TaxTMI Updates e-Newsletter
Jul 15,2025

The core legal questions considered by the Court are:

• Whether the petitioner was denied the fundamental right of cross-examination of witnesses whose statements were relied upon under the CGST Act;
• Whether the denial of cross-examination violates the principles of natural justice;
• Whether the petitioner's delay in seeking cross-examination and failure to explain the need for it justifies refusal of the opportunity;
• Whether the impugned order imposing tax liability and penalty without allowing cross-examination is sustainable;
• Whether the writ petition challenging the order is maintainable despite the availability of an appeal;
• What is the proper procedural conduct regarding cross-examination in proceedings under the CGST Act in light of established legal precedents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Right to Cross-Examination and Principles of Natural Justice

The relevant legal framework includes the principles enshrined in the Evidence Act and the doctrine of natural justice. The Court extensively relied upon authoritative precedents, notably the Apex Court's ruling in a case where it was held that cross-examination is an integral part of natural justice. The Court cited paragraphs 23, 42, and 46 of that judgment, which emphasize that:

• Rules of natural justice require that a party be given the opportunity to adduce relevant evidence and to cross-examine the opposing party's witnesses;
• Failure to provide such an opportunity constitutes a violation of natural justice;
• The right to cross-examination is fundamental and cannot be denied merely on procedural grounds such as delay;
• Any order passed without allowing cross-examination is liable to be set aside and remanded for fresh consideration.

The Court noted that the petitioner was not afforded the opportunity to cross-examine witnesses whose statements were relied upon to impose tax and penalty under the CGST Act. The authority rejected the prayer for cross-examination on the grounds of delay and the correctness of the statements under Section 70 of the CGST Act. However, these reasons were found inadequate because the principle of natural justice mandates that cross-examination cannot be denied solely due to procedural delays or the authority's subjective satisfaction with the statements.

Issue 2: Maintainability of the Writ Petition Despite Availability of Appeal

The respondents contended that the impugned order was appealable, hence the writ petition was not maintainable. The Court rejected this argument, holding that when an order suffers from violation of natural justice, a writ petition is maintainable notwithstanding the availability of an alternative remedy. This principle ensures that fundamental procedural rights are protected and cannot be circumvented by procedural technicalities.

Issue 3: Application of Law to Facts and Treatment of Competing Arguments

The Court carefully examined the reasons given by the authority for denying cross-examination. The authority's reliance on the petitioner's delay and the purported correctness of statements was found insufficient to override the petitioner's right to cross-examination. The Court highlighted that the petitioner had not been given a fair opportunity to challenge the evidence against him. The Court also referred to the Apex Court's observation that applications for cross-examination must be disposed of before finalizing any report or order, and failure to do so vitiates the proceedings.

Consequently, the Court concluded that the impugned order imposing tax liability and penalty without allowing cross-examination was invalid. The Court set aside the order and remanded the matter back to the authority to conduct cross-examination and proceed in accordance with law.

3. SIGNIFICANT HOLDINGS

The Court held:

"The rules of natural justice require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice."

"When the order suffers from principle of natural justice, then the Writ Petition is maintainable."

"Before the submission of any report by the Scrutiny Committee, his application for calling the witnesses for cross-examination must be disposed of, and appellant must be given a fair opportunity to cross-examine the witnesses, who have been examined before the Committee."

These holdings establish the core principle that cross-examination is an indispensable facet of fair procedure under the CGST Act and any order passed without affording this right is liable to be set aside. The Court's final determination was to quash the impugned order and remit the matter for fresh proceedings allowing cross-examination, thereby reinforcing the primacy of natural justice in quasi-judicial tax proceedings.

Issues: (i) Whether the appeal could be entertained despite the availability of an efficacious statutory alternative remedy. (ii) Whether the assessment order suffered from violation of natural justice for want of opportunity of hearing and required remand.

Issue (i): Whether the appeal could be entertained despite the availability of an efficacious statutory alternative remedy.

Analysis: The record showed that the appellant had a statutory appellate remedy under the GST enactment and rules. The Court found that the learned Single Judge had already granted liberty to pursue that remedy within the stipulated period and had protected limitation. In these circumstances, the writ challenge was found to have been pursued without first exhausting the ordinary appellate channel.

Conclusion: The appeal on this issue was rejected against the appellant, and the existence of the alternative remedy weighed against interference.

Issue (ii): Whether the assessment order suffered from violation of natural justice for want of opportunity of hearing and required remand.

Analysis: The Court held that the reply filed by the appellant had been duly considered by the Assessing Authority and that a proper opportunity of hearing had been afforded before passing the impugned order. The plea of breach of Section 75(4) of the GST regime was therefore not accepted, and the cited authorities were held to be inapplicable on the facts.

Conclusion: No violation of natural justice was found, and remand was declined.

Final Conclusion: The challenge to the assessment failed on both maintainability and merits, and the appellant was left to pursue the statutory appellate remedy if so advised.

Ratio Decidendi: Where an efficacious statutory appellate remedy is available and the authority has afforded and considered a meaningful opportunity of hearing, the writ court will ordinarily decline interference in tax assessment proceedings.

Issues: Whether the adjudication order and consequential demand under the GST law were liable to be set aside for want of opportunity of personal hearing before passing the adverse order.

Analysis: Section 75(4) of the Act makes it obligatory for the proper officer to afford an opportunity of hearing before passing an adverse order, irrespective of whether a request is made by the registered person. The show-cause notice and the impugned order did not demonstrate that any time, date or venue for personal hearing had been provided, and there was nothing on record to show that the petitioner had been heard before the order was passed. In these circumstances, the matter was fit to be remanded for fresh adjudication without entering into the other disputes raised.

Conclusion: The order passed under Section 73 and the consequential demand were set aside, and the matter was remitted to the proper officer for fresh decision after giving an opportunity of hearing.

Final Conclusion: The proceedings were reopened for reconsideration on merits after compliance with the hearing requirement under the GST law.

Ratio Decidendi: Where the statute mandates a pre-decisional hearing before an adverse order, failure to afford such hearing vitiates the adjudication and warrants remand for fresh disposal.

- Whether the show-cause notice dated 28th October, 2024 issued under Section 73(1) of the WBGST/CGST Act, 2017 was validly issued, considering the limitation period prescribed under Section 73(10) of the Act for initiating proceedings in respect of the financial year 2020-2021.

- Whether the extension of time to file the annual return under sub-Rule 1A of Rule 80 of the WBGST/CGST Rules, 2017, inserted with effect from 29th December, 2021, affects the limitation period for issuance of the show-cause notice and consequential orders under Section 73(10) of the Act.

- Whether the petitioner's contention that no annual return was required to be filed for the relevant financial year has any bearing on the jurisdiction of the proper officer to issue the show-cause notice within the prescribed time.

- Whether the petitioner's remedy lies in challenging the order passed under Section 73(9) of the Act dated 20th February, 2025 before the appropriate forum, and whether the petitioner's delay in preferring an appeal can be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the show-cause notice dated 28th October, 2024 under Section 73(1) of the WBGST/CGST Act, 2017

Relevant legal framework and precedents: Section 73(10) of the WBGST/CGST Act, 2017 prescribes a limitation period of three years from the due date for furnishing the annual return for issuance of any order in respect of tax not paid, short paid, or ITC wrongly availed or utilized. Section 44 mandates filing of the annual return electronically in Form GSTR 9 by 31st December following the end of the financial year.

Court's interpretation and reasoning: The petitioner argued that since the show-cause notice was issued less than three months before the expiry of the three-year period from the due date of filing the annual return, the notice was invalid and a "non-starter." However, the respondents contended that the limitation period was extended by virtue of sub-Rule 1A of Rule 80 of the WBGST/CGST Rules, 2017, which extended the time for filing the annual return to 28th February, 2022.

Key evidence and findings: The Court noted that the show-cause notice was issued after the insertion of Rule 80(1A), which extended the time for filing annual returns, thereby extending the limitation period for issuance of show-cause notices and consequent orders under Section 73(10).

Application of law to facts: The Court held that the show-cause notice issued on 28th October, 2024 was not barred by limitation because the extended due date for filing the annual return was 28th February, 2022, and the notice was issued within three years thereafter.

Treatment of competing arguments: The petitioner's argument that no annual return was required to be filed was considered but found insufficient to negate the extension of limitation period provided under Rule 80(1A). The Court emphasized the importance of the statutory extension in determining the limitation period.

Conclusions: The issuance of the show-cause notice was held to be valid and within the prescribed time limit.

Issue 2: Effect of Rule 80(1A) of the WBGST/CGST Rules, 2017 on limitation period under Section 73(10)

Relevant legal framework and precedents: Rule 80(1A), inserted with effect from 29th December, 2021, extended the time for filing annual returns, thereby affecting the limitation period for issuance of orders under Section 73(10).

Court's interpretation and reasoning: The Court recognized that the insertion of Rule 80(1A) effectively extended the limitation period for issuance of show-cause notices and orders under Section 73(10) by extending the due date for filing annual returns.

Key evidence and findings: The respondents produced an order dated 20th February, 2025 passed under Section 73 of the Act, which was within the extended limitation period.

Application of law to facts: The Court applied the extended limitation period to uphold the validity of the order passed on 20th February, 2025, and consequently the show-cause notice issued earlier.

Treatment of competing arguments: The petitioner's contention that the extension did not apply was rejected, and the Court emphasized statutory compliance with the extended timeline.

Conclusions: The extension under Rule 80(1A) was held to be operative and binding, thereby validating the issuance of the show-cause notice and the subsequent order within the extended timeline.

Issue 3: Jurisdictional scope and remedy available to the petitioner

Relevant legal framework and precedents: Section 73(9) of the Act provides for issuance of orders after show-cause notices. Remedies against such orders lie before appellate authorities as per the procedural provisions of the Act.

Court's interpretation and reasoning: The Court observed that since an order under Section 73(9) had been passed on 20th February, 2025 within the extended limitation period, the jurisdictional challenge to the issuance of the show-cause notice was not maintainable before the writ jurisdiction.

Key evidence and findings: The order dated 20th February, 2025 was produced, and the petitioner's delay in filing an appeal was noted.

Application of law to facts: The Court held that the petitioner's remedy was to prefer an appeal against the order dated 20th February, 2025 before the appropriate forum.

Treatment of competing arguments: The petitioner submitted that the appeal period had expired due to pendency of the writ petition. The Court, however, granted liberty to prefer the appeal within four weeks and directed the appellate authority to decide the appeal on merits.

Conclusions: The Court declined to entertain the writ petition on jurisdictional grounds and directed the petitioner to pursue remedy by way of appeal within the stipulated time.

3. SIGNIFICANT HOLDINGS

"Though ordinarily a show-cause notice having regard to Section 73(2) of the said Act is required to be issued at least three months prior to the expiry of the time limit specified in sub-Section 10 of Section 73 for issuance of such order, however, in the instant case, I find that for the relevant assessment year that is 2020-21, having regard to the insertion of Rule 80 (1A), the time to file annual returns having been extended up to 28th February, 2022 the show-cause notice or the order passed thereon cannot be said to be irregular."

"Having regard to the observation made hereinabove and noting that an order under Section 73(9) has already been passed on 20th February

Issues: Whether the writ petition challenging the impugned adjudication order should be entertained despite the availability of an efficacious statutory appeal, and whether the asserted grounds justified bypassing the appellate remedy.

Analysis: The order recorded that the impugned adjudication itself specified the appellate remedy, the authority before whom the appeal lay, and the limitation period. The Court found no justification for bypassing that remedy, noting that the complaints regarding limitation and bias required examination of facts and could not establish a complete absence of jurisdiction at the writ stage. The Court also reiterated that extraordinary jurisdiction should not be used to frustrate the statutory process unless the recognised exceptions apply.

Conclusion: The writ petition was not entertained and was dismissed for want of justification to bypass the alternate statutory remedy.

(i) Whether the dismissal of the petitioner's appeal under Section 107(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) on the sole ground of delay is legally sustainable, especially when the delay is attributed to defective or non-service of the adjudication order;

(ii) Whether the limitation period for filing the appeal commences from the date of service of the adjudication order or from the date the petitioner actually acquires knowledge of the order, particularly in cases of defective service;

(iii) Whether the appellate authority was obliged to consider the benefit of Section 14 of the Limitation Act, 1963, which excludes the time during which the petitioner was bona fide prosecuting proceedings before the Court, in computing the limitation period;

(iv) Whether the adjudication order passed by respondent No. 3 in the face of pending appeal proceedings before respondent No. 1 was jurisdictionally proper or amounted to an impermissible parallel proceeding;

(v) Whether the procedural safeguards, including reasonable opportunity of hearing and proper communication of orders, were adhered to in the passing of the impugned adjudication order by respondent No. 3.

Issue-wise Detailed Analysis

1. Legality of dismissal of appeal on ground of delay under Section 107(1) of the CGST Act

The relevant legal framework includes Section 107(1) of the CGST Act, which provides the right to appeal against certain orders within a prescribed time limit, and Section 14 of the Limitation Act, 1963, which excludes from the limitation period the time during which the appellant was prosecuting another proceeding bona fide.

The Court noted that the appellate authority dismissed the appeal solely on the ground of delay without considering whether the delay was caused by defective service of the adjudication order. The petitioner contended that the order was not communicated in a manner known to law, and thus the limitation period did not commence. The Court relied on settled judicial principles that where an order is not duly served, the limitation period cannot start running against the affected party.

The petitioner also relied on the proviso to Section 169 of the CGST Act, which prescribes modes of service of orders and notices, emphasizing that proper service is a prerequisite for the limitation to begin. The Court observed that the appellate authority failed to consider these aspects and did not apply the benefit of Section 14 of the Limitation Act, despite the petitioner's bona fide prosecution of earlier proceedings before the High Court.

The Court found that the appellate authority's failure to exclude the period during which the petitioner was engaged in bona fide proceedings before the High Court, as expressly directed by the Court in earlier orders, amounted to an erroneous exercise of jurisdiction and contravened judicial discipline.

Consequently, the Court held that the dismissal of the appeal solely on the ground of delay was unsustainable in law and required quashing.

2. Commencement of limitation period and effect of defective service

The Court examined whether the limitation period for filing an appeal begins from the date of passing the order or from the date the order is duly served on the party. The petitioner's case was that the order was not properly served and that the petitioner only came to know of it belatedly.

Relying on the statutory provisions and judicial precedents, the Court underscored that limitation cannot run against a party unaware of the order due to defective service. The Court emphasized that the date of knowledge of the order is critical for computing limitation.

The Court also referred to the proviso to Section 169 of the CGST Act, which mandates proper modes of service, and held that in the absence of proper service, the limitation period does not commence.

3. Application of Section 14 of the Limitation Act, 1963

Section 14 of the Limitation Act excludes from the limitation period the time during which the appellant was bona fide prosecuting another proceeding in a Court of law, provided such proceeding was not instituted for delay.

The Court noted that in an earlier round of litigation, it had granted liberty to the petitioner to avail appellate remedy and had directed the appellate authority to consider the benefit of Section 14 in computing limitation. Despite this, the appellate authority failed to apply this principle in the impugned order.

The failure to exclude the period during which the petitioner was engaged in bona fide proceedings before the Court was held to be a serious error, warranting interference.

4. Jurisdictional propriety of parallel adjudication order passed by respondent No. 3

The petitioner challenged the order passed by respondent No. 3 while the appeal before respondent No. 1 was pending, contending that such parallel proceedings are impermissible and undermine the appellate process.

The Court referred to the settled legal principle that once an appellate authority is seized of a matter, parallel adjudication on the same cause of action by another authority is improper, as it leads to multiplicity of proceedings and jurisdictional overlap.

Judicial precedents from the Supreme Court and various High Courts were cited to reinforce that collateral or parallel adjudication during pendency of appeal offends principles of natural justice and judicial discipline.

The Court held that the order passed by respondent No. 3 was arbitrary and legally unsustainable, and liable to be quashed.

5. Procedural fairness and communication of orders

The petitioner contended that the order passed by respondent No. 3 was without affording reasonable opportunity of hearing and was not communicated properly.

The Court noted that procedural fairness is a fundamental requirement and non-communication or defective service of orders deprives the affected party of the opportunity to exercise statutory rights, including filing appeals.

The Court found merit in the petitioner's contention that the impugned order suffered from procedural infirmities and that the appellate authority should have considered these aspects.

Significant Holdings

The Court held:

"The appellate authority has dismissed the appeal solely on the ground of delay, without considering the period spent by the petitioner in bona fide prosecution of proceedings before this Court, which ought to have been excluded under Section 14 of the Limitation Act. The failure to give effect to the exclusion of time as mandated under Section 14, despite a clear direction from this Court, amounts to not only an erroneous exercise of jurisdiction but also a contravention of the judicial discipline expected of statutory authorities."

It was established that defective or non-service of an adjudication order precludes the commencement of limitation for filing appeal, and the date of knowledge of the order is decisive.

The Court emphasized that once an appellate authority is seized of the matter, parallel adjudication by another authority on the same subject matter is jurisdictionally improper and legally unsustainable.

Accordingly, the impugned appellate order dismissing the appeal on the ground of delay was quashed, and the matter was remanded for fresh consideration applying the benefit of Section 14 of the Limitation Act and considering the petitioner's bona fide prosecution of earlier proceedings.

The order passed by respondent No. 3 was also set aside due to jurisdictional impropriety and procedural infirmities.

Issues: Whether the writ petition should be entertained against the assessment order despite the availability of an appellate remedy, and whether the petitioner should be permitted to file an appeal with consideration on merits on compliance with statutory pre-deposit.

Analysis: The challenge to the assessment order was declined in view of the availability of the statutory appeal. At the same time, the petitioner's request to pursue the alternative remedy was accepted, and the appellate authority was directed to consider the appeal on merits if it was filed within the stipulated period and accompanied by the required pre-deposit under the GST law.

Outcome: The writ petition was disposed of with a direction to the appellate authority to entertain the appeal on merits upon timely filing and compliance with pre-deposit.

The core legal questions considered by the Court are:

(a) Whether the order passed under Section 148A(d) of the Income Tax Act, 1961 (IT Act) determining that it is a fit case to issue notice under Section 148, and the subsequent notice under Section 148, are amenable to challenge under writ jurisdiction.

(b) Whether the reopening of the assessment for the assessment year 2017-18 by issuance of notice under Section 148 is barred by limitation, having regard to the amended provisions of Section 149 of the IT Act effective from 01.04.2021.

(c) The applicability and relevance of precedents rendered under the pre-amendment regime (prior to 01.04.2021) in the context of the amended provisions governing reassessment proceedings.

(d) The interpretation and scope of the amended provisions, particularly Section 148A and Section 148(3), including the nature and sufficiency of "information" which "suggests" escapement of income warranting reopening of assessment.

(e) Whether the reopening is based on mere change of opinion or on tangible fresh information justifying reassessment.

(f) The procedural safeguards and requirements under the amended provisions, including the need for prior approval of the specified authority before passing an order under Section 148A(d).

(g) The scope and effect of audit objections as "information" for initiating reassessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Challengeability of the order under Section 148A(d) and notice under Section 148 in writ jurisdiction

The Court examined whether the order determining the fitness to issue notice under Section 148A(d) and the notice under Section 148 can be challenged by way of writ petition. The Revenue relied on the Supreme Court decision in Anshul Jain v. Principal Commissioner of Income-Tax, which held that post issuance of notice under Section 148A(d), grievances on merits must be agitated before the assessing officer during reassessment proceedings, not by writ. However, the Court noted that the Supreme Court and High Courts have distinguished between jurisdictional errors and errors within jurisdiction. Jurisdictional errors, such as issuing notice without jurisdictional preconditions, remain amenable to writ challenge. The Court relied on the Supreme Court decision in Red Chilli International Sales, which affirmed that writ courts can examine jurisdictional preconditions for issuance of notice under Section 148. Further, a Madras High Court decision in Avinashilingam Institute followed this approach. Thus, the Court held that writ petition challenging the order under Section 148A(d) and notice under Section 148 is maintainable if jurisdictional errors are alleged.

(b) Limitation for reopening assessment under amended Section 149

The Court considered the limitation period for issuance of notice under Section 148 for the assessment year 2017-18. The amended Section 149, effective from 01.04.2021, prescribes a three-year limitation period from the end of the relevant assessment year, extendable up to ten years if the Assessing Officer possesses books of account or other documents revealing escapement of income exceeding Rs. 50 lakh. The proviso to Section 149(1)(b) bars issuance of notice if it was time-barred as per pre-amendment provisions.

The Court referred to the Supreme Court decisions in Union of India v. Rajeev Bansal and UOI v. Ashish Agarwal, which held that the amended provisions apply retrospectively to past assessment years if notices are issued after 01.04.2021. The limitation period is to be judged as per the law in force on the date of issuance of notice.

For the assessment year 2017-18, the limitation period under the pre-amendment Section 149(1)(b) was six years from the end of the assessment year (i.e., till 31.03.2024). The notice was issued on 26.03.2024, within the six-year period. Therefore, the Court held that the reopening is not barred by limitation.

The Court clarified that if the four-year limitation period had expired before 01.04.2021 and the assessee had made full and true disclosure, the old regime would apply, barring reopening. However, since the limitation period had not expired by 01.04.2021, the amended provisions apply.

(c) Applicability of precedents under the old regime

The assessee relied on decisions such as CIT v. Kelvinator and others, which established the principle that reopening cannot be based on mere change of opinion and that the Assessing Officer lacks power to review assessments. The Court observed that these decisions were rendered under the pre-amendment regime and emphasized that the legislative amendments brought radical and reformative changes to reassessment procedure.

The Court referred extensively to the decision in Ashish Agarwal, which explained the rationale and scope of the substituted Sections 147 to 151. The new regime replaced the "reason to believe" test with a requirement of "information" that "suggests" escapement of income, and introduced procedural safeguards including prior approval of specified authority and opportunity to the assessee before issuance of notice.

The Court held that it is not safe to mechanically apply old precedents post-amendment. The statutory context has shifted, requiring fresh interpretation aligned with the amended provisions.

(d) Interpretation of "information" and scope of Section 148A and Section 148(3)

The Court analyzed the amended Section 148A, which mandates that before issuing notice under Section 148, the Assessing Officer must provide the assessee an opportunity to show cause why notice should not be issued, accompanied by the "information" suggesting escapement of income. The Assessing Officer must then pass an order with prior approval of the specified authority determining fitness to issue notice.

The Court emphasized that the word "suggests" is recommendatory and indicates a possibility or indication of escapement, not a conclusive finding. At the stage of issuance of notice under Section 148A(1), the Court will not examine sufficiency or adequacy of the information. If the Assessing Officer has relevant information implying possible escapement, the notice can be issued.

However, Section 148A provides safeguards: the Assessing Officer must consider the assessee's reply and obtain prior approval before issuing notice. If the Assessing Officer is satisfied with the reply, notice should not be issued.

(e) Reopening on mere change of opinion

The Court rejected the Revenue's contention that the amended provisions dispense with the "change of opinion" test altogether. It held that while the statutory language has changed, the Assessing Officer cannot reopen assessments on a mere change of opinion without any information suggesting escapement. The reopening must be based on relevant information, not arbitrary or capricious grounds.

(f) Procedural safeguards and prior approval requirement

The Court noted that the amended provisions mandate prior approval of the specified authority before passing order under Section 148A(d). The Assessing Officer cannot unilaterally decide to reopen without such approval. The Court underscored the procedural rigor and safeguards introduced to prevent abuse of power.

(g) Role and sufficiency of audit objections as "information"

The Court examined the audit objections relied upon by the Assessing Officer as the "information" suggesting escapement. It held that audit objections must clearly opine that the assessment was not made in accordance with the provisions of the Act to qualify as "information" under Section 148(3). Mere audit objections raising issues for further examination or proposing inquiries do not suffice.

In the instant case, the audit objections raised concerns about the nexus of expenses with business, genuineness of borrowings, and creditworthiness of lenders, but paragraphs (b) and (c) only proposed further examination without definite objection that assessment was not in accordance with law.

The Court held that reassessment can be confined only to the issue of processing charges and professional charges, where the audit objection clearly suggested escapement. Other aspects lacked definite audit objection qualifying as "information".

Application of law to facts and treatment of competing arguments

The Court found that the reopening notice was issued within the six-year limitation period under the pre-amended Section 149(1)(b). The amended provisions apply retrospectively as the notice was issued after 01.04.2021.

The Court disagreed with the learned Single Judge's reliance on pre-amendment precedents like Kelvinator, holding that the amended statutory framework requires fresh analysis.

Regarding the audit objection, the Court held that the notice under Section 148A(1) must be accompanied by the audit objection or relevant portions, which was not done here. The Assessing Officer's order under Section 148A(d) contained only a truncated extract.

The Court concluded that only the issue relating to processing and professional charges met the threshold of "information" suggesting escapement. The reassessment proceedings and notice were therefore limited to this aspect.

The Court remitted the matter to the Assessing Officer to issue a fresh notice under Section 148A(1) within four weeks in respect of the limited issue of processing and professional charges.

3. SIGNIFICANT HOLDINGS

"The High Court itself made a distinction between jurisdictional error and error of law / fact within jurisdiction. The High Court clarified that for rectification of errors, statutory remedy has been provided. The clear implication is that where there are jurisdictional errors, writ petition will lie."

"The amended provisions apply retrospectively for past assessment years as well, if notice under Section 148 is issued after 01.04.2021. The limitation period must be judged as per the law in force on the date of issuance of notice."

"The word 'suggests' can only mean 'indicate'. Suggest is not a strong word by itself. It is rather recommendatory in tone. The word 'suggest' cannot connote anything more."

"At the stage of issuance of initial notice under Section 148A(1), the Court would not go into the sufficiency or adequacy of the information. If the assessing officer can show that he has 'information' and it suggests escapement of income, the writ Court should not interfere at that stage."

"Audit objection must opine that the assessment was not made as per the statutory provisions. Only then it will qualify to be considered as 'information'."

"The reopening cannot be based on mere change of opinion. The Assessing Officer must have information which suggests escapement of income."

"The amended provisions have introduced procedural safeguards including prior approval of the specified authority before passing order under Section 148A(d)."

"The writ petition filed by the assessee is maintainable to challenge jurisdictional errors at the stage of issuance of notice under Section 148A and Section 148."

"The reopening notice issued on 26.03.2024 for the assessment year 2017-18 is within the six-year limitation period under the pre-amended Section 149(1)(b) and hence not barred by limitation."

"The reassessment proceedings are confined to the issue of processing charges and professional charges only, as only in respect of these charges the audit objection qualifies as 'information' suggesting escapement of income."

The Court considered the following core legal questions raised by the Revenue in its appeal under Section 260A of the Income Tax Act, 1961:

(a) Whether the Income Tax Appellate Tribunal ("the Tribunal") erred in law by admitting, accepting, and relying upon a share valuation certificate dated December 16, 2022, which was not produced before the Assessing Officer (AO), Commissioner of Income Tax (Appeals) [CIT(A)], the Tribunal earlier, or before the High Court, and whether such valuation was flawed, erroneous, and unreliable;

(b) Whether the Tribunal was justified in law in deleting the addition of Rs. 4,78,50,000/- on account of share capital and share premium in the absence of proof regarding the identity of the creditors, genuineness, and creditworthiness of the transactions;

(c) Whether the Tribunal failed to follow binding judicial principles laid down in an earlier decision of the High Court in Pr. CIT2, Kolkata (C)-2, Kolkata Vs M/s BST Infratech Ltd. (2024), which had precedence value;

(d) Whether the Tribunal erred in law by not considering judicial principles laid down in Pr. CIT Vs. Swati Bajaj (2022), where the High Court laid down guidelines on the manner in which allegations against the assessee must be considered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Admissibility and Reliance on Share Valuation Certificate

Legal Framework and Precedents: The valuation of shares for determining the genuineness and fair value of share capital and premium is a critical aspect under the Income Tax Act, particularly when additions are made under Section 68 for unexplained share capital. The principles of admissibility of evidence, especially valuation reports, require that such evidence be produced before the AO or CIT(A) and be subject to scrutiny at all appellate levels.

Court's Interpretation and Reasoning: The Court noted the Revenue's contention that the valuation certificate dated December 16, 2022, was not produced before the AO, CIT(A), or the Tribunal previously and was therefore inadmissible. However, the Court found that the Tribunal had undertaken a thorough fact-finding exercise and had relied on a broad range of documents and evidence beyond the valuation certificate alone. The Court did not find merit in the Revenue's submission that the valuation certificate was flawed or unreliable, as the Tribunal's findings were based on a holistic examination of facts.

Key Evidence and Findings: The Tribunal examined the financial statements and documents relating to the share applicants and found their creditworthiness and genuineness of transactions to be satisfactory. The valuation certificate was only a part of the evidence considered.

Application of Law to Facts: The Court held that the Tribunal's acceptance of the valuation certificate, despite its late production, did not vitiate the order since the Tribunal had independently verified the identity, creditworthiness, and genuineness of the share applicants through other documentary evidence.

Treatment of Competing Arguments: The Revenue's objection on procedural grounds was outweighed by the substantive examination of facts by the Tribunal.

Conclusion: No illegality or error was found in the Tribunal's reliance on the valuation certificate in the context of the entire evidence.

Issue (b): Deletion of Addition of Rs. 4,78,50,000/- on Account of Share Capital and Premium

Legal Framework and Precedents: Additions under Section 68 require the Revenue to establish that the share capital or premium received is unexplained, and the identity, creditworthiness, and genuineness of the share applicants are doubtful. The Supreme Court decisions in Kale Khan Mohammad Hanif vs. CIT (1963) and Roshan-Di-Hatti vs. CIT (1977) lay down principles for such inquiries, emphasizing the need for the Revenue to prove the source and genuineness of funds beyond reasonable doubt.

Court's Interpretation and Reasoning: The Tribunal examined the identity and creditworthiness of the five share applicant companies by reviewing their financial statements and found that each had sufficient funds and the amounts invested were negligible in comparison. The Tribunal also noted that the share applicants had undergone scrutiny assessments under Section 143(3), which remained undisputed.

Key Evidence and Findings: The Tribunal found that the identity of the share applicants was not in dispute, the transactions were genuine, and the source of funds was already taxed in the hands of the share applicants. The Tribunal relied on the Supreme Court decision in Mahaveer Kumar Jain vs. CIT (2018), which held that taxing the same amount twice would be impermissible.

Application of Law to Facts: The Court found that the Tribunal correctly applied the principles from the Supreme Court and High Court precedents to the facts, resulting in the deletion of the addition made under Section 68.

Treatment of Competing Arguments: The Revenue's argument regarding the absence of proof of identity and creditworthiness was rejected based on the documentary evidence and prior scrutiny assessments.

Conclusion: The deletion of the addition was upheld as justified and based on sound legal and factual grounds.

Issue (c): Non-application of Judicial Principles from Earlier High Court Decision in BST Infratech Ltd.

Legal Framework and Precedents: The principle of judicial precedent requires that earlier decisions of the same High Court on similar issues be followed unless distinguished on facts or overruled. The Revenue contended that the Tribunal failed to apply the principles laid down in the BST Infratech Ltd. case (2024), which had precedence.

Court's Interpretation and Reasoning: The Court observed that the Tribunal had undertaken a detailed fact-finding exercise and had applied the relevant principles from Supreme Court and High Court decisions, including those cited by the Revenue. The Court did not find any failure on the part of the Tribunal to consider or apply binding precedents.

Key Evidence and Findings: The Tribunal's order reflected a careful analysis of identity, creditworthiness, and genuineness, consistent with judicial guidelines.

Application of Law to Facts: The Court held that the Tribunal's approach was consistent with judicial precedent and that no error arose from alleged non-application of the BST Infratech Ltd. decision.

Treatment of Competing Arguments: The Revenue's submission was considered but found unsubstantiated.

Conclusion: No legal infirmity was found in the Tribunal's application of judicial principles.

Issue (d): Non-consideration of Judicial Principles from Pr. CIT Vs. Swati Bajaj

Legal Framework and Precedents: The Swati Bajaj decision (2022) laid down guidelines on the manner in which allegations against the assessee must be considered, emphasizing fairness and procedural propriety.

Court's Interpretation and Reasoning: The Court noted that the Tribunal had adhered to principles of natural justice and had conducted a detailed examination of the evidence and allegations. The Tribunal's approach was consistent with the guidelines laid down in Swati Bajaj.

Key Evidence and Findings: The Tribunal's order showed that allegations were considered carefully and the assessee was given an opportunity to present evidence.

Application of Law to Facts: The Court found no omission or error in the Tribunal's consideration of the allegations as per the judicial guidelines.

Treatment of Competing Arguments: The Revenue's claim of non-consideration was rejected.

Conclusion: The Tribunal complied with judicial principles governing allegations against the assessee.

3. SIGNIFICANT HOLDINGS

The Court concluded that the appeal filed by the Revenue lacked merit and dismissed the same, holding that no substantial question of law arose for consideration. The following core principles and determinations were established:

"The identity of the share applicant companies cannot be disputed."

"The creditworthiness of all the five companies was found sufficient, and the amount invested was negligible compared to their financial strength."

"The genuineness of the transactions cannot be doubted as the source of share application money has already been taxed in the hands of the share applicants, and taxing the same amount again would amount to double addition."

"The Tribunal's reliance on the valuation certificate, despite its late production, did not vitiate the order as it was part of a comprehensive factual examination."

"The Tribunal correctly applied the principles laid down by the Hon'ble Supreme Court in Kale Khan Mohammad Hanif vs. CIT and Roshan-Di-Hatti vs. CIT, and the decisions of this Court in Mahaveer Kumar Jain vs. CIT and PCIT vs. Sreeleathers."

"No failure was found in the Tribunal's application of judicial precedents including BST Infratech Ltd. and Swati Bajaj."

"No substantial question of law arises, and the appeal is dismissed."

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

• Whether the ex-parte order passed under Section 147 read with Section 144B of the Income Tax Act for the assessment year 2017-18 is liable to be quashed on the ground that the petitioner was denied an opportunity to reply to the notice issued under Section 148A(b) of the Act.
• Whether the penalty notices issued under Sections 270A, 271AAC(1), 271F, and 272A(1)(d) of the Income Tax Act for the assessment year 2017-18 are liable to be quashed in light of the alleged procedural irregularities.
• Whether the petitioner, having allegedly not commenced business and not activated the PAN number, is entitled to relief from the impugned assessment and penalty orders.
• The scope and applicability of Section 148A(b) notice and the procedural fairness owed to the petitioner before passing assessment and penalty orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the ex-parte order under Section 147 read with Section 144B

Relevant legal framework and precedents: Section 147 of the Income Tax Act empowers the Assessing Officer to reopen an assessment if there is reason to believe that income has escaped assessment. Section 144B mandates that before passing an order under Section 147, the Assessing Officer must issue a notice under Section 148A(b) affording the assessee an opportunity to be heard and file a reply. The principle of natural justice requires that no order should be passed without giving the affected party an opportunity to present their case.

Court's interpretation and reasoning: The Court noted that the impugned order was passed ex-parte, meaning without the petitioner having been given an adequate opportunity to respond to the Section 148A(b) notice. The petitioner contended that the business was never commenced and the PAN was not activated, hence no reply was furnished. The Court, however, did not accept the submission that the petitioner had no obligation to respond on this basis.

Key evidence and findings: The petitioner's own admission that the partnership firm was formed and capital received indicated that the entity existed in law, and thus procedural fairness was mandated. The failure to respond to the notice under Section 148A(b) led to the ex-parte order.

Application of law to facts: The Court emphasized that even if the petitioner had ceased business or not commenced it, the statutory procedure under Section 148A(b) must be complied with before passing an assessment order. The petitioner should have been given an opportunity to reply before the order was passed.

Treatment of competing arguments: The petitioner's argument that the PAN was not activated and hence no reply was possible was rejected. The Court balanced the principle of natural justice against the procedural requirements and found in favor of the petitioner's right to be heard.

Conclusion: The ex-parte order passed under Section 147 read with Section 144B was quashed for non-compliance with the mandatory procedural requirement of hearing the petitioner under Section 148A(b).

Issue 2: Validity of penalty notices under Sections 270A, 271AAC(1), 271F, and 272A(1)(d)

Relevant legal framework and precedents: Penalty provisions under the Income Tax Act require that the underlying assessment or reassessment proceedings are valid and that the assessee has been given an opportunity to contest the charges before penalties are imposed. The principles of natural justice and fair procedure extend to penalty proceedings as well.

Court's interpretation and reasoning: Since the penalty notices were consequent to the impugned ex-parte assessment order, the Court held that the penalty notices could not survive independently. The penalty notices dated 22.03.2025 and 29.03.2025 were quashed along with the assessment order.

Key evidence and findings: The penalty notices were issued without the petitioner having been afforded a proper opportunity to respond to the assessment proceedings, which formed the basis for the penalties.

Application of law to facts: The Court reasoned that quashing the assessment order necessarily entailed quashing the penalty notices that flowed from it, as the penalties were predicated on the validity of the assessment.

Treatment of competing arguments: No substantial argument was made by the respondents to uphold the penalty notices independently of the assessment order. The Court did not find any justification to maintain the penalties in the absence of a valid assessment.

Conclusion: The penalty notices under Sections 270A, 271AAC(1), 271F, and 272A(1)(d) were quashed as they were consequent to the impugned assessment order which was set aside.

Issue 3: Petitioner's claim of non-commencement of business and non-activation of PAN

Relevant legal framework and precedents: The existence of a legal entity and receipt of capital contributions are sufficient to attract the provisions of the Income Tax Act. Activation of PAN is a procedural requirement but does not negate the legal existence or obligations of the entity.

Court's interpretation and reasoning: The Court did not accept the contention that the petitioner's failure to activate the PAN or commence business absolved it from responding to the statutory notices. The Court held that the petitioner had a legal status and was bound by the statutory process.

Key evidence and findings: The formation of the partnership firm and receipt of capital were admitted facts, which indicated that the petitioner was a taxable entity under the Act.

Application of law to facts: The Court applied the principle that procedural fairness and statutory compliance cannot be circumvented by technical or factual claims such as non-activation of PAN or non-commencement of business.

Treatment of competing arguments: The petitioner's argument was considered but ultimately rejected on the ground that it did not justify denial of opportunity to be heard.

Conclusion: The petitioner was required to respond to the notices irrespective of the status of business commencement or PAN activation.

Issue 4: Scope of Section 148A(b) notice and procedural fairness

Relevant legal framework and precedents: Section 148A(b) mandates that before reopening an assessment, the Assessing Officer must issue a notice and provide an opportunity to the assessee to respond. This provision was introduced to ensure transparency and fairness in reassessment proceedings.

Court's interpretation and reasoning: The Court emphasized the mandatory nature of

1. Whether the issuance of the show cause notice under Section 144(3) of the Income Tax Act, 1961, with a response time of four days, complies with the principles of natural justice and the Standard Operating Procedure (SOP) prescribed for faceless assessments under Section 144B of the Income Tax Act.

2. Whether the time granted for uploading voluminous documents and evidences on the faceless assessment portal was sufficient and reasonable, given the technological constraints such as limited space and scanning time.

3. Whether the assessment order passed under Section 147 read with Section 144B of the Income Tax Act, 1961, without affording adequate opportunity to the petitioner to present its case, is liable to be set aside.

4. The extent of the powers of the National Faceless Assessment Centre under Section 144B(6)(xi) of the Income Tax Act to prescribe procedures and timelines, and whether such procedures must conform to the principles of natural justice.

Issue-wise Detailed Analysis

Issue 1: Compliance with Principles of Natural Justice and SOP Timelines

Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act empowers the Assessing Officer to reassess income where income has escaped assessment. Section 144B introduces faceless assessment procedures and empowers the National Faceless Assessment Centre to prescribe standards, procedures, and processes under Section 144B(6)(xi). The SOP dated 03.08.2022 prescribes a response time of seven days from the issuance of the show cause notice, with a possible curtailment only in exceptional circumstances such as limitation dates for completing assessment.

Judicial precedents cited include Basudeo Tiwary v. Sido Kanhu University and Nagarjuna Construction Co. Ltd. v. Government of Andhra Pradesh, which emphasize that violation of natural justice leads to arbitrariness and courts presume a duty to observe natural justice whenever rights are affected by statutory decisions.

Court's Interpretation and Reasoning: The Court observed that the show cause notice was issued on 22.02.2025 with a due date for submission of reply fixed on 26.02.2025, providing only four days instead of the prescribed seven days under the SOP. The Court held that this is a flagrant violation of the SOP and the principles of natural justice, which require reasonable opportunity to be given to the assessee.

Application of Law to Facts: The Court found the faceless assessment unit's action of granting only four days without adequate justification inconsistent with the SOP and natural justice. The Court noted that the SOP allows curtailment of the response time only in view of limitation dates, which was not demonstrated here.

Treatment of Competing Arguments: The Revenue contended that the petitioner had sufficient time to upload the documents and that the order passed was appropriate. The Court rejected this, emphasizing the mandatory nature of the SOP timelines and the need to afford reasonable opportunity.

Conclusion: The Court concluded that the issuance of the show cause notice with only four days' time was contrary to the SOP and principles of natural justice, rendering the assessment order liable to be set aside.

Issue 2: Adequacy of Time and Facility for Uploading Documents

Relevant Legal Framework: The faceless assessment procedure requires submission of evidences electronically. The SOP recognizes the need to provide reasonable opportunity and adequate time to the assessee to comply.

Key Evidence and Findings: The petitioner submitted that voluminous records had to be scanned and uploaded, which was time-consuming due to limited space on the portal. The four-day period was insufficient for compliance.

Court's Reasoning: The Court accepted the petitioner's submission that the limited time and space constraints hindered proper compliance. This was relevant to the principle of natural justice, which demands a fair opportunity to present one's case.

Application of Law to Facts: Given the technological constraints and volume of documents, the Court found the time granted insufficient and unreasonable.

Treatment of Competing Arguments: The Revenue argued that the petitioner could have uploaded documents within the stipulated time. The Court found this argument unpersuasive in light of the petitioner's uncontested difficulties.

Conclusion: The Court held that the inadequate time and limited facility for uploading documents violated the principle of reasonable opportunity.

Issue 3: Validity of the Assessment Order Passed Under Section 147 read with Section 144B

Relevant Legal Framework: Section 147 authorizes reassessment where income has escaped assessment. Section 144B introduces faceless assessment procedures, requiring adherence to prescribed standards and natural justice.

Court's Interpretation and Reasoning: The Court noted that the assessment order was passed without affording adequate opportunity to the petitioner to submit necessary documents, in violation of the SOP and natural justice.

Application of Law to Facts: Since the petitioner was not given reasonable opportunity to comply, the assessment order was rendered arbitrary and unsustainable.

Conclusion: The Court set aside the assessment order dated 08.03.2025 and remitted the matter for fresh adjudication with directions to afford reasonable opportunity.

Issue 4: Powers of the National Faceless Assessment Centre and Requirement to Observe Natural Justice

Relevant Legal Framework: Section 144B(6)(xi) empowers the Principal Chief Commissioner or Principal Director General in charge of the National Faceless Assessment Centre to lay down standards and procedures for its functioning, subject to Board approval.

Court's Interpretation and Reasoning: The Court observed that while the Centre has powers to prescribe procedures, these must comply with the overarching principles of natural justice. The SOP itself reflects an intention to ensure reasonable opportunity.

Application of Law to Facts: The Court found that deviation from the SOP without valid justification amounted to violation of natural justice.

Conclusion: The Court emphasized that the procedures prescribed under Section 144B must be consistent with natural justice and cannot be arbitrarily curtailed.

Significant Holdings

"It is apparent that the time so specified by the Faceless Assessment Unit is not in consonance with the Standard Operative Procedure. Therefore, this Court is of the view that there has been flagrant violation of the principles of natural justice."

"Violation of natural justice leads to arbitrariness and when right is affected by decision taken by statutory powers, the Court may presume existence of a duty to observe the rules of natural justice."

"Inadequate time was granted to the petitioner to furnish voluminous documents. Therefore, this Court is inclined to set aside the Assessment Order dated 08.03.2025 passed under Section 147 read with Section 144B of the Income Tax Act and remit the matter to the opposite party no. 4-The Assessment Unit, Income Tax Department, The National Faceless Assessment Centre for fresh adjudication."

Core principles established include the mandatory adherence to the SOP timelines issued under Section 144B of the Income Tax Act, the necessity of affording reasonable opportunity consistent with natural justice in faceless assessments, and the invalidity of assessment orders passed in breach of these principles.

Final determinations are that the assessment order framed under Section 147 read with Section 144B is set aside due to violation of natural justice arising from insufficient time granted for compliance, and the matter is remitted for fresh adjudication with directions to afford reasonable opportunity to the petitioner.

1. Whether the Assessing Officer (AO) was justified in treating the entire credits of Rs. 3,35,18,807/- in the assessee's bank account as unexplained cash deposits during the demonetization period, when the assessee contended that actual cash deposits were only Rs. 3,92,500/- and the rest were non-cash credits duly reconciled with turnover and other receipts.

2. Whether the AO was empowered to expand the scope of limited scrutiny beyond examination of cash deposits to include all bank credits without prior approval from competent authority and without credible information of tax evasion from any agency, in violation of CBDT Instruction No. F No.225/402/2018/ITA.II dated 28.11.2018.

3. Whether the addition of Rs. 1,14,43,309/- under section 68 of the Income Tax Act, 1961, made by the AO and confirmed by the CIT(A), was sustainable where the assessee had furnished reconciliation statements and explanations for the bank credits.

4. Whether the CIT(A) was justified in rejecting the assessee's reconciliation and explanations on the ground of lack of evidences such as cash books, daily cash summaries, PAN and address of customers, and comparative RTGS data for previous years.

5. Whether the appeal orders passed by AO and CIT(A) were valid in light of procedural violations and failure to consider relevant evidence submitted by the assessee.

Issue-wise Detailed Analysis

Issue 1: Treatment of Entire Bank Credits as Cash Deposits During Demonetization

Legal Framework and Precedents: Section 68 of the Income Tax Act allows the AO to treat unexplained cash credits as income if the assessee fails to satisfactorily explain the nature and source of such credits. However, the AO must correctly identify the nature of credits, distinguishing between cash deposits and other receipts.

Court's Interpretation and Reasoning: The AO initially relied on SFT data indicating cash deposits of Rs. 3,35,18,807/- during FY 2016-17. The assessee clarified that actual cash deposits were only Rs. 3,92,500/-, supported by bank statements showing the majority of credits were non-cash in nature, including RTGS/NEFT receipts from Tata Motors Limited and other reconciled items.

The AO, however, treated the entire credits as cash deposits and further inflated the figure to Rs. 3,94,01,990/- by including opening bank balances erroneously. The AO's approach was factually incorrect and misrepresented the nature of bank credits.

Key Evidence and Findings: The assessee submitted detailed reconciliation, including audited financial statements, bank statements, Form 26AS, and a reconciliation chart illustrating the alignment of bank credits with turnover, service tax, debtors, TDS refunds, and other items. These documents demonstrated that the majority of credits were accounted for and not unexplained cash deposits.

Application of Law to Facts: The AO's failure to differentiate between cash deposits and other credits contravened the principle that unexplained cash credits must be specifically identified. The misclassification led to an erroneous addition under section 68.

Treatment of Competing Arguments: The Revenue contended that the SFT data constituted credible information justifying scrutiny of all credits. The assessee countered by clarifying the factual position with documentary evidence. The Court found the assessee's submissions credible and the AO's reliance on SFT data without verification misplaced.

Conclusion: The AO erred in treating all bank credits as cash deposits, and the addition based on this premise was unsustainable.

Issue 2: Jurisdiction and Scope of Limited Scrutiny under CBDT Instructions

Legal Framework and Precedents: CBDT Instruction No. F No.225/402/2018/ITA.II dated 28.11.2018 restricts the scope of limited scrutiny assessments selected under CASS cycles 2017 and 2018 to the specific issue for which the case was selected (here, cash deposits during the demonetization period). Expansion to complete scrutiny requires prior approval from the Pr. CIT and credible information from Law Enforcement/Intelligence/Regulatory agencies regarding tax evasion.

Court's Interpretation and Reasoning: The AO's initial mandate was to examine cash deposits during demonetization. Upon determining actual cash deposits were only Rs. 3,92,500/-, the AO expanded scrutiny to all bank credits without obtaining requisite approval or having credible information of tax evasion from any agency.

The Court rejected the Revenue's argument that information on the insight portal (SFT data) amounted to credible information from an agency. The portal data is merely uploaded information, not intelligence or evidence of tax evasion.

Key Evidence and Findings: The AO's order itself acknowledged the limited cash deposits, yet he proceeded beyond his jurisdiction. The assessee's submissions highlighted this procedural violation.

Application of Law to Facts: The AO's failure to comply with the CBDT instructions rendered the expansion of scrutiny and consequent additions beyond his jurisdiction and therefore invalid.

Treatment of Competing Arguments: The Revenue maintained the AO's actions were justified based on available data. The Court relied on judicial precedents emphasizing strict adherence to CBDT instructions and held that unauthorized expansion of scrutiny is impermissible.

Conclusion: The AO exceeded jurisdiction by expanding scrutiny without approval, violating CBDT instructions, rendering the additions bad in law.

Issue 3: Validity of Addition under Section 68 in Light of Reconciliation

Legal Framework and Precedents: Section 68 additions require that the assessee fails to satisfactorily explain the nature and source of cash credits. Where the assessee provides credible reconciliation and documentary evidence, additions are unwarranted.

Court's Interpretation and Reasoning: The assessee furnished a detailed reconciliation of bank credits with turnover, service tax, debtors, TDS refunds, salary cheque returns, overdraft credits, cash deposits, and unsecured loans. The CIT(A) did not dispute the accuracy of this reconciliation but rejected it on procedural grounds.

Key Evidence and Findings: The reconciliation chart and supporting documents were submitted before the CIT(A) and the Tribunal. The CIT(A) failed to comment on the correctness or veracity of the reconciliation.

Application of Law to Facts: The absence of any adverse finding on the reconciliation's correctness implies the addition was not justified. The CIT(A)'s dismissal based solely on alleged lack of supporting evidence without specifying deficiencies was improper.

Treatment of Competing Arguments: The Revenue argued that the assessee failed to produce adequate evidence such as cash books, daily cash summaries, PAN and addresses of customers, and comparative RTGS data. The Court noted that the AO had not sought or considered these documents during assessment, and the CIT(A) did not provide reasons why the reconciliation was insufficient.

Conclusion: The addition under section 68 was not sustainable as the assessee satisfactorily explained the bank credits.

Issue 4: Rejection of Reconciliation and Explanations by CIT(A)

Legal Framework and Precedents: Appellate authorities must consider all relevant evidence and provide reasoned orders. Rejection of explanations without addressing their merits or without giving the assessee an opportunity to furnish evidence is improper.

Court's Interpretation and Reasoning: The CIT(A) dismissed the appeal on grounds that the assessee did not produce books of accounts or evidences to explain cash deposits and did not furnish PAN and address of customers or comparative RTGS data, despite the assessee submitting bank statements, audited financials, Form 26AS, and reconciliation.

The Court observed that the CIT(A) did not specifically comment on the reconciliation's correctness or refute it. The dismissal was thus based on procedural grounds without proper evaluation of the submissions.

Key Evidence and Findings: The assessee had submitted additional evidence including TDS refund ledger, overdraft account statement, ledger of unsecured loans, bank book, cash book, and a notarized affidavit, which were not considered by CIT(A).

Application of Law to Facts: The CIT(A)'s failure to consider these evidences and to evaluate the reconciliation on merits rendered the order unsustainable.

Treatment of Competing Arguments: Revenue's insistence on non-filing of certain documents was not supported by record since the assessee had filed substantial documentary evidence. The Court emphasized the need for appellate authorities to examine evidence rather than dismiss on technical grounds.

Conclusion: CIT(A)'s rejection of the reconciliation and dismissal of appeal without considering the evidence was improper and unsustainable.

Issue 5: Validity of Assessment and Appellate Orders in Light of Procedural Violations

Legal Framework and Precedents: Assessments and appellate orders passed in violation of statutory procedures and CBDT instructions are liable to be quashed. Judicial precedents affirm that additions made beyond the scope of scrutiny or without following prescribed procedures are void.

Court's Interpretation and Reasoning: The AO expanded the scope of limited scrutiny without prior approval, contrary to CBDT instructions. The CIT(A) confirmed the addition without addressing the procedural irregularities or the reconciliation submitted by the assessee.

Key Evidence and Findings: The Court relied on multiple judicial precedents from various ITAT benches and High Courts which held that additions made beyond the scope of limited scrutiny without proper authorization are invalid.

Application of Law to Facts: Given the AO's and CIT(A)'s failure to comply with procedural mandates and to consider relevant evidence, the orders were held to be legally unsustainable.

Treatment of Competing Arguments: The Revenue's reliance on SFT data and non-compliance by the assessee was outweighed by the procedural lapses and substantive reconciliation provided by the assessee.

Conclusion: Both the assessment and appellate orders were quashed and the addition deleted.

Significant Holdings

"While the initial information with the ld. AO suggested that the cash deposited in Canara Bank A/c No.2170201000579 was Rs. 3,35,18,807/-, after examination of the said bank account, the ld. AO had satisfied himself that the total amount of cash deposited into the said account was only Rs. 3,92,500/-. Therefore, within the terms of the mandate given to him by virtue of the grounds on which the case was picked up for limited scrutiny, he could not have gone beyond examination of the sources of cash deposits to start enquiring into the entire credits of the assessee in the said bank account, without specific permission from the Pr. CIT and that too only if he had specific information from any agency regarding tax evasion by the assessee."

"Information placed on the insight portal is only information as uploaded by the SFT filer. It does not constitute information regarding tax evasion by an assessee."

"The AO's failure to comply with the CBDT instructions rendered the expansion of scrutiny and consequent additions beyond his jurisdiction and therefore invalid."

"Where the assessee furnishes a detailed reconciliation of bank credits with turnover and other receipts and the appellate authority does not refute the accuracy of such reconciliation, additions under section 68 are not sustainable."

"The CIT(A)'s dismissal of the appeal on procedural grounds without considering the reconciliation and evidence submitted by the assessee is unsustainable."

"Additions made beyond the scope of limited scrutiny without prior approval and in violation of CBDT instructions are void and liable to be quashed."p>

In final determination, the Tribunal allowed the appeal, deleted the addition of Rs. 1,14,43,309/-, and held that the AO and CIT(A) erred in expanding the scope of limited scrutiny without authorization and in ignoring the reconciliation and evidence submitted by the assessee.

1. Whether the addition of Rs. 1,81,59,953/- as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961 is justified where the assessee company is not a registered or beneficial shareholder in the lending companies but has borrowed short-term loans from sister concerns having a common substantial shareholder.

2. Whether the addition of Rs. 10,37,16,000/- under section 68 of the Act on account of unexplained cash credit (unsecured loan from Global Distributors Limited) is justified, considering the assessee's explanation and evidence regarding the genuineness and creditworthiness of the lender and the transaction.

3. Whether the provisions of section 68 require the assessee to prove the source of source of the unexplained credit.

Issue-wise detailed analysis:

Issue 1: Applicability of section 2(22)(e) for deemed dividend on loans from sister concerns

Relevant legal framework and precedents: Section 2(22)(e) defines "dividend" to include any payment by a closely held company (not substantially owned by the public) by way of loan or advance to a shareholder holding not less than 10% of voting power or to any concern in which such shareholder has substantial interest, to the extent of accumulated profits of the lending company. The provision aims to tax loans or advances as deemed dividends to shareholders or concerns substantially interested in the company.

Precedents cited included the decision of the Hon'ble Delhi High Court in Ankitech Pvt. Ltd. vs. CIT and the Supreme Court decision in CIT vs. Madhur Housing and Development Company, which clarified that the expression "shareholder" in section 2(22)(e) refers to a person who is the beneficial owner of shares, and the provisions apply only where the recipient is a shareholder or a concern in which the shareholder has substantial interest.

Court's interpretation and reasoning: The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] initially held that since M/s Aeren R Enterprises Pvt. Ltd. held substantial shareholding (more than 20%) in both the assessee company and the lending companies (Shree Mahesh Realtors Pvt. Ltd. and Smart Estates Pvt. Ltd.), the loans taken by the assessee from these sister concerns attracted section 2(22)(e) as deemed dividend. The CIT(A) dismissed the assessee's contention that the provision applies only to registered or beneficial shareholders and upheld the addition.

However, on appeal before the Tribunal, the assessee argued reliance on the Delhi High Court's decision in Ankitech Pvt. Ltd., which held that the provision applies only when the recipient is a shareholder or a concern in which such shareholder has substantial interest. The Tribunal observed that the assessee company was neither a registered shareholder nor beneficial owner in the lending companies. The common substantial shareholder was Aeren R Enterprises Pvt. Ltd., but the loans were between sister concerns, not from a company to its shareholder or to a concern in which the shareholder has substantial interest. The Tribunal noted the absence of any evidence that the assessee company had transferred funds to the holding company or that the loans were for the benefit of the shareholder. Thus, neither limb of section 2(22)(e) was attracted.

Key evidence and findings: Shareholding patterns showed no shareholding by the assessee in the lending companies; Aeren R Enterprises Pvt. Ltd. was common substantial shareholder. The assessee had produced relevant documents and relied on judicial precedents.

Application of law to facts: Since the assessee was not a shareholder or a concern in which the shareholder had substantial interest, the deemed dividend provisions under section 2(22)(e) did not apply to the loans taken from sister concerns.

Treatment of competing arguments: The AO and CIT(A) relied on the common substantial shareholder to invoke section 2(22)(e), whereas the assessee relied on judicial precedents emphasizing the requirement of beneficial ownership or shareholding by the recipient. The Tribunal found the latter argument persuasive.

Conclusion: The Tribunal allowed the ground and directed deletion of the addition under section 2(22)(e).

Issue 2 and 3: Addition under section 68 on account of unexplained cash credit of Rs. 10,37,16,000/- from Global Distributors Limited and the requirement to prove source of source

Relevant legal framework and precedents: Section 68 of the Income Tax Act provides that if any sum is credited in the books of an assessee and the assessee fails to satisfactorily explain the nature and source of such sum, it may be treated as income. The burden of proof lies heavily on the assessee to establish (i) identity of the creditor, (ii) creditworthiness of the creditor, and (iii) genuineness of the transaction.

Court's interpretation and reasoning: The AO held that the unsecured loan from Global Distributors Limited was not genuine, based on various factors: the directors of Global Distributors Limited were also directors of other group companies; the company had no employees or business activity; the bank account showed frequent deposits and withdrawals with minimal balance maintained; and the transactions were largely within the group. The AO concluded the transactions were sham and disallowed the loan under section 68.

The CIT(A) upheld the AO's findings, relying on the heavy burden on the assessee to prove genuineness and creditworthiness and noting that the case laws cited by the assessee were distinguishable.

On appeal before the Tribunal, the assessee submitted extensive evidence including details of borrowings, confirmations, bank statements, and notably an arbitration award arising from a collaboration agreement with Delhi Chemical & Pharmaceutical Works Pvt. Ltd. The arbitration award confirmed the assessee's entitlement to compensation and recognized the substantial investments and bona fide nature of the transactions. The Tribunal noted that the award was not placed before the lower authorities.

The Revenue relied on the AO's observations and the fact that Global Distributors Limited had no independent business or profit-making activity, and that the transactions were unusual and largely intra-group.

Key evidence and findings: The assessee produced documentary evidence including bank statements, confirmations, audited accounts of Global Distributors Limited, and the arbitration award. The award confirmed the genuineness of the transactions and the assessee's entitlement to compensation for breach of agreement. The directors' statements and AO's investigation revealed intra-group transactions but did not conclusively establish sham transactions.

Application of law to facts: The Tribunal found that the assessee had satisfactorily established the identity, creditworthiness, and genuineness of the creditor and the transactions. The arbitration award was a significant piece of evidence substantiating the genuineness. Mere frequent intra-group transactions and maintenance of minimum bank balances did not suffice to disprove genuineness.

Treatment of competing arguments: The AO and CIT(A) emphasized the suspicious pattern of transactions and lack of independent business activity of the creditor. The assessee relied on documentary evidence and the arbitration award to prove bona fide nature. The Tribunal accepted the assessee's evidence as sufficient to discharge the burden under section 68.

Conclusion: The Tribunal allowed the grounds relating to addition under section 68 and directed deletion of the addition of Rs. 10,37,16,000/- as unexplained cash credit.

Significant holdings:

On section 2(22)(e), the Tribunal held:

"From the above definition, a company in which public are not substantially interested makes a payment by way of advance or loan to a shareholder, being a person who is beneficial owner of shares holding not less than 10% of the voting power. In such situation, provisions of section 2(22)(e) are attracted. In the given case... the assessee is not a beneficial shareholder nor a registered shareholder. Therefore, the concept of section 2(22)(e) of the Act is not attracted in the given case... Therefore, the decision of Hon'ble Delhi High Court in the case of Ankitech Pvt. Ltd. (supra) squarely covered in the present case also. Therefore, we direct the Assessing Officer to delete the above addition made in this case."

On section 68, the Tribunal observed:

"Section 68 of the Income-Tax Act, 1961 provides that, where any sum is found credited in the books of assessee maintained for any previous year, and the assessee offers no explanation about the nature and source therefore the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory; the sum so credited may be charged to income-tax as the income of the assessee for that previous year. The burden of proof is heavily cast on the assessee. First of all, he must furnish an explanation as otherwise the cash credit will be treated as his income. Secondly, the explanation offered must be to the satisfaction of the Assessing Officer. It is by now well-settled that what all is required from the assessee by way of explanation is, (i) that he must establish the identity of the payer; (ii) that he must prove the creditworthiness of the payer, and (iii) that he must prove the genuineness of the transaction."

Further, the Tribunal concluded:

"The Award in favour of the assessee awarded in the arbitration proceedings proves that the transaction is genuine... Therefore, the assessee has already proved the genuineness of the transaction and in our view, there is no requirement to remit this issue back to lower authorities for verification and it will not serve any purpose. Therefore, we are inclined to allow the ground nos.3 & 4 raised by the assessee."

Core principles established:

• The provisions of section 2(22)(e) of the Income Tax Act apply only when the recipient of the loan or advance is a registered or beneficial shareholder holding at least 10% voting power or a concern in which such shareholder has substantial interest. Mere borrowing from sister concerns sharing a common substantial shareholder does not attract deemed dividend provisions.
• Under section 68, the assessee bears the burden to establish identity, creditworthiness, and genuineness of the creditor and the transaction. Documentary evidence, confirmations, bank statements, and arbitration awards substantiating the transactions can discharge this burden.
• Judicial precedents clarifying the scope of "shareholder" and the applicability of deemed dividend provisions must be carefully applied based on facts.

Final determinations:

• The addition of Rs. 1,81,59,953/- as deemed dividend under section 2(22)(e) was deleted as the provisions were not attracted.
• The addition of Rs. 10,37,16,000/- under section 68 as unexplained cash credit was deleted as the assessee discharged the burden of proof regarding the genuineness and creditworthiness of the lender and the transaction.

1. Whether the addition of Rs. 1,97,68,500/- on account of share capital and share premium credited in the books of the assessee can be sustained under section 68, given the nature of transactions and the source of funds.

2. Whether the addition of Rs. 15,93,14,500/- on account of advances received against projects, treated as unexplained income under section 68, is justified considering the identity, creditworthiness, and genuineness of the parties involved and the nature of receipts.

3. The procedural propriety of admitting additional evidence before the Commissioner of Income Tax (Appeals) without remand to the Assessing Officer for verification.

Issue 1: Addition on account of share capital and share premium under section 68

The relevant legal framework is section 68 of the Income Tax Act, which deals with unexplained cash credits. The provision mandates that where any sum is found credited in the books of an assessee and the assessee fails to explain the nature and source of such sum, it may be charged to income tax as income of the assessee. The onus lies on the assessee to establish the identity, genuineness, and creditworthiness of the parties from whom the share capital and share premium were received.

Precedents cited include judgments that differentiate between fresh capital inflows and mere book entries or journal entries that do not involve actual receipt of funds during the year under appeal. The case law relied upon by the assessee (e.g., Jatia Investment Co. and others) establishes that section 68 is not attracted where there is no actual cash credit but only accounting entries transferring amounts already recorded in earlier years.

The Court noted that the Assessing Officer (AO) made additions on the ground that certain share applicants had not paid amounts directly but through transfers from other accounts, and the source of funds was not satisfactorily explained. However, the Commissioner of Income Tax (Appeals) (CIT(A)) found that the amounts credited as share capital and share premium were journal entries transferring balances brought forward from earlier years, not fresh receipts during the year under appeal.

The assessee produced ledger accounts, Income Tax Returns (ITRs), balance sheets, board resolutions, confirmations, and audit reports to establish the identity and creditworthiness of the parties. The CIT(A) accepted these evidences and concluded that the source of funds was adequately explained and that section 68 was not applicable.

The Revenue failed to produce material to rebut the CIT(A)'s findings. The Tribunal concurred with the CIT(A), holding that the preliminary condition for invoking section 68-receipt of fresh funds during the year-was not met. The addition was therefore deleted.

Competing arguments by the Revenue focused on the indirect nature of the payments and alleged lack of direct receipt of funds by the assessee. However, the Tribunal emphasized that the relevant question is whether fresh funds were credited in the year under appeal, which was not the case here.

Conclusion: The addition of Rs. 1,97,68,500/- under section 68 on account of share capital and share premium was rightly deleted by the CIT(A). The Tribunal upheld this deletion, dismissing the Revenue's appeal on this issue.

Issue 2: Addition on account of advances against projects under section 68

This issue concerns whether advances totaling Rs. 15,93,14,500/- received by the assessee from nine companies were unexplained credits under section 68. The AO had observed that these companies were private unlisted entities with no regular business activity and had shown nil or no income in their returns, raising doubts about their creditworthiness and the genuineness of the transactions.

The AO noted the absence of complete audit reports, balance sheets, bank statements, and resolutions authorizing lending. The AO treated the advances as accommodation entries and made additions accordingly.

The CIT(A), however, admitted additional evidence filed by the assessee during appellate proceedings, including ITRs, balance sheets, board resolutions, confirmations, ledger accounts, audit reports, and bank statements of the parties involved. The CIT(A) found that a part of the advances (Rs. 5,22,74,500/-) were journal entries transferring balances brought forward from earlier years and thus not fresh receipts. The balance amount (Rs. 10,70,40,000/-) was credited during the year and supported by bank statements demonstrating creditworthiness and genuineness.

The CIT(A) concluded that the assessee had discharged its onus under section 68 and deleted the additions.

The Revenue contended that the CIT(A) erred in admitting fresh evidence without remanding the matter to the AO for verification, thus violating principles of natural justice and procedural fairness. The Revenue requested remand for verification of the documents.

The Tribunal observed that the AO had not seen these documents during assessment and that no request under Rule 46A for additional evidence was made by the assessee before the CIT(A). The CIT(A) should have obtained a remand report from the AO before accepting such evidence. Given this procedural lapse, the Tribunal set aside the CIT(A)'s order on this issue and remanded the matter to the CIT(A) for reconsideration after obtaining the AO's report and deciding in accordance with law.

Competing arguments included the assessee's submission that the documents sufficiently proved identity, creditworthiness, and genuineness, and that the AO had not disproved these facts. However, the Tribunal prioritized procedural propriety and the need for AO's verification before final adjudication.

Conclusion: The addition on account of advances against projects requires reconsideration. The matter was remanded to the CIT(A) for fresh decision after obtaining the AO's verification report. The Revenue's appeal was partly allowed on this ground.

Issue 3: Procedural propriety in admitting additional evidence

The Tribunal underscored the importance of procedural fairness in tax proceedings. When additional evidence is filed before the appellate authority that was not available to the AO, the appellate authority should seek a remand report from the AO to enable verification and comments on the new evidence. Failure to do so may vitiate the appellate order.

In this case, the CIT(A) admitted voluminous documents supporting the assessee's claims without remanding the matter to the AO. The Tribunal agreed with the Revenue's contention that this was improper and necessitated remand for verification.

This principle ensures that the AO, who is the fact-finder at the assessment stage, has an opportunity to examine and comment on new evidence before the appellate authority passes final orders.

Significant holdings and core principles

1. "For invoking the provisions of section 68 of the Act, the preliminary condition is that the amount should be credited in the books in the year under appeal which fact is not present in the case of the assessee."

2. Where share capital and premium are increased by way of journal entries transferring brought forward balances and no fresh funds are received during the year, section 68 does not apply.

3. The assessee bears the onus to prove the identity, creditworthiness, and genuineness of the parties from whom credits appear in its books. This can be discharged by filing documents such as ITRs, balance sheets, board resolutions, confirmations, ledger accounts, auditor's reports, and bank statements.

4. The appellate authority should not admit additional evidence without remanding the matter to the AO for verification and comments, to ensure procedural fairness and proper adjudication.

5. In cases where advances are shown as credits from companies with no business activity or legitimate income, the AO is justified in scrutinizing the genuineness and creditworthiness and may treat such credits as unexplained if the assessee fails to discharge the onus.

6. The Tribunal upheld the deletion of additions under section 68 in respect of share capital and share premium where no fresh funds were credited during the year and the source was explained through earlier credits and journal entries.

7. The Tribunal remanded the issue relating to advances against projects for fresh consideration due to procedural irregularity in admitting fresh evidence without AO's verification.

1. Whether the disallowance of Rs. 11,14,348/- under Section 43B of the Income Tax Act, 1961, made by the CPC during processing of the return under Section 143(1), was justified.

2. Whether the CIT(A) erred in confirming the disallowance based on the tax auditor's report without adequately appreciating the submissions and documentary evidence filed by the assessee during appellate proceedings.

3. Whether the GST liability purportedly disallowed under Section 43B had actually been paid or adjusted before the due date, thereby negating the applicability of Section 43B disallowance.

4. Whether the treatment of GST amounts that were not routed through the profit and loss account affects the applicability of Section 43B disallowance.

Issue-wise Detailed Analysis

Issue 1: Justification of Disallowance under Section 43B

Legal Framework and Precedents: Section 43B mandates that certain specified expenses or liabilities, including statutory dues, are allowable as deduction only if paid on or before the due date of filing the return. The provision intends to ensure timely payment of statutory dues. Precedents such as CIT vs. Noble and Hewitt (I) P. Ltd. (Delhi HC) and ATS Real Estate Builders (P) Ltd. (Delhi Tribunal) have clarified that where the amount is not debited to profit and loss account or routed through it, Section 43B disallowance may not apply.

Court's Interpretation and Reasoning: The Tribunal carefully examined the facts and documents, including the GST cash and credit ledgers, GST receivables, and liabilities as on 31.03.2020. It was found that the assessee had closing GST credits and receivables amounting to Rs. 27,09,738/-, which exceeded the GST payable of Rs. 11,50,351/-. The GST payable was adjusted against these credits before the due date for filing the return.

Key Evidence and Findings: The balance sheet and GST ledgers showed that the GST liability was paid by adjustment with input tax credit before the due date. The tax auditor's report had incorrectly stated that the statutory dues were unpaid, which was factually incorrect.

Application of Law to Facts: Since the GST liability was discharged before the due date, the conditions for disallowance under Section 43B were not met. The Tribunal relied on the principle that disallowance under Section 43B applies only when payment is not made timely.

Treatment of Competing Arguments: The Department relied on the tax auditor's report and the orders of authorities below to justify the disallowance. The assessee argued that the GST liability was paid via adjustment and was not routed through profit and loss account, hence disallowance was not warranted. The Tribunal favored the assessee's submissions and documents over the auditor's erroneous report.

Conclusion: The disallowance under Section 43B was not sustainable as the GST liability was paid before the due date, and the auditor's report was factually incorrect.

Issue 2: Confirmation of Disallowance by CIT(A) without Appreciating Submissions

Legal Framework and Precedents: Appellate authorities are duty-bound to consider all relevant evidence and submissions before confirming disallowances. Failure to do so can vitiate the order.

Court's Interpretation and Reasoning: The Tribunal noted that despite the assessee placing the balance sheet, profit and loss account, and GST ledgers before the CIT(A), the appellate authority failed to appreciate these facts and relied solely on the auditor's report. The CIT(A) observed that the assessee admitted the unpaid liability as per the auditor's report, which was incorrect.

Key Evidence and Findings: The Tribunal emphasized that the auditor's report was erroneous and that the CIT(A) did not properly consider the documentary evidence proving payment of GST liability.

Application of Law to Facts: The failure of the CIT(A) to appreciate the evidence led to an erroneous confirmation of disallowance.

Treatment of Competing Arguments: The Department defended the CIT(A)'s order, but the Tribunal found the reasoning flawed due to non-appreciation of key evidence.

Conclusion: The CIT(A)'s confirmation of disallowance was not justified due to inadequate consideration of the assessee's submissions.

Issue 3: Applicability of Section 43B to GST Amounts Not Routed Through Profit and Loss Account

Legal Framework and Precedents: The principle established in CIT vs. Noble and Hewitt (I) P. Ltd. and ATS Real Estate Builders (P) Ltd. is that if the statutory dues are not debited to profit and loss account, Section 43B disallowance provisions do not apply.

Court's Interpretation and Reasoning: The Tribunal observed that the GST amounts in question were not routed through the profit and loss account, as also admitted in the tax audit report. This fact negates the applicability of Section 43B disallowance.

Key Evidence and Findings: The balance sheet and profit and loss account confirmed the GST was not charged as an expense in the profit and loss account.

Application of Law to Facts: The Tribunal applied the legal principle that disallowance under Section 43B is triggered only when the expense/liability is charged to profit and loss account but remains unpaid.

Treatment of Competing Arguments: The Department's reliance on the auditor's report was countered by the assessee's evidence and relevant judicial precedents.

Conclusion: The disallowance under Section 43B was not applicable to the GST amounts not routed through profit and loss account.

Issue 4: Rectification Application under Section 154 and its Disposal

Legal Framework and Precedents: Section 154 allows rectification of mistakes apparent from record. The rectification application was disposed of confirming the disallowance, which was challenged in the present appeal.

Court's Interpretation and Reasoning: The Tribunal found that the rectification disposal did not consider the factual errors in the auditor's report and the documentary evidence proving payment of GST liability.

Key Evidence and Findings: The rectification order merely upheld the original disallowance without re-examining the material facts.

Application of Law to Facts: The Tribunal held that the rectification order was not sustainable in light of the evidence and legal principles.

Conclusion: The rectification order confirming disallowance was set aside by the Tribunal.

Significant Holdings

"Having regard to the entire aspect of the matter particularly the reporting by the tax auditor in para 26(1)(B)(b) that the amount of Rs. 11,14,348/- has not been paid before the due date is factually wrong, the impugned addition made by the Ld. CIT(A) to the tune of Rs. 11,50,351/- is found to be not sustainable in the eyes of law and thus, deleted."

The Tribunal established the core principle that disallowance under Section 43B is contingent upon non-payment of statutory dues on or before the due date of filing return, and if such dues are adjusted or paid timely, no disallowance is warranted.

It was further held that where statutory liabilities such as GST are not routed through the profit and loss account, Section 43B disallowance does not apply.

The Tribunal conclusively determined that the disallowance of Rs. 11,14,348/- under Section 43B was incorrect and deleted the addition, allowing the appeal.

1. Whether the deposits of SBNs made by the assessee between 9th November 2016 and 30th December 2016 can be treated as unexplained income under Section 69A of the Income Tax Act, 1961, given the demonetization notification and subsequent ordinance.

2. The legal effect of the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, and the exact date from which SBNs ceased to be legal tender.

3. Whether the assessee's explanation that the deposits represent recovery of loans from borrowers during the demonetization period is acceptable and supported by evidence.

4. The applicability and interpretation of the Standard Operating Procedure (SOP) issued by the Central Board of Direct Taxes (CBDT) regarding verification of cash deposits during the demonetization period.

5. Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT (A)) erred in law and procedure by making additions without proper verification and opportunity of hearing.

Issue-wise Detailed Analysis:

1. Treatment of SBN Deposits as Unexplained Income under Section 69A

The relevant legal framework includes Section 69A of the Income Tax Act, which deals with unexplained money, bullion, or valuable articles. The provision requires that for addition under this section, the assessee must be found to be the owner of money not recorded in books of account, and the explanation offered must not be satisfactory to the AO.

Precedents cited by the assessee emphasize that once the source of deposits is satisfactorily explained and recorded, no addition under Section 69A can be made.

The AO and CIT (A) rejected the assessee's explanation that the deposits represented loan recoveries, primarily on the ground that SBNs ceased to be legal tender from 9th November 2016, and thus acceptance of such notes violated the demonetization notification. They held that the deposits were unexplained money under Section 69A.

The assessee contended that the deposits were in the ordinary course of business, supported by audited financial statements and RBI regulation, and that the SBNs could be deposited up to 30th December 2016 as per the notification. The assessee also relied on SOPs issued by the CBDT and prior investigation reports which found no adverse findings.

The Court noted that the AO and CIT (A) did not apply the CBDT SOPs which require detailed verification of cash deposits, including comparison with normal business operations and prior years' data. The assessee's detailed records and loan agreements were not adequately examined.

Thus, while the AO and CIT (A) relied solely on the demonetization notification to reject the explanation, the Court found that proper verification as per CBDT guidelines was lacking, necessitating remand for fresh adjudication.

2. Legal Effect of the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and Date of Cessation of Legal Tender

The Government notification dated 8th November 2016 declared that SBNs of Rs. 500 and Rs. 1000 ceased to be legal tender with effect from 9th November 2016. However, the notification allowed exchange or deposit of such notes up to 30th December 2016.

The assessee argued that the Ordinance promulgated later provided that SBNs ceased to be legal tender only from 31st December 2016, thus deposits before that date were lawful.

The AO and CIT (A) held that the effective date of cessation of legal tender was 9th November 2016, as per the notification, and the Ordinance merely clarified liabilities of the Reserve Bank and Government, not the legal tender status.

The Court agreed with the authorities below that the SBNs ceased to be legal tender from 9th November 2016, and the Ordinance did not extend the legal tender status but provided a grace period for exchange/deposit. Therefore, acceptance of SBNs after 8th November 2016, except as permitted by the notification, was not lawful.

3. Genuineness of Assessee's Explanation Regarding Source of Deposits

The assessee operates as an RBI-regulated NBFC engaged in microfinance, with extensive record-keeping, audits, and regulatory supervision. The collections are made from identifiable borrowers through a network of branches and centers, with loan agreements and repayment schedules documented.

The assessee submitted that deposits of SBNs represented recovery of loans disbursed earlier, supported by loan receivable balances exceeding Rs. 1500 crores as on 31/03/2016.

The AO and CIT (A) found this explanation untenable, reasoning that no prudent person or regulated NBFC would accept demonetized notes in violation of the notification, especially when no disbursements were made in SBNs during the period.

The Court observed that the AO and CIT (A) did not conduct a detailed verification of the records or compare deposits during the demonetization period with other periods, as required by the CBDT SOP. The assessee's evidence of consistent business operations and regulatory compliance was not adequately considered.

Therefore, the Court held that the genuineness of the assessee's explanation requires proper examination and verification, which was not done.

4. Applicability and Interpretation of CBDT SOPs on Verification of Cash Deposits

The CBDT issued multiple circulars and SOPs guiding tax authorities on handling cash deposits during demonetization. These instructions emphasize verifying the source of deposits, comparing with normal business patterns, and distinguishing genuine transactions from suspicious ones.

The assessee relied heavily on these SOPs, arguing that the AO failed to follow them, leading to an unjustified addition.

The AO and CIT (A) did not apply these SOPs or conduct the mandated detailed verification, relying instead on the demonetization notification alone.

The Court found this approach flawed and held that the matter must be remanded for application of the SOPs, detailed verification of records, and proper adjudication.

5. Procedural and Legal Errors by AO and CIT (A)

The assessee contended that the CIT (A) erred in not providing an opportunity for hearing and in confirming the addition without examining the evidence and applying the CBDT SOPs.

The Court noted that the CIT (A) confirmed the addition based on the notification and the AO's findings without proper verification of evidence or following the SOPs.

The Court did not expressly find procedural violation but emphasized the need for fresh adjudication with proper opportunity and application of relevant guidelines.

Significant Holdings:

"The notification dated 8/11/2016 categorically declares that the specified bank notes shall cease to be legal tender with effect from the 9th November 2016... The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016... cannot be accepted as correct legal proposition that the effective date on which the SBNs have ceased to be legal tender is 31st December 2016."

"The appellant's explanation that the specified bank notes deposited in the bank account represents collection in specified bank notes effected by the company from its loan borrowers... which were adjusted against the borrowers' regular loan obligations... defies the logic and common sense."

"Neither the AO nor the CIT (A) has examined the relevant facts and records of the assessee by following the SOP as notified by the CBDT."

"The matter requires a proper verification and examination of the record as well as the genuineness of the claim of the assessee in the light of the SOP issued by the CBDT in this respect. Hence, the impugned order of the CIT (A) is set aside and the matter is remanded to the record of the CIT (A) for fresh adjudication."

The core principles established include:

• The legal tender status of SBNs ceased from 9th November 2016 as per the Government notification, and the Ordinance clarifies liabilities but does not extend legal tender status.
• Accepting and depositing SBNs after 8th November 2016, except as permitted under the notification, is not lawful.
• For additions under Section 69A, the source of deposits must be proved unexplained after satisfactory explanation and verification.
• The CBDT SOPs on verification of demonetization period cash deposits are mandatory and must be followed by tax authorities before making additions.
• Proper verification and examination of evidence, including comparison with normal business operations and prior years' data, is essential before rejecting explanations.

Final determinations:

The Tribunal set aside the orders of the AO and CIT (A) confirming the addition of Rs. 39,66,15,500 as unexplained income under Section 69A and remanded the matter for fresh adjudication. The remand directs the CIT (A) to apply the CBDT SOPs, verify the genuineness of the assessee's claim supported by records, and pass a reasoned order after giving the assessee an opportunity of hearing.

Another related issue concerns the validity and sufficiency of the evidence relied upon by the AO, including the rejection of the assessee's furnished documents such as ledger accounts, purchase bills, delivery challans, VAT invoices, and bank statements, and whether the application of a gross profit (GP) rate is an appropriate method of quantifying the undisclosed income.

Issue-Wise Detailed Analysis:

1. Legality and Justification of Reopening Assessment and Addition of Bogus Purchases

Relevant Legal Framework and Precedents: The reopening of assessment under section 147 requires that the AO have a "reason to believe" that income chargeable to tax has escaped assessment. The AO's reliance on information from the Directorate General of Income Tax (Investigation) and the Sales Tax department is a recognized basis for forming such belief. However, the reopening must be supported by tangible material, and the additions made must be justified on the basis of evidence.

Court's Interpretation and Reasoning: The Court noted that the AO's entire addition was premised on information received from the Sales Tax department that two suppliers were involved in accommodation entries, and the assessee was allegedly a beneficiary. The AO did not accept the documents produced by the assessee, including ledger accounts, purchase bills, delivery challans, VAT invoices, and bank statements, dismissing them as self-prepared or insufficiently detailed. The AO also faulted the assessee for not producing confirmations from the suppliers or the suppliers themselves.

Key Evidence and Findings: The assessee furnished detailed records including ledger accounts, bank statements showing payments through account payee cheques, delivery challans, corresponding sales invoices, and VAT returns. The corresponding sales were not disputed by the AO. The AO's rejection of these documents was based on the absence of certain details (e.g., truck numbers on delivery challans) and the non-appearance of the suppliers for verification.

Application of Law to Facts: The Court emphasized that once the assessee has demonstrated the source of purchases in the books, reflected in bank statements, and corresponding sales are not disputed, it is not justified to treat the entire purchases as bogus without further concrete evidence. The Court observed that the AO's approach of making the entire addition was excessive and unjustified.

Treatment of Competing Arguments: The Revenue argued that the information from the Sales Tax department and DGIT(Inv.) was sufficient to justify the addition, and that non-production of confirmations and suppliers warranted rejection of the documents. The assessee contended that the documents produced were genuine and sufficient to establish the purchases and corresponding sales, and that the AO's rejection was arbitrary.

Conclusions: The Court concluded that the AO's rejection of the documents and the entire addition was not sustainable. The reopening was valid, but the quantum of addition needed to be moderated.

2. Appropriateness of Restricting Addition to 25% of Bogus Purchases

Relevant Legal Framework and Precedents: In cases of suppression of profits or unexplained purchases, the application of a gross profit rate on the purchases is a recognized method to estimate the undisclosed income, especially where direct evidence is lacking or disputed. The rate applied must be reasonable and reflective of the business's gross profit margin.

Court's Interpretation and Reasoning: The Court observed that even if the purchases were partly accommodation entries with cash being routed back, this would amount to suppression of profits rather than the entire purchase being bogus. The CIT(A) had applied a gross profit rate of 25%, which the Court found to be on the higher side, thereby providing a liberal estimate in favor of the Revenue.

Key Evidence and Findings: The CIT(A) restricted the addition to 25% of the total purchases alleged to be bogus, amounting to Rs. 10,46,86,380/-. This was based on the premise that the purchases were not fully disallowed but only a portion representing suppressed profits was added back.

Application of Law to Facts: The Court held that the CIT(A)'s approach was reasonable and balanced, recognizing the prima facie information from the Sales Tax department but also giving credit to the assessee's documentary evidence. The application of a 25% gross profit rate was deemed appropriate to quantify the undisclosed income.

Treatment of Competing Arguments: The Revenue contended that the entire purchases should be added back as bogus. The assessee argued for complete rejection of the addition. The Court sided with the CIT(A)'s middle path approach.

Conclusions: The Court upheld the CIT(A)'s restriction of addition to 25% of the purchases, confirming the quantum of addition at Rs. 10,46,86,380/-.

Significant Holdings:

"Now once the assessee has shown source of the purchases from the books reflecting in the bank statement and corresponding sales has not been disputed then, to infer that entire purchases are outside the books so as to make entire addition is unjustified."

"At the most it could be a case of suppression of profits whereby even if it is accepted that assessee might have paid the cheque to such parties and after receiving the cash back has purchased the material from the grey market, it only leads to suppression of profits. In such a scenario application of GP rate is sufficient."

"Here in this case ld. CIT(A) has already applied huge GP rate of 25% of such purchases which itself is at a much higher side. Accordingly, we do not find any infirmity in the order of the ld.CIT(A) and the same is confirmed."

The Court confirmed the principle that reopening of assessment must be supported by tangible material beyond mere information, and that documentary evidence furnished by the assessee cannot be summarily rejected without cogent reasons.

In final determination, the Court dismissed the Revenue's appeal and upheld the CIT(A)'s order restricting the addition to 25% of the alleged bogus purchases, thereby reducing the quantum of income escaping assessment from Rs. 41,86,53,520/- to Rs. 10,46,86,380/-.

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

(i) Whether the reopening of the assessment under section 147 read with section 148 of the Income Tax Act, 1961 ("the Act") was justified on the grounds of new tangible material or was merely a change of opinion.

(ii) Whether the National Faceless Appeal Centre (NFAC) erred in passing the appeal order without considering the legal grounds and rejoinder submitted by the assessee.

(iii) Whether the additions of Rs. 3,00,00,000 and Rs. 1,30,00,000 made under section 68 of the Act on account of unexplained share application money and unexplained receipts in the bank account respectively, were justified.

(iv) Whether the identity, creditworthiness, and genuineness of the share applicants and the transactions with M/s PAM Jewellers Pvt. Ltd. were satisfactorily established by the assessee.

(v) Whether the assessee complied with procedural requirements and provided adequate explanations and evidences during reassessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Justification for Reopening of Assessment under Section 147/148

Legal Framework and Precedents: Section 147 permits reopening of assessment if the Assessing Officer (AO) has reason to believe that income chargeable to tax has escaped assessment. The Supreme Court and various High Courts have held that reopening cannot be based on mere change of opinion but must be supported by tangible new material.

Court's Interpretation and Reasoning: The Tribunal examined the reasons recorded by the AO for reopening the assessment for AY 2012-13. The AO relied on information received from the DDIT (Investigation Wing) indicating large cash transactions in the bank account of M/s PAM Jewellers Pvt. Ltd., linked to the assessee, and unexplained share application money received at premium from Kolkata-based companies.

Physical enquiry conducted by the Investigation Wing revealed absence of physical stock of goods at the assessee's premises despite its claim of being in jewellery business. Summons issued to the assessee and related parties were not complied with. The AO found that the information was not available at the time of original assessment and constituted new tangible material. The Tribunal noted that the AO did not mechanically adopt the information but conducted independent verification and analysis before reopening.

Application of Law to Facts: The Tribunal concluded that the reopening was based on new tangible material and not mere change of opinion. The assessee's failure to fully and truly disclose material facts and non-compliance with summons justified the AO's reason to believe that income had escaped assessment.

Treatment of Competing Arguments: The assessee contended that the reopening was unjustified and a mere change of opinion. The Tribunal rejected this, holding that the AO had sufficient new material and that the case laws cited by the assessee were not applicable.

Conclusion: The reopening under section 147/148 was valid and justified.

Issue (ii): NFAC's Consideration of Legal Grounds and Rejoinder

The assessee alleged that NFAC passed the appeal order without considering the legal grounds and rejoinder submitted. However, the assessee did not press these grounds during the hearing. The Tribunal dismissed these grounds as not pressed, implying no substantive consideration was required.

Issue (iii): Addition of Rs. 3,00,00,000 on Account of Unexplained Share Application Money under Section 68

Legal Framework and Precedents: Section 68 mandates that where any sum is found credited in the books of an assessee as share application money, the assessee must prove the identity, creditworthiness, and genuineness of the share applicant and the transaction.

Court's Interpretation and Reasoning: The AO issued notices under section 133(6) to eleven parties who had subscribed to the shares at premium. None of these parties responded to the notices during reassessment proceedings, and all speed post notices were returned undelivered. The AO noted that the source of funds in the bank accounts of these parties was immediate credit of an equivalent amount by cheque, indicating lack of intrinsic capacity to invest from their own income.

The AO, therefore, held that the identity, creditworthiness, and genuineness of these transactions were not established and added Rs. 3,00,00,000 under section 68. The CIT(A) confirmed this addition.

Key Evidence and Findings: The AO relied on bank statements, lack of response to notices, and the pattern of immediate credit to share applicants' accounts. The Tribunal also referred to a precedent where similar facts led to the addition of share application money.

Application of Law to Facts: The Tribunal found that the AO had not conclusively rejected the submissions made during the original assessment, and that the matter required further enquiry to ascertain the full facts. The Tribunal set aside the addition for fresh enquiry by the AO, directing the assessee to cooperate and comply with proceedings.

Treatment of Competing Arguments: The assessee argued that the issue was already examined during original assessment and that details were submitted. However, the Tribunal emphasized the failure of the parties to respond during reassessment and the need for further verification.

Conclusion: The addition of Rs. 3,00,00,000 was set aside for fresh adjudication after due enquiry.

Issue (iv): Addition of Rs. 1,30,00,000 on Account of Unexplained Receipt from M/s PAM Jewellers Pvt. Ltd. under Section 68

Legal Framework and Precedents: Section 68 requires explanation of unexplained credits. The AO must be satisfied about the genuineness of the transaction and source of funds.

Court's Interpretation and Reasoning: The AO observed that the bank account of M/s PAM Jewellers Pvt. Ltd. was operated for only six months with large cash deposits on single days followed by immediate transfers to the assessee's account. The pattern indicated use of the account for parking funds rather than genuine business transactions.

The AO's remand report detailed cash deposits on specific dates aggregating to Rs. 1,30,00,000, transferred to the assessee on the same dates. The AO found the explanation of cash sales by PAM Jewellers not credible due to the irregular and concentrated nature of cash deposits and lack of sustained cash flow in the account.

Key Evidence and Findings: Bank statements evidencing large cash deposits and immediate transfers, physical enquiry report indicating no physical stock at the assessee's premises, and non-filing of details by the assessee and PAM Jewellers in response to summons.

Application of Law to Facts: The Tribunal noted that the assessee failed to satisfactorily explain the suspicious banking pattern or rebut the AO's findings. However, the AO had not provided the assessee with the Inspector's physical verification report, which was a vital piece of evidence.

Treatment of Competing Arguments: The assessee argued that PAM Jewellers complied with notices and that the account was closed due to bank service issues. The Tribunal found these explanations insufficient and directed the AO to share the Inspector's report and provide the assessee an opportunity to respond.

Conclusion: The addition was set aside for fresh adjudication after the assessee is given reasonable opportunity to explain and after sharing the Inspector's report.

3. SIGNIFICANT HOLDINGS

"The reopening was based on new tangible material and not mere change of opinion. The assessee's failure to disclose fully and truly all material facts and non-compliance with summons justified the AO's reason to believe that income had escaped assessment."

"The identity, creditworthiness and genuineness of the share applicants were not established during reassessment as none of the parties complied with notices issued under section 133(6). However, since the issue was examined during original assessment, the matter is remanded for fresh enquiry."

"The pattern of large cash deposits in the bank account of M/s PAM Jewellers Pvt. Ltd. followed by immediate transfer to the assessee's account, coupled with absence of physical stock at the assessee's premises, raises serious doubts about the genuineness of the transactions."

"The AO must provide the assessee with all relevant documents, including the Inspector's report, and afford reasonable opportunity to respond before confirming additions."

The Tribunal finally allowed the appeal partly for statistical purposes, setting aside the additions for fresh enquiry and confirming the validity of reopening under section 147/148.

Issues: Whether rejection of the application for registration and cancellation of the registration granted in Form 10AC, on the ground of a technical mistake in choosing the incorrect clause while filing Form 10A / Form 10AB, was sustainable.

Analysis: The assessee had mistakenly selected section 12A(1)(ac)(i) instead of section 12A(1)(ac)(iv) while preparing the application. The order of rejection proceeded on the basis that the registration obtained in Form 10AC was erroneous and liable to be cancelled under Rule 17A(6) of the Income-tax Rules, 1962. On the facts, the mistake was treated as technical in nature and required reconsideration by the registration authority.

Conclusion: The rejection order was set aside and the matter was remanded to the CIT(E) for fresh adjudication in accordance with law.

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

(a) Whether the learned Commissioner of Income Tax (Exemptions) ("CIT(E)") violated the principles of natural justice by cancelling the registration under section 12AB of the Income Tax Act, 1961 ("the Act") without providing a proper opportunity of hearing to the assessee;

(b) Whether the order of cancellation of registration under section 12AB was passed without issuing a proper show cause notice, and if so, whether such action is legally sustainable;

(c) Whether the CIT(E) erred in passing the cancellation order under section 12(1)(ac)(vi) of the Act instead of section 12(1)(ac)(iii), and the legal implications thereof;

(d) Whether the cancellation of approval under section 80G of the Act was done without affording the assessee a reasonable opportunity of hearing, thereby violating natural justice;

(e) Whether the assessee's failure to submit necessary documents and appear before the CIT(E) justified the cancellation of registration and approval under sections 12AB and 80G respectively;

(f) Whether the appeals should be remanded for fresh disposal in light of procedural irregularities and non-compliance with natural justice principles.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (d): Violation of Principles of Natural Justice and Opportunity of Hearing

Relevant legal framework and precedents: The principles of natural justice mandate that no order prejudicial to a party should be passed without giving that party a reasonable opportunity of being heard. This is a fundamental tenet recognized in administrative and tax jurisprudence. The Act requires that before cancellation of registration under section 12AB or approval under section 80G, the authority must provide an opportunity to the assessee to present its case, including issuing a show cause notice.

Court's interpretation and reasoning: The Tribunal observed that the CIT(E) had issued notices and provided an opportunity of hearing dated 15.01.2025 through a letter dated 08.01.2025. However, the notice fixing the hearing date was received by the assessee only on 17.01.2025, which was after the scheduled hearing date. Consequently, the assessee could not appear or represent itself at the hearing. The assessee also initiated steps to engage an authorized representative but before representation could be made, the CIT(E) passed the cancellation orders.

Key evidence and findings: The Tribunal noted the discrepancy in the timing of delivery of the hearing notice and the hearing date itself. The assessee's inability to participate in the hearing was therefore attributable to procedural lapses in communication by the CIT(E). The CIT(E) did not issue a separate final show cause notice prior to cancellation.

Application of law to facts: The Tribunal held that the failure to provide a meaningful opportunity of hearing and to issue a show cause notice before cancellation constituted a violation of natural justice. The cancellation orders were therefore legally unsustainable in the absence of compliance with these procedural safeguards.

Treatment of competing arguments: While the CIT(E) relied on the assessee's non-appearance and non-submission of documents to justify cancellation, the Tribunal emphasized that procedural fairness and natural justice cannot be compromised even where the assessee is non-compliant. The Tribunal balanced the need for compliance with the requirement of fair procedure.

Conclusions: The Tribunal concluded that the cancellation orders under sections 12AB and 80G were passed without affording the assessee a proper opportunity of hearing and without issuing a final show cause notice, thereby violating natural justice. The matter was remitted to the CIT(E) for fresh disposal after providing reasonable opportunity to the assessee.

Issue (b) & (c): Validity of Order Passed under Section 12(1)(ac)(vi) Instead of 12(1)(ac)(iii)

Relevant legal framework and precedents: Section 12AB of the Act governs registration of charitable trusts/institutions, and section 12(1)(ac) prescribes conditions for exemption. Sub-clause (iii) relates to registration, whereas sub-clause (vi) deals with other grounds for rejection or cancellation.

Court's interpretation and reasoning: The assessee contended that the cancellation order was passed under section 12(1)(ac)(vi), which was inappropriate, and the order should have been passed under section 12(1)(ac)(iii). The Tribunal noted this ground but did not delve deeply into the legal distinction, instead emphasizing that the procedural irregularities and lack of opportunity of hearing were the overriding issues.

Key evidence and findings: The order of CIT(E) cited section 12(1)(ac)(vi) as the basis for cancellation, but the assessee argued that the rejection should have been under section 12(1)(ac)(iii) which specifically deals with registration.

Application of law to facts: The Tribunal found the procedural lapse more critical than the specific sub-section cited. Since the matter was being remanded for fresh disposal, the CIT(E) was directed to consider the correct provision and pass the order afresh in accordance with law.

Treatment of competing arguments: The Tribunal did not uphold the technical objection but allowed the remand to enable the CIT(E) to apply the correct legal provision.

Conclusions: The Tribunal held that the issue of incorrect section cited was a matter for reconsideration upon remand, and the cancellation order was set aside on procedural grounds rather than substantive grounds related to the specific sub-section.

Issue (e): Justification for Cancellation due to Non-submission of Documents and Non-appearance

Relevant legal framework and precedents: The Act requires that for registration under section 12AB and approval under section 80G, the assessee must prove the genuineness of its activities and compliance with legal requirements by submitting necessary documents and details.

Court's interpretation and reasoning: The CIT(E) had issued multiple notices requiring the assessee to submit documents proving the genuineness of its activities and compliance with relevant laws. The assessee failed to respond or appear, leading to cancellation.

Key evidence and findings: The record showed non-compliance by the assessee in submitting requisite documents and non-appearance at hearings.

Application of law to facts: While non-compliance is a valid ground for cancellation, the Tribunal emphasized that cancellation must be preceded by compliance with procedural safeguards, including opportunity of hearing and issuance of show cause notice.

Treatment of competing arguments: The CIT(E) relied on non-compliance to justify cancellation, while the assessee argued procedural lapses vitiated the order. The Tribunal balanced these by ordering remand for fresh disposal after opportunity to comply and be heard.

Conclusions: Non-submission of documents and non-appearance justified scrutiny and possible cancellation, but procedural fairness must be maintained. The Tribunal directed the assessee to produce all relevant documents on remand.

Issue (f): Remand for Fresh Disposal

Court's interpretation and reasoning: Given the procedural irregularities, including the lack of proper notice and hearing, the Tribunal found it just and proper to remit the matter to the CIT(E) for fresh adjudication in accordance with law.

Application of law to facts: The Tribunal ordered that the CIT(E) shall provide reasonable opportunity of hearing, issue appropriate show cause notices, and consider the submissions and documents to be filed by the assessee before passing any final order.

Conclusions: Both appeals were partly allowed for statistical purposes, and the issues were remitted for fresh consideration.

3. SIGNIFICANT HOLDINGS

"The action of the learned CIT(E) passing the Order cancelling the registration u/s 12AB of the Act without providing the Assessee any opportunity of hearing is bad in law."

"In the interest of justice and fair play and as requested by the ld. A.R. of the assessee, we deem it fit to remit the entire issue in dispute to the file of ld. CIT(E) to decide afresh in accordance with law after giving reasonable opportunity of being heard to the assessee."

"The assessee is also directed to produce all the documents/records/information/ financials/reports in support of its claim or as required by ld. CIT(E) for granting the final registration."

"Since we have remitted the entire issue of registration u/s 12AB of the Act to the file of ld. CIT(E), we also deem it fit & proper to remit this issue of approval u/s 80G of the Act to the file of ld. CIT(E) to decide afresh in accordance with law as in the present case also the assessee had not submitted any documents/record to prove the genuineness of the activities of the trust and fulfillment of all the conditions laid down in clause (i) to (v) of Section 80G of the Act."

Core principles established include the inviolability of natural justice in tax proceedings, the necessity of proper notice and opportunity of hearing before cancellation of registration or approval under the Income Tax Act, and the requirement that procedural lapses vitiate otherwise substantive grounds for cancellation.

Final determinations on each issue: The Tribunal set aside the cancellation orders under sections 12AB and 80G due to procedural violations and remitted the matters for fresh adjudication in accordance with law, directing the CIT(E) to provide reasonable opportunity of hearing and consider all relevant documents and submissions.

The core legal questions considered in this appeal are:

(a) Whether the learned Commissioner of Income Tax (Exemptions) was justified in rejecting the application for renewal of registration under section 12AB of the Income Tax Act, 1961 on the ground that the assessee had selected an incorrect section code while filing Form 10AB.

(b) Whether the assessee trust had applied under the correct section code for renewal of registration under section 12AB and was thus eligible for such registration.

(c) Whether the rejection order passed by the Commissioner of Income Tax (Exemptions) was legally sustainable in the absence of reasons explaining why the selected section code was considered incorrect.

(d) Whether the principles of natural justice, including the right to be heard and the right to reasons, were violated by the Commissioner in rejecting the application without issuing a show cause notice or providing an opportunity of hearing.

(e) Whether the matter requires remand for fresh consideration by the Commissioner after affording the assessee a reasonable opportunity of hearing and proper application of mind.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Correctness of rejection on grounds of wrong section code and eligibility for registration under section 12AB

Relevant legal framework and precedents: Section 12AB of the Income Tax Act, 1961 governs the registration and renewal of registration of charitable or religious trusts and institutions. Form 10AB is the prescribed application form for registration or renewal thereof under this section. The correct selection of the applicable sub-section or clause code is essential for the processing of the application. Prior judicial pronouncements emphasize strict adherence to procedural requirements but also recognize that minor errors or technicalities should not defeat substantive rights if the applicant is otherwise eligible.

Court's interpretation and reasoning: The Tribunal noted that the assessee had initially obtained provisional registration under section 12A(1)(ac)(vi) and subsequently final registration under section 12A(1)(ac)(iii) for the relevant assessment years. For the first renewal, the assessee applied under section 12A(1)(ac)(ii) via Form 10AB. The Commissioner rejected the renewal application on the sole ground that the section code selected by the assessee was incorrect.

The Tribunal examined the facts and found that the assessee's selection of the section code was in fact consistent with the prior registrations and applicable provisions. The Tribunal held that the assessee was entitled to registration under section 12AB and that the rejection on the basis of an alleged wrong section code was erroneous.

Key evidence and findings: The assessee's trust deed, prior provisional and final registrations, and the application forms filed were considered. The Tribunal also noted that the assessee had been carrying on charitable activities since inception and complied with the statutory provisions for registration.

Application of law to facts: The Tribunal applied the statutory framework governing registration under section 12AB and found that the assessee's application complied with the requirements. The rejection solely on the basis of section code selection was not supported by any detailed reasoning or statutory interpretation by the Commissioner.

Treatment of competing arguments: The Departmental Representative supported the Commissioner's order, but the Tribunal found that the order lacked any reasoning or discussion on why the section code was incorrect. The Tribunal gave weight to the assessee's submissions and documentary evidence.

Conclusion: The Tribunal concluded that the assessee had applied under the correct section code and was eligible for renewal of registration under section 12AB. The rejection order was thus unsustainable.

Issue (c) and (d): Absence of reasons and violation of principles of natural justice

Relevant legal framework and precedents: Principles of natural justice require that administrative or quasi-judicial authorities provide reasons for their decisions and afford affected parties a reasonable opportunity to be heard. The "right to reason" is a recognized facet of natural justice, ensuring transparency and accountability. Prior case law establishes that failure to provide reasons or issue a show cause notice before adverse orders may render such orders invalid.

Court's interpretation and reasoning: The Tribunal observed that the Commissioner's order rejecting the renewal application was bereft of any reasons explaining why the section code selected by the assessee was incorrect. The order did not disclose the application of mind or any legal or factual basis for the rejection.

Further, the Tribunal noted that the Commissioner did not issue any show cause notice or provide an opportunity of hearing before rejecting the application. This was held to be a violation of the principles of natural justice.

Key evidence and findings: The order of the Commissioner itself and procedural history were examined. The absence of any show cause notice or hearing opportunity was established on record.

Application of law to facts: The Tribunal applied the principles of natural justice and held that the Commissioner's failure to provide reasons and hearing opportunity rendered the order legally infirm.

Treatment of competing arguments: The Departmental Representative did not dispute the absence of reasons or hearing opportunity but supported the order on merits. The Tribunal prioritized procedural fairness and legal requirements over such submissions.

Conclusion: The Tribunal concluded that the order violated natural justice principles and could not be sustained.

Issue (e): Need for remand for fresh consideration

Court's interpretation and reasoning: Given the procedural infirmities and substantive errors in the rejection order, the Tribunal deemed it appropriate to remit the matter back to the Commissioner for fresh consideration. The fresh decision was to be taken after affording the assessee a reasonable opportunity of hearing and after proper application of mind to the eligibility and correctness of the section code selected.

Application of law to facts: The Tribunal directed that the assessee cooperate with the proceedings and furnish any documents or records called for by the Commissioner for renewal of registration.

Conclusion: The appeal was partly allowed by setting aside the impugned order and remitting the matter for fresh adjudication in accordance with law and principles of natural justice.

3. SIGNIFICANT HOLDINGS

The Tribunal laid down the following crucial legal principles and determinations:

"Another facet of the principles of natural justice is 'right to reason'. The ld. CIT(E) has not made any discussion as to how the section code selected by the assessee trust was wrong. Application of mind is best demonstrated by disclosure of mind by the authority making the order and the disclosure is best done by recording the reasons that led the authority to pass the order in question. In the absence of reasons in support of the order it is difficult to assume that the authority had properly applied his/her mind before passing the order."

"Further, we also take a note of the fact that the ld. CIT(E) before rejecting the application in Form 10AB even did not provide any opportunity of being heard to the assessee trust by way of issuing show cause notice to the assessee which is another violation of the principles of natural justice."

"On going through the provision of the Act, we are of the opinion that the assessee trust had in fact applied for the correct section code for the first renewal of the registration."

"In view of the above, we remit the entire issue back to the file of ld. CIT(E) to decide afresh by taking into consideration the application in form 10AB filed on 29.9.2024 as having filed in correct section code and pass the necessary order in accordance with law. Needless to say, reasonable opportunity of being heard must be granted to the assessee."

These holdings establish that:

• The correctness of the section code selected in Form 10AB must be determined on facts and law, and mere rejection without reasons is impermissible.
• The principles of natural justice require that the assessee be given notice and an opportunity to be heard before adverse orders are passed.
• An order lacking reasons and hearing opportunity violates natural justice and is liable to be set aside.
• Where procedural and substantive errors are found, the matter should be remanded for fresh consideration in accordance with law.

The final determination was that the impugned order rejecting the renewal application under section 12AB was set aside and the matter remitted for fresh adjudication after affording the assessee a reasonable opportunity of hearing and proper consideration of the application filed under the correct section code.

The primary legal questions considered by the Appellate Tribunal in these appeals pertain to the rejection of registration and approval applications under the Income Tax Act, 1961, specifically:

• Whether the learned Commissioner of Income Tax (Exemptions) [CIT(E)] erred in rejecting the application for registration under section 12AB without providing adequate opportunity of being heard, thereby violating the principles of natural justice.
• Whether the CIT(E) failed to follow the prescribed procedural requirements under section 12AB before rejecting the application, including the issuance of a show cause notice.
• Whether the CIT(E) erred in disregarding the documents and financial statements submitted by the appellant, including failure to verify the authenticity and completeness of such submissions.
• Whether the CIT(E) correctly assessed the commencement of charitable activities of the trust and whether the trust's activities satisfy the conditions for registration under section 12AB.
• Whether the CIT(E) erred in rejecting the application for approval under section 80G of the Act on similar grounds of procedural lapse, failure to provide opportunity of hearing, and inadequate reasoning.
• Whether the appellant's submissions and documents were properly considered in the context of section 80G approval, including compliance with conditions specified in clauses (i) to (v) of section 80G.

Issue-wise Detailed Analysis

1. Violation of Principles of Natural Justice and Audi Alteram Partem Rule in Rejection of Applications under Sections 12AB and 80G

Legal Framework and Precedents: The principles of natural justice, particularly the audi alteram partem rule, mandate that no order adverse to a party should be passed without giving that party a fair opportunity to present its case. Section 12AB and section 80G of the Income Tax Act prescribe procedural safeguards for registration and approval of charitable trusts. The Supreme Court's decision in Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC) and High Court rulings in Sithappana Halli Bychappa Padmanabha Gowda vs. Income Tax Officer (2024) and Ashok Kumar Agarwal v. Union of India emphasize the necessity of following due process, including issuance of show cause notices and opportunity to be heard before rejecting applications.

Court's Interpretation and Reasoning: The Tribunal found that the CIT(E) rejected the applications under both sections 12AB and 80G without issuing any show cause notice or seeking additional information, thereby denying the appellant the opportunity to be heard. This procedural lapse was held to be a violation of the fundamental principles of natural justice. The Tribunal underscored that such an omission renders the rejection orders legally unsustainable.

Application of Law to Facts: The appellant contended that no show cause notice was issued, no additional data was sought, and that the rejection was abrupt and unilateral. The Tribunal agreed with this contention and noted that the CIT(E) failed to comply with the mandatory procedural requirements before rejecting the applications.

Treatment of Competing Arguments: The Department relied on the orders of the CIT(E) and did not dispute the procedural lapses but argued on merits of the case. The Tribunal prioritized adherence to procedural fairness over the substantive merits at this stage.

Conclusion: The Tribunal concluded that rejection without affording opportunity of hearing was illegal and warranted remand for fresh consideration after following due process.

2. Evaluation of Submission of Financial Statements and Documents

Legal Framework and Precedents: Section 12AB requires the applicant trust to submit financial statements and other documents evidencing the genuineness of its charitable activities. The Tribunal referred to Pune Tribunal decisions in Suprinit Tradinvest Pvt. Ltd. v. Income Tax Officer (2023) and Kunashni Foundation vs. CIT(E) (2023), which emphasized the necessity of proper verification of documents and adequate reasons for rejection.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant had submitted financial statements along with Form 10AB and Form 10B for the last three financial years. Despite these submissions, the CIT(E) erroneously stated that no financials were submitted and rejected the application on that basis. The Tribunal held that the CIT(E) failed to verify the documents properly and disregarded the appellant's submissions without adequate examination.

Application of Law to Facts: The appellant had also submitted bank statements, memorandum of understanding for construction activities, and images of the construction site to demonstrate commencement of charitable activities. The CIT(E) held that activities had not commenced, but the Tribunal found this conclusion unsupported by the evidence on record.

Treatment of Competing Arguments: The Department maintained that the activities were not commenced and documents were insufficient. The Tribunal, however, gave weight to the evidence submitted by the appellant and found the CIT(E)'s conclusion to be flawed.

Conclusion: The Tribunal found that the CIT(E) erred in disregarding the documents and financial statements submitted and in concluding that the activities had not commenced.

3. Assessment of Commencement of Charitable Activities

Legal Framework: Registration under section 12AB requires that the trust must be engaged in charitable activities and comply with other conditions. The commencement of activities is a relevant factor for registration.

Court's Interpretation and Reasoning: The CIT(E) concluded that the trust's activities had not commenced as no financial statements were prepared. The Tribunal, however, noted the existence of bank transactions, construction agreements, and other documentary evidence indicating that activities were underway.

Application of Law to Facts: The Tribunal held that the mere absence of finalized financial statements does not necessarily indicate non-commencement of activities, especially where other evidence demonstrates ongoing operations.

Conclusion: The Tribunal disagreed with the CIT(E)'s finding and held that the activities had indeed commenced.

4. Adequacy of Reasons for Rejection

Legal Framework and Precedents: The law requires that any adverse order must be supported by adequate and clear reasons. The Tribunal cited Pune and Indore Tribunal decisions which held that insufficient reasons for rejection warrant remand.

Court's Interpretation and Reasoning: The CIT(E)'s orders were found lacking in adequate reasoning, particularly in relation to the rejection of registration and approval applications. The Tribunal emphasized that fair evaluation and clear articulation of reasons are essential.

Application of Law to Facts: The appellant's submissions were not properly considered, and reasons for rejection were generic and unsupported by detailed analysis.

Conclusion: The Tribunal found the reasons for rejection inadequate and ordered fresh consideration.

5. Remand for Fresh Consideration

The Tribunal, in the interest of justice and fair play, remitted both the issues of registration under section 12AB and approval under section 80G to the file of the CIT(E) for fresh adjudication. The CIT(E) was directed to:

• Provide the appellant an adequate opportunity of being heard.
• Issue show cause notices if any deficiencies are found.
• Properly verify all documents, financial statements, and other evidence submitted by the appellant.
• Provide clear and adequate reasons for any adverse order.
• Ensure compliance with all legal and procedural requirements under the Income Tax Act.

The appellant was also directed to produce all necessary documents, records, financials, and reports to substantiate its claims.

Significant Holdings

"The learned CIT(E) passed an order rejecting the application without seeking any additional data before rejecting the application made for registration under section 12AB. Adequate opportunity of being heard is sine qua non and failing this the entire order would be bad in law."

"The learned CIT(E) erred in rejecting the application made for registration under section 12AB without issuing show cause notice proposing to reject the application made and without granting adequate opportunity of being heard to the appellant, is in violation of principles of natural justice."

"The appellant had submitted Form 10B for the last three financial years in which financials are attached and uploaded the financial statements while applying for registration. However, the AO erroneously stated that the appellant had not submitted the financials, failing to properly verify the documents."

"In the interest of justice and fair play and as requested by the ld. A.R. of the assessee, we deem it fit & proper to remit the entire issue in dispute to the file of ld. CIT(E) to decide afresh in accordance with law after giving opportunity of being heard to the assessee."

Core principles established include the mandatory observance of natural justice in tax exemption proceedings, the necessity of proper document verification before rejecting applications, and the requirement of clear and adequate reasons for adverse orders. The Tribunal underscored that procedural fairness cannot be sacrificed even in cases involving regulatory approvals under the Income Tax Act.

Final determinations on each issue resulted in the partial allowance of the appeals for statistical purposes and remand of the matter for fresh consideration in accordance with law and procedural fairness.

1. Whether the Customs Department was justified in detaining and confiscating the gold bangles worn by the petitioner without issuing a Show Cause Notice (SCN) or providing an opportunity for personal hearing, in compliance with Section 124 of the Customs Act, 1962.

2. Whether a pre-printed waiver signed by the petitioner, purportedly waiving the right to SCN and personal hearing, is valid and sufficient to dispense with the statutory requirements under Section 124 of the Act.

3. Whether the gold bangles worn by the petitioner qualify as "personal effects" under the Baggage Rules, 2016, and are thus exempt from customs duty and detention.

4. The applicability and interpretation of relevant customs laws, rules, and judicial precedents concerning the detention and confiscation of jewellery carried by passengers returning from abroad.

Issue-wise detailed analysis:

1. Validity of detention and confiscation without issuance of Show Cause Notice and personal hearing:

The legal framework under Section 124 of the Customs Act, 1962 mandates that no order of confiscation or penalty can be passed without issuing a written notice to the owner specifying the grounds for confiscation, providing an opportunity to make a written representation, and affording a reasonable opportunity of personal hearing. The statute allows for an oral SCN only if requested by the person concerned.

The Court examined the Customs Department's reliance on a pre-printed waiver form signed by the petitioner, which purportedly waived the issuance of SCN and personal hearing. The Court referred to binding precedents, including Amit Kumar v. Commissioner of Customs and Makhinder Chopra v. Commissioner of Customs, where it was held that such pre-printed waivers are fundamentally flawed and violate the principles of natural justice. The Court emphasized that natural justice is not mere lip service and must be complied with in letter and spirit.

The Court held that a pre-printed waiver, which is indecipherable and incomprehensible to a layperson, cannot substitute the statutory requirements of Section 124. It cannot be deemed a valid oral SCN. Consequently, the absence of a proper SCN and hearing rendered the detention and confiscation orders unsustainable in law.

The Court further noted that the statutory timeline under Section 110 of the Act prescribes six months for issuing the SCN, extendable by another six months. In this case, over one year had elapsed without issuance of SCN, further invalidating the detention.

2. Classification of the detained jewellery as personal effects under the Baggage Rules, 2016:

The Court analyzed the Baggage Rules, 2016, particularly Rules 2(vi), 3, and 5, which define "personal effects" and prescribe free allowance limits for jewellery carried by passengers. Rule 2(vi) excludes jewellery from the definition of personal effects; however, Rule 3 allows clearance free of duty for used personal effects and travel souvenirs. Rule 5 permits duty-free clearance of jewellery up to specified weight and value limits depending on the passenger's gender.

The Court relied on authoritative judicial precedents, including the Supreme Court's decision in Directorate of Revenue Intelligence v. Pushpa Lekhumal Tolani, which clarified that jewellery worn by passengers cannot be categorically excluded from personal effects. The Court held that bona fide jewellery worn or carried by a passenger, especially if used and intended for personal use, falls within the ambit of personal effects and is exempt from customs duty and detention.

The Court also referred to the Division Bench decision in Saba Simran v. Union of India, which distinguished between "jewellery" and "personal jewellery," holding that used personal jewellery worn by the passenger is not subject to the monetary caps applicable to newly acquired jewellery under the Baggage Rules. This position was upheld by the Supreme Court when the Union of India's challenge was dismissed.

Further, the Court reiterated its own ruling in Makhinder Chopra, affirming that the Customs Department must differentiate between bona fide personal jewellery and other jewellery for regulatory purposes.

3. Application of law to facts and treatment of competing arguments:

The petitioner's case was that the detained gold bangles weighing 117 grams were personal effects worn as part of her attire during her pilgrimage and travel. The Customs Department contended that the petitioner herself had appealed the Order-in-Original and the Order-in-Appeal was reasonable, imposing a penalty and redemption fine along with customs duty.

The Court observed that it is customary for women to wear basic jewellery such as bangles as personal effects, and mere purity or value of gold does not warrant detention if the jewellery is bona fide personal use. The Court rejected the Customs Department's reliance on the pre-printed waiver and absence of SCN and personal hearing, holding such practice contrary to law and natural justice.

On the classification issue, the Court found the petitioner's jewellery to be used personal effects exempt under the Baggage Rules, and thus not liable for detention or confiscation.

4. Conclusions:

The Court concluded that the detention and confiscation of the petitioner's gold bangles were illegal due to failure to comply with Section 124 of the Customs Act, 1962, and the jewellery constituted personal effects exempt from customs duty under the Baggage Rules, 2016. The Court set aside the Order-in-Original and Order-in-Appeal, directed the release of the detained jewellery within two weeks, and mandated the Customs Department to discontinue the practice of obtaining pre-printed waivers that waive SCN and personal hearing rights.

Significant holdings include:

"A perusal of Section 124 of the Act along with the alleged waiver which is relied upon would show that the oral SCN cannot be deemed to have been served in this manner as is being alleged by the Department. If an oral SCN waiver has to be agreed to by the person concerned, the same ought to be in the form of a proper declaration, consciously signed by the person concerned. Even then, an opportunity of hearing ought to be afforded, inasmuch as, the person concerned cannot be condemned unheard in these matters. Printed waivers of this nature would fundamentally violate rights of persons who are affected. Natural justice is not merely lip-service. It has to be given effect and complied with in letter and spirit."

"This Court is of the opinion that the printed waiver of SCN and the printed statement made in the request for release of goods cannot be considered or deemed to be an oral SCN, in compliance with Section 124. The SCN in the present case is accordingly deemed to have not been issued and thus the detention itself would be contrary to law."

"Jewellery that is bona fide in personal use by the tourist would not be excluded from the ambit of personal effects as defined under the Baggage Rules. Further, the Department is required to make a distinction between 'jewellery' and 'personal jewellery' while considering seizure of items for being in violation of the Baggage Rules."

"The detained jewellery are the personal effects of the Petitioner. Accordingly, the detained jewellery would be liable to be released."

"The Customs Department is directed to discontinue the practice of making tourists sign undertaking in a standard form waiving the show cause notice and personal hearing, as it is contrary to the provisions of Section 124 of the Act."

ISSUES PRESENTED AND CONSIDERED

1. Whether the learned Single Judge could direct the release of imported goods without requiring security or conditions in light of Section 110A of the Customs Act, 1962.

2. Whether the imported consignment (roasted areca nuts) is properly classified under Chapter-VIII or Chapter-XX of the Customs Tariff and the consequences of such classification for provisional release and duty liability.

3. If provisional release is permissible under Section 110A, what form and quantum of security is appropriate pending adjudication?

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Section 110A to provisional release and requirement of security

Legal framework: Section 110A of the Customs Act, 1962 provides for provisional release of goods on furnishing a bond in the proper form with such security and conditions as the Adjudicating Authority may require.

Precedent Treatment: No specific judicial precedent was relied upon or applied by the Court in the judgment; the Court treated the question as one of statutory interpretation and application.

Interpretation and reasoning: The Court held that Section 110A mandates that provisional release is conditional on a bond and security as determined by the Adjudicating Authority. Because adjudicatory proceedings were pending, the power to order release without any security was inconsistent with the statutory scheme. The Single Judge's direction for unconditional release was therefore impermissible under Section 110A.

Ratio vs. Obiter: Ratio. The holding that provisional release under Section 110A requires security and that a judicial order directing unconditional release conflicts with the statutory provision constitutes the operative ratio concerning provisional release.

Conclusion: The learned Single Judge erred in directing release without security; provisional release must be subject to bond and security in accordance with Section 110A.

Issue 2 - Classification of the imported goods (Chapter-VIII v. Chapter-XX) and its bearing on interim relief

Legal framework: Customs Tariff classification governs duty liability; classification disputes affect the quantum of duty and the propriety of conditions for release.

Precedent Treatment: The Court did not rely on or distinguish any precedents on classification; the matter was left to the Adjudicating Authority.

Interpretation and reasoning: The Court recognised competing contentions: the respondents contend the goods are roasted areca nuts falling under Chapter-XX (nil duty), while Customs contend the goods fall under Chapter-VIII and that misclassification is alleged. The Court observed that the classification issue is substantive and pending before the Adjudicating Authority and therefore could not be resolved on the interim application.

Ratio vs. Obiter: Obiter (limited). The Court's observations that the classification question remains undecided and must be determined by the Adjudicating Authority are procedural and do not resolve the substantive classification; they serve to explain why security is necessary despite claims of nil duty.

Conclusion: Classification remains undecided and must be decided in the pending adjudication; that uncertainty supports requiring security for provisional release.

Issue 3 - Appropriate form and quantum of security for provisional release

Legal framework: Section 110A permits provisional release upon furnishing a bond with such security and conditions as the Adjudicating Authority may require; the Court can modify interim orders to align with statutory requirements.

Precedent Treatment: No authority prescribing a fixed percentage was cited; the Court exercised its supervisory power to specify security consistent with Section 110A and the circumstances of the case.

Interpretation and reasoning: Given the pendency of adjudication, Customs' apprehension regarding recovery of duty and penalties, and the disputed classification that could result in significant duty liability, the Court concluded that release should be conditional on security. The Court fixed a bank guarantee or other security equal to 25% of the value of the imported consignment as reasonable and proportionate in the circumstances to balance the interest of revenue and the right to provisional release.

Ratio vs. Obiter: Ratio (limited to the facts). The direction that provisional release is allowed subject to a specified security (25% of consignment value) is an operative decision in the present appeals; the percentage chosen is fact-sensitive and not laid down as a general rule of law beyond the present proceedings.

Conclusion: Provisional release is permitted subject to furnishing security by way of bank guarantee or other security equal to 25% of the consignment value; the interim order is modified accordingly and the substantive adjudication shall proceed expeditiously.

Cross-references and ancillary directions

The Court directed expeditious disposal of the pending writ petitions by the Single Judge in view of the provisional release and security arrangement. Pending interlocutory applications were rendered moot by the disposal of the appeals.

The first issue concerns the scope and limitation of the power of the Tribunal under Section 420(2) of the Companies Act, 2013, which restricts the Tribunal's power to review or recall an order to rectifying mistakes apparent on the face of the record, and does not envisage re-examination of merits or revisiting an order once passed on merits. The appellant contended that the impugned order violated this statutory bar by effectively reviewing or recalling the earlier orders dated 19.04.2023 and 07.06.2023, which had directed the appointment of a Practicing Company Secretary (PCS) to conduct a Secretarial Audit for the specified period.

The Tribunal analyzed the orders dated 19.04.2023 and 07.06.2023 and found that these orders were procedural directions aimed at enabling scrutiny of the company's financial statements and share capital status by appointing a PCS to conduct a Secretarial Audit. The order of 19.04.2023 directed the Respondent Company to appoint a PCS within seven days to complete the audit by 30.05.2023 and file the report before the Tribunal. The subsequent order of 07.06.2023 was passed due to non-compliance by Respondent No.3 and resulted in the Tribunal itself appointing a PCS to conduct the audit. These orders were not final determinations mandating that the audit must be completed regardless of circumstances but were conditional directions to facilitate fact-finding.

Turning to the impugned order dated 02.04.2025, the Tribunal observed that this order did not review or recall the earlier orders but was an outcome of the report and findings of the PCS appointed pursuant to those orders. The PCS report and evidence on record revealed that the company had been non-operational since 2015, had no business activity, had not maintained books of accounts, and had not filed statutory financial returns with the Registrar of Companies (ROC). Consequently, conducting a Secretarial Audit for the period 2015-2023 was deemed futile and unnecessary. The Tribunal emphasized that the impugned order was a reasoned conclusion based on the factual matrix and the PCS's confirmation, rather than an impermissible review or recall of prior orders.

The appellant's argument that the impugned order was contrary to the statutory bar under Section 420(2) was rejected on the ground that the order was a continuation and compliance with the earlier directions, not a recall or review. The Tribunal underscored that the statutory provision does not prohibit the Tribunal from passing subsequent orders in the same proceeding that are necessitated by developments in facts or evidence. The impugned order was thus within the Tribunal's jurisdiction and consistent with the procedural framework.

Regarding the necessity of the Secretarial Audit, the Tribunal found that the absence of any financial statements filed with the ROC and the company's defunct status negated the requirement for such an audit. The appellant failed to produce any material to establish that the company was operational or had submitted financial statements during the relevant period. The Tribunal held that mere pleadings or counter-affidavits could not substitute for evidence and judicial scrutiny. The PCS's report was treated as credible and conclusive on the operational status of the company.

The Tribunal also addressed the appellant's contention that the Secretarial Audit was mandated by the earlier orders and could not be dispensed with. It clarified that the earlier orders did not fix an unalterable mandate to conduct the audit irrespective of the factual scenario. The impugned order was an exercise of judicial discretion based on the PCS's findings, which rendered the audit unnecessary. This approach was consistent with principles of reasonableness and avoidance of futile exercises.

In conclusion, the Tribunal dismissed the appeal, holding that the impugned order was a judicious and lawful order passed in compliance with the directions contained in the earlier orders. The appeal was found to lack merit, and all interlocutory applications were closed accordingly.

The significant holdings established by the Tribunal include the following:

"The impugned order dated 02.04.2025 is an order in continuation to the directions issued on 19.04.2023 and 07.06.2023 and does not amount to review or recall of earlier orders so as to bring it within the ambit of restrictions imposed by Section 420(2) of the Companies Act, 2013."

"Where the basic parameters for conducting a Secretarial Audit are not satisfied, including non-filing of financial statements and non-operation of the company, the Tribunal may dispense with the conduct of such audit."

"The report of the Practicing Company Secretary, confirming the non-operational status of the company and absence of statutory filings, is a credible piece of evidence which justifies the Tribunal's decision to not proceed with the Secretarial Audit."

"Pleadings or counter-affidavits without judicial scrutiny and appreciation of evidence cannot be exclusively relied upon to mandate continuation of a Secretarial Audit."

"The statutory bar under Section 420(2) of the Companies Act, 2013, limits the power of the Tribunal to review or recall orders to rectifying mistakes apparent on the face of the record and does not preclude the Tribunal from passing subsequent orders necessitated by developments in facts or evidence."

These holdings affirm the principle that procedural directions by the Tribunal are subject to modification based on evolving factual circumstances and that the Tribunal's discretion to dispense with futile processes is an inherent aspect of judicial administration under the Companies Act, 2013.

The core legal questions considered by the Tribunal were:

• Whether the Adjudicating Authority erred in rejecting the application seeking recall of the order approving the resolution plan, particularly on the ground that the application was a disguised review petition.
• Whether the claims of the Appellant-State Taxes & Excise Department, including additional tax arrears amounting to Rs 13.60 Cr., were duly considered and admitted within the Corporate Insolvency Resolution Process (CIRP) and the resolution plan.
• Whether the Appellant's claim for priority as a secured creditor under the HPGST/CGST Act could override the distribution mechanism prescribed under the Insolvency and Bankruptcy Code, 2016 (IBC), especially in light of the principle of priority of government dues.
• Whether the principle of finality of the resolution plan approved by the Committee of Creditors (CoC) and the Adjudicating Authority precludes admission of belated claims after approval and near completion of implementation of the plan.
• Whether the recall of the order approving the resolution plan was maintainable in the absence of grounds such as lack of jurisdiction, non-service of notice, or fraud/misrepresentation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of Recall Application Against the Order Approving the Resolution Plan

Legal Framework and Precedents: Section 61 of the IBC permits appeals against orders of the Adjudicating Authority. The Supreme Court in Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions Ltd. held that once a resolution plan is approved, it becomes binding on all stakeholders unless challenged within the prescribed time. The scope of recall is limited to exceptional grounds such as jurisdictional errors, non-service of notice, or fraud, and cannot be used as a disguised review.

Court's Interpretation and Reasoning: The Tribunal concurred with the Adjudicating Authority's view that the Appellant's recall application was effectively a review of the order approving the resolution plan, which is beyond the Adjudicating Authority's jurisdiction. The Tribunal emphasized that the resolution plan had been approved by the CoC with a 70.02% voting share and subsequently by the Adjudicating Authority, thus becoming binding on all stakeholders including the Appellant.

Key Evidence and Findings: The Appellant had not challenged the resolution plan within the prescribed period and had instead filed a belated recall application after the plan's implementation was nearing completion.

Application of Law to Facts: The Tribunal held that allowing the recall application would derail and delay the CIRP and undermine the finality of the resolution process. Since none of the recognized grounds for recall were pleaded or established, the recall application was rightly dismissed.

Treatment of Competing Arguments: While the Appellant relied on the Supreme Court's judgment in Greater NOIDA Industrial Development Authority vs. Prabhjit Singh Soni to contend that recall applications can be allowed in the interest of justice, the Tribunal distinguished that such exceptional relief was not warranted here given the absence of procedural irregularities or fraud.

Conclusion: The recall application was impermissible and constituted a disguised review petition, rightly rejected by the Adjudicating Authority.

Issue 2: Admission and Treatment of the Appellant's Claims, Including Additional Tax Arrears

Legal Framework and Precedents: The CIRP Regulations and IBC require claims to be submitted within stipulated timelines. The Supreme Court in Committee of Creditors of Essar Steel vs. Satish Kumar Gupta and RP Infrastructure Limited vs. Mukul Kumar emphasized that belated claims should not be entertained to preserve the time-bound nature and finality of CIRP. The "fresh slate" principle, as enunciated in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, underscores the need to conclude insolvency proceedings without reopening claims.

Court's Interpretation and Reasoning: The Tribunal found that the Appellant had submitted a claim of Rs 2.61 Cr., which was duly admitted and considered by the Resolution Professional (RP). However, the additional claim of Rs 13.60 Cr. on account of tax arrears was never formally filed within the prescribed time, despite purported communications to the RP.

Key Evidence and Findings: The Appellant's failure to file the additional claim in time was characterized as a lack of diligence and inaction. The Tribunal noted that allowing such belated claims would open floodgates for multiple similar claims, thereby jeopardizing the CIRP's integrity and delaying resolution.

Application of Law to Facts: The Tribunal applied the settled legal principles to hold that the Appellant could not benefit from its own inaction and that the admitted claim and distribution under the plan sufficed as per Section 53 of the IBC.

Treatment of Competing Arguments: The Appellant argued that the omission of the additional claim rendered the resolution plan unjust and inequitable under Section 30(2) of the IBC and CIRP Regulations 37 and 38. The Tribunal rejected this, noting the absence of any cogent justification for delay and the binding effect of the approved plan.

Conclusion: The Appellant's additional claim was rightly rejected as belated, and the distribution under the resolution plan was in accordance with law.

Issue 3: Priority and Secured Creditor Status of Government Dues Under HPGST/CGST Act

Legal Framework and Precedents: Section 53 of the IBC specifies the waterfall mechanism for distribution, placing government dues under Section 53(1)(e)(i) and (f). The Supreme Court in State Tax Officer vs. Rainbow Papers Limited held that certain government dues could be treated as secured claims under specific statutes like GVAT, which contain overriding provisions. However, in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd., the Supreme Court clarified that such secured creditor status is not universal and depends on statutory context.

Court's Interpretation and Reasoning: The Tribunal distinguished the Rainbow Papers judgment on the ground that it pertained to GVAT, which has overriding provisions, unlike the HPGST/CGST Act. Section 82 of the CGST Act expressly excludes the IBC's application, thereby subordinating government dues to the IBC's distribution scheme.

Key Evidence and Findings: The Appellant failed to establish any statutory provision under HPGST/CGST Act that would elevate its claim to secured creditor status. The RP's liquidation value calculations and distribution under Section 53 of the IBC were accepted as fair and compliant.

Application of Law to Facts: The Tribunal held that the Appellant's claims qualify as government dues under Section 53(1)(e)(i) of the IBC and are not entitled to secured creditor priority. The distribution made under the resolution plan exceeded the Appellant's minimum entitlement, negating any grievance.

Treatment of Competing Arguments: The Appellant's reliance on Section 82 of the CGST Act and Rainbow Papers judgment was rejected in light of the statutory framework and binding Supreme Court precedents.

Conclusion: The Appellant's claims are government dues with priority as per Section 53 of the IBC and do not enjoy secured creditor status under the CGST/HPGST Act.

Issue 4: Finality of the Resolution Plan and Prohibition on Reopening Claims Post-Approval

Legal Framework and Precedents: Section 31 of the IBC mandates that an approved resolution plan shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, State Governments, and other authorities. The Supreme Court in multiple judgments has emphasized the need for finality in insolvency proceedings to prevent protracted litigation and ensure certainty.

Court's Interpretation and Reasoning: The Tribunal underscored that the resolution plan approved by the CoC and Adjudicating Authority is conclusive and binding. Allowing belated claims or recall applications after approval and implementation would undermine the statutory scheme and the commercial wisdom of the CoC.

Key Evidence and Findings: The Appellant's delay and failure to challenge the plan within the prescribed period, coupled with the nearing completion of plan implementation, rendered the recall application untenable.

Application of Law to Facts: The Tribunal applied the principle that the CIRP is a time-bound process and that reopening claims or revisiting approved plans is impermissible unless exceptional grounds are shown.

Treatment of Competing Arguments: The Appellant's plea for equitable relief and justice was rejected as it conflicted with the statutory mandate for finality and the integrity of the insolvency process.

Conclusion: The resolution plan's finality is sacrosanct post-approval, and no reopening of claims or recall of approval order is permissible in the absence of valid grounds.

3. SIGNIFICANT HOLDINGS

"Once a resolution plan is approved by the Committee of Creditors and the Adjudicating Authority, it becomes binding on all stakeholders including government bodies and statutory authorities, and no new claims including statutory dues can be allowed."

"The power to recall a judgment cannot be exercised when the order sought to be recalled was not without jurisdiction, when the party was served with notice, and when there is no allegation of fraud or misrepresentation resulting in gross failure of justice."

"Belated claims should not be entertained as they could lead to indefinite delays in the CIRP process, thereby affecting the certainty and effectiveness of resolution."

"The principle of priority of government dues is subject to the statutory framework of the IBC, and government dues under the CGST/HPGST Act do not enjoy secured creditor status akin to that under GVAT, and are to be treated as operational creditor claims under Section 53(1)(e)(i)."

"The approval of a resolution plan is statutorily recognized as a closure to all claims that persons or entities may have against a corporate debtor, and reopening such claims or the plan itself is impermissible."

Final determinations:

• The recall application was rightly dismissed as a disguised review petition lacking valid grounds.
• The Appellant's additional tax arrears claim was belated and inadmissible.
• The Appellant's claims are government dues under Section 53 of the IBC and do not qualify as secured claims under the CGST/HPGST Act.
• The resolution plan was approved in compliance with Section 30(2) of the IBC and CIRP Regulations and its implementation cannot be disturbed.

Issues: Whether the delay of 117 days in filing the appeal could be condoned and whether the appellant was entitled to exclusion of time under Section 14 of the Limitation Act, 1963.

Analysis: The limitation for an appeal under Section 61(2) of the Insolvency and Bankruptcy Code, 2016 runs from the date of pronouncement of the impugned order, with a maximum condonable delay of 15 days beyond the initial 30 days. The appellant had sought to rely on the earlier appeal and to exclude the intervening period under Section 14 of the Limitation Act, 1963, but the earlier appeal did not validly challenge the impugned order within limitation and the record showed no due diligence or good faith. The concept of good faith under Section 2(h) of the Limitation Act, 1963 requires due care and attention, which was found lacking. In view of the binding law that the appellate tribunal cannot condone delay beyond the statutory outer limit, the application for condonation could not be entertained.

Conclusion: The delay condonation application was not maintainable and the delay could not be condoned.

Issues: (i) Whether the appellants had subsisting cultivation rights and locus standi to challenge the attachment and confirmation of the attached properties. (ii) Whether the dispute regarding cultivation rights could be adjudicated by the Tribunal or fell within the exclusive domain of the revenue authorities under the governing tenancy legislation.

Issue (i): Whether the appellants had subsisting cultivation rights and locus standi to challenge the attachment and confirmation of the attached properties.

Analysis: The applicable tenancy provisions define a cultivating tenant as a person cultivating land under a tenancy arrangement and also include a sub-tenant in lawful possession. The material placed before the Tribunal showed that the appellants had themselves transferred cultivation rights through a chain of sub-lessees in favour of the persons from whom the properties were attached. The appellants were also not shown to be recorded owners in the revenue records. On that basis, their claim to a present enforceable right in the attached lands was not accepted.

Conclusion: The appellants did not have subsisting cultivation rights and therefore lacked locus standi to assail the impugned orders.

Issue (ii): Whether the dispute regarding cultivation rights could be adjudicated by the Tribunal or fell within the exclusive domain of the revenue authorities under the governing tenancy legislation.

Analysis: The tenancy statutes relied upon by the Tribunal contain a specific scheme defining cultivating tenant, cultivation, and eviction protection, and also impose a bar on civil court jurisdiction in matters which the revenue authority is empowered to determine. On that statutory framework, the Tribunal held that determination of cultivation rights and allied tenancy disputes is not within its province and that the appellants could not seek eviction or restoration of cultivation rights through these proceedings.

Conclusion: The dispute over cultivation rights was treated as one for the revenue authorities, and not as a matter for adjudication in the present appeals.

Final Conclusion: The appeals failed both on merits and on the threshold objection of locus standi, and the attachment-related orders were left undisturbed.

Ratio Decidendi: A person who has no subsisting recorded or legally enforceable tenancy interest, and whose claimed cultivation rights stand transferred through sub-lessees, cannot maintain a challenge to attachment orders in proceedings where tenancy title disputes are reserved to the revenue authorities.

Issues: (i) Whether the properties attached were proceeds of crime having a sufficient nexus with the alleged scheduled offences and the money-laundering allegations; (ii) Whether the appellant discharged the burden under the Act to show that the attached properties were acquired from legitimate sources; (iii) Whether the provisional attachment lacked the statutory basis of reason to believe under the Act.

Issue (i): Whether the properties attached were proceeds of crime having a sufficient nexus with the alleged scheduled offences and the money-laundering allegations.

Analysis: The allegations disclosed a classic Ponzi-type operation in which funds were collected from the public on promises of unusually high returns, initial payouts were made to build confidence, and thereafter defaults followed. The collected money was diverted and reinvested through group entities and used to acquire immovable assets. On these facts, the attached properties were treated as having been acquired from the very funds generated through the criminal activity and as being traceable to the scheduled offences.

Conclusion: The attached properties were held to be connected with proceeds of crime and were not shown to be untainted assets.

Issue (ii): Whether the appellant discharged the burden under the Act to show that the attached properties were acquired from legitimate sources.

Analysis: Once the enforcement case established the statutory foundation, the burden shifted to the appellant to explain the legitimate source of acquisition. The plea that the amounts were personal loans and not investments was not supported by documentary material. In the absence of proof of lawful source, the explanation was found insufficient to displace the presumption operating under the Act.

Conclusion: The appellant failed to discharge the burden of proving legitimate acquisition.

Issue (iii): Whether the provisional attachment lacked the statutory basis of reason to believe under the Act.

Analysis: The fact that the appellant was in custody did not eliminate the possibility of dealing with the properties through associates or other intermediaries. The material showed an operating network of collaborators and the real risk that the property could be dealt with in a manner frustrating confiscation proceedings. The statutory satisfaction for provisional attachment was therefore held to exist.

Conclusion: The attachment was not vitiated for want of reason to believe.

Final Conclusion: The confirmation of provisional attachment was sustained because the seized properties were found to be linked to the alleged laundering activity, the appellant failed to rebut the statutory burden, and the attachment was supported by the requisite statutory satisfaction.

Ratio Decidendi: Where public funds collected through a fraudulent investment scheme are traced into assets, and the person in control fails to prove lawful acquisition, the properties may be confirmed as proceeds of crime and attached if the statutory satisfaction for preventive action exists.

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

• Whether the statutory notice of assessment under Section 73 of Chapter V of the Finance Act, 1994 was duly served on the Petitioner in relation to the Financial Year 2015-16;
• Whether the impugned ex-parte Order-in-Original dated 21.12.2023 passed by the Deputy Commissioner, GST & Central Excise, Jharsuguda Division is sustainable in the absence of proof of service of notice on the Petitioner;
• Whether the Petitioner, who ceased business operations in the State of Odisha since 2011, was afforded a reasonable opportunity of hearing before the passing of the ex-parte order;
• Whether the attachment orders on the Petitioner's bank account, which were challenged and subsequently withdrawn with liberty to file a fresh petition, were validly issued without proper service of notice;
• The procedural propriety and adherence to principles of natural justice in the assessment proceedings under the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Service of Notice of Assessment under Section 73 of the Finance Act, 1994

The relevant legal framework is Section 73 of the Finance Act, 1994, which governs the issuance of notices for assessment or reassessment of tax liabilities. The procedural requirement mandates that the assessing authority must serve a notice on the person concerned, informing them of the initiation of proceedings and affording an opportunity to be heard.

Precedents emphasize the necessity of proper service of notice as a condition precedent to the validity of any assessment order. Absence of such service vitiates the order as it violates principles of natural justice.

The Court noted that the Department admitted the absence of any material evidence to prove that the notice was served on the Petitioner. The impugned order itself stated that notices were sent by Registered Post, but no proof of delivery or receipt was on record. The Petitioner contended that no such notice was ever received, supported by the fact that it had ceased business operations in Odisha since 2011.

The Court reasoned that mere issuance of notice by Registered Post does not suffice without proof of service. The Petitioner's non-appearance before the assessing authority was not due to deliberate avoidance but because the notices were never received. Hence, the ex-parte order was premised on an invalid assumption of notice service.

The Court concluded that the statutory requirement of service of notice was not fulfilled, rendering the assessment order unsustainable.

Issue 2: Validity of Ex-Parte Order-in-Original dated 21.12.2023

The legal principle governing ex-parte orders in tax proceedings is that such orders can be passed only after due service of notice and reasonable opportunity to the affected party to present their case.

The Court examined the impugned order and found that the authority proceeded ex-parte without establishing that the Petitioner had knowledge of the proceedings. The absence of service of notice and opportunity to be heard violated the principles of natural justice.

The Court emphasized that before passing an ex-parte order, the authority must satisfy itself that the notices issued were duly served. Failure to do so renders the order liable to be quashed.

Accordingly, the Court set aside the Order-in-Original dated 21.12.2023 and remanded the matter to the Deputy Commissioner for fresh adjudication after affording the Petitioner an opportunity of hearing.

Issue 3: Attachment of Bank Account and Related Procedural Aspects

The Petitioner's bank account was attached pursuant to the impugned order, which was challenged in an earlier writ petition that was withdrawn with liberty to file a fresh petition. The Petitioner requested lifting of the attachment to operate the account, which was not granted.

The Court noted that attachment orders based on an ex-parte assessment order without proper service of notice are not sustainable. The procedural irregularity in assessment proceedings taints the attachment order.

The Court directed that the Department supply a copy of the notice of assessment to the Petitioner's counsel within three working days, and upon receipt, the Petitioner shall file reply/explanation with evidence within two weeks. The authority is directed to conclude the proceedings within two months after hearing the Petitioner.

Issue 4: Procedural Fairness and Natural Justice in Tax Assessment Proceedings

The Court underscored the fundamental requirement of procedural fairness in tax assessment proceedings, which includes proper service of notice and opportunity to be heard before passing adverse orders.

The absence of these procedural safeguards amounts to violation of natural justice and renders the order liable to be set aside.

The Court's decision reiterates that the assessing authority must ensure compliance with procedural mandates before proceeding to pass any order, especially ex-parte orders affecting the rights of the taxpayer.

3. SIGNIFICANT HOLDINGS

The Court held:

"It is transpired that that notice was not served upon the Petitioner, as it is admitted that the department has no material to justify service of notice on the petitioner. Therefore, the Order-in-Original dated 21.12.2023 ... cannot be sustained and is liable to be set aside and the matter requires remand to the authority concerned for fresh adjudication."

This establishes the core principle that valid service of notice is a sine qua non for sustaining assessment orders under the Finance Act, 1994.

The Court further held that ex-parte orders passed without ensuring service of notice and opportunity to be heard violate principles of natural justice and are liable to be quashed.

The final determination on each issue is that the impugned order is set aside, the attachment orders are invalid in the absence of proper notice, and the matter is remanded for fresh adjudication after affording the Petitioner a reasonable opportunity of hearing.

1. Whether the appellants were required to reverse Cenvat credit on common inputs and input services in proportion to the value of exempted goods as per Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules, 2004;

2. Whether the method of reversal of credit adopted by the appellants, based on actual consumption and quantity ratios rather than value ratios, complies with the legal provisions and Circular No. 868/6/2008-CX dated 09.05.2008;

3. Whether the appellants were required to reverse credit on common input services for the period April 2008 to March 2010, considering Rule 6(5) of the Cenvat Credit Rules;

4. Whether the extended period of limitation for recovery of Cenvat credit can be invoked against the appellants under the proviso to Section 11A(1)/11A(4) of the Central Excise Act, 1944 and Section 73 of the Finance Act, 1994 on grounds of suppression, fraud, or willful misstatement;

5. Whether the appellants' conduct, including letters dated 17.02.2011 and 08.03.2011, amounts to suppression of facts with intent to evade payment of duty;

6. Whether the demand confirmed by the Commissioner for the period 2008-09 to 2011-12 is barred by limitation;

7. Whether the Department's failure to detect any irregularity during multiple audits and scrutiny precludes invocation of extended limitation period.

Issue-wise Detailed Analysis:

1 & 2. Reversal of Cenvat Credit on Common Inputs and Input Services:

The legal framework involves Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules, 2004, which govern reversal of credit attributable to exempted goods or services. Rule 6(3) provides two options for reversal: either a fixed percentage of the value of exempted goods or an amount determined under Rule 6(3A). Rule 6(3A)(b)(i) requires reversal of credit attributable to inputs used in or in relation to exempted goods but does not prescribe a specific formula for calculation. Rules 6(3A)(b)(ii) and (iii) provide formulas for reversal based on value of exempted goods but only for input services related to exempted services or goods.

The appellants contended that they reversed credit based on actual consumption and quantity ratios of exempted versus dutiable goods, consistent with Circular No. 868/6/2008-CX dated 09.05.2008, which permits the manufacturer to devise a method of reversal based on actual consumption records. The Circular uses permissive language ("may be based on stores/production records") and does not mandate reversal based strictly on value ratios.

The Tribunal noted that the appellants reversed credit on common inputs and input services proportionately and that this method is legally permissible. The appellants relied on several precedents affirming that proportional reversal based on actual consumption satisfies Rule 6(3) requirements. The Tribunal recognized that the procedure/formula prescribed in Rule 6(3A) does not override the substantive right to proportionately reverse credit and that non-compliance with Rule 6(3A) may amount to procedural lapse, which can be condoned.

3. Reversal of Credit on Common Input Services for April 2008 to March 2010:

Rule 6(5) of the Cenvat Credit Rules provides that credit on input services is not required to be reversed if no exempted services are provided. The appellants did not avail credit on common inputs during this period but only on certain input services. The Tribunal noted that the appellants were entitled to avail credit on these input services without reversal for this period, a position accepted by the Adjudicating Authority and supported by Tribunal precedents.

4, 5 & 6. Invocation of Extended Period of Limitation and Alleged Suppression:

The Department invoked the extended period of limitation under proviso to Section 11A(1)/11A(4) of the Central Excise Act and Section 73 of the Finance Act, 1994, alleging suppression of facts and wilful misstatement by the appellants. The Department relied on letters dated 17.02.2011 and 08.03.2011 wherein the appellants allegedly misrepresented that no credit was availed on inputs/input services used in exempted goods manufacture, while in fact credit was availed on common inputs and input services used for both dutiable and exempted goods.

The Tribunal examined the legal standard for invoking extended limitation, noting that it requires proof of fraud, collusion, willful misstatement, suppression of facts with intent, or violation of law with intent to evade payment. Suppression must be deliberate and intentional, not mere omission or difference of opinion. The Tribunal cited authoritative judicial pronouncements emphasizing strict construction of these grounds and the necessity of mens rea.

The appellants argued that multiple audits and scrutiny were conducted regularly from 2008 onwards, with no objections raised on their method of reversal or credit availment, and that the Department had full knowledge of the facts. They contended that their interpretation of the law was bona fide and that no positive act of fraud or suppression was established. The Tribunal agreed, observing that the Department's failure to detect any irregularity during audits and scrutiny undermines the claim of wilful suppression. The Tribunal further observed that the letters relied upon by the Department were not placed on record and that even assuming their existence, they do not demonstrate deliberate suppression over a prolonged period.

7. Department's Responsibility and Self-Assessment Regime:

The Tribunal elaborated on the self-assessment regime, emphasizing that the primary responsibility for correct assessment and payment of service tax rests with the Department's officers. Under Section 72 of the Finance Act, officers have wide powers to scrutinize returns, call for documents, and make best judgment assessments. The Tribunal noted that the Department's failure to conduct detailed scrutiny or detect irregularities during audits is a policy risk borne by the Department and cannot be shifted to the assessee.

The Tribunal also rejected the Department's argument that failure to seek clarification or disagreement with audit findings amounts to suppression or evasion. It held that no statutory obligation exists on the assessee to seek clarifications and that disputing audit findings after deposit of disputed amounts is a legitimate right and does not imply intent to evade tax.

Application of Law to Facts and Treatment of Competing Arguments:

The Tribunal carefully weighed the appellants' submissions supported by Circulars, statutory provisions, and precedents against the Department's reliance on alleged misstatements and invocation of extended limitation. It found that the appellants' method of reversal was consistent with the legal framework and Circular guidance. The Tribunal found no evidence of deliberate suppression or fraud, only a bona fide difference of opinion on complex legal provisions.

The Department's failure to detect any irregularity in multiple audits and the absence of positive evidence of intent to evade weighed heavily against invocation of extended limitation. The Tribunal held that extended limitation cannot be invoked merely because the Department discovered the issue during audit rather than earlier scrutiny.

Conclusions:

The Tribunal concluded that the demand raised is barred by limitation as the Department failed to establish any ground for invoking the extended period. The appellants' reversal of credit complied with the law and Circulars, and their conduct did not amount to suppression or fraud. Consequently, the appeal was allowed on the ground of limitation without delving into the merits of the demand.

Significant Holdings:

"Extended period of limitation cannot be invoked unless there is evidence of fraud or collusion or wilful misstatement or suppression of facts or violation of the provisions of Act or Rules with an intent."

"Intentional and willful suppression of facts cannot be presumed because (a) the appellant was operating under self-assessment or (b) because the appellant did not agree with the audit and claimed that CENVAT credit was admissible; or (c) because the appellant did not seek any clarification from the Revenue; or (d) because the officer did not conduct a detailed scrutiny of the Returns and the availment of CENVAT credit which is alleged to be inadmissible and was discovered only during audit."

"The primary responsibility for ensuring that correct amount of service tax is paid rests on the officer even in a regime of self-assessment."

"If the officer fails to scrutinise the returns and make the best judgment assessment and some tax escapes assessment which is discovered after the normal period of limitation is over, the responsibility for such loss of Revenue rests squarely on the shoulders of the officer."

"The appellants' adoption of the practice of reversal of credit availed on common input and input services cannot be said to be with a mala fide intent when different Benches of the Tribunal and Hon'ble High Courts have expressed differing views on the issue."

"The appellants have reversed credit proportionately based on actual consumption which is permissible under Rule 6(3) and Circular No. 868/6/2008-CX."

"The appellants are not required to reverse credit on common input services for the period April 2008 to March 2010 under Rule 6(5) as they did not provide exempted services but only manufactured exempted goods."

"The appeal is allowed on limitation."

1. Whether Rule 8 of the Valuation Rules, prescribing valuation at 110% of cost of production for goods not sold but captively consumed, applies when the assessee clears part of the goods to unrelated third parties and part to sister units.

2. Whether the assessable value adopted by the appellant for clearances to sister units is correct, particularly when the appellant has also made sales to independent buyers.

3. The legal effect of excise duty paid by the appellant being available as CENVAT credit to the sister units, and whether this results in a revenue neutral situation precluding further demand of differential duty.

4. Whether the extended period of limitation can be invoked in cases where the demand arises from alleged undervaluation in a revenue neutral scenario.

5. The evidentiary value and legal consequences of a debit note found during search proceedings, which formed part of the demand for additional duty.

6. The applicability of limitation principles and whether the demand is barred by time.

Issue-wise detailed analysis:

1. Applicability of Rule 8 of the Valuation Rules in cases of partial clearance to third parties and sister units

The relevant legal framework is Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, which states: "Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods." The issue hinges on whether this rule applies when the assessee clears some goods to unrelated buyers and some to sister units.

The Court referred extensively to the Larger Bench decision in the case of Ispat Industries Ltd. v. CCE Raigad, which clarified that Rule 8 applies only where the entire production of a particular commodity is captively consumed. The judgment emphasized the plain language of Rule 8, noting the phrase "where the excisable goods are not sold" implies exclusivity in captive consumption. If some goods are sold to unrelated buyers, Rule 4 of the Valuation Rules, which prefers transaction value, applies to sister unit clearances as well.

The Court also relied on the jurisdictional High Court decision in Indian Drug Manufacturers Association v. Union of India, which held that Rule 8 applies exclusively to cases where goods are cleared solely for captive consumption.

Applying this framework to the facts, the Court examined the appellant's sales ledger and found clear evidence of clearances to various unrelated third parties alongside transfers to sister units. The entries for sister units were marked as transfers, not sales, while unrelated party clearances were genuine sales. Thus, the Court held that Rule 8 valuation was not applicable for the goods cleared to sister units, and the transaction value method under Rule 4 should be used.

2. Correctness of assessable value adopted by the appellant and revenue neutrality

The appellant adopted a valuation based on transaction value for third-party sales and cost plus 10-15% for sister unit transfers. The Revenue challenged the valuation, demanding differential duty.

The Court noted the undisputed fact that the excise duty paid by the appellant on clearances to sister units was fully available as CENVAT credit to those units. This leads to a revenue neutral situation because the duty paid by one unit is credited to the other, resulting in no net loss to the exchequer.

The Court cited multiple precedents supporting this principle of revenue neutrality, including decisions of this Tribunal and the Supreme Court such as:

• JSL Limited v. Commissioner of Central Excise, Bhubaneswar-I
• Jindal (India) Limited, Belur Unit v. Commissioner of Central Excise
• Hindalco Industries Ltd. v. Commissioner of Central Excise, Kolkata-II
• Indian Oil Corporation Ltd. v. Commissioner of Central Excise, Haldia
• Nirlon Ltd. v. CCE (Supreme Court)
• CCE & C (Appeals) v. Narayan Polyplast (Supreme Court)
• CCE v. Narmada Chematur Pharmaceuticals (Supreme Court)
• HV Transmission Ltd. v. Commissioner (CESTAT Kolkata)

The Court emphasized that where the duty paid by the appellant is available as CENVAT credit to the sister unit, the demand for differential duty is unsustainable because the entire transaction is revenue neutral. The Court also noted that the appellant's valuation was supported by CAS-4 certificates prepared by cost accountants, further reinforcing the correctness of the valuation adopted.

3. Invocation of extended period of limitation in revenue neutral cases

The Revenue invoked the extended period of limitation, alleging suppression of facts by the appellant. The appellant contended that extended limitation is not invocable in revenue neutral cases as there is no intention to evade duty.

The Court analyzed relevant case law, including:

• Mafatlal Industries Ltd. v. CCEx, Daman (Tribunal and Supreme Court)
• Rad-Mro Manufacturing Pvt. Ltd. v. Commissioner of Central Excise, Bangalore (Tribunal)
• Aarvee Denims & Exports Ltd. v. Commissioner of Central Excise, Ahmedabad-II (Tribunal)
• Diamond Cables Ltd. v. Commissioner of Central Excise, Vadodara (Tribunal)
• Commissioner of Central Excise, Vadodara v. Sicgil Industrial Gases Ltd. (Tribunal)

The Court noted that in all these cases, the extended period was held not to apply where the duty paid was available as credit to the sister unit, and no mala fide intention to evade duty was established. The Court further observed that the appellant had been filing statutory returns regularly, and the Department had access to relevant data, negating any suppression.

Accordingly, the Court held that the extended period of limitation was not invocable in the present case.

4. Evidentiary value of the debit note found during search and related demand

During search, a debit note for Rs. 10,06,290/- was found, on which additional duty of Rs. 1,20,755/- was demanded. The appellant submitted that the debit note was a draft or rough copy prepared by a newly joined assistant and lacked essential particulars such as buyer details, invoice references, or realization evidence.

The Court examined the evidence and found no corroborative proof that the amount in the debit note was actually realized. The Department had not recorded statements from persons engaged in manufacture or buyers to establish clandestine removal. The Court relied on the decision in Varun Dyes & Chemicals Pvt. Ltd. v. Commissioner of Central Excise, Surat-II, where the Tribunal held that a director's statement accepting clearance without duty can raise suspicion but is not conclusive proof of removal without corroborative evidence.

Accordingly, the Court set aside the demand relating to the debit note.

5. Limitation and time bar

The show cause notice was issued in January 2007 for the period 2002 to 2005. The appellant argued that since statutory returns reflecting the value adopted were regularly filed, and no suppression was present, the demand was barred by limitation.

The Court referred to Supreme Court authority in Nirlon Ltd. v. CCE Mumbai, which held that absence of mala fide intention and revenue neutrality negate invocation of extended limitation. The Court found no justification for extended limitation and set aside the demand on this ground as well.

Conclusions and significant holdings:

The Court held that Rule 8 of the Valuation Rules applies only when the entire production of excisable goods is captively consumed and not sold to third parties. Where part of the production is sold to unrelated buyers, the transaction value under Rule 4 governs valuation for sister unit clearances.

It was established that the appellant had made clearances to independent third parties, and thus the valuation adopted was correct.

The Court reaffirmed the principle of revenue neutrality: when excise duty paid by one unit is fully available as CENVAT credit to the sister unit, no additional duty demand is sustainable. The Court stated, preserving the legal reasoning, that:

"When the duty paid by the parent unit is eligible as CENVAT Credit to the receiving unit, the entire proceeding becomes revenue neutral."

On the extended period of limitation, the Court held that it is not invocable in revenue neutral cases absent evidence of intention to evade duty.

Regarding the debit note found during search, the Court held that mere existence of a draft or uncorroborated document without evidence of realization does not sustain a demand.

Finally, the Court set aside the confirmed demand on merits and limitation grounds, allowing the appeal with consequential relief.

Regarding the limitation issue, the relevant legal framework involves the provisions governing the period within which a demand can be raised under excise laws and the conditions under which an extended period of limitation may be invoked. The Tribunal referred to the appellant's ER-1 returns, which clearly recorded the utilization of Education Cess and Secondary & Higher Education Cess for payment of excise duty during the impugned period. The Revenue's issuance of the show cause notice on 01.04.2022 invoked the extended period of limitation, alleging suppression of facts by the appellant. However, the Tribunal found no suppression, as the returns disclosed the utilization transparently.

The Tribunal relied on precedent from a prior decision of the same forum, which held that when such utilization is disclosed in regular returns, the extended period of limitation is not invocable. The Court reasoned that since the appellant had not concealed any material facts and had complied with the statutory requirement of disclosure, the demand raised after the normal limitation period was barred. The Tribunal therefore concluded that the impugned order raising demand on the basis of extended limitation was unsustainable and liable to be set aside.

On the second issue concerning the entitlement to Cenvat credit on Sanitary ware and LED Portable Lamp Set, the legal framework involves the definitions of "capital goods" and "inputs" under the Cenvat Credit Rules, and the conditions for availing credit on such goods. The Revenue contended that these goods were items for construction and hence excluded from capital goods or inputs, disallowing credit. The appellant, however, provided detailed explanations of the usage and necessity of these items in the manufacturing process.

The appellant explained that the Sanitary ware constituted safety equipment installed in the manufacturing plant, essential for the protection of workers, particularly in a chemical plant environment where statutory labor laws mandate health and safety measures. The LED Portable Lamp Set was described as a flame-proof torch used to inspect materials inside paint mixers and vessels, critical for quality control and the accuracy of the manufacturing process of the final product-paint.

The Tribunal observed that the usage of these goods was not denied by the Revenue and accepted the appellant's submissions that these items were integral to the manufacturing process and thus qualified as capital goods. The Court emphasized that the purpose and actual use in the manufacturing process are determinative factors for credit eligibility. Consequently, the Tribunal held that the appellant was entitled to take Cenvat credit on these goods and that the credit availed was correctly claimed.

In conclusion, the Tribunal set aside the impugned order as unsustainable in law, allowing the appeal with consequential relief. The key holdings include the principle that the extended period of limitation cannot be invoked where the utilization of Education Cess and Secondary & Higher Education Cess is disclosed in statutory returns, and that safety equipment and inspection tools integral to manufacturing qualify as capital goods eligible for Cenvat credit.

Crucial legal reasoning preserved verbatim includes the Tribunal's statement: "in ER-1 return appellant has clearly mentioned utilization of Education Cess and Secondary & Higher Education Cess for payment of excise duty during the impugned period, therefore, the show cause notice issued to the appellant by invoking the extended period of limitation on 01.04.2020 is barred by limitation." Similarly, on the credit issue, the Tribunal noted: "the appellant has been able to show the usage of the said items... which has been used an equipment for manufacturing of their final product and usage of that items has not been denied by the Revenue. In that circumstances, I hold that the appellant entitled to take Cenvat credit on Sanitary Ware and LED Portable Lamp Set as capital goods."

The core legal questions considered by the Court are:

• Whether the demand for payment of interest @ 9% from the date of filing of the return, as raised by the Department under the Orissa Entry Tax Act, 1999, is legally sustainable.
• Whether the interim order passed by the Supreme Court, restraining coercive action against certain assessees, operates in rem (applicable to all similarly situated assessees) or in personem (applicable only to the petitioners before the Supreme Court).
• Whether the petitioner, who did not file a special leave petition against the High Court's order dated 15th March 2023, can claim the benefit of the Supreme Court's interim order.
• Whether the High Court was competent to direct the levy of compensatory interest for the interregnum period between the date of filing of the return and the Supreme Court's judgment.
• The procedural propriety and legal effect of the writ petition filed by the petitioner seeking relief against the interest demand after having accepted the High Court's order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of the demand for interest @ 9% from the date of filing of the return

Relevant Legal Framework and Precedents: The demand arises under the Orissa Entry Tax Act, 1999, which empowers the Department to levy entry tax and interest on delayed payments. The Supreme Court upheld the vires of the Act and the Department's competence to impose tax on specified transactions.

Court's Interpretation and Reasoning: The Court noted that the demand for interest was challenged on multiple grounds, including the legality of imposing interest for the interregnum period. The Apex Court's decision affirmed the Department's authority to impose tax, but the question of interest for the period prior to the Supreme Court's judgment remained contentious.

Key Evidence and Findings: The Department issued a demand letter for interest @ 9% from the date of filing of the return. The petitioner had deposited 2/3rd of the demand post the Supreme Court judgment but contested the interest component for the earlier period.

Application of Law to Facts: The Court recognized the Department's statutory right to levy interest but acknowledged the ongoing litigation regarding the period for which interest is chargeable.

Treatment of Competing Arguments: The petitioner argued that interest for the interregnum period should not be charged due to the pendency of litigation and the interim order by the Supreme Court. The Department contended that the demand was valid and enforceable.

Conclusion: The Court deferred the ultimate decision on the legality of interest for the interregnum period to the Apex Court but upheld the Department's right to demand interest subject to the final outcome.

Issue 2: Nature and scope of the Supreme Court's interim order

Relevant Legal Framework and Precedents: Interim orders by the Supreme Court typically bind the parties before it (in personem) unless expressly stated to operate generally (in rem).

Court's Interpretation and Reasoning: The Court examined whether the interim order restraining coercive action against assessees who approached the Supreme Court applies to all assessees or only those petitioners. It concluded that the interim order is in personem, binding only the parties who filed the special leave petitions.

Key Evidence and Findings: The petitioner did not file a special leave petition against the High Court's order dated 15th March 2023, and therefore was not covered by the Supreme Court's interim order.

Application of Law to Facts: Since the petitioner was not a party to the Supreme Court proceedings granting interim relief, it cannot claim the benefit of such order.

Treatment of Competing Arguments: The petitioner contended that the interim order should benefit all assessees to avoid multiplicity of litigation and confusion. The Department argued that the order is limited to the petitioners before the Supreme Court.

Conclusion: The Court held that the interim order is not a general order in rem and does not extend to the petitioner who did not challenge the High Court's order before the Apex Court.

Issue 3: Competence of the High Court to direct compensatory interest for the interregnum period

Relevant Legal Framework and Precedents: The High Court's power to issue directions in writ proceedings includes the ability to grant relief as deemed just and proper, subject to appellate review.

Court's Interpretation and Reasoning: The Court acknowledged that the question of whether the High Court was competent to direct compensatory interest @ 9% for the period between filing of the return and the Supreme Court judgment is a matter reserved for the Apex Court's determination.

Key Evidence and Findings: The High Court's order dated 15th March 2023 directed payment of the remaining 2/3rd of the demand with interest from the date of the Supreme Court order and compensatory interest for the interregnum period.

Application of Law to Facts: The Court refrained from interfering with the High Court's directions pending final adjudication by the Apex Court.

Treatment of Competing Arguments: The petitioner challenged the imposition of interest for the interregnum period; the Department supported the High Court's directions.

Conclusion: The issue remains pending before the Supreme Court, and this Court declined to stay or alter the High Court's order.

Issue 4: Procedural propriety of the writ petition filed after acceptance of the High Court's order

Relevant Legal Framework and Precedents: The principle that a party cannot seek review or re-agitate issues already adjudicated in the absence of statutory or procedural provisions allowing review.

Court's Interpretation and Reasoning: The Court observed that since the petitioner had accepted the High Court's order dated 15th March 2023 without challenging it before the Apex Court, the present writ petition effectively seeks impermissible review.

Key Evidence and Findings: No special leave petition was filed by the petitioner against the High Court order; the writ petition was filed subsequently challenging the interest demand.

Application of Law to Facts: The Court treated the writ petition as an attempt to circumvent the finality of the High Court's order.

Treatment of Competing Arguments: The petitioner argued that the writ petition was necessary due to confusion over applicability of the Supreme Court's interim order; the Department contended it was a collateral attack on a binding judgment.

Conclusion: The Court held that the writ petition was not maintainable as a review and disposed of the petition accordingly.

Issue 5: Equitable relief and deposit of disputed amount

Court's Interpretation and Reasoning: To balance the rights of the parties and avoid prejudice pending final adjudication, the Court directed the petitioner to deposit the demanded amount within two months, without prejudice to the parties' rights.

Application of Law to Facts: This direction was to mitigate uncertainty and ensure that the Department's demand is not rendered nugatory, while preserving the petitioner's right to challenge the demand before the Apex Court.

Conclusion: The deposit direction was issued as an interim measure to maintain equilibrium between the parties.

3. SIGNIFICANT HOLDINGS

"Since there is no express order of stay of operation of the said order and the petitioner being not an applicant in any of the special leave petitions pending before the Supreme Court, we do not find any justification in extending the benefit of the interim order at this stage."

"Whether the High Court was within its competence to direct the compensatory interest to be levied on the assessee for the interregnum period between the date of filing of the return and the judgment of the Apex Court, is a matter to be decided by the Apex Court."

"Any deposit as demanded would sub serve the justice as the same would be subject to an outcome of the decision taken by the Apex Court provided it inure to the benefit of all the assessees whether they approached the Apex Court or not."

The Court established the principle that interim orders passed by the Supreme Court are generally in personem and do not automatically extend to non-parties.

The Court reaffirmed the finality of the High Court's order dated 15th March 2023 in the absence of challenge before the Apex Court and held that collateral attempts to review such order through writ petitions are impermissible.

The Court emphasized the importance of equitable interim relief by directing deposit of the disputed amount to balance the rights of the parties pending final adjudication.

Issues: (i) Whether Sections 3 and 4 of the Kerala Joint Hindu Family System (Abolition) Act, 1975 are repugnant to Section 6 of the Hindu Succession Act, 1956 as amended in 2005; (ii) whether the amended Section 6 confers coparcenary rights on daughters in the State of Kerala notwithstanding the State enactment and prior views taking a contrary position; (iii) whether the plaintiffs were entitled to a partition share in the plaint schedule property.

Issue (i): Whether Sections 3 and 4 of the Kerala Joint Hindu Family System (Abolition) Act, 1975 are repugnant to Section 6 of the Hindu Succession Act, 1956 as amended in 2005.

Analysis: The State Act denies a right by birth and proceeds on a deemed partition, whereas the amended Section 6 confers on a daughter the status of coparcener by birth and recognises only registered partition deeds or court decrees as valid partitions for the purposes of the saving clause. The two enactments operate on the same field in respect of joint family and succession and cannot be reconciled. The earlier presidential assent to the State Act does not preserve it against a later Central amendment occupying the field.

Conclusion: The provisions of Sections 3 and 4 of the State Act are repugnant to Section 6 of the Hindu Succession Act, 1956 as amended in 2005 and have no effect to the extent of the inconsistency.

Issue (ii): Whether the amended Section 6 confers coparcenary rights on daughters in the State of Kerala notwithstanding the State enactment and prior views taking a contrary position.

Analysis: The amended Section 6 treats the daughter of a coparcener as a coparcener by birth with the same rights and liabilities as a son, subject to the statutory savings. The decision in Vineeta Sharma was applied to hold that the right is by birth and is not dependent on the father being alive on the commencement date. Earlier single-judge decisions treating the Kerala State Act as extinguishing coparcenary rights were held to be no longer good law.

Conclusion: Daughters are entitled to coparcenary rights and equal share in the joint family property in Kerala, subject to the statutory exceptions in Section 6(5).

Issue (iii): Whether the plaintiffs were entitled to a partition share in the plaint schedule property.

Analysis: On the factual matrix, the property continued to retain its character as joint family property and the argument that the 1st defendant became the absolute owner so as to validate a testamentary disposition over the whole property was rejected. The court held that there is no concept of a single coparcener defeating the daughters' claim in the manner urged, and that the preliminary decree should reflect the daughters' statutory entitlement.

Conclusion: The plaintiffs were entitled to partition and equal share along with the son in the plaint schedule property.

Final Conclusion: The appeal succeeded, the contrary judgments were set aside, and a preliminary decree for partition was passed in favour of the plaintiffs with costs.

Ratio Decidendi: A later Central amendment conferring coparcenary rights on daughters prevails over a repugnant State law in the concurrent field, and daughters are entitled to claim equal coparcenary shares subject only to the statutory savings attached to prior partitions and dispositions.