TaxTMI Updates e-Newsletter
Jul 14,2020

Summary order. Present writ petition challenging para 10 of the Notification dated 04.10.2019 and consequential notices/proceedings dismissed as withdrawn with liberty to raise the same pleas and defences before the National Anti-Profiteering Authority; all rights and contentions left open.

Refund of IGST/CGST on zero-rated supplies - withholding of refund pending initiation of appeal by revenue - direction for disbursal of refund upon favourable appellate order - obligation of revenue not to delay refund indefinitely - requirement of SEZ declaration under Rule 89(2)f (contention raised)

Refund of IGST/CGST on zero-rated supplies - direction for disbursal of refund upon favourable appellate order - withholding of refund pending initiation of appeal by revenue - Respondents were directed to disburse the refund sanctioned by the Commissioner (Appeals) dated 23rd July, 2019 within four weeks instead of withholding it pending any challenge by the revenue. - HELD THAT: - The petitioner had succeeded in appeal before the Commissioner (Appeals) by order dated 23rd July, 2019. Nearly a year elapsed without the respondents initiating any proceedings to challenge that order. The Court held that the petitioner cannot be made to wait indefinitely for the respondents to decide whether to file an appeal; withholding of the refund on that basis was not permissible. Accordingly, the Court directed immediate disbursal of the refund as sanctioned by the appellate authority within four weeks while leaving it open to the respondents to file appropriate proceedings in accordance with law during that period. The Court also left all rights and contentions of the parties, including any objection to the maintainability of such proceedings, open for decision in those proceedings.

Refund as sanctioned by the Commissioner (Appeals) dated 23rd July, 2019 to be disbursed to the petitioner within four weeks; respondents remain free to initiate appropriate proceedings during that period with all rights preserved.

Requirement of SEZ declaration under Rule 89(2)f (contention raised) - Contention that the petitioner failed to produce the SEZ declaration as required was noted but was not allowed to justify indefinite withholding of the refund. - HELD THAT: - Respondents alleged non-production of the declaration from the SEZ unit as per Rule 89(2)f and inconsistencies in description of exported services. The Court observed these contentions in the respondents' affidavit but found that, given the appellate order in favour of the petitioner and the prolonged inaction by the respondents in instituting any challenge, such contentions could not justify continued withholding of the refund. The Court did not adjudicate the merits of those factual or evidentiary contentions, and left open the respondents' right to raise them in any appropriate proceedings they may initiate.

Factual/contention-based objections (including alleged failure to produce SEZ declaration) do not permit indefinite withholding of the refund; such objections may be pursued by the respondents in appropriate proceedings.

Final Conclusion: Writ petition disposed of by directing respondents to disburse the refund awarded by the Commissioner (Appeals) dated 23rd July, 2019 within four weeks; respondents may, within that period, commence appropriate proceedings in accordance with law, with all rights and contentions preserved.

Obligation to pass on benefit of reduction in tax rate by way of commensurate reduction in prices - Determination of profiteered amount under Rule 133(1) of the CGST Rules, 2017 - Inclusion of GST charged on excess base price within the profiteered amount - Penalty liability for profiteering under Section 171(3A) of the CGST Act, 2017 - Authority empowered to examine passing of benefit pursuant to Section 171(2)

Obligation to pass on benefit of reduction in tax rate by way of commensurate reduction in prices - Authority empowered to examine passing of benefit pursuant to Section 171(2) - Existence of a reduction in the GST rate on cinema admission tickets w.e.f. 01.01.2019 and the statutory obligation to pass on the benefit to recipients - HELD THAT: - The Authority found that the Central Government reduced the GST rate on services by way of admission to exhibitions of cinematograph films (tickets above Rs.100) from 28% to 18% w.e.f. 01.01.2019. The statutory scheme embodied in Section 171 requires that any reduction in the rate of tax must be passed on to recipients by way of a commensurate reduction in prices in money terms. The Authority has jurisdiction under Section 171(2) and the Rules to examine whether the reduction in tax has resulted in a commensurate reduction in price and to enforce the statutory obligation. [Paras 16, 19, 20]

The GST rate reduction w.e.f. 01.01.2019 is accepted and the respondent was under a statutory obligation to pass on the benefit to recipients by commensurate reduction in ticket prices.

Determination of profiteered amount under Rule 133(1) of the CGST Rules, 2017 - Inclusion of GST charged on excess base price within the profiteered amount - Whether the respondent contravened Section 171(1) by not passing on the benefit and the correct computation of profiteering - HELD THAT: - On examination of sales data, sample tickets and summaries, the DGAP computed pre-rate-reduction average base prices (using aggregate taxable value divided by tickets sold in the pre-rate-reduction period) and compared the commensurate post-reduction selling price with actual post-reduction selling price. That computation showed the respondent either increased base prices or did not reduce selling prices immediately after the rate reduction, causing excess collection per ticket. The Authority accepted the DGAP methodology and conclusion that the respondent realized an aggregate additional amount (inclusive of GST on the excess base price) of Rs.30,13,058/- for the investigation period. The respondent's contention that the GST component included in the profiteered amount should be subtracted was rejected: the Authority held that the respondent not only collected excess base price but also collected excess GST on that excess, and inclusion of that amount in the profiteered sum is necessary to reflect the full benefit denied to consumers and to give effect to Section 171 and Rule 133(1). [Paras 12, 13, 15, 26, 27]

The respondent contravened Section 171(1); profiteering is determined at Rs.30,13,058/- (inclusive of GST on the excess), computed as per Rule 133(1). The respondent's attempted subtraction of the GST component is not accepted.

Penalty liability for profiteering under Section 171(3A) of the CGST Act, 2017 - Authority empowered to examine passing of benefit pursuant to Section 171(2) - Remedial directions, deposit of profiteered amount and initiation of penalty proceedings - HELD THAT: - Having found contravention and quantified the profiteered amount, the Authority directed the respondent to reduce ticket prices in accordance with Rule 133(3)(a) and to deposit the profiteered amount of Rs.30,13,058/- along with interest at 18% from the date of collection until deposit. As recipients were not identifiable, the Authority ordered equal deposit of the determined profiteered amount (half) into the Central Consumer Welfare Fund and the Telangana State Consumer Welfare Fund under Rule 133(3)(c). Further, since an offence under Section 171(3A) is established, the Authority directed issuance of a notice to the respondent to show cause why penalty under Section 171(3A) read with Rule 133(3)(d) should not be imposed. The Authority also directed monitoring and compliance through the jurisdictional Commissioners and DGAP. [Paras 27, 28, 29]

The respondent is directed to reduce prices, deposit Rs.30,13,058/- with interest (split equally between Central and State CWFs) within three months, and is issued a notice to explain why penalty under Section 171(3A) should not be imposed; compliance to be monitored by jurisdictional authorities.

Final Conclusion: The Authority held that the GST rate on cinema admission tickets was reduced w.e.f. 01.01.2019 and that the respondent failed to pass the benefit to consumers; profiteering was quantified at Rs.30,13,058/- inclusive of GST on the excess, the respondent was directed to reduce prices and deposit the amount with interest (split equally between Central and Telangana CWFs) within three months, and a show-cause notice for imposition of penalty under Section 171(3A) was directed.

Method of accounting - completed contract method - mercantile system of accounting - Section 145(1) amendment w.e.f. 01.04.1997 - distortion of profits - substitution of accounting method

Completed contract method - mercantile system of accounting - method of accounting - Section 145(1) amendment w.e.f. 01.04.1997 - distortion of profits - substitution of accounting method - Assessee entitled to continue completed contract method of accounting for contracts for the assessment year 1997-98 and the assessing officer was not justified in substituting that method by estimating income on advances. - HELD THAT: - The court noted that Section 145(1) prescribes computation of business income according to either cash or mercantile system of accounting and that the amendment to Section 145(1) w.e.f. 01.04.1997 does not retrospectively prohibit a taxpayer from following an accepted accounting method. The Supreme Court's principle in BILAHARI INVESTMENTS PVT. LTD. was applied: a method of accounting previously adopted and accepted by the department may be retained unless the department records a finding that the method results in a distortion of profits warranting substitution. In the present case the assessee consistently followed the mercantile system and the completed contract method, which had been accepted by the department in earlier years. Neither the Commissioner (Appeals) nor the tribunal erred in holding that there was no justification for the assessing officer to depart from the accepted method and determine income on an estimated basis by applying a fixed rate to advances. The tribunal had specifically considered the effect of Section 145 and relevant precedents and reached a reasoned conclusion that the assessing officer's exercise was unjustified.

Assessee permitted to follow the completed contract method; the assessing officer's estimate of income on advances was not justified and the additions were rightly deleted.

Final Conclusion: The substantial question of law is answered against the revenue and in favour of the assessee; the appeal is dismissed.

Assessment year determination for income disclosed during survey - survey u/s.133A and effect of voluntary declaration - single-view rule in assessment proceedings - treatment of undisclosed income offered during survey

Assessment year determination for income disclosed during survey - survey u/s.133A and effect of voluntary declaration - single-view rule in assessment proceedings - treatment of undisclosed income offered during survey - Whether the stock discrepancy/undisclosed income declared during survey should be assessed in A.Y.2012-2013 or in A.Y.2013-2014 and whether the addition made by the AO for A.Y.2013-2014 is sustainable. - HELD THAT: - The tribunal found that the survey conducted on 26.04.2012 resulted in recorded statements of the partners offering undisclosed income of Rs. 1,30,26,864/- expressly for the financial year 2011-12 (relevant to A.Y.2012-2013) together with an undertaking to pay self-assessment tax in instalments. The Assessing Officer, however, adopted inconsistent approaches by noting the acceptance but ultimately making an addition in A.Y.2013-2014. The tribunal held that once the assessee in survey statements accepted and offered the discrepancy for taxation for a particular year, the income ought to be assessed for that year; the AO could not sustain two divergent views. The tribunal further noted that statutory machinery existed to address escapement but was not invoked; having found the declaration related to A.Y.2012-2013 and that the AO had access to the survey records when completing assessment for A.Y.2012-2013, the correct course was to tax the declared amount in A.Y.2012-2013. Accordingly, the addition made in A.Y.2013-2014 was quashed. [Paras 8, 9, 11]

The addition made by the AO in A.Y.2013-2014 is quashed and the declared amount is to be treated as taxable for A.Y.2012-2013; the assessee's appeal is allowed on this ground.

Survey u/s.133A and effect of voluntary declaration - treatment of undisclosed income offered during survey - Whether the cash balance found during survey required separate adjudication or addition in A.Y.2013-2014. - HELD THAT: - The tribunal observed that the unexplained cash formed part of the total amount declared by the partners during the survey and was included in the aggregate declaration of undisclosed income offered for the financial year 2011-12 (A.Y.2012-2013). Since the tribunal directed that the entire declaration be treated for A.Y.2012-2013, there was no necessity to separately decide or sustain an additional addition for the cash balance in A.Y.2013-2014. [Paras 10]

No separate addition for the cash balance is required; the amount is included in the declaration to be assessed in A.Y.2012-2013.

Final Conclusion: The tribunal allowed the appeal, quashed the addition made by the Assessing Officer in A.Y.2013-2014 by holding the survey declaration relates to F.Y.2011-12 (A.Y.2012-2013) and directed that the declared amount (including the cash component) be taxed in A.Y.2012-2013.

Disallowance under section 14A read with Rule 8D(2)(ii) and Rule 8D(2)(iii) - allocation where interest free own funds exceed investments and consideration limited to investments yielding exempt income - deduction under section 80 IA - entitlement of developer as distinct from a mere works contractor - allowability of provision for foreseeable/future losses under Accounting Standard AS 7 as deductible business expenditure - deductibility of employees' contribution to PF and ESI - computation of book profits under section 115JB - treatment of disallowance under section 14A

Disallowance under section 14A read with Rule 8D(2)(ii) and Rule 8D(2)(iii) - allocation where interest free own funds exceed investments and consideration limited to investments yielding exempt income - Validity of disallowance computed under Rule 8D(2)(ii) and Rule 8D(2)(iii) in the facts of the assessee's case - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that no disallowance under Rule 8D(2)(ii) was warranted because the assessee's interest free own funds materially exceeded the investments, giving rise to the presumption that own funds financed the investments yielding exempt income. The Tribunal also sustained CIT(A)'s direction on Rule 8D(2)(iii) that, for computation of disallowance, the AO should restrict consideration to those investments which actually earned dividend (i.e., investments that generated exempt income), following precedents of the Calcutta High Court and the ITAT Special Bench. The Tribunal found no infirmity in those conclusions and dismissed the Revenue's grounds on this point. [Paras 2, 3, 13, 23]

Disallowance under section 14A read with Rule 8D(2)(ii) and (iii) deleted/limited as directed by the CIT(A); Revenue's grounds dismissed.

Deduction under section 80 IA - entitlement of developer as distinct from a mere works contractor - Whether the assessee was entitled to deduction under section 80 IA(4) as a developer and not a mere works contractor - HELD THAT: - The Tribunal applied and followed the Tribunal's earlier decision in the assessee's own case for AY 2011 12 and the reasoning recorded by the CIT(A). The CIT(A) and the Tribunal treated the assessee as undertaking capital and enterprise deployment (material, plant and machinery, supervisors), assuming contractual risks (security deposit, indemnity, defect liability), and being responsible for overall development - factors distinguishing the assessee from a mere works contractor under the Explanation to section 80 IA(13). The Revenue did not advance a successful distinguishing plea; the facts for the years under appeal were the same as the earlier year. Accordingly, the Tribunal upheld allowance of deduction under section 80 IA(4). [Paras 4, 5, 6, 15, 26]

Deduction under section 80 IA(4) allowed; Revenue's challenge dismissed.

Deductibility of employees' contribution to PF and ESI - Whether employees' contribution to Provident Fund and ESI is deductible in the hands of the assessee - HELD THAT: - The Tribunal held that this issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in PCIT v. Rajasthan State Beverages Corporation Ltd. The Revenue did not press a contrary position successfully before the Tribunal, and the Tribunal followed the binding authority to dismiss the Revenue's ground on this point consistently across the relevant assessment years. [Paras 7, 16, 28]

Employees' contribution to PF and ESI held deductible; Revenue's grounds dismissed.

Allowability of provision for foreseeable/future losses under Accounting Standard AS 7 as deductible business expenditure - Whether provision for foreseeable/future losses made in accordance with AS 7 in respect of fixed price contracts is an allowable deduction - HELD THAT: - The Tribunal agreed with the CIT(A) and several coordinate bench precedents that, in case of fixed price contracts where revenue is recognized on percentage completion and unbilled revenue is offered to tax, foreseeable losses provided in accordance with AS 7 and debited to audited accounts are allowable business deductions. The Tribunal relied on prior decisions (including Dredging International, Mazagon Dock, Jacobs Engineering and ITD Cementation) which accepted AS 7 based provisions as not being contingent or unascertained for the purpose of allowable expenditure under the Act, and directed recomputation of business profits allowing the provision subject to consequential adjustments in other years if necessary. [Paras 8, 9]

Provision for future losses made as per AS 7 allowed as deductible; Revenue's grounds dismissed.

Computation of book profits under section 115JB - treatment of disallowance under section 14A - Whether disallowance under section 14A should be made while computing book profits under section 115JB - HELD THAT: - The Tribunal recorded that this point is covered in favour of the assessee by the Tribunal's earlier order in the assessee's own case for AY 2011 12 and by the Special Bench decision in Vireet Investment Pvt. Ltd., and accordingly upheld the CIT(A)'s deletion of such disallowance in computation of book profits under section 115JB. [Paras 18, 24]

No disallowance under section 14A while computing book profits under section 115JB as per Tribunal precedent; Revenue's grounds dismissed.

Final Conclusion: Appeals filed by the Revenue for AYs 2012 13, 2013 14 and 2015 16 dismissed in entirety: disallowances under section 14A (including Rule 8D computations) were deleted or limited, deduction under section 80 IA(4) was upheld as the assessee was a developer not a mere works contractor, employees' contribution to PF/ESI was held deductible, and provision for foreseeable losses under AS 7 was allowed; computation of book profits under section 115JB was to exclude the impugned section 14A disallowance in accordance with precedents.

Arm's length price - international transaction - notional interest on receivables - working capital adjustment - recharacterisation of receivables as loan - retrospective effect of the Explanation to section 92B

Notional interest on receivables - international transaction - working capital adjustment - recharacterisation of receivables as loan - arm's length price - Adjustment by treating outstanding receivables from Associated Enterprises as an international transaction and levying notional interest thereon - HELD THAT: - The Tribunal held that receivables cannot be automatically characterised as an independent international transaction merely because the Explanation to section 92B includes the term 'receivables'; there must be inquiry into context, pattern and the impact on working capital before treating continued receivables as a separate international transaction. Where the assessee had a higher entity-level operating margin than comparables and the working capital adjustment was already allowed, a further notional interest adjustment would distort the transfer pricing analysis and re-characterise the sale transaction. The Tribunal also relied on the fact that the assessee was debt-free and did not incur interest cost, and that the assessee's credit period vis-a -vis AEs was not longer than comparables; these facts weighed against treating the outstanding as a loan attracting interest. Applying the precedents relied upon (including Kusum Health Care and related Tribunal decisions), the Tribunal concluded that no separate adjustment for notional interest on receivables was warranted on the facts of the case. [Paras 11, 12]

No adjustment to be made by way of notional interest on outstanding receivables from Associated Enterprises; ground of appeal allowed.

Final Conclusion: Both appeals are allowed: the transfer pricing adjustment levying notional interest on outstanding receivables from Associated Enterprises for AY 2013-14 is set aside, following precedents and on the facts that working capital adjustment was made, the assessee earned higher margins than comparables, was debt-free and had no interest cost.

Section 68 unexplained cash credits - creditworthiness of lender - genuineness of transaction - burden of proof on assessee to establish identity and source - group company / intra-group fund transfers

Section 68 unexplained cash credits - creditworthiness of lender - genuineness of transaction - group company / intra-group fund transfers - Whether the addition of Rs. 5,00,00,000/- made under Section 68 on account of an unsecured loan from M/s Maharaasa Visions Pvt. Ltd. was justified. - HELD THAT: - The Tribunal examined whether the assessee discharged the onus to prove identity, creditworthiness of the lender and genuineness of the loan transaction. The assessee produced bank statements, income-tax returns, confirmations and financial statements of the assessee, the lender and the intermediary group company (MKT Investments Pvt. Ltd.), showing the flow of funds: the assessee transferred funds to MKT Investments, MKT Investments in turn credited the lender, which subsequently advanced the amount to the assessee; subsequently the funds were repaid along the same chain. The balance sheets showed that the assessee held majority shareholding in the lender company and the lender's books reflected corresponding unsecured borrowings and loans to related parties. The Tribunal held that creditworthiness does not require that the lender have income or fixed assets generated out of profit; what is necessary is a demonstrable, genuine source for the funds advanced. Given the traced fund movement through banking channels, corroborative accountings and the explanation that the lender was a special purpose/group entity formed for bidding (hence filing nil return), the Tribunal found the source of funds satisfactorily established and the transaction genuine. The Tribunal rejected the AO's conclusion that the transaction merely routed the assessee's own money so as to treat it as unexplained cash credit, observing that even if the immediate source was an advance from another group company, the paper trail and group relationship sufficiently established creditworthiness and genuineness in the facts of this case. Applying these findings, the Tribunal allowed the ground challenging the addition confirmed by the CIT(A). [Paras 9, 11]

Addition of Rs. 5,00,00,000/- under Section 68 deleted; ground no. 2 allowed and appeal partly allowed.

Final Conclusion: The Tribunal held that the assessee had satisfactorily established identity, source and genuineness of the Rs. 5 crore unsecured loan from a group concern by tracing fund movement through banking channels and by supporting financial documents; the addition under Section 68 confirmed by the lower authorities was set aside and the appeal was partly allowed.

Deduction under Section 80P(2)(a)(i) - Exclusion by Section 80P(4) - Primary agricultural credit society classification - Assessing Officer's factual inquiry into activities and loan purpose - Each assessment year to be examined separately

Deduction under Section 80P(2)(a)(i) - Exclusion by Section 80P(4) - Primary agricultural credit society classification - Assessing Officer's factual inquiry into activities and loan purpose - Each assessment year to be examined separately - Validity of denial of deduction claimed under section 80P(2)(a)(i) for AY 2016-2017 and whether the Assessing Officer was justified in treating the society as outside the eligible class without further factual enquiry. - HELD THAT: - The Tribunal noted the conflict in the jurisdictional High Court decisions and accepted the Full Bench holding in The Mavilayi Service Co-operative Bank Ltd. v. CIT that, after insertion of sub section (4) to section 80P, the Assessing Officer is not bound by the registration certificate alone and must conduct an enquiry into the factual activities of the society for each assessment year. In the present case the AO concluded that the assessee was essentially carrying on banking business and that agricultural credit disbursements were only minuscule, but did not undertake the necessary detailed examination of individual loan disbursements to determine their purpose or the extent of loans to non members. In view of the Full Bench dictum the Tribunal held that the matter requires fresh verification: the AO should examine the nature and purpose of each loan, identify disbursements to non members and non agricultural purposes, and then decide whether the activities conform to those of a primary agricultural credit society so as to attract or exclude the deduction under section 80P(2)(a)(i). The assessee was directed to cooperate and furnish details, and unnecessary adjournments were deprecated. [Paras 6, 8]

Issue restored to the Assessing Officer for fresh examination in accordance with the Full Bench decision in The Mavilayi Service Co-operative Bank Ltd. v. CIT; appeal disposed of for statistical purposes and stay application dismissed as infructuous.

Final Conclusion: The Tribunal remanded the claim for deduction under section 80P(2)(a)(i) for AY 2016-2017 to the Assessing Officer for fresh factual enquiry into the nature and purpose of loan disbursements (including loans to non members) following the Full Bench direction in Mavilayi, and allowed the appeal for statistical purposes; the stay application was dismissed.

Deduction under Section 80P(2)(a)(i) - primary agricultural credit society - assessing officer's factual inquiry into activities - non-binding effect of registration certificate - each assessment year to be examined separately - delay condonation - remand for fresh examination

Delay condonation - Delay in filing the appeal before the Tribunal - HELD THAT: - There was one day's delay in filing the appeal. The assessee filed a petition with affidavit explaining the reasons for the delay. The Tribunal found that the delay could not be attributed to any laches on the part of the assessee and accordingly exercised its discretion to condone the delay and admit the appeal for adjudication on merits. [Paras 2]

Delay of one day in filing the appeal condoned and appeal admitted for consideration on merits.

Deduction under Section 80P(2)(a)(i) - primary agricultural credit society - assessing officer's factual inquiry into activities - non-binding effect of registration certificate - each assessment year to be examined separately - remand for fresh examination - Eligibility of the assessee for deduction under Section 80P(2)(a)(i) for AY 2013-2014 (whether denial by AO and confirmation by CIT(A) can stand) - HELD THAT: - The Assessing Officer denied the claim on the ground that the assessee was essentially conducting banking business and agricultural credit disbursements were only minuscule. The Tribunal reviewed the governing precedent of the Full Bench of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT, which holds that after insertion of sub-section (4) the Assessing Officer must inquire into the factual activities of the society and is not bound by its registration certificate classifying it as a primary agricultural credit society; each assessment year must be examined independently. The Tribunal observed that the AO had not conducted the necessary detailed examination of the purpose of individual loans (including gold loans) to determine whether they were for agricultural purposes. Applying the High Court's dictum, the Tribunal concluded that the matter requires fresh factual verification by the Assessing Officer, who must list and examine instances of non-agricultural disbursements and then determine eligibility for deduction under Section 80P(2). Accordingly the Tribunal restored the issue to the file of the Assessing Officer for reconsideration in accordance with law and directed cooperation by the assessee. [Paras 7]

Issue remanded to the Assessing Officer for fresh examination of the nature and purpose of loan disbursements and determination of eligibility for deduction under Section 80P(2)(a)(i) for AY 2013-2014, in accordance with the Full Bench ruling of the Kerala High Court.

Stay application - Stay application seeking stay of recovery of outstanding tax arrears - HELD THAT: - Since the Tribunal disposed of the substantive appeal by remanding the core issue to the Assessing Officer for fresh examination, the pending stay application seeking stay of recovery became infructuous. [Paras 8, 9]

Stay application dismissed as infructuous.

Final Conclusion: Delay in filing the appeal condoned; substantive question of entitlement to deduction under Section 80P(2)(a)(i) for AY 2013-2014 remanded to the Assessing Officer for fresh factual enquiry in accordance with the Full Bench decision of the Kerala High Court; stay application dismissed as infructuous; appeal disposed of for statistical purposes.

Registration under section 12AA - exemption under section 80G - genuineness of activities - object of general public utility - exemption under section 23 of the Advocates Welfare Fund Act, 2001 - scope of Commissioner (Exemption) to reject registration for non-furnishing of financials

Registration under section 12AA - exemption under section 80G - genuineness of activities - object of general public utility - scope of Commissioner (Exemption) to reject registration for non-furnishing of financials - Whether the Advocate Welfare Fund Trustee Committee is entitled to registration under section 12AA and exemption under section 80G notwithstanding non-furnishing of financials for FY 2018-19 and whether the Commissioner (Exemption) could validly refuse registration on that sole ground. - HELD THAT: - The Tribunal held that the appellant, being a trustee committee constituted under the Bar Council of Delhi and engaged in safeguarding rights and interests of advocates, has a dominant purpose that amounts to advancement of an object of general public utility within the meaning of section 2(15). Reliance on coordinate and higher court authorities established that where the object clause demonstrates a charitable purpose, detailed scrutiny of modus of application of funds or financial statements at the registration stage is not required and may be examined at assessment. Consequently, the non-furnishing of financial statements for FY 2018-19, when earlier financials were available and the appellant's statutory character and objects were proved, was not a valid ground for the Commissioner (Exemption) to refuse registration under section 12AA or deny consequent exemption under section 80G. The Tribunal followed precedent holding that income of the fund constituted under the Advocates Welfare Fund Act is exempt under section 23 of that Act and, therefore, the Commissioner should grant registration/exemption; the Commissioner may call for documents and verify accounts at assessment but cannot decline registration solely for non-production of the requested financials when the object's charitable character is otherwise established. [Paras 11, 12, 13, 17]

The Tribunal allowed the appeal, holding that the appellant is entitled to registration under section 12AA and exemption under section 80G; the refusal by the Commissioner (Exemption) solely for non-furnishing of FY 2018-19 financials was erroneous and the Commissioner is directed to grant registration/exemption accordingly.

Final Conclusion: Appeal allowed; Advocate Welfare Fund Trustee Committee entitled to registration under section 12AA and exemption under section 80G; refusal by the Commissioner (Exemption) solely on account of non-furnishing of FY 2018-19 financials set aside and Commissioner directed to grant registration/exemption.

Long term capital gains - indexed cost - ex parte assessment - reopening of assessment / notice u/s. 148 - service of notice and opportunity to be heard / principles of natural justice - admission of additional evidence - remand for fresh consideration

Long term capital gains - indexed cost - Whether the computation of capital gain and the indexed cost taken by the Assessing Officer require fresh examination in view of documents now produced by the assessee. - HELD THAT: - The assessment was framed ex parte on the basis of information of sale consideration and an assumed indexed cost taken provisionally at Rs. 5,00,000. The assessee subsequently produced documents which, the Tribunal found, go to the root of the capital-gain controversy and were not properly considered below. Given the absence of a contested adjudication on the merits before the AO (owing to ex parte proceedings) and the fact that material documents have been placed on record for verification, the Tribunal held that the computation of taxable capital gain and the correct indexed cost cannot be finally determined without fresh scrutiny and verification by the AO after considering those documents. [Paras 11]

Matter remitted to the Assessing Officer for fresh adjudication of the capital-gain computation and indexed cost after verification of the documents produced and after giving the assessee a reasonable opportunity of being heard.

Admission of additional evidence - principles of natural justice / opportunity to be heard - Whether the additional documents filed by the assessee should be admitted and acted upon by the Assessing Officer. - HELD THAT: - The Tribunal observed that the assessee had entrusted his representative to place evidence before the first appellate authority but that the appellate proceedings were not properly attended and the materials were not considered. The documents filed before the Tribunal were regarded as material and going to the root of the matter. In the interest of justice and fair play, the Tribunal directed that those documents be furnished to the AO and be considered afresh, ensuring that the assessee is afforded a reasonable opportunity to explain and be heard. [Paras 10, 11]

Additional evidence admitted for the purpose of fresh consideration by the Assessing Officer who shall decide after verification and after affording the assessee a reasonable opportunity of being heard.

Ex parte assessment - reopening of assessment / notice u/s. 148 - service of notice and opportunity to be heard / principles of natural justice - Whether procedural irregularities attendant to the ex parte assessment and notices (including allegations concerning non-service of notice u/s.148 and assessment under Section 144) preclude fresh adjudication without compliance with statutory requirements. - HELD THAT: - The Tribunal noted that the assessment was completed ex parte after the assessee failed to attend proceedings despite notices. The assessee disputed service and compliance with statutory requisites at various stages before the authorities below. Rather than finally adjudicating on such procedural contentions, the Tribunal found it appropriate in the circumstances to restore the matter to the file of the AO so that all procedural and substantive aspects - including any question of validity of notices, compliance with provisions relating to reopening, and the opportunity to be heard - may be examined and decided afresh with the newly furnished documents. [Paras 3, 4, 11]

Proceedings remitted to the Assessing Officer to examine procedural and substantive issues afresh, ensuring statutory requirements and principles of natural justice are complied with before passing a fresh order.

Final Conclusion: The Tribunal set aside the orders below and remitted the matter to the Assessing Officer for fresh adjudication on the capital-gain computation, indexed cost, entitlement to exemptions/deductions and related procedural objections after verification of the documents now produced and after giving the assessee a reasonable opportunity of being heard; the appeal is treated as allowed for statistical purposes.

Article 11(3)(c) of the India-Mauritius Double Taxation Avoidance Agreement - beneficial owner - Tax Residency Certificate / Certificate of Residence as evidence of beneficial ownership (CBDT Circular No. 789 dated 13.04.2000) - conduit company / treaty shopping

Article 11(3)(c) of the India-Mauritius Double Taxation Avoidance Agreement - beneficial owner - Tax Residency Certificate / Certificate of Residence as evidence of beneficial ownership (CBDT Circular No. 789 dated 13.04.2000) - conduit company / treaty shopping - Whether interest income received by the assessee in A.Y.2015-16 is exempt in India under Article 11(3)(c) as being derived and beneficially owned by a bank resident of Mauritius, and whether reliance on the Tax Residency Certificate (in light of CBDT Circular No. 789) and prior Tribunal decisions establishes beneficial ownership despite revenue's allegation of conduit/treaty-shopping. - HELD THAT: - The Tribunal examined whether the impugned interest receipts fell within Article 11(3)(c) which exempts interest ''provided it is derived and beneficially owned by ... any bank carrying on a bona fide banking business which is a resident of the other Contracting State''. The assessee produced a Tax Residency Certificate issued by the Mauritian authority and relied on CBDT Circular No. 789 (13.04.2000) and judicial precedents including the Bombay High Court decision in Universal International Music B.V. and coordinate Tribunal orders (including Hyundai Motor India Ltd. and the assessee's own preceding years) to show that a certificate of residence constitutes sufficient evidence of residence and beneficial ownership for treaty purposes. The Assessing Officer's contentions - that the assessee had not demonstrated immediate source/application of funds, that it might be a conduit/nominee or established for treaty-shopping, and that Circular No. 789 pertained only to dividends and capital gains - were considered and rejected. The Tribunal concluded that Circular No. 789's principle extends to the present facts and that the issue of beneficial ownership had been considered and decided in the assessee's preceding years by coordinate Benches. Having regard to identical factual matrix and consistent precedents, the Tribunal upheld that the assessee was the beneficial owner of the interest and that the receipts were not exigible to tax in India under Article 11(3)(c). [Paras 9, 10]

The Tribunal held that the interest income for A.Y.2015-16 is not taxable in India under Article 11(3)(c) as the assessee is the beneficial owner; the Revenue's appeal is dismissed.

Final Conclusion: The Revenue's appeal is dismissed: on the facts and following CBDT Circular No. 789 and consistent Tribunal precedent, the assessee (a Mauritian resident bank with a Tax Residency Certificate) is the beneficial owner of the interest receipts and the same are exempt in India under Article 11(3)(c) of the India Mauritius tax treaty.

Deemed dividend within the meaning of s. 2(22)(e) - taxation of dividend in the hands of the shareholder - substantial interest / related-party lending - pronouncement within 90 days under Rule 34(5) - exclusion of lockdown period for computation of time-limits - condonation of delay in filing cross-objections

Deemed dividend within the meaning of s. 2(22)(e) - taxation of dividend in the hands of the shareholder - Whether amounts received by the assessee from M/s Vrisa Creations Pvt. Ltd. and M/s Sesha-sai Infraprojects Pvt. Ltd. are taxable as deemed dividend under s. 2(22)(e) in the hands of the assessee. - HELD THAT: - The Tribunal accepted the CIT(A)'s conclusion that cl. (e) of s. 2(22) applies to payments by a company to its shareholder (or to a concern of which such shareholder is a member) and is intended to bring to tax payments in the hands of the shareholder. The assessee was not a shareholder in either lending company and therefore could not be treated as the recipient shareholder contemplated by the provision. Reliance was placed on the view of the Bombay High Court that deemed dividend can be assessed only in the hands of a shareholder of the lending company. Applying that principle to the admitted shareholding facts, the Tribunal held that the receipts could not be characterised as deemed dividend in the assessee's hands. [Paras 6, 7]

Amounts received from the two lending companies are not taxable as deemed dividend under s. 2(22)(e) in the hands of the assessee; the CIT(A)'s vacatur of the additions is upheld.

Pronouncement within 90 days under Rule 34(5) - exclusion of lockdown period for computation of time-limits - Whether the Tribunal's order, pronounced beyond 90 days from conclusion of hearing, was vitiated or required quashing in absence of exceptional circumstances. - HELD THAT: - Rule 34(5) ordinarily requires pronouncement within 90 days of conclusion of hearing but permits departure where exceptional and extraordinary circumstances exist. The Tribunal followed a coordinate Bench's analysis recognising the COVID-19 lockdown and related judicial directions extending limitations as constituting the extraordinary circumstances which justify excluding the lockdown period for computation of the 90-day limit. Applying that pragmatic approach and the authorities referred to, the Tribunal held that the period of lockdown should be excluded and that pronouncement beyond 90 days in the facts of this case was justified. [Paras 10, 11]

Delay in pronouncement beyond 90 days is excused by exclusion of the lockdown period; the order is validly pronounced.

Condonation of delay in filing cross-objections - Whether the assessee's cross-objections, delayed by 300 days, should be condoned. - HELD THAT: - The assessee filed an application with an affidavit attributing delay to confusion over issues and later taking senior counsel's advice. The Tribunal found the explanation generalized and not sufficiently persuasive to justify condonation. As the main appeal was dismissed, the cross-objections-being merely supportive-were also rendered infructuous, but in any event the application for condonation was declined. [Paras 8]

Condonation of the 300-day delay in filing cross-objections refused; cross-objections dismissed as infructuous.

Final Conclusion: The revenue's appeal is dismissed; the CIT(A)'s order rejecting assessment of the receipts as deemed dividend is upheld. The cross-objections are dismissed (condonation refused). The Tribunal affirms that the COVID-19 lockdown period is to be excluded for computing the Rule 34(5) 90-day pronouncement limit, validating the delayed pronouncement in the circumstances.

Allowability of expenses under section 57(iii) - Depreciation under section 32 - Allowability of business expenditure under section 37 - Annual Lettable Value and section 23(1)(a) r.w.s.23(4) - Charge under section 22 and applicability of computation provisions - Deduction under section 24(a) - Remand for verification and opportunity of being heard - Pronouncement period under Tribunal Rule 34(5) and exclusion for COVID 19 lockdown

Allowability of expenses under section 57(iii) - Depreciation under section 32 - Allowability of business expenditure under section 37 - Remand for verification and opportunity of being heard - Disallowance of expenditure claimed against income from "other sources" (depreciation on motor car, car insurance, car expenses, professional fees). - HELD THAT: - The expenses were claimed against income under the head "other sources" and could not be shown to be laid out wholly and exclusively for earning that income; the AO and CIT(A) were therefore justified in disallowing them under the test applicable to section 57(iii). However, the assessee advanced an alternative claim that the motor car expenses and depreciation related to his business and were thus allowable under section 32/37. The Tribunal noted that in the assessee's immediately preceding year the Tribunal had allowed the depreciation claim and that in A.Y.2013 14 the AO had allowed 50% of the car related claim on account of lack of log book. Applying the principle of consistency and on the material before it, the Tribunal restricted the disallowance in respect of car depreciation, car insurance and car expenses to 50% of the claim and directed the AO to give effect accordingly. As regards the professional fees, there was no corroborative material on record to demonstrate they were incurred in the course of business; the Tribunal therefore set aside that part of the issue and remanded it to the AO to verify the allowability of the professional fees under section 37, permitting the assessee to produce fresh documentary evidence and directing the AO to afford a reasonable opportunity of being heard. [Paras 6, 7]

Disallowance partly relaxed: car depreciation, car insurance and car expenses allowed to the extent of 50% (disallowance restricted to 50%); claim for professional fees remanded to AO for fresh verification and adjudication with opportunity to the assessee.

Annual Lettable Value and section 23(1)(a) r.w.s.23(4) - Charge under section 22 and applicability of computation provisions - Addition on account of notional annual lettable value in respect of Flat No.503, Shreenath Tower (assessee's half share). - HELD THAT: - The assessee had, in the immediately preceding year, suo motu adopted a notional lettable value of Rs. 1,80,000 (1/2 share). For the year under consideration the actual rent received (1/2 share) was Rs. 60,000, which is less than the notional amount previously adopted. Under section 23(1) the notional sum for which the property might reasonably be expected to let (clause (a)) governs where actual rent is less than that sum. The assessee failed to explain why the earlier notional lettable value should not apply; accordingly the notional ALV of Rs. 1,80,000 (1/2 share) must be taken as the annual value. The Tribunal found no infirmity in the AO/CIT(A) decision to adopt that ALV. [Paras 8]

Addition on account of ALV of Shreenath Tower upheld.

Deduction under section 24(a) - Remand for verification and opportunity of being heard - Claim for deduction at 30% under section 24(a) in respect of rent received for allowing a mobile tower on the assessee's property. - HELD THAT: - The AO disallowed the claim without articulating reasons in a speaking order; the CIT(A) reproduced the assessee's submissions but did not adjudicate them by a reasoned order. The Tribunal concluded that the lower authorities had rejected the claim without proper reasoning and accordingly restored the matter to the file of the AO, directing him to adjudicate the claim by a speaking order and to afford the assessee a reasonable opportunity to substantiate the claim (including by fresh material). [Paras 9]

Ground allowed for statistical purposes; issue set aside and remitted to the AO for fresh adjudication with a speaking order and opportunity to the assessee.

Annual Lettable Value and possession requirement - Charge under section 22 and applicability of computation provisions - Addition of notional rent in respect of Flat at Gaurav Palace. - HELD THAT: - The assessee had not been delivered possession of the flat up to 31.03.2012 and had produced a developer's letter confirming possession would be delivered in December 2013. In the absence of possession there was no occasion to compute annual lettable value under section 23; the CIT(A)'s deletion of the AO's notional rent addition was supported by prior appellate findings for the preceding year and the Tribunal's earlier decision. The Tribunal found no material to displace the finding that possession was not handed over and upheld the deletion. [Paras 12]

Deletion of the notional rent/addition in respect of Gaurav Palace upheld.

Annual Lettable Value and section 23(1)(a) r.w.s.23(4) - Charge under section 22 and applicability of computation provisions - Addition of notional lettable value in respect of commercial complex Veena Souk. - HELD THAT: - The property was subject to prolonged litigation, injunctions and a court receiver; possession and the right to license the premises were constrained by court orders until after the relevant year. The CIT(A) concluded, and the Tribunal agreed, that the property was inherently incapable of being let out during the year because of the legal constraints, and that the conditions for treating rent as unrealised (and for computing annual value) were satisfied or rendered inapplicable; consequently the computation provisions of section 23 could not be applied and the charge under section 22 failed. The Tribunal followed its earlier reasoning for the preceding year and observed that unrealised rent, if recovered later, would be taxable under section 25AA in the year of receipt. [Paras 12, 13]

Deletion of the notional lettable value/addition in respect of Veena Souk upheld.

Final Conclusion: The assessee's appeal is partly allowed: the Tribunal restricted disallowance of car depreciation, car insurance and car expenses to 50% and remanded the professional fees claim to the AO for verification; the ALV addition for Shreenath Tower was upheld; the claim under section 24(a) for tower rent was set aside and remitted to the AO for a speaking order. The revenue's appeal was dismissed: deletions of notional rent for Gaurav Palace and Veena Souk were upheld. The Tribunal also held that the delay in pronouncement beyond 90 days is permissible by excluding the COVID 19 lockdown period under Rule 34(5).

Disallowance of interest under section 36(1)(iii) for borrowed funds used for capital work in progress - presumption of application of interest free own funds where assessee has sufficient self owned funds - addition as unexplained investment under section 69B based solely on seized rough notings - requirement of corroborative evidence to sustain additions based on seized documents - computation of time for pronouncement under Rule 34(5) of the Income tax Appellate Tribunal Rules - exclusion of lockdown period

Disallowance of interest under section 36(1)(iii) for borrowed funds used for capital work in progress - presumption of application of interest free own funds where assessee has sufficient self owned funds - Deletion of disallowance of interest of Rs. 94,80,600/- made under section 36(1)(iii) in respect of interest attributable to borrowed funds utilised for capital work in progress. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that no part of the interest expenditure was liable to be disallowed because the assessee possessed substantially higher self owned (interest free) funds than the capital work in progress. Where an assessee has sufficient interest free funds, it is permissible to presume that the investment in capital WIP was financed out of such own funds and not out of interest bearing borrowings; accordingly interest need not be capitalised and disallowed. The Tribunal relied on consistent Bombay High Court authority applying this presumption and noted that the High Court's decision relied upon had not been stayed by the Supreme Court and therefore remained binding. The revenue's contention that a parallel High Court decision had been challenged in SLP was held not to affect the binding character of the decision in the absence of a stay. [Paras 7]

Disallowance under section 36(1)(iii) deleted; ground of appeal (i) dismissed.

Addition as unexplained investment under section 69B based solely on seized rough notings - requirement of corroborative evidence to sustain additions based on seized documents - Deletion of addition of Rs. 1 crore made under section 69B on account of alleged suppressed purchase consideration based on a seized hand written paper. - HELD THAT: - The Tribunal affirmed the CIT(A)'s finding that the A.O. adopted the higher purchase consideration only from a set of unsubstantiated, rounded figures appearing as rough notings on a seized piece of paper and without independent corroborative evidence. The A.O.'s reliance on a corresponding addition in the seller's assessment was weakened by the fact that that addition had been deleted on appeal. Further, the assessee's books recorded a landed cost exceeding the impugned figure. In view of the lack of corroboration and the nature of the seized document (rounded figures/rough notings), the addition could not be sustained. [Paras 9]

Addition under section 69B deleted; grounds of appeal (ii) and (iii) dismissed.

Computation of time for pronouncement under Rule 34(5) of the Income tax Appellate Tribunal Rules - exclusion of lockdown period - Permissibility of pronouncing the order beyond 90 days from the conclusion of hearing by excluding the period of lockdown from computation under Rule 34(5). - HELD THAT: - The Tribunal considered Rule 34(5)'s use of the word "ordinarily" and followed a coordinate Bench's reasoning that the unprecedented nationwide COVID 19 lockdown constituted an extraordinary circumstance. In light of judicial orders and governmental notifications treating the pandemic period as exceptional and extending limitation periods, the Tribunal held that the lockdown period should be excluded when computing the 90 day time limit for pronouncement of orders under Rule 34(5). Consequently, the belated pronouncement in the present case was justified. [Paras 11, 12]

Delay in pronouncement beyond 90 days was excused by excluding the lockdown period; order pronounced under Rule 34(4).

Final Conclusion: The revenue's appeal is dismissed in entirety: the disallowance under section 36(1)(iii) and the addition under section 69B were vacated, and the Tribunal held that the delay in pronouncing the order beyond 90 days was justified by exclusion of the COVID 19 lockdown period.

Charitable purpose - proviso to Section 2(15) - advancement of any other object of general public utility - Section 13(8) - exclusion of section 11/12 where proviso to section 2(15) applies - registration under section 12A and its relevance to exemption under section 11/12 - trade, commerce or business test - charging fee/cess and incidental nature of receipts - application of income - capitalization of fixed assets and claim of depreciation

Charitable purpose - proviso to Section 2(15) - registration under section 12A and its relevance to exemption under section 11/12 - trade, commerce or business test - charging fee/cess and incidental nature of receipts - Section 13(8) - exclusion of section 11/12 where proviso to section 2(15) applies - Whether the activities of the Gujarat Maritime Board for A.Y. 2014-15 fall within 'charitable purpose' and are entitled to exemption under sections 11 and 12, or are hit by the proviso to section 2(15) attracting section 13(8). - HELD THAT: - The Tribunal found the question already decided in the assessee's favour in earlier co-ordinate-bench decisions in the assessee's own case and by reference to higher judicial authority considering the Gujarat Maritime Board Act, 1981. Having examined the statutory scheme of the Gujarat Maritime Board Act (including provisions showing State control and obligation to apply receipts for development of minor ports) and the factual material on record, the Bench concluded that the Board's predominant object is advancement of an object of general public utility without profit motive. The fees/cess charged were held to be incidental to the statutory object and not sufficient to convert the activities into trade, commerce or business so as to attract the first proviso to section 2(15). In consequence section 13(8) does not operate to exclude section 11/12 benefits. The Tribunal therefore set aside the contrary finding of the CIT(A), applied the Tribunal's earlier favourable decisions in the assessee's own case and directed the Assessing Officer to allow exemption under sections 11 and 12; the Tribunal also observed that where assessment is to be made under sections 28-44 the block of assets would be capitalized and depreciation allowed, but the principal ruling was that the assessee is entitled to exemption under section 11/12 for the year under consideration. [Paras 12, 13]

Set aside the CIT(A)'s finding; appeal allowed on this ground and AO directed to grant exemption under sections 11 and 12 for A.Y. 2014-15 (fees/cess deemed incidental and proviso to section 2(15) not attracted).

Section 13(1)(d) - Whether the CIT(A) erred in applying section 13(1)(d) to investments made in public-sector companies/corporations. - HELD THAT: - The Tribunal noted that no argument was advanced by the assessee at the hearing in support of this additional ground. In the absence of any submissions, there was no basis to interfere with the findings of the authorities below on this point. [Paras 15]

Additional ground dismissed for want of prosecution/argument; no interference with the order below on this issue.

Final Conclusion: The appeal is partly allowed: the Tribunal set aside the CIT(A)'s conclusion that the Gujarat Maritime Board's activities were business in nature and held that, for A.Y. 2014-15, the Board is entitled to exemption under sections 11 and 12 (proviso to section 2(15) not attracted), and directed the AO to give effect to that finding; the separate ground concerning section 13(1)(d) was dismissed for lack of argument.

Revenue expenditure versus capital expenditure - depreciation rate for computer software - weighted deduction for in-house R&D subject to approval in Form 3CM - section 14A and Rule 8D - disallowance only when no surplus interest free funds; administrative expenditure to be computed with investments yielding exempt income - allowability of deduction under section 80IC and compliance with section 80IC(4) - transfer pricing - determination of arm's length price for guarantee commission - deduction under section 48 - expenditure wholly and exclusively incurred in connection with transfer - exemption under section 10(15) - interest on tax free bonds - computation of book profit under section 115JB - non application of section 14A/Rule 8D adjustments to book profit - allowability of amortisation/deduction under section 35A for trademark acquisition

Revenue expenditure versus capital expenditure - depreciation rate for computer software - Allowability of expenditure claimed as software/repairs and related depreciation rate. - HELD THAT: - The Assessing Officer treated the expenditure claimed under 'repairs computers annual maintenance' and 'repairs computers others' as capital (purchase of licenses) and allowed depreciation at 25%. The Tribunal examined identical claims decided in the assessee's own earlier years and, noting identical facts, followed the coordinate bench decisions which accepted the claim as revenue expenditure and allowed deduction. Consequently the disallowance was deleted and the depreciation allowed earlier was reversed. The Tribunal also observed, as an alternative and for completeness, that even if treated as capital, consistent earlier orders permit depreciation at 60% for such software, and the assessee is entitled to that rate. [Paras 5, 6]

Disallowance deleted; deduction allowed as revenue expenditure; alternatively, depreciation allowable at 60%.

Weighted deduction for in-house R&D subject to approval in Form 3CM - Claim for weighted deduction under section 35(2AB) where Form 3CM approval was not on record. - HELD THAT: - The Assessing Officer disallowed the enhanced weighted deduction because Form 3CM showing competent authority approval was not furnished; DRP confirmed. The Tribunal noted that in earlier assessment years the matter was restored to the Assessing Officer to permit furnishing of Form 3CM and that furnishing Form 3CM is mandatory. The assessee has represented that approval was applied for but not yet granted. In the circumstances and applying the coordinate bench practice, the Tribunal restored the issue to the Assessing Officer to enable the assessee to produce the approval in Form 3CM for verification. [Paras 11]

Issue restored to the Assessing Officer to permit assessee to furnish Form 3CM and for fresh verification.

Depreciation rate for computer software - Depreciation rate on additions to computer software claimed at 60%. - HELD THAT: - The Assessing Officer restricted depreciation to 25% on software purchased along with computers, treating it as part of the computer. The Tribunal followed its earlier decisions in the assessee's own case which held such computer software eligible for depreciation at 60% and directed the Assessing Officer to allow depreciation at that rate. [Paras 16]

Depreciation on additions to computer software to be allowed at 60%.

Section 14A and Rule 8D - disallowance only when no surplus interest free funds; administrative expenditure to be computed with investments yielding exempt income - Disallowance under section 14A/Rule 8D for expenses relating to exempt income; scope of verification and computation. - HELD THAT: - The Assessing Officer computed a substantial disallowance under Rule 8D(2)(ii) and (iii); the DRP restricted it by excluding certain investments. The Tribunal observed that where an assessee can establish availability of sufficient interest free surplus funds, no disallowance under Rule 8D(2)(ii) can be made (following binding jurisdictional High Court precedent). The Tribunal further accepted the view in ACIT v. Vireet Investment (Delhi SB) that administrative expenditure under Rule 8D(2)(iii) must be computed only with reference to investments that yielded exempt income during the year. As neither the AO nor DRP had properly verified the assessee's claim about surplus funds or applied the Vireet principle, the Tribunal restored the issue to the AO with directions to verify availability of surplus interest free funds and to compute administrative expenditure excluding investments that did not yield exempt income. [Paras 21]

Issue restored to the Assessing Officer to verify availability of surplus interest free funds and to recompute disallowance under Rule 8D applying the cited precedents.

Advertisement and business promotion - applicability of Medical Council Regulations and CBDT circular - Disallowance of part of advertisement and business promotion expenses alleged to violate Medical Council Regulations and CBDT circular. - HELD THAT: - The AO disallowed 50% of certain KAM/CRM and gift related expenses on the ground of contravention of Medical Council Regulations and reliance on CBDT Circular No.5/2012; DRP confirmed. The Tribunal found the AO's stance self contradictory (having allowed 50% as genuine) and relied on coordinate bench decisions in the assessee's earlier years holding that the Medical Council Regulations do not apply to pharma companies and the CBDT circular is prospective. Following those consistent earlier orders, the Tribunal deleted the disallowance. [Paras 26]

Disallowance deleted; assessee's claim allowed.

Allocation of common interest and R&D expenditure to tax incentive unit - allowability of deduction under section 80IC and compliance with section 80IC(4) - Allocation of portion of interest and R&D expenditure to Baddi unit for computation of section 80IC deduction - verification/fresh adjudication. - HELD THAT: - The AO allocated portions of interest and R&D expenditure to the Baddi 80IC unit, reducing the deduction; DRP confirmed. The Tribunal noted recurring disputes and that in earlier years the matter was restored for fresh adjudication after considering material. Given identical facts and that the earlier coordinate bench directed fresh consideration, the Tribunal restored the issue to the AO for fresh adjudication with similar directions. [Paras 31]

Issue restored to the Assessing Officer for fresh adjudication and verification of allocations.

Allowability of deduction under section 80IC and compliance with section 80IC(4) - Claim of deduction under section 80IC in respect of Baddi unit. - HELD THAT: - Relying on the Tribunal's earlier detailed examinations in AYs 2009 10 and 2010 11, which held that the assessee had complied with the conditions of section 80IC(4), the Tribunal found the material facts unchanged and the consistent coordinate bench view dispositive. Accordingly the assessee's deduction under section 80IC was allowed. [Paras 36]

Deduction under section 80IC for the Baddi unit allowed.

Transfer pricing - determination of arm's length price for guarantee commission - Transfer pricing adjustment disallowing guarantee commission charged to Associated Enterprises. - HELD THAT: - The TPO and DRP adjusted guarantee commission to 3% (from 0.5%). The Tribunal followed its prior decisions in the assessee's own appeals for AYs 2008 09 to 2010 11 which held that a guarantee commission of 0.5% was at arm's length for corporate guarantees to AEs. On identical facts, the Tribunal directed computation of ALP at 0.5%. [Paras 41]

Adjustment deleted; ALP of guarantee commission directed to be 0.5%.

Deduction under section 48 - expenditure wholly and exclusively incurred in connection with transfer - Allowability of deduction under section 48 for amounts paid to three doctors in connection with sale of shares. - HELD THAT: - The assessee claimed amounts paid to three doctors as expenditure wholly and exclusively incurred in connection with the transfer of shares and relied on mandate letters, board resolution and vouchers. AO disallowed on grounds of Medical Council Regulations; DRP held payments were not wholly and exclusively connected as the doctors allegedly lacked requisite expertise. The Tribunal found material gaps and inadequate factual enquiry at earlier stages - including unexplained necessity for three intermediaries, differing fee structures, identity of payees as shareholders/directors and parties to the SPA - and held that onus lay on the assessee to satisfy facts. Consequently the Tribunal restored the issue to the AO for thorough factual verification, conducting enquiries (including summoning parties if necessary), confronting any adverse material with the assessee and deciding afresh. [Paras 48]

Issue restored to the Assessing Officer for detailed factual enquiry and fresh adjudication.

Exemption under section 10(15) - interest on tax free bonds - no estoppel against law - Assessing Officer's duty to compute correct income - Allowability of exemption for interest on tax free bonds where assessee had initially offered such interest to tax but later sought exemption during assessment. - HELD THAT: - The assessee mistakenly offered interest on tax free bonds to tax in the return but during assessment filed a revised computation seeking exemption under section 10(15). The AO and DRP rejected the claim on a purely technical ground (not filed by revised return). The Tribunal held that an item of income exempt under the Act cannot be disallowed on a procedural technicality; the AO is duty bound to compute correct taxable income and cannot enforce an estoppel against law. Applying binding authorities, the Tribunal restored the matter to the AO to verify facts and allow exemption under section 10(15). [Paras 52]

Issue restored to the Assessing Officer to verify and allow exemption under section 10(15).

Computation of book profit under section 115JB - non application of section 14A/Rule 8D adjustments to book profit - Whether disallowance under section 14A/Rule 8D is to be made while computing book profit under section 115JB. - HELD THAT: - Following earlier Tribunal decisions and the ITAT Special Bench (ACIT v. Vireet Investment P. Ltd.), the Tribunal held that no adjustment under section 14A/Rule 8D is to be made to compute book profit under section 115JB. The Tribunal directed the AO to compute book profit in accordance with section 115JB and explanation (1)(f) and per earlier coordinate bench directions. [Paras 54]

No section 14A/Rule 8D adjustment in computation of book profit under section 115JB; AO directed to compute accordingly.

Credit for tax deducted at source (TDS) - Short grant of credit of TDS claimed by the assessee. - HELD THAT: - The Tribunal directed the Assessing Officer to factually verify the assessee's TDS credit claim and allow credit in accordance with law, without articulating further principle. [Paras 56]

Assessing Officer directed to verify and grant TDS credit as per law.

Credit for dividend distribution tax - recalculation/verification - Alleged short grant of credit of dividend distribution tax. - HELD THAT: - The Tribunal directed the Assessing Officer to verify the assessee's contentions regarding mis calculation of dividend distribution tax payable and to grant any short credit in accordance with law. [Paras 58]

Assessing Officer directed to verify and allow credit in accordance with law.

Allowability of amortisation/deduction under section 35A for trademark acquisition - Revenue appeal against deletion of disallowance under section 35A for trademark purchase by erstwhile subsidiary (SPPL). - HELD THAT: - The AO disallowed amortisation claimed by SPPL on purchase of trademark; DRP had deleted the disallowance noting that the Tribunal had allowed similar claims in prior years and the High Court had, in appeals by Department, upheld the Tribunal's position or Revenue did not press alternate grounds. The coordinate bench had held that trademark is not alien to patent rights and could be allowed under section 35A or alternatively under section 37 per precedent. Applying consistency and following the Tribunal's earlier orders and the High Court outcomes, the Tribunal dismissed the Revenue's appeal and upheld deletion. [Paras 63]

Revenue's appeal dismissed; deletion of disallowance under section 35A upheld.

Final Conclusion: The Tribunal in ITA No. 850/Mum/2016 (assessee appeal) partly allowed the appeal by deleting several disallowances, allowing specified deductions and directing fresh verification on multiple factual issues; in ITA No. 1799/Mum/2016 (revenue appeal) the Revenue's challenge was dismissed. Several matters were remanded to the Assessing Officer for factual verification and fresh adjudication as directed.

Maintainability of appeal - appellate jurisdiction - abdication of appellate power - remand for fresh consideration - limitation / time-bar - transfer of appeal for lack of jurisdiction

Maintainability of appeal - appellate jurisdiction - abdication of appellate power - remand for fresh consideration - Whether the appellate order (Ext.P7) could be dismissed on the ground that the statutory provision under which the appeal was filed was vague, thereby leaving the appellant's substantive contentions unadjudicated. - HELD THAT: - The High Court found that the order under challenge (Ext.P6) expressly indicated that an appeal lay to the Commissioner of Customs and the appellant accordingly filed Appeal No.92 of 2012 before the fourth respondent who accepted the appeal on file and heard it. Having accepted and entertained the appeal, the appellate authority should not have rejected it on a technicality - i.e., that the provisions referenced in the memorandum were vague - thereby declining to decide the merits. The court observed that the findings recorded in Ext.P7 do not amount to a determination on the merits of the time bar/limitation contention; the brief observation that the claim was 'not maintainable' coupled with citation of notifications does not constitute a substantive adjudication. Where an appellate forum has accepted an appeal and proceeded to consider it, the proper course, if jurisdictional doubts exist, is to transfer the appeal to the appropriate authority rather than dismiss it for a procedural defect. In those circumstances, the appellate order was held to be an improper abdication of appellate duty and liable to be set aside and remitted for fresh consideration on merits.

Ext.P7 is quashed and the fourth respondent is directed to consider Appeal No.92 of 2012 afresh and decide on merits; if lacking jurisdiction, the appeal shall be forwarded to the appropriate authority in the Central Excise Commissionerate for decision on merits.

Final Conclusion: The appellate order dismissing the appeal on the ground of vagueness in the provision cited was interfered with; the matter is remitted for fresh adjudication on merits or, if necessary, transfer to the appropriate appellate authority for a merits decision.

Refund of excess customs duty paid through duty credit scrip (DEPB) - Provisional assessment and refund under Section 18(2) read with Section 27(1) of the Customs Act, 1962 - Validity of CBEC Circular No.18/2013 declared ultra vires - Mode of payment immaterial for refund entitlement

Refund of excess customs duty paid through duty credit scrip (DEPB) - Provisional assessment and refund under Section 18(2) read with Section 27(1) of the Customs Act, 1962 - Validity of CBEC Circular No.18/2013 declared ultra vires - Mode of payment immaterial for refund entitlement - Excess customs duty paid by debit to DEPB scrip is refundable in cash under the Customs Act, 1962. - HELD THAT: - The Tribunal examined whether an amount held to have been excess paid at provisional assessment but discharged by debit to DEPB scrip could be denied cash refund by reference to CBEC Circular No.18/2013. The Tribunal noted that the circular relied upon by the lower authorities has been declared ultra vires by several High Courts, and that binding reasoning in those decisions establishes that where the statute entitles an assessee to refund of duty, the right is not lost because payment was effected by debit of DEPB scrip rather than by cash. Applying those precedents and respectfully following the holdings of the High Courts, the Tribunal concluded that the impugned administrative denial based on the circular could not be sustained and that the balance excess duty paid through DEPB must be refunded. [Paras 10, 11]

Impugned order denying refund on the ground of payment by DEPB set aside and appellant entitled to refund of the retained excess duty.

Final Conclusion: The appeal is allowed; the order of the Commissioner (Appeals) is set aside and the appellant is entitled to refund of the excess customs duty retained on account of payment by DEPB scrip, with consequential benefits.

Existence of undisputed operational debt - pre-existing dispute under section 9(5)(2)(d) - appointment prior to incorporation and lack of board ratification - summary nature of insolvency proceedings under the Code - abuse of process / fraudulent or malicious initiation - limitation and time-barred claims - insolvency requires inability to pay / solvency of corporate debtor

Existence of undisputed operational debt - appointment prior to incorporation and lack of board ratification - No clear and undisputed operational debt arose in favour of the Operational Creditor on the facts before the Tribunal. - HELD THAT: - The Code requires a right to payment arising from pre-existing terms that can be enforced; however the Appointment Letter dated 02.05.2012 purportedly effective from 01.04.2012 was issued prior to the company's incorporation and there is no evidence of subsequent board ratification. The Appointment Letter itself contained clauses making salary review and continuation dependent on management discretion and performance and contained a binding Code of Conduct. Having regard to these clauses and the Independent Auditor's findings and related criminal proceedings alleging misappropriation by the Operational Creditor and others, any claimed right to salary arrears was not an absolute, undisputed liability. The Tribunal therefore found that no enforceable, undisputed debt had been established on the material before it. [Paras 6, 7, 8, 9]

Claim of a clear and undisputed operational debt was rejected.

Pre-existing dispute under section 9(5)(2)(d) - summary nature of insolvency proceedings under the Code - There existed a substantial pre-existing dispute between the parties which barred admission of the Section 9 petition. - HELD THAT: - The Corporate Debtor produced an independent forensic audit report alleging large-scale misappropriation and misconduct and filed criminal complaints; these events predated the Demand Notice and were communicated to the Operational Creditor in replies to earlier notices. The Sessions Court's order rejecting anticipatory bail recorded prima facie findings founded on the audit report, demonstrating the gravity of the allegations. In a summary adjudicatory proceeding under the Code the Tribunal need only assess whether a plausible dispute exists; on the facts a bona fide, pre-existing dispute was established and therefore the petition was barred under the statutory bar to filing where notice of a dispute exists. [Paras 10, 11, 12, 13]

The application was barred by reason of a pre-existing dispute and could not be admitted.

Limitation and time-barred claims - Part of the claimed defaults were time-barred and the long delay in filing undermined the petition. - HELD THAT: - The operational creditor's claim related to amounts allegedly incurred from FY 2012-13 onwards whereas the petition under Section 9 was filed in October 2017 after substantial delay. The Tribunal held that there was no continuing default supported by the Corporate Debtor's accounts and that defaults arising three years prior to filing were barred by limitation. The IBC cannot be used to revive time-barred debts and in the circumstances the delay suggested ulterior motive linked to pending criminal proceedings rather than bona fide insolvency resolution. [Paras 14, 15]

Claims barred by limitation and delay weighed against admission of the petition.

Insolvency requires inability to pay / solvency of corporate debtor - abuse of process / fraudulent or malicious initiation - The Corporate Debtor was not shown to be insolvent and initiation of CIRP was not warranted; the petition amounted to recovery proceedings and could be an abuse of process. - HELD THAT: - Admission to initiate CIRP requires demonstration that the corporate debtor is unable to pay its debts. The Tribunal took note of continued business operations, renewal/extension of banking facilities, work orders from public authorities, and repayment of a large term loan as indicia of solvency. The petitioner had not established that the Corporate Debtor was insolvent; rather the record suggested the petition was a recovery attempt and could operate as an abuse of the Code given the context of audit findings and criminal proceedings. [Paras 5, 16, 17]

CIRP initiation was not justified as the Corporate Debtor was solvent and the petition was an improper recovery attempt.

Final Conclusion: For the reasons stated - absence of a clear and undisputed operational debt, existence of a substantial pre existing dispute, time barred elements of the claim, and absence of insolvency of the corporate debtor - the Company Petition under Section 9 was dismissed and CIRP was not initiated.

Summary order. Petition seeking to challenge adjudication proceedings as time barred under Clause (b) of Section 73(4B) of the Finance Act, 1994 - notice issued; counter affidavits directed to be filed within four weeks, rejoinders within one week; matter listed on 26th August, 2020; interim application CM Appl. 14639/2020 allowed subject to just exceptions.

Summary order. Notice issued; respondents accepted notice. Respondents permitted two weeks to file counter-affidavit, petitioner given two weeks thereafter for rejoinder. Matter listed on 26th August 2020; order to be uploaded and copies emailed to counsel.

Broadcasting - broadcasting agency or organization - reverse charge mechanism - space segment capacity / transponder lease - classification of services - essential character test - interpretation of definition of broadcasting under the Finance Act and Prasar Bharati Act

Broadcasting - broadcasting agency or organization - reverse charge mechanism - interpretation of definition of broadcasting under the Finance Act and Prasar Bharati Act - Whether the services/charges paid by the appellant to Intelsat amount to 'broadcasting' by Intelsat (situated outside India) liable to service tax under the reverse charge mechanism - HELD THAT: - The Court examined the three-part definition of 'broadcasting' in section 65(15) of the Finance Act read with clause (c) of section 2 of the Prasar Bharati Act. The term 'broadcasting' under the Prasar Bharati Act contemplates dissemination intended to be received by the general public through the medium of relay stations. A relay station (such as Intelsat) that merely receives, amplifies and retransmits signals is not itself the 'broadcaster' contemplated by section 2(c). The second inclusive part of section 65(15) applies only insofar as an entity qualifies as a 'broadcasting agency or organization' under section 65(16), i.e., an agency engaged in providing services in relation to broadcasting. The Court found that Intelsat's role in the present contract was that of a relay/satellite operator leasing space segment capacity on a transponder and not that of a broadcaster performing programme selection, scheduling or presentation. Consequently the limited activity of downlinking by Intelsat could not be taxed as 'broadcasting' in the hands of Intelsat with liability cast on the appellant under reverse charge. [Paras 53, 60, 78]

Intelsat did not provide 'broadcasting' services to the appellant such as would render the appellant liable to service tax under the reverse charge mechanism; the Commissioner erred in treating Intelsat as a broadcaster.

Space segment capacity / transponder lease - classification of services - essential character test - carrier plan and fixed monthly charges - Whether the Agreement between the appellant and Intelsat is for leasing space segment capacity (transponder bandwidth) rather than for a taxable broadcasting service, and whether the 'essential character' test under section 65A applies to treat the transaction as a taxable service - HELD THAT: - The Court analysed the Master Service Agreement, Service Order and Attachments and found that the appellant paid a fixed monthly charge for allocation of a specified transponder segment (8 MHz) irrespective of actual signal usage. The Service Order and Attachment 2 describe a 'Transponder Segment' that is power- and bandwidth-limited; outage provisions, outage-credits and interruption clauses relate to non-functioning of the transponder (space segment), not a variable supply of signalling. The carrier-plan parameters serve technical/regulatory optimisation and do not convert fixed monthly charges into variable consideration for transmission of signals. Since the lease of space segment capacity is a right to use goods (akin to transfer of right to use), it is not a taxable 'broadcasting' service; further section 65A(2)(b) (essential character/classification among multiple taxable services) does not apply because the transaction involves a non-taxable lease alongside a single claimed taxable service and is not a dispute between two taxable services. [Paras 42, 64, 74, 77, 78]

The Agreement is for leasing space segment capacity (transponder bandwidth) and the charges are not consideration for a taxable broadcasting service; the essential-character classification rule in section 65A is inapplicable to convert the arrangement into a taxable service.

Final Conclusion: The Commissioner's order confirming service-tax demand on the basis that Intelsat provided taxable 'broadcasting' services to the appellant is unsustainable; the impugned order dated 30.11.2015 is set aside and the appeal is allowed.

Entitlement to cenvat credit on Information Technology Software Services - application of Rule 6(3A) of Cenvat Credit Rules in determining ineligible credit - scope of Rule 6(5) of Cenvat Credit Rules permitting full credit for specified input services - retroactive/clarificatory effect of amendment to Rule 6 - consequential relief on rebate claims

Entitlement to cenvat credit on Information Technology Software Services - application of Rule 6(3A) of Cenvat Credit Rules in determining ineligible credit - scope of Rule 6(5) of Cenvat Credit Rules permitting full credit for specified input services - retroactive/clarificatory effect of amendment to Rule 6 - Whether credit availed on Information Technology Software Services (ITSS) and specified input services is to be included in the formula under Rule 6(3A) for computing ineligible cenvat credit and whether full credit under Rule 6(5) is allowable - HELD THAT: - The Tribunal examined the departmental contention that credit on ITSS and certain common services ought to be included for computing the percentage of ineligible credit under Rule 6(3A) and that credit taken under Rule 6(5) was wrongly allowed in full. Having regard to earlier Tribunal precedents (notably IBM India Pvt. Ltd.) and the redrafting of Rule 6 by Notification No.13/2016 (characterised in the order as clarificatory), the Tribunal held the issue is no longer res integra and concluded in favour of the appellant. The Tribunal accepted that specified services falling within the ambit of Rule 6(5) are entitled to full credit unless they are used exclusively for exempted services, and that ITSS, treated as a taxable output service by the appellant with separate records, should not be aggregated into the denominator for reversal under Rule 6(3A). On that basis the Tribunal found the Commissioner travelled beyond the show-cause and erred in disallowing the credits as done in the impugned order. [Paras 12]

Impugned disallowance set aside; appellants' claim to credit on ITSS and specified services sustained.

Consequential relief on rebate claims - Relief to be afforded in relation to the pending or disposed rebate claim consequent to setting aside the adjudication - HELD THAT: - The Tribunal directed that, having allowed the appeal and set aside the impugned order, the appellant shall be entitled to consequential benefits. If the rebate claim for export of taxable service remains pending it shall be disposed of in accordance with law; if already disposed, it shall be reconsidered to give effect to the Tribunal's findings. This direction requires administrative action consistent with the substantive conclusion on credit entitlement. [Paras 12]

Rebate claim to be disposed of or reopened and reconsidered to give consequential benefit to appellant.

Final Conclusion: The appeal is allowed; the adjudicating order disallowing cenvat credit is set aside and the appellant is entitled to consequential relief, including disposal or reconsideration of the rebate claim in accordance with law.

Restoration of appeal - dismissal for default - satisfactory explanation for non-appearance - limitation and condonation of delay - service of notice by registered post and availability of orders on tribunal website - maintainability of successive restoration applications

Maintainability of successive restoration applications - Second restoration application seeking recall of the order dated 22.06.2018 was maintainable. - HELD THAT: - The Tribunal examined the decision relied upon by the Department (Parwati Automotives Pvt. Ltd.) and distinguished it. In Parwati the first restoration had been decided by a speaking order and the second application raised a different ground, leading the Tribunal there to indicate rectification as the remedy. In the present case the first restoration application was dismissed in default (no speaking order disposing merits), and the second application sought recall of that dismissal dated 22.06.2018. Therefore the earlier observation does not preclude filing a fresh restoration application seeking recall of the subsequent miscellaneous order. The Tribunal held the second restoration application to be maintainable for adjudication on its merits. [Paras 18]

Second restoration application is maintainable and may be considered on merits.

Restoration of appeal - dismissal for default - satisfactory explanation for non-appearance - limitation and condonation of delay - service of notice by registered post and availability of orders on tribunal website - Application for recall of order dated 22.06.2018 and restoration of the appeal was rejected on merits for want of satisfactory explanation and for culpable negligence. - HELD THAT: - The Tribunal reviewed the factual matrix and documentary record. The appellant's asserted explanation that a new counsel had been engaged on 18 April 2018 was not supported by the tribunal order of 19 April 2018 or by the appellant's email, which indicated that the previous counsel was representing the appellant "till date" and that execution of vakalatnama was only to follow. Thus the appellate court found the claim of change of counsel and valid reasons for non-appearance on 19 April 2018 to be unsubstantiated (paras 11-13). The Tribunal further observed that the appellant waited from 19 April 2018 until 04 June 2018 to file the first restoration application, and that the Registry had in any event sent a notice by registered post dated 06 June 2018 fixing the first restoration hearing on 22 June 2018; the appellant did not deny receipt of that communication nor explained why the registry website was not consulted despite admitting its use (paras 14-17). Although no precise statutory time limit for restoration is prescribed, the Tribunal noted authorities treating three months as the appropriate comparative limitation and that the second restoration was delayed by some 500 days; while the absence of a separate condonation application was not alone fatal, the lengthy unexplained delay and the appellant's callous approach satisfied the Tribunal that the explanation was not adequate. On these grounds the application was refused. [Paras 15, 16, 17, 19, 20]

Application to recall the order dated 22.06.2018 and to restore the appeal is rejected for want of satisfactory explanation and for inordinate, unexplained delay.

Final Conclusion: The Tribunal held the second application for restoration to be maintainable but, upon examining the facts and delay, found the appellant's explanations unsatisfactory and dismissed the restoration application; the appeal therefore remains dismissed in default.

Maintainability of writ against private banks for enforcement of public duty - nature and effect of RBI COVID-19 moratorium circular (permission to lending institutions; objective of continuity of viable businesses) - discretion of lending institutions versus obligation to implement policy in spirit - applicability of moratorium to structured facilities including Lease Rental Discounting (LRD) - pari-passu charge and inter-creditor equality in multi-bank financings - judicial supervision to ensure implementation and grievance redressal

Maintainability of writ against private banks for enforcement of public duty - Writ petition under Article 226 is maintainable against the respondent banks for enforcement of the RBI Circular insofar as implementation of a public-interest regulatory measure is concerned. - HELD THAT: - The Court held that the RBI Circular was issued in the public interest to mitigate COVID-19 financial distress and to ensure continuity of viable businesses. Enforcement of compliance with that Circular by banks involves enforcement of obligations of public law character. While private banks ordinarily are not amenable to writ jurisdiction for private disputes, where a public duty or statutory/regulatory obligation (or public interest measure) is sought to be enforced against them, writ jurisdiction lies. The Court thus rejected the contention that the dispute is purely private and outside Article 226 insofar as the petition challenges non-implementation of the RBI recovery package which has public law elements. [Paras 21]

Writ petition maintainable against Respondent Nos.5 to 7 for enforcement of RBI Circular dated 27.03.2020.

Nature and effect of RBI COVID-19 moratorium circular (permission to lending institutions; objective of continuity of viable businesses) - discretion of lending institutions versus obligation to implement policy in spirit - The RBI Circular (27.03.2020) grants permission to lending institutions to grant moratoriums (i.e. is discretionary in granting power) but must be implemented in a manner that furthers the Circular's public interest objective of ensuring continuity of viable businesses; banks' discretion is not unfettered. - HELD THAT: - The Court analysed Paras 2, 4 and 8 of the Circular together with the Statement of Development and Regulatory Policies and concluded that the Circular confers a power on lending institutions to grant moratoriums but that the exercise of that power must advance the stated public purpose - mitigating debt servicing burden and preserving viable businesses. Bank policies and implementation must therefore be consistent with that object; a decision that frustrates continuity of a viable business would be contrary to the Circular. The public facing FAQs and bank communications showing eligibility and opt in mechanisms were relied upon to hold that while the grant of moratorium involves bank discretion, eligible borrowers who establish jeopardy to continuity of business are entitled to relief as of right. [Paras 23]

Circular is discretionary as to permission but mandatory in purpose; banks must exercise discretion reasonably to secure continuity of viable businesses and cannot merely adopt formalistic or self-serving exclusions.

Applicability of moratorium to structured facilities including Lease Rental Discounting (LRD) - The RBI Circular applies to all loans/facilities extended by a lending institution, including structured facilities such as Lease Rental Discounting (LRD); banks cannot exclude such facilities merely by labelling them structured where exclusion would defeat the Circular's objective. - HELD THAT: - Respondent banks' contention that LRD is not a term/working capital loan and thus outside the Circular was rejected. The Court found no basis in the Circular to treat structured loans as categorically excluded and observed that appropriation of cash flows by one lender to the detriment of other lenders and of the borrower's viability would frustrate the Circular. Given the Petitioner's standard account status as on 1.3.2020 and the disruption caused to its overall business, the Circular was held applicable to the Petitioner's facilities including LRD. [Paras 24]

Moratorium provisions apply to structured loans including LRD; exclusion cannot be mechanically applied where it would undermine continuity of a viable business.

Pari-passu charge and inter-creditor equality in multi-bank financings - In multi bank financings with common pari passu security over cash flows, one lender cannot unilaterally appropriate funds and thereby deny the borrower the benefit of moratorium while other lenders are willing to grant it; moratorium should be contemporaneously applied by all lenders so as not to prejudice any lender or destroy the borrower's viability. - HELD THAT: - The Court examined the effects of unilateral appropriation from escrow by some lenders while others awaited funds, noting that such conduct could render other lenders' accounts NPA and precipitate measures that would destroy the borrower's business - contrary to the Circular's object. The Court therefore held that one bank cannot deny the extension of moratorium when others are willing to extend it; moratorium implementation in consortium or multi bank arrangements must avoid discriminatory outcomes and preserve the borrower's continuity. [Paras 25]

One bank cannot withhold moratorium in a multi lender arrangement so as to prejudice other lenders or destroy the borrower; moratorium must operate consistently across lenders to protect business continuity.

Judicial supervision to ensure implementation and grievance redressal - RBI is directed to supervise implementation: verify that lenders have Board approved policies with objective criteria, approve or require amendments, and set up an effective grievance redressal mechanism; the Court issued specific reliefs to the parties. - HELD THAT: - Recognising the absence of an effective forum for redress and the public interest dimension of the Circular, the Court held that it could direct RBI to monitor and enforce implementation. RBI was ordered to require banks to submit Board approved policies for scrutiny and to establish grievance redressal for borrowers aggrieved by non implementation. The Court framed remedial directions to give practical effect to the Circular and to prevent discriminatory or self serving bank practices. [Paras 26, 27]

RBI to monitor implementation, require production/approval of board policies containing objective criteria and to set up an effective grievance redressal mechanism; Court issued consequential directions.

Quashing of bank communications and grant of moratorium with attendant operative directions - Communications by Respondent Nos.5 to 7 refusing moratorium are quashed; Respondent Nos.5-7 are directed to grant moratorium for 01.03.2020-31.05.2020 and extended period 01.06.2020-31.08.2020, restrained from recovering EMIs during moratorium, and Respondent Nos.5 and 6 are directed to reverse debits for March and April and transfer amounts to the Petitioner's current account. - HELD THAT: - Applying the legal conclusions above to the facts, the Court quashed the impugned communications rejecting moratoriums and directed immediate grant of moratoriums for the specified periods subject to payment of accrued interest at contracted rates and without reduction of loan account. The banks were restrained from recovering instalments during the moratorium. Further, the Court ordered reversal by Respondents No.5 and 6 of EMI recoveries already effected (including March and April) and transfer to the petitioner's current account for its use, with proper accounting. Costs were made to lie where they fall. [Paras 27]

Impugned communications quashed; Respondent Nos.5-7 to grant three month moratorium (plus extended three months), to be restrained from recovering instalments during moratorium; Respondents 5 & 6 to reverse prior debits and transfer funds to petitioner's current account.

Final Conclusion: The High Court held the petition maintainable and, interpreting the RBI COVID 19 moratorium circular in light of its public interest objective, directed RBI to supervise implementation and banks to act consistently with the Circular; it quashed the banks' refusal communications, granted the petitioner moratoriums for March-May 2020 and June-August 2020 (subject to contracted interest), restrained recovery during moratorium, ordered reversal and transfer of certain debits, and directed RBI to require board policies with objective criteria and an effective grievance redressal mechanism.

Limitation for cognizance under Section 142(1)(b) of the Negotiable Instruments Act - Special procedure under Section 138 of the Negotiable Instruments Act vis-a -vis CrPC - Cognizance of offence under Section 420 IPC where ingredients are absent - Remand for condonation application under proviso to Section 142(1)(b) of the Negotiable Instruments Act

Limitation for cognizance under Section 142(1)(b) of the Negotiable Instruments Act - Special procedure under Section 138 of the Negotiable Instruments Act vis-a -vis CrPC - Validity of cognizance taken under Section 138 NI Act in view of the time-limit prescribed by Section 142(1)(b). - HELD THAT: - The court examined Section 142(1)(b) and the proviso to Section 138 which require that a complaint under Section 138 may be filed within one month of the date on which the cause of action arises (i.e., expiry of 15 days from receipt of the demand notice). The notice was held to have been received on 27.10.2018 and the 15-day period expired on 11.11.2018; consequently the one-month limitation under Section 142(1)(b) expired on 10.12.2018. The complaint was filed on 21.12.2018 without any application or satisfaction furnished to the court under the proviso enabling extension of time. The court reiterated that Section 138/142 constitute a special procedure which displaces the general provisions of the CrPC to the extent of inconsistency and that the court has no power to condone the period unless the complainant satisfies the court under the statutory proviso. In absence of such satisfaction or application, cognizance taken after the prescribed period constituted error. [Paras 16, 17, 18, 19, 21]

Cognizance under Section 138 NI Act as taken on 21.12.2018 was barred by limitation and the order taking cognizance is set aside unless the complainant files a statutory application for extension under the proviso to Section 142(1)(b).

Cognizance of offence under Section 420 IPC where ingredients are absent - Whether cognizance under Section 420 IPC could be maintained on the same materials as the Section 138 complaint. - HELD THAT: - The court assessed the complaint and found no allegation of premeditated culpable intention to defraud or other ingredients necessary to constitute the offence punishable under Section 420 IPC. It held that Section 138 NI Act deals with a specific statutory violation and cannot be illegitimately clubbed with a cheating charge where supporting material is absent. Taking cognizance under Section 420 IPC on the record before the trial court was therefore unwarranted. [Paras 8, 9, 14, 20]

Cognizance taken under Section 420 IPC was set aside as bereft of materials and wholly unwarranted.

Remand for condonation application under proviso to Section 142(1)(b) of the Negotiable Instruments Act - Procedure to be followed after setting aside the time-barred cognizance and disposal directions to the trial court. - HELD THAT: - Although the court found the cognizance time-barred and set aside the order, it observed that the defect arose from misunderstanding of the law. The petition was allowed but the matter was remitted to the Chief Judicial Magistrate, Khowai with directions permitting the complainant to file, within 15 days, an application explaining reasons for delay so that the trial court may consider satisfaction under the proviso to Section 142(1)(b). If such application is filed, the trial court shall issue notice to the accused, hear objections and decide whether the cause shown is satisfactory; if satisfactory, extend time and take cognizance, otherwise reject the complaint as barred. If no application is filed within the stipulated time, the complaint shall be dismissed (slayed) without further consideration. [Paras 21, 22]

Complaint remanded to the Chief Judicial Magistrate, Khowai with directions to permit filing of a condonation application within 15 days and to proceed as per the proviso to Section 142(1)(b); if no application is filed the complaint shall be dismissed.

Final Conclusion: The order of cognizance dated 21.12.2018 is set aside: the part taking cognizance under Section 420 IPC is quashed for want of material; the Section 138 NI Act cognizance is held time-barred in absence of a statutory condonation application, but the complaint is remanded to the Chief Judicial Magistrate with liberty to the complainant to file within 15 days an application under the proviso to Section 142(1)(b) for the trial court's consideration; failure to do so will result in dismissal of the complaint.