TaxTMI Updates e-Newsletter
Jul 07,2025

The core legal questions considered by the Court are:

(a) Whether the order dated April 27, 2024, raising a demand of Rs. 24,40,363.10 against the petitioner, is valid in light of the show-cause notice issued under Section 73 of the Goods and Services Tax Act, 2017, which specified a demand of only Rs. 4,80,527.36;

(b) Whether the demand raised in the order exceeds the amount specified in the show-cause notice, thereby violating the provisions of Section 75(7) of the Goods and Services Tax Act, 2017;

(c) Whether the imposition of interest and penalty, which were not explicitly quantified in the show-cause notice, can be sustained in the final demand order;

(d) Whether the principles of natural justice were complied with, given that the petitioner did not respond to the show-cause notice or appear at the hearing despite reminders;

(e) Whether the order impugned should be quashed and the matter remanded for fresh adjudication after providing an opportunity of hearing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of the demand order vis-`a-vis the show-cause notice and Section 75(7) of the GST Act

The relevant legal framework is Section 75 of the Goods and Services Tax Act, 2017, particularly sub-section (7), which states:

"The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice."

This provision imposes a statutory limitation on the quantum of demand that can be raised in the adjudication order compared to the show-cause notice. The rationale is to ensure fairness and to prevent the tax authorities from exceeding the scope of the notice, thereby violating principles of natural justice.

In the present case, the show-cause notice dated January 30, 2024, specified a demand of Rs. 4,80,527.36, encompassing tax, interest, and penalty. However, the impugned order dated April 27, 2024, raised a demand of Rs. 24,40,363.10, which is substantially higher than the amount mentioned in the notice.

The Court observed that this discrepancy is ex facie contrary to the express mandate of Section 75(7). The order thus demands an amount beyond the scope of the notice, which is impermissible under the statutory scheme.

The Court's reasoning emphasized that adherence to the limits prescribed in Section 75(7) is mandatory and non-negotiable, serving as a safeguard against arbitrary or excessive demands.

Issue (c): Imposition of interest and penalty not specified in the show-cause notice

The petitioner contended that the order includes tax and penalty amounts which were not indicated in the show-cause notice, thereby violating Section 75(7). The respondent argued that interest and penalty are statutory charges and can be levied irrespective of their explicit mention in the notice.

The Court analyzed this contention in light of the statutory provisions and principles of natural justice. While interest and penalty are indeed statutory, Section 75(7) requires that the amount of tax, interest, and penalty demanded in the order should not exceed the amount specified in the notice.

The Court held that the statutory nature of interest and penalty does not override the specific procedural safeguard in Section 75(7). The authority cannot bypass the requirement of quantifying these amounts in the show-cause notice and then demand a higher amount in the order.

This interpretation ensures that the taxpayer is adequately informed of the extent of liability and can prepare a meaningful defense, thus upholding the principles of fair hearing.

Issue (d): Compliance with principles of natural justice

The respondent submitted that since the petitioner failed to respond to the show-cause notice or appear at the hearing despite reminders, the order cannot be challenged on grounds of violation of natural justice.

The Court acknowledged that the petitioner did not file any reply nor appeared despite reminders. However, the Court emphasized that the procedural safeguards enshrined in the statute, including the requirement that the demand not exceed the amount in the notice, are independent of the petitioner's participation.

The Court reasoned that natural justice requires that the notice itself be valid and within statutory limits. An order passed in violation of statutory provisions cannot be sustained merely because the petitioner did not participate.

Therefore, the failure of the petitioner to respond does not cure the statutory violation committed by the authority in exceeding the amount specified in the notice.

Issue (e): Quashing of the order and remand for fresh adjudication

Given the violation of Section 75(7), the Court concluded that the impugned order could not be sustained. The appropriate remedy was to quash and set aside the order dated April 27, 2024, and remit the matter back to the adjudicating authority.

The Court directed the authority to provide the petitioner an opportunity to file a response to the show-cause notice and to pass a fresh order in accordance with law, strictly adhering to the limits prescribed by Section 75(7) and ensuring compliance with principles of natural justice.

3. SIGNIFICANT HOLDINGS

The Court held:

"The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice."

This core principle under Section 75(7) was reiterated as mandatory and non-derogable, serving as a crucial safeguard for taxpayers against excessive or arbitrary demands.

The Court conclusively determined that the impugned order, which raised a demand substantially exceeding the amount specified in the show-cause notice, was invalid and unsustainable.

Furthermore, the Court clarified that the statutory nature of interest and penalty does not permit the authority to circumvent the procedural requirement of specifying these amounts in the notice.

Finally, the Court emphasized that non-participation by the petitioner does not validate an order that violates statutory provisions and principles of natural justice.

Accordingly, the order dated April 27, 2024 was quashed and set aside, and the matter was

Issues: Whether the order passed under Section 73 of the GST Act and the appellate order dismissing the appeal as time-barred were sustainable where the reply and defence were not properly considered and no effective hearing was afforded.

Analysis: The order under Section 73 was found to be short of the requirements of natural justice because it did not adequately deal with the petitioner's reply and proceeded on the footing that supporting evidence was absent, though the authority could have required production of such evidence. The appellate order was also set aside as it could not survive once the original adjudication was found defective.

Conclusion: The challenge succeeded. The adjudication order and the appellate order were quashed, and the matter was remanded for fresh decision after affording an opportunity of hearing.

Issues: Whether the demand order under the GST regime was liable to be set aside for non-issuance of notice under Section 142(1)(A) of the Central Goods and Services Tax Act, 2017 for the relevant pre-amendment assessment period.

Analysis: The petitioner faced a demand order arising from proceedings for reversal of input tax credit, tax, interest and penalty. The challenge was founded, inter alia, on absence of the notice contemplated by Section 142(1)(A) before commencement of the assessment proceedings. The Court noted that it was not disputed that no such notice had been served prior to the assessment proceedings and followed its earlier decisions holding that, for periods prior to the amendment of Section 142(1)(A), absence of the prescribed notice vitiates the assessment process.

Conclusion: The demand order was set aside and the matter was remanded to the assessing authority for fresh assessment in accordance with the GST law and rules.

Issues: (i) Whether interference was warranted against the garnishee proceedings initiated for recovery of the admitted tax dues. (ii) Whether the request for grant of 24 equal monthly instalments for clearing the admitted dues required consideration by the tax authority.

Issue (i): Whether interference was warranted against the garnishee proceedings initiated for recovery of the admitted tax dues.

Analysis: The petitioner admitted liability for the tax amount demanded. In that situation, interference with the recovery proceedings was not considered appropriate.

Conclusion: Relief against the garnishee proceedings was declined.

Issue (ii): Whether the request for grant of 24 equal monthly instalments for clearing the admitted dues required consideration by the tax authority.

Analysis: The representation seeking instalments had not been disposed of, and such a request required prompt consideration by the authority concerned.

Conclusion: The authority was directed to consider and decide the instalment request within three weeks.

Final Conclusion: The writ petition was disposed of by declining interference with recovery, while securing adjudication of the petitioner's request for payment of the admitted dues in instalments.

Ratio Decidendi: Where tax liability is admitted, recovery proceedings need not be interdicted, but a pending request for instalment payment should be considered expeditiously by the competent authority.

Issues: Whether the application to place Annexures P-2 to P-11 on record as additional annexures should be allowed.

Analysis: The application was filed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 for taking the additional annexures on record. No prejudice was found in permitting the documents to be placed on record, and the request was granted subject to all just exceptions.

Conclusion: The application was allowed and the additional annexures were taken on record subject to all just exceptions.

Issues: Whether the order granting bail to the respondent in a prosecution under the Central Goods and Services Tax Act, 2017 warranted recall or cancellation on the ground that it was granted without any change in circumstances and was otherwise improperly exercised.

Analysis: The petition invoked the supervisory jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 to assail the bail order. The challenge rested on the alleged absence of any material change after earlier rejections, non-cooperation in investigation, and alleged absence of parity. The Court noted that filing of the complaint after the earlier rejection constituted a substantial change in circumstances. It further held that, after filing of the complaint, the relevant considerations shift to the gravity of the offence and the triple test of flight risk, likelihood of influencing witnesses, and tampering with evidence. The evidence was essentially documentary, there was no material to show that the respondent was a flight risk or likely to interfere with the process, and there was no material showing misuse of the liberty granted on bail.

Conclusion: The bail order was upheld and the prayer for recall of the bail order was rejected.

Issues: Whether the bail granted to the respondent should be recalled or set aside on the ground that the grant of bail was an improper exercise of discretion and that the respondent was likely to obstruct investigation, influence witnesses, or tamper with evidence.

Analysis: The challenge was treated as one to the correctness of the order granting bail, not as a cancellation of bail for breach of conditions. The governing test for interference with a bail order is whether the discretion was exercised perversely, illegally, arbitrarily, or unjustifiably, while cancellation of bail requires cogent and overwhelming circumstances. The allegations rested largely on documentary and electronic material, and there was nothing to show that the respondent was a flight risk or that he would interfere with witnesses or evidence. No misuse of liberty after grant of bail was shown, and no supervening circumstance justified revocation of the bail already granted.

Conclusion: The order granting bail did not warrant interference and the petition seeking recall of bail failed.

Another key legal question examined was the applicability of Section 5 of the Limitation Act, 1963 (hereinafter "the Limitation Act") for condonation of delay in filing the appeal under the 2017 Act, particularly whether the special limitation provisions under the 2017 Act exclude the general provisions of the Limitation Act.

Further, the Court addressed the issue of whether manual filing of the appeal was permissible in light of a government notification dated July 31, 2023 (Notification No. 29/2023-Central Tax), which purportedly allows manual presentation of such appeals before the appellate authority.

Issue-wise detailed analysis:

1. Applicability of Section 5 of the Limitation Act for condonation of delay in filing appeal under Section 107 of the 2017 Act

The relevant legal framework involves the interplay between the special limitation provisions under the 2017 Act and the general limitation provisions under the Limitation Act. Section 107(4) of the 2017 Act prescribes a four-month period for filing an appeal before the appellate authority. Section 5 of the Limitation Act empowers courts or authorities to condone delay in filing appeals or applications if sufficient cause is shown.

Precedents considered include a Division Bench ruling in a related writ petition (WPA 1829 of 2024), which interpreted the applicability of Section 5 of the Limitation Act in the context of the 2017 Act. The Court relied heavily on the reasoning that Section 107 of the 2017 Act does not expressly or impliedly exclude the applicability of the Limitation Act, especially Section 5, as per Section 29(2) of the Limitation Act.

The Court noted that special statutes prescribing limitation periods do not necessarily exclude the general law of limitation unless expressly stated. Section 29(2) of the Limitation Act provides that where a special law prescribes a limitation period different from the Limitation Act, the provisions of the Limitation Act apply unless expressly excluded.

Moreover, the Court observed that Section 108 of the 2017 Act provides a longer period for revision before a designated authority, indicating that the legislature intended different limitation periods for different authorities without excluding the Limitation Act.

Applying these principles, the Court held that the appellate authority erred in rejecting the appeal solely on the ground of delay without considering the application for condonation of delay under Section 5 of the Limitation Act. The Court emphasized that in the absence of specific exclusion, it would be improper to read an implied exclusion of Section 5.

The Court thus restored the application for condonation of delay to the appellate authority for fresh consideration on merits, directing that the authority must provide an opportunity for hearing and pass a reasoned order.

2. Validity of rejection of appeal on the ground of manual filing in absence of notification permitting such filing

The appellate authority had also dismissed the appeal on the ground that it was filed manually, asserting that no notification authorized manual filing for such appeals.

The petitioner relied on Notification No. 29/2023-Central Tax dated July 31, 2023, which states that appeals of this nature may be presented manually before the appellate authority.

The Court directed the appellate authority to reconsider this aspect in light of the notification, requiring it to pass a reasoned order on whether manual filing of the appeal was permissible. The Court did not itself decide the issue but mandated a fresh determination based on the notification and relevant law.

3. Overall conclusions and directions

The Court set aside the impugned order of the appellate authority dismissing the appeal on grounds of limitation and mode of filing. It restored the condonation of delay application to the appellate authority for fresh adjudication on merits with due opportunity to the parties.

The appellate authority was also directed to reconsider the question of manual filing in light of the July 2023 notification and deliver a reasoned order.

The Court's intervention underscores the principle that limitation provisions in special statutes do not automatically exclude the general law of limitation unless expressly stated, and that authorities must consider condonation applications on their merits rather than mechanically rejecting appeals filed beyond prescribed time limits.

Significant holdings include the Court's clear affirmation that Section 5 of the Limitation Act applies to appeals under Section 107 of the 2017 Act, as the latter does not expressly or impliedly exclude it. The Court stated:

"Therefore, in our view, since provisions of Section 5 of the Act of 1963 have not been expressly or impliedly excluded by Section 107 of the Act of 2017 by virtue of Section 29(2) of the Act of 1963, Section 5 of the Act of 1963 stands attracted."

This principle establishes that appellate authorities have jurisdiction to condone delay in filing appeals under the 2017 Act, ensuring procedural fairness and access to justice.

Additionally, the Court emphasized the necessity of reasoned orders and opportunity of hearing in adjudicating condonation applications, reinforcing due process requirements.

In sum, the Court remitted the matter to the appellate authority to reconsider both the condonation of delay and the permissibility of manual filing, thereby safeguarding the petitioner's right to have the appeal adjudicated on merits rather than dismissed on procedural technicalities.

The primary legal question considered in these Appeals under Section 260A of the Income Tax Act, 1961, is whether the incentive received in the form of sales tax exemption under schemes formulated by the State Government for encouraging industrial development in backward areas constitutes a capital receipt exempt from income tax or a revenue receipt liable to taxation. Specifically, the issues include:

• Whether the sales tax incentive received by the Assessees under the respective State Government schemes should be treated as capital receipts or revenue receipts for income tax purposes.
• Whether the fact that the incentive is adjusted against sales tax liability only after commencement of production affects its character as capital or revenue receipt.
• Whether the purpose for which the subsidy/incentive is granted-setting up new industrial units or assisting in business operations-is determinative of the nature of the receipt.
• Ancillary questions relating to capitalization of foreign exchange fluctuation losses, deduction of foreign travel expenses, and treatment of guest house expenses were framed but ultimately not decided as they were either covered by binding precedent or involved negligible amounts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Treatment of Sales Tax Incentive as Capital or Revenue Receipt

Relevant Legal Framework and Precedents

The Court extensively examined the jurisprudence laid down by the Apex Court, particularly the landmark judgment in Sahney Steel & Press Works Ltd., which established the "purpose test" to determine the nature of subsidy receipts. According to Sahney Steel, if the subsidy is granted to enable the assessee to set up or expand an industrial unit, it is a capital receipt; if it is given to assist in carrying on business operations after production commences, it is a revenue receipt.

This principle was further elucidated in CIT vs. Ponni Sugars & Chemicals Ltd., where the Apex Court emphasized that the form or mechanism of payment, timing of receipt, or source of subsidy is immaterial; the decisive factor is the purpose for which the subsidy is granted. The Court held that subsidies aimed at enabling the assessee to set up or expand units are capital receipts, even if paid after commencement of production.

Similarly, CIT vs. Chaphalkar Brothers reinforced that the objective behind the subsidy scheme governs its character. The Court held that incentives granted to promote construction of multiplex cinema halls were capital receipts despite being payable only after commercial operations began. The judgment also highlighted that the form or timing of subsidy payment does not alter its capital nature if the purpose is industrial development.

Other relevant precedents include the House of Lords decision in Seaham Harbour Dock Co., which held that grants for dock extension to relieve unemployment were capital receipts, underscoring the primacy of purpose over form.

Court's Interpretation and Reasoning

The Court noted that both the 1979 Scheme applicable to Reliance Industries Ltd. and the 1983 Scheme applicable to Bajaj Auto Ltd. were designed to encourage industrialization in backward areas of Maharashtra by incentivizing the setting up of new industrial units. Eligibility for incentives was determined based on fixed capital investment, and the incentives were granted in the form of sales tax exemptions adjusted against the sales tax liability after production commenced.

The Court rejected the Revenue's contention that the incentive must be treated as revenue receipt merely because it was payable only after production started. It held that the timing or mechanism of payment is irrelevant to the nature of the receipt. The decisive factor is the purpose of the subsidy, which in these cases was to promote industrialization and the establishment of new units in backward areas.

The Court relied on the purpose test and concluded that the incentives were capital receipts since they were granted to aid the setting up of new industrial units and not merely to assist in making the business more profitable post-commencement of production.

Key Evidence and Findings

The Court examined the detailed scheme documents, eligibility certificates, and the nature of conditions imposed by the State Government and its implementing agency SIICOM. It was found that the schemes were part of a broader policy to decongest industrial belts and promote development in less developed areas by providing incentives linked to fixed capital investment.

The fact that the incentive was adjusted against sales tax liability after production began was found to be a procedural mechanism rather than a substantive factor affecting the nature of the receipt.

Application of Law to Facts

Applying the purpose test, the Court determined that the incentives were granted for capital purposes - to encourage the establishment of new industrial units in backward areas. The Court held that the incentive was not a revenue receipt aimed at subsidizing ongoing business operations or increasing profitability but was a capital subsidy facilitating industrial development.

Treatment of Competing Arguments

The Revenue argued that since the incentive was conditional on commencement of production and linked to sales tax on manufactured goods, it was a revenue receipt. It relied on Sahney Steel to contend that subsidies given after production starts are revenue in nature.

The Court distinguished this by emphasizing that Sahney Steel itself drew a clear distinction based on purpose. The Revenue's reliance on the timing of payment was rejected as inconsistent with the settled legal position that purpose governs the nature of subsidy.

The Assessees contended that the schemes were designed to promote industrialization and that the incentive was a capital receipt. They cited precedents including CIT vs. Ponni Sugars and CIT vs. Chaphalkar Brothers, which supported their position.

The Court accepted the Assessees' submissions, finding the purpose of the schemes aligned with capital subsidy and that the form or timing of payment was immaterial.

Ancillary Issues: Questions on Foreign Exchange Fluctuation, Travel Expenses, Guest House Expenses

These issues were framed but not adjudicated in detail as they were either covered by binding Apex Court precedent or involved trivial amounts. For example, the treatment of foreign exchange fluctuation losses was held to be governed by a prior Supreme Court decision, and the foreign travel expenses involving spouses were minimal and not warranting interference.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning is encapsulated in the following verbatim excerpts:

"If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account."

"The form of the mechanism through which the subsidy is given is irrelevant."

"The mere fact that the amount of subsidy payable under the scheme was adjusted against the liability of the Assessees to pay sales tax to the Government after commencement of production, makes no difference to the purpose for which the incentive was granted."

"The incentive was not aimed at saving the amount of sales tax on products manufactured with a view to earn higher profits by the manufacturer. The incentive was granted to promote setting up of the new industrial units at backwards areas of the State."

Core principles established include:

• The "purpose test" is the determinative criterion for classifying subsidy receipts as capital or revenue.
• The timing, form, or mechanism of payment of subsidy is immaterial to its character.
• Subsidies granted to promote establishment or expansion of industrial units are capital receipts exempt from income tax.
• Subsidies granted to assist in ongoing business operations or to increase profitability are revenue receipts taxable as income.

Final determinations on the issues are:

• The sales tax incentives received by the Assessees under the 1979 and 1983 Maharashtra State Government schemes are capital receipts and not chargeable to income tax.
• The adjustment of incentives against sales tax liability after commencement of production does not convert the capital nature of the subsidy into revenue receipt.
• Other ancillary issues framed in the Revenue's appeal are either covered by binding precedent or involve negligible amounts and are decided accordingly.

- Whether the Assessing Officer (AO) was justified in issuing a notice under Section 148 of the Income Tax Act, 1961, based on the information received under Section 148A(b) alleging escapement of income by the petitioner for Assessment Year (AY) 2017-18.

- Whether the impugned order dated 08.04.2024 passed under Section 148A(d) of the Act is sustainable, particularly when the AO's order expanded the scope of the notice issued under Section 148A(b).

- Whether the information relied upon by the AO, including foreign remittance data obtained from a survey under Section 133A at J&K Bank, is credible and sufficient to justify reopening of assessment.

- Whether the petitioner's response, including confirmation from J&K Bank disputing the remittance data, was adequately considered by the AO before passing the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for issuance of notice under Section 148 based on Section 148A(b) information

Relevant legal framework and precedents: The reopening of assessment under Section 148 of the Income Tax Act requires credible information indicating escapement of income. Section 148A(b) mandates that the AO shall provide the assessee an opportunity to respond to the information before issuing a notice under Section 148.

Court's interpretation and reasoning: The AO issued a notice under Section 148A(b) on 26.03.2024, alleging that foreign remittances amounting to Rs. 6,50,84,454/- made by the petitioner during AY 2017-18 did not tally with bank statements, suggesting escapement of income. The petitioner responded on 02.04.2024, disputing the quantum and furnishing a confirmation from J&K Bank that the remittance data did not pertain to it.

Key evidence and findings: The AO's initial information was based on a survey under Section 133A at J&K Bank, which collected inward and outward remittance data. The petitioner's bank statements and confirmation from J&K Bank contradicted the AO's information.

Application of law to facts: The AO was required to consider the petitioner's reply and documentary evidence before proceeding. The petitioner's response challenged the credibility and applicability of the information, which was not adequately addressed.

Treatment of competing arguments: The petitioner argued that the remittance data was inaccurate and unrelated, supported by bank confirmation. The AO disregarded this and proceeded to issue a notice under Section 148, relying on an increased amount of Rs. 11,37,67,029/- not mentioned in the original Section 148A(b) notice.

Conclusions: The issuance of the Section 148 notice was not justified on the basis of the information in the Section 148A(b) notice, which only referred to Rs. 6,50,84,454/-. The AO's reliance on a higher amount without issuing a fresh notice or opportunity to the petitioner was improper.

Issue 2: Validity of the impugned order dated 08.04.2024 under Section 148A(d)

Relevant legal framework and precedents: Section 148A(d) requires that the AO shall record reasons and pass an order after considering the assessee's response to the notice under Section 148A(b). The order must be confined to the scope of the information provided in the Section 148A(b) notice.

Court's interpretation and reasoning: The impugned order expanded the scope beyond the original information of Rs. 6,50,84,454/- to Rs. 11,37,67,029/- based on additional data from Form 15CC, 15CA, and 15CB without issuing a fresh Section 148A(b) notice or providing the petitioner an opportunity to respond to the increased amount.

Key evidence and findings: The AO's order relied on remittance amounts derived from various forms and bank statements but failed to correlate these with the original information or the petitioner's submissions.

Application of law to facts: The AO's action of traveling beyond the scope of the original notice under Section 148A(b) violates the procedural safeguards intended to protect the assessee from arbitrary reopening.

Treatment of competing arguments: The petitioner contended that the AO's order was beyond the scope of the notice and thus invalid. The AO did not issue a fresh notice or provide an opportunity to address the additional allegations.

Conclusions: The impugned order is unsustainable as it exceeds the scope of the Section 148A(b) notice and violates principles of natural justice.

Issue 3: Credibility of information obtained from J&K Bank survey and remittance data

Relevant legal framework and precedents: Information obtained from third parties or surveys must be credible and verifiable before it can form the basis for reopening assessment. The assessee must be given an opportunity to rebut such information.

Court's interpretation and reasoning: The petitioner furnished a confirmation from J&K Bank stating that the remittance data did not pertain to it, challenging the credibility of the AO's information. The AO did not adequately address this rebuttal before proceeding.

Key evidence and findings: The confirmation from J&K Bank serves as prima facie evidence disputing the AO's information.

Application of law to facts: The AO was obligated to verify the credibility of the information and consider the petitioner's rebuttal before issuing a notice or passing an order.

Treatment of competing arguments: The AO ignored the petitioner's confirmation and proceeded on the basis of unverified data.

Conclusions: The credibility of the information is questionable, and the AO's failure to consider the petitioner's rebuttal undermines the validity of the reopening proceedings.

3. SIGNIFICANT HOLDINGS

- "It is apparent that the impugned order has thus, travelled beyond the scope of the notice under Section 148A(b) of the Act."

- "The impugned order cannot be sustained on the ground that it travels beyond the scope of the notice issued under Section 148A(b) of the Act."

- "In the event that the AO has any credible information which suggests that the petitioner's income has escaped assessment for the relevant assessment year, the AO is not precluded from issuing a fresh notice albeit in accordance with law."

Core principles established include the necessity for the AO to confine the reopening proceedings to the scope of the information provided in the Section 148A(b) notice and to afford the assessee a fair opportunity to respond. The reopening cannot be based on expanded or new information without issuing a fresh notice. The credibility of information obtained from third-party surveys must be verified and rebuttals from the assessee must be duly considered.

Final determinations:

- The impugned order under Section 148A(d) dated 08.04.2024 is set aside for exceeding the scope of the Section 148A(b) notice.

- The AO's issuance of the notice under Section 148 based on information not included in the Section 148A(b) notice is invalid.

- The petitioner's challenge to the credibility of the information remains unanswered but is not necessary to decide given the order's invalidity on procedural grounds.

- The AO is free to initiate fresh proceedings if credible information is available, following due process under the Act.

The core legal questions considered by the Court are:

A. Whether the Income Tax Appellate Tribunal (ITAT) was justified in deleting the addition of Rs. 20 Crores made under Section 50C of the Income Tax Act, 1961, based on information received from the Investigation Wing of the Income Tax Department, regarding the valuation of an immovable property transactionRs.

B. Whether the ITAT was justified in granting relief to the assessee by applying the proviso to Section 50C of the Income Tax Act, which was made applicable from 01.04.2017, in respect of a transaction relating to the Financial Year 2013-14Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue A: Justification for Deletion of Addition under Section 50C

Relevant Legal Framework and Precedents: Section 50C of the Income Tax Act mandates that if the consideration received or accruing as a result of the transfer of an immovable property is less than the value adopted or assessed by any authority for the purpose of payment of stamp duty, then the value so adopted or assessed shall be deemed to be the full value of consideration for computing capital gains. The proviso to Section 50C, introduced with effect from 01.04.2017, provides that where the consideration is less than the value adopted or assessed, but the difference is not more than ten percent, the consideration declared by the assessee shall be deemed to be the full value of consideration.

The Court also relied on a precedent involving similar facts, where the transaction was entered into prior to the enhancement of the circle rate, and the Court held that application of Section 50C based on the increased circle rate after the agreement date would cause hardship and was unwarranted.

Court's Interpretation and Reasoning: The Court noted that the transaction between the vendor and purchaser was evidenced by a registered agreement to sell dated 30.05.2013, on which stamp duty was paid at the then-prevailing circle rate of Rs. 18,000 per square meter. The sale deed was executed later on 11.10.2013, after the circle rate had increased to Rs. 28,000 per square meter effective from 01.08.2013.

The Court observed that the transaction value was not below the circle rate applicable at the time of the agreement to sell and that part of the sale consideration was received prior to the date of the sale deed. The Revenue's contention that the higher circle rate effective before the sale deed execution date should apply was rejected by both the CIT(A) and the ITAT, and the Court concurred.

Key Evidence and Findings: The registered agreement to sell dated 30.05.2013, stamp duty payment on the same date, and the timeline of payment of sale consideration were critical evidence. The circle rate applicable on 30.05.2013 was Rs. 18,000 per square meter, consistent with the transaction value. The subsequent increase in circle rate effective 01.08.2013 did not affect the transaction value agreed earlier.

Application of Law to Facts: Since the transaction was completed and consideration paid in accordance with the circle rate prevailing at the time of the agreement to sell, the application of Section 50C based on the later increased circle rate was not justified. The Court emphasized that Section 50C is intended to prevent undervaluation but should not be applied retrospectively to transactions already agreed upon at a prior date.

Treatment of Competing Arguments: The Revenue argued that the circle rate effective at the date of the sale deed should be applied. The Court rejected this, holding that the transaction was effectively completed at the earlier date of the agreement to sell, with appropriate stamp duty paid. The Revenue's reliance on information from the Investigation Wing was insufficient to override the registered agreement and payment evidence.

Conclusions: The deletion of the addition of Rs. 20 Crores under Section 50C was justified, as the transaction value was consistent with the circle rate at the time of the agreement to sell.

Issue B: Applicability of the Proviso to Section 50C to the Assessment Year 2013-14

Relevant Legal Framework and Precedents: The proviso to Section 50C was introduced with effect from 01.04.2017 and provides relief where the difference between the consideration declared and circle rate value is not more than ten percent. The question was whether this proviso could be applied retrospectively to the assessment year 2013-14.

Court's Interpretation and Reasoning: The Court held that no substantial question of law arises regarding retrospective applicability of the proviso. The key finding was that the transaction value was already in accordance with the circle rate prevailing at the time of the agreement to sell, making the proviso's applicability moot in this case.

Key Evidence and Findings: The Court relied on the fact that the transaction was recorded and registered prior to the increase in circle rate and that stamp duty was paid accordingly. This external evidence supported the assessee's position.

Application of Law to Facts: Since the transaction value was not lower than the circle rate at the time of agreement, the proviso to Section 50C, which provides relief for minor differences, was not determinative. The Court referenced a prior decision where similar facts led to the conclusion that the proviso could not be applied retrospectively to cause hardship.

Treatment of Competing Arguments: The Revenue sought to rely on the proviso to Section 50C to justify the addition, despite the proviso's effective date being after the assessment year in question. The Court rejected this, emphasizing the absence of any question of law on this point.

Conclusions: The proviso to Section 50C was not applicable retrospectively to the assessment year 2013-14, and thus could not be invoked to sustain the addition.

3. SIGNIFICANT HOLDINGS

The Court held:

"This Court is of the opinion that where there is adequate external evidence supporting the assessee's case that the transaction has been recorded and been reflected objectively in the form of a registered instrument (agreement to sell dated 27.05.2004), and all subsequent payments made have adhered to the time schedule agreed upon in respect of the amounts, the application of Section 50(C) would be unwarranted. The ITAT's conclusion that the transaction was covered by two deeds, both of which characterised as sale deeds though not strictly correct in one sense, describes the nature of the agreements between the parties. Quite possibly there can be a situation like the present one where transaction recorded in the agreement to sell are acted upon over a period of time - and in the interregnum the circle rates are increased. Application of Section 50(C) in such cases would result in extreme hardship. Parliament has recognized this mischief and has added proviso to Section 50 (C) (i) w.e.f. 01.04.2017."

The Court concluded that no substantial question of law arises, and the appeal was dismissed.

Core principles established include:

• Section 50C is to be applied based on the circle rate prevailing at the time of the transaction agreement, not at the date of subsequent sale deed execution, where payments and stamp duty align with the earlier date.
• The proviso to Section 50C, effective from 01.04.2017, cannot be applied retrospectively to transactions prior to its commencement.
• Registered agreements and adherence to payment schedules provide strong external evidence to determine the transaction value for capital gains purposes.
• Application of Section 50C in cases where circle rates increase after the agreement date may cause undue hardship and is to be avoided.

1. Whether the addition of Rs. 57,41,353/- representing the value of shortage in stock found during a Central Excise survey can be added in full to the total income of the assessee, or whether only the gross profit on such alleged sales should be considered as income.

2. Whether the Assessing Officer and Revisional Authority acted within their jurisdiction and complied with principles of natural justice in making the addition and dismissing the revision petition.

3. Whether the writ jurisdiction can be invoked to interfere with the order passed under Section 264 of the Income Tax Act, 1961, particularly when no appeal was filed against the original assessment order.

4. The legal distinction and effect of penalty proceedings under Section 271(1)(c) vis-`a-vis assessment proceedings under Section 143(3) and revision under Section 264 of the Income Tax Act.

Issue-wise Detailed Analysis

Issue 1: Quantum of Addition to Income - Full Value of Shortage vs. Gross Profit

Legal Framework and Precedents: The Income Tax Act, 1961 empowers the Assessing Officer to make additions to income where undisclosed income or discrepancies are found during assessment or survey. The valuation of unaccounted stock or sales is a matter of fact and law. The general principle is that only the net profit or gross profit arising from undisclosed sales should be added as income, not the entire value of stock or sales, unless the raw material cost is not accounted for.

Court's Interpretation and Reasoning: The Court noted that the Central Excise Authority conducted a survey and found a shortage of finished goods and raw materials, valuing the under-valuation at Rs. 57,41,353/-. The Assessing Officer added this amount to the total income, as the petitioner had not disclosed this in the books of account. The petitioner contended that only the gross profit should be added, not the entire value of the shortage.

Key Evidence and Findings: The Revisional Authority found that the petitioner had accepted the discrepancy as sales outside the books of account and had paid excise duty on the amount. The raw material cost was accounted for in the regular books, meaning the entire sale amount represented income. The petitioner failed to provide any satisfactory explanation for the discrepancy during assessment or penalty proceedings.

Application of Law to Facts: Since the raw material cost was accounted for, the entire value of unaccounted sales represented income to the petitioner. The Court upheld the addition of the full amount as income rather than limiting it to gross profit.

Treatment of Competing Arguments: The petitioner's argument that only gross profit should be added was rejected on the basis that the raw material cost was already accounted for, and the sales outside books represented undisclosed income. The Court relied on the Revisional Authority's findings and the petitioner's acceptance of the discrepancy before the Excise Authority.

Conclusion: The addition of the full value of shortage found during the survey to the total income was justified and lawful.

Issue 2: Jurisdiction and Natural Justice in Assessment and Revision Proceedings

Legal Framework: The Assessing Officer's jurisdiction under Section 143(3) of the Income Tax Act includes making additions to income based on survey reports. Revision under Section 264 is discretionary and can be invoked to rectify errors apparent from the record. Principles of natural justice require that the assessee be given an opportunity to explain discrepancies before adverse orders are passed.

Court's Interpretation and Reasoning: The Court observed that the petitioner had been issued notices and had opportunities to explain the discrepancy but failed to do so satisfactorily. The Revisional Authority recorded that the petitioner did not submit any satisfactory explanation during assessment or penalty proceedings.

Key Evidence and Findings: The petitioner admitted the discrepancy before the Excise Authority and paid excise duty on the unaccounted sales. Notices were issued in the assessment proceedings, but no satisfactory explanation was furnished by the petitioner.

Application of Law to Facts: The Court held that there was no violation of natural justice or jurisdictional error. The Assessing Officer and Revisional Authority acted within their competence and followed due process.

Treatment of Competing Arguments: The petitioner contended that the order suffered from illegality and perversity, but the Court found no merit in these contentions given the procedural compliance and substantive findings.

Conclusion: The authorities acted within their jurisdiction and complied with natural justice; hence, no interference was warranted.

Issue 3: Scope of Writ Jurisdiction Against Revision Order Under Section 264

Legal Framework: Writ jurisdiction under Article 226 of the Constitution is discretionary and limited, especially where alternative remedies exist. However, where no appeal or other remedy is available, the scope of writ jurisdiction may be wider. Section 264 provides for revision of orders by the Commissioner of Income Tax, but it is not an appellate remedy.

Court's Interpretation and Reasoning: The petitioner argued that the writ petition had a wider scope as no appeal was filed against the assessment order. The Court noted that penalty proceedings under Section 271(1)(c) are separate from assessment proceedings and that revision under Section 264 against quantum addition does not aid in penalty proceedings.

Key Evidence and Findings: The petitioner did not file an appeal against the assessment order but filed a revision petition which was dismissed. The Court found that the writ petition challenging the revision order did not disclose any jurisdictional error or violation of natural justice.

Application of Law to Facts: The Court held that the writ jurisdiction was not to be exercised to re-examine factual findings or to substitute the Court's opinion for that of the tax authorities absent any illegality.

Treatment of Competing Arguments: The petitioner relied on a precedent from another High Court to contend that the revisional jurisdiction was wide enough to entertain the grievance. The Court distinguished the facts and held that the revisional authority had rightly dismissed the revision petition.

Conclusion: Writ jurisdiction was not invoked appropriately to interfere with the revision order, and the petitioner's challenge failed.

Issue 4: Distinction Between Assessment and Penalty Proceedings

Legal Framework: Assessment proceedings under Section 143(3) determine the quantum of income and tax liability. Penalty proceedings under Section 271(1)(c) are separate and deal with imposition of penalty for furnishing inaccurate particulars of income.

Court's Interpretation and Reasoning: The Court reiterated that penalty proceedings are distinct and filing revision under Section 264 against the quantum addition does not affect penalty proceedings. The petitioner's contention that the revision petition would impact penalty proceedings was rejected.

Conclusion: The petitioner's attempt to use revision proceedings to challenge penalty was legally untenable.

Significant Holdings

"It was found that discrepancy of stock found at the time of Central Excise survey was accepted by the petitioner Company as the sales outside books of accounts and the petitioner has also paid excise duty on that amount. It was further noted that entire sale done outside books of accounts is income to be added, as the raw material cost has been accounted for in the regular books of accounts. Thus the petitioner's contention that only GP should be added to income could not be accepted."

"Penalty proceedings are separate from assessment proceedings and, therefore, filing of revision petition under Section 264 of the Act 1961 against quantum addition would not be of any help to the petitioner in the Appellate proceedings against the penalty under Section 271 (1) (c) of the Act 1961."

"Considering the scope of writ jurisdiction and the fact that the petitioner has failed to establish any violation of natural justice or competency of jurisdiction, this Court is not inclined to interfere with the aforesaid findings recorded by the Revisional Authority."

The Court affirmed the principle that undisclosed sales outside books of accounts, where raw material cost is accounted for, represent income in full and not merely gross profit. It upheld the jurisdiction and procedural propriety of the Assessing Officer and Revisional Authority. The Court clarified the separate nature of penalty proceedings and limited the scope of writ jurisdiction in tax matters where alternative remedies exist or no jurisdictional error is shown.

Accordingly, the Court dismissed the writ appeal, affirming the addition of the full value of shortage to income and the dismissal of the revision petition, with no interference in penalty proceedings.

1. Whether the delay of 40 days in filing the appeals after receipt of the certified copy of the Tribunal's order can be condoned as bona fide under Section 260A(2A).

2. Whether the receipt of the Tribunal's order by the Chartered Accountant, who was the authorised representative of the assessee before the Tribunal, constitutes effective service on the assessee for the purpose of limitation under Section 260A.

3. The interpretation of the statutory provisions relating to communication of orders by the Appellate Tribunal to the assessee and the role and authority of an authorised representative, particularly a Chartered Accountant, in receiving such communication.

4. The applicability and relevance of precedents concerning service of orders on authorised representatives and the consequent impact on the limitation period for filing appeals.

Issue-wise Detailed Analysis:

1. Condonation of Delay under Section 260A(2A) of the Income Tax Act

The legal framework under Section 260A provides that an appeal to the High Court against the Appellate Tribunal's order must be filed within 120 days from the date the order is received by the assessee. Sub-section (2A) permits condonation of delay if the Court is satisfied that there is sufficient cause for not filing within the prescribed period.

The Court examined the factual matrix wherein the impugned order was passed on 14.09.2016, but the applicant claimed ignorance of the order until April 2024, when a recovery notice was served. The certified copy of the order was obtained on 17.05.2024, and the appeal was filed with a 40-day delay thereafter.

The applicant's counsel submitted that the delay was bona fide, caused by the applicant's unawareness due to the demise of her husband, who was handling the tax matters, and that the appeal was filed promptly upon receipt of the certified copy.

The Revenue opposed, asserting the delay was actually 2961 days (over 8 years), arguing that the applicant was aware of the order as the authorised representative had received the copy in 2016.

The Court considered the bona fide nature of the delay and the applicant's affidavit supported by the communication from the Chartered Accountant, who could not confirm whether the order copies were communicated to the applicant or legal heirs at the relevant time. The Court accepted that the applicant gained knowledge only upon receipt of the recovery notice and thereafter acted diligently.

Accordingly, the Court found sufficient cause to condone the delay of 40 days from the date of receipt of the certified copy.

2. Whether Receipt of Order by Chartered Accountant Constitutes Receipt by the Assessee

The Court analyzed Section 254(3) of the Income Tax Act, which mandates the Appellate Tribunal to send a copy of the order to the assessee and the Principal Commissioner or Commissioner. Rule 35 of the Income-tax (Appellate Tribunal) Rules, 1963, further requires the Tribunal to cause communication of the signed order to the assessee and the Commissioner.

Section 288 defines an authorised representative, including a Chartered Accountant, who may appear on behalf of the assessee before income tax authorities.

The Revenue's contention was that service of the order on the Chartered Accountant, as authorised representative, equated to service on the assessee for the purpose of limitation.

The Court rejected this contention, emphasizing that while a Chartered Accountant is an authorised representative for appearances and submissions, the statutory scheme requires communication of the order specifically to the assessee. The Court distinguished the role of a Chartered Accountant from that of a legal practitioner (advocate), who, by virtue of a Vakalatnama, may be authorised to accept service of documents on behalf of the client.

The Court held that the Chartered Accountant does not act as an agent empowered to accept service of orders, and thus receipt by the Chartered Accountant does not amount to receipt by the assessee.

The Court further noted that the statutory language "cause it to be communicated" imposes a duty on the Tribunal to ensure the assessee receives the order, which was not fulfilled here.

3. Treatment of Precedents on Service of Orders and Role of Authorised Representatives

The Court examined the decision of the Allahabad High Court in Sultanpur Kshetriya Gramin Bank v. Joint Commissioner of Income Tax, which held that service on an advocate authorised by Vakalatnama was sufficient service on the assessee. The Court distinguished this precedent on the basis that a Vakalatnama confers authority to accept service, whereas no such authority was conferred on the Chartered Accountant in the present case.

The Court also considered the Orissa High Court decision in Nandram Hunatram v. Commissioner of Income-tax, which held that in absence of express authorisation, service on a lawyer does not constitute service on the assessee for limitation purposes. The Court found this decision more applicable, as the Chartered Accountant here was not expressly authorised to receive the order.

The Court rejected the application of Order 5 Rule 12 of the Code of Civil Procedure invoked by the Revenue, noting that it applies to agents empowered to accept service, which was not the case here.

4. Application of Law to Facts and Conclusion on Service and Limitation

Given the statutory mandate and the factual scenario where the Chartered Accountant received the order but could not confirm delivery to the assessee, and the assessee's own lack of knowledge until 2024, the Court concluded that the limitation period under Section 260A commenced only upon actual receipt of the order by the assessee.

Therefore, the appeal filed with a 40-day delay after receipt of the certified copy was within a reasonable period and the delay was condonable.

Significant Holdings:

"The statutory scheme cast a burden upon the Tribunal to ensure that the assessee is made aware of the order so that within 120 days as prescribed, he can file an appeal before the High Court."

"The Chartered Accountant since is not also authorised specifically to accept copy of the order, cannot be said to be a recognised agent of the Assessee."

"Receipt of the order by the Chartered Accountant does not absolve the Tribunal of serving the copies of the order upon the assessee."

"The appeal deserves to be decided on merits by condoning the delay that has occurred in instituting the Appeals."

The Court's final determination was to allow the applications for condonation of delay, holding that the appeals filed beyond the prescribed period but within 40 days of actual receipt of the certified copy of the order were maintainable. The appeals were directed to be listed for hearing on merits.

The core legal questions considered by the Tribunal were:

(a) Whether the addition of Rs. 25,00,000/- made under Section 68 of the Income Tax Act in respect of unsecured loans allegedly received from Shri Sanjivkumar Kiritkumar Patel was justified, given the evidence submitted by the assessee and the lender's response to notices under Section 133(6) of the Act.

(b) Whether the addition of Rs. 29,87,775/- made under Section 68 in respect of sundry creditors, specifically M/s Sai Trading Co., was sustainable, particularly considering the nature of the balance as an opening balance carried from prior years and the lack of response from the creditor to notices issued under Section 133(6).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 25,00,000/- in respect of unsecured loans from Shri Sanjivkumar Kiritkumar Patel

Relevant legal framework and precedents: Section 68 of the Income Tax Act empowers the Assessing Officer to treat any sum credited in the books of an assessee as income if the assessee fails to satisfactorily explain the nature and source of such sum. The three essential elements to be established for the genuineness of a loan transaction are identity, genuineness, and creditworthiness of the lender.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer had observed that Shri Sanjivkumar Kiritkumar Patel did not respond to the notice issued under Section 133(6), leading to the addition of Rs. 25,00,000/- treating the loan as unexplained income. However, the assessee contended that the lender had indeed responded to the notice by submitting detailed evidence including a written submission, bank statement from Vijay Co. Op. Bank Ltd., and ledger account copies, all prior to the assessment order. The Tribunal found that the Assessing Officer had not considered this response and proceeded with the addition based on an erroneous assumption of non-response, which violated principles of natural justice.

Key evidence and findings: The lender's response to the Section 133(6) notice dated 27.04.2024, bank statements evidencing the loan transaction, ledger accounts, and the lender's return of income declaring Rs. 25,38,990/- for the relevant year were critical pieces of evidence. These established the identity, genuineness, and creditworthiness of the lender.

Application of law to facts: Since the lender had furnished credible evidence and the Assessing Officer failed to consider the same, the addition under Section 68 lacked a reasonable basis. The Tribunal emphasized that the CIT(A) also failed to identify any specific lacuna or deficiency in the evidence while upholding the addition.

Treatment of competing arguments: The Revenue argued that the Assessing Officer had pointed out lacunae in the evidence and the CIT(A) rightly sustained the addition. The Tribunal rejected this, noting the absence of any specific deficiencies pointed out and the clear evidence on record supporting the genuineness of the loan.

Conclusion: The addition of Rs. 25,00,000/- was held to be unjustified and was deleted.

Issue 2: Addition of Rs. 29,87,775/- in respect of sundry creditors (M/s Sai Trading Co.)

Relevant legal framework and precedents: Section 68 applies to sums credited in the books for a particular previous year which are unexplained. Judicial precedents establish that unexplained credits relating to earlier years cannot be taxed in a subsequent assessment year. The Tribunal relied on decisions affirming that additions under Section 68 must relate to the relevant assessment year and not to balances carried forward from prior years.

Court's interpretation and reasoning: The Assessing Officer had issued notices under Section 133(6) to sundry creditors, including M/s Sai Trading Co., who did not respond. Consequently, the addition was made. The CIT(A) upheld the addition, holding that the ledger entries alone without confirmation were insufficient evidence.

Key evidence and findings: The assessee submitted the ledger account of M/s Sai Trading Co. and PAN details, including opening and closing balances, prior to the assessment. The assessee argued that the addition represented only an opening balance carried from earlier years, not fresh credit during the impugned year.

Application of law to facts: The Tribunal applied the principle that unexplained credits pertaining to earlier years cannot be taxed in the current year. Since the addition related to an opening balance from prior years, it was not liable to be added to the income of the impugned assessment year.

Treatment of competing arguments: The Revenue relied on the non-response to notices and the CIT(A)'s order to sustain the addition. The Tribunal distinguished the matter on the basis of the nature of the balance as a carried forward amount and judicial precedents disallowing taxing of such balances in subsequent years.

Conclusion: The addition of Rs. 29,87,775/- was held to be unsustainable and was deleted.

3. SIGNIFICANT HOLDINGS

The Tribunal established the following core principles and made key determinations:

"The said party had filed response to the notice issued under Section 133(6) of the Act before the Assessing Officer, he had furnished his bank details and ledger account before the Assessing Officer, whereas the assessment order was framed by the Assessing Officer with the specific remark that the said party / lender had failed to file any response to notice issued under Section 133(6) of the Act."

"On going through the evidences placed on record, we are of the considered view that instant addition has been made in the hands of the assessee without any reasonable basis."

"The addition in respect of sundry creditors pertained to an earlier assessment year and represented only the opening balance for the impugned year under consideration, no addition is liable to be sustained in the hands of the assessee."

The Tribunal concluded that additions under Section 68 must be based on a failure to satisfactorily explain the nature and source of credits in the relevant assessment year, and that ignoring credible evidence or taxing balances carried forward from prior years is impermissible.

Accordingly, the Tribunal allowed the appeal on both grounds, deleting the additions of Rs. 25,00,000/- and Rs. 29,87,775/- respectively.

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the assessee was entitled to utilise the accumulated income from Financial Year (F.Y.) 2016-17 within the extended period of five years plus one additional year as per the pre-amendment provisions of Section 11(3)(c) of the Income Tax Act, 1961;

(b) Whether the amendment to Section 11(3)(c) by the Finance Act, 2022, which omitted the words "or in the year immediately following the expiry thereof" and came into effect from 1.4.2023, applies retrospectively to accumulated funds from earlier years, thereby curtailing the utilisation period;

(c) Whether the doctrine of lex non cogit ad impossibilia (law does not compel the impossible) is applicable in interpreting the amended provision so as to protect the assessee's right to utilise the accumulated funds within the originally prescribed time frame;

(d) Whether the unutilised accumulated income can be taxed in the Assessment Year (A.Y.) 2023-24 or only in A.Y. 2022-23 as per the provisions of Section 11(3)(iii); and

(e) Whether denying the opportunity to utilise the accumulated income defeats the charitable objectives of the trust and is contrary to the intent of Section 11 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Applicability of pre-amendment utilisation period versus amended provision

The relevant legal framework is Section 11(2) and Section 11(3)(c) of the Income Tax Act. Section 11(2) permits a trust to accumulate income for up to five years if it cannot apply 85% of income for charitable purposes in the year of receipt. Section 11(3)(c) originally provided that if such accumulated income is not utilised within five years or in the year immediately following the expiry of such period, it shall be deemed to be the income of the trust for taxation.

The Finance Act, 2022, effective 1.4.2023, amended Section 11(3)(c) by omitting the clause "or in the year immediately following the expiry thereof", thereby reducing the utilisation period to strictly five years without the additional grace year.

The assessee accumulated funds in F.Y. 2016-17, so the original five-year period expired on 31.3.2022. Under the pre-amendment provision, the assessee had an additional year (F.Y. 2022-23) to utilise the funds. The assessee utilised Rs. 2,32,073/- during this additional year and claimed deduction in A.Y. 2023-24.

The CPC disallowed this claim on the ground that the amended provision applies from A.Y. 2023-24, eliminating the additional year, thus the utilisation after 31.3.2022 was not permissible.

The Tribunal examined whether the amendment was intended to apply retrospectively to accumulated funds from prior years. The Tribunal noted that the amendment is substantive in nature and affects legally conferred rights. It reasoned that the amendment cannot be interpreted to curtail the utilisation period retrospectively, as it would create an impossible situation for the assessee to comply.

The Tribunal relied on the principle that legal provisions should not be applied rigidly or literally if that leads to unfair or impossible outcomes. The amendment was held to strengthen the time limit prospectively and was not intended to affect accumulated funds prior to the amendment's effective date.

Issue (c): Application of the doctrine lex non cogit ad impossibilia

The Tribunal invoked the maxim lex non cogit ad impossibilia, which means the law does not compel a person to do what is impossible. Since the additional one-year period was omitted only from 1.4.2023, it was impossible for the assessee to utilise funds accumulated in 2016-17 within five years without the additional year.

The Tribunal held that applying the amended provision to deny the utilisation during the additional year would be unjust and impossible. Therefore, the assessee's utilisation during the additional year is valid and should be allowed.

Issue (d): Taxation year of unutilised accumulated funds

The assessee contended that even if the unutilised accumulated income is taxable, it should be taxed in A.Y. 2022-23 as per Section 11(3)(iii), and not in A.Y. 2023-24. The CIT(A) had rejected this argument, applying Sections 11(3)(i) and 11(1B), which the assessee argued were irrelevant.

The Tribunal did not delve deeply into this issue but implicitly supported the assessee's position by allowing the utilisation claimed in A.Y. 2023-24, thereby negating the need to tax the amount as income in that year.

Issue (e): Impact on charitable objectives

The assessee argued that denying the opportunity to utilise the accumulated income would defeat the charitable objectives of the trust and harm its functioning, contrary to the intent of Section 11.

The Tribunal acknowledged that the purpose of Section 11 is to facilitate charitable activities and that strict and retrospective application of the amendment would frustrate this objective. The Tribunal's reasoning to allow utilisation within the originally prescribed period aligns with preserving the charitable intent of the legislation.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The amendment cannot be interpreted in such a way that it makes impossible for the assessee to utilise the accumulated funds within the time period as originally provided under the provisions of the Act. It is a settled position that legal rules should not be applied rigidly or literally, when doing so would lead to an unfair or impossible outcome. Rather, the legal obligations should be interpreted with a degree of practicality and reasonableness, taking into account the specific circumstances of the case. The law does not require anyone to perform an act that is genuinely impossible to achieve."

The core principles established include:

• The amendment to Section 11(3)(c) by Finance Act 2022 w.e.f. 1.4.2023 is prospective and does not retrospectively curtail the utilisation period for accumulated funds from prior years.
• The assessee is entitled to utilise accumulated income within the original five-year period plus the additional one-year grace period as existed prior to amendment.
• The doctrine lex non cogit ad impossibilia applies to prevent retrospective application of the amendment that would make utilisation impossible.
• The charitable objectives underlying Section 11 must be preserved by interpreting the provisions reasonably and practically.
• The adjustment made by the CPC disallowing the utilisation of Rs. 2,32,073/- in A.Y. 2023-24 was incorrect and hence deleted.

Accordingly, the Tribunal allowed the assessee's appeal and deleted the addition of Rs. 2,32,073/- from taxable income for A.Y. 2023-24.

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the amount of Rs. 17,08,908/- recovered by the assessee towards Common Area Maintenance Charges ("CAMC") from the tenant is taxable as income from house property under the Income Tax Act, 1961.

(b) Whether the recovery of CAMC by the assessee constitutes income or is merely reimbursement of expenses incurred by the assessee, and thus not liable to tax.

(c) Whether the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] were justified in disallowing the deduction of Rs. 17,08,908/- towards CAMC paid by the assessee and recovered from the tenant.

(d) Whether the AO erred in initiating penalty proceedings under section 270A of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Taxability of CAMC recovery as income from house property

Relevant legal framework and precedents: Under the Income Tax Act, income from house property is taxable under the head "Income from House Property." Normally, rent received or receivable from tenants is taxable under this head. However, amounts recovered as reimbursement of expenses incurred by the owner, such as CAMC, are generally not treated as income but as recoveries of expenditure, provided proper evidence is furnished.

Court's interpretation and reasoning: The AO made an addition of Rs. 17,08,908/- to the assessee's income on the ground that there was a shortfall in rental income as per the TDS return and the income tax return (ITR). The AO contended that this shortfall represented income from house property and rejected the assessee's explanation that the amount was recovery of CAMC paid by the assessee. The AO's conclusion was based on the absence of evidence in the form of invoices raised by the tenant, M/s Sleek Electrics Pvt. Ltd. ("SEPL"), for the CAMC amount claimed.

The CIT(A) upheld the AO's order, agreeing that no evidence was furnished to substantiate the CAMC claim and therefore confirmed the addition.

The assessee's counsel before the Tribunal clarified that the CAMC of Rs. 34,29,816/- was paid by the assessee to the original owner of the property (Star Line Leasings Limited), not to SEPL, and that the amount of Rs. 17,08,908/- was recovered from SEPL as reimbursement for the CAMC paid. The assessee had furnished invoices from Star Line Leasings Limited evidencing payment of CAMC and invoices raised on SEPL for recovery of CAMC. The Tribunal found that both sets of documentary evidence were submitted to the CIT(A) but were either not considered or misunderstood.

Key evidence and findings: The Tribunal noted the invoices from Star Line Leasings Limited showing monthly CAMC charges paid by the assessee, and separate invoices raised by the assessee on SEPL for recovery of CAMC. The evidence demonstrated that the amount recovered from SEPL was reimbursement of expenses and not rental income.

Application of law to facts: The Tribunal held that the recovery of CAMC charges is not income but a reimbursement of expenses incurred by the assessee. Since the assessee had paid the CAMC charges to the original owner and recovered a proportionate amount from the tenant, the amount recovered cannot be treated as income from house property.

Treatment of competing arguments: The Revenue's argument rested on the absence of evidence of payment of CAMC charges and invoices from SEPL. The Tribunal rejected this argument as factually incorrect, noting that the assessee had never claimed to have paid CAMC to SEPL but to the original owner, and had furnished all relevant invoices. The Revenue was unable to controvert the documentary evidence presented.

Conclusions: The Tribunal concluded that the addition of Rs. 17,08,908/- to the income of the assessee was unjustified and directed its deletion. The amount recovered as CAMC was not taxable income but reimbursement of expenses.

Issue (c): Deduction of CAMC paid and recovered

Relevant legal framework and precedents: Expenses incurred wholly and exclusively for the purpose of earning income are generally allowable as deductions under the Income Tax Act. When an amount is recovered from a tenant as reimbursement of expenses, the net expense after recovery is deductible.

Court's interpretation and reasoning: The assessee had debited the balance CAMC amount (Rs. 17,08,908/-) to its profit and loss account and had not claimed this amount as a deduction against income from house property. The AO disallowed this treatment by treating the recovered amount as income. The Tribunal found that the assessee's accounting treatment was correct and consistent with the nature of the transactions.

Key evidence and findings: The invoices and accounting entries showed that the assessee had paid total CAMC charges of Rs. 34,29,816/-, recovered Rs. 17,08,908/- from SEPL, and debited the balance to expenses. This demonstrated proper matching of income and expenditure.

Application of law to facts: Since the recovered amount was not income, the net CAMC expense debited to the profit and loss account was allowable. The AO's disallowance was based on an incorrect premise of taxability of the recovered amount.

Treatment of competing arguments: The Revenue did not present substantive arguments on the deductibility issue beyond the incorrect classification of the recovered amount as income.

Conclusions: The Tribunal held that the assessee was entitled to the deduction of net CAMC expenses and that the AO erred in disallowing the same.

Issue (d): Initiation of penalty under section 270A

Relevant legal framework and precedents: Section 270A of the Income Tax Act provides for penalty in cases of under-reporting or misreporting of income. Penalty can be levied only if there is a clear case of concealment or inaccurate particulars of income.

Court's interpretation and reasoning: The Tribunal did not specifically elaborate on the penalty issue in the order. However, given that the addition to income was deleted on merits due to the assessee's valid explanation and documentary evidence, the basis for penalty under section 270A would not stand.

Key evidence and findings: The assessee had furnished all relevant evidence and had not concealed any particulars of income.

Application of law to facts: Since the addition was deleted, the penalty based on the same addition lacked justification.

Treatment of competing arguments: The Revenue supported the penalty but failed to rebut the assessee's factual explanation and documentary proof.

Conclusions: By necessary implication, the penalty under section 270A was not sustained.

3. SIGNIFICANT HOLDINGS

"The basis with the ld.CIT(A) for confirming the addition of Rs. 17,08,908/-, on account of shortfall in rental income, as per the TDS return and that disclosed in the ITR of the assessee, is completely flawed."

"The assessee had sufficiently explained the difference in the rental income as per the TDS certificate and that disclosed in the return income, duly supported with evidences and there was no case for making any addition to the income of the assessee on this count."

"The recovery of CAMC charges is not income but a reimbursement of expenses incurred by the assessee."

"The addition, therefore, made of Rs. 17,08,908/- is directed to be deleted."

The Tribunal established the core principle that reimbursement of expenses such as CAMC recovered from tenants, when properly evidenced and accounted for, does not constitute income from house property and is not taxable. The burden on the Revenue to disprove the assessee's explanation and evidence was not met. The Tribunal emphasized the necessity of appreciating the factual matrix and documentary evidence before making additions to income.

On the penalty issue, the Tribunal's deletion of the addition effectively negated the basis for penalty under section 270A.

1. Whether the reassessment proceedings initiated under section 147 read with section 148 of the Income Tax Act, 1961, are valid, particularly in light of the reasons recorded and the material available to the Assessing Officer.

2. Whether there exists a live nexus between the reasons recorded for reopening the assessment and the alleged escapement of income in the hands of the assessee.

3. Whether the confession statement dated 07.01.2009 by the assessee, Chairman of the company, relating to manipulation and fudging of accounts of the company, can be the basis for reopening the individual assessment of the assessee.

4. Whether additions made by the Assessing Officer towards interest income, unexplained credits, and unexplained credits in bank accounts, particularly un-reconciled salary payments from a foreign bank account held in the name of the company, are justified in the individual assessment of the assessee.

5. Whether the forensic audit report, which formed the basis of some additions, was properly shared with the assessee and whether its findings can be relied upon without providing opportunity for rebuttal.

6. The impact of the High Court's judgment setting aside the assessments for the company for the years 2003-2004 to 2008-2009 and directing reassessment based on re-casted books of accounts on the individual assessment of the assessee for the year 2003-2004.

Issue-wise Detailed Analysis

Validity of Reassessment Proceedings and Nexus between Reasons Recorded and Escapement of Income

The legal framework governing reopening of assessments is contained in sections 147 and 148 of the Income Tax Act, 1961. The Assessing Officer must have "reason to believe" that income chargeable to tax has escaped assessment and record such reasons before issuing notice for reassessment. The reopening must be based on fresh tangible material not available at the time of original assessment.

The assessee challenged the reopening on grounds that no fresh material existed and the confession statement related only to the company's accounts, not his individual income. The assessee relied on precedents emphasizing the requirement of a live nexus between reasons recorded and income escaping assessment in the individual's hands.

The Court noted that the confession statement dated 07.01.2009 by the assessee admitted manipulation and fudging of company accounts, inflated revenues, and understated liabilities funded by the assessee himself to the tune of Rs. 1230 crores. This was new information not available at the time of original assessment completed in 2006.

The Court observed that the confession statement constituted fresh tangible material, establishing a prima facie case for escapement of income. The Assessing Officer's reasons recorded were supported by this material. The Court also referred to the Supreme Court ruling in Raymond Woollen Mills Ltd. v. ITO, which held that at the stage of issuing notice under section 148, the Assessing Officer need only have prima facie material suggesting escapement of income, not conclusive proof.

Accordingly, the Court upheld the validity of reopening the assessment, rejecting the assessee's contention of lack of nexus and absence of fresh material.

Additions towards Interest Income, Unexplained Credits, and Un-reconciled Salary Payments

The Assessing Officer made additions on three counts: interest income on accrual basis, unexplained credits, and un-reconciled salary payments from a foreign bank account held by the company at Vienna.

The assessee contended that these additions related solely to the company's transactions and not to his individual income. He argued that the forensic audit report, which formed the basis for some additions, was not shared with him for comments or rebuttal, violating principles of natural justice. He further submitted that the un-reconciled payments were accounted for as prior period adjustments in the re-casted books of accounts of the company.

The CIT(A) deleted the addition relating to un-reconciled salary payments, holding that there was no evidence of payments made by the assessee in his individual capacity. The CIT(A) noted the absence of allegations of misappropriation or diversion of funds against the assessee in the charge-sheet and concluded that the un-reconciled amounts pertained to the company and not the individual.

The Revenue challenged this deletion, emphasizing that the assessee was the sole authorized signatory of the bank account and failed to explain the debit entries. The Revenue argued that the forensic audit report indicated unreconciled payments of Rs. 501 crores and that the assessee had knowledge of these transactions.

The Court noted that the forensic audit report was relied upon for making additions but was not provided to the assessee before the assessment order, thereby denying him an opportunity to respond. The Court also observed that the High Court of Telangana had set aside the assessments of the company for the years 2003-2004 to 2008-2009 as illegal and void ab initio, directing reassessment based on re-casted books of accounts.

The Court held that since the company's assessment was pending de novo consideration, and the forensic audit report formed the basis for additions in the individual assessment, the individual assessment must also be reconsidered in light of the re-casted books of accounts and the company's reassessment. The Court remanded the issue of additions relating to un-reconciled salary payments to the Assessing Officer for de novo consideration, directing that the assessee be provided with the forensic audit report and adequate opportunity of hearing.

Impact of High Court Judgment on Company Assessments on Individual Assessment

The High Court of Telangana's judgment held that the assessments for the company for the years 2003-2004 to 2008-2009 were illegal, violative of Article 265 of the Constitution, and void ab initio. The Court directed reassessment based on re-casted financial statements prepared by the company.

The Tribunal observed that the company's reassessment and re-casted accounts would have a direct bearing on the individual assessment of the assessee, given the admitted understatement of liabilities funded by the assessee and intra-group transactions. The Court emphasized that the intra-group transactions, including those between the company and the assessee, should be considered afresh in the reassessment process.

Therefore, the Tribunal set aside the individual assessment and remanded it to the Assessing Officer for reconsideration in light of the High Court's directions and the company's re-casted books of accounts.

Significant Holdings

"The Assessing Officer reopened the assessment on the basis of reasons recorded for reopening and as per the reasons recorded by the Assessing Officer, there is a fresh tangible material in the form of confession letter which suggest escapement of income in the hands of the assessee."

"The confession statement clearly establishes fudging of accounts of Company and said fudging is having a direct bearing on the total income of the assessee for the year under consideration."

"The forensic audit report is the basis for additions in the hands of the assessee and further, the assessment of M/s. SCSL has been set-aside to the file of Assessing Officer for reconsideration for considering re-casted books of accounts, in our considered view, the assessment of M/s. SCSL [M/s. Tech Mahindra Limited] is definitely having a bearing on the income of the appellant for the year under consideration."

"The Assessing Officer is directed to re-consider the assessment de novo, after providing adequate opportunity of hearing to the assessee and also by providing copy of forensic audit report relied upon by the Assessing Officer for making additions in the hands of the assessee."

"The assessments for the assessment years 2003-2004 to 2008-2009 are held to be illegal and violative of Article 265 of the Constitution of India and also void ab initio. The Hon'ble High Court for the State of Telangana at Hyderabad directed the respondents... to re-quantify/re-compute the income... by conducting fresh and appropriate assessments... based on the revised financials."

In conclusion, the Court upheld the reopening of the assessment based on the confession statement as valid fresh tangible material, but remanded the additions relating to un-reconciled payments to the Assessing Officer for fresh consideration in light of the company's re-casted accounts and after providing the assessee a fair opportunity to respond to the forensic audit report. Other grounds challenging the reopening and additions were kept open for future adjudication.

1. Whether the notice dated 27/07/2022 issued under section 148 of the Act is barred by limitation as per the provisions of section 149 of the Act, rendering it beyond jurisdiction and void ab initio.

2. Whether the notice under section 148 issued by the Jurisdictional Assessing Officer violates the Faceless Assessment Scheme under section 151A of the Act, thereby rendering the notice unlawful and invalid.

3. Whether the notice under section 148 contravenes the law laid down by the Bombay High Court in Hexaware Technologies Ltd. v. ACIT, making it bad in law.

4. On merits, whether the addition made under section 69A of the Act is sustainable, given the provisions of the Act and the facts of the case.

Issue-wise Detailed Analysis:

Issue 1: Limitation and Validity of Notice under Section 148

Relevant Legal Framework and Precedents: The Tribunal's analysis centrally revolves around the interplay of sections 147, 148, 149, and 148A of the Income Tax Act, 1961, as well as the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 ("TOLA"). The pivotal precedents guiding the limitation analysis are the Supreme Court decisions in Union of India v. Ashish Agarwal (2022) and Union of India v. Rajeev Bansal (2024).

In Ashish Agarwal, the Supreme Court mandated that assessing officers must provide relevant information and materials relied upon to the assessee along with the show cause notice under section 148A(b), effectively staying the operation of such notices until the assessee receives this information. Rajeev Bansal further clarified the computation of limitation periods in the context of notices issued between 1 April 2021 and 30 June 2021, under the old regime, and the effect of the legal fiction created by Ashish Agarwal on the limitation period under the new regime.

Court's Interpretation and Reasoning: The Tribunal carefully examined the timeline of notices and responses in the present case. The first notice under section 148 was issued on 19/05/2021, falling within the extended limitation period under TOLA, which extended the limitation to 30/06/2021. The show cause notice under section 148A(b) was issued on 23/05/2022, with 15 days granted to the assessee to respond. The Assessing Officer issued the final notice under section 148 on 27/07/2022.

Applying the directions in Rajeev Bansal, the Tribunal computed the surviving or balance time available to the Revenue to issue the notice under section 148 of the new regime. It was held that the total surviving time was 58 days from 23/05/2022, i.e., up to 20/07/2022. Since the notice was issued on 27/07/2022, it was beyond the permissible time limit.

Key Evidence and Findings: The undisputed facts regarding the dates of issuance of notices, the time granted to the assessee to respond, and the dates of the assessment orders were crucial. The Tribunal relied on the Supreme Court's detailed analysis of the limitation period, including the exclusion of the time during which the show cause notice was stayed and the time allowed to the assessee to respond.

Application of Law to Facts: The Tribunal applied the Supreme Court's ruling to the facts, concluding that the notice under section 148 dated 27/07/2022 was issued after the expiry of the surviving limitation period. Consequently, the notice was held to be void ab initio and beyond the jurisdiction of the Revenue.

Treatment of Competing Arguments: The Revenue contended that the notices and proceedings were valid and relied on the orders passed by lower authorities. However, the Tribunal found the Supreme Court's binding precedents on limitation and the legal fiction created by Ashish Agarwal and Rajeev Bansal to be determinative, overruling the Revenue's submissions.

Conclusion: The notice issued under section 148 on 27/07/2022 for the assessment years 2013-14 and 2014-15 was barred by limitation and void ab initio. Consequently, the reassessment proceedings and assessment orders passed under section 147 read with section 144 were quashed.

Issue 2: Validity of Notice under Faceless Assessment Scheme and Jurisdictional Authority

Relevant Legal Framework and Precedents: Section 151A of the Act governs the Faceless Assessment Scheme, which mandates that notices under section 148 must be issued by the Faceless Assessment Centre or in accordance with the scheme. The assessee challenged the issuance of the notice by the Jurisdictional Assessing Officer, arguing it violated the Faceless Assessment Scheme and the Bombay High Court's ruling in Hexaware Technologies Ltd. v. ACIT.

Court's Interpretation and Reasoning: Since the Tribunal quashed the notice on the jurisdictional ground of limitation, it did not adjudicate on this issue. The Tribunal observed that the other grounds, including this one, became academic in light of the primary finding.

Conclusion: The Tribunal left this issue open, as the quashing of the notice on limitation grounds rendered further examination unnecessary.

Issue 3: Merits of Addition under Section 69A

Relevant Legal Framework: Section 69A deals with unexplained investments and additions to income. The assessee contended that the addition of Rs. 1,51,97,105/- under section 69A was unsustainable and bad in law.

Court's Interpretation and Reasoning: The Tribunal did not examine the merits of the addition since the reassessment proceedings were quashed on the jurisdictional ground of limitation.

Conclusion: This ground was left open and not adjudicated.

Significant Holdings:

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts from the Supreme Court's decision in Rajeev Bansal, which the Tribunal adopted:

"106. In Ashish Agarwal (supra), this Court directed the assessing officers to provide relevant information and materials relied upon by the Revenue to the assesses within thirty days from the date of the judgment. A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). To summarize, the combined effect of the legal fiction and the directions issued by this Court in Ashish Agarwal (supra) is that the show cause notices that were deemed to have been issued during the period between 1 April 2021 and 30 June 2021 were stayed till the date of supply of the relevant information and material by the assessing officer to the assessee. After the supply of the relevant material and information to the assessee, time begins to run for the assesses to respond to the show cause notices."

"107. The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under section 149A(b) to compute the period of limitation. The third proviso excludes 'the time or extended time allowed to the assessee.' Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation."

"108. The Income Tax Act read with TOLA extended the time limit for issuing reassessment notices under Section 148, which fell for completion from 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction. Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021."

"112. Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022."

Core Principles Established:

- The limitation period for issuance of reassessment notices under section 148 must be computed by excluding the period during which the show cause notice under section 148A(b) was stayed and the time allowed to the assessee to respond, as mandated by the Supreme Court in Ashish Agarwal and Rajeev Bansal.

- The legal fiction created by Ashish Agarwal converts reassessment notices issued under the old regime into show cause notices under the new regime, allowing the Revenue to utilize the surviving time under the Income Tax Act read with TOLA to complete reassessment proceedings.

- Any notice issued beyond the surviving or balance time limit computed as per these principles is void ab initio and without jurisdiction.

Final Determinations:

- The notices issued under section 148 on 27/07/2022 for the assessment years 2013-14 and 2014-15 were barred by limitation and void ab initio.

- Consequently, the reassessment proceedings and assessment orders passed under section 147 read with section 144 of the Act for both assessment years were quashed.

- Other grounds raised by the assessee, including challenges under the Faceless Assessment Scheme and the merits of additions under section 69A, were rendered academic and left open.

The core legal questions considered by the Tribunal are:

(a) Whether the addition of Rs. 48,00,000/- made by the Assessing Officer under section 69A of the Income Tax Act, 1961, treating the cash seized during the course of search as unexplained money for the assessment year 2020-2021, is justified, given that the assessee had already declared and paid tax on this amount for the assessment year 2019-2020.

(b) Whether the addition of Rs. 10,00,000/- under the head "Income from Other Sources" towards agricultural income is sustainable in the absence of documentary evidence supporting the claim of agricultural income, despite the return of income being filed belatedly.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Addition of Rs. 48,00,000/- as unexplained cash under section 69A

Relevant legal framework and precedents: Section 69A of the Income Tax Act, 1961, deals with unexplained money found during search or requisition. The provision allows the Assessing Officer to treat such money as income of the assessee if the source is not satisfactorily explained. The date of seizure is generally relevant to determine the assessment year in which the addition is to be made.

Court's interpretation and reasoning: The Tribunal noted that the cash of Rs. 48,00,000/- was physically found on 03.04.2019, which falls in the financial year 2019-2020, relevant to assessment year 2020-2021. The Assessing Officer made the addition for the year 2020-2021 based on the date of seizure.

However, the assessee had explained the source of the cash as business income for the financial year 2018-2019, relevant to assessment year 2019-2020, and had admitted the additional income of Rs. 48 lakhs during the course of search for that year. The assessee also filed a belated return for assessment year 2019-2020 declaring total income including this additional income and paid taxes accordingly.

The Tribunal held that making an addition for the same amount in the subsequent assessment year solely on the basis of the date of seizure amounts to double addition. It emphasized the principle that correct income should be assessed in the correct assessment year.

The Tribunal further reasoned that it is practically impossible to earn such a large sum within two days of the new financial year, thus supporting the assessee's claim that the income pertains to the previous year. The Tribunal criticized the Assessing Officer and CIT(A) for ignoring these facts and sustaining the addition.

Key evidence and findings: The assessee's statement under section 131, the belated return filed for assessment year 2019-2020 declaring the additional income, and payment of taxes on the same were pivotal. The absence of any contradictory evidence from the Revenue was noted.

Application of law to facts: The Tribunal applied the principle of correct assessment year and the requirement that income must be assessed once, not twice. The date of seizure alone cannot override the admitted source and prior declaration of income.

Treatment of competing arguments: The Revenue argued that the date of seizure governs the assessment year and thus addition for 2020-2021 was justified. The Tribunal rejected this argument as illogical and contrary to tax principles.

Conclusion: The addition of Rs. 48,00,000/- under section 69A for assessment year 2020-2021 was held to be erroneous and was directed to be deleted.

Issue (b): Addition of Rs. 10,00,000/- as agricultural income under "Income from Other Sources"

Relevant legal framework and precedents: Agricultural income is exempt under the Income Tax Act but must be supported by evidence such as land ownership documents, proof of agricultural activity, and sale of agricultural produce. The filing of a belated return under section 139(4) does not automatically validate the claimed income; the Assessing Officer must verify the claim.

Court's interpretation and reasoning: The Tribunal observed that the assessee failed to produce any documentary evidence such as pattadar passbook, details of crops grown, or sale receipts to substantiate the claim of agricultural income of Rs. 10 lakhs.

The assessee contended that since the return was filed belatedly and thus considered non est in law, no addition could be made based on that return. The Tribunal rejected this argument, stating that once the assessee claims agricultural income in the return, the Assessing Officer is obliged to examine and assess its taxability in accordance with law.

Key evidence and findings: Absence of any supporting documents or evidence for agricultural income was critical. The belated nature of the return was acknowledged but held not to preclude assessment of claimed income.

Application of law to facts: The Tribunal applied the principle that claims in the return must be substantiated and the Assessing Officer has the authority to disallow unsubstantiated claims. The belated filing of return does not immunize the claimed income from scrutiny.

Treatment of competing arguments: The assessee's legal argument on the non-est status of the belated return was rejected. The Revenue's stance that absence of evidence justifies the addition was accepted.

Conclusion: The addition of Rs. 10,00,000/- under Income from Other Sources towards agricultural income was upheld.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The addition made by the Assessing Officer for the year under consideration only on the basis of date of seizure of cash i.e., on 03.04.2019, amounts to double addition. No doubt, correct income should be assessed in the correct assessment year. If we go by the date of seizure of the cash, it falls in the assessment year 2020-2021. Further, going by the theory of human preponderance, it is impossible for any person to earn such a huge amount of Rs. 48 lakhs in two days of the financial year. Therefore, in our considered view, when the assessee has admitted additional income towards cash seized during the course of search of Rs. 48 lakhs for the assessment year 2019-2020, if at all the income is assessable in the assessment year 2020-2021, the DDIT (Inv), Unit-1(2), Hyderabad, should have accepted the declaration for the assessment year 2020-2021 instead of assessment year 2019-2020. Having accepted the declaration for the assessment year 2019-2020 and collected taxes on the income, once again making the addition on very same income for the subsequent assessment year only on the basis of date of seizure of cash is illogical, devoid of merit and cannot be accepted."

Core principles established include:

- Income must be assessed in the correct assessment year based on the source and not merely on the date of seizure.

- Double addition of the same income in two separate assessment years is impermissible.

- The burden lies on the assessee to substantiate claims of agricultural income with credible evidence; failure to do so justifies disallowance.

- A belated return filed under section 139(4) does not preclude the Assessing Officer from scrutinizing and making additions if claims are unsubstantiated.

Final determinations:

- The addition of Rs. 48,00,000/- under section 69A for assessment year 2020-2021 was deleted.

- The addition of Rs. 10,00,000/- towards agricultural income was upheld.

The core legal questions considered by the Tribunal are:

- Whether penalty under section 271(1)(c) of the Income Tax Act, 1961 ("the Act") can be levied on the basis of an addition made purely on an estimated basis without concrete evidence of concealment of income or furnishing inaccurate particulars of income.

- Whether the levy of penalty is justified where the addition to income is based on presumed bogus purchases, which are not substantiated by direct evidence but estimated by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Legitimacy of penalty under section 271(1)(c) of the Act on estimated additions without concrete evidence of concealment.

Relevant legal framework and precedents:

Section 271(1)(c) of the Act empowers the tax authorities to impose penalty for concealment of income or furnishing inaccurate particulars of income. The imposition of penalty requires that there be either concealment or furnishing of inaccurate particulars, supported by evidence.

Judicial precedents relevant to this issue include:

• Hon'ble Rajasthan High Court in CIT v. Krishi Tyre Retreading and Rubber Industries ([2014] 360 ITR 580 (Raj.)) held that penalty under section 271(1)(c) cannot be levied where additions are made purely on estimate basis without concrete evidence of concealment.
• Hon'ble Punjab & Haryana High Court in CIT v. Sangrur Vanaspati Mills Ltd. ([2008] 303 ITR 53 (P&H)) ruled that when additions are based on estimates and not on concrete evidence of concealment, penalty under section 271(1)(c) is not leviable.
• Hon'ble Gujarat High Court in CIT v. Subhash Trading Co. Ltd. ([1996] 221 ITR 110 (Guj.)) took a similar view, emphasizing that penalty cannot be imposed solely on estimated additions.

Court's interpretation and reasoning:

The Tribunal carefully examined the facts that the AO made additions to the income of the assessee based on information from DGIT (Investigation) about purchases from parties providing accommodation entries without actual business. The AO estimated 25% of the alleged bogus purchases as non-genuine and added that amount to income. The CIT(A) reduced the addition to 12.5% of the bogus purchases.

However, the Tribunal noted that these additions were made purely on an estimated basis without direct or concrete evidence of concealment or fraud by the assessee. The parties from whom purchases were allegedly made could not be served notices, and the assessee failed to furnish addresses or produce them, but no direct evidence of concealment was established.

Relying on the aforementioned High Court precedents, the Tribunal held that penalty under section 271(1)(c) cannot be sustained when additions are made on estimate basis alone.

Key evidence and findings:

• The assessee's return declared income of INR 5,54,960.
• Information from DGIT (Investigation) indicated purchases of INR 89,41,332 from parties providing accommodation entries.
• AO initiated reassessment under section 147 and issued notices under section 133(6) to these parties, which were returned unserved.
• The assessee failed to produce these parties or provide addresses.
• AO treated 25% of such purchases as bogus and made addition of INR 22,25,333; CIT(A) reduced this to 12.5%.
• Penalty of INR 1,48,627 was levied under section 271(1)(c) by AO and upheld by CIT(A).

Application of law to facts:

The Tribunal applied the legal principle that penalty under section 271(1)(c) requires proof of concealment or furnishing inaccurate particulars. Since the additions were based on estimates without concrete evidence of concealment, the penalty was not justified.

Treatment of competing arguments:

The Revenue argued that the purchases were bogus and non-genuine, justifying penalty. The assessee contended that penalty cannot be levied on estimated additions without concrete evidence of concealment.

The Tribunal found the assessee's argument persuasive, given the absence of direct evidence and reliance solely on estimation, and followed binding High Court precedents supporting this view.

Conclusions:

The Tribunal concluded that the penalty under section 271(1)(c) cannot be levied merely on the basis of estimated additions without concrete evidence of concealment or furnishing inaccurate particulars of income.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We find that the Hon'ble Rajasthan High Court in CIT v/s Krishi Tyre Retreading and Rubber Industries... held that where an addition is made purely on an estimate basis, no penalty under section 271(1)(c) of the Act is leviable. Similar view has been expressed by the Hon'ble Punjab & Haryana High Court... Further, the Hon'ble Gujarat High Court... has taken a similar view in respect of levy of penalty under section 271(1)(c) of the Act on estimated additions. Therefore, it is evident that the issue about, justification of imposition of penalty, where the addition is made on the basis of an estimate, is no longer res integra."

"Thus, respectfully following the aforesaid decisions, we are of the considered view that the penalty under section 271(1)(c) of the Act cannot be levied merely on the basis of an estimated addition."

Core principles established include:

• Penalty under section 271(1)(c) requires concrete evidence of concealment or furnishing inaccurate particulars, not mere estimation.
• Additions made on the basis of estimation alone do not justify penalty imposition.
• The burden on the Revenue to prove concealment is not discharged by reliance solely on estimated figures.

Final determination was to delete the penalty imposed under section 271(1)(c) of the Act and allow the appeal filed by the assessee.

1. Whether the income of Rs. 2,31,500 received from software development services can be treated as "income from other sources" or should be recognized as business income.

2. Whether the disallowance of business expenses amounting to Rs. 21,36,809/- claimed against the said receipts was justified.

3. Whether the principle of consistency requires the AO and CIT(A) to follow earlier assessments accepting the business nature of income and expenses.

4. The applicability of the jurisdictional provisions under section 153A in the absence of incriminating material found during search and seizure proceedings.

Issue 1: Characterization of Income from Software Development Services

The relevant legal framework includes the provisions of the Income Tax Act regarding classification of income under various heads, and judicial precedents emphasizing the need for evidence to reclassify business income as income from other sources. The Tribunal referred to the absence of any incriminating material found during the search under section 132, and the lack of any contradictory evidence brought on record by the AO to disprove the genuineness of the software development income.

The Tribunal noted that the assessee had produced GST-compliant tax invoices, party-wise details with PAN, receipts through banking channels, and business objects in the Memorandum and Articles of Association (MOA and AOA) confirming the nature of the business. The Tribunal emphasized that mere surmises and conjectures without material evidence cannot justify recharacterization of income.

The AO and CIT(A) had relied on the argument that the primary activity was rental income and the software income was a facade, but the Tribunal found this unsubstantiated by evidence. The Tribunal applied the law to the facts and concluded that the reclassification of business income as income from other sources was unsustainable. The addition of Rs. 2,00,000/- (net of estimated expenses) was therefore deleted.

Issue 2: Disallowance of Business Expenses

The AO disallowed Rs. 21,36,809/- of business expenses on the premise that no real business was carried out. The CIT(A) upheld this disallowance, reasoning that rental income was the main activity and the software business was marginal.

The Tribunal relied on the principle that the quantum of income does not determine the genuineness of business or the allowability of expenses. It noted that the assessee had consistently carried on the IT and networking business, accepted in earlier assessments including scrutiny assessments under section 143(3). The Tribunal observed that the assessee had suo motu disallowed Rs. 25.92 lakhs of non-business expenses, demonstrating bona fide conduct.

In the absence of any positive evidence from the AO that the expenses were bogus or unrelated to the business, the Tribunal held the disallowance unjustified and directed deletion of the addition.

Issue 3: Principle of Consistency

The Tribunal applied the principle of consistency as enunciated by the Hon'ble Supreme Court in Radhasoami Satsang v. CIT, which mandates that where facts remain unchanged, treatment accepted in earlier years should ordinarily not be disturbed. The Tribunal found that the AO's deviation from earlier accepted treatment of business income and expenses without any change in facts was contrary to settled law.

Issue 4: Jurisdiction under Section 153A in Absence of Incriminating Material

The assessee contended that additions under section 153A could not be sustained without incriminating material found during search, relying on the Supreme Court decision in Abhisar Buildwell Pvt. Ltd. The CIT(A) recorded that the assessment year was "unabated" at the time of search, making the applicability of that decision disputed.

The Tribunal found it unnecessary to adjudicate this issue in detail since the appeal was allowed on merits. Thus, it refrained from commenting on the applicability of Abhisar Buildwell in this context.

Conclusions on Issues

The Tribunal concluded that the AO and CIT(A) erred in reclassifying the software development income as income from other sources without evidence and in disallowing legitimate business expenses. The principle of consistency was violated by the AO's approach. The additions made under section 153A were therefore deleted.

Significant Holdings and Core Principles

The Tribunal held:

"The revenue from identifiable clients under valid tax invoices cannot be brushed aside based merely on assumptions unless contradictory / corroborative evidence clinching the issue is collected during the course of search or brought on record by the AO."

"It is an established principle that the quantum of income is not determinative of the genuineness of business or the allowability of business expenditure."

"Where the facts remain the same, the treatment accorded in earlier years should ordinarily not be disturbed."

These principles underscore the necessity for the revenue to produce positive evidence before recharacterizing income or disallowing expenses, and the importance of consistency in tax assessments.

The Tribunal allowed the appeals and directed deletion of the additions made by the AO and confirmed by the CIT(A) for both assessment years, applying identical reasoning mutatis mutandis to the second appeal.

Regarding the condonation of delay, the Tribunal considered whether sufficient cause existed for the delayed filing of appeals, given that notices of hearing and orders of the Commissioner of Income Tax (Appeals) ("CIT(A)") were sent to an incorrect email address, preventing the assessee from timely knowledge of the proceedings.

The principal substantive issue concerned the disallowance of interest expenses under Section 40(a)(ia) of the Act. The question was whether the disallowance was legally sustainable when the interest expense was claimed against income from house property (rental income) and not against income from business or profession, especially when business income was declared on a presumptive basis under Section 44AD.

Consequentially, the Tribunal also examined the validity of penalty imposed under Section 271(1)(c) for concealment or furnishing inaccurate particulars of income, which was predicated on the disallowance upheld by the Assessing Officer (AO).

Analysis of Delay Condonation Issue:

The Tribunal applied the principle that delay in filing an appeal may be condoned if sufficient cause is shown. The assessee demonstrated that notices of hearing and orders from the CIT(A) were sent to a different email address than the one specified in the appeal form (Form No. 35). This fact was supported by a notarized affidavit and remained uncontroverted by the Department's representative.

The Tribunal held that the failure to serve notices at the correct email address constituted sufficient cause for the delay. The Department's inability to rebut this fact further strengthened the assessee's plea. Consequently, the Tribunal condoned the delays of 102 and 72 days respectively in filing the two appeals.

Analysis of Disallowance under Section 40(a)(ia):

Section 40(a)(ia) of the Act mandates disallowance of certain expenses, including interest, where tax is deductible at source but not deducted or paid, and applies specifically to computation of income under the head "Profits and gains of business or profession." The provision is situated in Chapter IV-D of the Act, which exclusively deals with income from business and profession.

The AO disallowed interest expenses amounting to Rs. 15,91,452/- under Section 40(a)(ia), invoking the provision read with Section 194A(1)(b), which relates to deduction of tax at source on interest other than interest on securities.

The assessee's contention, accepted by the Tribunal, was that the disallowed interest expense was claimed against rental income (income from house property), and not against business income. The business income was declared on a presumptive basis under Section 44AD, which does not allow detailed expenses to be claimed. The AO's disallowance was therefore misplaced, as Section 40(a)(ia) applies only to business income computations and not to income from other heads such as house property.

The Tribunal noted that the AO himself acknowledged that the rental income was separate from business income, yet proceeded to disallow the interest expense claimed against the rental income under Section 40(a)(ia). This was held to be legally untenable.

Since the disallowance was not sustainable in law, the Tribunal directed deletion of the addition made by the AO on this ground.

Analysis of Penalty under Section 271(1)(c):

The penalty under Section 271(1)(c) is leviable for concealment of income or furnishing inaccurate particulars of income. The penalty in this case was imposed in relation to the disallowance under Section 40(a)(ia) upheld by the AO.

Given that the Tribunal deleted the disallowance of interest expenses in the quantum appeal, the foundation for the penalty ceased to exist. The Tribunal accordingly held that the penalty had no legs to stand upon and directed its deletion.

Significant Holdings:

On the issue of delay, the Tribunal stated: "The assessee had adduced sufficient cause for the delay, the same being attributed to uncontroverted fact of the notices of hearing before the Ld. CIT(A) as also the order passed being served on the wrong email ID of the assessee."

On the substantive issue of disallowance, the Tribunal held: "It is crystal clear that the disallowance made by the AO in the present case is grossly unjustified and is not sustainable in the eyes of law."

Regarding penalty, the Tribunal concluded: "Since, we have directed the deletion of the disallowance made by the AO in our order above, the penalty has no legs to stand upon and is, accordingly, deleted."

The core principles established include:

• Section 40(a)(ia) disallowance applies only to income computed under the head "Profits and gains of business or profession" and cannot be invoked against expenses claimed against income from other heads such as house property.
• Non-receipt of notices at the correct email address constitutes sufficient cause for condonation of delay in filing appeals.
• Penalty under Section 271(1)(c) cannot be sustained if the underlying addition or disallowance is deleted by the appellate authority.

In final determinations, the Tribunal allowed both appeals: it condoned the delay in filing, deleted the disallowance of interest expenses under Section 40(a)(ia), and consequently deleted the penalty imposed under Section 271(1)(c).

Issues: Whether reassessment proceedings were valid where approval for reopening was granted by the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax after the amendment to the approval regime under section 151 of the Income-tax Act, 1961, and whether the resultant reassessment was liable to be quashed.

Analysis: The reopening fell within the post-1 April 2021 regime, under which the specified authority for a notice issued after more than three years from the end of the relevant assessment year is the Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General, as applicable. The approval granted by the Principal Commissioner did not satisfy the statutory requirement. The approval from the correct specified authority is a jurisdictional precondition for issuance of notice under section 148, and non-compliance with section 151 vitiates the reopening. The Tribunal relied on the Supreme Court and other High Court decisions applying the same principle and treated the defect as fatal to the reassessment.

Conclusion: The reopening was invalid for want of approval by the correct specified authority, and the reassessment proceedings were quashed.

Final Conclusion: The assessee succeeded because the reassessment was held unsustainable for absence of valid statutory sanction, resulting in annulment of the assessment action.

Ratio Decidendi: Where the statute prescribes approval by a specific authority as a condition precedent for reopening an assessment, sanction by an unauthorised authority renders the reassessment jurisdictionally invalid.

The core legal questions considered by the Court in this matter are:

(a) Whether the impugned order of the Joint Commissioner of Customs imposing conditions for provisional release of the imported roasted areca nuts is legally valid and reasonable;

(b) Whether the classification of the goods under Customs Tariff Heading 2008, specifically under CTI 2008 19 20 ('Other roasted nuts & seed'), as per the Advance Ruling obtained by the Petitioner, is binding and should be accepted by the Customs Department;

(c) Whether the Customs Department's reliance on inconsistent test reports from the Central Revenues Control Laboratory (CRCL), which declared some samples unfit for consumption, justifies the delay and conditions imposed on the release of the goods;

(d) Whether the conditions imposed by the Customs Department, including the requirement of a substantial bond and bank guarantee for provisional release, are onerous and disproportionate to the value of the goods;

(e) The extent to which the Petitioner's undertaking that the goods will be used only for industrial purposes, and not for human consumption, should influence the provisional release and the conditions imposed;

(f) The procedural propriety and timelines for the Customs Department to pass orders on provisional assessment in light of the Court's earlier directions.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity and Reasonableness of the Impugned Order Imposing Conditions for Provisional Release

The legal framework governing provisional release of imported goods under customs law involves the Customs Act and allied regulations, which empower authorities to impose conditions such as bonds and bank guarantees to secure revenue and ensure compliance. The Court examined the impugned order dated 29th May 2025, which allowed provisional release subject to execution of a bond of Rs. 4,10,67,000/- and a bank guarantee of Rs. 5,81,20,350/-, along with an undertaking restricting use to industrial purposes.

The Court noted that the order was passed pursuant to its earlier direction dated 22nd April 2025, which mandated consideration of provisional release on such terms and conditions as appropriate in accordance with law. The Customs Department's reliance on the Court's direction to impose conditions was acknowledged. However, the Court undertook a reasonableness inquiry, balancing the Department's interest in safeguarding revenue and regulatory compliance against the Petitioner's right to timely release of goods.

The Court found that the combined security demanded, nearly Rs. 10 crores, was disproportionate given the value of the goods as stated by the Petitioner (approximately Rs. 1 crore) and even by the Department's own minimum import price valuation (approx. Rs. 4.10 crores). The Court thus held the conditions to be onerous and modified them accordingly.

(b) Classification of Goods under Customs Tariff Heading 2008

The Petitioner had obtained an Advance Ruling from the Customs Authority of Advance Ruling (CAAR), New Delhi, classifying the roasted areca nuts under Customs Tariff Heading 2008 19 20, which pertains to 'Other roasted nuts & seed'. The binding nature of such an Advance Ruling is recognized under customs law to provide certainty and predictability in classification and duty liability.

The Customs Department's subsequent testing of the goods at CRCL, which yielded inconsistent results about fitness for human consumption, did not directly challenge the classification but raised concerns about the nature and use of the goods. The Court acknowledged the Petitioner's position that the goods were to be used only for industrial purposes, not human consumption, thereby mitigating concerns arising from the test reports.

The Court did not disturb the classification as per the Advance Ruling, implicitly affirming its binding effect and the Petitioner's right to rely on it.

(c) Reliance on CRCL Test Reports and Delay in Release

The Customs Department sent the goods for testing at CRCL, which issued reports with inconsistent findings-some samples fit for consumption, others unfit. The Petitioner requested retesting, but the re-test reports mirrored the original inconsistencies.

The Court noted that such inconsistent reports contributed to delay and uncertainty. It recognized the Petitioner's willingness to accept provisional release for industrial use only, thereby addressing the concerns raised by the test results. The Court's earlier order dated 22nd April 2025 had already directed the Customs Department to consider provisional release subject to an undertaking restricting use.

The Court emphasized that the delay from September 2024 onwards was substantial and that warehousing permission had been granted, further underscoring the need for timely resolution. The Court's directions aimed to balance regulatory caution with the Petitioner's right to avoid undue detention.

(d) Onerousness and Proportionality of Conditions Imposed for Provisional Release

The impugned order required a personal bond exceeding Rs. 4.10 crores and a bank guarantee exceeding Rs. 5.81 crores, cumulatively amounting to nearly Rs. 10 crores, despite the Petitioner asserting the value of goods to be around Rs. 1 crore.

The Customs Department justified the security on the basis of the minimum import price, approximately Rs. 4.10 crores. The Court acknowledged this valuation but found the aggregate security excessive and disproportionate to the goods' value and the nature of provisional release.

Balancing the interests, the Court directed the Petitioner to furnish the bond of Rs. 4,10,67,000/- and a bank guarantee of Rs. 50,00,000/- only, significantly reducing the bank guarantee amount. This modification was intended to alleviate the financial burden on the Petitioner while ensuring adequate security for the Department.

(e) Undertaking Regarding Use of Goods and Its Impact on Provisional Release

The Petitioner undertook that the goods would be used solely for specified industrial purposes and not for human consumption. The Customs Department required an undertaking in the form of an affidavit ("Annex. A") and an 'End Use Certificate' after consumption.

The Court accepted this undertaking as a crucial mitigating factor that justified provisional release despite the concerns raised by the test reports. The Court emphasized that any deviation from the declared use would invite legal action, thereby safeguarding regulatory interests.

(f) Procedural Timelines and Compliance with Court Directions

The Court's earlier order dated 22nd April 2025 had directed the Customs Department to pass an order on provisional assessment by 31st May 2025. The impugned order dated 29th May 2025 complied with this timeline.

The Court underscored the importance of adherence to procedural timelines to prevent undue delay in release of goods. The Court's directions aimed to expedite resolution while allowing the Department to impose reasonable conditions.

3. SIGNIFICANT HOLDINGS

The Court made several key determinations and established important principles:

"The goods have been released only for industrial use. The impugned order requires a personal bond for more than Rs. 4.10 crores along with a Bank Guarantee for a sum of over Rs. 5.81 crores i.e., the overall security demanded is almost Rs. 10 crores. Even if the value as stated by the Department is taken into consideration, bearing in mind the value of goods itself, the conditions for provisional release are clearly onerous."

This holding clarifies that while Customs authorities may impose conditions for provisional release, such conditions must be proportionate and reasonable in relation to the goods' value and circumstances.

The Court further held:

"Accordingly, it is directed that the Petitioner shall furnish a bond of Rs. 4,10,67,000/- along with a Bank Guarantee of Rs. 50,00,000/- to the concerned authorities within a period of two weeks, subject to which the goods shall be released."

This establishes a principle of judicial intervention to moderate excessive financial conditions imposed by administrative authorities.

Additionally, the Court emphasized the binding effect of Advance Rulings obtained under customs law, implicitly affirming the Petitioner's right to classify goods as per such rulings unless legally challenged on valid grounds.

The Court also recognized the legitimacy of provisional release subject to an undertaking restricting use, balancing regulatory concerns with commercial realities.

Finally, the Court underscored the need for timely disposal of matters relating to provisional assessment and release, directing compliance with procedural timelines.

- Whether the appellants, who were found in possession of Indian currency at the premises of a shop where smuggled foreign-origin gold was recovered, can be held liable as abettors or conspirators in the offence of smuggling under the Customs Act, 1962.

- Whether the seizure and confiscation of the Indian currency carried by the appellants, intended for purchase of gold from the said shop, is justified under the provisions of the Customs Act.

- Whether imposition of penalty under Section 117 of the Customs Act, 1962 on the appellants is sustainable in the absence of evidence establishing their knowledge or involvement in smuggling activities.

- The evidentiary burden and onus of proof concerning licit possession of the seized gold and currency and the appellants' mens rea regarding the alleged smuggling.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of appellants as abettors or conspirators in smuggling

Relevant legal framework and precedents: The Customs Act, 1962 provisions relating to smuggling, abetment, and conspiracy were invoked, specifically Sections 117 (penalty), 121 (confiscation), and 123 (burden of proof). The Court referred to precedents emphasizing the need for clear mens rea and deliberate involvement to impose penalty (citing the Apex Court in Hindustan Steels Ltd. Vs. State of Orissa).

Court's interpretation and reasoning: The Court noted that the principal allegation and onus to prove the illegal possession and smuggling rested on Rahul Kapoor and his partners, not the appellants. The appellants were buyers who came to purchase gold from Rahul Kapoor's shop. Their statements did not reveal any admission or knowledge of smuggling activities. The Court emphasized that mere presence at the premises or possession of currency intended for purchase does not establish conspiracy or abetment.

Key evidence and findings: The statements of appellants, forensic examination of digital data, and absence of incriminating documents or admissions against appellants were crucial. The statements of Rahul Kapoor and his partners did not implicate the appellants in smuggling or knowledge thereof. The Panchnama established the timing of currency seizure before any purchase was made, negating the claim that appellants had already bought smuggled gold.

Application of law to facts: The Court applied the principle that penalty and confiscation require proof of conscious wrongdoing or knowledge of illegality. The appellants' status as small-scale jewellers purchasing gold at cheaper rates without bills was insufficient to infer criminal intent or conspiracy.

Treatment of competing arguments: The Revenue argued that appellants' knowledge was implied by their repeated purchases at lower prices without bills and that they failed to exercise "caveat emptor." However, the Court rejected this, holding that assumptions and presumptions cannot substitute concrete evidence of mens rea.

Conclusions: The appellants cannot be held liable as abettors or conspirators in smuggling without evidence of knowledge or involvement. The principal liability lies with Rahul Kapoor and his partners.

Issue 2: Justification for seizure and confiscation of currency carried by appellants

Relevant legal framework and precedents: Sections 110 and 121 of the Customs Act, 1962 authorize seizure and confiscation of goods and currency related to smuggling. The Court also considered principles governing confiscation linked to proceeds or intended proceeds of smuggled goods.

Court's interpretation and reasoning: The adjudicating authority held that the currency carried by appellants was intended for purchase of smuggled gold and hence liable for confiscation. However, the Court found that the currency was seized before any transaction occurred and that appellants had not actually purchased smuggled gold at the time of seizure.

Key evidence and findings: The Panchnama and timing of seizure established that appellants had only brought currency to purchase gold but had not completed any purchase. There was no evidence that the currency itself was proceeds of crime or that appellants had knowledge of illegality.

Application of law to facts: Confiscation requires a nexus between the currency and the offence. Mere possession of currency intended for purchase, without knowledge or completed illegal transaction, does not justify confiscation.

Treatment of competing arguments: Revenue's argument that currency was related to smuggled gold purchase was countered by the factual timeline and absence of evidence of completed transactions or knowledge.

Conclusions: Confiscation of the appellants' currency was not justified and was set aside.

Issue 3: Sustainability of penalty under Section 117 of Customs Act

Relevant legal framework and precedents: Section 117 prescribes penalty for violation of Customs Act provisions. The Court relied on the Apex Court's ruling in Hindustan Steels Ltd. emphasizing that penalty should not be imposed unless there is deliberate or conscious violation or dishonest conduct.

Court's interpretation and reasoning: The Court observed that the appellants' conduct did not demonstrate deliberate defiance of law or conscious disregard of obligations. Their bona fide belief in purchasing gold without knowledge of smuggling negated the basis for penalty.

Key evidence and findings: Absence of admissions, incriminating documents, or forensic evidence linking appellants to smuggling. The appellants' statements consistently denied knowledge of illegality.

Application of law to facts: The Court applied the principle that technical or venial breaches, or those arising from bona fide belief, do not warrant penalty. Mere purchase of gold without bills, without knowledge of smuggling, is insufficient for penalty.

Treatment of competing arguments: Revenue's reliance on appellants' repeated purchases at lower prices without bills as evidence of knowledge was rejected as speculative.

Conclusions: Penalty imposed on appellants was not sustainable and was set aside.

3. SIGNIFICANT HOLDINGS

"The principal allegation against Noticees is that Shri Rahul Kapoor along with Shri Vijay Kapoor @ Anil Kapoor and Shri Monu Kapoor entered into a criminal conspiracy with Tilak Raj @ Pankaj Dhingra to buy and sell smuggled gold of foreign origin. Said Shri Rahul Kapoor neither produced any document(s) in support of licit import and possession of the seized yellow colour metal bars & cut pieces of gold collectively weighing 35175.8l grams at the time of seizure nor at the time of investigation. The onus to prove that the seized gold was not smuggled lies on said Shri Rahul Kapoor."

"Presumptions and assumptions can never be the basis for imposition of penalty."

"Penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law and was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation."

"Mere act of purchasing gold without bill is highly insufficient to confirm the grave allegations of conspiring the act of smuggling of gold."

Final determinations:

- The appellants were not proven to be abettors or conspirators in the smuggling of gold.

- The confiscation of the Indian currency carried by the appellants was not justified as there was no nexus established between the currency and the offence at the time of seizure.

- The penalty imposed under Section 117 of the Customs Act on the appellants was not sustainable due to lack of evidence of deliberate or conscious wrongdoing.

- The order imposing penalty and confiscating currency was set aside, and appellants were entitled to return of their seized money.

Issues: Whether a financial creditor whose charge is registered with CERSAI, but not with the Registrar of Companies under Section 77 of the Companies Act, 2013, can be treated as a secured financial creditor in liquidation proceedings.

Analysis: Section 52 of the Insolvency and Bankruptcy Code, 2016 permits proof of security interest through records of an information utility or by such other means as specified by the Board. Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016 specifies three modes of proving security interest, namely records with an information utility, a certificate of registration of charge issued by the Registrar of Companies, or proof of registration of charge with CERSAI. The provision uses the disjunctive expression 'or', showing that registration with CERSAI is an independent mode of proving security interest. Although Section 77 of the Companies Act, 2013 requires registration of charge with the Registrar of Companies and contains a non-obstante clause, the later and special insolvency regime under the Code, read with Regulation 21, governs proof of security interest in liquidation. Section 20 of the SARFAESI Act, 2002 also recognises CERSAI registration for security interests, supporting the statutory scheme.

Conclusion: A charge registered with CERSAI is sufficient to establish secured creditor status for liquidation purposes under Regulation 21, even without registration under Section 77 of the Companies Act, 2013. The Appellant was entitled to be treated as a secured financial creditor.

Ratio Decidendi: In liquidation proceedings, security interest may be proved by any mode specified in Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016, and CERSAI registration is an independent and sufficient mode for establishing secured creditor status.

The core legal questions considered by the Tribunal in this judgment are:

(a) Whether the respondents have committed contempt of court by allegedly violating the Tribunal's order dated 15.12.2022, which directed the Resolution Professional (RP) to await the decision of a pending application (C.A. No. 01 of 2018) before inviting fresh Expressions of Interest (EoI) in the corporate insolvency resolution process (CIRP).

(b) Whether the issuance of fresh EoI by the RP and Committee of Creditors (CoC) without disposal of C.A. No. 01 of 2018 amounts to non-compliance of the Tribunal's directions and thereby warrants initiation of contempt proceedings.

(c) The implications of the pendency of litigation relating to a specific asset (the 5th floor of the hotel of the corporate debtor) on the CIRP and the process of inviting fresh EoI.

(d) The propriety of the adjudicating authority's orders permitting the RP to re-run the CIRP process, including the issuance of fresh EoI and extension of the CIRP period, despite the pendency of related applications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Alleged contempt for non-compliance of the Tribunal's order dated 15.12.2022

The Tribunal's order dated 15.12.2022 disposed of an earlier appeal by affirming the cancellation of approval granted to a Resolution Plan and forfeiture of the deposited amount, but set aside certain directions and requested the adjudicating authority to dispose of C.A. No. 01 of 2018 within three months. The Tribunal further directed the RP, after decision of C.A. No. 01 of 2018, to invite fresh EoI and complete the process within two months, treating the CIRP period as extended till then.

The appellant contended that the RP and CoC violated this order by inviting fresh EoI before disposal of C.A. No. 01 of 2018, thus committing contempt.

The Tribunal examined subsequent orders, including those dated 09.02.2024 and 25.07.2024, which clarified that the pendency of C.A. No. 01 of 2018 was not an impediment to issuing fresh Form-G (invitation for EoI). The 25.07.2024 order noted that an application (I.A. No. 1219/2024) filed by the RP seeking permission to re-run the CIRP process and issue fresh EoI was pending before the adjudicating authority. The Tribunal requested the adjudicating authority to decide this application at the earliest.

Subsequently, the adjudicating authority allowed I.A. No. 1219/2024 by orders dated 14.11.2024 and 03.12.2024, permitting the RP to issue fresh EoI. The Tribunal found that the fresh EoI was issued pursuant to these orders and not in violation of its 15.12.2022 order.

The Tribunal's reasoning emphasized that since the fresh EoI issuance was authorized by the adjudicating authority after due consideration of the pending applications, no wilful contempt was established.

Issue (c): Impact of pending litigation on CIRP and fresh EoI issuance

The litigation concerning the 5th floor of the hotel was central to C.A. No. 01 of 2018 and related applications. The appellant argued that the pendency of this litigation should have prevented the RP from proceeding with fresh EoI.

The Tribunal noted that the CoC and RP were ready to incorporate details of the litigation, including the pendency of I.A. No. 6139/2023 related to the 5th floor dispute, while inviting fresh EoI. This demonstrated an effort to maintain transparency and inform prospective resolution applicants of ongoing disputes.

The Tribunal found that the adjudicating authority's orders allowing the re-run of the CIRP and fresh EoI issuance took into account the litigation status and authorized the RP to proceed accordingly. Thus, the pendency of litigation did not bar the CIRP process from moving forward under judicial supervision.

Issue (d): Propriety of adjudicating authority's orders permitting re-run of CIRP and extension of CIRP period

The RP's application I.A. No. 1219/2024 sought permission to re-run the CIRP process, re-publish the invitation for EoI, extend the CIRP period by 90 days, and appoint registered valuers for fresh valuation of assets.

The Tribunal's order dated 25.07.2024 observed that the adjudicating authority had yet to decide this application but urged early disposal. The subsequent orders by the adjudicating authority allowed the application, thereby validating the RP's actions.

The Tribunal implicitly recognized the adjudicating authority's discretion and authority to manage the CIRP timeline and procedural steps in light of the complex factual matrix and pending litigations.

The Court's analysis indicated that the extension of CIRP and fresh valuation were appropriate measures to ensure a fair and transparent resolution process, consistent with the objectives of the insolvency framework.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"No wilful contempt has been made out to initiate any proceeding against the respondent."

This conclusion was based on the following core principles and reasoning:

(i) The Tribunal's order dated 15.12.2022 directed the RP to invite fresh EoI only after disposal of C.A. No. 01 of 2018. However, subsequent judicial clarifications and orders by the adjudicating authority authorized the RP to proceed with fresh EoI despite the pendency of related applications, thereby not violating the Tribunal's directions.

(ii) The adjudicating authority's orders permitting the re-run of the CIRP process and extension of the CIRP period were valid exercises of its powers under the insolvency framework, especially considering the complexity of pending litigations affecting the corporate debtor's assets.

(iii) The RP and CoC's readiness to disclose ongoing litigation in the fresh EoI process demonstrated compliance with principles of transparency and fairness, mitigating any prejudice to prospective resolution applicants.

(iv) The Tribunal emphasized the importance of judicial supervision and timely disposal of pending applications to ensure the CIRP progresses without undue delay while safeguarding stakeholders' interests.

In sum, the Tribunal determined that the issuance of fresh EoI pursuant to the adjudicating authority's orders did not constitute contempt of court, and the contempt petition was accordingly closed.

The core legal questions considered by the Tribunal are:

(a) Whether the dismissal of the Section 7 application for non-prosecution by the Adjudicating Authority was justified, considering the non-appearance of the Financial Creditor's counsel and non-filing of additional affidavits/documents.

(b) Whether the Restoration Application filed by the Financial Creditor within 30 days of dismissal satisfied the requirement of "sufficient cause" under Rule 48(2) of the NCLT Rules, 2016, warranting restoration of the dismissed petition.

(c) Whether the Appellants' failure to appear and non-compliance with the Adjudicating Authority's order was attributable to the negligence of their erstwhile counsel and whether such failure could be excused.

(d) Whether the Adjudicating Authority's dismissal of the Restoration Application without adequately addressing the Appellant's submissions and bonafide efforts violated principles of natural justice.

(e) Whether the Restoration Application was time-barred and whether the Appellant complied with procedural requirements including service of the Restoration Application on the Respondent.

(f) Whether the merits of the underlying debt and default are relevant to the present appeal concerning procedural dismissal and restoration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of dismissal of Section 7 application for non-prosecution

The Adjudicating Authority dismissed the Section 7 petition on 30.09.2024 due to the non-appearance of the Financial Creditor or its counsel on two calls of the matter and non-filing of the additional affidavit and documents (facility agreement, financials, NeSL certificate) as directed on 04.09.2024. The order recorded that the Financial Creditor appeared disinterested in pursuing the case.

The Appellant contended that the non-appearance was due to the failure and negligence of its then counsel who neither appeared nor informed the Appellant. The additional affidavit was e-filed on 27.09.2024 but remained under registry objection for minor defects (unclear pages) which were curable. The Appellant argued that the dismissal was erroneous and unjust.

The Respondent submitted that the dismissal was justified on grounds of both non-appearance and non-compliance with the Adjudicating Authority's order. Partial filing of documents did not fulfill the directions. The Respondent also asserted that litigants are bound by their counsel's acts and negligence cannot be excused.

The Tribunal noted that dismissal for non-prosecution is generally warranted when the litigant or counsel fails to appear repeatedly and does not comply with directions, indicating lack of seriousness. However, the Tribunal observed that the defects in the additional affidavit were minor and curable, and the Appellant had sought permission to file the affidavit. The non-appearance was due to counsel's failure, which the Appellant could not have reasonably controlled or foreseen.

Issue (b): Sufficiency of cause in Restoration Application under Rule 48(2)

Rule 48(2) of the NCLT Rules mandates that where a petition is dismissed for default, the applicant may file a restoration application within 30 days showing sufficient cause for non-appearance. The Tribunal emphasized the mandatory use of "shall" in the Rule, indicating that if sufficient cause is shown within time, restoration ought to be granted.

The Appellant filed the Restoration Application on 29.10.2024, within the 30-day period. The Appellant's grounds for sufficient cause were the non-appearance of its counsel and the inability to cure registry defects in the additional affidavit due to counsel's non-cooperation.

The Respondent argued that the Restoration Application was time-barred and lacked sufficient cause, as the Appellant failed to monitor the case or engage alternative counsel despite counsel's non-responsiveness. The Respondent also contended that the dismissal was not solely for non-appearance but also for non-compliance, thus outside Rule 48(2) scope.

The Tribunal found that the Restoration Application was timely filed and that the Appellant's explanation constituted sufficient cause. The Tribunal held that the Appellant was not casual or negligent but acted promptly upon learning of dismissal. The defects in affidavit were curable and did not affect merits. The Tribunal rejected the Respondent's contention that the dismissal was outside Rule 48(2) scope, noting that the primary cause was non-appearance and non-prosecution.

Issue (c): Attribution of non-appearance and non-compliance to counsel's negligence

The Appellant relied on the Supreme Court precedent that a litigant should not suffer due to the default or negligence of his advocate, especially when the litigant is not legally trained and unaware of court proceedings. The Appellant contended that it was unaware of dismissal due to counsel's failure to inform or appear.

The Respondent relied on precedents holding that litigants are bound by their agents' actions and cannot disown their counsel's negligence. The Respondent argued that the Appellant's vague claims did not constitute sufficient cause.

The Tribunal accepted the Appellant's position, relying on the Supreme Court's ruling that a litigant who entrusts his case to a lawyer cannot be penalized for the lawyer's lapse, particularly when the litigant is not a legal professional. The Tribunal noted that the Appellant is a financial creditor, not a lawyer, and thus entitled to benefit of doubt. The Tribunal found the Appellant's efforts to engage new counsel and file restoration application promptly to be bona fide.

Issue (d): Violation of natural justice in dismissal of Restoration Application

The Appellant contended that the Adjudicating Authority failed to record or adequately consider its submissions during the hearing on 22.01.2025, rendering the dismissal arbitrary and legally unsustainable.

The Tribunal observed that the Impugned Order dismissed the Restoration Application solely on the ground of non-filing of necessary documents to establish the claim and failure to cure defects, without mentioning the non-appearance issue or the Appellant's submissions. The Tribunal found this omission to be a failure to address the Appellant's bonafide efforts and sufficient cause.

The Tribunal held that dismissal without due consideration of the Appellant's explanations and efforts violated principles of natural justice and the liberal approach mandated in restoration matters.

Issue (e): Timeliness and procedural compliance of Restoration Application

The Respondent challenged the timeliness of the Restoration Application and service on the Respondent's counsel. The Tribunal found the Restoration Application was filed within 30 days as prescribed by Rule 48(2). The Respondent's contention regarding delayed service was not persuasive, and the Adjudicating Authority did not reject the application on delay grounds.

The Tribunal found procedural compliance sufficient for restoration consideration.

Issue (f): Relevance of merits of debt and default in present appeal

The Respondent contended that the debt and default are disputed and alleged to be based on forged documents, with a pending suit challenging the validity. The Respondent argued that merits are irrelevant to the procedural appeal.

The Tribunal agreed that the appeal concerns procedural dismissal and restoration only and does not decide the merits of debt or default. The Tribunal clarified that the merits will be decided by the Adjudicating Authority on facts and law after restoration.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Where sufficient cause is made out for non-appearance within the stipulated 30 days, the Tribunal shall make an order restoring the same." (Rule 48(2) NCLT Rules, 2016)

"A litigant who has entrusted his case to his lawyer cannot be penalized for the lapse or negligence of his lawyer."

"The purpose of dismissal for non-prosecution is to procure the concerned party and his counsel and not to dismiss the appeal without going into the merit."

"Restoration applications should be dealt with liberally as right to represent one's cause before the court is a fundamental one."

The Tribunal concluded that the Appellant's failure to appear and non-compliance was attributable to its erstwhile counsel's negligence, which constituted sufficient cause for restoration. The Restoration Application was filed within time and the defects in the additional affidavit were curable. The dismissal of the Restoration Application without addressing these factors violated principles of natural justice.

The Impugned Order dismissing the Restoration Application was set aside, and the original petition was restored for hearing on merits by the Adjudicating Authority. The Tribunal expressly refrained from expressing any opinion on the substantive merits of the debt or default, leaving that to be decided afresh.

Issues: (i) Whether the Settlement Commission granted immunity to the petitioner from prosecution under the Foreign Exchange Regulation Act, 1973 for alleged non-realisation of export proceeds; (ii) Whether the Settlement Commission under the Customs Act, 1962 had competence to grant immunity from prosecution for offences under the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether the Settlement Commission granted immunity to the petitioner from prosecution under the Foreign Exchange Regulation Act, 1973 for alleged non-realisation of export proceeds?

Analysis: The settlement proceedings were confined to liabilities arising under the Customs Act, 1962, particularly the duty exposure linked to DEEC, DEPB and drawback-related matters. The order of settlement dealt with customs duty, interest and related reliefs, and the reference to foreign exchange allegations did not convert the proceeding into one concerning prosecution under the Foreign Exchange Regulation Act, 1973. The subject matter of the complaint under Section 56 of the Foreign Exchange Regulation Act, 1973 was not adjudicated or settled on merits by the Settlement Commission.

Conclusion: No substantive immunity under the Foreign Exchange Regulation Act, 1973 was granted to the petitioner.

Issue (ii): Whether the Settlement Commission under the Customs Act, 1962 had competence to grant immunity from prosecution for offences under the Foreign Exchange Regulation Act, 1973?

Analysis: The statutory scheme of Chapter XIV-A of the Customs Act, 1962 confines the Settlement Commission to cases relating to levy, assessment and collection of customs duty. Its power to grant immunity under Section 127H is limited to offences under the Customs Act, 1962 and cannot be extended to a separate special enactment such as the Foreign Exchange Regulation Act, 1973. The Foreign Exchange Regulation Act, 1973 is a self-contained code and contains its own mechanism for immunity under Section 60. Any immunity purportedly granted by the Settlement Commission for FERA offences was therefore beyond jurisdiction and without legal effect.

Conclusion: The Settlement Commission lacked competence to grant immunity for the FERA offences.

Final Conclusion: The revision failed because the discharge application was rightly rejected, as the customs settlement order did not bar prosecution for the alleged foreign exchange violations.

Ratio Decidendi: A settlement authority constituted under the Customs Act can grant immunity only within the statutory limits of that Act and cannot confer immunity from prosecution for offences under an independent special statute unless that statute itself so permits.

(1) Whether the complaint dated 02.6.2023 filed under Section 16(3) of the Foreign Exchange Management Act, 1999 (FEMA) and the show cause notice dated 09.6.2023 issued under Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (FEMA Rules) suffer from any illegality and are liable to be interfered with by the Court;

(2) Whether the formation of opinion under Rule 4(3) of the FEMA Rules by the Adjudicating Authority suffers from any illegality and is liable to be interfered with by the Court;

(3) Whether the adjudication proceedings up to the stage of formation of opinion under Rule 4(3) were based on an improper understanding of the contractual agreements entered into by the petitioner company with other parties and whether the respondents proceeded further on a fundamental misconception of law;

(4) Whether the refusal or non-furnishing of the petitioners' request for full disclosure of the investigation records has prejudiced their rights to effectively defend themselves during the adjudication proceedings up to the stage of formation of opinion.

Issue-wise Detailed Analysis

Issue 1: Legality of the complaint and show cause notice

The legal framework governing these proceedings is the FEMA and the FEMA Rules, which prescribe a structured adjudication process. The Apex Court's judgment in Natwar Singh clarified that the Adjudicating Authority must follow the prescribed procedure, issuing a show cause notice under Rule 4(1) to decide whether an inquiry should be held, and only after considering the cause shown is the opinion formed under Rule 4(3). The show cause notice is not for adjudicating the alleged contravention but to decide the necessity of inquiry.

The Court noted that the petitioners challenged both the complaint and the show cause notice on grounds of illegality, including that the show cause notice improperly combined the inquiry and penalty stages. However, the Court declined to examine these challenges at this stage, as the matter had already been before the Court previously where the legality of the show cause notice was not examined. The Court held that the focus at this juncture should be on the formation of opinion under Rule 4(3), not on the complaint or show cause notice. Thus, the Court refrained from interfering with the complaint and show cause notice, answering Issue 1 accordingly.

Issue 2 and 3: Legality of formation of opinion under Rule 4(3) and correctness of understanding of contractual agreements

Rule 4(3) of the FEMA Rules contemplates a two-step process: the Adjudicating Authority considers the objections to the show cause notice and forms an opinion whether an inquiry should proceed. The Apex Court in Natwar Singh emphasized that only after this opinion is formed does the substantive inquiry begin.

The Court relied on several precedents from this High Court, including Ramakrishna Setty and India Cements Ltd., which held that there is no statutory requirement for the Adjudicating Authority to record reasons in writing while forming the opinion under Rule 4(3). The opinion is a preliminary, prima facie satisfaction to proceed with inquiry and is not appealable or challengeable as a final order. The Court distinguished this from the Bombay High Court's contrary view in Shashank Vyankatesh Manohar, noting that the Division Bench of this Court had rejected that view and directed the Enforcement Directorate to cancel the circular based on that judgment.

In the present case, the Adjudicating Authority had recorded reasons and furnished them to the petitioners, but the Court held that even if reasons were not recorded, the opinion could not be challenged. The Court found that the Adjudicating Authority had applied his mind, considered the contractual agreements, statements from authorized dealers, and the large outflow of funds to group entities without prior RBI approval. The Court analogized the formation of opinion to the cognizance of a complaint in criminal law, where strong suspicion suffices to proceed further.

The Court declined to delve into the petitioners' contentions regarding the interpretation of the term "affiliate," the group company doctrine, the validity of the contracts, and the applicability of Patent Law or royalty obligations. These matters were held to be appropriate for the adjudication stage, where the petitioners can raise their defenses. Consequently, the Court did not find any illegality in the formation of opinion or fundamental misconception of law, answering Issues 2 and 3 against the petitioners.

Issue 4: Non-furnishing of full records and prejudice to the petitioners' defense

The petitioners sought inspection and certified copies of the entire investigation records, including documents not relied upon (non-RUDs). The Court analyzed the procedural stages under Rule 4 of the FEMA Rules and noted that at the stage of forming opinion under Rule 4(3), the Adjudicating Authority considers only the show cause notice, relied upon documents, and the reply to the notice. The petitioners have not yet entered the defense stage, which begins at Rule 4(4).

The Court referred to Apex Court judgments (Manish Sisodia and Sarla Gupta) which require disclosure of all documents, including exculpatory evidence, to enable effective defense, but only at the defense stage, not at the opinion formation stage. The Court held that non-furnishing of all documents at the opinion stage does not cause prejudice.

However, since the matter has now reached the defense stage under Rule 4(4), the petitioners are entitled to all documents, including non-RUDs, to effectively defend themselves. The Court directed that missing documents be traced and furnished to the petitioners. Thus, Issue 4 was answered in favor of the petitioners to the extent of entitlement at the defense stage.

Significant Holdings

"The Rules do not provide and empower the Adjudicating Authority to straight away make any inquiry into allegations of contravention against any person against whom a complaint has been received by it. Rule 4 of the Rules mandates that for the purpose of adjudication whether any person has committed any contravention, the Adjudicating Authority shall issue a notice to such person requiring him to show cause as to why an inquiry should not be held against him... After taking the cause, if any, shown by such person, the Adjudicating Authority is required to form an opinion as to whether an inquiry is required to be held into the allegations of contravention. It is only then the real and substantial inquiry into allegations of contravention begins." (Extract from Natwar Singh)

"The adjudicating Authority is not under any statutory obligation to communicate his reasons for forming an opinion to conduct an enquiry under Sub-Rule 3 of Rule 4... Such forming of opinion under Rule 4(3) of the FEMA Rules is the starting stage for proceeding further with the adjudication... The reason that impelled the Adjudicating Authority to form such an opinion cannot be a subject matter of challenge in a writ petition." (Extract from this Court's decisions)

"When the case has reached the stage under Rule 4(4) of the FEMA Rules, which is the stage of defence, the petitioners will be entitled to all the documents sought for by them including the non RUDs. Only if those documents are furnished to the petitioners, they will be able to effectively defend themselves during the adjudication proceedings." (This Court)

The Court's final determinations are:

- The complaint and show cause notice are not liable to be interfered with at this stage.

- The formation of opinion under Rule 4(3) is a preliminary step and cannot be challenged on grounds of absence of reasons or alleged misconstruction of law; the Adjudicating Authority applied mind and formed a valid prima facie opinion.

- The Court will not adjudicate on the complex contractual and legal issues raised by the petitioners at this stage; these are to be addressed during the adjudication proceedings.

- The petitioners are entitled to full disclosure of all documents, including non-RUDs, at the defense stage to effectively defend themselves, and the respondents must furnish all missing documents accordingly.

Issues: Whether a writ petition under Article 226 of the Constitution of India seeking blanket interim protection from arrest and supervision of multiple ongoing criminal investigations was maintainable without seeking quashing of the FIRs or ECIRs.

Analysis: The petition sought wide interim protection in relation to multiple investigations, but the Court held that such blanket protection cannot be granted in the course of pending investigation. Relying on settled principles that High Courts should be slow to interfere at the investigative stage, the Court noted that an accused apprehending arrest has statutory remedies by way of anticipatory bail and, where appropriate, quashing proceedings. The Court further held that a writ court cannot convert Article 226 into a substitute for those remedies, particularly where no prayer for quashing of the FIRs or ECIRs was made. In such circumstances, granting a blanket no-arrest or no-coercive-order would impede investigation and would be contrary to the settled law governing criminal process.

Conclusion: The writ petition was not maintainable and the request for blanket interim protection was rejected.

Ratio Decidendi: A writ petition under Article 226 cannot be used to obtain a blanket pre-arrest protection during ongoing investigations when the petitioner has not sought quashing of the criminal proceedings and has adequate statutory remedies available under the criminal law framework.

1. Whether the appeal filed under Section 35G of the Central Excise Act, 1944 before the High Court is maintainable against the order of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) which set aside the original order on the ground of limitation.

2. Whether the issue of limitation alone, without adjudication on the merits of taxability, permits an appeal before the High Court or whether the appeal lies exclusively before the Supreme Court under Section 35L of the Central Excise Act, 1944.

3. The interpretation and application of Sections 35G and 35L of the Central Excise Act, 1944, particularly in cases involving questions of taxability, valuation, and limitation.

4. The implications of the nature of the impugned order-whether it involves determination of taxability or valuation-and how that affects the appellate jurisdiction.

Issue-wise Detailed Analysis

1. Maintainability of Appeal under Section 35G vs. Section 35L of the Central Excise Act, 1944

The Court examined the scope of Sections 35G and 35L of the Central Excise Act, 1944, which govern appeals from orders of the CESTAT. Section 35G provides for appeals to the High Court from CESTAT orders, except those relating to determination of questions concerning the rate of duty or valuation of goods for assessment purposes. Section 35L provides for appeals to the Supreme Court from High Court judgments under Section 35G and directly from CESTAT orders involving questions related to rate of duty or valuation.

Relevant precedents were extensively considered, including decisions where the Court emphasized that the nature of the impugned order, not merely the issues raised in the appeal, determines the appellate forum. The Court relied on authoritative rulings which held that if the order involves determination of taxability, valuation, or exemption notifications, the appeal lies exclusively before the Supreme Court under Section 35L.

The Court noted that even if the CESTAT order only addresses limitation, if the original order involves taxability or valuation, the appeal is not maintainable before the High Court. This principle was reinforced by reference to prior judgments where the appellate jurisdiction was clarified to be exclusive to the Supreme Court in such matters.

2. Interpretation of Limitation Issue vis-`a-vis Taxability

The CESTAT had allowed the appeal on the ground that the Show Cause Notice (SCN) was barred by limitation under Section 73(1) of the Finance Act, 1994, without adjudicating on the merits of taxability. The appellant contended that since only limitation was considered, the appeal should lie before the High Court.

The Court rejected this contention, holding that limitation is a preliminary issue and once the limitation question is decided, the merits of taxability must be considered. Since the original order involved taxability of services provided by the respondent (an Internet Service Provider) and exemption claims under Notification No. 4/2004-ST, the nature of the order was such that it involved substantive questions of tax liability.

The Court referred to a recent decision where it was held that even if the CESTAT order deals primarily with limitation, if the original order involves taxability or valuation, the appeal lies before the Supreme Court. The Court emphasized that the appellate jurisdiction depends on the nature of the order impugned, not the issues raised in the appeal.

3. Application of Legal Framework and Precedents

The Court analyzed the provisions of Sections 35G and 35L in detail, reproducing their text and highlighting the legislative intent to channel appeals involving taxability or valuation to the Supreme Court. It relied on several landmark decisions, including:

• Commissioner of Service Tax v. Ernst & Young Pvt Ltd., where it was held that appeals involving rate of duty or valuation issues lie exclusively before the Supreme Court.
• Commissioner of Service Tax v. Delhi Gymkhana Club Ltd., which clarified that determination of questions related to rate of duty or valuation by CESTAT is appealable only to the Supreme Court.
• Commissioner of Service Tax v. Bharti Airtel Ltd., where the Court underscored that the nature of the order, not the issues raised by the appellant, determines the appellate forum.
• Commissioner of Service Tax v. Intertoll ICS CE Cons O & M Pvt. Ltd., where the Court reiterated that appeals involving chargeability or taxability issues lie before the Supreme Court.

The Court also noted that the limitation issue cannot be isolated from the substantive taxability question, and that the appellate jurisdiction must be determined on the basis of the overall nature of the order.

4. Treatment of Competing Arguments

The appellant argued that since the CESTAT order only dealt with limitation, the appeal was maintainable before the High Court. The respondent contended that the appeal was not maintainable as the original order involved taxability issues, and hence appeal lies before the Supreme Court under Section 35L.

The Court sided with the respondent, relying on the principle that the appellate jurisdiction depends on the nature of the impugned order. The Court held that the limitation issue is ancillary and does not alter the fact that the original order involved questions of taxability and exemption.

The Court also dismissed the appellant's contention that the appeal should be entertained because the CESTAT did not decide the merits, emphasizing that the appellate forum is determined by the nature of the order, not the issues addressed by the Tribunal.

5. Conclusions

The Court concluded that the appeal under Section 35G before the High Court was not maintainable since the impugned order involved determination of taxability and exemption issues, which fall within the exclusive appellate jurisdiction of the Supreme Court under Section 35L. The Court dismissed the appeal as not maintainable and allowed the application to recall the earlier order admitting the appeal.

The Court further clarified that dismissal of the appeal would not preclude the appellant from pursuing remedies available under law, including seeking benefit under Section 14 of the Limitation Act, 1963, for the period during which the appeal was pending before the High Court.

Significant Holdings

"It is not the content of the appeal that is determinative of whether the appeal would be maintainable before the High Court or not but rather the nature of the order which is impugned in the appeal which determines the issue."

"In view of Sections 35G and 35L of the Central Excise Act, 1944 which applies in respect of Service Tax, whenever issues of determining taxability are involved, the appeal would lie to the Supreme Court."

"The mere fact that the appellant is only aggrieved by the decision on the point of limitation would not make an appeal from the impugned order maintainable before this Court because it is not the issues raised in the appeal which are material but the nature of the order which is appealed against is relevant for the purpose of determining whether an appeal would lie in this Court or not."

"The dismissal of the present appeal would not preclude the Appellant from availing such remedies as may be available in accordance with law and seeking benefit under Section 14 of the Limitation Act, 1963, for the period during which the present appeal was pending before this Court."

The Court's final determination was that the appeal filed under Section 35G of the Central Excise Act, 1944 before the High Court was not maintainable against the CESTAT order which set aside the original order on limitation grounds, as the original order involved taxability issues. The appropriate remedy lies under Section 35L before the Supreme Court. The appeal was dismissed accordingly.

1. Whether the amounts received from the sale of coal rejects by the appellant should be included in the taxable value for levy of service tax on beneficiation of coal services.

2. Whether service tax is payable on the sale of coal rejects, which are goods, distinct from the service of beneficiation of coal.

3. Whether the appellant's adjustment of the sale value of coal rejects against the beneficiation service charges, and payment of service tax on the net amount, satisfies the statutory requirements under the Finance Act, 1994.

4. Whether the demand for service tax on the sale price of coal rejects for the period 2015-16, as raised in the impugned order, is sustainable in law.

Issue-wise Detailed Analysis

1. Inclusion of Sale Value of Coal Rejects in Taxable Value of Beneficiation Services

The legal framework governing this issue is the Finance Act, 1994, which imposes service tax on the consideration received for taxable services. The appellant provides beneficiation services for coal, which includes washing coal to improve its quality for power generation. The agreements with power generating companies specify parameters for the beneficiation process and include charges for coal reject disposal.

Precedents relied upon include the Tribunal's own earlier decision dated 07.11.2024 in the appellant's prior appeals on the same issue, where it was held that the sale value of coal rejects was already included in the beneficiation service charges and service tax had been discharged accordingly.

The Court observed that the appellant did not raise separate invoices for sale of coal rejects but adjusted the sale value against the beneficiation charges. The agreements explicitly cast the responsibility of environmentally friendly disposal of coal rejects on the appellant, and the coal rejects' sale value was factored into the overall consideration for beneficiation services.

The Tribunal reasoned that since service tax is levied on the consideration for services rendered, and the appellant had paid service tax on the entire beneficiation charges inclusive of coal reject disposal, it is not permissible to demand additional service tax on the sale value of coal rejects separately.

The competing argument from the department was that the sale of coal rejects constituted a separate transaction and should be subject to service tax independently. However, the department conceded that the issue was no longer res integra and had been decided in the appellant's favor previously.

The Tribunal applied the law to the facts, noting that the coal rejects' value was embedded within the beneficiation service charges and service tax was duly paid on that aggregate amount. Therefore, the demand for additional service tax on the sale value of coal rejects was unsustainable.

2. Levy of Service Tax on Sale of Coal Rejects as Goods

The Tribunal examined whether the sale of coal rejects, being a sale of goods, attracts service tax under the Finance Act, 1994. Service tax is leviable only on services and not on sale of goods.

The Tribunal referred to its prior order dated 07.11.2024, particularly paragraph 17, which clarified that service tax cannot be imposed on the sale price of coal rejects:

"What is evident from the above is that the department demanded service tax on the price at which the appellant had sold the coal rejects. This is not sustainable because service tax is not a tax on the sale of goods. If the appellant had received some coal rejects, for instance, and an amount of Rs. 100 is deducted from the service charges by the client towards these coal rejects, service tax has to be paid without this deduction of Rs. 100/- from service charges. The appellant did so. Now, if the appellant subsequently sells this coal rejects either as such or after mixing it with some other coal and sells them for Rs. 150, this amount is the value of coal the rejects sold by the appellant on which the appellant may be required to pay VAT/ sales tax. According to the appellant it had paid appropriate VAT to the State Government. The demand of service tax on the sale price of rejects is beyond the scope of the Finance Act, 1994 because service tax can be levied only on the consideration received for the services and not on goods sold by the appellant. Service Tax has already been discharged on the entire value of consideration this as is evident from the invoices."

The Tribunal thus distinguished between service tax and VAT/sales tax, holding that the appellant's sale of coal rejects is subject to VAT and not service tax.

The department's demand for service tax on the sale price of coal rejects was therefore held to be without legal basis.

3. Adjustment of Sale Value of Coal Rejects Against Beneficiation Charges and Payment of Service Tax

The appellant's practice was to adjust the sale value of coal rejects against the beneficiation service charges rather than raising separate invoices for the sale of rejects. The Tribunal examined whether this practice complies with the Finance Act, 1994.

The agreements with the power generating companies, particularly clause 3.3, imposed on the appellant the responsibility of disposing coal rejects in an environmentally friendly manner. The Tribunal noted that the appellant's adjustment of sale value within the beneficiation charges is consistent with the contractual terms and the nature of services provided.

The appellant had discharged service tax on the entire amount of beneficiation charges, inclusive of the coal reject disposal component. The Tribunal found no merit in the department's contention that the sale value should be separately invoiced and taxed.

The Tribunal held that since service tax was paid on the gross amount inclusive of coal rejects' value, the demand for additional service tax was misconceived.

4. Sustainability of Demand for Service Tax on Sale of Coal Rejects for 2015-16

The impugned order confirmed a demand of Rs. 8,12,86,451/- for the period 2015-16 under Section 73(1A) of the Finance Act, 1994, alleging non-payment of service tax on sale of coal rejects.

The Tribunal observed that the issue was already adjudicated in the appellant's favor for earlier periods and that the department had not appealed against the prior favorable order.

The Tribunal further noted the admitted fact that service tax had been paid on the entire beneficiation charges without deducting the coal reject value, which is subject to VAT.

Accordingly, the Tribunal concluded that the demand confirmed by the impugned order was totally misconceived and liable to be set aside.

Significant Holdings

The Tribunal crystallized the following core principles and final determinations:

"The value of coal rejects has already been included in the taxable value. Admittedly, the service tax has been paid by the appellant on the taxable value of beneficiation on the said taxable value. The question of demanding service tax again from the appellant does not at all arise."

"Service tax is not a tax on the sale of goods. The demand of service tax on the sale price of rejects is beyond the scope of the Finance Act, 1994 because service tax can be levied only on the consideration received for the services and not on goods sold by the appellant."

"The demand confirmed by the impugned order is held to have been totally misconceived. The impugned order is accordingly hereby set aside."

The Tribunal reaffirmed that service tax liability arises only on the consideration for services rendered and not on the sale of goods such as coal rejects, which are subject to VAT.

The appeal was allowed with consequential relief, setting aside the demand for service tax on sale of coal rejects for the period 2015-16.

Issues: Whether the processes of chilling, separation, pasteurisation, standardisation and packing of milk into pouches amounted to manufacture and were therefore excluded from the taxable category of Business Auxiliary Service.

Analysis: The relevant tariff note treats any treatment, including repacking from bulk packs to retail packs, that renders the product marketable to the consumer as manufacture. The activity undertaken on raw milk was held to fall within this wider concept of manufacture, and the definition of Business Auxiliary Service expressly excludes any activity that amounts to manufacture of excisable goods. For the post-negative-list period, services by way of carrying out any process amounting to manufacture are also excluded from the net of service tax under the negative list. Since the process undertaken on milk was found to be manufacture, it could not be taxed as Business Auxiliary Service.

Conclusion: The activity was not leviable to service tax as Business Auxiliary Service and the issue was decided in favour of the assessee.

Ratio Decidendi: Where a process on goods falls within the statutory concept of manufacture under the tariff notes and is expressly excluded from the definition of Business Auxiliary Service, it cannot be subjected to service tax under that head.

Issues: (i) Whether the Department could include notional value of facilities provided by the service recipient and reimbursements received by the Appellant in the taxable value of security agency services and sustain the service tax demand; (ii) Whether the extended period of limitation (proviso to Section 73(1)) is invocable based on alleged suppression enabling demand for the earlier period.

Issue (i): Whether inclusion of cost of rent-free accommodation, rent-free office premises, electricity/water, vehicles, fuel, medical treatment, stationery and reimbursements in the gross value for levy of service tax is justified.

Analysis: The question focusses on valuation under Section 67 read with the Valuation Rules. The appeal record shows the Appellant discharged service tax on monetary consideration received for deployment of security personnel, while certain facilities and reimbursements were provided by the service recipient and not quantified as payments to the Appellant. Coordinate tribunal and court decisions were considered which hold that only the consideration received by the service provider forms part of the taxable value and that reimbursements or non-monetary facilities, which are not paid or received as consideration by the service provider, are not includible. The analysis distinguishes cases where monetary payment or HRA was actually paid (which would attract valuation rules) from cases where only facilities are provided without any payment to the provider. The pure agent and reimbursement principles and the Supreme Court authority on valuation were applied to the facts to determine whether the alleged additional items amounted to consideration.

Conclusion: Inclusion of the notional value of the facilities and reimbursements in the taxable value is not justified; those amounts are not part of the assessable value. The demand insofar as it relates to such facilities and reimbursements is set aside in favour of the Appellant.

Issue (ii): Whether extended period of limitation could be invoked on the ground of suppression of facts by the Appellant.

Analysis: The determination turns on whether there was any positive act of suppression or misrepresentation by the Appellant with mens rea to evade tax. The record and cited precedents show absence of evidence of positive concealment; the issue involved interpretation of law and relied on established judicial decisions favourable to the Appellant. The Appellant is a Central Paramilitary Force and there was no material showing pecuniary gain or deliberate concealment; coordinate decisions have held that extended period cannot be invoked in similar circumstances.

Conclusion: The extended period of limitation is not invocable; the demand is barred by limitation and the invocation of proviso to Section 73(1) is rejected in favour of the Appellant.

Final Conclusion: The service tax demand confirmed by the adjudicating and appellate authorities is set aside both on merits (valuation) and on limitation; the appeal is allowed and consequential relief, if any, to the Appellant is to follow as per law.

Ratio Decidendi: For valuation under Section 67, only the consideration actually received by the service provider for the taxable service is to be included in the assessable value; non-monetary facilities provided by the service recipient and reimbursements that do not constitute consideration to the provider are not includible, and absence of positive suppression precludes invocation of the extended limitation period.

The core legal questions considered by the Tribunal in these consolidated appeals are:

• Whether the Assessee complied with the statutory requirement under Rule 10 of the Central Excise Rules, 2002, by maintaining month-wise daily stock accounts reflecting absorption capacity, wastages, and losses for Granulated Activated Carbon (GAC) production;
• Whether the absence of absorption capacity details in invoices raised for Domestic Tariff Area (DTA) clearances and exports justified invocation of Section 11A(1) of the Central Excise Act, 1944, demanding duty along with interest and penalty under Rule 25 of the Central Excise Rules, 2002;
• Whether the Revenue's allegation of clandestine removal of excisable goods without payment of duty was substantiated by evidence and proper verification of production and stock records;
• Whether the Adjudicating Authority and Commissioner complied with the directions of the Hon'ble High Court to verify records and levy duty based on actual production/removal of GAC;
• Whether the verification report submitted by the Assistant Commissioner, Tuticorin, was adequate and reliable to conclude no clandestine removal occurred;
• Whether the Adjudicating Authority's decision to drop proceedings against the Assessee was legally sustainable;
• Whether the Revenue's appeal challenging the dropping of proceedings and the Assessee's appeals against confirmed demands were maintainable and justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with Rule 10 of the Central Excise Rules, 2002 and maintenance of stock accounts based on absorption capacity

The Central Excise Rules, 2002, specifically Rule 10, mandates maintenance of detailed stock accounts to monitor input-output ratios, wastages, and losses in the production of excisable goods. The Revenue contended that the Assessee failed to maintain month-wise daily stock accounts reflecting absorption capacity, which is critical for GAC quality assessment.

The Tribunal noted that the Assessee procured granulated carbonized coconut shell charcoal both indigenously and duty-free imported and subjected it to heating to produce GAC, which was sold. The Assessee's records were challenged for lack of absorption capacity details in invoices and stock registers.

However, the Adjudicating Authority and Commissioner, upon detailed verification including field studies and reports from the Deputy Commissioner and Coconut Development Board, found that the Assessee maintained records consistent with actual production and removal. The Assistant Commissioner's verification report affirmed that closing stock balances matched daily stock accounts as on 01.07.2017, with no evidence of clandestine removal.

The Tribunal observed that the Assessee's output ratio of 38.36% exceeded the Coconut Development Board's benchmark of 33.33%, and was also higher than the Deputy Commissioner's field study range of 26.43% to 29.19%. This indicated that the Assessee's records were not only maintained but also reflected a higher yield than official benchmarks, undermining the Revenue's contention of evasion.

Thus, the Tribunal concluded that the Assessee complied with the record-keeping requirements under Rule 10, and the absence of absorption capacity details in invoices did not, per se, justify duty demands without corroborative evidence of evasion.

Issue 2: Invocation of Section 11A(1) of the Central Excise Act, 1944 and imposition of interest and penalty under Rule 25 of CER, 2002

The Revenue invoked Section 11A(1) for demanding duty on alleged clandestine removal and levied interest and penalty under Rule 25. The basis was the absence of proper stock records and invoices lacking absorption capacity details.

The Tribunal examined the procedural history, including the Adjudicating Authority's initial confirmation of duty, subsequent reduction based on verification, and remand by the Tribunal for fresh adjudication. The Hon'ble High Court's direction to verify records and levy duty based on actual production/removal was pivotal.

Post remand, the Commissioner accepted the verification report negating clandestine removal and dropped proceedings. The Tribunal found that the Revenue failed to produce any material evidence contradicting the verification report or indicating revenue leakage.

The Tribunal held that mere non-maintenance of certain invoice details or procedural lapses without evidence of clandestine removal does not justify invoking Section 11A(1) or imposing penalties. The burden to prove evasion lies on the Revenue, which was not discharged.

Issue 3: Allegation of clandestine removal and sufficiency of verification by the Department

The Revenue alleged that the Assessee clandestinely removed GAC without paying duty, based on suspicion arising from stock discrepancies and invoice deficiencies.

The Hon'ble High Court had directed verification based on actual production/removal records. The Commissioner obtained a detailed verification report from the Assistant Commissioner, who had jurisdiction over the Assessee's unit. The report confirmed that the closing stock matched daily stock accounts and found no possibility of clandestine removal.

The Revenue criticized that the Commissioner delegated verification to the Range Officer and did not personally verify records. However, the Tribunal found no legal infirmity in delegation, especially as the verification officer was competent and the Revenue did not point to any discrepancies or omissions in the report.

The Tribunal emphasized that the Revenue's failure to identify any material irregularity in the records or the verification process weakened the allegation of clandestine removal. Furthermore, the Assessee's declared output ratio exceeding official benchmarks supported the conclusion of no evasion.

Issue 4: Compliance with Hon'ble High Court's directions and scope of adjudication

The Hon'ble High Court's order emphasized that duty should be levied based on actual production/removal verified from records. The Revenue argued that the Commissioner did not personally verify records and that the verification report lacked examination of production details.

The Tribunal observed that the Commissioner's reliance on the Assistant Commissioner's report was consistent with administrative practice and did not contravene the High Court's directions. The report explicitly confirmed matching closing stock and absence of clandestine removal.

The Tribunal further noted the Revenue's silence on any specific discrepancies or irregularities in the verification report, which indicated acceptance of the report's findings. The Adjudicating Authority's academic exercise comparing output ratios further reinforced the conclusion that the Revenue's suspicion was unfounded.

Issue 5: Legality and propriety of dropping proceedings against the Assessee

Following the verification and analysis, the Commissioner dropped the proceedings initiated against the Assessee for the relevant periods, concluding that the allegations of clandestine removal were without evidence.

The Revenue challenged this order, contending that the Assessee failed to maintain proper records and did not prove correctness of production details.

The Tribunal held that the burden of proof lies on the Revenue to establish evasion or non-compliance warranting duty demand and penalty. Since the Revenue failed to produce any evidence contradicting the verification report or demonstrating revenue leakage, the Commissioner's order dropping proceedings was justified.

The Tribunal also noted that the Revenue's reliance on extraneous reasons such as output ratio exceeding benchmarks was misplaced, as this did not constitute evidence of evasion or non-payment of duty.

Issue 6: Validity of confirmed demands in earlier orders and scope for reassessment

The Assessee challenged earlier Orders-in-Original confirming duty demands based on alleged clandestine removal and non-maintenance of records. The Tribunal, considering the entire factual matrix and the absence of evidence of clandestine removal, set aside these earlier orders with consequential benefits.

The Tribunal emphasized that since both parties accepted the Tribunal's earlier order without filing appeals, the Department's scope was limited to revisiting the case based on Coconut Development Board's report and actual production/removal records. The assumption of clandestine removal was thus unwarranted.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning includes the following verbatim and core principles:

"...the Hon'ble High Court in the W.P.(MD) No.3378 of 2020... has clearly directed the Commissioner to verify the records and levy duty based on actual production / removal of the goods in question i.e. GAC. We do not find any deviation to the above order when the Adjudicating Authority has called for the verification report... Moreover, Revenue... has not pointed out any discrepancy in the verification report... from the independent analysis of the assessee's records, the Commissioner has observed the GAC accounted by the Assessee at 38.36% which is much more than the estimated benchmark of the Coconut Development Board... and on this analysis, surprisingly, the Revenue is silent."

"...it is not the case of the Revenue that on the declared output ratio, the Assessee has not paid the Central Excise duty... Having alleged about impropriety, the Revenue has not bothered to place on record if anything amiss noticed from the Assessee's records which was not considered by the Adjudicating Authority."

"...the burden was always on the Assessee to prove that they have assessed the goods correctly before removal and paid duty according to law... Without evidence of clandestine removal or revenue leakage, the invocation of Section 11A(1) and penalty provisions cannot be sustained."

The Tribunal's final determinations on each issue are:

• The Assessee complied with statutory record-keeping requirements and maintained stock accounts consistent with actual production and removal of GAC;
• There was no evidence of clandestine removal or evasion of duty warranting demands under Section 11A(1) or penalties under Rule 25;
• The verification report by the Assistant Commissioner was adequate and reliable, and delegation of verification did not violate the Hon'ble High Court's directions;
• The Adjudicating Authority's order dropping proceedings was legally sustainable and justified;
• The Revenue's appeal challenging the dropping of proceedings lacked merit and was dismissed;
• The Assessee's appeals against earlier confirmed demands were allowed by setting aside the impugned Orders-in-Original with consequential benefits.

1. Whether criminal proceedings under Sections 138 and 141 of the Negotiable Instruments Act (NIA) can be initiated or continued against directors of a corporate debtor after the declaration of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), and during the Corporate Insolvency Resolution Process (CIRP) or liquidation proceedings.

2. Whether the applicants, who were directors of the accused company, can be held liable under Section 141 of the NIA for dishonour of cheques allegedly issued by the company after the moratorium and liquidation orders, given that they had ceased to be in charge of and responsible for the conduct of the company's business.

3. The validity and effect of cheques allegedly issued during the period when the company was under moratorium and liquidation, and whether such cheques can constitute an offence under Section 138 of the NIA.

4. The interpretation and application of relevant provisions of the IBC, including Sections 14 (moratorium), 17 (management during CIRP), 32A (liability for prior offences), and 33 (initiation of liquidation), in relation to criminal liability under the NIA.

5. The scope of liability under Section 141 of the NIA, specifically the requirement that the accused persons must have been in charge of and responsible for the conduct of the company's business at the time the offence was committed.

Issue-wise Detailed Analysis

Issue 1: Maintainability of Criminal Proceedings under Sections 138 and 141 of the NIA after Moratorium under IBC

Legal Framework and Precedents: Section 14(1) of the IBC imposes a moratorium prohibiting the institution or continuation of suits or proceedings against the corporate debtor from the insolvency commencement date. The Hon'ble Supreme Court in the case of P. Mohanraj vs. M/s. Shah Ispat Private Limited clarified that the moratorium under Section 14(1)(a) is wide and includes all suits and proceedings, including criminal proceedings under Section 138 of the NIA, against the corporate debtor. However, the moratorium applies only to the corporate debtor and not to natural persons such as directors who may be liable under Section 141 of the NIA.

Court's Interpretation and Reasoning: The Court noted that the moratorium declared by the NCLT Mumbai on 22.4.2019 prohibited initiation or continuation of any suits or proceedings against the accused company. The cheques in question were allegedly issued in 2022, well after the moratorium and liquidation orders. The Court relied on the Supreme Court's interpretation that criminal proceedings under Section 138 of the NIA are proceedings before a court of law and thus fall within the moratorium's ambit when directed against the corporate debtor.

Application of Law to Facts: Since the moratorium was declared prior to the alleged issuance and presentation of the cheques, the criminal complaints against the company itself were barred. The Court further observed that the Resolution Professional had taken over management and had informed the non-applicant company not to deposit the cheques, indicating that the company was not in control of the directors at the relevant time.

Conclusion: Criminal proceedings under Section 138 of the NIA against the corporate debtor during moratorium and liquidation are barred. However, liability of natural persons under Section 141 is a separate question addressed below.

Issue 2: Liability of Applicants under Section 141 of the NIA as Directors of the Corporate Debtor

Legal Framework and Precedents: Section 141(1) of the NIA imposes liability on persons who, at the time the offence was committed, were in charge of and responsible for the conduct of the company's business. The liability is constructive and arises only if the person was in charge and responsible at the relevant time. Mere designation as director is insufficient if the person had ceased to be in charge or had resigned. The Court referred to various precedents emphasizing that liability depends on actual control and responsibility, not mere titular status.

Court's Interpretation and Reasoning: The Court examined the resignation letters and DIR-11 forms filed for applicant Nos. 2 and 4, confirming their resignation well before the issuance of the cheques in 2022. For applicant Nos. 1 and 3, the Court noted that upon initiation of CIRP and subsequent liquidation, the management and powers of the Board of Directors ceased and vested with the Resolution Professional and liquidator. Thus, these applicants ceased to be in charge or responsible for the company's affairs at the relevant time.

Key Evidence and Findings: The NCLT Mumbai orders dated 22.4.2019 (moratorium) and 9.6.2022 (liquidation) were pivotal. The orders explicitly stated that all powers of the Board of Directors and key managerial personnel ceased and vested with the Resolution Professional/liquidator. The Resolution Professional's communication to the non-applicant company not to deposit cheques further corroborated the applicants' lack of authority.

Treatment of Competing Arguments: The non-applicant company argued that the applicants were liable as directors responsible for the company's affairs, relying on Section 141 and relevant case law. However, the Court distinguished these cases on facts, noting that in those cases moratorium was declared after the cause of action arose, unlike the present case where moratorium preceded the alleged offences.

Conclusion: The applicants were not in charge of and responsible for the company's business at the time the alleged offences occurred and therefore cannot be held liable under Section 141 of the NIA.

Issue 3: Validity of Cheques Allegedly Issued During Moratorium and Liquidation Period

Legal Framework: Section 138 of the NIA requires that a cheque be drawn and presented for discharge of a debt or liability. The validity of cheques depends on the authority of the drawer to issue and sign them.

Court's Interpretation and Reasoning: The Court found that the cheques were issued as security in 2018, prior to the moratorium. However, the presentation and dishonour occurred post moratorium and liquidation. Since the applicants had no authority to issue or sign cheques after moratorium and liquidation, the cheques presented were invalid. Furthermore, the Resolution Professional had explicitly instructed the non-applicant company not to deposit these cheques.

Application of Law to Facts: The Court concluded that the cheques could not constitute valid instruments for discharge of liability after the moratorium and liquidation orders. Hence, the offence under Section 138 could not be made out against the applicants.

Conclusion: The cheques were not validly issued or authorized at the relevant time, negating the foundation for criminal liability under Section 138.

Issue 4: Application of Relevant IBC Provisions and Their Effect on Criminal Liability

Legal Framework: Sections 14, 17, 32A, and 33 of the IBC govern moratorium, management during CIRP, liability for prior offences, and liquidation respectively. Section 14 imposes a moratorium on suits and proceedings against the corporate debtor. Section 17 vests management powers in the interim resolution professional. Section 32A limits prosecution of the corporate debtor for prior offences upon approval of a resolution plan. Section 33 governs initiation of liquidation and cessation of powers of directors.

Court's Interpretation and Reasoning: The Court held that from the date of moratorium, the applicants ceased to have authority over the company. The management was vested in the Resolution Professional, who later became the liquidator. The liquidation order further extinguished powers of directors. Thus, the applicants had no capacity to issue cheques or discharge liabilities on behalf of the company. Section 32A was noted but not directly applicable as the resolution plan was not approved and liquidation ensued.

Application of Law to Facts: The moratorium and liquidation orders effectively insulated the company from proceedings and transferred all managerial powers to the Resolution Professional/liquidator. The applicants' liability was negated by these provisions.

Conclusion: The IBC provisions preclude criminal proceedings against the company and its erstwhile directors for acts post moratorium and liquidation, unless the directors were in charge and responsible at the relevant time, which was not the case here.

Issue 5: Requirement of Specific Allegations under Section 141 of the NIA

Legal Framework: Liability under Section 141 requires clear and unambiguous allegations that the accused persons were in charge of and responsible for the conduct of company's business at the time of offence.

Court's Reasoning: The Court emphasized that mere designation as director does not suffice. The complaint must specify the role played by the directors in the transaction leading to dishonour of cheques.

Application of Law to Facts: The applicants produced resignation letters and evidence of cessation of directorial powers. The complaint lacked specific allegations that the applicants were in charge at the relevant time.

Conclusion: The complaint failed to establish the necessary ingredient of liability under Section 141 against the applicants.

Significant Holdings

"The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company."

"The moratorium declared by the NCLT under Section 14(1) of the IBC prohibits institution or continuation of suits or proceedings against the corporate debtor, including criminal proceedings under Section 138 of the NIA."

"Once the moratorium was imposed and liquidation proceeding has been completed, the powers of the Directors in view of the order of the NCLT Mumbai are assigned to the Resolution Professional appointed subsequently as liquidator and applicant Nos. 1 and 3 ceased to be Directors and powers vested with the Board of Directors were to be exercised by the liquidator/Resolution Professional."

"The cheques in question which are subject matter of the complaints were not valid cheques as the applicants were not in charge or responsible for the company at the time of their alleged issuance."

"Criminal proceedings under Section 138 and 141 of the NIA against the corporate debtor during moratorium and liquidation are barred, and liability of natural persons under Section 141 can only be fastened if they were in charge and responsible at the relevant time."

Final determinations:

- The criminal complaints filed under Sections 138 and 141 of the NIA against the applicants are quashed and set aside.

- The applicants were not in charge of and responsible for the conduct of the company's business at the time of the alleged offences.

- The moratorium and liquidation orders under the IBC preclude continuation or initiation of proceedings against the corporate debtor and vest management powers in the Resolution Professional/liquidator.

- The cheques allegedly issued post moratorium are invalid and do not constitute an offence under Section 138 of the NIA.

Issues: Whether the appellate arbitral award was liable to be set aside under Section 34 on the ground that it was rendered beyond the prescribed time limits under the NSE Bye-Laws and the SEBI circular, and whether the delay rendered the award void and contrary to public policy.

Analysis: The challenge was confined to the validity of the appellate award, the original award not being examined on merits. The applicable framework required the appellate tribunal to dispose of the appeal within three months from appointment, with a limited extension of two months. The award was made after the extended period had expired. The Court held that the use of mandatory language in the bye-law and circular, read with the object of expeditious arbitration, showed that the timeline could not be ignored. It further held that participation in the proceedings and filing of written submissions did not amount to waiver of the objection to the tribunal's mandate. Delay of this nature was held to defeat the public policy of speedy dispute resolution and to furnish a ground for interference under Section 34.

Conclusion: The appellate award was set aside as having been passed beyond the permissible time limit and as being contrary to public policy.

Ratio Decidendi: Where an institutional arbitration framework prescribes a mandatory time limit for disposal of an appeal and permits only a limited extension, an award made beyond that period is vulnerable to challenge under Section 34 as contrary to public policy, and participation in the proceedings does not by itself amount to waiver of the objection.

Issues: Whether the complainant proved the existence of a legally enforceable debt or liability so as to sustain conviction under Section 138 of the Negotiable Instruments Act, 1881, and whether the respondent rebutted the statutory presumptions by a probable defence.

Analysis: The respondent admitted signatures on the cheque and therefore the presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act, 1881 arose. Those presumptions, however, are rebuttable and can be displaced on a preponderance of probabilities by showing that the alleged liability is improbable or does not exist. On the evidence, the complainant failed to establish that Rs. 7,50,000/- had been advanced for investment in shares or debentures, as no supporting investment material, account trail, or other corroboration was produced. The bank entries and surrounding circumstances supported the respondent's version that only a smaller loan had been taken and repaid, while the complainant's case of a larger enforceable liability remained unproved. A civil decree obtained after non-compliance with a condition for leave to defend was held not to be conclusive proof of the alleged liability in the criminal complaint.

Conclusion: The respondent successfully rebutted the presumptions to the extent necessary, and the complainant failed to prove a legally enforceable debt of Rs. 7,50,000/-; the acquittal was upheld.

Issues: Whether the cheque was issued in discharge of a legally enforceable debt or liability so as to attract Section 138 of the Negotiable Instruments Act, 1881, and whether the statutory presumptions under Sections 118 and 139 stood rebutted.

Analysis: The cheque was admitted to bear the signatures of the respondents, so the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 arose. However, those presumptions were rebuttable on a preponderance of probability. The complainant failed to prove the foundational transaction of the alleged agreement to sell, did not establish the alleged cash component of the payment, and could not satisfactorily support the claim that liability of Rs. 1.5 crore subsisted. On the evidence, only a liability of Rs. 75 lakh stood reflected or admitted, while the cheque in question was for Rs. 1.5 crore. A cheque issued for an amount substantially in excess of the proved liability could not be treated as having been drawn in discharge of the existing debt or liability required by Section 138.

Conclusion: The presumptions were rebutted and the complaint under Section 138 of the Negotiable Instruments Act, 1881 was rightly dismissed; the appeal failed.

Issues: (i) Whether a director can be proceeded against under Section 141(1) of the Negotiable Instruments Act, 1881 in the absence of specific averments showing that he was in charge of and responsible for the conduct of the company's business at the time of the offence; (ii) Whether documentary material showing resignation of the director from the company, being a public document and undisputed on record, can be considered at the stage of discharge/quashing to determine liability under Section 138 of the Negotiable Instruments Act, 1881.

Issue (i): Whether a director can be proceeded against under Section 141(1) of the Negotiable Instruments Act, 1881 in the absence of specific averments showing that he was in charge of and responsible for the conduct of the company's business at the time of the offence.

Analysis: Vicarious criminal liability under Section 141(1) is exceptional and can arise only if the complaint contains clear allegations that, at the time the offence was committed, the director was in charge of and responsible for the conduct of the company's business. Mere reference to the accused as a director or a general assertion that the company acted through its directors is insufficient. The complaint and legal notice contained only omnibus allegations and did not attribute any specific role to the petitioner. The cheques were also signed by another director, not by the petitioner.

Conclusion: The complaint did not disclose the necessary foundational averments to fasten vicarious liability on the petitioner, and the issue is decided in favour of the petitioner.

Issue (ii): Whether documentary material showing resignation of the director from the company, being a public document and undisputed on record, can be considered at the stage of discharge/quashing to determine liability under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: Although defence material is ordinarily not appreciated at the threshold, an exception exists for public documents or documents whose authenticity is not in dispute. A resignation record duly notified to the Registrar of Companies is of such character and can be looked into at the prima facie stage. On the facts, the petitioner's resignation had been accepted before the cheques were issued, so he had ceased to be in control of the company when the alleged offence occurred.

Conclusion: The resignation documents were rightly considered, and they negatived the petitioner's liability. This issue is decided in favour of the petitioner.

Final Conclusion: The criminal proceedings could not be maintained against the petitioner, as no prima facie basis existed to invoke vicarious liability after his resignation from the company.

Ratio Decidendi: For prosecution of a director under Section 141(1) of the Negotiable Instruments Act, 1881, the complaint must contain specific averments showing that the director was in charge of and responsible for the company's business at the relevant time, and undisputed public documents demonstrating prior resignation may be considered at the threshold to prevent abuse of process.