 until the date of refund; appeal allowed with consequential benefits.

Clandestine manufacture and clearance - confiscation and penalty under Rule 25 read with Section 11AC - absence of mens rea / intent to evade duty - statutory registers RG-I and Form IV as day to day stock accounts - authenticity of photocopies and audit verification - burden to prove attempted clandestine removal - liability to confiscation of raw materials not manufactured by the assessee - role and posting of Central Excise Officers in cigarette factories

Confiscation and penalty under Rule 25 read with Section 11AC - absence of mens rea / intent to evade duty - burden to prove attempted clandestine removal - authenticity of photocopies and audit verification - Validity of confiscation of finished goods and imposition of penalty where statutory RG I and Form IV registers were not found or produced but there is no evidence of clandestine removal or intent to evade duty. - HELD THAT: - The Tribunal found that the Department drew adverse inference solely from non production/non finding of RG I and Form IV, without considering departmental records such as audit reports and returns. The audit visit on 20.05.2013, four days before the DGCEI search, contained no adverse remark and the audit team did not report missing registers. There was no evidence of any attempted clandestine removal, no allegation of collusion with posted Central Excise officers, and no finding of fraud, collusion, wilful mis statement or suppression with intent to evade duty. Discrepancies in stock quantification were noted and corrected by Revenue, but such discrepancies alone do not establish mens rea required under Rule 25 read with Section 11AC. The authenticity of photocopies produced by the appellant was suspect, yet the absence of reliable evidence of clandestine clearance was determinative. In these circumstances confiscation and penalty could not be sustained. [Paras 12, 13, 15, 16]

Confiscation of finished goods and penalty under Rule 25/Section 11AC set aside for want of evidence of intent to evade duty; appeal allowed on these grounds.

Liability to confiscation of raw materials not manufactured by the assessee - statutory registers RG-I and Form IV as day to day stock accounts - Whether raw materials found at the factory could be confiscated where they were not manufactured by the appellant and statutory records were not produced. - HELD THAT: - The Tribunal observed that the raw materials seized were duty paid inputs not shown to have been manufactured by the appellant. In absence of any finding that the raw materials were dutiable in the hands of the appellant or that there was intent to evade duty, confiscation of such raw material was not warranted. The requirement to maintain RG I/Form IV does not convert legitimately held raw material into confiscable goods absent culpable conduct or evasion. [Paras 7, 14]

Confiscation of raw materials not sustainable; such confiscation set aside.

Final Conclusion: The impugned order confirming confiscation and imposing penalty is set aside for lack of evidence of clandestine removal or intent to evade duty; appeal allowed and the appellant entitled to consequential benefits in accordance with law.

Input tax credit - original Tax Invoice - reversal of input tax credit on account of mismatch of returns - remand for fresh enquiry and reassessment - centralised mechanism to deal with mismatch cases - opportunity to be heard before reversal

Input tax credit - original Tax Invoice - Entitlement to claim input tax credit where original tax invoices from the seller have been produced. - HELD THAT: - The Court applied the statutory requirement that claim of input tax credit is contingent on production of original invoices issued by the selling dealer. The judgment cited and followed earlier authority holding that where the purchasers have produced the original invoices from the seller, the statutory precondition for claiming input tax credit is satisfied and no reversal is warranted in the absence of any additional condition imposed on the dealer.

Where original invoices from the selling dealer are produced, the claim for input tax credit cannot be reversed merely on account of alleged mismatch without further conditions.

Reversal of input tax credit on account of mismatch of returns - remand for fresh enquiry and reassessment - centralised mechanism to deal with mismatch cases - opportunity to be heard before reversal - Validity of assessment orders reversing input tax credit on the basis of mismatch and the appropriate course of action. - HELD THAT: - The Court observed that procedural practice of reversing input tax credit solely on a mismatch between returns, without a thorough, coordinated enquiry, is flawed. The Court set aside the impugned assessment orders and remanded the matters for fresh consideration, directing that fresh show cause notices be issued and that assessing officers conduct a thorough enquiry in consultation with the assessing officers of the other end dealer. The Court further directed evolution of a centralized procedure to examine mismatch cases so that adjudication is fair, holistic and affords the dealer an opportunity to explain entitlement to the set-off availed.

Impugned orders reversing input tax credit for mismatch are set aside; matters remanded for fresh enquiry and reassessment pursuant to fresh show cause notices, with directions to evolve a centralized mechanism and to afford opportunity to the dealer to explain.

Remand for fresh enquiry and reassessment - Availability of limitation defence when fresh show cause notices are issued after remand. - HELD THAT: - The Court followed the view expressed in the earlier connected judgment that where matters are remanded and fresh show cause notices are issued for re-adjudication, the dealers cannot invoke limitation to resist issuance of those fresh notices. Thus, remand for fresh consideration permits fresh proceedings notwithstanding prior time lapses.

Dealers are not entitled to plead limitation against fresh show cause notices issued pursuant to the remand for fresh adjudication.

Final Conclusion: Writ petitions allowed; impugned assessment orders set aside and remanded for fresh consideration pursuant to fresh show cause notices, with directions to evolve a centralized procedure for mismatch cases and to afford dealers a fair opportunity to be heard; no costs.

Revision under Section 64(1) of the Karnataka Value Added Tax Act, 2003 - Reassessment under Section 39(1) read with Sections 36 and 72(2) of the Karnataka Value Added Tax Act, 2003 - Failure to state tax amount in invoice - effect on entitlement to deduction - Duty to consider written objections before exercising revisionary power - Remand for fresh consideration where objections are not addressed - Scope of revisional interference where two views are possible

Duty to consider written objections before exercising revisionary power - Remand for fresh consideration where objections are not addressed - Impugned revision order set aside and matter remitted to respondent No.1 for fresh consideration of the objections filed by the appellant. - HELD THAT: - The High Court found that the revisional authority (respondent No.1) recorded the appellant's written objections but proceeded to rely on precedent without addressing or considering those objections. The revisional order therefore did not reflect a considered application of mind to the specific contentions raised by the appellant. Rather than expressing any view on the merits of the rival contentions (including the applicability of precedents relied upon), the court held that the appropriate course was to set aside the impugned order and remit the matter for fresh consideration so that respondent No.1 may examine the objections noted at pages 3 to 8 of the impugned order and pass a reasoned order in accordance with law. All other contentions were left open for determination by the revisional authority on reconsideration. [Paras 8, 9, 10, 11]

Impugned order dated 18.07.2019 set aside; matter remitted to respondent No.1 to consider the appellant's objections afresh and pass a considered order in accordance with law.

Final Conclusion: Appeal allowed in part; impugned revisional order set aside and the matter remitted to respondent No.1 for fresh consideration of the appellant's objections (appellant to appear on 15.07.2021); all other contentions left open.

Section 138 NI Act: requirement of notice to drawer - Distinct legal personality of company and firm - Jurisdictional error in issuance of process - Prosecution of directors only when company is made party

Section 138 NI Act: requirement of notice to drawer - Distinct legal personality of company and firm - Jurisdictional error in issuance of process - Prosecution of directors only when company is made party - Validity of issuance of process under Section 138 when cheques were issued by a partnership firm but statutory notice was not served on the firm and a private limited company (distinct legal entity) was arraigned instead - HELD THAT: - The Court held that issuance of process under Section 138 of the Negotiable Instruments Act is vitiated where the statutory notice was not given to the actual drawer of the cheque. The dishonoured cheques were issued by a partnership firm which was neither served with the statutory notice nor arraigned as an accused. The arraignment of a private limited company that has no nexus with the issuance of the cheques cannot substitute for service on the drawer, because a company and a firm are separate legal entities; the mere fact that an individual is a partner in the firm and a director of the company is insufficient to fasten liability on the company. The learned Sessions Judge correctly treated the absence of notice to the drawer/firm as a jurisdictional defect in taking cognizance, and, relying on the settled principle that directors cannot be prosecuted unless the company is made a party, concluded that amendment to substitute or delete "Private Limited" would not cure the fundamental defect of non-service of the notice on the actual drawer. For these reasons the impugned revisional order quashing the process was correct and required no interference. [Paras 18, 19, 20, 22, 23]

The order issuing process under Section 138 was legally untenable for want of statutory notice to the drawer (the partnership firm); the revisional order quashing issuance of process is upheld and requires no interference.

Final Conclusion: The High Court dismissed the petition and declined to interfere with the revisional order quashing the trial court's order of issuance of process, holding that non-service of the statutory notice on the drawer (the partnership firm) and arraignment of a distinct private limited company constituted a jurisdictional defect.

Vicarious liability under Section 141 of the Negotiable Instruments Act - quashing of criminal proceedings for lack of specific role - insufficient averments against directors - strict construction of penal provisions creating vicarious liability

Vicarious liability under Section 141 of the Negotiable Instruments Act - insufficient averments against directors - quashing of criminal proceedings for lack of specific role - Proceedings against the petitioners (directors) under Section 138 read with Section 141 of the Negotiable Instruments Act were quashed for failure to allege any specific role of the petitioners in the conduct of the company's business or in issuance of the cheques. - HELD THAT: - The court held that prosecution under Section 138 read with Section 141 of the N.I. Act requires that a director be shown to have been in charge of, and responsible for, the conduct of the company's business at the relevant time; vicarious liability under Section 141 is a penal concept that must be strictly construed. Mere selection of jewellery, assurances of payment, or omnibus averments that the petitioners were directors and responsible for day-to-day affairs, without specific factual allegations as to the role played by each director in the company's financial dealings or in issuance of the cheques, are insufficient to sustain criminal proceedings. Relying on the ratio in Pooja Ravinder Devidasani and related precedents, the court found that no specific role was attributed to the petitioners and that vague, omnibus allegations would result in abuse of process. Given these deficiencies, the petitioners could not be prosecuted merely because they were named as directors; the complaint therefore had to be quashed as against them. The court expressly declined to decide the separate contention regarding resignation dates as unnecessary to the decision. [Paras 8, 9, 10, 11, 12]

The criminal proceedings in CC. No. 1011 of 2010 against the petitioners/accused Nos. 5, 7, 8 and 9 are quashed for lack of specific averments attributing responsibility to them.

Final Conclusion: The petition is allowed and the complaint proceedings as against the petitioners/accused Nos. 5, 7, 8 and 9 are quashed on the ground that the complaint fails to attribute any specific role to them to attract vicarious liability under Section 141 of the Negotiable Instruments Act; other contentions were not decided as unnecessary.

Offence under Section 138 of the Negotiable Instruments Act - Liability of joint account-holder for dishonour of cheque - Signatory liability under Section 138 - Quashing of criminal proceedings under Section 482 Cr.P.C.

Offence under Section 138 of the Negotiable Instruments Act - Liability of joint account-holder for dishonour of cheque - Signatory liability under Section 138 - Criminal proceedings in C.C. No.1320/2018 as instituted against petitioner No.2 are liable to be quashed while proceedings against petitioner No.1 may continue. - HELD THAT: - The complaint, legal notice and sworn statement recorded before the trial Court make it clear that the cheque was signed only by accused/petitioner No.1 though it was drawn on a joint account in the names of petitioners No.1 and No.2. The Apex Court in Aparna A. Shah holds that in cases of cheques issued from joint accounts a joint account-holder cannot be prosecuted under Section 138 unless the cheque has been signed by each and every joint account-holder; mere authorization to sign on behalf of a co-holder does not attract criminal liability under Section 138. Applying that principle, the learned trial Court erred in taking cognizance of the offence qua petitioner No.2 who was not a signatory to the cheque. Consequently the proceedings against petitioner No.2 must be quashed, while the prosecution against the signatory (petitioner No.1) may continue before the trial Court. [Paras 12, 13, 14, 15]

Petitioner No.2 is not liable to be prosecuted under Section 138 of the N.I. Act for the cheque that was signed solely by petitioner No.1; proceedings against petitioner No.2 are quashed.

Final Conclusion: The petition under Section 482 Cr.P.C. is allowed in part: criminal proceedings in C.C. No.1320/2018 are quashed as regards petitioner No.2; proceedings against petitioner No.1 (the signatory of the cheque) shall continue before the trial Court.