TaxTMI Updates e-Newsletter
Aug 01,2022

Transitional input tax credit - filing of FORM GST TRAN-1 within judicially mandated window - effect of technical glitches on limitation for TRAN-1 - implementation of Supreme Court directions in Filco Trade Centre Pvt. Ltd. (window for TRAN-1/TRAN-2) - duty of assessing officers to verify claims and pass reasoned orders within fixed time

Challenge to rule prescribing limitation for TRAN-1 - Deletion of the plea challenging the vires of Rule 117 of the Jharkhand GST Rules from the writ petition as not being pressed by the petitioner. - HELD THAT: - The petitioner sought to delete paragraph 1(a) of the writ petition which challenged the vires of Rule 117. Learned senior counsel for the petitioner expressly stated that the relief was no longer pressed. There was no opposition from respondents. The Court allowed the deletion and directed the petitioner's counsel to carry out the deletion in the petition.

Prayer in para 1(a) of the writ petition deleting the challenge to Rule 117 is allowed and the interlocutory application is disposed of.

Filing of FORM GST TRAN-1 within judicially mandated window - implementation of Supreme Court directions in Filco Trade Centre Pvt. Ltd. (window for TRAN-1/TRAN-2) - effect of technical glitches on limitation for TRAN-1 - Disposition of the writ petition to permit the petitioner to avail the Supreme Court's directions permitting filing/revision of TRAN-1/TRAN-2 during the period 01.09.2022 to 31.10.2022 irrespective of prior non-filing due to technical or other reasons. - HELD THAT: - The High Court noted the Supreme Court's order in Filco Trade Centre Pvt. Ltd. which directed GSTN to open the portal for TRAN 1 and TRAN 2 from 01.09.2022 to 31.10.2022, permitted affected registered taxpayers to file or revise forms irrespective of prior writs or ITGRC decisions, required GSTN to ensure absence of technical glitches, and directed concerned officers to verify claims and pass appropriate orders within 90 days thereafter. The petitioner had earlier filed TRAN 1 manually and contended inability to file online due to technical difficulties. The High Court held that the petitioner is governed by the Supreme Court directions and accordingly disposed of the writ petition to enable the petitioner to avail the relief afforded by that order.

Writ petition disposed of so the petitioner may file/revise FORM GST TRAN 1 in accordance with the Supreme Court directions for the window 01.09.2022 to 31.10.2022; subsequent verification and adjudication to follow the timelines and procedures prescribed by the Supreme Court.

Duty of assessing officers to verify claims and pass reasoned orders within fixed time - Application of the Supreme Court's mandate requiring verification of transitional credit claims and passing of appropriate orders within 90 days after the filing/revision window. - HELD THAT: - The Court recorded that the Supreme Court directed concerned officers to verify the veracity of claims for transitional credit and to pass appropriate orders on merits within 90 days after the portal window, after granting reasonable opportunity to parties; and that allowed transitional credit is to be reflected in the Electronic Credit Ledger. The High Court applied these directions to the petitioner's case by disposing the writ petition to permit the petitioner to proceed under the aforesaid framework.

The respondents are bound to follow the Supreme Court's directions: verify claims and decide on merits within 90 days after the filing window, grant reasonable opportunity, and, if allowed, reflect transitional credit in the Electronic Credit Ledger.

Final Conclusion: Petitioner's interlocutory deletion of the challenge to Rule 117 is allowed. The writ petition is disposed of so the petitioner may avail the Supreme Court's directions in Filco Trade Centre Pvt. Ltd. to file or revise FORM GST TRAN 1 during 01.09.2022-31.10.2022; the respondents must ensure portal availability, verify claims and pass reasoned orders within 90 days thereafter, and reflect any allowed transitional credit in the Electronic Credit Ledger.

Exemption of annuity paid in lieu of toll - service by way of access to a road or a bridge on payment of annuity - distinction between construction services and access/operation services - clarificatory circular cannot override a prior exemption notification - exemption under Section 11 of the Central Goods and Services Tax Act, 2017

Exemption of annuity paid in lieu of toll - service by way of access to a road or a bridge on payment of annuity - clarificatory circular cannot override a prior exemption notification - Validity of the Circular dated 17.06.2021 insofar as it construes entry 23A of Notification Nos.32/2017 and 33/2017 as not exempting annuity paid for construction of roads - HELD THAT: - The Court examined the GST Council minutes of 06.10.2017 and the subsequent Notifications Nos.32/2017 and 33/2017 dated 13.10.2017 and concluded that the Council decided to treat annuity at par with toll and to exempt services by way of access to a road or bridge on payment of annuity. The notifications introduced entry 23A to exempt the service of access to a road or bridge on payment of annuity, and the legislative intent as reflected in the minutes and the notifications was to treat annuity in lieu of toll as exempt in the same manner as toll. The Circular dated 17.06.2021, which narrows the scope of entry 23A by distinguishing annuity paid as deferred consideration for construction (characterised under construction heading) from annuity in lieu of toll (characterised under operation/access heading), has the practical effect of contradicting and overriding the exemption conferred by the earlier notifications. A clarificatory circular cannot be used to nullify or alter the legal effect of an exemption notification; if the exemption is to be withdrawn or modified, that must be done by issuing fresh notifications or by exercise of the statutory power in the manner prescribed by law. Applying these principles to the facts, the impugned Circular does not merely interpret but effectively contradicts the exemption as enacted by the Notifications dated 13.10.2017, and therefore must be set aside. [Paras 10, 11, 13, 14, 15]

The impugned Circular dated 17.06.2021 is set aside and all actions pursuant to the Circular are quashed.

Final Conclusion: The writ petitions are allowed to the extent that the Circular dated 17.06.2021 is quashed for being contrary to Notifications Nos.32/2017 and 33/2017; if the authority wishes to alter the exemption, it must do so by issuing fresh notifications in accordance with law.

Place of supply of passenger transportation services - treatment of supply as inter state supply - application of Section 12(9) of the IGST Act - misapplication of place of supply rule by assessing authority - remand for fresh decision after giving opportunity of hearing - quashing of impugned order and consequential notice

Application of Section 12(9) of the IGST Act - place of supply of passenger transportation services - treatment of supply as inter state supply - misapplication of place of supply rule by assessing authority - Impugned assessment order incorrectly applied the place of supply rule under Section 12(9) of the IGST Act and requires reconsideration - HELD THAT: - The Court examined Section 12(9) of the IGST Act which prescribes the place of supply for passenger transportation services (location of the registered recipient; where recipient is unregistered, the place where the passenger embarks on the conveyance for a continuous journey). The impugned order ostensibly relied on Section 12(9) but recorded an erroneous proposition that in case of an unregistered recipient the place of supply is the location of such recipient, a finding which prima facie contradicts the statutory provision. The Court found that the substantive portion of the order lacked due application of mind to the correct legal provision and the petitioner's contention that IGST was payable (and CGST/SGST not payable) on the transportation services rendered by driver partners was not considered in the right perspective. Given that the question touches the root of the controversy, the Court declined to consign the petitioner to the appellate forum and directed a fresh decision by the assessing authority after hearing the petitioner. The Court mandated that the petitioner appear within three weeks and may file additional submissions, and that the 3rd respondent shall consider submissions and pass a fresh order in accordance with law within four weeks of filing of additional submissions. The consequential notice was held to be unsustainable pending fresh decision. [Paras 12, 13, 14, 16]

Order dated 04.02.2022 set aside; matter remanded to the 3rd respondent for fresh decision in accordance with law after giving notice and opportunity to the petitioner; consequential notice dated 08.06.2022 quashed.

Final Conclusion: Writ petition allowed to the extent that the impugned assessment order dated 04.02.2022 is set aside and remitted to the 3rd respondent for fresh adjudication in accordance with Section 12(9) of the IGST Act, with the consequential notice of 08.06.2022 quashed; petitioner to appear within three weeks and the authority to decide within four weeks of additional submissions; no order as to costs.

Allowance of balance additional depreciation in subsequent assessment year - additional depreciation under Section 32(1)(iia) - effect of proviso inserted in 2016 on prior assessment years - binding effect of Division Bench and Supreme Court decisions

Allowance of balance additional depreciation in subsequent assessment year - effect of proviso inserted in 2016 on prior assessment years - binding effect of Division Bench and Supreme Court decisions - Whether the balance 50% additional depreciation claimed in the subsequent assessment year could be allowed despite the proviso being inserted into the statute with effect from 01.04.2016, and whether the Tribunal erred in deleting the disallowance for A.Y. 2010-2011. - HELD THAT: - The Court held that the matter is governed by the settled precedents of the Division Bench in Brakes India Ltd. and related decisions, and that those decisions - having been considered by higher forums including dismissal of the revenue's SLP - are binding. The insertion of a proviso in 2016 does not have retrospective effect to alter the legal position applicable to the assessment years under consideration. Following the binding view in Brakes India Ltd., the balance additional depreciation not allowed in the earlier year could be allowed in the relevant subsequent year; consequently the Tribunal was correct in deleting the disallowance for the assessment year in dispute. [Paras 12]

Appeal dismissed; substantial questions of law answered against the revenue and the Tribunal's deletion of the disallowance upheld.

Final Conclusion: The revenue's appeal under Section 260A is dismissed; the Tribunal's order deleting the disallowance of the remaining additional depreciation is upheld, the proviso inserted in 2016 having no bearing on the assessment years in issue and the matter being governed by binding precedents.

Jurisdiction of the assessing officer - objection under Section 124(3) of the Income Tax Act, 1961 - reference to the Principal Commissioner for determination of jurisdiction - mandate of Section 124(4) of the Income Tax Act, 1961 - quashing of assessment order for lack of jurisdiction - transfer of jurisdiction

Jurisdiction of the assessing officer - objection under Section 124(3) of the Income Tax Act, 1961 - mandate of Section 124(4) of the Income Tax Act, 1961 - reference to the Principal Commissioner for determination of jurisdiction - quashing of assessment order for lack of jurisdiction - Whether the assessment for Assessment Year 2012-13 was vitiated by the Assessing Officer's and the Principal Commissioner's failure to act in accordance with the statutory scheme for determination of jurisdiction after a timely objection was raised under Section 124(3). - HELD THAT: - The Tribunal found, and this Court agrees, that the assessee had been filing returns at the New Delhi address since inception and, when the case was selected for scrutiny for Assessment Year 2012-13, the assessee lodged an objection to the jurisdiction of ITO, Ward-10(2), Kolkata within the time allowed under Section 124(3). Thereafter the Assessing Officer rejected the objection and referred the matter to the PCIT only after sixteen months, and the PCIT deferred adjudication of jurisdiction until after completion of assessment. The Court held that, where an assessee raises a timely objection under Section 124(3), the Assessing Officer, if not satisfied with the correctness of the claim, is obliged to refer the question for determination as envisaged by the statutory scheme, and that the conduct of both the ITO and the PCIT in postponing determination of jurisdiction and proceeding with assessment was contrary to the mandate of Section 124(4). Applying these findings, the Tribunal quashed the assessment order for lack of jurisdiction and this Court concurred with that conclusion. [Paras 4, 5, 6]

The Tribunal's quashing of the assessment for Assessment Year 2012-13 on the ground that the objection to jurisdiction was timely and that the Assessing Officer and PCIT failed to follow the procedure under Sections 124(3) and 124(4) is upheld.

Final Conclusion: The appeal is dismissed; no substantial question of law arises and the High Court concurs with the Tribunal's quashing of the assessment for Assessment Year 2012-13 due to failure to determine jurisdiction in accordance with the statutory provisions.

Project completion method (completed contract method) as a recognised method of accounting - Accounting Standard-7: completed contract method and percentage of completion method - Principle of consistency in accounting - Assessing officer's power to depart from a consistently followed accounting method - No substantial question of law arises

Project completion method (completed contract method) as a recognised method of accounting - Accounting Standard-7: completed contract method and percentage of completion method - Assessing officer's power to depart from a consistently followed accounting method - Whether the Tribunal was justified in upholding the assessee's adoption of the project completion method and in deleting the addition made by the assessing officer who applied the percentage completion method. - HELD THAT: - The Court affirmed the Tribunal and CIT(A) findings that the project completion method is one of the recognised methods of accounting in construction/development businesses and that Accounting Standard-7 recognises both the completed contract (project completion) method and the percentage of completion method. The Tribunal had recorded that the assessee had consistently followed the project completion method and that the Department had accepted that method in prior assessments. The assessing officer's unilateral adoption of the percentage completion method for the year under appeal, on a selective basis, lacked justification and would distort computation of true profits. In view of the Supreme Court authorities relied upon by the lower fora, the project completion method cannot be treated as impermissible deferment of tax where it is a regularly followed and recognised accounting method and where no finding was recorded that true and fair profit could not be deduced therefrom. On these grounds the deletion of the addition was upheld.

Tribunal's affirmation of the CIT(A)'s acceptance of the project completion method and deletion of the addition is upheld; assessing officer was not justified in applying the percentage completion method selectively.

Principle of consistency in accounting - No substantial question of law arises - Whether the substantial questions of law raised by the revenue warranted admission of the appeal under Section 260A. - HELD THAT: - The Court examined the substantial questions posed by the revenue and the authorities relied upon by the Tribunal and CIT(A). Having regard to the settled position that Accounting Standard-7 permits either method for construction contracts and to the Tribunal's finding that the assessee consistently followed and the Department had accepted the project completion method, the Court concluded that the questions did not raise any substantial question of law deserving interference. The selective change of method by the assessing officer was found to be without justification and the principle of consistency supported the view taken below. Consequently the appeal did not disclose a substantial question of law requiring admission.

No substantial question of law arises; appeal under Section 260A is dismissed.

Final Conclusion: The appeal filed by the revenue is dismissed; the orders of the CIT(A) and the Tribunal upholding the assessee's adoption of the project completion method are affirmed and the connected application for stay is closed.

Liability of directors under section 179 - lifting the corporate veil - requirement of satisfaction that tax cannot be recovered from the company - principles of natural justice - jurisdiction to proceed against directors of a public company

Liability of directors under section 179 - requirement of satisfaction that tax cannot be recovered from the company - principles of natural justice - Validity of the order under section 179 holding the petitioner jointly and severally liable for the company's tax demand. - HELD THAT: - The Court held that exercise of power under section 179 against directors requires satisfaction that (i) tax was due from a private company and (ii) the tax dues cannot be recovered from the company. The show cause notice did not record any satisfaction or enumerate steps taken to recover the dues from the company; it merely stated that the demand was outstanding. The Assessing Officer must record and rely upon concrete steps taken towards recovery (such as attachment of accounts or assets and efforts to identify movable and immovable assets) before proceeding against directors. Further, the order under challenge invoked lifting the corporate veil without affording the petitioner an opportunity to be heard on that question, thereby breaching principles of natural justice. For these reasons the impugned orders were held unsustainable and were quashed, with liberty to proceed afresh in accordance with law after giving opportunity of hearing. [Paras 15, 16, 17, 18, 19]

The order dated 13th February 2018 and the revision order dated 12th February 2019 were quashed; the Assistant Commissioner may, if necessary, proceed afresh after sale of attached property and after giving the petitioner an opportunity of hearing.

Lifting the corporate veil - jurisdiction to proceed against directors of a public company - principles of natural justice - Appropriateness of invoking the doctrine of lifting the corporate veil to treat a public company as privately held for purposes of section 179, and procedural safeguards required. - HELD THAT: - The Court observed that lifting the corporate veil has drastic consequences and, if invoked, requires consideration of several factors (extent of shareholding and control, board representation, articles and inter se agreements, and whether conversion to public limited status was to avoid liabilities). The Court did not decide on the merits whether the corporate veil should be lifted in this case; rather it held that respondent No.1 invoked the principle only after the petitioner objected and without affording any opportunity to be heard on that specific question. Consequently, the procedure adopted was violative of natural justice. The Court directed that any future exercise of the power to lift the veil must be preceded by recording of material and by giving the affected persons an opportunity to be heard. [Paras 13, 14, 15]

Whether to lift the corporate veil was not adjudicated on merits and must be considered afresh with proper recording of reasons and after affording the petitioner an opportunity of hearing.

Final Conclusion: The writ petition is allowed: the impugned orders under section 179 and under section 264 are quashed for want of recorded satisfaction that recovery from the company was impossible and for breach of natural justice in invoking lifting of the corporate veil; the revenue may proceed afresh, if required, after sale of attached property and after giving the petitioner a fair opportunity to be heard.

Nexus between expenditure and business/project - allowability of compensation as business expenditure - application of commercial expediency and prudence in taxation - concurrent findings of fact and appellate interference - relevance of earlier acceptance of expenditure in subsequent years

Nexus between expenditure and business/project - allowability of compensation as business expenditure - application of commercial expediency and prudence in taxation - relevance of earlier acceptance of expenditure in subsequent years - Whether the compensation paid by the assessee to cancel the JDA with Shri Mahesh Bhoopathi had sufficient nexus with the NLI project and was therefore allowable as business expenditure for AY 2008-09 and 2009-10. - HELD THAT: - The Court examined the factual matrix and contractual documents and found affirmative links between the compensation and the NLI project. The cancellation agreement expressly records that ITC had approached the parties for participation in the proposed project, indicating a common commercial purpose. The assessee appears as a confirming party in the sale deed under which Sunrise Realty sold the adjacent land to ITC, and on the same date the assessee and ITC executed the construction agreement, indicating contemporaneous finalisation of the construction arrangement. The vendor of the JDA sold his property in favour of Sunrise Realty and related transfer steps were effected to enable the consolidated project. The Assessing Officer had earlier allowed part of the compensation as expenditure for AY 2007-08, which supports consistency of commercial intent. Applying principles that revenue cannot replace the commercial judgment of a prudent businessman and that expenditure with a discernible nexus to business purpose is allowable, the Court concluded there was nexus between the payment to cancel the JDA and the construction project and that the disallowance by revenue and the Tribunal's upholding of that disallowance could not be sustained. The Court followed the approach in precedents recognising commercial expediency and refraining from reassessing business decisions of management where nexus with business is established. [Paras 14, 15, 18, 19, 20]

Found sufficient nexus between the compensation and the NLI project and held the compensation payable for cancellation of the JDA to be allowable as business expenditure for the years under appeal; appeal allowed in favour of the assessee.

Final Conclusion: The Court answered the questions of law in favour of the assessee, holding that the compensation paid for cancellation of the JDA had nexus with the NLI project and allowing the appeal against the disallowances for AY 2008-09 and 2009-10.

Levy of penalty under Section 271(1)(c) for concealment of income - Requirement that penalty notice specify the limb (concealment or nondisclosure) on which penalty is sought - Effect of a return filed pursuant to Section 153A - Section 153A as a complete code for post-search assessments

Levy of penalty under Section 271(1)(c) for concealment of income - Requirement that penalty notice specify the limb (concealment or nondisclosure) on which penalty is sought - Validity of the penalty imposed under Section 271(1)(c) in the absence of a penalty notice specifying whether the penalty was for concealment of income or for nondisclosure of material particulars in the original return. - HELD THAT: - The Tribunal set aside the penalty on the ground that the penalty order did not clearly specify which limb of Section 271(1)(c) was being invoked-whether for concealment of income or for nondisclosure of material particulars in the original return. The High Court, after considering coordinate decisions, agrees with the Tribunal's conclusion. The Court observes that penalty under Section 271(1)(c) is penal in nature and must be imposed only where the statutory conditions are satisfied and made clear. Consistent with precedents, a notice and the penalty order must advert to the basis on which penalty is levied; failing which the levy cannot be sustained. While the Court notes the reasoning in Neeraj Jindal regarding returns under Section 153A and the need for incriminating evidence to justify penalty, the present case turned on the insufficiency of the penalty notice/order to specify the limb relied upon. Applying the settled principle that the basis for imposition of a penal consequence must be clearly disclosed, the Court upholds the Tribunal's decision quashing the penalty. [Paras 3, 6, 7, 8]

The Tribunal's order setting aside the penalty is upheld and the appeal is dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal, upholding the Tribunal's quashing of the penalty under Section 271(1)(c) because the penalty notice/order failed to specify the limb on which penalty was being levied; consequential application for condonation of delay rendered infructuous.

Date of acquisition for computation of capital gains and indexation under section 54 - holding period determination for classification as long-term or short-term capital gain - allotment/plot buyers agreement conferring capital asset rights - recognition of rights other than ownership as a capital asset

Date of acquisition for computation of capital gains and indexation under section 54 - holding period determination for classification as long-term or short-term capital gain - allotment/plot buyers agreement conferring capital asset rights - Whether the date of the plot buyers agreement dated 30.12.2006 is to be treated as date of acquisition for computing capital gains (and for indexation/holding period) in relation to sale effected in 2015-16. - HELD THAT: - The Tribunal accepted the assessee's contention that the plot buyers agreement dated 30.12.2006 constituted the relevant date of acquisition for the purpose of computing capital gains and claiming indexation under section 54. Applying the principle that rights conferred by allotment or buyers' agreements can constitute capital assets and that 'holding' is not confined to formal registration or conveyance, the Tribunal found no material on record to controvert the assessee's plea. Reliance placed on precedents recognising allotment/allotment-rights and other non-ownership rights as constituting capital asset holding supported treating the 2006 agreement as the acquisition date. In consequence, the Tribunal concluded that the appellate authority's characterisation of the transaction as short-term (based on conveyance and possession dates in 2015-16) could not be sustained on the peculiar facts of this case and directed recomputation accordingly. [Paras 6]

Order of the Commissioner is set aside and the matter is remitted to the Assessing Officer to recompute the capital gain/loss under section 54 treating the plot buyers agreement dated 30.12.2006 as the date of acquisition and allowing indexation benefit; appeal allowed.

Final Conclusion: Tribunal allowed the appeal, set aside the Commissioner's order and directed recomputation of capital gain/loss for AY 2016-17 treating the plot buyers agreement dated 30.12.2006 as the acquisition date for indexation and holding-period purposes.

Penalty under section 271(1)(c) - addition based on estimation - disputed/debatable valuation - difference of opinion not constituting wilful concealment - principles against levy of penalty for disputed or debatable issues - consistency in treatment of co-owners

Penalty under section 271(1)(c) - addition based on estimation - disputed/debatable valuation - difference of opinion not constituting wilful concealment - consistency in treatment of co-owners - Whether penalty under section 271(1)(c) is leviable where the assessment addition arises from differing estimations of the asset's fair market value. - HELD THAT: - The Assessing Officer computed long term capital gain by adopting a historical value which differed markedly from the values adopted on appeal by the CIT(A) and subsequently by the Tribunal. The valuation underlying the addition was therefore based on estimation and was the subject of genuine dispute, with successive authorities applying different per square meter rates (AO, CIT(A), Tribunal). It is a settled position that additions founded on estimation or differing opinions as to value are debatable and do not constitute the deliberate concealment or misstatement necessary to levy penalty under section 271(1)(c). Further, an identical penalty imposed on a co owner was deleted on appeal, and revenue could not justifiably treat the assessee differently. For these reasons the Tribunal held that the penalty could not be sustained and directed its deletion. [Paras 7, 8]

Penalty under section 271(1)(c) deleted and the appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal and directed deletion of the penalty under section 271(1)(c) for AY 2012-13, holding that the addition was based on disputed/estimative valuations and a difference of opinion cannot sustain a penalty; parity with co owners was also noted.

Determination of full value consideration under section 50C and reference to Departmental Valuation Officer under section 50C(2) - Reliance on stamp duty valuation as full value consideration vis-a -vis declared sale consideration - Duty of Assessing Officer to refer valuation to DVO where assessee raises a bona fide objection - Remand for fresh adjudication after obtaining DVO valuation

Determination of full value consideration under section 50C and reference to Departmental Valuation Officer under section 50C(2) - Reliance on stamp duty valuation as full value consideration vis-a -vis declared sale consideration - Whether the Assessing Officer was obliged to refer the valuation of the property to the Departmental Valuation Officer under section 50C(2) before adopting the stamp duty valuation as full value consideration, where the assessee had objected to the stamp duty valuation and furnished alternative valuation material. - HELD THAT: - The Tribunal found that the assessee purchased the larger parcel shortly before the sale of the part, and specifically objected to the adoption of the stamp duty valuation by pointing out an anomalous and substantial increase in the stamp valuation within a month. The assessment record showed the assessee had explained the basis for the lower sale consideration and had produced a registered valuer's report. In these circumstances the Tribunal applied the principle that where an assessee claims the fair market value is lower than the stamp valuation, the Assessing Officer is duty bound to refer the matter to the DVO for determination of fair market value under section 50C(2), rather than mechanically adopting the stamp duty figure. The Tribunal relied upon precedent recognising that referral to the DVO is required to avoid miscarriage of justice and to give the taxpayer the statutory machinery for a fair valuation, and that a purchaser's not challenging stamp valuation before the stamp authority is not determinative. Because the Assessing Officer did not make such a reference and proceeded to compute capital gains on the basis of the stamp duty value, the Tribunal concluded that the computation could not stand and that the matter must be reopened after obtaining the DVO valuation with opportunity of hearing to the assessee. [Paras 6, 7, 8]

Impugned computation adopting stamp duty valuation set aside; matter remitted to the Assessing Officer to refer valuation to the DVO under section 50C(2), obtain the DVO report, and recompute capital gains afresh after affording the assessee a reasonable opportunity of hearing.

Final Conclusion: The appeal is allowed for statistical purposes; the order of the authorities below is set aside and the matter is remitted to the Assessing Officer for de novo adjudication after making a reference to the DVO for determination of fair market value and thereafter recomputing the capital gain in accordance with law, with an opportunity of hearing to the assessee.

Revisionary powers under section 263 of the Income Tax Act - eligibility for exemption under section 54F of the Income Tax Act - compliance with directions in a revisional order - assessment completed under section 143(3) read with section 263

Revisionary powers under section 263 of the Income Tax Act - compliance with directions in a revisional order - Validity of the second order passed by the Principal Commissioner of Income Tax dated 24.03.2021 under section 263. - HELD THAT: - The Tribunal found that the Principal Commissioner had earlier passed an order under section 263 dated 06.03.2018 directing the Assessing Officer to examine the assessee's entitlement to exemption under section 54F. The Assessing Officer issued notices, physically inspected the properties, concluded that one property was not a residential house, and completed the assessment by an order dated 16.08.2018 in compliance with the directions. On subsequent review the Principal Commissioner issued another revisional order dated 24.03.2021; the Tribunal held that initiation of fresh proceedings under section 263 was incorrect because the Assessing Officer had complied with the earlier directions and had made enquiries and verification as required. The Tribunal therefore treated the second revisional order as impermissible. [Paras 7]

Order dated 24.03.2021 under section 263 is quashed as initiation of revisional proceedings was incorrect.

Assessment completed under section 143(3) read with section 263 - eligibility for exemption under section 54F of the Income Tax Act - Validity of the assessment order dated 16.08.2018 which disallowed exemption under section 54F after the Assessing Officer's enquiries and verification. - HELD THAT: - The Tribunal recorded that after the Principal Commissioner's direction the Assessing Officer conducted physical verification of the properties, examined the factual position and concluded that the property in question was not a residential house though rent was offered. The assessment was accordingly completed on 16.08.2018. Having found that the Assessing Officer had in fact made the requisite enquiries and complied with the revisional direction, the Tribunal held that the assessment order stands and cannot be reopened by the subsequent revisional order that was quashed. [Paras 7]

Assessment order dated 16.08.2018 stands; the assessment completed in compliance with directions is valid.

Final Conclusion: The Tribunal allowed the appeals, quashed the Principal Commissioner's revisional order dated 24.03.2021, and upheld the assessment order dated 16.08.2018 for A.Y. 2013-14.

Fees for technical services - managerial services vs consultancy/technical services distinction - make available - development and transfer of a technical plan or technical design - Most Favoured Nation clause in DTAA Protocol - royalty - 'process' and Explanation 6 - reimbursement / pass through receipts - interest under section 234B - advance tax and TDS interaction

Fees for technical services - managerial services vs consultancy/technical services distinction - Taxability of the intra group receipt under section 9(1)(vii) of the Income tax Act. - HELD THAT: - The services rendered comprised a mixture of global policy formulation, implementation oversight and evaluation (managerial services) and also discrete consultancy and technical inputs. Managerial services by their nature involve planning, execution and supervision and are distinguishable from consultancy or technical services. The documentary record (agreement and e mails) shows that part of the consideration related to consultancy and technical services; accordingly the receipt satisfies the statutory definition of 'fees for technical services' in Explanation 2 to section 9(1)(vii) and is chargeable to tax under the Act. [Paras 5]

Consideration received is chargeable as 'fees for technical services' under section 9(1)(vii) of the Act.

Most Favoured Nation clause in DTAA Protocol - development and transfer of a technical plan or technical design - make available - Whether the receipt is chargeable as FTS under the DTAA (and scope of relief by invoking the India-USA DTAA via the Protocol/MFN clause). - HELD THAT: - Article 13(4) of the India-Spain DTAA excludes managerial services from the definition of FTS; only consultancy and technical services fall within it. The Protocol's MFN clause permits invoking a more restricted scope in a later OECD Member State treaty; accordingly the assessee can seek benefit of the India-USA DTAA. Under the India-USA DTAA Article 12(4)(b) the second independent limb covers services that 'consist of the development and transfer of a technical plan or technical design' (which does not additionally require the 'make available' test). The services described (research procedures/policies, quality & environment strategy, IT policy/standards) prima facie include development and transfer of technical plans/designs, but the record does not permit apportionment of the amount attributable to development/transfer as distinct from management/supervision. Therefore the Tribunal held that only the portion representing development and transfer of technical plan/design would qualify for taxation under the India-USA DTAA and remanded the matter to the AO to quantify that taxable portion on a rational basis after hearing the assessee. [Paras 6]

Assessee may invoke the India-USA DTAA via the Protocol; only amounts attributable to development and transfer of technical plans/designs are taxable under that treaty limb - quantification remitted to the AO for determination.

Dividend - Whether the intra group receipt is taxable as 'dividend' under Article 11 of the DTAA. - HELD THAT: - Article 11 defines 'dividends' as income from shares or other corporate rights participating in profits. The impugned receipt is consideration for services rendered and is not income from shares, participation in profits or other corporate rights subject to equivalent treatment; therefore it cannot be characterized as 'dividend' under Article 11. [Paras 8]

Receipt is not 'dividend' under Article 11 of the DTAA.

Other income - Article 23(3) - residuary clause - Whether the receipt falls within Article 23(3) ('other income') of the DTAA. - HELD THAT: - Article 23(3) applies only to items 'not dealt with in the foregoing Articles'. The intra group service consideration is within the scope of Article 12 (FTS) or otherwise Article 7 (business profits); an item covered by an earlier Article cannot be recast under Article 23(3). Hence the receipt cannot be taxed as 'other income' under Article 23(3). [Paras 9]

Receipt not chargeable as 'other income' under Article 23(3) of the DTAA.

Royalty - 'process' and Explanation 6 - reimbursement / pass through receipts - Tax treatment of leased line reimbursement: whether taxable as 'royalty' under domestic law and under the DTAA. - HELD THAT: - Telefonica supplied leased lines and the assessee recovered the exact billed amounts from the Indian entity without mark up establishing one to one pass through. Under Explanation 6 read with Explanation 2 to section 9(1)(vi) the term 'process' has been held to include transmission by cable/optical fibre, bringing such receipts within the domestic definition of 'royalty'. However, Article 13(3) of the Indo Spain DTAA contains its own definition of 'royalties' and does not incorporate the expanded domestic definition (Explanation 6). Since the DTAA does not import the domestic amendment, the extended scope under Explanation 6 cannot be read into the treaty; consequently the amount is taxable as 'royalty' under domestic law but not as 'royalty' under the DTAA. [Paras 15, 16]

Leased line reimbursement is 'royalty' under the Act by virtue of Explanation 6, but it does not qualify as 'royalty' under the Indo Spain DTAA.

Royalty - software - Taxability of reimbursement of off the shelf software charges. - HELD THAT: - The assessee procured off the shelf Norton antivirus licenses for group use and recovered cost from the Indian entity without mark up. Subsequent Supreme Court precedent holds that payment for use of a software product does not constitute 'royalty'. The Department conceded the legal position. On that binding precedent the addition is deleted. [Paras 18]

Addition for reimbursement of software charges deleted - not 'royalty'.

Interest under section 234B - advance tax and TDS interaction - Levy of interest under section 234B for default in payment of advance tax for the assessment year 2010 11. - HELD THAT: - Prior to the Finance Act 2012 amendment, the advance tax liability was computed after reducing tax deductible at source; thus for a non resident whose receipts are subject to TDS under section 195, there was no liability to pay advance tax and consequently no interest under section 234B for AY 2010 11. The 2012 amendment (proviso to section 209) which alters that position is prospective and does not apply to the assessment year under consideration. [Paras 20]

Interest under section 234B not leviable for AY 2010 11.

Final Conclusion: Appeal partly allowed. The intra group receipt is taxable as 'fees for technical services' under the Income tax Act; however the assessee may invoke the India-USA DTAA via the Protocol and only the portion attributable to development and transfer of technical plans/designs is to be taxed under that treaty - quantification remitted to the AO. The receipt is not 'dividend' or 'other income' under the DTAA. Leased line reimbursements are 'royalty' under domestic law (Explanation 6) but do not qualify as 'royalty' under the Indo Spain DTAA. The addition for off the shelf software reimbursement is deleted. Interest under section 234B is not leviable for AY 2010 11.

Penalty under Section 271(1)(c) - concealment of particulars of income or furnishing inaccurate particulars of income - validity of notice under Section 274 r.w.s. 271(1)(c) - requirement to specify the limb of Section 271(1)(c) in penalty notice - non-application of mind where notice is issued in a stereotyped form

Penalty under Section 271(1)(c) - concealment of particulars of income or furnishing inaccurate particulars of income - validity of notice under Section 274 r.w.s. 271(1)(c) - requirement to specify the limb of Section 271(1)(c) in penalty notice - non-application of mind where notice is issued in a stereotyped form - Validity of the notice issued under Section 274 read with Section 271(1)(c) where the notice did not specify which limb of Section 271(1)(c) (concealment or furnishing inaccurate particulars) was invoked, and consequent leviability of penalty for assessment year 2010-11. - HELD THAT: - The Tribunal held that the two limbs of Section 271(1)(c) - concealment of particulars of income and furnishing of inaccurate particulars of income - carry distinct meanings and, therefore, it is imperative that the Assessing Officer specify in the notice which limb is being invoked so that the assessee can respond appropriately. Reliance was placed on earlier decisions of higher courts which have held that a penalty notice in a standard proforma without striking out the inapplicable limb leads to an inference of non-application of mind by the Assessing Officer. The Revenue's reliance on a decision dealing with service of a notice on premises was rejected as factually distinguishable. The Tribunal noted authoritative orders including M/s. SSA's Emerald Meadows , Manjunatha Cotton & Ginning Factory and M/s. Sahara India Life Insurance Company Ltd. as establishing that omission to specify the relevant limb renders the notice bad in law. Applying these principles to the present facts, the Tribunal found that the Assessing Officer issued the notice dated 28.03.2013 in a stereotyped manner without specifying the limb of Section 271(1)(c) and without applying mind, and therefore the notice was invalid and insufficient to sustain imposition of penalty for AY 2010-11. [Paras 6, 7]

Notice under Section 274 r.w.s. 271(1)(c) was invalid for not specifying the limb of Section 271(1)(c); penalty deleted.

Final Conclusion: The appeal is allowed; the penalty imposed under Section 271(1)(c) for AY 2010-11 is deleted because the notice under Section 274 r.w.s. 271(1)(c) did not specify which limb of Section 271(1)(c) was invoked and was issued in a stereotyped manner without application of mind.

Exemption under section 54 - amendment by Finance Act, 2014 w.e.f. 01.04.2015 - "one residential house" versus "a residential house" - burden of proof on the assessee to establish one residential unit - remand for de novo consideration

Exemption under section 54 - "one residential house" versus "a residential house" - amendment by Finance Act, 2014 w.e.f. 01.04.2015 - burden of proof on the assessee to establish one residential unit - Claim for exemption under section 54 in respect of investment in multiple flats and a basement - HELD THAT: - The Tribunal noted that the Assessing Officer denied the section 54 exemption chiefly on the basis of a field/inspector report and on the ground that the assessee did not prove that three flats and a basement constituted one residential unit. The Commissioner (Appeals) allowed the claim relying on pre-amendment precedents which treated multiple units within a building as "a residential house". The Tribunal observed that section 54 was amended by the Finance Act, 2014 (effective 01.04.2015) substituting the expression "one residential house" and that this amended provision is applicable to the assessment year 2015-16. As the Commissioner (Appeals) did not give a definite finding on the applicability of the amended provision to the facts of the case and relied in part on decisions predating the amendment, the Tribunal held that the matter requires fresh consideration in the light of the amended statutory language. Consequently, the Tribunal set aside the appellate order and remanded the issue to the Commissioner (Appeals) for de novo adjudication, directing that the Commissioner decide the question afresh taking into account the amended provisions of section 54 and the factual record (including the onus on the assessee to establish the nature of the purchased property). [Paras 5]

Set aside and remitted to the Commissioner (Appeals) for fresh decision de novo on the claim of exemption under section 54, applying the Finance Act, 2014 amendment as applicable to A.Y. 2015-16.

Final Conclusion: The Revenue's appeal is allowed for statistical purposes; the impugned order is set aside and the matter is remanded to the Commissioner (Appeals) to decide afresh the assessee's claim for exemption under section 54 in light of the Finance Act, 2014 amendment applicable to A.Y. 2015-16.

Condonation of delay - Assessment in consequence of search and seizure - Credit for past savings from salary as source of investment - Unexplained investment/unexplained money and burden of proof - Quashing of additions for absence of acceptable basis

Condonation of delay - Whether the delay of 31 days in filing the appeal before the Tribunal should be condoned. - HELD THAT: - The Tribunal examined the affidavit and the explanation that the assessee was engaged in shifting his office and that change of address delayed receipt of the CIT(A)'s order. On consideration of the explanation and hearing, the Tribunal found the cause sufficient and reasonable to justify the delay and therefore exercised its discretion to condone the delay and admit the appeal for adjudication on merits. [Paras 2]

Delay of 31 days condoned and appeal admitted for hearing on merits.

Credit for past savings from salary as source of investment - Unexplained investment/unexplained money and burden of proof - Quashing of additions for absence of acceptable basis - Assessment in consequence of search and seizure - Whether the addition of Rs.16,89,500 as unexplained money (investment in immovable property/advances) was justified where the assessee had undisputed salary income and claimed the amount was from current and earlier years' salary savings. - HELD THAT: - The Tribunal noted that the Assessing Officer accepted salary income but treated a portion of investments as unexplained, having allowed only a surplus of Rs.13 lakhs from the current year's salary and rejecting credit for savings from earlier years. The Tribunal found no basis for the AO's assumption that the assessee did not have accumulated savings from earlier salary income. Having accepted that the assessee was a salaried taxpayer and that savings from salary in earlier years could meet the investment, the Tribunal concluded that the amount could not be treated as unexplained money. Consequently, the Tribunal held that the AO's addition lacked acceptable basis and quashed the orders of the revenue authorities, allowing the appeal. [Paras 6, 7]

Addition of Rs.16,89,500 held not sustainable; orders of the revenue authorities quashed and the appeal allowed.

Final Conclusion: Delay in filing the appeal was condoned and, on merits, the Tribunal found that the impugned addition as unexplained investment was unsustainable because the investment was reasonably attributable to salary income and past savings; the revenue orders were quashed and the appeal allowed.

Revisionary jurisdiction under Section 263 - Unexplained cash credit under Section 68 - Three ingredients of Section 68 - identity, creditworthiness and genuineness - Obligation of revisional authority to apply independent mind - Mistake of fact vitiating exercise of jurisdiction

Revisionary jurisdiction under Section 263 - Unexplained cash credit under Section 68 - Three ingredients of Section 68 - identity, creditworthiness and genuineness - Obligation of revisional authority to apply independent mind - Mistake of fact vitiating exercise of jurisdiction - Validity of invoking revisionary jurisdiction under Section 263 to direct taxation of share premium component as unexplained cash credit under Section 68 - HELD THAT: - The Tribunal found that the assessee had filed before the assessing officer and before the Principal Commissioner of Income Tax extensive documentary evidence (including KYC, passports/visas, bank statements showing transfers, FIRCs, Form FCGPR and a valuation report) intended to establish the identity, creditworthiness and genuineness of the share subscription at Rs.11 per share. The PCIT, however, proceeded on the incorrect factual premise that no such documents had been filed and further relied upon the AO's addition in respect of face value without independently examining the records; on that basis the PCIT invoked Section 263 to treat the AO's order as erroneous and directed the AO to bring the share premium to tax. Because the revisional jurisdiction under Section 263 requires the revisional authority to apply independent mind to the records and not merely adopt or rely on subordinate findings, the PCIT's action - founded on mistaken factual assumptions that the documents were not placed on record and that the AO had considered all submissions - amounted to a vitiating mistake of fact. The Tribunal therefore held that the assumption of jurisdiction was erroneous and the revision order deserved to be quashed. The Tribunal expressly refrained from adjudicating the merit of the AO's addition in respect of the share capital (face value) which was the subject of a pending appeal, limiting its conclusion to the illegality of the PCIT's exercise of Section 263 jurisdiction in the circumstances. [Paras 3]

Revisionary order under Section 263 quashed; PCIT erred in invoking revisionary jurisdiction to direct taxation of the share premium component under Section 68.

Final Conclusion: The appeal is allowed; the revision order dated 08/03/2022 passed under Section 263 is quashed as the Principal Commissioner failed to apply independent mind and acted on incorrect factual premises regarding the filing and consideration of documents proving the identity, creditworthiness and genuineness of the share subscription.

Cancellation of licence under Section 58(2)(b) - show cause notice - requirement of specifying materials and provisional conclusions - audi alteram partem / reasonable opportunity to show cause - prematurity of proceedings based on pending adjudications and investigations - adjudication confined to matters disclosed in the show cause notice

Cancellation of licence under Section 58(2)(b) - adjudication confined to matters disclosed in the show cause notice - audi alteram partem / reasonable opportunity to show cause - Validity of the cancellation of the petitioner's licence where the show cause notice and impugned order relied on pending show cause notices, a pending investigation complaint and materials not specified in the show cause notice. - HELD THAT: - The Court examined the show cause notice dated 4th October 2004 and the subsequent order of cancellation dated 10th January 2005. The show cause notice proceeded chiefly on the basis of six earlier show cause notices and a DRI complaint which were pending adjudication or investigation and did not set out the provisional conclusions or the specific materials (including alleged seizure panchanamas) on which the licensing authority proposed to act. The impugned order reached findings of diversion and contravention under the Act by relying on matters that were not particularised in the show cause notice, thereby effectively adjudicating those pending proceedings without having afforded the licensee an opportunity to meet those specific allegations. The Court held that issuance of a show cause notice is not a mere formality; it must inform the person likely to be affected of the materials and provisional conclusions so that a fair and reasonable opportunity to correct or controvert the material is provided. Because the authority relied upon matters not disclosed and relied on proceedings that had not attained finality, the show cause notice was premature and the cancellation could not stand. [Paras 8, 9, 11]

Impugned cancellation order quashed for want of adequate specification in the show cause notice and for prematurity of proceedings; petitioner not afforded the requisite opportunity to meet the materials and provisional conclusions relied upon.

Final Conclusion: The order cancelling the licence dated 10th January 2005 is quashed and set aside. The licensing authority may, if within statutory limitation, initiate proceedings in accordance with law after issuing a sufficiently specific show cause notice and affording a fair opportunity to the petitioner. Amounts deposited pursuant to earlier court orders shall be returned to the petitioner with interest, if any, in accordance with law.

Power of Tribunal to confirm reduction of share capital under Section 66 - domestic affair of the company - majority decision prevails - protection of creditors and fairness between classes of stakeholders - liquidity and adequacy of funds for payment on reduction of capital - limited scope of judicial intervention and prohibition on judicial overreach

Liquidity and adequacy of funds for payment on reduction of capital - protection of creditors and fairness between classes of stakeholders - Whether the Tribunal (NCLT) rightly refused confirmation of the scheme of reduction of share capital on the basis of negative net worth, book value per share and high borrowings. - HELD THAT: - The Appellate Tribunal held that the NCLT's rejection on the ground of negative net worth and book value per share was not justified where the company had filed a clarificatory affidavit demonstrating immediate access to funds sufficient to meet the proposed payment to shareholders, none of the creditors had objected, and the reduction did not prejudice any class of creditors. The Tribunal accepted the company's material showing investments and bank balances aggregating to an amount equal to or in excess of the sum proposed to be returned to shareholders, and noted the company was a going concern with contractual cash flows under a long term PPA. The Tribunal emphasised that the statutory safeguard is to ensure creditors are not prejudiced; where creditors raise no objection and funds for payment are available, mere negative net worth in accounting/book-value terms (attributable to depreciation in a capital intensive industry) does not alone warrant refusal of confirmation. [Paras 11, 15, 16]

NCLT's order refusing confirmation on account of negative net worth/book value and borrowings was set aside and the reduction was ordered to be confirmed subject to compliance with law.

Power of Tribunal to confirm reduction of share capital under Section 66 - domestic affair of the company - majority decision prevails - limited scope of judicial intervention and prohibition on judicial overreach - Whether the Tribunal should interfere with a company's scheme of reduction of capital approved by the requisite majority of shareholders. - HELD THAT: - The Tribunal reaffirmed established principles that reduction of share capital is ordinarily a 'domestic affair' of the company and that the commercial wisdom of the majority of shareholders, when a special resolution is passed, is entitled to prevail. The Tribunal observed that the court/tribunal's role under Section 66 is supervisory: to ensure statutory procedure has been followed, that the scheme is within powers and not prejudicial to creditors or other classes, and to exercise discretion against schemes that are plainly unfair or contrary to public policy. It held that the NCLT had impermissibly gone beyond this limited scope by delving into matters of commercial wisdom and by treating accounting net worth, without regard to available liquidity and absence of creditor objection, as a ground to refuse confirmation. Reliance was placed on precedents recognising limited judicial intervention and on the need to respect majority decisions where fairness and creditor protection are satisfied. [Paras 11, 12, 15, 16]

The Tribunal held that the NCLT overreached its jurisdiction in refusing confirmation and that, having regard to compliance with statutory requirements and absence of prejudice to creditors, the reduction approved by shareholders should be confirmed.

Final Conclusion: The appeal is allowed; the NCLT order refusing confirmation of the reduction of share capital is set aside. The Tribunal directed confirmation of the scheme and remitted the matter to NCLT to proceed in accordance with law, holding that statutory procedure was complied with, creditors were not prejudiced, and the NCLT had exceeded the limited scope of judicial intervention.

Promise to pay time-barred debt under Section 25(3) of the Indian Contract Act, 1872 - acknowledgement in writing triggering fresh limitation under Section 18 of the Limitation Act, 1963 - applicability of the Limitation Act to proceedings under the Insolvency and Bankruptcy Code (Section 238A) - fresh cause of action arising from assignment and confirming party's acknowledgement

Promise to pay time-barred debt under Section 25(3) of the Indian Contract Act, 1872 - fresh cause of action arising from assignment and confirming party's acknowledgement - Whether execution of the Assignment Agreement and the Corporate Debtor becoming a confirming party created a fresh contractual liability under Section 25(3) of the Indian Contract Act and thereby triggered a fresh period of limitation from the effective date of assignment. - HELD THAT: - The Tribunal held that execution of the Assignment Agreement on 27.09.2013, with the Corporate Debtor as a confirming party, resulted in a fresh agreement for payment of the dues and thus a fresh period of three years commenced from that effective date. The judgment relies on precedent recognising that a written promise to pay, even in respect of a debt which had become time-barred, constitutes an enforceable contract under Section 25(3) and can furnish a fresh cause of action. The Court concluded that the assignment and the Corporate Debtor's confirmation operated to resuscitate the remedy to enforce payment from the effective date of the Assignment Agreement. [Paras 19, 20, 21, 22, 23]

The Assignment Agreement and the Corporate Debtor's confirmation amounted to a fresh contractual obligation under Section 25(3), and the period of limitation began anew from 27.09.2013.

Acknowledgement in writing triggering fresh limitation under Section 18 of the Limitation Act, 1963 - applicability of the Limitation Act to proceedings under the Insolvency and Bankruptcy Code (Section 238A) - Whether successive acknowledgements and part-payments by the Corporate Debtor after 27.09.2013 extended the period of limitation under Section 18 of the Limitation Act so as to render the Section 7 application filed on 04.03.2019 within time. - HELD THAT: - The Tribunal accepted that Section 238A makes the Limitation Act applicable to proceedings under the Code and that Section 18 operates to commence a fresh period of limitation from the date an acknowledgement in writing signed by the debtor is made, provided such acknowledgement is made before the expiry of the running period. The Court found on the record that the Corporate Debtor's debt was acknowledged in its 2013-14 balance sheet and that part-payments were made on 12.06.2015 and 24.06.2015 (noted in the record), which fell within the three-year period reckoned from 27.09.2013 and thereby extended limitation successively. The letter of acknowledgement dated 05.12.2016 fell within the renewed limitation period and further extended limitation up to 05.12.2019. The Adjudicating Authority had erred in disregarding these acknowledgements and part-payments and in treating the application as barred by limitation. [Paras 25, 26, 27, 28, 29]

Successive acknowledgements and part-payments after 27.09.2013 extended the limitation period under Section 18, and the Section 7 application filed on 04.03.2019 fell within the extended period.

Final Conclusion: The impugned order dated 08.04.2021 is set aside. The appeal is allowed and the matter is remanded to the Adjudicating Authority to consider and decide the Section 7 application in accordance with law; parties directed to appear before the Adjudicating Authority on 15 September 2022.

Financial debt - corporate insolvency resolution process - sub-contract agreement - admission of liability does not convert contractual obligation into financial debt - arbitrability and arbitration clause - pronouncement under Rule 151 of the NCLT Rules, 2016

Financial debt - sub-contract agreement - Whether the claim by the appellant constitutes a financial debt under Section 7 of the IBC such as to sustain initiation of CIRP. - HELD THAT: - The Appellant's claim arose from sub contract agreements dated 07.03.2017 and 24.08.2017 under which financial arrangements and liabilities for project execution were apportioned between the parties and payments from the employer were to be received and shared as per the contract. The Tribunal found that these arrangements related to project financing and shared liabilities for performance of the contract rather than a disbursal of money bearing the character of a loan or debt for the time value of money. The minutes of meeting dated 16.03.2018 admitting liability to pay did not alter the legal character of the underlying contractual arrangement into a financial debt under the IBC. On this basis the Adjudicating Authority correctly held the Section 7 petition not maintainable and rejected it. [Paras 6, 7, 8]

The claim does not qualify as a financial debt for the purposes of initiating CIRP and the Section 7 application was rightly rejected.

Admission of liability does not convert contractual obligation into financial debt - arbitrability and arbitration clause - Whether the appellant could bypass the contractually agreed dispute resolution mechanism and have the issue adjudicated in IBC proceedings. - HELD THAT: - Clause 18 of the sub contract provided for amicable settlement and arbitration under the Arbitration and Conciliation Act, 1996. The Tribunal observed that the appellant ought to have invoked the contractual dispute resolution mechanism and that the merits of the contractual dispute could not be finally determined in IBC proceedings where the contract itself prescribed arbitration. The mere recording of admission of liability in minutes did not permit conversion of the dispute into a financial debt determinative under Section 7 without following the contractually agreed remedy. [Paras 8]

The appellant should have resorted to the arbitration clause; the dispute was not fit for final determination in the IBC proceeding.

Pronouncement under Rule 151 of the NCLT Rules, 2016 - Whether the Adjudicating Authority erred in pronouncing the order invoking Rule 151 of the NCLT Rules, 2016 due to absence of the Technical Member. - HELD THAT: - The record shows hearing was concluded and pronouncement was delayed due to non availability of the Technical Member. The absent Technical Member had agreed with the judgment. The Tribunal found no infirmity in invoking Rule 151 to pronounce the order in the circumstances and recorded that there was consent of the other Member for pronouncement. [Paras 9, 10]

Invocation of Rule 151 for pronouncement in the absence of the Technical Member was proper in the facts of the case.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority correctly held that the appellant's claim under the sub contract did not amount to a financial debt for initiating CIRP, the contractual arbitration clause should have been invoked, and pronouncement under Rule 151 was unobjectionable.

Pre-existing dispute - existence of dispute - application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - operational debt due and payable - notice of dispute - plausible contention requiring further investigation - settlement discussions not amounting to admission of debt

Pre-existing dispute - existence of dispute - notice of dispute - plausible contention requiring further investigation - Whether a pre-existing dispute existed between the parties prior to issuance of the Section 8 demand notice such that the Section 9 application was liable to be rejected. - HELD THAT: - The Tribunal applied the test in Mobilox to determine whether the defence raised by the respondent amounted to a pre-existing dispute. The record showed contemporaneous debit notes and entries in the respondent's ledger indicating rejection of supplied material on grounds of poor quality. The respondent had specifically raised that the goods were defective in its reply to the demand notice and produced supporting debit notes and ledger entries. Without going into merits, the Bench found that these materials demonstrated a plausible contention that required further investigation and that the dispute was not a patently feeble, hypothetical or illusory defence. On that basis the adjudicating authority correctly concluded that a dispute existed at the time of receipt of the demand notice and accordingly the Section 9 application was liable to be rejected. [Paras 9, 10]

A pre-existing dispute existed prior to the demand notice and the Section 9 application was rightly rejected for that reason.

Settlement discussions not amounting to admission of debt - operational debt due and payable - Whether subsequent settlement talks or interim settlement proceedings established that the debt was 'due and payable' notwithstanding the dispute raised. - HELD THAT: - The Tribunal noted that mere settlement talks or an adjournment for reporting settlement cannot convert a disputed claim into an undisputed debt. The existence of settlement discussions recorded by the adjudicating authority did not negate the contemporaneous documentary evidence of dispute (debit notes and ledger entries) which showed rejection of materials. Applying the Mobilox principle, the Bench held that settlement negotiations do not by themselves defeat a plausible, pre-existing dispute or render the operational debt immediately due and payable. [Paras 4, 10]

Settlement discussions did not establish that the operational debt was due and payable; they did not negate the pre-existing dispute.

Final Conclusion: The appeal is dismissed; the adjudicating authority correctly rejected the Section 9 application on the ground of a pre-existing dispute, and there is no reason to interfere with that order.

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 - Declaration of solvency and full inquiry into affairs - Compliance with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 - Public announcement and claims solicitation - Liquidator's duties to realize assets and distribute proceeds - Application by liquidator for dissolution - Notice to and reporting with Registrar of Companies and IBBI

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 - Declaration of solvency and full inquiry into affairs - Compliance with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 - Public announcement and claims solicitation - Whether the applicant LLP complied with the statutory conditions for initiating and carrying out voluntary liquidation. - HELD THAT: - The Tribunal found on the record that the partners executed and filed the requisite declaration of solvency and affidavits stating a full inquiry into the affairs of the LLP and that the LLP had no debts or could pay debts in full (annexures cited). The LLP passed the special resolution for voluntary liquidation and appointed a registered insolvency professional as liquidator. The liquidator published the statutory public announcement, notified the IBBI and RoC, submitted preliminary and final reports, opened and thereafter closed a liquidation bank account, distributed proceeds to members, and received no claims during the claims period. The RoC reported no pending inquiry or adverse action against the LLP. On these findings the Tribunal concluded that the statutory conditions and regulatory formalities under Section 59 and the Voluntary Liquidation Regulations were satisfied. [Paras 6, 7, 8, 11, 12]

Statutory conditions for voluntary liquidation were complied with and no objection or adverse consequence arose from the liquidation process.

Application by liquidator for dissolution - Liquidator's duties to realize assets and distribute proceeds - Notice to and reporting with Registrar of Companies and IBBI - Whether, having been fully wound up and assets realized and distributed, the LLP should be dissolved by order of the Adjudicating Authority. - HELD THAT: - The liquidator filed an application under the Code after completing the liquidation formalities, submitting the final report to RoC and IBBI, and effecting distribution of realizable assets to the members. The Tribunal noted absence of any claims or objections following the public announcement and the RoC report showing no pending inquiries. In exercise of powers under Section 59(8) the Tribunal concluded that affairs were completely wound up and that dissolution should be ordered. [Paras 13, 14, 15, 16]

The Tribunal ordered dissolution of the corporate person and directed communication of the order to the Registrar of Companies and IBBI.

Final Conclusion: The Tribunal held that the LLP complied with the requirements for voluntary liquidation and, having been wound up with no outstanding claims or objections, ordered dissolution of Zepetto India LLP and directed communication of the order to the Registrar of Companies and the IBBI.

Pre-existing dispute - operational debt - reimbursement of rentals not constituting supply of goods or services - plausible contention requirement from Mobilox - existence of dispute prior to issuance of demand notice - summary adjudication under Section 9

Reimbursement of rentals not constituting supply of goods or services - operational debt - Whether the claimed amount towards outstanding rentals (including CAM, AHU, Electricity) of the Elante store qualifies as an operational debt under the Code. - HELD THAT: - The Tribunal held that the claimed sum towards outstanding rentals and allied charges cannot be treated as supply of goods or rendering of services and therefore does not fall within the definition of operational debt under the Code. The question whether the said amount is recoverable remains a matter requiring trial between the parties and cannot be summarily treated as operational debt at this stage. [Paras 7]

The claimed rentals amount is not an operational debt for the purpose of the Section 9 application and its recovery is an issue for trial.

Plausible contention requirement from Mobilox - pre-existing dispute - existence of dispute prior to issuance of demand notice - summary adjudication under Section 9 - Whether a pre-existing dispute existed between the parties prior to the issuance of the demand notice and whether that dispute defeats the Section 9 petition. - HELD THAT: - Applying the principle that the adjudicating authority at the admission stage must ascertain whether a plausible contention or real dispute exists (as articulated in Mobilox), the Tribunal examined contemporaneous email correspondence, working sheets and replies to legal notices exchanged prior to the demand notice. Those documents demonstrate disagreement over the quantum and performance under the term sheets and were exchanged before the demand notice was served. The defence was held to be neither spurious nor merely frivolous; it raised substantive issues necessitating further investigation rather than summary adjudication under Section 9. Consequently, the presence of a genuine pre-existing dispute disentitles the Operational Creditor from invoking the insolvency remedy. [Paras 11, 12, 13, 17, 18]

There existed a pre-existing dispute prior to the demand notice; therefore the Section 9 petition cannot be admitted.

Operational debt - Whether the Tribunal should quantify the operational debt and interest at the admission stage despite the principal claim exceeding the statutory threshold. - HELD THAT: - The Tribunal observed that the principal claim concerning secondary sales exceeds the statutory monetary threshold and therefore it was not inclined to undertake quantification of the operational debt or interest at the admission stage. The Tribunal confined itself to threshold and admissibility issues rather than detailed computation. [Paras 8]

The Tribunal declined to undertake quantification of the operational debt and interest at the admission stage.

Final Conclusion: The petition under Section 9 is dismissed: the claim for outstanding rentals does not qualify as operational debt for summary adjudication, the pleadings and pre-demand correspondence disclose a genuine pre-existing dispute existing prior to the demand notice which defeats the Section 9 application, and the Tribunal did not undertake quantification of the claimed sums at the admission stage.

Pre-existing dispute - maintainability under Section 4 - minimum amount of default - prospective application of Ministry of Corporate Affairs notification dated 24.03.2020 - use of Insolvency and Bankruptcy Code as a recovery mechanism - notice of dispute and Mobilox principle

Pre-existing dispute - notice of dispute and Mobilox principle - use of Insolvency and Bankruptcy Code as a recovery mechanism - There existed a pre-existing dispute between the parties which disentitles the Operational Creditor to relief under Section 9. - HELD THAT: - After consideration of the documentary record and rival contentions, the Adjudicating Authority found that the Corporate Debtor had repeatedly raised defects in the Operational Creditor's performance (notably unfinished polishing of the stone floor) and had sought rectification which remained unresolved. The correspondence and emails show a bona fide contention regarding the quality and completion of the work that predated or contemporaneously arose with the claim for retention monies. Applying the principle in Mobilox Innovations that an application under Section 9 must be rejected where a plausible pre-existing dispute exists (and need not be finally adjudicated at this stage), the Authority concluded that the dispute was not spurious or illusory but a real dispute going to performance of the contract. The Authority also observed that the Code is not to be used as a recovery forum and that invoking CIRP where a genuine performance dispute exists would be inconsistent with that principle. On these bases the application could not be admitted. [Paras 37]

Application under Section 9 rejected insofar as a pre-existing dispute exists between the parties and the IBC cannot be used as a recovery mechanism in the facts of this case.

Maintainability under Section 4 - minimum amount of default - prospective application of Ministry of Corporate Affairs notification dated 24.03.2020 - The application did not satisfy the enhanced minimum default threshold introduced by the MCA notification dated 24.03.2020 and was therefore not maintainable. - HELD THAT: - The Authority examined the operation of Section 4 read with the MCA notification which increased the minimum amount of default. Noting the view in Company Appeal (AT) (Ins.) No. 813 of 2021 that the relevant date for determining applicability of the enhanced threshold is the date of filing of the CIRP application, the Tribunal held that the minimum threshold for default in this case was the enhanced amount as the application was filed after 24.03.2020. Given that the claimed default in the present petition was below the enhanced threshold, the statutory requirement of Section 4 was not met and the application was therefore not maintainable. [Paras 37]

Application dismissed for non-satisfaction of the minimum default amount required under Section 4 in light of the MCA notification effective 24.03.2020.

Final Conclusion: The Tribunal found a bona fide pre-existing dispute as to performance of the contracts and, applying the relevant threshold rule for minimum default (as affected by the MCA notification of 24.03.2020), concluded that the Section 9 petition was not maintainable and accordingly dismissed the application.

Prevention of money laundering - provisional attachment and confiscation - searches and seizures by designated authorities - summons and recording of statements under statutory regime - arrest by authorised officers - burden of proof and statutory presumptions in proceeds of crime proceedings - special court jurisdiction and complaint procedure - twin bail conditions for serious special offences - statutory interplay of special Act and Cr.P.C. (self contained code) - internal enforcement record (ECIR) vis a vis FIR - administrative manuals and public disclosure

Provisional attachment and confiscation - Section 5 - attachment - Constitutionality and interpretation of the provisional attachment scheme under Section 5 of the PMLA - HELD THAT: - The Court upheld Section 5 as a constitutionally valid balancing mechanism to secure proceeds of crime while protecting persons' interests. The provision authorises provisional attachment on recorded reasons and contemporaneous transmission of material to the Adjudicating Authority, followed by adjudicatory safeguards. The Court rejected challenges that attachment could be made without nexus to scheduled offences in all cases, observing filing of a complaint under Section 5(5) and the Adjudicating Authority's role in confirmation ensures procedural accountability. The provision was held to have reasonable nexus with the Act's objects of preventing money laundering and securing proceeds for adjudication and possible confiscation.

Section 5 is constitutionally valid and to be applied with the statutory safeguards and adjudicatory oversight provided by the Act.

Adjudication and taking possession - Section 8(4) - taking possession after confirmation - Validity and permissible scope of taking physical possession under Section 8(4) - HELD THAT: - Section 8(4) was held not void but to be invoked only as an exception. Confirmation of provisional attachment does not automatically require physical dispossession; taking possession prior to final confiscation should be exceptional and fact sensitive to avoid unjust civil consequences if the property is later released. The Court emphasised the Adjudicating Authority and Special Court safeguards and that rules exist for manner of taking possession, but physical dispossession must be cautiously exercised.

Section 8(4) stands valid but its operation is to be exceptional and guided by proportionality and the Act's adjudicatory safeguards.

Searches and seizures by designated authorities - Section 17 and Section 18 - deletion of provisos - Validity of amended search and seizure powers (deletion of provisos) under Sections 17 and 18 - HELD THAT: - The Court rejected challenges to deletion of the earlier provisos and held the PMLA is a self contained code for searches/seizures related to money laundering. It noted inbuilt safeguards: exercise of power by senior officers, requirement to record reasons in writing, forwarding of reasons and materials to the Adjudicating Authority in sealed cover, obligation to apply to Adjudicating Authority within thirty days for retention/continuation, and penal consequences for vexatious acts. On that basis the deletion of the provisos did not render Sections 17 or 18 arbitrary or unconstitutional.

Sections 17 and 18, as amended (provisos deleted), are constitutionally valid having inbuilt safeguards and forming part of the Act's self contained code.

Arrest by authorised officers - Section 19 - power to arrest and safeguards - Validity of arrest powers conferred on designated PMLA officers under Section 19 - HELD THAT: - Section 19 was upheld. The Court reasoned the provision is part of the Act's comprehensive scheme to prevent money laundering and to secure proceeds of crime; arrest power is vested in high ranking authorised officers and is accompanied by written reasons, duty to inform grounds of arrest, forwarding of materials to the Adjudicating Authority, production before a Magistrate within 24 hours, and penal consequences for misuse. The provision was compared with analogous powers in other statutes and found not arbitrary.

Section 19 is valid; arrest power for authorised senior officers is permissible subject to the statutory safeguards.

Burden of proof and statutory presumptions - Section 24 - presumptions in proceeds of crime proceedings - Constitutionality and scope of Section 24 (legal presumptions about proceeds of crime) - HELD THAT: - The Court held Section 24 to be constitutionally valid and to have a proper nexus with the Act's objects. It explained clause (a) (person charged under Section 3) creates a mandatory legal presumption once foundational facts (existence of proceeds of crime, derivation from scheduled offence, involvement in processes connected thereto) are established, shifting an evidentiary burden to the accused to rebut by evidence within his knowledge. Clause (b) creates a discretionary factual presumption for other persons. The Court treated these as rules of evidence subject to rebuttal and compatible with criminal jurisprudence and international obligations.

Section 24 is valid; its mandatory and permissive presumptions operate as rules of evidence and are rebuttable in proceedings before the Adjudicating Authority or Special Court.

Special court jurisdiction and complaint procedure - Section 44 - Special Courts and cognizance - Constitutionality and interpretation of Special Court provisions (Section 44) including amendments and Explanation - HELD THAT: - Section 44 was upheld. The Court read certain provisions as directory and emphasised judicial discretion in transfer/commitment and trial management. The Explanation (clarificatory) was held to permit the Special Court to proceed independently on money laundering trials and to record further evidence or subsequent complaints as part of the complaint, without making the Special Court's jurisdiction dependent on orders in the scheduled offence. Challenges that it violated appellate rights or was arbitrary were rejected, the Court noting existing appeal routes under the Act and that trial of scheduled offences and money laundering may proceed independently.

Section 44 is valid; its provisions and Explanation permit Special Courts to try money laundering (and connected scheduled offences) consistent with the Act's scheme and judicial discretion.

Twin bail conditions for serious special offences - Section 45 - cognizable and non bailable offences and twin conditions - Validity of Section 45 post amendment (revival of twin bail conditions) and effect of prior judicial struck down provisions; interplay with Section 436A Cr.P.C. - HELD THAT: - The Court concluded Parliament lawfully cured defects earlier identified in Nikesh Tarachand Shah by amending Section 45 to apply to offences under the PMLA itself; therefore the twin conditions were revived and must be assessed on their present form. Considering the special, transnational, and grave nature of money laundering, and comparative precedents upholding similar twin conditions in other special statutes, the Court held the twin conditions reasonable and not manifestly arbitrary. It reiterated the limited role of courts on bail applications (broad probabilities, not trial of merits) and accepted that Section 436A Cr.P.C. (statutory bail after detention reaches half the maximum sentence) remains available and must be respected.

Section 45 (as amended) is constitutionally valid; twin bail conditions apply to PMLA offences, subject to ordinary judicial oversight and the statutory safeguard of Section 436A Cr.P.C. where applicable.

Summons and recording of statements under statutory regime - Section 50 - powers to summon, compel production and deeming of judicial proceeding - Validity of Section 50 and whether statements recorded under it attract Article 20(3) or are inadmissible as compelled testimonial evidence - HELD THAT: - The Court held Section 50 valid. It characterised the PMLA inquiry process as a sui generis proceeding primarily directed to civil measures (attachment/forfeiture) and prevention, although it may lead to prosecution. The designated authorities (Director/Deputed Officers) are not 'police officers' in the sense that triggers the full gamut of protections tied to police investigation; the Act vests investigatory/inquisitorial powers in senior designated officers with written reason requirements and forwarding of materials to the Adjudicating Authority. Article 20(3) protection and Section 25 Evidence Act protections arise where a person already stands formally accused and is compelled to be a witness against himself; summons under Section 50 for inquiry/collection of evidence does not automatically attract Article 20(3). Whether protections apply in a given case will depend on circumstances and timing (e.g., post arrest confessional statements may raise different issues).

Section 50 is valid; statements under Section 50 are not per se hit by Article 20(3) or excluded, and admissibility/protection must be assessed case by case considering whether the person was formally an accused and whether compulsion rendered the evidence testimonial compulsion.

Penal consequences for non cooperation and false information - Section 63 - penalties and offences - Validity of Section 63 (penalties for false information or failure to give information) - HELD THAT: - The Court upheld Section 63 as an enabling, non arbitrary provision tied to the Act's inquiry procedures. It provides proportionate penal and monetary consequences for willful false information, refusal to answer questions when legally bound, refusal to sign statements, or disobedience of summons. The Court noted procedural safeguards (opportunity to be heard) and that Section 63 coheres with the Act's need to secure truthful cooperation for effective prevention and adjudication.

Section 63 is valid and proportionate within the Act's procedural framework.

Scope of Schedule and predicate offences - Schedule - inclusion of offences as predicate for proceeds - Validity of the Schedule to the PMLA and inclusion of diverse offences as scheduled offences - HELD THAT: - The Court held that inclusion or exclusion of predicate offences in the Schedule is legislative policy and not amenable to invalidation simply because some scheduled offences may be minor, compoundable, or non cognizable under other statutes. Money laundering targets proceeds derived from a wide range of criminal activities; the Parliament legitimately chose the grouping to address the Act's preventive object. The Court rejected arguments that the Schedule lacked rational nexus to the PMLA's purposes.

The Schedule is valid; classification of predicate offences is a legislative policy choice consistent with the Act's preventive and confiscatory objectives.

ECIR vis a vis FIR - internal enforcement record - Whether ECIR is equivalent to FIR and whether non supply of ECIR violates constitutional rights - HELD THAT: - The Court explained ECIR is an internal enforcement/intelligence document of the Enforcement Directorate used in the inquiry process under the PMLA and is not equivalent to an FIR under Cr.P.C. The PMLA prescribes a special complaint/attachment regime; designated authorities may commence inquiry/attachment without an FIR. The Court held there is no mandatory requirement to supply ECIR in every case; informing the arrested person of the grounds of arrest (Section 19) satisfies constitutional obligations. Supply of materials will occur when complaint/charges are filed and in court proceedings; mandating ECIR disclosure universally could frustrate investigations.

ECIR is not identical to FIR; non supply of ECIR in every case is not per se unconstitutional provided statutory arrest notifications and court disclosure obligations are observed.

Administrative manuals and public disclosure - ED Manual - internal guidance - Whether ED internal manuals must be published under RTI or otherwise disclosed - HELD THAT: - The Court recognised ED Manuals as internal administrative guidance and observed they are not statutory law; while not invalidating the practice of keeping them internal, the Court encouraged the Executive to consider publishing broad information about ED procedures and available remedies on its website to improve transparency. The judgment reiterated that internal manuals cannot override statutory provisions and Courts will look to the statute for procedural rights.

ED Manuals are internal administrative instruments; publication is not mandated by the Act, but the Executive should consider greater transparency by publishing non sensitive procedural guidance.

Appellate remedy and institutional availability - Appellate Tribunal vacancies - Effect of vacancies in the Appellate Tribunal on the scheme and need for executive action - HELD THAT: - The Court acknowledged that vacancies in the Appellate Tribunal produce serious practical prejudice to persons affected by provisional attachments and confiscations. While this does not render statutory provisions invalid, the Court impressed upon the Executive to urgently fill vacancies and ensure the Tribunal is functional to provide statutory appellate relief and avoid unnecessary resort to High Courts.

Statutory scheme stands; Executive must take prompt steps to fill Appellate Tribunal vacancies to secure effective remedies.

Final Conclusion: The Court largely upheld the constitutional validity and core operation of the Prevention of Money Laundering Act, 2002 (as amended), accepting the Act as a self contained preventive and confiscatory code: attachment, search/seizure, arrest and inquiry powers vested in designated senior officers were sustained subject to the statutory safeguards (recording of reasons, sealing/transmission of material to the Adjudicating Authority, opportunities to be heard, and penal consequences for abuse). Section 24 presumptions were upheld as rebuttable evidentiary rules; Section 44 Special Court provisions and the amended Section 45 twin bail conditions were held valid in their present form (and Section 436A Cr.P.C. remains available where detention reaches statutory limits). Statements under Section 50 are not automatically barred by Article 20(3); admissibility depends on timing and whether testimonial compulsion and formal accusation exist. The Schedule and other challenged provisions were held to be matters of legislative policy and valid. The Court directed cautious exercise of powers (notably possession under Section 8(4)), greater transparency where appropriate, and prompt executive action to fill Appellate Tribunal vacancies; parties retain their remedies to pursue case specific reliefs (bail, discharge, quashing) before appropriate forums consistent with the interpretations provided.