TaxTMI Updates e-Newsletter
Jul 22,2021

Writ petition rendered infructuous - Direction to appellate authority to decide appeal expeditiously - Provisional release application rejected - No adjudication on merits; rights preserved

Writ petition rendered infructuous - Direction to appellate authority to decide appeal expeditiously - No adjudication on merits; rights preserved - Present writ petition disposed of as infructuous and the Commissioner (Appeals) directed to decide the petitioner's appeal dated 01st July, 2021 by a reasoned order within a stipulated time; court did not decide merits and left parties' rights open. - HELD THAT: - The Court recorded that the petitioner's application for provisional release had been rejected and that an appeal against that rejection was filed before the Commissioner (Appeals) on 01st July, 2021. In view of the pendency of that statutory remedy, the writ petition was declared infructuous and disposed of. The Court did not undertake any adjudication on the substantive merits of the controversy; instead it issued a procedural direction to the appellate authority to decide the pending appeal by way of a reasoned order, preferably within four weeks. All substantive rights and contentions of the parties were expressly left open for consideration by the Commissioner (Appeals).

Writ petition disposed of as infructuous; Commissioner (Appeals) directed to decide the appeal dated 01st July, 2021 by a reasoned order, preferably within four weeks; merits not adjudicated and rights preserved.

Final Conclusion: The writ petition was disposed of as infructuous; the Commissioner (Appeals) was directed to decide the petitioner's appeal dated 01st July, 2021 by a reasoned order within a short timeframe; the High Court did not consider the merits and left all rights and contentions open.

Transitional input tax credit - electronic filing of TRAN-1 and TRAN-2 - manual filing as alternative to electronic submission - furnishing transitional details in Form GSTR-3B - interim procedural directions and service of notice

Electronic filing of TRAN-1 and TRAN-2 - manual filing as alternative to electronic submission - furnishing transitional details in Form GSTR-3B - transitional input tax credit - Petition seeking direction to open a common portal for electronic filing of TRAN-1 and TRAN-2, or alternatively to permit manual filing or furnishing of transitional details for availing transitional input tax credit. - HELD THAT: - The court did not adjudicate the substantive claim for grant of transitional credit or direct the mode of filing on merits. Instead, procedural relief in the form of exemption from filing formalities for the pending application was allowed and notice was issued to the respondents to enable them to file their affidavits. Respondents were permitted four weeks to file counter affidavits, and rejoinders, if any, were directed to be filed before the next date of hearing. The petition remains listed for further consideration on the specified date, with no final determination on entitlement to the claimed transitional credit or on whether electronic or manual filing must be permitted.

Exemption granted for filing the present application; notice issued to respondents; respondents directed to file counter affidavits within four weeks and matter listed for further hearing.

Final Conclusion: The court granted interim procedural relief by allowing exemption for the application, issued notice to the respondents, directed filing of counter affidavits and rejoinders, and listed the writ petition for further hearing without deciding the substantive entitlement to the claimed transitional input tax credit.

Scope of supply - business as defined in Section 2(17) of the CGST Act - GST registration requirement under Section 22(1) of the CGST Act - supply of goods

Business as defined in Section 2(17) of the CGST Act - trade or commerce - Whether the medical store run by the charitable trust amounts to 'business' under the CGST Act. - HELD THAT: - The Court examined the definition of 'business' in Section 2(17) which expressly includes any trade or commerce 'whether or not it is for a pecuniary benefit.' The petitioners' contention that selling medicines at a lower rate to patients does not constitute 'business' was rejected because the activity involves sale for consideration and therefore falls within the statutory meaning of trade or commerce. It is immaterial under the definition that the activity may not be undertaken for pecuniary gain; the occurrence of trade or commerce suffices to establish 'business.' The petitioner did not satisfactorily demonstrate how the medical store's sales would be excluded from the statutory definition. [Paras 8, 9]

The medical store's sale of medicines for consideration by the charitable trust constitutes 'business' under Section 2(17) of the CGST Act.

Scope of supply - GST registration requirement under Section 22(1) of the CGST Act - supply of goods - Whether the medical store is required to obtain GST registration and whether supplying medicines at lower rates amounts to 'supply' of goods under the CGST Act. - HELD THAT: - The Court referred to Section 7(1) which includes sale of goods made for a consideration in the course or furtherance of business within 'supply.' Given the conclusion that the medical store's activity is 'business' and that medicines are sold for consideration (albeit at lower rates), such transactions fall within the scope of 'supply.' Section 22(1) mandates registration for every supplier making taxable supplies beyond the prescribed threshold. The authorities below had considered the submissions and applied these statutory provisions to hold that the trust must obtain GST registration and that the provision of medicines at lower rates nonetheless amounts to supply of goods. The Court found no illegality or infirmity in those conclusions. [Paras 6, 7, 9, 10]

The medical store's sale of medicines amounts to 'supply' and, subject to statutory turnover thresholds, the trust is required to obtain GST registration; the impugned orders upholding these conclusions are sustained.

Final Conclusion: The writ petition is dismissed; the Advance Ruling and the Appellate Authority's order holding that the charitable trust's medical store activities constitute supply of goods and require GST registration are upheld.

Exemption under Entry No. 66 of Notification No. 12/2017-Central Tax (Rate) - meaning of "educational institution" in Para 2(y) of Notification No. 12/2017-Central Tax (Rate) - strict interpretation of exemption notifications - Service Accounting Code 9992 / 999293 - commercial training and coaching services - value of supply and exclusion for pure agent (Rule 33 of CGST Rules) - composite supply and principal supply (Section 2(30) and Section 8(a) of CGST Act) - classification of sale of printed books under composite supply

Exemption under Entry No. 66 of Notification No. 12/2017-Central Tax (Rate) - meaning of "educational institution" in Para 2(y) of Notification No. 12/2017-Central Tax (Rate) - strict interpretation of exemption notifications - Whether the coaching and training programmes offered by the appellant qualify as exempt "educational institution" services under Entry No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 - HELD THAT: - The authority examined the three limbs of Para 2(y). The appellant does not provide pre-school or education up to higher secondary (sub-clause (i)) nor approved vocational education courses (sub-clause (iii)). To fall under sub-clause (ii) an institution must provide education as part of a curriculum that leads to a qualification recognised by law and must itself deliver that part of the curriculum leading to the recognised qualification. The coaching given by the appellant prepares aspirants to appear for examinations conducted by statutory bodies but does not itself conduct the examinations or award the statutory qualification; attendance at the appellant's courses is not a mandatory element of the statutory qualification process. Applying settled principles that exemption notifications must be strictly construed, the authority held that the appellant has not satisfied the conditions of Para 2(y)(ii) and therefore does not qualify as an "educational institution" entitled to exemption under Entry No. 66. [Paras 13, 14, 15, 16]

The services rendered by the appellant are not exempt under Entry No. 66; the appellant does not qualify as an "educational institution" within Para 2(y) of Notification No. 12/2017.

Service Accounting Code 9992 / 999293 - commercial training and coaching services - What is the Service Accounting Code (SAC) applicable to the appellant's services - HELD THAT: - The Scheme of Classification of Services includes coaching and tutorial classes under SAC 999293 as commercial training and coaching services. Given the appellant's activities are coaching/training (not falling within the exemption), their services are classifiable under the said SAC in accordance with the notified scheme. [Paras 17]

The services are classifiable under SAC 9992-999293 - Commercial training and coaching services.

Value of supply and exclusion for pure agent (Rule 33 of CGST Rules) - Section 15 - valuation of taxable supply - Whether amounts collected by the appellant as examination fees and other fees on behalf of recognised institutes/universities are includible in the appellant's taxable value or can be excluded as a "pure agent" under Rule 33 - HELD THAT: - Section 15 provides the basic rule that the entire consideration received is taxable. Rule 33(1) permits exclusion of expenditure/costs incurred by a supplier as a "pure agent" where specified conditions are satisfied: (i) the supplier acts as a pure agent with recipient's authorization; (ii) the payment is separately indicated in the invoice; and (iii) the supplies procured as pure agent are in addition to the supplier's own services. If the appellant satisfies these conditions when collecting and remitting examination/other fees, the amounts so collected can be excluded from the value of taxable supply; otherwise they form part of taxable consideration. [Paras 18]

Amount collected and remitted as examination/other fees can be excluded from taxable value only if the conditions of Rule 33 are fulfilled; otherwise they are includible in the appellant's taxable consideration under Section 15.

Composite supply and principal supply (Section 2(30) and Section 8(a) of CGST Act) - Service Accounting Code 9992 / 999293 - commercial training and coaching services - Whether the hostel facility (charged to enrolled students at concessional rates) forms part of a composite supply with the appellant's coaching services and the tax consequence thereof - HELD THAT: - A composite supply consists of two or more supplies that are naturally bundled with one principal supply. The appellant charges lower hostel fees to enrolled students than to outside residents and supplies hostel services together with coaching as a packaged offering. In the absence of an explanation for differentials and given that the hostel concession appears as part of the package for enrolled students, the hostel service is naturally bundled with the coaching and the coaching is the principal supply. Under Section 8(a), the composite transaction must be treated as the principal supply, and the entire supply is classifiable and taxable as the principal service (SAC 9992-999293). The appellant's contention that hostel is a standalone supply is rejected on the facts. [Paras 19]

Hostel facility provided to enrolled students forms part of a composite supply whose principal supply is coaching; the entire composite supply is taxable as SAC 9992-999293.

Composite supply and principal supply (Section 2(30) and Section 8(a) of CGST Act) - classification of sale of printed books under composite supply - Whether sale of text books and printed course material to the appellant's students is taxable or exempt - HELD THAT: - The appellant sells course books to students at concessional rates compared to outside purchasers. Those supplies to enrolled students are made together with coaching services as part of a package. On the same reasoning applied to hostel services, the sale of books to students is treated as part of the composite supply where coaching is the principal supply. Under Section 8(a) the entire composite supply is to be treated as the principal supply and taxed accordingly. The appellant's reliance on exemption for printed books in other contexts does not override the classification of the composite transaction. [Paras 20]

Sale of text books to the appellant's students is part of the composite supply with coaching and is taxable as SAC 9992-999293.

Final Conclusion: The appeal is dismissed. The Advance Ruling is upheld with modifications stated: the appellant's coaching services are not exempt under Notification No. 12/2017 (Entry 66) and are classifiable under SAC 9992-999293 (commercial training and coaching); amounts collected and remitted as examination/other fees may be excluded from taxable value only if Rule 33 (pure agent) conditions are satisfied; hostel charges and sale of books to enrolled students form part of a composite supply with coaching and are taxable as the principal supply.

Zero rated supply - relevant date for refund - refund within two years / limitation - refund under Section 54 of the CGST Act, 2017 - principle of natural justice - speaking order

Zero rated supply - relevant date for refund - refund within two years / limitation - refund under Section 54 of the CGST Act, 2017 - Whether the refund claim filed in respect of supplies to SEZ for July-2017 was time barred under the limitation prescribed in Section 54. - HELD THAT: - The Commissioner (Appeals) examined the statutory definition of zero rated supply and the Explanation to Section 54 concerning the relevant date for refund. For supplies to an SEZ, the specific clauses in the Explanation concerning export/deemed export apply; consequently the relevant date is the date on which the goods are admitted/received in the SEZ (i.e., the export/entry date), not the subsequent date on which tax was paid. The order records that the tax invoice shows goods received in the SEZ on 26.07.2017, making that the relevant date for limitation. Applying the two-year limitation period from that relevant date, the refund filed on 17.10.2020 fell outside the permissible period. The appellate authority therefore upheld the adjudicating authority's conclusion that the refund claim was time barred and correctly rejected the claim on limitation grounds. [Paras 9, 10]

Refund claim held time barred; rejection on limitation grounds upheld.

Principle of natural justice - speaking order - Whether the adjudicating authority violated the principle of natural justice or failed to pass a speaking order in rejecting the refund. - HELD THAT: - The appellant contended that the adjudicating authority did not consider its submissions and therefore failed to pass a speaking order, infringing principle of natural justice. The appellate review found that the show cause notice and the impugned order adequately recorded the reasons for rejection of the refund claim. The Commissioner (Appeals) concluded that the adjudicating authority had stated the basis for rejection and that the contention about non-application of mind was without merit; the cited precedents were held inapplicable to the facts of this case. [Paras 11, 12]

No breach of natural justice; the order was speaking and adequacy of reasons was affirmed.

Final Conclusion: The appeal is dismissed: the refund claim for July-2017 is time barred as the relevant date is the date of admission/receipt of goods in the SEZ (26.07.2017), and the adjudicating authority's order was found to be a speaking order complying with natural justice.

Anticipatory bail under Section 438 Cr. P. C. - fraudulent claim of Input Tax Credit - deposit as pre-condition for grant of bail - cooperation with investigation as condition of bail - restraint on tampering with evidence and non-departure - economic offences and bail jurisprudence

Anticipatory bail under Section 438 Cr. P. C. - fraudulent claim of Input Tax Credit - economic offences and bail jurisprudence - Grant of anticipatory bail to the applicant in respect of offences under the CGST and Gujarat GST Acts. - HELD THAT: - The Court exercised discretion to grant anticipatory bail after considering the prosecution case alleging large-scale fraudulent availing of Input Tax Credit and the applicant's specific role. The record shows that the applicant is a partner in M/s Martiz Cera and, as admitted in the prosecution case, allegations against that firm pertain to tax evasion of around Rs. 32 Lakhs, while larger figures (involving other firms) relate to proprietorships of the applicant's father and brother. The applicant offered to deposit the amount alleged against Martiz Cera and to cooperate with investigation. The Court noted precedents where bail was conditioned on deposit and treated economic offences as requiring cautious exercise of discretion but nonetheless found it appropriate to grant anticipatory bail in the facts and circumstances of the case. Having weighed the nature of allegations, the limited direct involvement pleaded against the applicant in relation to Martiz Cera, his willingness to cooperate and to deposit the disputed amount, the Court directed release on bail subject to conditions. [Paras 6]

Anticipatory bail allowed; applicant to be released on bail on furnishing bond and subject to specified conditions.

Deposit as pre-condition for grant of bail - cooperation with investigation as condition of bail - restraint on tampering with evidence and non-departure - Conditions to be imposed for grant of anticipatory bail and their scope. - HELD THAT: - The Court imposed conditions tailored to secure the applicant's presence and preserve the integrity of the investigation and trial. Conditions include execution of personal bond with a surety, specific cooperation with investigating officers (including appearance on a named date), furnishing residential address and proof, deposition of passport or affidavit regarding non-possession of passport, prohibition on tampering with evidence or threatening witnesses, restriction on leaving India without prior permission, and a direction to deposit the amount alleged against M/s Martiz Cera. The deposit obligation and cooperation were treated as material safeguards given the nature of allegations and the jurisprudence cited for economic offences; the Court formulated the quantum and timelines for compliance and attached these as conditions of the bail order. [Paras 8]

Bail granted subject to bond, surety, cooperation, non-departure, non-tampering, deposit of disputed amount within four weeks, and other enumerated conditions.

Final Conclusion: Anticipatory bail under Section 438 Cr.P.C. granted to the applicant in Case No. (DGGI/RRU/12(4)-14/2020-21) subject to execution of bond and surety, cooperation with investigation, surrender/deposit of passport or affidavit, prohibition on tampering with evidence and departure without permission, and deposit of the amount alleged against M/s Martiz Cera within four weeks.

Deduction of employer's contribution to provident fund and ESI only if credited by due date - treatment of employee contributions as income under clause (x) of section 2(24) - deduction for bad debts under section 36(1)(vii) and Explanation 1 distinguishing write off from provision - actual write off by simultaneous reduction of debtors in the balance sheet - application of the ratio in Vijaya Bank regarding permissible deduction when provision is adjusted against debtors

Deduction of employer's contribution to provident fund and ESI only if credited by due date - treatment of employee contributions as income under clause (x) of section 2(24) - The disallowance of employee contribution to PF/ESI under section 36(1)(va) read with section 2(24)(x) was upheld. - HELD THAT: - The Tribunal observed that the assessee deposited employees' contributions to PF/ESI after the statutory due date. Relying on the decision of the Hon'ble Gujarat High Court in CIT v. GSRTC (as reproduced in the order), the Court noted that section 2(24)(x) treats such employee contributions as income and section 36(1)(va) permits deduction only if the employer credits the amount to the relevant fund on or before the due date. Since the assessee failed to credit the contributions within the prescribed due date, it was not entitled to the deduction and the addition made by the Assessing Officer was rightly sustained by the lower authorities. [Paras 8]

Ground of appeal dismissed; addition under section 36(1)(va) read with section 2(24)(x) sustained.

Deduction for bad debts under section 36(1)(vii) and Explanation 1 distinguishing write off from provision - actual write off by simultaneous reduction of debtors in the balance sheet - application of the ratio in Vijaya Bank regarding permissible deduction when provision is adjusted against debtors - The addition disallowing the provision for bad and doubtful debts was deleted and the provision allowed as deduction. - HELD THAT: - The Tribunal examined Explanation 1 to section 36(1)(vii) and the jurisprudence of the Hon'ble Supreme Court in Vijaya Bank. While acknowledging that a mere provision (credit to liabilities) is not deductible after the legislative amendment, the Tribunal applied the Vijaya Bank ratio that where the assessee not only debits the profit and loss account but also simultaneously reduces the amount of loans and advances/debtors in the balance sheet so that debtors are shown net of provision, this constitutes an actual write off. The assessee's accounts, as shown in the profit and loss and the balance sheet schedules, evidenced that the provision was adjusted against trade receivables. The Tribunal also noted a prior favourable Tribunal order in the assessee's own case for the immediately preceding year on identical facts. On these findings the Tribunal held the provision to be a write off for the purposes of section 36(1)(vii) and directed deletion of the addition. [Paras 15, 16]

Ground of appeal allowed; addition for provision for doubtful debts deleted and deduction permitted.

Final Conclusion: The appeal was partly allowed: the disallowance under section 36(1)(va) read with section 2(24)(x) was upheld, while the addition disallowing the provision for bad and doubtful debts under section 36(1)(vii) was deleted and the provision allowed as a deduction.

Condonation of delay and sufficient cause - rejection of books of account under section 145(3) - estimation of income under section 144 and application of gross profit rate - application of net profit rate based on past history - requirement of material evidence for making additions and prohibition on additions based on suspicion - opportunity of hearing and principles of natural justice in assessment proceedings - consequential interest under section 234A/B/C

Condonation of delay and sufficient cause - Whether the delay of 825 days in filing the appeal should be condoned. - HELD THAT: - The Bench examined the explanation and supporting affidavit of the assessee (legal heir) that the original appellant had died shortly after filing before the first appellate authority, that the CIT(A)'s order was served on the then counsel and not on the legal heir, and that the legal heir only came to know of the proceedings on receipt of recovery notice in February 2020 and thereafter took steps to file the appeal. Having considered settled authorities advocating a liberal approach to 'sufficient cause' and finding no mala fide conduct, want of communication by the counsel and bona fide reasons were held to constitute sufficient cause to condone the delay. The appeal was therefore admitted for hearing. [Paras 10]

Delay of 825 days condoned and appeal admitted for hearing.

Rejection of books of account under section 145(3) - estimation of income under section 144 and application of gross profit rate - application of net profit rate based on past history - requirement of material evidence for making additions and prohibition on additions based on suspicion - Whether sales treated by the Assessing Officer as assessee's own sales (instead of commission/Arat sales) and resultant trading addition should be sustained, and if so at what amount. - HELD THAT: - The Tribunal reviewed the material on record including trading and P&L accounts for the year and prior years, the diaries, confirmations from M/s K.O.C. Fruit Company, and statements of farmers. It observed that the assessee was a retail trader who, in the year under consideration, performed Arat/commission transactions in respect of farmers' goods sent truck-to-truck to purchasers outside the city. The AO had rejected books under section 145(3) and, applying a 16% gross profit rate on an estimated inflated turnover, made a large trading addition. The Tribunal found that (i) the AO had not confronted M/s K.O.C. to ascertain the nature of transactions despite having their confirmation; (ii) the dramatic increase in turnover and profit assumed by the AO (over prior years) was abnormal and unexplained; (iii) additions cannot rest on mere suspicion, assumptions or extrapolations without cogent material; and (iv) in commission/Arat transactions a commission (net profit) basis, informed by past years' rates, is the appropriate yardstick rather than applying a higher gross profit rate applicable to own retail sales. Applying these principles and the material on record, the Tribunal accepted that the outstation sales were Arat/commission sales, computed the Arat turnover on a reduced basis (excluding an unsupported estimate for other cities), applied a commission rate of 1.5% (instead of the assessee's declared 1.23% figure), and reduced the addition accordingly. [Paras 18]

Majority of the trading addition deleted; a trading addition of Rs. 26,140 sustained (balance of addition deleted).

Opportunity of hearing and principles of natural justice in assessment proceedings - Whether the disallowance of various expenses (Rs. 21,803) could be entertained by the Tribunal when not contested before the CIT(A). - HELD THAT: - The Tribunal noted that the disallowance issue was not raised before the CIT(A). In view of the procedural requirement that appellate submissions be raised at the earlier appellate stage, the Tribunal refrained from adjudicating the matter on merits and set the issue aside for decision by the CIT(A) in accordance with law. [Paras 19]

Issue of disallowance of expenses remanded to the CIT(A) for decision in accordance with law.

Consequential interest under section 234A/B/C - Whether the interest charged under sections 234A, 234B and 234C requires independent adjudication. - HELD THAT: - The Tribunal treated the question of interest as consequential to the tax/assessment adjustments made and observed that no separate adjudication was required in the present order; interest would follow the final assessment position. [Paras 20]

Interest under sections 234A/B/C to be consequential and determined in accordance with the final assessment.

Final Conclusion: Delay in filing the appeal was condoned and the appeal admitted. On merits, the Tribunal held that the outstation sales were Arat/commission transactions and, applying the appropriate commission rate and excluding unsupported estimated turnover, deleted the bulk of the trading addition while sustaining a limited addition. The disallowance of expenses was remanded to the CIT(A) for fresh decision and interest implications were left consequential to the final assessment.

Genuineness of expenses - statement recorded under Section 133A and evidentiary value - requirement of corroborative material for additions based on survey disclosure - application of Section 40A(2)(a) to related party payments - adhoc disallowance based on past assessment practice - assessment year 2013-14 - assessment year 2015-16

Genuineness of expenses - requirement of corroborative material for additions based on survey disclosure - Deletion of disallowance of interest expense of Rs. 3,60,465 for AY 2013-14. - HELD THAT: - Tribunal found that the interest related to a car loan taken for business purpose and was evidenced by ledger and bank loan accounts on the record. The Assessing Officer's disallowance premised on the fact that interest free advances were given by the assessee did not rebut documentary proof that the interest paid was a legitimate business expense. The Commissioner (Appeals) had rightly deleted the addition and the Tribunal dismissed Revenue's ground. [Paras 13]

Addition of Rs. 3,60,465 was deleted; Revenue's ground dismissed.

Genuineness of expenses - adhoc disallowance based on past assessment practice - Disallowance of registration/processing expenses (AO's addition Rs. 89,96,634) for AY 2013-14 and the adhoc 4% sustainment by CIT(A). - HELD THAT: - The Assessing Officer had reduced the claim by treating only 41,675 students as valid rather than the 76,931 claimed. The Commissioner (Appeals) accepted documentary proof of collection and remittance to the university, held AO's selection of 41,675 to be erroneous, and sustained only an adhoc 4% disallowance based on past assessment practice. The Tribunal examined the record, found receipts and remittances unchallenged and that the AO's error in picking figures rendered the original disallowance unjustified. The adhoc disallowance-being unsupported by any evidence other than prior practice-was held to be uncalled for and the entire AO addition was deleted. [Paras 14, 15]

AO's addition of Rs. 89,96,634 deleted in full; adhoc 4% disallowance set aside.

Genuineness of expenses - application of Section 40A(2)(a) to related party payments - adhoc disallowance based on past assessment practice - Disallowance of purchases from sister concerns (AO disallowance Rs. 3,04,29,100; CIT(A) sustained 3%) for AY 2013-14. - HELD THAT: - AO disallowed purchases from related parties for lack of MOU, perceived non justification and inability to trace parties. CIT(A) restricted disallowance to 3% by reference to earlier years. Tribunal reviewed evidence: sales corresponding to the purchases were not disputed, payments were through banking channels, suppliers' audited returns and bank statements were on record, and AO did not undertake the enquiry under Section 40A(2)(a) to examine excess or unreasonableness. The Tribunal held that AO's disallowance rested on surmise and conjecture; without evidence of excess or inflated pricing, adhoc reductions based on past practice could not sustain an addition, and therefore deleted the AO's disallowance in full. [Paras 16, 18, 20]

Entire disallowance of Rs. 3,04,29,100 deleted; CIT(A)'s partial sustainment set aside.

Genuineness of expenses - adhoc disallowance based on past assessment practice - Disallowance of training expenses paid to associated concerns (AO disallowance Rs. 8,14,42,700; CIT(A) sustained 5%) for AY 2013-14. - HELD THAT: - AO doubted genuineness for want of MOUs, faculty details and because payments were to exempt entities; CIT(A) limited disallowance to 5% by reference to prior years. Tribunal found training receipts from the same associated entities admitted by AO, evidence of capacity (universities, IRDA approval, colleges) on record, payments through banking channels and no material showing excessiveness. Given lack of corroborative evidence of diversion or inflated pricing, the Tribunal disallowed no part of the training expenses and set aside the adhoc disallowance confirmed by CIT(A). [Paras 21, 27, 28]

Disallowance deleted in full; CIT(A)'s adhoc 5% sustainment set aside.

Statement recorded under Section 133A and evidentiary value - requirement of corroborative material for additions based on survey disclosure - Deletion of AO's addition of Rs. 23,00,00,000 for alleged bogus purchases (surrender recorded during survey) for AY 2015-16. - HELD THAT: - During survey the Chairman made a statement offering to declare Rs. 23 crores; that statement was retracted and extensive documentary material was later filed including supplier ITRs, audited accounts, bank statements showing payments and receipts, VAT/sales tax records, invoice wise quantitative reconciliations and seized records. AO relied on the survey statement but produced no corroborative incriminating material gathered during survey to sustain the addition. Tribunal, following settled precedents, held a non oath statement under Section 133A cannot alone sustain an addition absent corroboration; where sales were accepted and purchases supported by records, the addition based solely on the surrender was deleted and Revenue's challenge dismissed. [Paras 35, 37, 41]

Addition of Rs. 23 crores deleted; Revenue's ground dismissed.

Genuineness of expenses - Deletion of disallowance of interest expense of Rs. 3,16,358 for AY 2015-16. - HELD THAT: - The interest related to a car loan used for business. The AO's disallowance premised on advances/interest free loans given by the assessee did not outweigh documentary evidence that the borrowing and interest were for business purposes. Tribunal affirmed CIT(A)'s deletion of the addition. [Paras 42]

Disallowance of Rs. 3,16,358 deleted; Revenue's ground dismissed.

Adhoc disallowance based on past assessment practice - genuineness of expenses - Sustainment of adhoc disallowance of Rs. 3,34,204 (various expense heads) for AY 2015-16. - HELD THAT: - AO had sought verification of exhibition, repair & maintenance, meeting, miscellaneous and general expenses; verification revealed certain vouchers were not verifiable, several vouchers were self made and payments were in cash. Given those verification findings, Commissioner (Appeals) confirmed an adhoc disallowance. Tribunal examined the record and upheld CIT(A)'s confirmation of the adhoc disallowance as justified on facts. [Paras 43]

Adhoc disallowance of Rs. 3,34,204 confirmed; assessee's ground dismissed.

Final Conclusion: For AY 2013-14 the Tribunal allowed the assessee's appeal: deletions sustained for interest, purchases from sister concerns, registration and training expenses (AO additions deleted; CIT(A)'s limited adhoc sustainments set aside). Revenue's cross appeal for AY 2013-14 was dismissed. For AY 2015-16 the Tribunal dismissed both the assessee's and Revenue's appeals: AO's addition of Rs. 23 crores and interest disallowance were deleted (in favour of the assessee), while the adhoc disallowance of Rs. 3,34,204 was upheld.

Penalty under Section 271AAB where search has been initiated against the assessee - Search initiated under Section 132 as prerequisite for invoking Section 271AAB - Notice/assessment under Section 153C and return filed in response to notice under Section 156C as incidental to search proceedings - Survey under Section 133A does not convert a non-searched person into a searched person for Section 271AAB

Penalty under Section 271AAB where search has been initiated against the assessee - Search initiated under Section 132 as prerequisite for invoking Section 271AAB - Notice/assessment under Section 153C and return filed in response to notice under Section 156C as incidental to search proceedings - Whether penalty under Section 271AAB can be imposed on an assessee who was not the subject of a search under Section 132 but whose income was assessed after a search on another person and consequent proceedings under Section 153C/156C. - HELD THAT: - A plain reading of Section 271AAB shows that the power to impose penalty arises only where a search has been initiated against the assessee. In the present case the search under Section 132 was conducted in respect of group premises of another entity and not in the premises of the respondent-assessee. The assessee-firm thereafter received a notice under the provisions consequential to the search and filed a return admitting additional income; the assessment was completed under the provisions applicable to search-related assessments. Proceedings under Section 153C/notice under Section 156C (as recorded) and survey under Section 133A are incidental or consequential to the search on the searched person and do not convert a person who was not searched into a person against whom a Section 132 search was initiated. The Tribunal's conclusion-that penalty under Section 271AAB cannot be levied on a person who was not actually searched under Section 132-follows the clear meaning of the statutory language and consistent decisions of coordinate benches of the Tribunal. No contrary binding decision of a High Court or the Supreme Court was placed before the Court to displace that view.

Penalty under Section 271AAB cannot be imposed on the assessee-firm which was not the subject of a search under Section 132; the Tribunal's cancellation of the penalty is upheld and the revenue's appeal is dismissed.

Final Conclusion: The appeal is dismissed. The High Court upholds the Tribunal's view that Section 271AAB is invocable only where a search under Section 132 has been initiated against the assessee; incidental or consequential proceedings (survey/notice/assessment under Sections 133A/153C/156C) in respect of a non-searched person do not furnish a foundation to levy penalty under Section 271AAB.

Penalty under Section 221(1) - penalty cancellation under Section 221(2) - assessee in default - final order - quashing of reassessment - revival of penalty on reversal of appellate order

Penalty under Section 221(1) - penalty cancellation under Section 221(2) - final order - quashing of reassessment - revival of penalty on reversal of appellate order - Validity of penalty levied under section 221(1) where the tax demand in the underlying reassessment has been quashed by a final appellate order and the consequences if that appellate order is later reversed. - HELD THAT: - Section 221(1) penalises an "assessee in default" for non-payment of tax; subsection (2) mandates cancellation of penalty where, as a result of any final order, the amount of tax in respect of which the penalty was levied has been wholly reduced. The Tribunal quashed the reassessment orders for AY 2007-08 by holding reopening invalid, thereby reducing the tax demand to nil. Consequently, if the Tribunal's orders become final, the statutory condition in sub section (2) is satisfied and the penalty levied under section 221(1) must be cancelled. The Tribunal's decision to quash the penalties is therefore warranted. The consequence is conditional: should the revenue successfully reverse the Tribunal's quashing of the reassessments on further appeal, the tax demand would revive and, correspondingly, the previously cancelled penalty would revive, permitting the parties to pursue remedies in accordance with law. [Paras 5, 6, 8]

Impugned penalties under section 221(1) are quashed in view of the Tribunal's quashing of the reassessments, subject to revival if the Tribunal's orders are reversed on further appeal.

Final Conclusion: Both appeals are allowed: the penalty orders under section 221(1) for AY 2007-08 are quashed because the reassessment orders have been set aside by the Tribunal; however, the penalty will revive if the Tribunal's orders are reversed on further appeal.

Penalty under section 271(1)(c) - Concealment of particulars of income - Furnishing inaccurate particulars of income - Requirement to indicate which limb in notice issued under section 274 - Notice vitiated where inapplicable limb is not struck off (lack of application of mind)

Penalty under section 271(1)(c) - Requirement to indicate which limb in notice issued under section 274 - Notice vitiated where inapplicable limb is not struck off (lack of application of mind) - Validity of levy of penalty under section 271(1)(c) where the assessment order and show-cause notice did not specify whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income. - HELD THAT: - Section 271(1)(c) permits levy of penalty where the Assessing Officer is satisfied that an assessee has either concealed particulars of income or furnished inaccurate particulars of income; the AO must record satisfaction and specify which limb is invoked. The notice under section 274 r.w.s. 271(1)(c) should indicate the specific ground (concealment or inaccuracy) by striking out the inapplicable portion; failure to do so gives rise to an inference of non-application of mind. The Tribunal examined the assessment order and the notice and found that the AO did not record a specific finding as to which limb applied and did not strike off the inapplicable portion in the printed notice. Reliance was placed on the decision of the Delhi High Court in PCIT v. Sahara India Life Insurance Co. Ltd., which held that penalty under section 271(1)(c) is not leviable where the notice does not specify the limb under which proceedings are initiated. The Revenue did not place any material showing that the said High Court decision has been stayed or overruled. Applying that precedent and the statutory requirements, the Tribunal concluded that the penalty levy was not justified and was vitiated for want of proper notice and application of mind. [Paras 9, 11, 13]

The penalty imposed under section 271(1)(c) is set aside for A.Y. 2010-11, and, for identical reasons, also set aside for A.Y. 2011-12 and A.Y. 2012-13.

Final Conclusion: All three appeals are allowed and the penalty under section 271(1)(c) is quashed for A.Y. 2010-11, A.Y. 2011-12 and A.Y. 2012-13 on the ground that the AO did not specify which limb of section 271(1)(c) was invoked and the show-cause notice did not appropriately indicate the basis for the penalty.

Rectification under Section 254(2) - mistake apparent from the record - rectification of a rectification not maintainable - remedy by appeal

Rectification under Section 254(2) - rectification of a rectification not maintainable - mistake apparent from the record - remedy by appeal - Application to recall/rectify a Tribunal order passed on a rectification application under Section 254(2) is not maintainable. - HELD THAT: - The Tribunal examined whether an application under Section 254(2) can be entertained to rectify an order already passed in an earlier rectification application. Section 254(2) permits the Tribunal to amend any order passed under sub section (1) to correct a mistake apparent from the record within four years. The Tribunal held that an order rejecting or disposing of a rectification application under Section 254(2) is not an order passed under Section 254(1) and therefore cannot itself be rectified under Section 254(2). The conclusion follows the precedents of the Hon'ble Orissa High Court in CIT v. ITAT and the Hon'ble Madras High Court in Dr. S. Panneerselvam v. ACIT, which were applied respectfully to the present facts. Successive rectification applications seeking further modification of an order already rectified would defeat the purpose of Section 254(2); the correct remedy for dissatisfaction with the Tribunal's order is by way of appeal, not repeated rectification applications. [Paras 5, 6]

The rectification applications seeking recall/modification of the Tribunal's order passed under Section 254(2) are not maintainable and are dismissed.

Final Conclusion: Following authoritative High Court decisions, the Tribunal dismissed the miscellaneous applications as successive rectification under Section 254(2) is impermissible; the aggrieved party's remedy is by appeal.

Deduction under section 80IB(10) - applicability of amendments prospective to projects approved before 01.04.2005 - restriction on commercial built-up area not applicable to pre-1.4.2005 approvals - requirement of completion certificate by 31.03.2008 - character of 'developer' where construction is contracted out - admission of additional evidence under Rule 29 of the ITAT Rules, 1963 - remand of issue to Assessing Officer for fresh adjudication

Deduction under section 80IB(10) - restriction on commercial built-up area not applicable to pre-1.4.2005 approvals - applicability of amendments prospective to projects approved before 01.04.2005 - Whether the restriction on aggregate built-up area of shops and commercial establishments inserted w.e.f. 01.04.2005 applies to a housing project approved before 01.04.2005. - HELD THAT: - The Tribunal held that the limitation on extent of commercial space introduced by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 does not apply to housing projects which were approved prior to 01.04.2005. Applying the ratio of the Supreme Court decisions cited by the assessee, the Tribunal concluded that the condition regarding permissible commercial built-up area is prospective and cannot be invoked to deny deduction under section 80IB(10) in respect of a project approved on 26.03.2003. Consequently, the Revenue's objection on this ground was rejected. [Paras 24, 27]

Restriction on commercial built-up area does not apply to the assessee's project approved before 01.04.2005; objection rejected.

Deduction under section 80IB(10) - character of 'developer' where construction is contracted out - Whether the assessee can be regarded as the developer for claiming deduction under section 80IB(10) despite appointing SICCL as contractor and authorising certain collection functions. - HELD THAT: - The Tribunal found that the question of the assessee being a developer had been decided in the initial years of claim (A.Y. 2003-04 and 2004-05) and there was no material change in facts to reopen that determination for subsequent years. Further, merely appointing SICCL as contractor and delegating procedural tasks (such as collection of booking applications and monies) did not negate the assessee's status as developer where the assessee continued to bear the risks and responsibilities of the project. Relying on precedents advanced by the assessee, the Tribunal concluded that delegation of execution to a contractor does not preclude the assessee from being the developer entitled to deduction. [Paras 26, 27]

Assessee is to be treated as the developer; objection alleging non-developer status rejected.

Requirement of completion certificate by 31.03.2008 - admission of additional evidence under Rule 29 of the ITAT Rules, 1963 - remand of issue to Assessing Officer for fresh adjudication - Whether the assessee obtained the completion certificate (or otherwise satisfied the requirement of completion by 31.03.2008) and whether late-filed documents may be admitted to decide that question. - HELD THAT: - The Tribunal admitted, under Rule 29, the additional documents produced before it for the first time which the assessee relied upon to show completion by 31.03.2008 (including correspondence and an architect's certificate). Because these documents were not before the AO or CIT(A), the Tribunal considered it appropriate to restore the specific issue of completion prior to 31.03.2008 to the file of the Assessing Officer for fresh adjudication. The AO was directed to examine the newly admitted documents and any other required material and decide the issue in accordance with law after giving the assessee an opportunity of being heard. The point is therefore remanded and not finally adjudicated by the Tribunal. [Paras 25, 27]

Additional evidence admitted; issue of completion certificate remanded to the Assessing Officer for fresh adjudication.

Final Conclusion: The Tribunal affirmed that the commercial-area restriction introduced w.e.f. 01.04.2005 does not apply to the assessee's project approved prior to that date and held the assessee to be the developer; however, the question whether the project was completed and a completion certificate obtained by 31.03.2008 was remitted to the Assessing Officer for fresh adjudication after admission of additional evidence. Appeals by the Revenue are allowed for statistical purposes and the assessee's cross-objections are dismissed.

Current repairs under Section 31(1) - revenue expenditure - capital expenditure - plant and machinery - depreciation - classification of dies/moulds as consumables - distinction between replacement and repair - application of precedent (M/s TVS Motors Ltd.)

Current repairs under Section 31(1) - revenue expenditure - capital expenditure - plant and machinery - classification of dies/moulds as consumables - Whether the expenditure incurred by the assessee on making dies/dies out of die steel is revenue expenditure allowable as current repairs or capital expenditure forming part of plant and machinery eligible only for depreciation - HELD THAT: - The Tribunal accepted the appellate authority's finding that, on the facts of the assessee's business of manufacturing aluminium profiles, dies are specific, short lived and consumed in the production process and therefore fall within the scope of consumables and current repairs rather than creating an enduring asset. The Tribunal noted that the depreciation schedule entry for "Rubber and plastic goods factories - moulds" refers to specific items and does not, by necessary implication, cover metal dies of the assessee; consequently that schedule entry could not be used to convert the assessee's dies into capital assets. The Tribunal relied on the Madras High Court decision in M/s TVS Motors Ltd., which, after considering Supreme Court precedents, treated such dies/moulds used in production as falling for consideration under Section 31(1) as current repairs where they do not bring into existence a new enduring advantage. Applying those authorities and the undisputed factual features (dies made to customer specification, short life, becoming scrap or valueless after use), the Tribunal concluded that the Assessing Officer was not justified in treating the entire expenditure as capital and restricting relief to depreciation; the CIT(A)'s deletion of the addition was held to be correct. [Paras 2, 3]

The Tribunal upheld the CIT(A)'s finding that the expenditure on dies is revenue expenditure allowable as current repairs and dismissed the Revenue's appeals.

Final Conclusion: Revenue's appeals for AYs 2012-13, 2013-14, 2014-15 and 2016-17 are dismissed; the tribunal affirms that the assessee's expenditure on dies, on the facts before it, constitutes revenue expenditure/current repairs and is not to be treated as capital forming plant and machinery for purposes of depreciation.

Explanation of unexplained cash deposits - addition under section 69A as unexplained money - presumptive taxation under section 44AD - onus on assessee to explain source of cash deposits - remand for fresh consideration and verification of documentary evidence

Explanation of unexplained cash deposits - addition under section 69A as unexplained money - presumptive taxation under section 44AD - onus on assessee to explain source of cash deposits - remand for fresh consideration and verification of documentary evidence - Whether the cash deposits in the assessee's bank account were satisfactorily explained and the addition under section 69A was justified, having regard to the assessee's claim of sale of shop, sale of closing stock (declared under section 44AD) and realisation of debtors. - HELD THAT: - The CIT(A) sustained the addition treating large cash deposits as unexplained, noting contradiction between the assessee's claim of a Rs. 30 lakh sale and the registered deed recording Rs. 6 lakh, absence of books of account, lack of verifiable particulars for realisation of debtors and improbability of accumulating the large cash sums from declared trading activity. The assessee, before the Tribunal, offered to produce documentary evidence to substantiate sale of closing stock, realisation from debtors and other particulars supporting the source of cash deposits; and contended that declared turnover under section 44AD should be given effect to. In the interest of substantial justice and because the lower authorities' rejection was primarily for lack of evidence rather than a conclusive finding on merits, the Tribunal set aside the CIT(A) order and remanded the matter to the Assessing Officer with a direction to afford the assessee opportunity to file all necessary documentary evidence and to decide the issue afresh. The Tribunal thus did not finally uphold or reverse the addition on merits but required fresh adjudication after verification of documents. [Paras 7, 8]

Order of the CIT(A) is set aside and the matter is remitted to the Assessing Officer for fresh decision after allowing the assessee to produce and verify documentary evidence; the appeal is allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the appellate order sustaining additions as unexplained cash under section 69A and remanded the matter to the Assessing Officer for fresh consideration and adjudication after affording the assessee an opportunity to produce documentary evidence; the appeal is allowed for statistical purposes.

Validity of reopening of assessment under section 147 - service of notice under section 148 - ex parte assessment for non compliance with notices - addition on account of unexplained cash deposits - use of information obtained under section 133(6) - estimation of income from trading transactions and application of net profit rate

Validity of reopening of assessment under section 147 - service of notice under section 148 - Validity of reopening of assessment and service of notice issued under section 148. - HELD THAT: - The Tribunal recorded that the Assessing Officer issued the notice under section 148 on 08.08.2014 and that the same was received by the assessee on 22.08.2014. The assessee did not contest the correctness of the address to which the notice was sent, nor produced any contrary material to rebut the Assessing Officer's recording. The objection to reopening was made in general terms without specifying how the reopening was invalid. In the absence of any evidence to the contrary and having regard to repeated non compliance by the assessee with notices under section 142(1), the Tribunal found no merit in the contention that the reopening or service was invalid and dismissed these grounds.

Objections to reopening and to service of notice under section 148 dismissed; reopening held valid.

Addition on account of unexplained cash deposits - ex parte assessment for non compliance with notices - Legitimacy of the addition made on account of unexplained cash deposits in the assessee's bank account. - HELD THAT: - The Assessing Officer obtained the assessee's bank statements and, on the basis of unexplained cash deposits totalling the amount shown in the assessment order, made an addition while completing the assessment ex parte because the assessee failed to comply with multiple summons and did not provide explanations or books of account. The assessee did not supply any explanation before the CIT(A) or the Tribunal to controvert the correctness of the deposits or to demonstrate their source. In these circumstances the Tribunal found no error in the authorities below in making the addition on account of unexplained cash deposits.

Addition on account of unexplained cash deposits sustained.

Use of information obtained under section 133(6) - estimation of income from trading transactions and application of net profit rate - Appropriateness of estimating income from transactions on the Multi Commodity Exchange (MCX) and the net profit rate applied. - HELD THAT: - The Assessing Officer procured broker details under section 133(6) which showed transactions on MCX and estimated income by applying a net profit rate of 8% to receipts. The CIT(A) reduced the rate to 1% and accordingly restricted the addition. The assessee did not produce any records to dispute that transactions were carried out or to justify a different rate. The Tribunal found the CIT(A)'s approach of applying a 1% net profit rate to be reasonable and, in the absence of contrary material from the assessee, declined to interfere with the CIT(A)'s estimation.

Addition relating to MCX transactions confirmed to the extent determined by the CIT(A) (net profit rate applied at 1%).

Final Conclusion: The appeal is dismissed. The reopening and service of notice were held valid, the addition for unexplained bank deposits is sustained, and the CIT(A)'s restriction of the MCX related addition by applying a 1% net profit rate is upheld.

Allowability of partners' remuneration under Section 40(b) - inapplicability of Section 40A(2) to remuneration covered by Section 40(b) - genuineness of payment evidenced in books and credit to partners' capital accounts - disallowance of expenses for lack of supporting vouchers - expenditure incurred wholly and exclusively for the purpose of business

Allowability of partners' remuneration under Section 40(b) - inapplicability of Section 40A(2) to remuneration covered by Section 40(b) - genuineness of payment evidenced in books and credit to partners' capital accounts - Whether the disallowance of part of remuneration paid to partners could be sustained when the payments were credited to partners' capital accounts and within the ceiling prescribed by Section 40(b). - HELD THAT: - The Tribunal found that the claimed remuneration of Rs. 10,000 per month to each of the two partners was duly credited to their capital accounts, the Assessing Officer did not dispute the books of account or the corresponding withdrawals, and the amounts were within the ceiling prescribed under Section 40(b)(v). Following the ratio of the jurisdictional High Court (as reproduced in the order) that where partners are working partners, the partnership deed provides for remuneration and the remuneration is within the limits of Section 40(b) the Assessing Officer cannot invoke Section 40A(2) to question reasonableness, the Tribunal held that mere discrepancy in partners' recorded statements does not vitiate the claim when the payment is evidenced in the accounts and within statutory limits. The disallowance made by the Assessing Officer was therefore deleted. [Paras 8]

Disallowance of partners' remuneration deleted; claim allowed in favour of the assessee.

Disallowance of expenses for lack of supporting vouchers - expenditure incurred wholly and exclusively for the purpose of business - Whether an ad hoc 20% disallowance of office expenses for non-production of vouchers was sustainable for A.Y. 2012-13. - HELD THAT: - The Assessing Officer had made a 20% ad hoc disallowance because vouchers were not produced. The CIT(A) examined the record and found no specific defects pointed out by the AO, accepted that the expenditure had been incurred for business purposes and that the AO failed to produce material to show the expenses were not verifiable. The Tribunal agreed with the CIT(A)'s conclusion that no disallowance can be made on mere suspicion and therefore the adhoc addition was not proper. [Paras 10, 11]

Ad hoc 20% disallowance of office expenses deleted; ground allowed for the assessee.

Expenditure incurred wholly and exclusively for the purpose of business - disallowance of expenses for lack of supporting vouchers - Whether advertisement expenses claimed for A.Y. 2013-14 were allowable when the theatre was let out to a third party and supporting vouchers were not produced. - HELD THAT: - The Tribunal noted there was no dispute that the theatre was let out to Reliance Media Works Ltd., and the assessee was not itself running the theatre. In that factual matrix the Tribunal held that advertisement expenditure could not be regarded as incurred wholly and exclusively for the business of the assessee. Further, the assessee did not produce supporting vouchers during assessment proceedings. The CIT(A) had therefore rightly confirmed the disallowance made by the AO, and the Tribunal found no error in that conclusion. [Paras 16, 17, 18]

Disallowance of advertisement expenses for A.Y. 2013-14 confirmed; grounds dismissed.

Final Conclusion: The appeals are partly allowed: disallowances of partners' remuneration (both years) and the ad hoc 20% office expense addition (A.Y. 2012 13) are deleted in favour of the assessee, while the disallowance of advertisement expenses (A.Y. 2013 14) is upheld.

Estimation of income by adopting higher gross profit rate - fall in gross profit not a ground for addition without defect in books - books of account examined and not rejected under section 145(3) - adhoc disallowance of unvouched expenses - reasonable percentage disallowance for unverifiable expenses - disallowance under section 40A(3) for cash payments - third proviso to section 40A(3) and 40A(3A) - enhanced limit for transport operators - applicability of CBDT explanatory note on enhanced cash limit for transport operators

Estimation of income by adopting higher gross profit rate - fall in gross profit not a ground for addition without defect in books - books of account examined and not rejected under section 145(3) - Whether the addition made by adopting a higher gross profit rate on the turnover on account of alleged low gross profit declared by the assessee is justified. - HELD THAT: - The Tribunal found that the Assessing Officer had examined the assessee's books of account, bills and vouchers as test-check and did not record any defect or reject the accounts under section 145(3). Absent any finding that the books were incorrect or incomplete, a mere fall or lower rate of gross profit compared to prior years is not a valid basis for estimating income by applying a higher gross profit rate. The Tribunal relied on the principle that additions cannot be made solely on the basis of low gross profit without specific findings on the accounts and therefore held the adoption of a higher GP rate by the AO to make the addition unjustified. [Paras 5, 6]

Addition on account of low gross profit deleted.

Adhoc disallowance of unvouched expenses - reasonable percentage disallowance for unverifiable expenses - Whether the adhoc disallowance of certain expenses (shop, travelling, vehicle running and maintenance) at 25% (reduced by CIT(A) to 12.5%) was sustainable or required further reduction. - HELD THAT: - The AO made an adhoc disallowance of 25% of specified expenses on the ground that these were not fully vouched and remained unverifiable. The CIT(A) reduced that to 12.5%. Having regard to judicial guidance that some disallowance is justified where vouchers are not produced, but that the percentage should be reasonable, the Tribunal considered precedent and the facts and concluded that a disallowance of 5% is reasonable in the circumstances. The assessee had not produced material to controvert the AO's finding of unverifiability, but the Tribunal nonetheless moderated the extent of disallowance. [Paras 7, 10]

Disallowance restricted to 5% of the specified expenses.

Disallowance under section 40A(3) for cash payments - third proviso to section 40A(3) and 40A(3A) - enhanced limit for transport operators - applicability of CBDT explanatory note on enhanced cash limit for transport operators - Whether payments made in cash to transport operators exceeding Rs.20,000 on particular days attracted disallowance under section 40A(3), or were saved by the enhanced limit in the third proviso applicable to transport operators. - HELD THAT: - The Tribunal examined the statutory scheme and the CBDT explanatory note which states that the enhanced limit of Rs.35,000 (for payment otherwise than by account payee cheque/draft) applies to transport operators by virtue of the third proviso to section 40A(3) and 40A(3A), while other categories remain subject to the Rs.20,000 limit. The AO's schedule of payments showed that none of the individual payments exceeded Rs.35,000. Applying the proviso and the explanatory note, the Tribunal concluded that payments to transport operators below Rs.35,000 do not attract the disallowance under section 40A(3). [Paras 11, 16, 17]

Disallowance under section 40A(3) deleted as payments to transport operators were below the enhanced threshold.

Final Conclusion: The appeal is partly allowed: the addition made by adopting a higher gross profit rate is deleted; the adhoc disallowance of expenses is reduced to 5%; and the disallowance under section 40A(3) in respect of freight payments to transport operators is deleted as the payments were below the enhanced limit.

Estimation of income after rejection of books of account (best judgement assessment) - Relevance of past history as a benchmark for estimation - Invalid invocation of the presumptive taxation provision when turnover exceeds its threshold - Arbitrariness and need for reasonable basis in adopting a net profit rate - Rejection of books under section 145(3) and its consequences

Estimation of income after rejection of books of account (best judgement assessment) - Relevance of past history as a benchmark for estimation - Invalid invocation of the presumptive taxation provision when turnover exceeds its threshold - Arbitrariness and need for reasonable basis in adopting a net profit rate - Rejection of books under section 145(3) and its consequences - Whether the Assessing Officer was justified in rejecting the books and estimating income by applying a net profit rate of 7% (invoking presumptive provisions) instead of accepting the declared net profit of 6.5% for A.Y. 2013-14. - HELD THAT: - The Assessing Officer rejected the assessee's books under section 145(3) and estimated income by applying a 7% net profit rate, referring to presumptive provisions. However, the turnover for the year in question was approximately Rs. 7.25 crores, placing the assessee outside the ambit of the presumptive scheme relied upon by the Assessing Officer; therefore those presumptive provisions could not be invoked. After rejection of books the AO is required to make a best judgement assessment based on a proper and reasonable basis. It is a settled principle that the past history of the assessee is a valid and relevant guideline for such estimation. The comparative record showed that the assessee declared a net profit of 6% (accepted earlier under section 143(1)) for A.Y. 2011-12, and declared a higher net profit of 6.5% for the year under consideration despite a substantially higher turnover. The Assessing Officer did not apply any articulated criteria, basis or exercise to justify adopting 7% instead of the declared 6.5% and thus acted arbitrarily. Decisions cited by Revenue on disallowance of expenses were distinguishable as they concerned different contexts and did not assist in the estimation of income after rejection of books. In absence of any reasonable basis for increasing the net profit rate, the addition was not sustainable. [Paras 6]

The adoption of a 7% net profit rate by the Assessing Officer is arbitrary and unjustified; the addition is deleted and the appeal is partly allowed.

Final Conclusion: The Tribunal held that the Assessing Officer could not invoke the presumptive provisions where turnover exceeded their threshold, that estimation after rejection of books must be based on a reasonable basis with past history as a valid benchmark, and consequently deleted the addition made by applying a 7% net profit rate, allowing the appeal partly.

Unexplained credits in bank accounts - transactions undertaken as liaison works in real estate business - assessment of income by estimating commission/brokerage element - peak credit theory

Unexplained credits in bank accounts - transactions undertaken as liaison works in real estate business - assessment of income by estimating commission/brokerage element - Whether the deposits in the two undisclosed bank accounts are wholly assessable as unexplained income or relate to liaison transactions in the assessee's real estate business so that only the income element is taxable. - HELD THAT: - The Tribunal noted that the assessing officer recorded that the assessee carried on liaison activities in the real estate business and accepted in assessment some part of the cash deposits on the basis of documents. Statements recorded during survey consistently attributed the bank transactions to liaison/real estate work done on behalf of builders and others and the assessee explained that receipts and payments were not reflected in his books because he handled funds on behalf of others. Given these findings, the Tribunal held that the AO was not justified in treating the entire bank deposits as the assessee's unexplained income. The Tribunal accepted that only the income element (commission/brokerage) arising from such liaison transactions is taxable. As the assessee had not furnished particulars of commission rates or shown the precise income element, the Tribunal exercised its power to estimate income and, considering the nature of the transactions, held that assessing 20% of the addition made by the AO as the taxable income would be reasonable and meet the ends of justice. Because the Tribunal accepted the real-estate liaison explanation, the alternate contention of applying the peak credit method need not be considered. [Paras 9, 10, 11, 12]

Deposits are not to be treated wholly as unexplained income; assess tax on the income element by computing income at 20% of the addition made by the AO and direct the AO to assess accordingly.

Final Conclusion: Partly allowed: the Tribunal set aside the order of the CIT(A) and directed reassessment by the AO computing the assessee's income at 20% of the addition made in respect of the undisclosed bank deposits for Assessment Year 2014-15.

Direction to decide representation - mandate for expeditious disposal - judicial non-adjudication of merits - liberty to file fresh petition in case of adverse decision

Direction to decide representation - mandate for expeditious disposal - judicial non-adjudication of merits - liberty to file fresh petition in case of adverse decision - Direction to respondent No.1 to decide the representation dated 3.7.2020 received on 6.7.2020 within a specified time-frame, without adjudication on merits. - HELD THAT: - The Court recorded that the petitioner's representation dated 3.7.2020 was received by respondent No.1 on 6.7.2020 and that the petitioner would not press the petition at present but sought a direction for its decision. The respondents raised no objection to such a direction. Without entering into the merits, the Court directed respondent No.1 to decide the representation in accordance with law and as expeditiously as possible, preferably within four weeks from receipt of the order. The Court expressly clarified that it has not examined or decided the merits of the controversy and afforded the petitioner liberty to file the petition afresh if the representation is decided against it, as may be permissible in law. [Paras 2, 3, 4, 5]

Respondent No.1 directed to decide the representation dated 3.7.2020 received on 6.7.2020 preferably within four weeks; petition dismissed subject to that direction and liberty to approach the Court if decision is adverse.

Final Conclusion: The petition is dismissed subject to a direction that respondent No.1 shall decide the petitioner's representation dated 3.7.2020 (received 6.7.2020) in accordance with law and as expeditiously as possible, preferably within four weeks, with liberty to the petitioner to challenge any adverse decision.

Limitation under Section 421(3) - condonation of delay - knowledge of order and commencement of limitation - effect of Supreme Court extension orders in pandemic on outer limit for condonation - duty to circulate board minutes and constructive knowledge

Limitation under Section 421(3) - knowledge of order and commencement of limitation - duty to circulate board minutes and constructive knowledge - Whether the appeal was barred by limitation and whether the appellants had sufficient cause for condonation of delay. - HELD THAT: - The Tribunal found that the rectified NCLT order was dated 09.01.2020 and that the Board of the Transferee Company had discussed the correction and noted the NCLT order at the board meeting of 10.01.2020. The draft minutes of that meeting were circulated by e-mail on 18.01.2020 and the minutes of the meeting of 27.06.2020 confirm earlier discussion and knowledge of transfer of assets, approval of the scheme and steps to write to the ROC. In consequence, the forty-five day period prescribed by Section 421(3) must be counted from 10.01.2020, expiring on 24.02.2020. The appeal was filed on 06.11.2020, beyond both the primary forty-five day period and the further forty-five day discretionary period for condonation. The appellants' reliance on the Hon'ble Supreme Court orders of 23.03.2020, 08.03.2021 and 27.04.2021 was held inapplicable because the prescribed period and the outer limit for condonation in this case expired prior to 15.03.2020; the Tribunal applied the ratio of Sagufa Ahmed & Ors. and held that the extension orders could not enlarge the outer limit for condonation for a limitation period already expired before 15.03.2020. The appellants did not establish sufficient cause or substantial reasons to attract the proviso to Section 421(3), and the fact that the managing director was hospitalized for a period did not excuse a company comprised of other directors from instituting the appeal within time. [Paras 13, 14, 17, 18, 19]

The appeal is barred by limitation; the Tribunal refused to condone the delay under the proviso to Section 421(3) and dismissed the appeal.

Final Conclusion: Appeal dismissed as time barred; delay not condoned under Section 421(3) given constructive knowledge of the NCLT order from board proceedings and inapplicability of the subsequent Supreme Court pandemic extension orders to a limitation period that expired before 15.03.2020.

Maintainability of a petition under Section 7 of the Insolvency and Bankruptcy Code - admissibility of inadequately stamped documents in debt proof - compulsory registration of instruments creating interest in immovable property under Section 17 of the Registration Act - proof of debt and default by contemporaneous documentary evidence other than the primary loan agreement - effect of proposed settlement or offer to repay on admission under Section 7 - completeness of an application under Section 7(4) of the Insolvency and Bankruptcy Code

Admissibility of inadequately stamped documents in debt proof - proof of debt and default by contemporaneous documentary evidence other than the primary loan agreement - Whether the petition under Section 7 was rendered inadmissible because the Term Loan Agreement was inadequately stamped and therefore could not be relied upon to prove debt and default. - HELD THAT: - The Tribunal recognised that even if, for the sake of argument, the Term Loan Agreement were inadmissible as an insufficiently stamped document, the Financial Creditor had filed and relied upon multiple other documents - including demand promissory note, hypothecation/letter regarding deposit of title deeds, bank statements, certificate under the Bankers' Books Evidence Act and registration of charge - which together corroborated the existence of the debt and the Corporate Debtor's default. The adjudicatory conclusion was that debt and default were established on the basis of the documentary matrix filed with the application, and therefore the alleged inadmissibility of the Term Loan Agreement did not render the Section 7 petition unmaintainable. [Paras 25, 26, 28]

Even if the Term Loan Agreement is inadmissibly stamped, the debt and default are established by other documentary evidence and the petition under Section 7 remains maintainable.

Compulsory registration of instruments creating interest in immovable property under Section 17 of the Registration Act - admissibility of ancillary security documents - Whether the Term Loan Agreement and related security documents required compulsory registration under Section 17 of the Registration Act such that they were inadmissible and vitiated the Section 7 application. - HELD THAT: - The contention that the Term Loan Agreement operated as an umbrella instrument creating an interest in immovable property and therefore required compulsory registration was considered in light of authorities addressing when memoranda or documents recording deposit of title deeds require registration. The Tribunal did not accept that the alleged registrability of the Term Loan Agreement or ancillary security documents defeated the Financial Creditor's claim, particularly because other corroborative documents supported the claim of debt and default. The decision therefore did not rest on a definitive ruling that registration was or was not required in every respect, but held that the claim was established notwithstanding the challenge to registrability or stamp. [Paras 15, 16, 17, 25, 28]

The objection based on compulsory registration under Section 17 does not vitiate the Section 7 petition where the Financial Creditor has otherwise proved debt and default by supporting documents.

Effect of proposed settlement or offer to repay on admission under Section 7 - maintainability of Section 7 petition despite pending settlement negotiations - Whether the admission order under Section 7 could be set aside merely because the Corporate Debtor had made or proposed a settlement offer to repay the outstanding amount within a limited time. - HELD THAT: - The Tribunal observed that anticipation of a settlement or an oral/unspecific offer to repay could not, by itself, justify setting aside an admission order. The existence of proposals or negotiations does not negate the documentary proof of debt and default on which admission under Section 7 was based. The adjudicatory approach was that potential settlements do not supplant the statutory test for admission. [Paras 21, 22, 23]

A proposed settlement or offer to pay, by itself, is not a ground to set aside admission under Section 7.

Completeness of an application under Section 7(4) of the Insolvency and Bankruptcy Code - Whether the Section 7 application was complete and complied with the requirements of the Code. - HELD THAT: - The Tribunal recorded that the application under subsection (4) of Section 7 was complete in all respects and that the Adjudicating Authority correctly admitted the petition. The Financial Creditor had filed the requisite documentary records and particulars to substantiate the claim of financial debt and default; objections as to absence of documents or non-compliance were held to be unsustainable on the record. [Paras 27, 28]

The Section 7 application was complete and the Adjudicating Authority properly admitted the petition.

Final Conclusion: The appeal is dismissed. The Tribunal affirmed the admission under Section 7, holding that debt and default were established by the documentary record notwithstanding challenges to the Term Loan Agreement's stamp or registrability, that a proposed settlement did not invalidate admission, and that the Section 7 application was complete.

Classification as "other creditor" versus "operational creditor" - liquidator's duty to verify and determine quantum of claims - best estimate of claim under Regulation 25 of the IBBI (Liquidation Process) Regulations, 2016 - power to call for evidence and clarification under Regulation 23 - verification of claims under Section 39 of the I&B Code - binding effect of adjudicator's decision where arbitration is not invoked within the contractual time

Classification as "other creditor" versus "operational creditor" - Claim of the appellant is to be classified as an "other creditor" and not as an "operational creditor." - HELD THAT: - The Adjudicating Authority correctly held that the appellant's claim did not arise from supply of goods or services by the appellant to the corporate debtor and therefore did not fall within the definition of an operational debt. The supply of goods and services, where relevant, was by the corporate debtor to the appellant, not vice versa. Given this factual and legal characterisation, the liquidator erred in treating the matter as an operational debt and the claim ought to be classified as an "other creditor" claim in terms of the liquidation regulations. [Paras 13]

The claim is classified as an "other creditor" claim and the appeal is allowed to that extent.

Liquidator's duty to verify and determine quantum of claims - best estimate of claim under Regulation 25 of the IBBI (Liquidation Process) Regulations, 2016 - power to call for evidence and clarification under Regulation 23 - verification of claims under Section 39 of the I&B Code - binding effect of adjudicator's decision where arbitration is not invoked within the contractual time - Liquidator failed to perform statutory duties to process the appellant's Form G claim, make a best estimate of its quantum and seek necessary evidence before rejecting it. - HELD THAT: - The record contained an adjudicator's decision that rejected the corporate debtor's counterclaim and recorded that the appellant's entitlement was to be "worked out" with the quantum to be assessed at the risk and cost of the corporate debtor; arbitration was not invoked within the contractual 56-day period so the adjudicator's decision attained finality. Under the IBBI (Liquidation Process) Regulations, 2016 the liquidator is required to process "other stakeholder" claims, call for supporting documents or clarifications (Regulation 23), and where amounts are not precise make a "best estimate" (Regulation 25). Section 39 similarly empowers the liquidator to verify claims and call for documents. In the present case the liquidator rejected the claim by reference to dispute and non-reflection in corporate debtor's books without undertaking the statutorily mandated verification, enquiry and estimation. Given the material on record, the liquidator ought to have examined the adjudicator's award and supporting documents and arrived at a best estimate, giving the appellant the benefit of such exercise. [Paras 11, 12, 15, 16]

The liquidator's rejection is set aside; the liquidator is directed to process the claim as an "other creditor", call for and consider necessary evidence, and arrive at a best estimate of the claim.

Liquidator's communication quashed for failure to perform duties - The liquidator's e-mail communication rejecting the claim dated 4th September, 2019 is quashed and set aside. - HELD THAT: - Because the liquidator did not follow the procedures prescribed by the Code and Regulations-namely verification under Section 39 and the requirement to make best estimate under Regulation 25 after calling for clarifications under Regulation 23-the impugned communication, which refused admissibility of the claim on the ground of dispute and absence from corporate debtor's books, was legally unsustainable. The appellate forum directed remediation by remitting the claim for proper processing rather than finally determining the quantum itself. [Paras 9, 16, 17]

The communication dated 4th September, 2019 is quashed and set aside and the liquidator directed to re-process the claim.

Final Conclusion: The appeal is partly allowed: the appellant's claim is to be treated as an "other creditor" claim; the liquidator's rejection of the claim is quashed; the liquidator is directed to verify the claim, call for necessary evidence, and arrive at a best estimate of the quantum in accordance with the Code and the Liquidation Process Regulations, and thereafter grant such benefit as may follow from that assessment.

Entitlement to interest on pre-deposit - pre-deposit under Section 35 F of the Central Excise Act - refund with interest from date of deposit till date of refund - applicability of post-deposit amendment to pre-deposits made before Finance (No.2) Act, 2014 - rate of interest payable on refund of pre-deposit - precedential effect of higher court and coordinate bench rulings - binding effect of Board circulars on departmental officers

Entitlement to interest on pre-deposit - refund with interest from date of deposit till date of refund - pre-deposit under Section 35 F of the Central Excise Act - applicability of post-deposit amendment to pre-deposits made before Finance (No.2) Act, 2014 - Assessee entitled to interest on the pre-deposit from the date of deposit till the date of refund; the pre-deposit made before the Finance (No.2) Act, 2014 is governed by the law as it stood prior to amendment. - HELD THAT: - The Tribunal found that under facts where pre-deposit was made in March 2013, the amended provisions introduced by the Finance (No.2) Act, 2014 do not govern such pre-deposits and therefore the assessee is governed by the earlier law. Relying on the coordinate bench decisions and higher court rulings cited in the order, the Tribunal held that interest on the refunded pre-deposit is payable from the date of deposit until the date of actual refund. The Commissioner (Appeals) had directed interest only from the date of communication of the final order, relying on the amendment; the Tribunal rejected that view as inconsistent with the precedents followed which treat pre-2014 deposits under the earlier regime. The Tribunal also observed that Board circulars directed grant of refund with interest from date of deposit where applicable, and that the Adjudicating Authority had correctly followed those circulars in granting interest from date of deposit; accordingly the appellate order setting aside that grant was unsustainable.

Order-in-appeal set aside; original order restored insofar as it granted interest from date of deposit until date of refund.

Rate of interest payable on refund of pre-deposit - precedential effect of higher court and coordinate bench rulings - Rate of interest on the refunded pre-deposit fixed at 12% per annum. - HELD THAT: - Having determined that interest is payable from the date of deposit, the Tribunal applied the rate established by precedent of the Supreme Court and coordinate bench decisions referenced in the judgment. Following those rulings, the Tribunal modified the rate of interest granted by the Adjudicating Authority to 12% per annum and directed the Adjudicating Authority to compute and pay further interest accordingly within a specified period.

Interest allowed at 12% p.a. from date of deposit till date of refund; Adjudicating Authority directed to grant further interest within 45 days.

Final Conclusion: Appeal allowed. The appellate order is set aside and the original order restored insofar as interest on the pre-deposit is concerned; the appellant is entitled to interest at 12% per annum from the date of deposit until the date of refund, and the Adjudicating Authority is directed to compute and grant the further interest within 45 days.

Proportionate reversal of Cenvat credit for exempted/trading services - option to choose mode of reversal under Rule 6(3) of the Cenvat Credit Rules - procedural nature of declaration required by Rule 6(3A) of the Cenvat Credit Rules - invocation of extended period on alleged suppression of facts

Proportionate reversal of Cenvat credit for exempted/trading services - option to choose mode of reversal under Rule 6(3) of the Cenvat Credit Rules - procedural nature of declaration required by Rule 6(3A) of the Cenvat Credit Rules - Whether failure to file the declaration under Rule 6(3A) disentitles the appellant from exercising the option under Rule 6(3) and compels application of the fixed percentage reversal under Rule 6(3)(b)(i) despite voluntary proportionate reversal - HELD THAT: - The Tribunal held that the declaration contemplated by Rule 6(3A) is a procedural formality and delay in or failure to file that declaration cannot defeat the substantive right of an assessee to choose an option under Rule 6(3). The appellant, on being pointed out, had reversed proportionate credit attributable to trading along with interest and informed the department. Coordinate Bench decisions, including the Mercedes Benz line of authorities, were followed to the effect that Revenue cannot insist that the assessee must be directed to reverse only as per the fixed percentage option of Rule 6(3)(b)(i) where the assessee has exercised an alternative option by way of proportionate reversal; the department remains entitled to verify whether the reversal already made satisfies the statutory requirement, but procedural non-compliance alone is not a ground to deny the substantive option chosen by the assessee. Applying these principles to the facts, the Tribunal found the demand based solely on non-filing of declaration unsustainable and set aside the demand on merits. [Paras 7, 8]

Demand based on failure to file the Rule 6(3A) declaration and insistence on fixed percentage reversal under Rule 6(3)(b)(i) is unsustainable where the assessee has proportionately reversed credit and the issue is set aside on merits.

Invocation of extended period on alleged suppression of facts - Whether the demand could be sustained by invoking the extended period of limitation on the ground of suppression of facts - HELD THAT: - The Tribunal examined the records and noted that the assessee had disclosed the credit in returns, had earlier been the subject of show cause notices on the same issue and had thereafter been reversing proportionate credit in accordance with an earlier adjudication. There was no material to demonstrate willful suppression with intent to evade duty. The jurisdictional Commissioner had earlier directed proportionate reversal and the department was aware of the assessee's trading activity. On these facts, invocation of the extended period was found to be without factual or legal basis. [Paras 9]

Extended period invocation is not justified and the demand is time-barred; appeal succeeds on limitation.

Final Conclusion: The impugned order is set aside on merits and limitation; the appeal is allowed and the demand based on non-filing of the Rule 6(3A) declaration and invocation of the extended period is quashed, subject to verification by the original authority if necessary.

Service of statutory notice under the Negotiable Instruments Act - presumption of existence of a legally enforceable debt arising from issuance of a cheque - rebuttable nature of presumption under the Negotiable Instruments Act - liability of drawer under Section 138 of the Negotiable Instruments Act - personal liability of a trustee for obligations discharged by delivery of cheque

Service of statutory notice under the Negotiable Instruments Act - The statutory notice sent to the accused was validly sent to her correct address and cannot be treated as not issued; deemed service arises from deliberate avoidance. - HELD THAT: - The complainant produced the notice (Ex. P-8), postal receipt and speed post receipt (Exs. P-9, P-10) and the returned RPAD and speed post covers with their contents (Exs. P-11, P-12 and Exs. P-11(a), P-12(a)). The address on those covers corresponds to the accused's vakalath, cause title, appeal memorandum and the present petition, and was not denied by the accused. The notices were therefore sent to the correct and prevailing address and tendered there; the fact of return marked 'addressee not in station' does not absolve the accused when no dispute was raised as to address. The Court held that the contention that no statutory notice was issued is unacceptable and treated service as established. [Paras 14]

Notice was duly issued to the accused at her correct address and the contention of non-service is rejected.

Presumption of existence of a legally enforceable debt arising from issuance of a cheque - rebuttable nature of presumption under the Negotiable Instruments Act - The issuance and dishonour of the cheque gives rise to a rebuttable presumption of an existing legally enforceable debt in favour of the complainant; the accused failed to rebut that presumption on preponderance of probabilities. - HELD THAT: - It is admitted that the accused drew the cheque in favour of the complainant and it was dishonoured for insufficiency of funds, followed by issuance of statutory notice and non-payment. These facts attract the statutory presumption of a legally enforceable debt, but the presumption is rebuttable. The accused asserted that she had ceased to be liable under the Trust before the cheque was issued, but produced no documentary evidence in the trial to confront PW-1 with the alleged Amendment Deed; the alleged document was not marked or tendered in evidence. The accused's own exhibit (Ex. D-1) is a letter dated 19-01-2011 acknowledging delivery of the cheque to the complainant and transferring responsibility to her to distribute benefits to members. Ex. D-1 therefore corroborates existence of liability and indicates the cheque was handed over earlier as a post-dated instrument while the accused remained an active trustee. The accused did not discharge the burden of making out, on preponderance, that no legally enforceable debt existed. [Paras 17, 18, 19, 20]

Presumption of a legally enforceable debt stands; the accused failed to rebut it and the cheque was issued towards a legally enforceable debt.

Liability of drawer under Section 138 of the Negotiable Instruments Act - personal liability of a trustee for obligations discharged by delivery of cheque - The accused, though a trustee, was rightly held personally liable for the offence under Section 138 of the N.I. Act; concurrent findings of Trial and Sessions Courts are not perverse. - HELD THAT: - The courts below considered oral and documentary evidence and found the accused to be the active trustee who personally gave the cheque to the complainant and accepted responsibility for discharge of the Trust's liability by issuance of the cheque. The accused's assertion that liability lies only with the Trust or that other trustees are charged in a separate criminal case does not absolve her personal liability where she herself delivered the cheque and permitted the Trust's liability to be discharged through it. The additional allegation that the managing trustee colluded or misused the cheque was not proved by the accused. Having properly appreciated the evidence, both courts arrived at concurrent findings of guilt and appropriate sentence; no perversity or illegality was shown warranting interference. [Paras 21, 22]

The conviction and sentence under Section 138 N.I. Act against the accused as drawer were rightly upheld and the concurrent judgments are not liable to be interfered with.

Final Conclusion: The revision petition is dismissed. The High Court found that statutory notice was validly issued, the presumption of a legally enforceable debt arising from the dishonoured cheque was not rebutted, and the accused - being the active trustee who delivered the cheque - was properly held personally liable under Section 138 of the Negotiable Instruments Act; the concurrent convictions and sentences are upheld.

Offence under Section 138 of the Negotiable Instruments Act - presumption under Section 139 of the Negotiable Instruments Act - reverse onus and standard of proof of preponderance of probabilities - rebuttal by accused through probabilisation - presumption attracted by delivery of a blank cheque voluntarily - trial court's failure to apply settled legal principle as ground for interference

Offence under Section 138 of the Negotiable Instruments Act - presumption under Section 139 of the Negotiable Instruments Act - rebuttal by accused through probabilisation - Whether the acquittal recorded by the trial Court required interference where the cheque was proved, dishonour established and the accused, though admitting issuance, failed to rebut the statutory presumption - HELD THAT: - The complainant proved issuance of the cheque (Ex. P.1), its dishonour (Ex. P.2), service of legal notice (Ex. P.3 and P.4) and non-payment thereafter. Once issuance and dishonour are established, the presumption under Section 139 arises that the cheque was issued for discharge of a legally enforceable debt; that presumption is rebuttable but the burden on the accused is to probabilise a defence on the preponderance of probabilities. The accused accepted issuance of the cheque but alleged it was a blank cheque taken by force and that only a small sum was lent; however he did not adduce evidence, did not cross-examine PW.2 and did not step into the witness box to probabilise his defence. The trial Court referred to earlier authorities but failed to apply the ratio in Rangappa and subsequent decisions which require the accused to raise a probable defence; in the absence of any material to rebut the presumption the trial Court's view that the complainant failed to prove the larger debt was unsustainable. On these grounds the appellate Court held the acquittal required interference and convicted the accused under Section 138. The court applied the settled legal principle that a voluntarily delivered signed or even blank cheque attracts the statutory presumption unless convincingly rebutted on preponderance of probabilities. [Paras 17, 18, 19, 21, 22]

Acquittal set aside; accused convicted for the offence under Section 138 of the Negotiable Instruments Act as he failed to rebut the presumption under Section 139.

Final Conclusion: Criminal appeal allowed; impugned judgment of acquittal set aside. Respondent/accused convicted under Section 138 of the Negotiable Instruments Act and sentenced to pay a fine and, in default, undergo imprisonment; a portion of the fine is directed to be paid to the appellant as compensation.

Inherent jurisdiction under Section 482 Cr.P.C. - Criminal complaint under Section 138 of the Negotiable Instruments Act - Prima facie case - Quashing of proceedings - Non bailable warrant - Concurrent civil/DRT proceedings and criminal prosecution

Inherent jurisdiction under Section 482 Cr.P.C. - Quashing of proceedings - Criminal complaint under Section 138 of the Negotiable Instruments Act - Prima facie case - Whether the High Court should quash the criminal complaint under Section 138 N.I. Act and related process by exercising its inherent jurisdiction under Section 482 Cr.P.C. - HELD THAT: - The High Court refused to exercise its inherent jurisdiction to quash the complaint and process. The Court examined the averments and material on record and concluded they do not warrant quashing under Section 482 Cr.P.C.; prima facie ingredients of the offence under Section 138 are made out and there are serious allegations against the accused. Reliance was placed on authoritative precedents which restrict interference at the stage of issuance of process unless the allegations are absurd or inherently improbable or the material produced by the accused is of such sterling quality as to displace the prosecution case. The Court noted that the applicants had not earlier challenged the summoning order and that the challenge appeared to be a belated afterthought following issuance of non bailable warrants. Concurrent civil remedies (DRT/DRAT) do not by themselves render the criminal proceedings bad or require quashing. In these circumstances and having regard to the need to allow investigation/prosecution to proceed where an offence is disclosed on the record, the petition for quashment was dismissed. [Paras 15, 16, 19, 20, 21]

The petition seeking quashing of Criminal Complaint No.1860 of 2019 and the summoning order/court process was dismissed; no interference under Section 482 Cr.P.C. was warranted as a prima facie case is made out.

Non bailable warrant - Quashing of proceedings - Concurrent civil/DRT proceedings and criminal prosecution - Relief in respect of non bailable warrants and the consequence of delay in challenging process. - HELD THAT: - The Court observed the applicants had not challenged the summoning order earlier and had not appeared before the trial court for about two years; issuing of non bailable warrants and the subsequent invocation of inherent jurisdiction were characterized as an afterthought. While the petition for quashment was dismissed, the Court allowed the applicants the limited option of appearing before the trial court to seek recall of non bailable warrants if such warrants had not yet been executed. The Court directed police action regarding the warrants and reduced the exemplary costs ordered to be paid to a specified amount. [Paras 8, 10, 16, 18, 20]

No quashment of warrants; applicants may appear before the court below to seek recall/cancellation of non bailable warrants if not executed; police directed to take action regarding warrants; petition dismissed with costs.

Final Conclusion: The High Court dismissed the petition under Section 482 Cr.P.C. seeking quashment of the Section 138 N.I. Act complaint and related process, holding that a prima facie case is made out and that interference would be inappropriate; limited indulgence was allowed to enable the accused to approach the trial court for recall of non bailable warrants, and the petition was dismissed with costs.