TaxTMI Updates e-Newsletter
Jul 09,2021

Constitutional validity of taxation laws - challenge to Rule 86A CGST Rules/WBGST - reading down Section 16(2)(c) of the CGST Act/WBGST Act - interim relief at motion stage - quashing of proceedings at motion stage - presumption of constitutionality of legislation - service of notice on the Attorney General and Advocate General - affidavit-in-opposition and pleadings procedure

Interim relief at motion stage - quashing of proceedings at motion stage - presumption of constitutionality of legislation - Petitioners' prayer for interim relief and for quashing the proceedings at the motion stage was refused. - HELD THAT: - The court held that the interim relief sought was effectively the same as the final relief and therefore could not be granted at the motion stage. Quashing of the impugned proceedings likewise could not be achieved without adjudication on the merits. The court emphasised the settled legal principle that every statute is presumed valid until declared otherwise by a competent court, and this presumption weighs against granting premature relief in the form of quashing or equivalent interim orders.

No interim order; prayer for quashing the proceedings at the motion stage rejected and not entertained.

Constitutional validity of taxation laws - challenge to Rule 86A CGST Rules/WBGST - reading down Section 16(2)(c) of the CGST Act/WBGST Act - service of notice on the Attorney General and Advocate General - affidavit-in-opposition and pleadings procedure - Procedural directions for adjudication of the constitutional challenge and related factual issues were issued; substantive claims reserved for final hearing. - HELD THAT: - Because the petition includes a challenge to the constitutional validity of central and state GST provisions, the court directed that notice be served on the Attorney General of India and the Advocate General of the State of West Bengal. The respondents were directed to file affidavit-in-opposition within four weeks, with liberty for the petitioners to file replies within two weeks thereafter. The court observed that these procedural steps are necessary before adjudicating the constitutional and substantive questions on merits and listed the matter for final hearing after eight weeks.

Proceedings to continue; respondents to file affidavits; service on Attorney General and Advocate General directed; matter listed for final hearing after procedural compliance.

Final Conclusion: The court declined to grant interim or quashing relief at the motion stage, reiterated the presumption of validity of legislation, directed service on the Attorney General and Advocate General owing to the constitutional challenge, ordered affidavits in opposition and replies within specified timeframes, and listed the matter for final hearing.

Summary order. Notice issued to respondent-authority returnable on 30.6.2021; direct service permitted.

Wilful attempt to evade payment of tax - presumption of culpable mental state under Section 278E - application of Section 276C(2) of the Income Tax Act - quashing of prosecution under Section 482 Cr.P.C. - effect of subsequent payment and explanation for delay

Wilful attempt to evade payment of tax - application of Section 276C(2) of the Income Tax Act - presumption of culpable mental state under Section 278E - effect of subsequent payment and explanation for delay - quashing of prosecution under Section 482 Cr.P.C. - Legality and maintainability of prosecution under Section 276C(2) read with Section 278E for Assessment Year 2017-18 in view of payments made, explanations offered and absence of wilful evasion. - HELD THAT: - The Court examined whether the facts disclosed a 'wilful attempt to evade payment of tax' so as to sustain prosecution under Section 276C(2). The company had, by its own account and documentary material, paid a substantial part (about 80%) of the self-assessed tax before the complaint and explained the balance as recoverable from the GST Department by way of refund; the Income Tax Department had issued a notice to the GST Department for remittance. The company further pleaded market and industry hardships and expressed readiness to pay the balance. The Court observed the legal distinction between offences under Section 276C(1) and (2) and emphasised that both require a 'wilful' attempt, which imports mens rea. While Section 278E creates a presumption of culpable mental state, the Court held that where the assessee has made substantial payment, furnished an explanation for delay supported by documents and shown willingness to pay outstanding dues, such facts may negative the existence of a wilful attempt to evade payment. Applying these principles to the material on record, the Court found that delayed payment might attract interest or penalty but, on the pleaded facts and documents showing payment and steps taken to secure remaining amount, could not, by any stretch, be equated to a wilful evasion warranting criminal prosecution. The prosecution was therefore held to be an abuse of process of law and liable to be quashed. [Paras 22, 23, 24, 25]

Prosecution under Section 276C(2) read with Section 278E in respect of Assessment Year 2017-18 is illegal and an abuse of process and is quashed.

Final Conclusion: The petition is allowed; the complaint and summons in Criminal Case No. 23693 of 2019 (arising from the Assistant Commissioner of Income Tax, Surat) in respect of Assessment Year 2017-18 are quashed and set aside as the material did not establish a wilful attempt to evade payment of tax and the prosecution amounted to abuse of process.

Allowability of depreciation as application of income under Section 11 - treatment of cost of asset as application of income vis-a -vis depreciation - doctrine against double deduction - precedential effect of higher court judgments on interpretation of Section 11

Allowability of depreciation as application of income under Section 11 - Depreciation claimed by a registered public charitable trust is allowable in computing income available for application under Section 11 for AY 2010-11. - HELD THAT: - The Revenue conceded that the substantial questions raised were answered against it by binding precedent of the higher courts as applied by a Division Bench of this Court. The Tribunal and the Commissioner (Appeals) had allowed the claim of depreciation, holding that depreciation is deductible in arriving at income available for application under Section 11. Having regard to the settled judicial interpretation relied upon by the parties and the Division Bench decision referred to by the Revenue, the Court answered the question against the Revenue and affirmed the Tribunal's conclusion that depreciation is allowable. [Paras 5]

Claim for depreciation is allowable as application of income under Section 11 for Assessment Year 2010-11.

Treatment of cost of asset as application of income vis-a -vis depreciation - doctrine against double deduction - Allowing depreciation does not amount to impermissible double deduction even though the cost of the asset was treated as application of income under Section 11. - HELD THAT: - The Assessing Officer's view that permitting depreciation after the cost of the asset has been treated as application of income would result in double deduction was considered in the appellate fora. The Commissioner (Appeals) and the Tribunal rejected that contention. The Revenue accepted that the controlling decisions of higher courts and the Division Bench resolve the controversy against the Revenue. In light of that binding precedent and the appellate conclusions, the Court held that permitting depreciation would not result in a prohibited double deduction in the facts of this case. [Paras 5]

Permitting depreciation does not result in double deduction where the cost of the assets has been treated as application of income.

Final Conclusion: Following the concession by the Revenue and the binding precedent applied by the Division Bench, the Tribunal's allowance of the depreciation claim for Assessment Year 2010-11 is upheld and the Tax Case Appeal is dismissed.

Reopening of assessment - reason to believe - subjective satisfaction - fresh information - failure to disclose fully and truly all material facts - accommodation entries / bogus LTCG - sanction under section 151 - borrowed belief

Reopening of assessment - reason to believe - fresh information - failure to disclose fully and truly all material facts - The Assessing Officer was justified in initiating proceedings to reopen the assessment for A.Y. 2012-13 on the basis of fresh material leading to a prima facie belief that income had escaped assessment. - HELD THAT: - The Court applied the settled test that, at the stage of issuance of notice under section 148 read with section 147, the Assessing Officer need only have a "reason to believe" - a cause or justification for supposing income has escaped assessment - and that sufficiency or conclusiveness of material is not to be examined at that stage. The impugned reasons relied upon fresh information received from investigation wings arising out of search proceedings, which identified the petitioner as a beneficiary of accommodation entries and transactions in penny scrips used to generate bogus LTCG and contrived losses. On that fresh material the Assessing Officer arrived at subjective satisfaction that the petitioner had not disclosed fully and truly all material facts necessary for assessment for the relevant year; such subjective satisfaction based on fresh material furnished a prima facie justification for reopening despite prior scrutiny assessment. [Paras 7, 8, 9, 10, 11]

Reopening under section 147/148 for A.Y. 2012-13 was legally permissible on the material before the Assessing Officer.

Subjective satisfaction - borrowed belief - fresh information - The petitioner's contention that the reopening was based on incorrect facts or merely on a borrowed belief from investigative wings was rejected. - HELD THAT: - The Court found that the Assessing Officer's satisfaction was subjective and founded on additional, specific material originating from independent investigation wings (searches and statements), not merely on an unexamined or mechanical reliance on other offices. The material disclosed particulars of clandestine records, secret data files, and admissions about use of certain scrips for accommodation entries; on that basis a prima facie conclusion could legitimately be formed. The Court noted the distinction between reopening based on newly acquired specific information and merely drawing fresh inferences from the same material available at original assessment. [Paras 11]

The challenge that reopening was founded on incorrect or borrowed belief is repelled; Assessing Officer's reliance on fresh investigative material was permissible.

Sanction under section 151 - borrowed belief - The sanction/grant of approval for issuance of the notice was not vitiated for want of application of mind and was not shown to be mechanical. - HELD THAT: - Distinguishing the cited authority where sanction was held mechanical, the Court observed that in the present case the Assessing Officer recorded reasons in detail and the impugned order indicates that the Principal Commissioner (Pr. CIT-4, Ahmedabad) approved the notice after appreciating facts. The petitioner did not challenge or controvert the respondent's affidavit stating that sanction was granted after application of mind. Consequently, there was no basis to hold that statutory sanction under section 151 was absent or perfunctory. [Paras 12]

Sanction under section 151 was validly obtained and is not vitiated for want of application of mind.

Reason to believe - subjective satisfaction - The contention that assessment under the alternate provision (section 115JB) precluded reopening could not be examined at the stage of objections to the notice. - HELD THAT: - The Court held that whether income has in fact escaped assessment or whether tax paid under a different provision exceeds normal liability are matters for assessment proceedings; such conclusive determinations are not appropriate at the stage of examining the prima facie sufficiency of material for reopening. Accordingly, submissions about tax computed under section 115JB could not defeat the initiation of reassessment proceedings. [Paras 13]

Arguments based on assessment under section 115JB do not preclude reopening at the prima facie stage and cannot be decided before completion of reassessment.

Final Conclusion: The petition is dismissed. The High Court upheld the validity of the notice reopening assessment for A.Y. 2012-13 on the basis of fresh investigative material and subjective satisfaction of the Assessing Officer, found that requisite sanction was duly applied, and declined to adjudicate on merits of escapement of income at this stage; interim relief, if any, is vacated and notice discharged.

Deduction under Section 10A of the Income Tax Act - exclusion of freight, insurance and telecommunication expenses from export turnover and total turnover - meaning and scope of "total turnover" in relation to export turnover - treatment of expenses incurred in foreign exchange for providing technical services outside India - set off of brought forward losses and unabsorbed depreciation and the sequence of allowance of Section 10A deduction

Exclusion of freight, insurance and telecommunication expenses from export turnover and total turnover - meaning and scope of "total turnover" in relation to export turnover - The Assessing Officer was directed to exclude freight, insurance and telecommunication expenses (and similar reimbursements) from both export turnover and total turnover while computing deduction under Section 10A. - HELD THAT: - The court accepted the binding ratio of the Hon'ble Supreme Court in Commissioner of Income Tax v. HCL Technologies Ltd. that expenses attributable to delivery of software or provision of services outside India (such as freight, insurance and telecommunication charges and reimbursement of expenses) are excluded from "export turnover" under Explanation 2(iv) to Section 10A, and that such exclusions in the numerator must likewise be reflected in the denominator (total turnover) to avoid absurd and unjust results. The court held that importation of an exclusion from export turnover into total turnover is necessary for the formula to yield a rational result and followed the Supreme Court's reasoning that where an exclusion is made from export turnover, the corresponding exclusion must be made from total turnover so that the computation of export-linked deduction is not rendered meaningless. [Paras 6, 10]

Questions 1 and 2 were decided against the Revenue and in favour of the assessee, directing exclusion of the specified expenses from both export and total turnover for computing Section 10A deduction.

Set off of brought forward losses and unabsorbed depreciation and the sequence of allowance of Section 10A deduction - Deduction under Section 10A is to be computed in a manner consistent with the Division Bench decision followed by this Court, resulting in the question on sequencing of set off of brought forward losses/ depreciation being answered against the Revenue. - HELD THAT: - The court applied the Division Bench decision of this Court in T.C.A.No.375 of 2018 (Commissioner of Income Tax, Chennai v. M/s. Allsec Technologies Ltd.) and other precedents cited therein, holding that the Revenue's contention on the sequence of allowing deduction under Section 10A after setting off brought forward losses and unabsorbed depreciation was not sustainable. Having regard to that binding regional precedent, the court answered the third substantial question of law against the Revenue and in favour of the assessee. [Paras 7, 10]

The third question of law was answered against the Revenue; the order below permitting the set off as applied was upheld in favour of the assessee.

Final Conclusion: The Tax Case Appeal is dismissed; all three substantial questions of law were decided against the Revenue and in favour of the assessee, following the cited Supreme Court and Division Bench precedents.

Allowability of business expenditure under Section 37 of the Income tax Act - admissibility of additional evidence before the Tribunal - necessity test for allowance of expenditure - disallowance under Section 40(a)(iia) of the Income tax Act and remand for verification - appellate review of findings of fact and perversity

Allowability of business expenditure under Section 37 of the Income tax Act - admissibility of additional evidence before the Tribunal - appellate review of findings of fact and perversity - Disallowance of credit card expenses of Rs. 6,50,921/- claimed as business expenditure. - HELD THAT: - The Assessing Officer disallowed 50% of the credit card expenses on the ground that the assessee did not produce evidence to show drawings by directors through personal credit cards were incurred for company business. The Commissioner (Appeals) and the Tribunal upheld the disallowance after noting that the documents filed before the High Court had not been produced earlier before the Assessing Officer or admitted by the Tribunal; no application for admission of additional evidence had been made. In consequence, the authorities legitimately declined to take cognizance of those documents and recorded findings of fact that the claim was unsupported. The High Court found those concurrent findings of fact to be unimpeached and not perverse, and thus upheld the disallowance.

Disallowance of credit card expenses upheld; concurrent findings of fact are not perverse.

Allowability of business expenditure under Section 37 of the Income tax Act - admissibility of additional evidence before the Tribunal - appellate review of findings of fact and perversity - Disallowance of business development expenses of Rs. 7,61,200/-. - HELD THAT: - The Assessing Officer, CIT(A) and the Tribunal recorded that the assessee failed to produce supporting evidence to establish that the business development expenses were incurred for the purposes of the business. The Tribunal rejected documents tendered later on the ground they were neither certified nor previously filed and there was no application to admit additional evidence. The High Court affirmed these concurrent findings of fact, observing no infirmity or perversity in the approach of the lower authorities.

Disallowance of business development expenses upheld.

Allowability of business expenditure under Section 37 of the Income tax Act - necessity test for allowance of expenditure - appellate review of findings of fact and perversity - Disallowance of 50% of foreign travel expenses of Rs. 37,18,705/-. - HELD THAT: - The authorities disallowed 50% of foreign travel expenses for want of proof that such expenditures were incurred for business purposes. The assessee's contention that 'necessity' is not an essential requirement under Section 37 was noted, but the Court observed that the authorities had recorded findings on the factual sufficiency of evidence, not on an unsupported 'necessity' test. Those factual findings were held to be based on appreciation of the record and not vitiated by perversity, and therefore the Tribunal's upholding of the disallowance was sustained.

Disallowance of foreign travel expenses upheld.

Disallowance under Section 40(a)(iia) of the Income tax Act and remand for verification - remand for verification and opportunity of hearing - Treatment of provision for wealth tax of Rs. 96,247/- and disallowance under Section 40(a)(iia). - HELD THAT: - The question whether the assessee had already added back the provision for wealth tax in the computation of income required factual ascertainment. The Tribunal had remitted the issue to the Assessing Officer for verification and to give the assessee an opportunity of being heard. The High Court upheld the remand, observing that the matter needed to be examined afresh by the Assessing Officer and was not amenable to final adjudication on the existing record before the Court.

Issue remitted to the Assessing Officer for verification and opportunity to the assessee; not finally decided on merits by the Court.

Final Conclusion: Concurrent findings of fact by the Assessing Officer, Commissioner (Appeals) and the Tribunal upholding disallowances of credit card expenses, business development expenses and foreign travel expenses for AY 2010-11 are affirmed as not perverse; the appeal is dismissed. The issue under Section 40(a)(iia) relating to the provision for wealth tax is remitted to the Assessing Officer for verification and hearing.

Speculative transaction - notional loss - revenue expenditure - deduction under Section 37(1) - foreign currency swap/marked to market loss - crystallisation of liability - hedging/forward contracts incidental to business

Speculative transaction - notional loss - foreign currency swap/marked to market loss - crystallisation of liability - revenue expenditure - deduction under Section 37(1) - hedging/forward contracts incidental to business - Whether the foreign exchange loss of Rs. 1,79,99,380/- marked to market as on 31.03.2008 arising from a foreign currency swap entered into in respect of a working capital loan is speculative or notional and therefore disallowable, or is a revenue expenditure incurred in the course of business and allowable under Section 37(1). - HELD THAT: - The Court held that the transactions were entered into as a binding hedging arrangement in relation to a working capital loan used for business purposes and were therefore incidental to the assessee's business. The marked-to-market difference as on 31.03.2008 represented an ascertainable liability which was subsequently discharged in the next year, demonstrating that the loss was crystallised and not merely a book or notional entry. Reliance on precedents treating forward/hedging contracts booked incidentally to business as allowable business losses was found applicable. Consequently, the loss could not be characterised as a speculative transaction or a notional loss outside the ambit of business expenditure; it was a revenue expenditure incurred in the course of business and claimable under Section 37(1) of the Act. [Paras 7, 8, 9]

The marked-to-market foreign exchange loss was not speculative or notional but a revenue expenditure incurred in the course of business and was allowable under Section 37(1); the Tribunal's and CIT(A)'s orders were set aside.

Final Conclusion: Substantial question answered in favour of the assessee: the marked-to-market foreign exchange loss on the foreign currency swap linked to a working capital loan was held to be a business loss allowable under Section 37(1) for Assessment Year 2008-09; orders of the Tribunal and CIT(A) are set aside and the appeal is allowed.

Income from business - Taxation of income from letting out premises in an industrial park/SEZ as business income - Distinction between income from house property and business income - Binding effect of Division Bench precedent - CBDT Circular No.16 of 2017

Income from business - Taxation of income from letting out premises in an industrial park/SEZ as business income - Distinction between income from house property and business income - CBDT Circular No.16 of 2017 - Binding effect of Division Bench precedent - Income derived from letting out property to tenants for the purpose of running a software technology park is income from business in the hands of the owner. - HELD THAT: - The Court followed the ratio of the Division Bench decision in T.C.A. Nos.732 & 733 of 2018 and the CBDT Circular No.16 of 2017, which treat income from letting out premises in an industrial park/SEZ together with the amenities and facilities provided as taxable under the head Income from business. The distinction drawn by earlier authority that receipts from letting out with accompanying facilities cannot be assessed merely as income from house property or other sources was applied. Having regard to the binding Division Bench precedent and the CBDT circular construing the revenue character, the question of law raised by the Revenue was answered against the Revenue and in favour of the assessee. [Paras 5]

Question of law answered against the Revenue; income in question is to be treated as business income.

Final Conclusion: The Tax Case Appeal is dismissed; the income from letting out the property for running a software technology park is held to be income from business and the substantial question of law is answered in favour of the assessee.

Income escaping assessment - reason to believe - disclose fully and truly all material facts necessary for assessment - reopening assessment after expiry of four years - change of opinion - exercise of power under Section 147 after expiry of four years

Income escaping assessment - reason to believe - disclose fully and truly all material facts necessary for assessment - reopening assessment after expiry of four years - change of opinion - Validity of notice dated 31.03.2018 under Section 148 read with Section 147 to reopen assessment for AY 2011-12 - HELD THAT: - The Court examined whether the Assessing Officer had the requisite 'reason to believe' and had arrived at the satisfaction mandated by the proviso to Section 147 that income had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts, when issuing the reopening notice after the four year period. The record shows that the assessee had furnished detailed primary material relating to the transactions in the scrip of M/s Aarya Global (purchase/sale particulars, bank statements, demat records, broker statements and ledger) in response to notices under Section 142(1) before framing the assessment dated 26.12.2017. The Assessing Officer, having called for and received these particulars, made an addition only in respect of LTCG from another scrip (KGN Industries) but remained silent on the Aarya Global transactions in the assessment order. The Court found that therefore the primary facts concerning Aarya Global were before the Assessing Officer and that the officer had, in effect, examined the issue and chosen not to make an addition - a conclusion amounting to an opinion on the matter. Absent any specific finding in the reasons recorded that the assessee had failed to disclose any primary fact or had otherwise not fully and truly disclosed material facts, the issuance of the reopening notice after the four year period amounted to a mere change of opinion. The Court further noted that the reasons recorded did not state any satisfaction that the proviso's condition (failure to disclose) was met; reliance on subsequently received information and SEBI action, without demonstrating non disclosure of primary facts by the assessee at the original proceedings, was insufficient to validate reopening after four years. Applying the principle that once primary facts are disclosed it is for the Assessing Officer to draw inferences (and not for the assessee to predict those inferences), the Court concluded that there was no jurisdictional foundation for reassessment under Section 147 after the four year period in the present case. [Paras 16, 17, 18, 19, 21]

Impugned reopening notice dated 31.03.2018 is invalid as the conditions for invoking Section 147 after four years - namely satisfaction of failure to disclose fully and truly all material facts - were not satisfied.

Final Conclusion: Writ allowed; notice dated 31.03.2018 under Section 148 (read with Section 147) in relation to AY 2011-12 quashed and set aside for want of jurisdiction as the reopening after the four year period amounted to a change of opinion and did not satisfy the proviso to Section 147.

Independence of penalty proceedings from assessment proceedings - revision of return under Section 139(5) of the Act - revision of assessment under Section 263 of the Act - penalty under Section 271(1)(c) of the Act - requirement of recording satisfaction by assessing officer for initiation of penalty proceedings - bona fide discovery of error and consequent revision before detection by assessing officer

Independence of penalty proceedings from assessment proceedings - revision of assessment under Section 263 of the Act - penalty under Section 271(1)(c) of the Act - revision of return under Section 139(5) of the Act - bona fide discovery of error and consequent revision before detection by assessing officer - Whether the order of the Principal Commissioner of Income Tax under Section 263 directing initiation of penalty proceedings under Section 271(1)(c) was sustainable - HELD THAT: - The Tribunal held that the Principal Commissioner, invoking jurisdiction under Section 263, could not direct initiation of separate penalty proceedings under Section 271(1)(c) because penalty proceedings are independent of assessment proceedings and do not form part of the assessment which the CIT may revise. The Tribunal followed the view of the jurisdictional High Court in Addl. CIT v. J.K.D'Costa that failure of the assessing officer to record satisfaction about levy of penalty in the assessment order does not render the assessment order erroneous or prejudicial to revenue merely on that account. On the facts, the assessee filed a revised return under Section 139(5) before the assessing officer had any occasion to detect the omission (the revised return was filed on 31.12.2016, while the assessing officer first obtained the assessee's records on 17.7.2017), and the revision was therefore held to be a bona fide correction. The Tribunal further noted that a coordinate-bench decision in the assessee's own case for AY 2014-15 had deleted penalty on identical facts, and the Principal Commissioner's reliance on a CBDT press release about demonetisation was inapposite because the present facts did not involve demonetisation. For these reasons the Tribunal concluded that the Principal Commissioner's direction to initiate penalty proceedings under Section 271(1)(c) could not be sustained and that the assessment order could not be characterised as erroneous and prejudicial on that ground. [Paras 16, 17, 18, 19, 20]

The order under Section 263 directing initiation of penalty proceedings under Section 271(1)(c) was quashed and the appeal was allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, quashed the Principal Commissioner's order under Section 263 insofar as it directed initiation of penalty proceedings under Section 271(1)(c), and held that on the facts the assessment was not rendered erroneous or prejudicial to the revenue by reason of non-initiation of penalty proceedings.

Addition under section 68 of the Income-tax Act, 1961 - burden of proof / onus under section 68 - identity, credit-worthiness and genuineness test - discharge of onus by the assessee - banking channel evidence

Addition under section 68 of the Income-tax Act, 1961 - burden of proof / onus under section 68 - identity, credit-worthiness and genuineness test - banking channel evidence - Addition of Rs. 1 crore treated as unexplained credit under section 68 was not sustainable as the assessee discharged the onus. - HELD THAT: - The Tribunal examined whether the assessee had discharged the onus under section 68 by proving the identity, credit-worthiness and genuineness of the loan of Rs. 1 crore purportedly received from M/s Arti Securities and Services Ltd. The assessee produced ledger accounts, bank statements of both parties showing the entries through banking channels, income-tax documents of the lender and documents filed with the Registrar of Companies. The Assessing Officer relied solely on the non-appearance of the lender's Director at assessment proceedings, despite service and a recorded statement from an authorised accountant and a confirming letter from the Director. There was no material on record to suggest purchase of cheque, accommodation entry, or rejection of the documentary evidence. On these facts the Tribunal held that the threefold test for discharging the onus under section 68 was satisfied and that non-appearance of the Director, without contradiction of the documentary and banking evidence, could not justify treating the credit as unexplained. [Paras 11, 12, 13, 14]

Addition under section 68 deleted and the assessee's appeal allowed.

Final Conclusion: The addition of Rs. 1 crore treated as unexplained credit under section 68 for A.Y. 2014-15 is deleted; the assessee discharged the onus by demonstrating identity, credit-worthiness and genuineness through banking and documentary evidence, and the appeal is allowed.

Proportionate deduction under section 80IB(10) - eligibility of individual housing units for deduction under section 80IB(10) - application of Tribunal precedent in assessee's own case

Proportionate deduction under section 80IB(10) - eligibility of individual housing units for deduction under section 80IB(10) - precedent in assessee's own case - Assessee entitled to claim proportionate deduction under section 80IB(10) in respect of eligible flats; deduction not allowable for flats not complying with clauses (e) and (f) of section 80IB(10). - HELD THAT: - The Tribunal noted that the factual matrix in the present appeal is identical to its earlier decision in ITA No.917/PUN/2017 for AY 2012-13, where it held that four flats in the project were not entitled to deduction due to violations of clauses (e) and (f) of section 80IB(10), but that the assessee was entitled to a proportionate deduction in respect of the remaining eligible flats. The Revenue did not contest the applicability of that parity of reasoning before the Tribunal. The Tribunal, therefore, followed the earlier order and the settled line of decisions recorded by the CIT(A), concluding that the assessee may claim proportionate deduction for the eligible units while the non-complying units remain excluded from deduction. [Paras 6, 7]

Followed Tribunal's earlier decision in the assessee's own case and upheld the CIT(A)'s allowance of proportionate deduction for eligible flats while excluding non-complying flats; Revenue's appeal dismissed.

Final Conclusion: Revenue's appeal for AY 2013-14 dismissed: proportionate deduction under section 80IB(10) upheld for eligible units, while units not meeting statutory conditions are excluded from the benefit, following the Tribunal's decision in the assessee's own case.

Unexplained cash credit under section 68 - Burden of proof on assessee to prove identity, creditworthiness and genuineness of creditors - Recording of reasons by quasi judicial authorities as part of principles of natural justice - Remand for de novo adjudication where appellate order is non reasoned

Recording of reasons by quasi judicial authorities as part of principles of natural justice - The order of the Commissioner (Appeals) is non speaking and lacks requisite reasons and therefore cannot be sustained. - HELD THAT: - The Tribunal examined the impugned order of the ld.CIT(A) and found that, although the assessee had filed details and evidence regarding each sundry creditor and the receipts, the ld.CIT(A) confirmed additions by merely concluding that creditworthiness and genuineness were not proved without discussing or assigning reasons in respect of each credit. Citing the settled principle that quasi judicial authorities must record cogent reasons and that reasoned decisions are integral to fairness and judicial accountability, the Tribunal held that the ld.CIT(A)'s order consists of bald findings and does not meet the standards of reasoned adjudication required by law. [Paras 7]

Ld.CIT(A)'s order is vitiated for want of reasons and cannot be sustained.

Unexplained cash credit under section 68 - Burden of proof on assessee to prove identity, creditworthiness and genuineness of creditors - Remand for de novo adjudication where appellate order is non reasoned - Findings on unexplained cash credits under section 68 were not finally adjudicated on merits and are remanded to the ld.CIT(A) for fresh consideration in accordance with law. - HELD THAT: - The Tribunal noted that the Assessing Officer made additions under section 68 after disbelieving the evidence, and that the ld.CIT(A) affirmed those additions without dealing with the evidence creditor wise. Given the absence of a reasoned appellate decision and the assessee's production of details and confirmations in the record, the Tribunal did not adjudicate the merits of the creditworthiness/genuineness issue itself. Instead, to secure a decision based on relevant evidence and reasons, the matter is directed back to the ld.CIT(A) for de novo adjudication of the claims and the additions under section 68 in accordance with the burden of proof principles applicable to unexplained cash credits. [Paras 6, 7]

Matter remanded to the ld.CIT(A) for fresh adjudication on the unexplained cash credits under section 68 in accordance with law.

Final Conclusion: The appeal is partly allowed for statistical purposes: the ld.CIT(A)'s order is set aside for lack of reasons and the issue of additions under section 68 is remitted to the ld.CIT(A) for de novo consideration in accordance with law.

Reopening of assessment under section 147 - Change of opinion - Formation of belief that income has escaped assessment - Genuineness of purchases - Rejection of books of account under section 145(3) - Disallowance limited to profit element of alleged non genuine purchases

Reopening of assessment under section 147 - Change of opinion - Formation of belief that income has escaped assessment - Validity of reopening the assessments for AY 2009-10 and AY 2010-11 - HELD THAT: - The Tribunal found that in AY 2009-10 the original assessments were completed after only routine enquiries and not after specific verification of the purchases; subsequently the assessing officer received information from the Investigation Wing indicating accommodation entries and non genuine purchases. Those fresh and tangible materials furnished a basis for forming a belief that income chargeable to tax had escaped assessment. In AY 2010-11 the returns were processed under section 143(1) with no scrutiny, so no prior opinion on purchases had been formed. The Tribunal held that reopening in both years was not merely a change of opinion but was founded on fresh material and lawful application of mind, and that the decisions relied upon by the assessee were factually distinguishable. [Paras 8, 9]

Grounds challenging reopening under section 147 are dismissed.

Genuineness of purchases - Rejection of books of account under section 145(3) - Disallowance limited to profit element of alleged non genuine purchases - Validity and quantum of disallowance on account of alleged non genuine purchases - HELD THAT: - The Tribunal observed that the doubt related to the source of purchases and not to the purchases themselves; accordingly the assessing officer had restricted the addition to the embedded profit element rather than disallowing entire purchases. Having regard to the nature of the assessees' business (iron and steel with low margins) and a coordinate bench decision in a similar case, the Tribunal considered a 2% disallowance on the alleged non genuine purchases to be fair and reasonable. The Commissioner (Appeals) had already reduced the assessing officer's proposed addition; the Tribunal directed computation of disallowance at 2% on the alleged non genuine purchases for the assessment years under dispute. [Paras 10]

Grounds on merits are partly allowed; disallowance to be computed at 2% of the alleged non genuine purchases.

Final Conclusion: Appeals are partly allowed: challenges to reopening under section 147 rejected; on merits the additions are restricted and the assessing officer is directed to compute disallowance at 2% of the alleged non genuine purchases for AY 2009-10 and AY 2010-11.

Revision under section 263 of the Income-tax Act, 1961 - erroneous and prejudicial to the interest of the revenue - onus on the Commissioner to demonstrate specific lacunae - acceptance of assessee's explanation by the Assessing Officer - scope and sufficiency of enquiry by the Assessing Officer

Revision under section 263 of the Income-tax Act, 1961 - erroneous and prejudicial to the interest of the revenue - onus on the Commissioner to demonstrate specific lacunae - acceptance of assessee's explanation by the Assessing Officer - scope and sufficiency of enquiry by the Assessing Officer - Validity of the Commissioner's invocation of section 263 where the Assessing Officer conducted enquiries, the assessee furnished replies, and the AO accepted those replies without detailed discussion in the assessment order. - HELD THAT: - The Tribunal examined whether the ld. CIT rightly concluded that the assessment order for A.Y. 2012-13 was "erroneous and prejudicial to the interest of the revenue" on the ground that the AO had not carried out due and proper enquiries on five specified items. The material on record showed that for each item - trade payables, advances from customers and short-term borrowings, inventory, directors' remuneration and bad debts written off - the AO had raised queries during assessment proceedings, the assessee had furnished detailed replies and supporting reconciliations or policies, and the AO proceeded to accept the claims without making additions. The Tribunal articulated three factual situations in which revision under section 263 may be justified and held that where the AO has made enquiries and the assessee has responded, the CIT must specifically demonstrate how the AO's order is wrong on facts or law and how prejudice to revenue results. Mere generalized assertion that the AO "has not verified all the relevant issues" is insufficient. Absent any pinpointing of lacunae in the AO's enquiries, or of fallacy in the assessee's replies or in the AO's acceptance of them, the jurisdictional preconditions for invoking section 263 were not established. Applying that principle to the present record, the ld. CIT failed to show any specific defect in the AO's exercise of enquiry or any concrete basis for concluding that the assessment was erroneous and prejudicial to revenue; consequently, the revisionary order could not be sustained. [Paras 5, 6, 7, 8, 9]

The Commissioner's exercise of power under section 263 was unwarranted and the impugned revision order is set aside.

Final Conclusion: The appeal is allowed: the order passed by the CIT under section 263 setting aside the assessment for A.Y. 2012-13 is quashed as the CIT did not demonstrate specific defects in the AO's enquiries or show how the assessment was erroneous and prejudicial to the revenue.

Capital Gains vs Business Income - Adventure in the nature of trade - Intention at the time of acquisition - Treatment in books of account as indication of intention - Onus on the Department to prove trade - Non-monetary consideration as part of sale consideration

Capital Gains vs Business Income - Adventure in the nature of trade - Intention at the time of acquisition - Treatment in books of account as indication of intention - Onus on the Department to prove trade - Whether the profit on sale of the land is taxable as Capital Gains or as Income from Business. - HELD THAT: - The Tribunal upheld the finding of the Commissioner (Appeals) that the profits on sale of the land are to be assessed as Capital Gains. The assessee had acquired the land in 2007, shown it in the books as an investment and sold it after about six years; these facts indicate an intention to hold as investment rather than as stock-in-trade. The Assessing Officer's conclusion that the land was acquired out of borrowed funds was negatived on the facts and in law, relying on authority referenced in the order that proceeds on allotment of redeemable preference shares do not necessarily amount to borrowed funds; no contrary precedent was shown. The Tribunal applied settled principles that the decisive test is the intention at acquisition and that mere realization of a profit or conversion of an investment into money does not by itself convert the transaction into an adventure in the nature of trade. The record contained no material to rebut the assessee's documentary treatment and conduct showing the land as investment, and the Department bore the onus of proving the transaction was an adventure in trade. In these circumstances, and having regard to judicial authorities relied upon in the impugned order, the Tribunal found no reason to interfere with the conclusion that the profits are Capital Gains. [Paras 12, 13, 14, 15, 16]

Profits arising from the sale of the land are to be assessed as Capital Gains; the Assessing Officer's classification of the income as Business Income is reversed.

Non-monetary consideration as part of sale consideration - Onus on the Department to prove trade - Whether allotment of a Corporate Box by the Maharashtra Cricket Association constituted undisclosed consideration assessable as income separate from the sale consideration. - HELD THAT: - The Tribunal affirmed the Commissioner (Appeals)'s finding that the allotment of the Corporate Box was directly linked to the sale of the land and therefore formed part of the sale consideration. The Assessing Officer's enquiries had shown allotment of Corporate Boxes in connection with the transaction, and the Commissioner (Appeals) relied on the established link between the sale and grant of the box. The Tribunal found that this conclusion was supported by material on record and there was no contrary material to justify substituting that finding. Consequently, the alleged undisclosed consideration was properly treated as part of the sale consideration rather than as a separate revenue receipt of the assessee. [Paras 6, 7, 8, 17]

The allotment of the Corporate Box is to be treated as part of the sale consideration of the land; the Assessing Officer's treatment as separate undisclosed income is not sustained.

Final Conclusion: The Revenue's appeal is dismissed. The Tribunal upholds the Commissioner (Appeals): the profit on sale of the land is taxable as Capital Gains and the allotment of the Corporate Box is to be treated as part of the sale consideration.

Scheme of Arrangement - Demerger - Dispensation of meeting - Shareholders' and creditors' meetings - Virtual meeting under MCA Circulars - Service of notice and advertisement under Section 230(5) of the Companies Act, 2013 - Voting threshold of three-fourths in value - Cut-off date for determining voting rights - Appointment of Chairperson and Scrutiniser - Filing of report in Form CAA-4

Dispensation of meeting - Shareholders' and creditors' meetings - Dispensation of the convening of meetings of the Resulting Company. - HELD THAT: - The Tribunal accepted the applicants' evidence that the shareholders of the Resulting Company had given consent to the proposed Scheme by affidavit and that the Resulting Company had no creditors, secured or unsecured. On that basis, the Tribunal dispensed with (a) the meeting of the shareholders of the Resulting Company and (b) any meeting of creditors of the Resulting Company, since there were no creditors to be convened. The order records reliance on the consent affidavits and the certified list of creditors as the factual foundation for dispensation. [Paras 17]

Meeting of shareholders of the Resulting Company dispensed with on the basis of shareholders' consent affidavits; meeting of creditors dispensed with as there are no creditors.

Virtual meeting under MCA Circulars - Service of notice and advertisement under Section 230(5) of the Companies Act, 2013 - Cut-off date for determining voting rights - Voting threshold of three-fourths in value - Appointment of Chairperson and Scrutiniser - Filing of report in Form CAA-4 - Directions for convening and conduct of meetings of equity shareholders, secured creditors and unsecured creditors of the Demerged Company by virtual mode and related procedural requirements. - HELD THAT: - The Tribunal directed that separate virtual meetings of the equity shareholders, secured creditors and unsecured creditors of the Demerged Company be convened on the specified date and times and held in accordance with the MCA General Circulars permitting virtual meetings. It mandated publication of an advertisement and service of notice with copies of the Scheme and the statement required under Section 230 within prescribed timeframes, and required notices to be sent to specified authorities (Regional Director, Registrar of Companies, Competition Commission of India, Income Tax Authorities and stock exchanges) with opportunity for representations within 30 days. The Tribunal specified the cut-off date for voting eligibility, adoption of e-voting (including remote e-voting for shareholders), procedure for quorum to be determined under the Companies Act with virtual attendance counted, and that the resolution shall be deemed passed if approved by a majority in number representing three-fourths in value of votes cast. It appointed a named Chairperson and Scrutiniser for the meetings, directed consolidation and scrutiny of votes and filing of the Chairperson's report in Form CAA-4 verified by affidavit within four weeks of the meetings, and required an affidavit proving service and publication to be filed at least a week before the meetings. The order further permitted filing of the second motion petition within two weeks of filing the Chairperson's report. [Paras 17]

Meetings of the Demerged Company shall be convened and conducted virtually in accordance with the MCA Circulars with specified notice, voting, quorum, appointment of Chairperson and Scrutiniser, cut-off date, scrutiny and filing of report in Form CAA-4; applicants to file affidavit proving compliance and may file second motion thereafter.

Final Conclusion: The Tribunal allowed the application: meetings of the Resulting Company were dispensed with for want of need (shareholders' consent and no creditors), and detailed directions were issued for virtual convening, notice, voting, quorum, scrutiny, reporting and compliance in respect of the meetings of the Demerged Company; applicants to prove compliance and may proceed to second motion after filing the Chairperson's report.

Limited judicial review of Committee of Creditors' commercial decision - prerogative of Committee of Creditors to accept or reject OTS/Resolution proposals - interplay between Section 230 of the Companies Act and liquidation proceedings under the Insolvency and Bankruptcy Code - absence of jurisdiction in NCLT/NCLAT to substitute commercial wisdom of the CoC

Prerogative of Committee of Creditors to accept or reject OTS/Resolution proposals - limited judicial review of Committee of Creditors' commercial decision - Validity of the Adjudicating Authority's dismissal of I.A. No. 346 of 2021 where the CoC, by 100% voting, rejected the OTS/Compromise proposals placed by the liquidator. - HELD THAT: - The Appellant sought a direction that the liquidator consider his OTS cum Compromise proposals under Section 230 of the Companies Act. The liquidator had placed the proposals before the Committee of Creditors, which after due consideration rejected them by 100% voting on the ground of non-viability. The Tribunal noted settled law that the statute does not empower the Adjudicating Authority or this Appellate Tribunal to review or substitute the commercial decision of the CoC. The limited scope of judicial review cannot trespass upon the business decision of the CoC and is confined to the parameters laid down in relevant precedents. No irregularity in the Adjudicating Authority's exercise of power was pointed out by the Appellant. [Paras 11, 12]

The Adjudicating Authority did not err in dismissing the Application as the CoC's rejection of the OTS proposals was a commercial decision not amenable to substitution by the Tribunal.

Interplay between Section 230 of the Companies Act and liquidation proceedings under the Insolvency and Bankruptcy Code - procedural requirement to raise objections before the Adjudicating Authority - Whether the Appellant's contention that the CoC rejected the proposals without assigning reasons and without opportunity to negotiate could be entertained despite not being raised before the Adjudicating Authority. - HELD THAT: - The Tribunal observed that the grievance about lack of reasons and absence of opportunity to discuss the OTS proposals was not raised before the Adjudicating Authority. Having not challenged the process below, the Appellant could not raise these objections for the first time on appeal. The Tribunal relied on the principle that appellate review cannot be used to introduce fresh contentions which were not placed before the adjudicating forum. [Paras 12]

The objection regarding absence of reasons and opportunity, not having been raised before the Adjudicating Authority, could not be entertained on appeal.

Absence of jurisdiction in NCLT/NCLAT to substitute commercial wisdom of the CoC - replacement of liquidator raised for first time on appeal - Whether the prayer for replacement of the liquidator, made for the first time in the appeal, was maintainable. - HELD THAT: - There was no allegation against the liquidator in the Application before the Adjudicating Authority and no prayer for his replacement was made below. The Tribunal held that a prayer for replacement, raised for the first time on appeal without any antecedent allegation or challenge in the original application, could not be considered. The liquidator had complied with his duty by placing the proposals before the CoC and there was no demonstrated infirmity warranting replacement. [Paras 13]

The request for replacement of the liquidator, raised for the first time on appeal, is not maintainable and cannot be allowed.

Final Conclusion: No interference with the impugned order; the appeal is dismissed. No order as to costs.

Secured operational creditor - security interest by pledge - duties of interim resolution professional under Section 18 and duties of resolution professional under Section 25 - effect of non-registration of charge under Section 77 of the Companies Act, 2013

Secured operational creditor - security interest by pledge - MSTC, though an operational creditor, was to be recognised as a secured creditor by virtue of a security interest created by pledge over goods supplied to the corporate debtor. - HELD THAT: - The Tribunal held that the statutory definitions under the IBC show that a creditor becomes a secured creditor where a security interest is created in its favour and that the definition of "security interest" is wide enough to include a pledge. The tripartite agreements, memoranda of pledge and related documents on record provided for pledge over goods stored at the corporate debtor's premises and for delivery only on written authorisation of MSTC. The Adjudicating Authority correctly found that such arrangements evidenced a security interest in favour of MSTC and therefore MSTC could be treated as a secured operational creditor. While the parties referred to Section 77 of the Companies Act, 2013 and non-registration of charge, the Tribunal declined to re-open or re-interpret that provision in this proceeding and rested its conclusion on the contractual creation of pledge and the factual matrix showing goods in MSTC's favour. [Paras 22, 23, 24, 31, 37]

MSTC is to be recognised as a secured operational creditor on the basis of the pledge/security interest evidenced by the contractual documents.

Duties of interim resolution professional under Section 18 and duties of resolution professional under Section 25 - effect of non-registration of charge under Section 77 of the Companies Act, 2013 - The Interim Resolution Professional/Resolution Professional failed in their duty to take custody and control of assets in the corporate debtor's possession, and the loss of pledged goods after CIRP commenced was attributable to the management not having taken adequate steps to secure those assets. - HELD THAT: - The Tribunal analysed Sections 18 and 25 of the IBC and their Explanation, noting that management vests in the IRP/RP and they are obliged to take immediate custody and control of assets of the corporate debtor (subject to the Explanation concerning third party owned assets in possession). The record showed that no independent physical verification was carried out by the IRP/RP before the disputed inspections, and that two inspection reports (29.03.2018 and 03.05.2018) showed a substantial disappearance of goods between the dates. Given the IRP/RP's statutory duties and the factual sequence, the responsibility for safeguarding and accounting for the stocks lay with them and could not be avoided by questioning formalities of who signed the first inspection report. Although the question of registration of charge under Section 77 was raised, the Tribunal did not undertake a fresh interpretation of that provision and proceeded on the factual finding of loss of goods while the assets remained on the corporate debtor's premises under IRP/RP control. [Paras 32, 33, 34, 35, 36]

The IRP/RP failed to discharge their duties to take custody and control of the pledged goods, and the disappearance of substantial stock during the CIRP period is a matter attributable to management under IRP/RP control.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority's order treating MSTC as a secured operational creditor is upheld; the Tribunal found lapses in the IRP/RP's exercise of custody and control over the pledged goods but, on the facts and the contractually created pledge, declined to interfere with the Impugned Order.

Maintainability of appeal under Section 61(1) of the Code - requirement of an adjudicating authority's order as a precondition for appeal - stakeholders consultation committee advice not binding on the liquidator - maximisation of value of assets and transparency in e-auction process

Maintainability of appeal under Section 61(1) of the Code - requirement of an adjudicating authority's order as a precondition for appeal - Whether the present appeal under Section 61 of the Code is maintainable in the absence of any substantive order passed by the Adjudicating Authority. - HELD THAT: - The Appellate Tribunal held that the Adjudicating Authority had not passed any substantive order; it merely listed the matter for a future date after the parties placed their positions before it. An appeal under Section 61(1) lies only against an order of the Adjudicating Authority. Since no order disposing of the interlocutory/application or approving/disapproving the re-auction decision was rendered by the Adjudicating Authority, the appeal was not maintainable before this Tribunal. The Tribunal observed that the Appellant must first seek redressal before the Adjudicating Authority and only thereafter, if aggrieved by a final order, approach the Appellate Tribunal under the statutory provision. [Paras 4, 10]

The appeal is not maintainable and is dismissed for lack of a challengeable order from the Adjudicating Authority.

Stakeholders consultation committee advice not binding on the liquidator - maximisation of value of assets and transparency in e-auction process - Direction to the Adjudicating Authority regarding consideration of e-auction process and the role of stakeholders' consultation committee in liquidation. - HELD THAT: - The Tribunal noted that the Liquidator proceeded with a fresh e-auction based on the advice of the stakeholders consultation committee and that such action remained subject to approval or disapproval by the Adjudicating Authority. The Tribunal reiterated the object of the Code as resolution and, where resolution fails, maximisation of asset value; auctions must be transparent. It observed that the committee's advice is not binding on the Liquidator and that, if the Liquidator departs from such advice, reasons must be recorded. The Tribunal directed that the Adjudicating Authority should appropriately consider these observations while disposing of the petition concerning alleged irregularities in the e-auction. [Paras 9, 10, 12]

The matter is to be considered and decided by the Adjudicating Authority in the first instance, having regard to the observations made by this Tribunal; registry to send a copy of the judgment to the concerned Adjudicating Authority.

Final Conclusion: The appeal is dismissed as not maintainable for want of any challengeable order of the Adjudicating Authority; the Appellant must first seek appropriate remedy before the Adjudicating Authority, which is directed to consider the Tribunal's observations regarding the e-auction, stakeholders' committee advice and transparency in the liquidation process.

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution Process (CIRP) - Stay of formation of Committee of Creditors (CoC) - Continuing guarantee and liability of surety - No objection certificate (NoC) for re-leasing - Withdrawal of application under Section 12A of the Insolvency and Bankruptcy Code, 2016

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution Process (CIRP) - Stay of formation of Committee of Creditors (CoC) - Continuing guarantee and liability of surety - No objection certificate (NoC) for re-leasing - Withdrawal of application under Section 12A of the Insolvency and Bankruptcy Code, 2016 - Interim relief in the form of stay of CIRP and formation of the Committee of Creditors was not granted. - HELD THAT: - The Tribunal considered competing submissions including the bank's case of invocation and collection under the corporate guarantee, the existence of amended guarantee agreements corresponding to amendments in sanction letters, the bank's contention that the NoC for re-leasing did not annul the corporate guarantee, and the position that the liability of the surety is co-extensive with the principal debtor and that the continuing guarantee had not been revoked. The Tribunal also noted the pendency and outcome of related proceedings before HSVP/HUDA and the High Court, and the bank's contention regarding its need to recover dues. Having weighed these factors and the parties' submissions, the Tribunal declined to stay the CIRP or the formation of the CoC, while directing service and further filing of pleadings and status report for continued adjudication of the appeal on merits. [Paras 8]

The Tribunal refused to stay the CIRP or the formation of the Committee of Creditors and directed further pleadings and listing for admission.

Final Conclusion: Appeal admitted for hearing but interim relief sought by the appellant in the form of a stay on CIRP and formation of the CoC was refused; parties directed to file pleadings and status report and matter listed for admission.

Provisional attachment under the Prevention of Money Laundering Act - waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code - overriding effect of the Insolvency and Bankruptcy Code - transfer of ownership following liquidation sale - liability for statutory dues post-auction

Overriding effect of the Insolvency and Bankruptcy Code - waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code - Statutory dues in respect of assets of a company in liquidation are to be claimed and recovered under the Insolvency and Bankruptcy Code's distribution mechanism and not by invoking the national Motor Vehicles Act against auction purchasers for dues attributable to the corporate debtor prior to sale. - HELD THAT: - The Court held that upon initiation of liquidation the IB Code governs realization and distribution of assets. Statutory dues that fall within the meaning of 'operational debt' must be lodged with and claimed through the Official Liquidator and settled according to the waterfall in Section 53 of the IB Code. Consequently, demands by Regional Transport Offices relating to vehicles that pertain to the corporate debtor prior to auction cannot be enforced against the auction purchasers outside the IB Code mechanism; the purchasers' liability for statutory dues runs only from the date of their purchase and subject to the objection/claim process under the liquidation regime. [Paras 11, 12, 13, 14]

Dues relating to the vehicles attributable to the corporate debtor prior to the auction must be pursued under the IB Code; auction purchasers are liable only for statutory dues arising from the date of their purchase.

Provisional attachment under the Prevention of Money Laundering Act - transfer of ownership following liquidation sale - Transfer of ownership of vehicles sold by the Official Liquidator is to be permitted by Regional Transport Offices subject to any continuing PMLA proceedings and after compliance with the prescribed formalities. - HELD THAT: - While proceedings under PMLA and under the IB Code are independent, the Court directed the Regional Transport Offices to complete transfer proceedings in favour of the auction purchasers who obtained certificates of sale from the Official Liquidator, subject to the outcome of any pending PMLA or related proceedings. The Court recognised the difficulties faced by purchasers and conditioned the direction on the continuity of any adverse proceedings under PMLA or other laws, preserving the authority's power in those proceedings. [Paras 4, 5, 6, 15]

RTOs are directed to complete transfers of the subject vehicles purchased from the Official Liquidator, subject to the outcome of any proceedings under PMLA or other corresponding law.

Liability for statutory dues post-auction - transfer of ownership following liquidation sale - Procedure for quantification and payment of statutory dues by auction purchasers: RTOs to communicate dues from date of purchase; purchasers to pay 50% within prescribed time; remaining process to be subject to pending proceedings. - HELD THAT: - The Court directed the concerned RTOs to inform the petitioners in writing of statutory dues in respect of the vehicles only from the date of their purchase. Upon such communication, the petitioners are directed to pay fifty percent of the stated amount within three weeks of that communication, with the entire process to be completed within the time frames ordered and remaining subject to the outcome of proceedings under the relevant Motor Vehicles Tax Acts or other pending proceedings. The respondents retain liberty to apply to the Official Liquidator for recovery of dues as per law. [Paras 14, 15]

RTOs to inform dues from date of purchase; petitioners to pay 50% within three weeks of communication; process to be completed within the stipulated timeline and subject to other pending proceedings.

Final Conclusion: Petition partly allowed: RTOs directed to effect transfers in favour of auction purchasers subject to pending PMLA or related proceedings; statutory dues attributable to the corporate debtor before auction must be pursued under the IB Code and purchasers are liable only for dues from the date of purchase, with RTOs to communicate such dues and petitioners to pay 50% within the time directed.

Pre-show cause consultation - preventive/offence related show cause notices - benefit of Master Circular dated 10.03.2017 - obligation to comply with summons during investigation - judicial review of interim abeyance and opportunity of personal hearing

Pre-show cause consultation - preventive/offence related show cause notices - benefit of Master Circular dated 10.03.2017 - obligation to comply with summons during investigation - Entitlement of the appellant to pre-show cause consultation under the Master Circular dated 10.03.2017 (and related Circular dated 19.11.2020) in respect of the show cause notice dated 22.04.2021. - HELD THAT: - The Court held that the appellant was not entitled to the benefit of pre-show cause consultation in the facts of this case. The Master Circular requires pre-show cause consultation for demands above the specified threshold except in preventive/offence related show cause notices. The respondent had registered an offence report during the investigation and the appellant repeatedly failed to comply with summons and produce documents, thereby impeding the investigative process. The Court observed that the benefit of the Master Circular cannot be availed as a one-way right by a taxpayer who stonewalled the investigation; where an offence case is registered and there is non-cooperation, the exception in the Master Circular applies and pre-show cause consultation is not available. [Paras 12, 13]

Appellant not entitled to pre-show cause consultation under the Master Circular in respect of the impugned show cause notice.

Judicial review of interim abeyance and opportunity of personal hearing - benefit of Master Circular dated 10.03.2017 - Validity of the Single Judge's order keeping the show cause notice in abeyance and directing an opportunity of personal hearing in terms of the Master Circular, with liberty to revive the notice. - HELD THAT: - Although the Court found that the appellant was not strictly entitled to pre-show cause consultation, it observed that the Single Judge's order was a balanced exercise of discretion in the circumstances then prevailing. The Single Judge kept the show cause notice in abeyance, directed an opportunity of personal hearing in accordance with the Master Circular and reserved liberty to the respondent to revive the show cause notice if the appellant failed to establish deposit of recovered tax or otherwise cooperate. Given these interlocutory and conciliatory directions and the preliminary stage of proceedings, the High Court saw no grounds to interfere with that order. [Paras 4, 13]

The Single Judge's order keeping the show cause notice in abeyance and granting hearing in terms of the Master Circular, with liberty to revive the notice, is upheld.

Final Conclusion: The appeal is dismissed. The Court held that the appellant was not entitled to pre-show cause consultation under the Master Circular because an offence report had been registered and the appellant failed to cooperate with the investigation; nevertheless, the Single Judge's interim direction keeping the show cause notice in abeyance and granting a hearing in terms of the Master Circular (with liberty to revive) was proper and is upheld.

Refund of service tax paid - unjust enrichment - evidentiary value of Chartered Accountant certificate - taxability of free services rendered by authorised service stations - remand and adherence to appellate directions

Unjust enrichment - evidentiary value of Chartered Accountant certificate - refund of service tax paid - Whether the Chartered Accountant certificate, together with audited accounts and a manufacturer's certificate, suffices to establish absence of unjust enrichment and entitlement to refund of service tax. - HELD THAT: - The Tribunal found that the sole ground for rejecting the refund was that the Chartered Accountant certificate alone was insufficient to prove that the incidence of tax had not been passed on. The appellant, however, produced the Chartered Accountant certificate, audited statements showing write off of the service tax paid, and a manufacturer's certificate confirming no claim of service tax on free services. The Tribunal relied on earlier decisions where Chartered Accountant certificates-issued after verification of accounts-were accepted as having evidentiary value and not to be rejected lightly. Given the documents furnished and precedents accepting such certificates as reliable evidence to rebut unjust enrichment, the materials on record were held sufficient to establish that the tax burden was not passed to any third party and to entitle the appellant to refund. [Paras 6, 7]

The Tribunal set aside the impugned order and held that the Chartered Accountant certificate together with audited accounts and the manufacturer's certificate sufficed to rebut unjust enrichment and support the refund claim.

Taxability of free services rendered by authorised service stations - refund of service tax paid - Whether free services rendered by authorised service stations on behalf of the manufacturer are taxable and whether the appellant was liable to service tax for such services. - HELD THAT: - The Tribunal observed that from the beginning the appellant's stance was that it was not liable to pay service tax on free services. The Commissioner (Appeals) admitted that the appellant was not liable to pay service tax on free services but denied refund on the ground of passed on incidence. The Tribunal noted consistent judicial authority that free services rendered by authorised service stations on behalf of manufacturers do not fall within the definition of taxable service. On that basis, the Tribunal treated the service tax payment as made despite non liability and therefore eligible for refund subject to the absence of unjust enrichment, which in this case was established by the available documentary evidence. [Paras 6, 7]

The Tribunal accepted that free services by authorised service stations are not taxable and that the appellant was not liable; consequently, the earlier payment qualifies for refund.

Remand and adherence to appellate directions - Whether the original authority complied with the Tribunal's remand directions and confined its reconsideration to the points remitted. - HELD THAT: - The Tribunal noted that in the earlier round it had remitted the matter for verification of challans and the Chartered Accountant certificate. On de novo adjudication, the original authority went beyond the Tribunal's directions and rejected the refund on merits despite the Commissioner (Appeals) admitting non liability for tax on free services. The Tribunal held that the original authority exceeded the scope of the remand by deciding merits beyond the specific verification directed and therefore set aside that order. [Paras 6]

The Tribunal held that the original authority exceeded the remand directions and set aside the subsequent adjudication which rejected the refund on merits.

Final Conclusion: Appeal allowed; impugned order denying refund set aside. Original authority directed to grant the refund to the appellant within one month from receipt of the certified copy of this order.

Interpretation of "input" under Rule 2(k) of the Cenvat Credit Rules, 2004 - eligibility for CENVAT credit on promotional/free goods supplied with final products - scope of the expression "any goods" in Rule 2(k)(ii) - goods used in relation to manufacture or for providing output services - inclusion of cost of goods in the value of final product as determinative for input eligibility - distinction between decisions under CCR, 1944 and CCR, 2004

Interpretation of "input" under Rule 2(k) of the Cenvat Credit Rules, 2004 - eligibility for CENVAT credit on promotional/free goods supplied with final products - inclusion of cost of goods in the value of final product as determinative for input eligibility - Whether CENVAT credit is admissible on household plastic buckets and plastic containers supplied free with soaps as sales promotion items - HELD THAT: - The Tribunal held that Rule 2(k) of the Cenvat Credit Rules, 2004 must be read broadly. Clause (ii) uses the expression "any goods" and is not confined to goods that become part of or are accessories to the final product. The determinative test is whether the cost of such goods is absorbed into the value of the final product so as to have suffered duty ultimately as part of the product's value. The appellants established that the expense on buckets and containers was charged against sales and absorbed in business income and not separately billed to customers. The Tribunal relied on earlier decisions of the Tribunal (Manik Machinery Manufacturers Pvt. Ltd. and Cadbury India Ltd.) which treated free goods supplied with final products for sale promotion as eligible inputs where their cost is subsumed in the product's value. Decisions cited in the impugned order (including J.K. Cotton and Jay Engineering Works Ltd.) were distinguished as being rendered under different provisions or factual matrices (earlier rules/notifications) and therefore not applicable to the interpretation of Rule 2(k) of CCR, 2004 in the present case. Applying the broad scope of "any goods" and the criterion of financial absorption into the product's value, the denial of CENVAT credit was held unsustainable. [Paras 6, 7]

CENVAT credit on the household plastic buckets and plastic containers supplied with soaps is admissible; the impugned order is set aside and the appeal is allowed.

Final Conclusion: The appeal is allowed; the order of the Commissioner(Appeals) dated 09.10.2019 is set aside and CENVAT credit in respect of the promotional household plastic buckets and containers supplied with soaps is held admissible under Rule 2(k) of the Cenvat Credit Rules, 2004.

Distribution of input service credit by an Input Service Distributor (ISD) under rule 7(d) of the CENVAT Credit Rules, 2004 - Entitlement of a contract manufacturer to CENVAT credit where input services are attributed to the final product - Legality of issuance of ISD invoice to a contract manufacturing unit where manufacturing is under notification No. 36/2001-CE (NT) - Resolution of conflicting Tribunal precedents on distribution of input service credit

Distribution of input service credit by an Input Service Distributor (ISD) under rule 7(d) of the CENVAT Credit Rules, 2004 - Entitlement of a contract manufacturer to CENVAT credit where input services are attributed to the final product - Legality of issuance of ISD invoice to a contract manufacturing unit where manufacturing is under notification No. 36/2001-CE (NT) - Parle Biscuits was justified in distributing credits on input services attributable to the final product on a pro-rata basis proportionate to turnover between its own manufacturing units and contract manufacturing units, including Krishna Food, under rule 7(d) of the CENVAT Rules. - HELD THAT: - The Larger Bench examined the question referred by the Division Bench in light of conflicting earlier Tribunal decisions and held that distribution of input service credit by Parle to its contract manufacturers on a pro rata basis proportionate to turnover falls within the scope of rule 7(d) of the CENVAT Credit Rules, 2004. Having answered the first question in favour of the appellant, the Larger Bench found it unnecessary to decide the alternative question whether Krishna would be entitled to credit irrespective of that position when the input service cost was included in the price on which excise duty was paid. Consequently, the view in favour of the appellant supplanted the contrary earlier decision and justified the issuance of ISD invoices to contract manufacturing units in the facts of the case. [Paras 44, 45]

Reference answered in favour of Krishna Food and Parle Biscuits: distribution of input service credit under rule 7(d) upheld; appeals allowed and the Commissioner (Appeals) order set aside.

Final Conclusion: The Larger Bench answered the referred question in favour of the appellants, holding that Parle Biscuits was entitled to distribute input service credit pro rata under rule 7(d) to its contract manufacturers; the impugned order of the Commissioner (Appeals) is set aside and the appeals are allowed.

Cenvat credit on capital goods - used in the factory of the manufacturer - inclusion of area within factory premises / registration under Rule 9 - admissibility of credit on pipelines and Single Buoy Mooring (SBM) - remand for fresh decision on registration and connected issues

Cenvat credit on capital goods - used in the factory of the manufacturer - admissibility of credit on pipelines and Single Buoy Mooring (SBM) - inclusion of area within factory premises / registration under Rule 9 - Whether Cenvat credit on the pipeline connecting the SBM with the refinery is admissible under the Cenvat Credit Rules in the factual matrix where the question whether the pipeline and SBM form part of the registered factory premises remains undecided. - HELD THAT: - The Tribunal found that the core factual and legal question is whether the pipeline and SBM fall within the factory premises of the assessee, a question already remanded by the Tribunal to the original adjudicating authority (vide order A/10377/2016 dated 13.04.2016) for reconsideration under Rule 9. Because that registration/inclusion determination has not yet been decided by the jurisdictional officer, the Tribunal held it cannot adjudicate the admissibility of Cenvat credit on the pipelines and SBM. The Tribunal observed the parties' rival contentions and authorities but refrained from resolving the substantive admissibility issue under the Cenvat Credit Rules, noting that applicability of earlier decisions rendered under the Modvat scheme or earlier iterations of Cenvat rules cannot be conclusively applied without first determining whether the relevant infrastructure is part of the factory. Consequently the impugned order denying credit is set aside and the matter is remanded to the original adjudicating authority to first decide the registration/inclusion issue and thereafter decide the credit claim on merits after affording opportunity of hearing. [Paras 4, 5, 6]

Impugned order set aside and matter remanded to the original adjudicating authority to decide afresh on inclusion/registration of SBM and pipeline within factory premises and thereafter on admissibility of Cenvat credit; directed to be decided preferably within three months.

Final Conclusion: The appeal is allowed by way of remand: the Tribunal set aside the impugned order and remitted the matter to the original adjudicating authority to first determine the registration/inclusion of the SBM and pipeline within the factory premises and then decide the Cenvat credit claim afresh, with a direction to conclude the exercise preferably within three months.

Input tax credit - bona fide purchaser - bogus invoices - seller as agent in collection of tax - denial of ITC on seller's failure to deposit tax - collusion between purchaser and seller - remedy against defaulting selling dealer

Input tax credit - denial of ITC on seller's failure to deposit tax - seller as agent in collection of tax - ITC cannot be denied to a purchasing dealer merely because the selling dealer failed to deposit the tax collected. - HELD THAT: - The Court applied the principle that the selling dealer, while collecting tax, acts as an agent in relation to the purchaser and that a bona fide purchaser who has complied with statutory formalities cannot be put in jeopardy by the selling dealer's default. Relying on prior authority, the Court held that mere failure of the selling dealer to discharge his tax liability does not convert an otherwise valid transaction into a bogus one and does not, by itself, justify denial of ITC to the purchasing dealer. [Paras 6, 7]

Denial of ITC solely on the ground that the selling dealer failed to deposit tax is not justified where the purchaser has complied with the law.

Bona fide purchaser - bogus invoices - collusion between purchaser and seller - Where the purchasing dealer possesses original tax invoices, E-Sugam receipts and has effected payments through account-payee cheques, the purchasing dealer is a bona fide purchaser and entitled to ITC unless revenue proves collusion. - HELD THAT: - The Court examined the material facts that the assessee held original tax invoices and E-Sugam receipts and had made payments by account-payee cheques, concluding these steps demonstrate compliance with statutory requirements and support the assessee's bona fides. The burden lies on the Revenue to establish that the transactions were sham or that the purchaser colluded with the selling dealers; absent such proof the purchasing dealer's ITC claim must be sustained. [Paras 4, 8]

The assessee, being a bona fide purchaser who fulfilled statutory formalities, is entitled to the ITC in the absence of established collusion.

Remedy against defaulting selling dealer - collusion between purchaser and seller - The appropriate remedy where a selling dealer fails to deposit tax is for the department to proceed against the defaulting selling dealer; the department may proceed against the purchasing dealer only if collusion is proved. - HELD THAT: - The Court clarified the departmental remedy: if the selling dealer has not deposited the tax, the Revenue's proper course is to recover the tax from the defaulting selling dealer or take action against him. Denial of ITC to a purchasing dealer is not the correct first resort unless the Revenue can demonstrate collusion or that the purchaser participated in creating bogus invoices. The Court observed that, even if collusion is later established, proceedings may be initiated against the purchaser. [Paras 6, 7, 8]

Revenue should pursue recovery and proceedings against the defaulting selling dealer; denial of ITC to the purchaser is permissible only on proof of collusion.

Input tax credit - Relief granted to the assessee by directing credit of the ITC claimed for the relevant period. - HELD THAT: - Having found that the assessee was a bona fide purchaser and that Revenue failed to prove collusion or that the invoices were bogus, the Court dismissed the revision and directed that the Input Tax Credit claimed by the assessee for the stated period be credited to its account within a stipulated time. [Paras 9]

Revision dismissed and Revenue directed to credit the assessee's ITC for the stated period.

Final Conclusion: The revision petition filed by the Revenue is dismissed. The Court held that a bona fide purchasing dealer who has produced original tax invoices, E-Sugam receipts and effected payment by account-payee cheques cannot be denied ITC merely because the selling dealer failed to deposit tax; the Revenue's remedy is to proceed against the defaulting selling dealer and only upon proof of collusion may action be taken against the purchaser. The Revenue is directed to credit the Input Tax Credit claimed for the financial year 2011-12 within one month of receipt of the certified copy of this order.

Assessment of escaped turnover - Scope of re-assessment under Section 12A - Re-assessment opens and substitutes original assessment - Assessing Authority's power to vary rate of tax in re-assessment

Assessment of escaped turnover - Scope of re-assessment under Section 12A - Re-assessment opens and substitutes original assessment - Assessing Authority's power to vary rate of tax in re-assessment - Whether the power under Section 12A of the Karnataka Sales Tax Act, 1957 can be invoked only for enhancement of tax liability or whether initiation of proceedings under Section 12A reopens the original assessment and permits the Assessing Authority to make a fresh assessment including varying the rate of tax. - HELD THAT: - Section 12A is concerned with assessment of escaped turnover where the Assessing Authority has reason to believe that turnover has escaped assessment, has been under-assessed, has been assessed at a lower rate, or that deductions/exemptions were wrongly allowed; on such belief the authority may proceed to assess or re-assess to the best of its judgment after notice. In the present case the Assessing Authority formed the requisite opinion that certain items were assessed at incorrect lower rates and proceeded to re-assess; the re-assessment order granted a concession in the rate of tax to the petitioner. Binding precedents of the Supreme Court and this Court establish that re-assessment is a fresh assessment which re-opens and substitutes the initial order so that all matters, including rate, are open for consideration on re-assessment. The tribunal and the Joint Commissioner erred in holding that Section 12A can be invoked only to enhance tax liability; that conclusion is contrary to the settled law that re-assessment proceedings reopen the original assessment and may result in a fresh assessment (including allowing reductions where warranted). Having regard to the statutory language of Section 12A and the cited authorities, the orders upholding the restricted view of Section 12A were legally unsustainable and are accordingly quashed. [Paras 8, 12]

The tribunal's and Joint Commissioner's conclusion that Section 12A can only be used to enhance tax liability is erroneous; the re-assessment under Section 12A reopens the original assessment and permits a fresh assessment (including varying the rate), and the orders dated 21.07.2012 and 30.11.2015 are quashed.

Final Conclusion: Petition allowed. The findings of the Joint Commissioner and the tribunal restricting the scope of Section 12A were set aside; the impugned orders dated 21.07.2012 and 30.11.2015 are quashed.

Presumption under Section 139 of the Negotiable Instruments Act - Dishonour of cheque for insufficiency of funds attracting Section 138 N.I. Act - Blank or post-dated cheque and liability of the drawer - Burden to rebut statutory presumption by the accused - Cheque issued as collateral security and maintainability under Section 138 - Concurrent findings of trial and appellate courts and scope of interference - Reduction/modification of sentence in exercise of revisional power

Presumption under Section 139 of the Negotiable Instruments Act - Burden to rebut statutory presumption by the accused - Blank or post-dated cheque and liability of the drawer - Whether the accused successfully rebutted the statutory presumption that the signed post-dated cheques were issued for discharge of a debt or liability. - HELD THAT: - The High Court affirmed the concurrent conclusion of the courts below that statutory presumption under Section 139 arises where a signed cheque is produced and that the onus lies on the accused to rebut that presumption by cogent evidence. The accused admitted the business transaction and acceptance of advances but only denied liability; she did not produce evidence sufficient to displace the statutory presumption. Authority of the Supreme Court (including Bir Singh, Laxmi Dyechem, Kumar Exports, K.N. Beena and Sampelly Satyanarayana Rao) was applied to hold that mere denial or assertion of having issued blank cheques is insufficient to rebut the presumption, and a post-dated or blank cheque signed and handed over voluntarily attracts the presumption unless satisfactorily disproved by the drawer. [Paras 20, 21, 22, 24, 25]

Statutory presumption under Section 139 was not rebutted and the conviction under Section 138 N.I. Act is upheld.

Dishonour of cheque for insufficiency of funds attracting Section 138 N.I. Act - Cheque issued as collateral security and maintainability under Section 138 - Concurrent findings of trial and appellate courts and scope of interference - Whether the cheques issued as alleged collateral security precluded prosecution under Section 138 and whether the appellate court erred in relying on earlier High Court orders on maintainability. - HELD THAT: - The Court examined the agreements, deposit and return memos and oral evidence and concluded that the argument that the cheques were only collateral security had been previously considered and negatived and could not be reopened. The Sessions Judge's reasoning that the cheques were enforceable on failure to perform the agreements was affirmed. The Court also noted that the complainant's evidence established presentation and dishonour for insufficiency of funds and that the accused did not contest signature or coercion; concurrent findings of fact were therefore not interfered with. Reliance by the appellate court on earlier High Court orders on maintainability was held to be proper and no error of law was shown warranting interference with the concurrent findings. [Paras 6, 7, 8]

The contention that cheques being collateral security rendered the complaints unmaintainable was rejected and the concurrent findings upholding maintainability and conviction were affirmed.

Reduction/modification of sentence in exercise of revisional power - Concurrent findings of trial and appellate courts and scope of interference - Whether the sentence imposed required modification in revision and, if so, the quantum of fine to be imposed. - HELD THAT: - While upholding the conviction, the High Court took into account admissions in the prosecution witness' cross-examination that the complainant had paid advances totalling a specified amount and had taken post-dated cheques of a larger aggregate amount as security. On consideration of the proved outstanding liability and the factual matrix, the Court exercised revisional power to reduce and modify the sentence imposed by the trial and appellate courts to align the fine with the established liability of the accused. Directions were given for payment of the modified fine and default consequences were reiterated. [Paras 26, 27, 28]

Sentence modified: fine reduced to the amount corresponding to the proved outstanding liability; default sentence preserved and payment directed within the stipulated period.

Final Conclusion: Criminal revision petitions are dismissed insofar as conviction under Section 138 N.I. Act is concerned; the conviction is upheld for failure to rebut statutory presumptions. In revision the sentence is modified and the fine is reduced to reflect the proved outstanding liability, with default imprisonment preserved and directions issued for payment within the notified period.