TaxTMI Updates e-Newsletter
Aug 03,2026

Seizure ofdocuments covering multiple tax periods, some original files of which are stated to be missing from departmental custody while scanned copies have been provided - right to fair opportunity of hearing in tax adjudication.

HELD THAT:- Issue notice, returnable on 28.09.2026.

Service shall be effected by all modes, including dasti.

The Orders-in-Original shall remain stayed till the next hearing.

Vested right of appeal and subsequent pre-deposit condition - Temporal operation of penalty-only appeal pre-deposit

Vested appellate right - Prospective application of onerous pre-deposit condition - Penalty-only order under section 122(1A) - Applicability of the substituted proviso to section 107(6) requiring a ten per cent pre-deposit of penalty to appeals arising from penalty-only adjudication initiated by a show-cause notice before the substitution came into force. - HELD THAT: - The right of appeal is a substantive right which attaches to the lis at the commencement of the original adjudicatory proceedings, though its exercise awaits an adverse order. The appellate package includes conditions governing access to the appellate forum; a subsequently introduced condition which imposes a substantial financial impediment cannot burden that vested right unless the amending enactment expressly or by necessary intendment so provides. The show-cause notice, having asserted definite personal penal liability and called upon the petitioners to answer it, commenced the lis before the substituted proviso came into force. Neither the Finance Act, 2025 nor the substituted proviso manifested an intention to apply the newly introduced pre-deposit condition to such pending proceedings. The words "no appeal shall be filed" prescribe the stage of compliance where the substituted proviso applies, but do not determine its temporal application. The absence of a saving clause and the fact of substitution do not displace the earlier appellate regime for preserving a vested right. The Appellate Authority, being a creature of statute, has no inherent power to waive an applicable statutory pre-deposit; however, the question of waiver did not arise because the substituted proviso was inapplicable. [Paras 54, 57, 70, 71, 72]

The appeals are governed by section 107(6) as it stood when the show-cause notice was issued; the petitioners need not deposit ten per cent of the disputed penalties as a condition for filing their appeals, subject to payment of any admitted amount.

Final Conclusion: The writ petition was allowed. The Appellate Authority was directed to register and entertain the appeals without treating non-payment of ten per cent of the disputed penalties as a deficiency, while the constitutional challenge and merits of the penalty order were left open.

Restoration of GST registration cancelled for non-filing of returns - HELD THAT: - The Hon’ble Division Bench of this Court delivered in the case of Subhakar Golder [2024 (5) TMI 1262 - CALCUTTA HIGH COURT], it is submitted that in similar circumstances, similar order of cancellation of registration had been set aside, subject to the condition that the petitioner files returns for the entire period of default, pays requisite amount of tax and interest and fine and penalty.

As the cancellation was solely for non-filing of returns and there was no case of adoption of a dubious process to evade tax, continued cancellation would be counterproductive to revenue recovery: the registered person could not conduct business or raise invoices, while final tax liability could not be determined without returns. A pragmatic opportunity to regularise the default was therefore warranted. [Paras 9, 10, 11]

The cancellation order was set aside conditionally upon filing returns for the entire default period and payment of the requisite tax, interest, fine and penalty within the stipulated time; the jurisdictional officer was directed to restore registration upon compliance.

Final Conclusion: The writ petition was disposed of by conditionally setting aside the cancellation of registration and directing activation of the portal to enable compliance. Failure to comply with the stipulated conditions would result in automatic dismissal of the writ petition.

Regular bail in alleged input tax credit fraud - fraudulent availment and passing on of input tax credit through fake invoices - HELD THAT: - The investigation had been completed and the final complaint filed. As the prosecution case rested on documentary and electronic material already in the Department's custody, further custodial detention was not warranted, particularly having regard to the period of custody and the likely duration of trial. No opinion was expressed on the merits. [Paras 6]

The bail application was allowed, subject to furnishing the stipulated bond and surety.

Final Conclusion: Regular bail was granted on the stated conditions, without expressing any opinion on the merits of the allegations.

Rectification of GST adjudication order - Challenged to a GST demand and penalty order where the petitioner asserted that tax had been discharged on the entire invoice amount. - HELD THAT: - The Court held that the petitioner should first seek rectification of the impugned adjudication order by an application under the statutory rectification provision, supported by relevant documents. [Paras 3]

The petitioner was permitted to file a rectification application within one week; the proper officer was directed to entertain it, afford one opportunity of hearing and decide it within three weeks thereafter.

Final Conclusion: The writ petition was disposed of by relegating the petitioner to the statutory remedy of rectification of the GST adjudication order.

Restoration of GST registration cancelled for non-filing of returns - Principle of Proportionality - HELD THAT: - Cancellation of registration for non-filing of returns would be counterproductive to revenue recovery where there was no allegation that the petitioner had adopted any dubious process to evade tax. Since the final tax liability could be determined only upon filing of returns, the petitioner was to be afforded an opportunity to regularise the default by filing all pending returns and discharging the consequential tax, interest, fine and penalty. [Paras 9, 10, 11]

The cancellation order was set aside conditionally; upon compliance within the stipulated time, the jurisdictional officer was directed to restore the registration, failing which the writ petition would stand automatically dismissed.

Final Conclusion: The writ petition was disposed of by conditionally setting aside cancellation of the petitioner's registration and directing restoration upon filing of pending returns and payment of the applicable statutory dues.

Opportunity of personal hearing in GST adjudication - Reasoned adjudication order -Principles of natural justice - Audi Alteram Partem - Validity of an order determining inadmissibility of input tax credit where the show-cause notice and reminders omitted the date, time and venue of personal hearing, the assessee was not afforded the requisite opportunities of hearing, and the order was unreasoned. - HELD THAT: - In the case of Komal Jayeshbhai Hemavat [2026 (4) TMI 857 - GUJARAT HIGH COURT], wherein this Court set aside an order passed under Section 75(4) of the CGST Act even though the assessee had selected “No” in the column relating to personal hearing.

An adverse GST determination requires an effective opportunity of hearing. Where the notice does not contain the particulars of hearing, the assessee must be separately intimated of its date, time and venue before a final order is made. Selection of "No" in the personal-hearing column did not relieve the authority of its statutory obligation to afford hearing. Further, an order passed without reasons cannot be sustained merely because the assessee did not appear; the adjudicating authority must consider the available material and state the basis of its decision. The failure to intimate the hearing particulars, to afford three opportunities of hearing, and to issue a reasoned order constituted breach of natural justice. [Paras 13, 14]

The impugned order was quashed and the matter remanded for a fresh reasoned order after affording the petitioners an opportunity of hearing in accordance with law; the merits, including the refund claim, were left for determination in the fresh proceedings.

Final Conclusion: The writ petition was allowed. The impugned GST adjudication order was set aside and remanded for fresh adjudication after due opportunity of hearing; the refund claim remains subject to that fresh order.

Pre-deposit - Principles of Natural Justice - Exempt Supply - Petitioner engaged in paddy and rice trading - HELD THAT:- The assessment order was quashed and the matter remitted for fresh adjudication, subject to deposit of 10% of the disputed tax and submission of a reply with supporting documents.

Ex parte tax assessment - Principles of Natural Justice - Adequate Opportunity of Hearing - HELD THAT: - A Coordinate Bench of this Court has remanded the matter back to the Assessing Authority for passing a fresh order after providing adequate opportunity of hearing to the petitioner, the present writ application is disposed of strictly in terms of the order in M/s King Bricks [2026 (3) TMI 1051 - PATNA HIGH COURT].

The ex parte assessment order and consequential demand and bank-account attachment were set aside, and the matter was remitted for fresh assessment after adequate opportunity of hearing.

Garnishee recovery notice - prior adjudication and natural justice - Principles of Natural Justice - Right to Personal Hearing - Validity of a garnishee recovery notice issued without considering the taxpayer's replies, granting a hearing, or adjudicating disputed tax particulars - HELD THAT: - A garnishee notice entailing serious civil consequences could not be issued without first adjudicating the competing claims. As the replies on record had not been considered, no personal hearing had been afforded, and discrepancies were asserted in the underlying tax particulars, recovery required prior adjudication in accordance with law and the principles of natural justice. [Paras 8, 9]

The recovery notice was kept in abeyance, and the authority was directed to hear the taxpayer and pass a reasoned adjudication order; all merits were left open.

Final Conclusion: The petition was disposed of by requiring adjudication after hearing within the stipulated period, while keeping the impugned recovery notice in abeyance until such adjudication.

Validity of an adjudication order passed without considering the petitioner's manually submitted reply to the show-cause notice, despite its submission within the stipulated time -Technical objection to manual filing of reply - Audi Alteram Partem - Principles of Natural Justice - Consideration of Reply - HELD THAT: - A reply submitted within the prescribed time could not be disregarded merely because it was not filed electronically. Nor did the petitioner's absence on the date fixed for hearing absolve the adjudicating authority of its duty to consider the reply already submitted. Non-consideration of the reply constituted a gross violation of the principles of natural justice and went to the root of the matter. [Paras 5, 6, 7]

The order in original was quashed and the matter remitted for fresh adjudication after considering the reply; personal hearing is to be afforded if requested.

Final Conclusion: The writ petition was allowed despite dismissal of the statutory appeal on limitation, as the adjudication order had been passed in breach of natural justice. Fresh adjudication was directed.

Service of GST show cause notice and order through Common Portal - Electronic communication of adjudication order - Validity of service of the GST show cause notice and adjudication order by uploading them only on the Common Portal. - HELD THAT: - The retrospective amendment concerning functions capable of being performed on the Common Portal did not warrant departure from the view in Luxmi Traders [2026 (7) TMI 1602 - PUNJAB AND HARYANA HIGH COURT]. The Rules of 2017 did not refer to the Common Portal as a mode for service of a show cause notice or order; its use was confined to specified functions. Uploading the order alone on the portal, particularly where the assessee asserted lack of knowledge of it, could not be approved as valid service where serious civil consequences ensued. [Paras 10, 11, 12]

The petition was disposed of in terms of Luxmi Traders, with the appellate remedy to be considered on merits subject to the stated statutory pre-deposit condition.

Final Conclusion: The challenge was disposed of by applying the ruling in Luxmi Traders . If the statutory pre-deposit had been made, the appeal was directed to be heard on merits; recovery was made subject to final adjudication and the bank-account attachment was revoked.

Provisional attachment of bank account under GST law - Statutory expiry of provisional attachment - Continuation of provisional attachment of the petitioner's bank account beyond the statutory period prescribed under Section 83(2) - HELD THAT: - Section 83(2) prescribes a limited duration for a provisional attachment. Upon expiry of that period, the attachment cannot continue to operate under the Act. [Paras 10]

The attachment proceedings were set aside and the bank was directed to permit operation of the account without requiring further communication from the Directorate General of GST Intelligence.

Final Conclusion: The writ petition was allowed. The provisional attachment having exceeded its statutory duration, the petitioner was permitted to operate the bank account.

Demand beyond scope of show cause notice - Wrong-head payment of GST - Inapplicability of section 77 to inadvertent IGST remittance

Demand beyond scope of show cause notice - Input tax credit mismatch - HELD THAT: - The basis of the impugned determination differed from that in the show cause notice, and the figures in the order also appeared to vary from those in the petitioner's reply. As no opportunity was afforded to respond to the GSTR 2A-based comparison, reconsideration was necessary. [Paras 6]

The determination on excess input tax credit was set aside and remanded for fresh consideration after affording reasonable opportunity.

Wrong-head payment of GST - Inapplicability of section 77 to inadvertent IGST remittance - HELD THAT: - Section 77 applies where IGST is paid under the mistaken impression that a supply is interstate. Where IGST was not remitted on that basis but was paid under the wrong tax head, section 77 was inapplicable, as held in SYA Homes . [Paras 7]

The short-payment determination was set aside and remanded for reconsideration, with liberty to seek appropriation of the IGST remittance towards CGST and SGST liability and, if required procedurally, to apply for refund.

Final Conclusion: The impugned order was set aside on the two remanded issues for fresh determination after reasonable opportunity. Any bank-account attachment relating to that order was directed to stand raised.

Transitional input tax credit through Form TRAN-1 - Jurisdiction to recover GST transitional credit under VAT assessment - HELD THAT: - The assessee, being engaged in provision of services and not in sale or purchase of goods, was not entitled to claim input tax credit in its VAT return. However, although the credit claimed for carrying forward through Form TRAN-1 was rightly disallowed in the VAT assessment, the Assessing Officer lacked jurisdiction under the VAT Act to raise a demand, with interest and penalty, in respect of credit carried forward under the GST regime. Any examination of entitlement to such transitional credit lay with the concerned GST authority under Rule 117 read with Rule 121 of the GST Rules, 2017. [Paras 6]

Disallowance of the input tax credit in the VAT assessment was sustained, but the demand of tax, interest and penalty raised under the VAT Act in relation to the Form TRAN-1 credit was rightly set aside.

Final Conclusion: No substantial question of law arose from the Tribunal's order. The Tax Appeal was dismissed.

Presumptive taxation u/s 44B of foreign shipping enterprises - Carriage of passengers by cruise ship - interpretation of the word ‘carriage’

Applicability of the presumptive scheme for foreign shipping enterprises to income from cruise services involving a round voyage and on-board hospitality and entertainment - HELD THAT: - The Court held that the expression "carriage" could not be restrictively confined to transportation from one port to another. It is difficult to confine the meaning of the word ‘carriage’ as attributed by the AO. The Appellate Authority and the Tribunal, being competent authorities to examine the facts in issue, as noted supra, have held that the activity established by SLL does not fall outside the expression of ‘carriage’ as per Section 44B. On a voyage, the providing of ancillary services does not take away from the meaning of ‘carriage’ as per Section 44B of the Act.

The factual findings that passengers could disembark at intermediate ports and that the cruise operator's principal receipts were cabin and transport fares established that the cruise activity remained carriage of passengers. Ancillary hospitality and entertainment services provided during the voyage did not take the activity outside the scope of Section 44B. [Paras 14, 15, 16]

Section 44B was applicable to the non-resident cruise operator's estimated income, and its assessment at the statutory presumptive rate was sustained.

Final Conclusion: The Civil Appeals were dismissed. The concurrent determination that the cruise operator was engaged in carriage of passengers and was entitled to computation of income under Section 44B was affirmed.

TDS u/s 195 - Payments for purchase of software from non-residents - Royalty characterisation of software licence payments - as decided by HC [2025 (3) TMI 1749 - KARNATAKA HIGH COURT] software purchase payments to non-residents were not royalty and did not require withholding u/s 195 was sustained.

Delay of 307 days in filing the Special Leave Petition

HELD THAT:- The reasons assigned for seeking condonation of delay are neither satisfactory nor sufficient in law so as to condone the same. Hence, the application seeking condonation of delay is dismissed.

Consequently, the Special Leave Petition is also dismissed on the ground of delay.

Fixed Place Permanent Establishment (PE) in India - taxability, the existence of a PE and attribution of income - whether NIPL would constitute a PE of Nokia OY? - whether the Liaison Office could be treated as a PE? - delay of 383 days in filing the Special Leave Petition.

HELD THAT:- Reasons assigned for seeking condonation of delay are neither satisfactory nor sufficient in law so as to condone the delay. Hence, the application seeking condonation of delay is dismissed.

Consequently, the Special Leave Petition is dismissed.

We note that the petitioner was aware of the fact that in respect of the matter as against the very same respondents involving the very same issues, this Court had dismissed the Special Leave Petition on the ground of gross delay of 286 days in filing the Special Leave Petition[2026 (4) TMI 1197 - SC ORDER]. We fail to understand as to how this Special Leave Petition could have been filed subsequently with 383 days delay.

Filing of this Special Leave Petition with a greater delay of 383 days on the very same issue only for the sake of seeking a dismissal on the ground of delay could have been avoided by the Department.

Reasonable opportunity of hearing in faceless assessment - shorter period to respond to the show-cause notice - Consideration of grievance seeking personal hearing

Validity of the assessment order where the assessee was allowed only three days to respond to the show-cause notice and its grievance seeking a video-conference hearing was not considered - HELD THAT: - Grant of only three days to respond to the show-cause notice, issued on a Sunday, was not a reasonable opportunity. AO was required to consider and decide the grievance objecting to the inadequate time and seeking a hearing; the reply and grievance emailed by the assessee could not be disregarded while making the assessment. [Paras 16, 17]

The assessment order was quashed and the matter remanded for fresh consideration after affording an adequate opportunity of hearing, including personal hearing if otherwise permissible in law.

Final Conclusion: The writ petition succeeded. The assessment order was set aside and the matter was remanded for fresh adjudication in accordance with law.

Wilful attempt to evade payment of tax u/s 276C(2) -Application of mind at the stage of issuing criminal process

Maintainability of prosecution for alleged wilful evasion of admitted tax liability where the assessee disclosed the income, sought time owing to business closure, made periodic payments with interest and cleared the entire liability before issuance of process - HELD THAT: - A plain reading of the Section requires that there ought to be ‘wilful’ ‘attempts’ to evade the payment of tax, penalty or interest under the I.T. Act. The word ‘wilful’ precedes the word ‘attempts’ in the Section. Without fulfilling the requirement of ‘wilfulness’, the provisions of the Section cannot be made applicable and cannot be invoked to prosecute a person. Therefore, there has to be an intention to evade the liability of tax, penalty or interest.

The Section uses the words ‘wilful attempt’ and not ‘wilful default’. As relying on S. SUNDARAM PILLAI VERSUS VR. PATTABIRAMAN [1985 (1) TMI 306 - SUPREME COURT] the word ‘wilful’ denotes an act consciously and deliberately done and signifies a course of conduct marked by the exercise of volition rather than one that is accidental, negligent or involuntary. The word ‘wilful’ has a peculiar characteristic indicating the guilty mental state of the party.

Section 276-C(2) requires a deliberate, intentional and conscious attempt to evade payment; mere delay or failure, without mens rea, does not satisfy the penal provision. The word ‘wilful’ has a peculiar characteristic indicating the guilty mental state of the party.

The complaint was required to specify the acts constituting such wilful attempts and could not be sustained on vague assertions. The assessee's requests for time, continued payments and ultimate discharge of the liability with interest demonstrated bona fides rather than an attempt to evade. Since the complaint did not disclose the ingredients of the offence, the Magistrate mechanically issued process without applying mind to the material facts and the applicable legal requirements. [Paras 23, 25, 26, 27, 29]

The complaint and the order issuing process were quashed, as no prima facie offence under Section 276-C(2) was made out.

Final Conclusion: The criminal writ petition was allowed. The order issuing process and the pending prosecution for alleged evasion of tax liability for A.Y. 2012-13 were quashed.

Rejection of books of account on unsubstantiated allegations of artificial sales - Interference with Tribunal's findings of fact and deleting addition

Additions based on the allegation that abnormal sales during demonetization were artificially created to accommodate unexplained money - HELD THAT: - The assessment conclusion rested upon comparison with the assessee's earlier sales, without evidence that the invoices forming the basis of the book entries were fabricated or that the entries were false. The impugned sales and the comparative transactions occurred in different circumstances, and the abnormal sales could reasonably be attributable to increased customer demand during demonetization. As the Tribunal, the final fact-finding authority, had adopted one of two possible views on the material, its finding could not be interfered with in the absence of perversity. [Paras 5, 6, 7, 8]

No perversity was found in the Tribunal's deletion of the additions; no substantial question of law arose.

Final Conclusion: The appeal was dismissed at the admission stage, the Tribunal's order deleting the additions being sustained.

Exemption u/ss 11 and 12 - Charitable purpose - advancement of general public utility - Exemption of charitable trusts - Carry-forward of excess application of income - Accumulation of income by charitable trusts

Exemption under sections 11 and 12 -Charitable purpose-advancement of general public utility - Entitlement of an urban development authority to exemption as an institution pursuing an object of general public utility - HELD THAT: - The Court accepted that the question stood concluded by the Supreme Court decision in the assessee's own case [2022 (10) TMI 948 - SUPREME COURT], which held that its activities for advancement of an object of general public utility were for charitable purpose. The challenge to its eligibility for exemption u/ss 11 and 12, including the connected question concerning treatment of grants, was therefore not maintainable. [Paras 3, 5]

The questions were dismissed in favour of the assessee.

Depreciation of charitable trust assets - Allowance of depreciation on fixed assets used for the charitable objects of the trust - HELD THAT: - The Court dismissed the Revenue's challenge to the Tribunal's direction allowing depreciation on the trust's fixed assets. [Paras 5]

The depreciation claim allowed by the Tribunal was sustained.

Carry-forward of excess application of income - Accumulation of income by charitable trusts - Set-off of deficit arising from excess application of charitable income in earlier years and computation of the statutory accumulation - HELD THAT: - Following its earlier decision in Dawat Properties Trust [2022 (8) TMI 588 - GUJARAT HIGH COURT] the Court held that income of a trust is computed on commercial principles and that excess expenditure incurred for its objects may be set off against income of subsequent years. The statutory entitlement to retain fifteen per cent of income is a concession and cannot be applied so as to reduce the deficit available for carry-forward where there has been excess application of income. [Paras 8]

The Revenue's challenge to carry-forward of the deficit and the consequential computation of accumulation was dismissed.

Final Conclusion: All the tax appeals were dismissed. The questions for Assessment Years 2015-16 and 2016-17, being similar to those determined for Assessment Year 2014-15, were dismissed on the same reasoning.

Registration of Trust u/s 12AA - Advancement of general public utility by trade promotion bodies - Registration of charitable institution - proof of creation - Dominant charitable purpose -

Trade promotion as general public utility - Dominant charitable purpose - Whether the objects of a trade association promoting and protecting the interests of mandap contractors constitute advancement of an object of general public utility and hence charitable purpose? - HELD THAT: - The association's objects of organising events, sharing knowledge, educating members, encouraging the trade and representing their interests were held to advance trade and business for members as well as the public at large. A trade-promotion body advocating for, coordinating and assisting trading organisations advances an object of general public utility; the incidental benefit to members does not detract from its charitable character where the dominant purpose is charitable. The finding that none of its activities was in the nature of trade, commerce or business supported its eligibility. [Paras 11, 12]

The association satisfied the conditions for registration under section 12AA as an institution pursuing an object of general public utility.

Proof of creation of trust or institution - Registration u/s 12AA - Whether registration with the Charity Commissioner or another authority is indispensable for seeking registration of a charitable institution under section 12AA? - HELD THAT: - Rule 17A requires documents establishing the creation and existence of the trust or institution, but does not mandate a registered trust deed or prior registration as a charitable trust. At the registration stage, the Commissioner is required to examine the objects and genuineness of activities on the material called for; the absence of separate registration with a specified authority cannot by itself justify refusal. [Paras 13, 14]

The rejection of registration on this ground was unsustainable, and the Tribunal's order setting it aside and directing fresh consideration was upheld.

Final Conclusion: No substantial question of law arose from the Tribunal's order. The tax appeal was dismissed, sustaining the setting aside of the refusal of registration and fresh consideration of the application.

Disallowance of loss claimed on sale and purchase of shares - Disallowance of expenditure relatable to exempt income

Disallowance of loss on sale of shares - Genuineness of share-sale loss alleged to be an accommodation entry - HELD THAT: - The Tribunal had followed its order for the earlier year on similar facts for Assessment Year 2009-10 [2020 (12) TMI 659 - ITAT AHMEDABAD] which had been confirmed by the Court [2022 (7) TMI 335 - GUJARAT HIGH COURT]. No substantial question of law therefore arose for the year under consideration. [Paras 6, 7]

The Revenue's challenge to deletion of the share-sale loss disallowance was dismissed.

Disallowance of expenditure relatable to exempt income - Sustainability of further disallowance u/s 14A after voluntary disallowance by the assessee - HELD THAT: - The Tribunal's finding that no further disallowance was sustainable in view of the voluntary disallowance made by the assessee was a finding of fact. The Court declined to answer the question also having regard to the smallness of the amount involved. [Paras 8]

The question concerning further disallowance under section 14A was not answered.

Final Conclusion: No substantial question of law arose on the disallowance of the share-sale loss, and the Court declined to answer the question concerning further disallowance under section 14A. The appeal was dismissed.

Deemed dividend on loans or advances to a public Trust - Meaning of 'concern' under the deemed-dividend provision

Applicability of the deemed-dividend provision to loans or advances received by a public Trust from a company in which its Managing Trustee held substantial shareholding - HELD THAT: - The deeming fiction enlarges the meaning of dividend but does not extend the concept of shareholder. A public Trust is not included within the definition of "concern" in Explanation 3, which covers a HUF, firm, association of persons, body of individuals or company. Consequently, a loan or advance by a private limited company to a public Trust cannot ordinarily be treated as deemed dividend merely because its trustee holds shares in the lending company. The exceptions would be where the Trust itself is a qualifying shareholder, or where it acts as a conduit for a loan obtained by the trustee for the Trust's individual benefit; neither circumstance was the Revenue's case.

In the present case, the assessee (petitioner) is a public Trust and it is contended before us that the same will fall within Explanation 3 to Section 2(22)(e) of the Act. The word "concern" used under the Act in such Explanation, which encompasses a Hindu Undivided Family (HUF), or a firm, or an association of persons or a body of individuals or a company cannot be extended to public Trust and they cannot be classified as a "concern" for the purpose of specific tax fiction. Thus, even if a loan is extended to a public Trust by a Private Limited Company, that usually cannot be treated as a deemed dividend under Section 2(22)(e) of the Act. [Paras 17, 18, 19, 20, 21]

The impugned reopening order and notices were quashed, as the deemed-dividend provision was inapplicable to the petitioner Trust on the stated facts.

Final Conclusion: The writ petition was allowed and the reopening order and notices were quashed, the petitioner public Trust not being amenable to the deemed-dividend provision on the facts found.

Reassessment notices based on Shah Commission Report

Validity of reassessment notices issued consequent to the Justice M.B. Shah Enquiry Commission Report concerning illegal mining of iron and manganese - HELD THAT: - The Court noted that the reassessment notices were issued on the basis of the Shah Commission Report and that a co-ordinate Bench, in a similar factual situation, had considered the decisions in M/S. Deccan Mining Syndicate Private Limited [2025 (10) TMI 1447 - KARNATAKA HIGH COURT], Sesa Sterlite Limited [2019 (8) TMI 16 - BOMBAY HIGH COURT] and Mudra Exports [2024 (4) TMI 711 - ALLAHABAD HIGH COURT]. It further noted that the challenge to the decision in Sesa Sterlite Limited was rejected by the Supreme Court in Assistant Commissioner of Income Tax Vs. M/s. Venture Real Estate and Another [2025 (3) TMI 2136 - SC ORDER]. In view thereof, the relief sought merited consideration.

The reassessment notices and all consequential proceedings were quashed.

Final Conclusion: The writ petitions were allowed, and the impugned reassessment notices issued on the basis of the Shah Commission Report, together with all consequential proceedings, were quashed.

Fresh consideration of reassessment proceedings following retrospective amendment - validity, scope, retrospective effect and applicability of section 147A - Notice issued by the Jurisdictional Assessing Officer(s) (JAO) v/s prescribed faceless mechanism or competent Faceless Assessment Officer(s) (FAO) - Effect of subsequent amending legislation on pending reassessment litigation

Whether Reassessment proceedings earlier set aside on the competence of the assessing authority were required to be reconsidered in light of the retrospective insertion of section 147A? - HELD THAT: - Following the Supreme Court's directions in Income Tax Officer V. Tej Pratap Singh [2026 (5) TMI 54 - SC ORDER (LB)] and the co-ordinate Bench order, the Court held that the Single Judge's order could not stand without fresh consideration after the legislative amendment. The validity, scope, retrospective effect and applicability of section 147A, as well as all other contentions concerning the impugned notices, were left open for determination by the Single Judge. [Paras 5]

The order under appeal was set aside and the writ petition was remitted for fresh consideration, with liberty to the assessee to challenge section 147A and connected provisions.

Final Conclusion: The appeal was allowed and the writ petition was remitted to the Single Judge for fresh consideration in accordance with the Supreme Court's directions, with all merits left open.

Denial of Foreign tax credit on salary income taxed abroad - delayed filing of Form 67

HELD THAT: - Delay in furnishing Form 67, where the foreign tax credit was claimed and the form had been uploaded before the rectification application, was held to be a technical and venial procedural lapse. Such delay cannot by itself justify denial of the credit.

We find that Hon’ble Delhi High Court in Realtime Data Services (P) Ltd. [2026 (2) TMI 1060 - DELHI HIGH COURT] held that where the assessee claimed foreign tax credit but failed to furnish Form 67 by due date prescribed under Rule 128 such credit could not be denied merely on account of procedure lapses / delay, being technical / venial in nature. Similar view was taken in Kuthoore Natarajan Venkatasubramanian [2024 (10) TMI 1483 - MADRAS HIGH COURT] [Paras 5]

The delay in filing Form 67 was condoned and the matter was restored to the Jurisdictional Assessing Officer to verify the foreign tax credit and allow it in accordance with law.

Final Conclusion: The appeal was allowed. The claim for foreign tax credit was remitted for verification and grant in accordance with law after condoning the delay in furnishing Form 67.

Limitation for assessment u/s 153C - Transfer of records to the AO of the other person

Validity of assessments u/s 153C where the assessee's records had been transferred to the Assessing Officer pursuant to an order under section 127 before recording of the satisfaction note - HELD THAT: - Following the co-ordinate Bench decision in Ajay Gupta [2026 (2) TMI 1456 - ITAT DELHI] the Tribunal held that, once the assessee's records stood transferred to the Assessing Officer dealing with the searched group, the limitation for completion of the section 153C assessments commenced from the date of such transfer. The subsequent recording of the satisfaction note could not defer the commencement of limitation. [Paras 11]

The assessments were held barred by limitation and were quashed for all the assessment years.

Final Conclusion: The eight appeals were partly allowed. The section 153C assessments for Assessment Years 2013-14 to 2020-21 were quashed as barred by limitation; the remaining grounds were left open.

Warranty provision based on scientific estimation - Grossed-up withholding tax forming part of royalty consideration - Weighted deduction for approved in-house research and development expenditure - Validity of notice under section 143(2)

Warranty provision based on scientific estimation - Accrual and matching concepts - Deductibility of provisions for warranty created for automotive products sold with contractual warranty obligations - HELD THAT: - Warranty liability arose with each sale and was an integral part of the sale transaction. Since the provision was computed consistently on a scientific basis founded on past experience and historical trends, it represented a present obligation capable of reliable estimation under the mercantile system. The existence of an opening provision balance was not a valid basis to deny a fresh provision where the methodology itself was not shown to be defective. [Paras 17, 18, 20, 39]

The warranty provisions were held to be allowable business expenditure, and the disallowances for both assessment years were deleted.

Grossed-up withholding tax forming part of royalty consideration - Deductibility of tax borne under royalty agreement - Deductibility of withholding tax borne by the assessee on a grossed-up royalty payment to its foreign parent under the intellectual-property agreement. - HELD THAT: - The Settlement Commission had accepted the royalty payment but had not decided the deductibility of the tax borne by the assessee. As the assessee had contractually undertaken the foreign recipient's tax liability, the grossed-up withholding tax was a cost forming an integral part of the royalty consideration. The tax payment was therefore allowable as business expenditure.

We therefore agree with the assessee that the withholding tax liability thus forms part of the total royalty payment made by the assessee to its Parent Company. Such a view is supported by the decision of Standard Polygraph Machines [1998 (11) TMI 49 - MADRAS HIGH COURT] wherein as observed that the amount of tax paid by the assessee should be regarded as liability of the foreign collaborator which the assessee had undertaken to pay. [Paras 21, 24, 25, 26]

The disallowance of the grossed-up withholding tax on royalty was deleted.

Weighted deduction for approved in-house research and development expenditure u/s 35(2AB) - DSIR approval of research facility - Restriction of weighted deduction for scientific-research expenditure incurred on an approved in-house research and development facility to the amount certified by DSIR - HELD THAT: - The issue has been settled in favour of the assessee by the hon’ble Delhi High Court in case of Nagravision India (P.) Ltd. [2024 (2) TMI 755 - DELHI HIGH COURT] wherein it was held that section 35(2AB) of the Act does not link the expenditure incurred to the approval of R&D facility by DSIR and therefore, it does not prescribe that it is only such expenditure that gets incurred post approval of the facility which would qualify for deduction.

Section 35(2AB) requires DSIR approval of the in-house research and development facility, not certification or approval of the quantum of expenditure. The expression "any expenditure" covers eligible scientific-research expenditure actually incurred, other than expenditure on land or building. Certification of expenditure is a preparatory step and cannot restrict the statutory deduction where the approved facility and the expenditure incurred were not in dispute. [Paras 41, 42, 43]

The restriction of weighted deduction by reference to the amount certified by DSIR was held impermissible, and the disallowance was deleted.

Validity of notice u/s 143(2) - Challenge to the format of notice issued under section 143(2) on the ground of non-compliance with the prescribed format - HELD THAT: - The additional ground was rejected in view of the decision of Bharat Bansal v. NFAC [2026 (7) TMI 1900 - DELHI HIGH COURT] and the Special Bench in the case of MD Sons [2026 (7) TMI 1968 - ITAT BENGALURU (LB) (SB)]. [Paras 45]

The additional ground challenging the format of notice under section 143(2) was dismissed.

Final Conclusion: The appeals were partly allowed. The disallowances of warranty provisions, grossed-up withholding tax on royalty, and weighted deduction for eligible research expenditure were deleted, while the additional ground concerning the format of notice under section 143(2) was dismissed.

Penalty for aiding and abetting misdeclaration of imported goods - Customs Broker's knowledge of import misdeclaration - Aiding and abetting misdeclaration of the quantity of imported baby garments - Knowledge Requirement - Corroborative Evidence - Customs Broker Liability - HELD THAT: - The Customs Broker and its G-Card holder processed the import documents and filed Bills of Entry on the basis of documents supplied by the importer. The record did not establish that they had prior knowledge of the importer's misdeclaration of quantity, and Revenue produced no corroborative evidence of such knowledge. In the absence of proof that they knowingly aided or abetted duty evasion through misdeclaration, penalty under Section 112(a)(ii) could not be sustained. [Paras 8, 9]

The penalties imposed on the Customs Broker and its G-Card holder were set aside.

Final Conclusion: The appeals were allowed and the penalties for alleged involvement in the importer's quantity misdeclaration were set aside, with consequential reliefs.

Offence report for revocation of Customs Broker licence - Customs Broker's due diligence in exporter overvaluation - Know Your Customer verification - Burden of proving connivance - Reliance on authentic government documents - Proportionality of licence revocation

Sustainability of proceedings for revocation of a Customs Broker licence in the absence of a valid offence report under the Customs Brokers Licensing Regulations, 2018 -HELD THAT: - Regulation 17 prescribes the mandatory procedure for revocation of a Customs Broker licence or imposition of penalty. In the absence of a valid offence report contemplated by that Regulation, the revocation proceedings were held to be unsustainable. [Paras 6]

The revocation proceedings were held invalid for want of a valid offence report.

Customs Broker's due diligence in exporter overvaluation - KYC verification by Customs Broker - HELD THAT: - No evidence established the Customs Broker's connivance, knowledge or involvement in the alleged overvaluation. A Customs Broker acts as a processing agent on the basis of documents supplied by the exporter and is not required to investigate the correctness of declared valuation or undertake functions of an investigating agency.

The Customs Broker cannot be penalized merely because, at a later stage, the exporter is alleged to have indulged in irregularities, particularly when the Appellant had completed KYC verification and acted upon documents appearing genuine on their face. This view has been taken by the Hon’ble Delhi High Court in the case of Kunal Travels (cargo) [2017 (3) TMI 1494 - DELHI HIGH COURT]. Accordingly, the Appellant has not violated any of the provisions of Regulations 10(d), 10(e), 10(m) and 10(n) of the CBLR, 2018. [Paras 6]

The Customs Broker was held not to have violated the cited licensing obligations, and the revocation, forfeiture and penalty were unsustainable.

Final Conclusion: The impugned order revoking the Customs Broker licence, forfeiting the security deposit and imposing penalty was set aside, and the appeal was allowed with consequential relief in accordance with law.

Penalty for abetment of improper importation - Derivative penal liability - Essential Character - Sustainability of penalty for alleged abetment of improper importation where the principal allegations against the importer had been rejected - HELD THAT: - The appellant was not proceeded against as an importer; the case against him rested entirely on alleged abetment of the importer's transactions. In the connected proceedings, the imported components, without an electric motor and battery, were held not to possess the essential character of complete electrical tricycles under Rule 2(a) of the General Rules for Interpretation; they were correctly declared as parts/components, and no misdeclaration, confiscation, differential duty or penalty survived. Since the principal contravention itself had failed, an allegation of abetment of that contravention could not independently sustain penal liability. [Paras 8, 9, 10, 11]

The penalty imposed on the appellant under Section 112(a)(ii) of the Customs Act, 1962 was dropped.

Final Conclusion: The appeal was allowed and the penalty for alleged abetment of the importer's improper importation was set aside. The alternate contention concerning survival of the original adjudication order was left unexamined.

Applicability of Section 123 - Burden of proof for notified gold - Confiscation of sale proceeds of smuggled goods - Penalty for conscious dealing in smuggled goods - Penal liability for abetment under customs law

Burden of proof for notified gold - Absolute confiscation of smuggled gold - Absolute confiscation of gold biscuits recovered from the conscious possession of an appellant who failed to establish their lawful importation, acquisition or possession. - HELD THAT: - Gold being notified goods, the statutory burden lay upon the person from whose conscious possession it was recovered to establish its licit importation or lawful acquisition. No documentary evidence of a lawful source was produced; the statements and other attendant materials corroborated the illicit character of the gold, and the appellant had also relinquished his claim over it. [Paras 12]

The absolute confiscation of the gold biscuits under Sections 111(b) and 111(d) was upheld.

Confiscation of sale proceeds of smuggled goods - Confiscation of Indian currency as sale proceeds of smuggled gold. - HELD THAT: - The statements recorded in investigation showed that bullion trading and money transfers were conducted through brokers and that the appellant collected and retained the gold and its sale proceeds. In the absence of contrary evidence, and having regard also to the relinquishment of claim over the currency, the currency was found to represent sale proceeds of gold sold earlier. [Paras 13]

The confiscation of the Indian currency under Section 121 was upheld.

Penalty for conscious dealing in smuggled goods - Penalty on the appellant from whose conscious possession the gold was recovered for knowingly transporting and dealing in gold of illicit origin. - HELD THAT: - The recovery from conscious possession, the statements recorded under Section 108, the handwritten transaction records and the unexplained particulars concerning the suppliers and intended recipients cumulatively established wilful involvement in transportation and dealing with smuggled gold. [Paras 14]

The penalty under Sections 112(a) and 112(b) was upheld.

Penalty for abetment without corroborative evidence - Penalty on the father of the principal noticee based on alleged awareness of the latter's smuggling activities. - HELD THAT: - Mere awareness of another person's activities, or the closeness of the relationship with the principal noticee, does not establish the positive act, conscious dealing or abetment required for penalty. No independent or corroborative evidence showed active participation in the possession, transportation, concealment, sale or purchase of the gold or its alleged sale proceeds. [Paras 15]

The penalty under Sections 112(a) and 112(b) was set aside.

Penalty on employee without proof of knowledge or complicity - Penalty on an employee alleged to have delivered gold and Indian currency on the employer's instructions. - HELD THAT: - The allegation rested substantially on the employee's statement, without any recovery from his possession or independent evidence of conscious participation, requisite knowledge or active complicity. An employer-employee relationship and acts performed in the ordinary course of employment cannot, by themselves, establish liability under Section 112. [Paras 16]

The penalty under Sections 112(a) and 112(b) was set aside.

Final Conclusion: The confiscation of the gold and Indian currency, and the penalty on the appellant found consciously dealing with the gold, were sustained. The penalties imposed on the father and the employee were set aside for want of cogent and corroborative evidence of conscious participation or abetment.

Monetary Threshold for Departmental Appeals - Government Litigation Policy - Anti-dumping duty - HELD THAT:- The Revenue's appeal was dismissed under the Government litigation policy, as the anti-dumping duty involved was below the prescribed monetary threshold; the cross-objection was disposed of.

Appellate jurisdiction over baggage-related customs orders - Maintainability of an appeal before the Tribunal against an appellate customs order concerning gold brought into India as baggage and confiscated at the airport - HELD THAT: - The statutory exclusion from the Tribunal's appellate jurisdiction applies to orders relating to baggage. As the disputed gold had been brought into India as baggage, the appropriate remedy against the order of the Commissioner (Appeals) lay by revision before the Revisionary Authority of the Government of India. [Paras 4]

The appeal was disposed of as not maintainable before the Tribunal, with liberty to approach the Revisionary Authority; the delay incurred while prosecuting the appeal before the Tribunal was directed to be considered sympathetically.

Final Conclusion: The Tribunal held that it lacked jurisdiction over the baggage-related customs dispute and left the appellant to pursue the statutory revision remedy before the Government of India.

Extension of time to vacate school premises after purchaser acquired title - conveyance remained under consideration in a pending appeal - Application to secure vacant possession of all the properties - condonation of delay - HELD THAT:- The special leave petition was disposed of; the Company Judge was requested to decide the pending application [2021 (3) TMI 1496 - KARNATAKA HIGH COURT] for possession expeditiously, and the parties were restrained from using police assistance to secure eviction or possession except as directed by the Company Judge.

Criminal liability of statutory auditor for false financial statements - Wilful default in auditor's statutory duties - Essential Ingredients of Offence - Abuse of Process

Maintainability of prosecution of a statutory auditor for failure to secure compliance with requirements governing the form, contents and true and fair presentation of company accounts - HELD THAT: - Section 211(8) also makes any person who is not the Managing Director or Manager, or Director, liable, if he has been charged by the Managing Director or Manager with the duty of complying with the provisions of Section 211 of the Act.

The offence concerning non-compliant balance sheets and profit and loss accounts is attracted only against the persons specified in the relevant statutory provisions, or a person expressly charged by the managing director, manager or board with the duty to secure such compliance. The petitioner was neither alleged to be a director, officer or employee of the company nor charged with that duty. A statutory auditor could therefore not be prosecuted under that provision merely because the accounts did not reflect a true and fair view. [Paras 14]

The offence relating to the company's failure to present compliant accounts was not made out against the petitioner.

False statements by statutory auditor - Applicability of the penalty for false statements to a statutory auditor alleged to have omitted observations concerning non-compliance with accounting standards. - HELD THAT: - The complaint did not allege that the petitioner made a materially false statement in the audit report or omitted a material fact knowing it to be material. Failure to report non-compliance with accounting standards by the company is separately addressed by the provision governing an auditor's non-compliance with statutory reporting duties and cannot, without the requisite allegation of knowledge, constitute an offence of making a false statement. [Paras 16]

The prosecution for making false statements could not be sustained against the petitioner.

Wilful default by statutory auditor - Criminal liability of a statutory auditor for alleged failure to verify records, enquire into transactions and report non-compliance with accounting standards. - HELD THAT: - The penal provision applicable to an auditor requires a wilful default. The allegations, even if accepted, disclosed at the highest lack of due care, caution or dereliction of duty; they did not allege wilfulness. Wilfulness could not be inferred, particularly when the audit report itself recorded adverse qualifications concerning the company's deficient fixed-asset records and documentation. [Paras 22]

No offence of wilful non-compliance with the auditor's statutory duties was disclosed.

Final Conclusion: The prosecution against the statutory auditor was quashed, as none of the alleged penal provisions disclosed an offence against him on the averments in the complaint.

Binding effect of approved resolution plan on pre-resolution claims - Stay of execution of money decree pending appeal - Corporate Insolvency Resolution Process

Extinguishment of claims outside approved resolution plan - HELD THAT: - In case of Electrosteel Steel Ltd., (now ESL Steel Ltd., vs. Ispat Carrier P Ltd [2025 (4) TMI 1246 - SUPREME COURT]) by the applicant would amply apply to the case on hand whereby it has been held that once the plan is approved, it would bind everyone under the sun and making of a claim and accepting whatever share is allotted could be termed as an ‘Insolvency Act’ on behalf of the creditor. The making of a claim under the IBC and accepting the same and not making any claim, will not make any difference in light of Section 31 IBC. Both the situations will lead to Section 31 and the finality and binding value of the resolution plan.

An approved resolution plan binds all stakeholders, and a creditor's failure to lodge its claim does not alter the finality and binding effect under section 31 of the IBC. Claims not forming part of the approved plan stand extinguished, and proceedings founded on such pre-approval claims cannot continue against the corporate debtor or its assets. The trial court's decree, passed despite the insolvency proceedings and approval of the plan, undermined the object of the IBC. [Paras 8, 9]

The decree was stayed pending final disposal of the appeal.

Deposit as condition for stay of money decree - HELD THAT: - The decision of the Hon’ble Apex Court in case of Lifestyle Equities C.V. & Anr. VS. Amazon Technologies Inc. [2025 (10) TMI 1445 - SUPREME COURT] However, considering the facts of the case, and the provisions of O.41 R.5 of the Code, as also the proposition of law laid down in the aforesaid case while finding reasoning in their respective favour, as observed by the Apex Court that the word “shall” in O.41 of the Code is not mandatory. It is only in case the exceptional case is made out then the appellate Court while exercising its power may grant a benefit of stay of execution on monetary decree while first insisting for deposit of the entire decreetal amount over the interest and therefore the language couched in the said provision is very clear which makes no distinction between a money decree and other decrees, and the said provision applies with full rigour in both instances. Thus, the condition for deposit cannot be said to be mandatory and therefore non-prescription thereof does not operate as a bar to staying the execution of a money decree. It is also pertinent to note that though it is a money decree, so also, an ex parte money decree, but considering the amendment in Section 31 of the Insolvency & Bankruptcy Code (Amendment) Act, 2026, which constrained us to take a different view than the one which has been pressed for by the respondent who in turn sought to direct the appellant to deposit the decreetal amount.

Thus, the stay was granted without directing deposit of the decretal amount.

Final Conclusion: The operation, execution and implementation of the impugned money decree were stayed pending final disposal of the appeal. The application for additional evidence was directed to be heard with the main appeal.

Finality of approved and implemented resolution plan - Belated challenge to admission of claim - Sanctity of Resolution Process - Challenged to treatment of the Department of Telecommunication's statutory dues as a contingent claim after approval and implementation of the resolution plan - HELD THAT: - The appellant did not challenge the Resolution Professional's communication categorising its claim as not acceptable but contingent, nor seek appropriate relief before the Adjudicating Authority before approval of the plan.

The settled principle of law is that the successful resolution applicant cannot be faced with any fresh claims in the nature of hydra pops, especially after the approval of the resolution plan by the Learned Adjudicating Authority, as held by the Hon'ble Supreme Court in the case of Committee of Creditors of Essar Steel India Limited [2019 (11) TMI 731 - SUPREME COURT].

Having failed to timeously agitate the claim, it could not reopen the issue after the resolution plan had been approved, implemented and the corporate insolvency resolution process had attained finality. An approved and implemented plan cannot be disturbed by fresh or unagitated claims. [Paras 12, 14]

The appeal was dismissed, and no interference with the approved and implemented resolution plan was warranted.

Final Conclusion: The challenge to the treatment of the appellant's claim was held impermissibly belated after implementation of the resolution plan. The appeal was dismissed.

TReDS reverse-factoring receivables - operational debt - Implemented resolution plan - finality of insolvency resolution - Time Value of Money - Substance Over Form - Assignment of Operational Debt - Operational Creditor - Binding Effect of Resolution Plan - Finality of Implemented Resolution Plan

Invoice discounting and assignment of trade receivables - Financial debt and operational debt -HELD THAT: - Financial debt requires disbursal against consideration for the time value of money. Under the TReDS arrangement, the bank paid suppliers against discounted invoices and acquired, by assignment, the pre-existing trade receivables owed by the corporate debtor for goods supplied; no funds were disbursed to the corporate debtor. The discount and charges for delayed payment constituted compensation for early realisation of trade receivables, not consideration for an independent loan. Assignment did not alter the operational character of the underlying trade debt, and the financier's status as a scheduled commercial bank was immaterial to that classification. The alleged erroneous recording of a concession before the Adjudicating Authority did not affect the result, since the classification was independently determined on merits. [Paras 63, 64, 65, 66, 67]

The TReDS claim was operational debt, and the bank was correctly treated as an Operational Creditor rather than a Financial Creditor.

Claim lodged in incorrect creditor category - Timely filing of operational creditor claim - HELD THAT: - The Resolution Professional had classified the claim as operational debt and expressly required its filing in Form B. The claim was not ignored; the bank elected to contest its classification rather than timely lodge it in the prescribed category, and filed Form B only after the resolution plan had been approved by the Committee of Creditors. The principle that a verifiable claim filed under a wrong category must receive consideration did not require provision for a claim which the creditor itself declined to timely submit in the correct category. The Resolution Professional could not suo motu revisit a classification already sub judice. [Paras 68, 69]

The omission of the claim from the resolution plan was attributable to the bank's own delay and did not disclose any illegality in the CIRP.

Finality of implemented resolution plan - HELD THAT: - An approved and implemented resolution plan is binding and ordinarily cannot be reopened except within the limited statutory grounds for appeal. Reclassification at this stage would unsettle the completed insolvency resolution process and prejudice creditors and the successful resolution applicant, particularly when the underlying claim failed on merits. [Paras 70, 71]

No relief capable of unsettling the fully implemented resolution plan could be granted.

Final Conclusion: The appeal was dismissed and the classification of the TReDS claim as operational debt was affirmed. The fully implemented resolution plan furnished an additional ground for refusing relief.

Jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code - Prescriptive easement of right of way - Commencement of CIRP - Nexus With Insolvency - Prescriptive Easement - Continuous Open And Peaceable Enjoyment - Mala Fide Obstruction

Maintainability of the liquidator's application for protection of access to a liquidation-estate asset through adjoining third-party land - HELD THAT: - The majority held that the post-CIRP obstruction of access to the corporate debtor's land bore a direct and proximate nexus with liquidation, since it affected inspection, valuation and sale of an estate asset. Section 60(5)(c) was held to permit recognition and protection of a pre-existing right necessary for liquidation, without creating a new right or usurping an exclusive statutory forum. The dissent held that a disputed prescriptive easement imposes a burden upon third-party property, requires proof of complex facts and cannot be determined in the Tribunal's summary jurisdiction; value maximisation cannot confer jurisdiction to create or adjudicate such a disputed civil right. [Paras 65, 66, 73, 74, 75]

By majority, the application under Section 60(5)(c) was maintainable; the dissent would have relegated the liquidator to the civil court.

Prescriptive easement of right of way - Continuous and uninterrupted enjoyment - Subsistence of the corporate debtor's right of way over the appellants' adjoining blocks for access to the liquidation-estate land. - HELD THAT: - The majority found that the Non-Agricultural Order recorded access through the adjoining blocks and that the corporate debtor had continuously, openly and peaceably used that access without objection for the statutory period. The satellite imagery corroborated that the access existed and was later blocked, while the suggested alternative route crossed third-party land and was not a legally secure alternative. The dissent held that the Non-Agricultural Order did not establish its binding effect upon the appellants, and that the liquidator had neither identified the precise route and dimensions nor proved adverse, uninterrupted use as of right for the requisite period; those matters required civil adjudication. [Paras 71, 72, 73, 74, 75]

By majority, the corporate debtor's pre-existing prescriptive right of way was established and the obstruction was held to be mala fide; the dissent held that the claimed easement required determination by a competent civil court.

Final Conclusion: By majority, the appeal was dismissed and the directions protecting the right of way were affirmed, with costs imposed on the appellants. The Judicial Member dissented, holding that the easement dispute lay exclusively before the civil court.

Limitation for insolvency appeals - Effect of clerical rectification on limitation - Limitation and acknowledgment of operational debt - Pre-existing dispute in operational creditor's application

Maintainability of the insolvency appeal filed beyond the statutory condonable period, where the original order was subsequently subjected only to clerical rectification -HELD THAT: - The limitation for an appeal under section 61 commences from pronouncement of the order and cannot be extended beyond the statutory outer limit. A rectification confined to correcting the date of pronouncement, without any substantive modification of the findings, does not provide a fresh starting point for limitation. The exclusion of moratorium period under section 60(6) applies to suits and applications by or against the corporate debtor, not to an appeal under section 61; administrative lapses also cannot enlarge the statutory period. [Paras 31, 33, 34, 35, 36]

The appeal was barred by limitation, the admitted delay being beyond the Tribunal's power to condone.

Limitation for operational creditor's application - Acknowledgment of liability - Whether the operational creditor's application based on the stated date of default was within limitation or saved by the balance confirmation letters. - HELD THAT: - Article 137 applies to an application under section 9, and limitation runs from the date of default. An acknowledgment capable of extending limitation must be a duly proved, written and unequivocal admission of subsisting liability made before expiry of the current limitation period. The balance confirmations were undated and unproved, contained materially inconsistent outstanding figures, and were further inconsistent with the creditor's own communication recording a credit balance; they therefore did not constitute an unequivocal acknowledgment of an ascertained debt. [Paras 38, 39, 40, 41, 42]

The section 9 application was time-barred and was not saved by any valid acknowledgment under section 18 of the Limitation Act.

Pre-existing dispute in operational creditor's application - HELD THAT: - For rejection of a section 9 application, it is sufficient that a plausible dispute exists which is not spurious, hypothetical or illusory; adjudication of that dispute on merits is not required. Correspondence predating the demand notice disclosed recurring objections to the claimed figures, ledger accounts and asserted set-offs. Read with the inconsistent balance confirmations, this established a genuine and continuing dispute concerning the alleged debt rather than an admitted and crystallized operational debt. [Paras 43, 44]

A genuine pre-existing dispute existed, independently rendering the section 9 application not maintainable.

Final Conclusion: The appeal was dismissed as time-barred and, independently, on merits. The dismissal of the operational creditor's application was upheld on the grounds of limitation and a genuine pre-existing dispute.

Inherent jurisdiction despite revisional remedy - Pre-cognizance hearing in PMLA complaints - Judicial remand exceeding fifteen days - PMLA bail conditions - transnational conspiracy - High Court [2026 (5) TMI 1837 - DELHI HIGH COURT] held that the cognizance process must recommence only after affording the petitioner the mandatory pre-cognizance hearing, while custody and any claim for bail remain to be addressed in accordance with the applicable statutory procedure. - HELD THAT:- Special Leave Petitions dismissed; liberty reserved to apply for regular bail before the High Court.

Anticipatory bail in money-laundering investigation - Twin conditions for bail under the Prevention of Money Laundering Act - Medical grounds for anticipatory bail - facilitation of a sub-contract and receipt of alleged proceeds of crime by family members - HELD THAT: - At the pre-arrest bail stage, the Court was not required to undertake a detailed examination of the evidence or determine the truth of the allegations. The vigilance and remand reports alleged that the petitioner facilitated the sub-contract and was behind the award of the contract; absence of a direct transfer to his own account did not, at that stage, negate those allegations. The investigation required examination of the alleged role in securing the sub-contract without execution of work, and the Court could not record satisfaction in favour of the petitioner under the twin conditions applicable to bail under the Prevention of Money Laundering Act. The medical material consisted only of a report and did not establish a continuing serious condition or medical emergency requiring protection from arrest. [Paras 7, 11, 12, 13]

Anticipatory bail was refused, including on the asserted medical ground.

Final Conclusion: The criminal petition seeking pre-arrest bail was dismissed. The Court found that the material then available, the stage of investigation, and the absence of proof of a medical emergency did not warrant anticipatory bail.

Failure to consider mining lease agreements in service tax adjudication - Demand of service tax under reverse charge on royalty paid to the Government, where the assessee claimed that the mining lease pre-dated 01.04.2016. - HELD THAT: - The mining lease agreements, which were material to determine whether the grant of mining rights was governed by the pre-01.04.2016 negative-list regime, had not been produced before either the adjudicating or first appellate authority. The demand could therefore not be sustained without examination of those agreements and application of the Tribunal law concerning mining rights granted before that date. [Paras 1, 2, 3]

The impugned order was set aside and the matter remanded to the adjudicating authority for fresh decision after considering the lease agreements and following the Tribunal law.

Final Conclusion: The appeal was allowed by way of remand for fresh adjudication after consideration of the mining lease agreements and application of the governing Tribunal law.

CENVAT credit on supplementary invoices - Recoverable service tax demand under Rule 9(1)(bb) of the CENVAT Credit Rules, 2004 - Voluntary payment of service tax - HELD THAT: - Rule 9(1)(bb) bars credit only where the additional service tax has become recoverable from the service provider by reason of fraud, collusion, wilful misstatement, suppression or contravention with intent to evade tax. A demand becomes recoverable only after service tax liability is confirmed pursuant to a show-cause notice and is no longer pending challenge. As no show-cause notice or recoverable demand against the service provider was shown, the statutory embargo was inapplicable. [Paras 6, 8]

The CENVAT credit was admissible; the impugned order was set aside and the appeal was allowed with consequential relief in accordance with law.

Final Conclusion: The denial of CENVAT credit on supplementary invoices was held unsustainable because no recoverable service tax demand against the service provider was established. The appeal was allowed with consequential relief in accordance with law.

Horticulture and landscaping contracts-classification under Maintenance or Repair Service - Composite contracts-exclusion of value of materials and exemption for road-related works - Extended limitation-absence of wilful suppression - Penalty-absence of intent to evade service tax

Horticulture and landscaping contracts-classification under Maintenance or Repair Service - Horticulture, landscaping, beautification, green-belt development, road laying and allied composite works executed within the plant premises were not classifiable as Maintenance or Repair Service in the manner alleged. - HELD THAT: - Maintenance contemplates preservation or upkeep of an existing asset, whereas developmental activities resulting in creation or improvement of landscaping cannot automatically be treated as maintenance. The work orders substantially covered developmental, horticultural, landscaping, paving and allied civil activities; further, artificial vivisection of composite material-and-labour contracts to levy service tax under the maintenance category was impermissible during the relevant period. [Paras 12, 15]

The impugned service-tax demand, founded on classification of the composite developmental works as Maintenance or Repair Service, was held unsustainable.

Composite contracts-exclusion of value of materials and exemption for road-related works - The appellant's entitlement to exclusion of the value of materials sold and exemption for the road-related component of the contracts was required to be granted wherever applicable. - HELD THAT: - The Tribunal in ANS Constructions Ltd. [2009 (6) TMI 465 - CESTAT, NEW DELHI], has held that horticulture and landscaping activities do not attract Service Tax under “Maintenance or Repair Service”. The ratio squarely supports the appellant. Likewise, the CBEC TRU clarification dated 27.07.2005 explains that Management, Maintenance or Repair primarily covers maintenance contracts and not independent developmental or construction activities.

For any activity falling within the taxable category, the value of materials sold was excludible under Notification No. 12/2003-ST, subject to verification of documentary evidence. Maintenance or repair of roads stood exempted under Notification No. 24/2009-ST, with retrospective exemption under Section 97 of the Finance Act, 2012. Confirmation of demand on an aggregate basis, without segregating taxable and exempt components, could not be sustained. [Paras 12, 15]

The claimed benefits under Notification No. 12/2003-ST and Notification No. 24/2009-ST read with Section 97 were held admissible wherever applicable.

Extended limitation-absence of wilful suppression - The extended period for recovery of service tax could not be invoked where the registered appellant's contracts and transactions were reflected in its books and the dispute concerned classification, valuation and exemption. - HELD THAT: - Mere disagreement on classification or exemption eligibility does not establish wilful suppression or intent to evade tax. In the absence of fraud, collusion or deliberate suppression with such intent, the statutory ingredients for invoking the extended period were absent. [Paras 13, 15]

The extended period invoked in the show-cause notice was held unsustainable.

Penalty-absence of intent to evade service tax - Penalties for the disputed service-tax liability were not sustainable in the absence of fraud, collusion or deliberate suppression with intent to evade payment. - HELD THAT: - As the dispute essentially involved classification, valuation and exemption, and no material established the requisite intent to evade tax, the basis for penalties under Sections 77 and 78 failed. [Paras 13, 14, 16]

The penalties imposed under Sections 77 and 78 were set aside.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief. The service-tax demand with interest and penalties was held unsustainable.

Extended limitation for service tax demand based on audit- Service tax on supply of goods, residential renting and tangible goods services - Best Judgment Assessment

Validity of invocation of the extended period for a service tax demand arising from an audit, where an earlier notice on the identical issue had already invoked that period - HELD THAT: - The demand was founded on an audit alleging short-payment, although an earlier notice concerning identical short-payment of service tax had already been issued by invoking the extended period. Following the principle in Nizam Sugar Factory [2006 (4) TMI 127 - SUPREME COURT], the extended period could not again be invoked on the same issue. The Tribunal also noted that self-assessment and an incorrect assessment in filed returns do not, by themselves, establish fraud, collusion, wilful misstatement, suppression or intent to evade tax. [Paras 7]

The show cause notice invoking the extended period was held unsustainable and the demand was time-barred.

Sustainability of service tax demands raised by treating supply of goods as business auxiliary service, taxing residential letting as renting of immovable property service, and alleging short-payment on supply of tangible goods service - HELD THAT: - Separate invoices had been raised for supply of goods; consequently, the demand under business auxiliary service in respect of such supply was not sustainable. The part of the property let for residential purposes was not liable to service tax as renting of immovable property service. On the explanation and figures furnished for supply of tangible goods service, no further service tax liability was found. [Paras 8, 9]

The demands were held unsustainable on merits as well.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief. The service tax demand failed both on limitation and on merits.

Extended period of limitation - audit disclosure and absence of suppression - demand on clearances of granulated slag to an interconnected joint venture - HELD THAT: - The relevant particulars were available during EA-2000 audit, which had issued a deficiency memo before the show-cause notice was issued. Applying M/s. Kirloskar Brothers Ltd. [2025 (1) TMI 890 - CESTAT KOLKATA], the Tribunal held that, in these circumstances, the extended period could not be invoked. [Paras 4, 5]

The demand raised by invoking the extended period of limitation was set aside; the assessee's appeal was allowed and the Revenue's appeal was dismissed.

Final Conclusion: The extended period of limitation was held inapplicable because the relevant matter had already been disclosed during audit. The impugned demand was set aside, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.

CENVAT credit on structural materials used for supporting capital goods - Prospective operation of the 2009 amendment to the definition of inputs - Whether structural steel items such as Galvanized Steel Towers/Structures, Plates, TMT Bars, TOR Road and electrodes used in fabrication of support structure are eligible for cenvat credit as inputs/capital goods ? - HELD THAT: - This issue is no longer res integra and this issue has been considered and discussed in detail by this Tribunal in the case of Ultratech Cement Ltd. [2023 (8) TMI 1729 - CESTAT BANGALORE] Following the same this Court held that Materials used for fabrication of structures required for installation and functioning of capital goods are covered by the definition of inputs when used directly or indirectly in manufacture of the final product. The fact that the fabricated structures are affixed to earth does not disentitle the assessee to credit. The amendment excluding specified construction materials used for foundations or supporting structures was not clarificatory and operates prospectively from 07.07.2009. [Paras 5, 6]

CENVAT credit was held admissible in respect of the demand up to 07.07.2009.

Final Conclusion: The impugned order was set aside and the appeal was allowed to the extent of the demand up to 07.07.2009, with consequential relief in accordance with law.

Unjust enrichment in service tax refund claims - Contract price inclusive of service tax - Non-reimbursement of separately invoiced service tax - Cum-Tax Valuation

Contract price inclusive of service tax - Unjust enrichment in service tax refund claims - HELD THAT: - Relying on the case of AP Engineers [2014 (10) TMI 563 - CESTAT NEW DELHI], this Court held that where the agreed contract value was inclusive of service tax and the tax was not separately charged to the service recipient, the appellant bore the tax burden. The doctrine of unjust enrichment was therefore inapplicable. [Paras 12]

The appellant was held to have crossed the bar of unjust enrichment and to be entitled to refund.

Non-reimbursement of separately invoiced service tax - Unjust enrichment in service tax refund claims - HELD THAT: - The chartered accountant's certificate established that, notwithstanding separate invoicing, the service recipient had not paid the service tax amount and the appellant had borne it. The incidence of tax had thus not been passed on. [Paras 14, 15]

The appellant was held to have crossed the bar of unjust enrichment and to be eligible for refund.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief, the appellant having established that the incidence of service tax had not been passed on.

Central excise duty demand based on unreconciled turnover figures - Sustainability of central excise duty demand founded on the difference between sales reflected in the consolidated balance sheet and the ER-1 returns of the Sanchor unit - HELD THAT: - The consolidated balance-sheet figures included sales of both the Mumbai and Sanchor units, whereas the ER-1 returns related only to the Sanchor unit. The appellant's reconciliation, including consignment transactions between the units, established that the sales reported in the ER-1 returns were not lower than the sales attributable to the Sanchor unit. Consequently, no discrepancy in sales figures remained to support the demand. [Paras 7, 8, 9]

The duty demand was set aside; the consequential penalty was also held not imposable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Condonation of delay before Commissioner (Appeals) - Captive-consumption exemption for shop floor equipment - Eligibility for exemption under Notification No. 67/95-C.E. - Trolley, lifting tackle, trailer, cabinet, workbench, rack and table captively consumed in the factory

Condonation of delay before Commissioner (Appeals) - HELD THAT: - The delay was only eight days and fell within the condonable power of the Commissioner (Appeals). The dismissal of the appeal for that delay was therefore unwarranted. [Paras 6]

The delay was condoned.

Availability of the captive-consumption exemption under Notification No. 67/95-CE to trolleys, lifting tackle, trailers, cabinets, work benches, racks and tables used in factory operations - HELD THAT: - The goods were identical to shop floor equipment considered in the appellant's earlier case, Tata Motors Ltd.[2009 (10) TMI 346 - CESTAT, KOLKATA], and in a subsequent order of the Commissioner (Appeals). As the earlier determination remained operative and the present proceedings arose from a subsequent periodical notice concerning the same issue, those decisions were squarely applicable. [Paras 9, 10]

The denial of exemption was set aside and the appeal was allowed with consequential relief in accordance with law.

Final Conclusion: The impugned order was set aside. The appeal was allowed after condoning the delay and extending the benefit of the captive-consumption exemption to the goods in question.

CENVAT credit on inclusive-category input services - C&F agency service used beyond factory gate - Definition of ‘input service’ - Availability of CENVAT credit on advertising, C&F, maintenance and repair and other business-related services, including C&F agency service used beyond the factory gate, as input services - HELD THAT: - The definition of ‘input service’ under Rule 2(l) of CENVAT Credit Rules, 2004 has been divided into three categories. The first category qualify such term, when used by a manufacturer in or in relation to the manufacture of final products; the second part of the definition deals with the category of inclusive services, which should be considered as input service; and that the third part of the definition clause provides for the excluded category of services, which cannot be termed as input service, for the purpose of availment of the CENVAT credit of service tax paid thereon.

The disputed services fell within the inclusive part of the definition of input service, which is sufficiently broad to cover services used by a manufacturer for its business activities. C&F agency service for handling manufactured excisable goods remained eligible even when used beyond the factory gate. As the services did not fall within the excluded category, denial of credit under Rule 14 was unwarranted. [Paras 5, 6]

The CENVAT credit was rightly availed and the Revenue's appeal against its allowance was dismissed.

Final Conclusion: The order allowing CENVAT credit on the disputed services was upheld, and the Revenue's appeal was dismissed.

Review Petition -repeating grounds - BIFR's power to review rehabilitation scheme - Consent for financial assistance under sick industrial rehabilitation scheme - Interest on tax demand in absence of wilful default - HELD THAT:- The review petition was dismissed as defective and on merits, the same grounds and relief having already been considered in earlier miscellaneous applications [2026 (2) TMI 1455 - SC ORDER], [2025 (11) TMI 2039 - SC ORDER].

Sustainability of penalty for suppression of turnover- Disclosure in Form-WW and omission from monthly returns - assessment order not expressly using the words "wilful suppression" - HELD THAT: - For imposition of penalty under Section 27(3)(b), wilful suppression must be established; however, the assessment order need not mechanically reproduce that expression where the material on record demonstrates it. The assessee admittedly omitted the turnover from the monthly returns, filed Form-WW after the due date applicable to deemed assessment, and offered no explanation for the omission. The discrepancy between Form-WW and the monthly returns, detected on inspection, established the intention to suppress turnover. [Paras 7, 8, 9]

The penalty imposed by the Assessing Officer was upheld, and the contrary order of the Appellate Authority was set aside.

Final Conclusion: The Tax Case was dismissed and the Tribunal's confirmation of penalty for wilful suppression of turnover was sustained.

Input tax credit-proof of genuine purchase transactions and physical movement of goods - Entitlement to input tax credit on purchases from suppliers whose registrations stood cancelled, where the purchasing dealer failed to produce independent evidence of actual movement and receipt of goods. - HELD THAT: - The concurrent factual findings established that, apart from vendor particulars, weighbridge slips, goods-received notes and payment details, the assessee did not produce transport receipts corresponding to the vehicle numbers in the weighbridge slips. In accordance with the principle that invoices and cheque payments alone do not establish the genuineness of an input-tax-credit claim, the assessee was required to furnish cogent independent material proving actual physical movement of the goods.

The Hon’ble Apex Court in case of Ecom Gill Coffee Trading (P) Ltd.[2023 (3) TMI 533 - SUPREME COURT], held that the evidence placed on record by the appellant is not sufficient and in absence of any independent evidence to prove that the transaction involve actual movement of goods the appellant was not entitled to the Input Tax Credit.

Tribunal has rightly applied the decision of the Hon’ble Apex Court in case of Ecom Gill Coffee Trading (P) Ltd. (supra) and the efforts made by the appellant to distinguish the facts are not borne out from the concurrent finding of facts arrived at by the Tribunal. The evidence on record did not discharge that burden. [Paras 6, 8]

The disallowance of input tax credit was upheld; no substantial question of law arose.

Final Conclusion: The Tax Appeal was dismissed, the Court holding that the assessee had failed to establish the genuine receipt and actual movement of goods necessary to sustain the claimed input tax credit.

Assessment beyond show-cause notice - Non-consideration of material and natural justice

Levy of tax on packing material without a proposal in the show-cause notice - HELD THAT: - Though an effective statutory appellate remedy was available, the Court held that the assessment could be interfered with because tax on packing material had been levied without any proposal in the show-cause notice, a position fairly acknowledged by the Government Pleader. [Paras 5, 7]

The assessment was set aside to this extent, with liberty to issue notice and pass fresh orders after affording an opportunity of hearing.

Non-consideration of material and natural justice - Refusal to consider the dealer's purchase and sales details solely because they were not furnished in the format required by the assessing authority. - HELD THAT: - The assessing authority, having found the submitted details not to be in the required format, ought to have called for further information. Its failure to do so and consequent non-consideration of the material furnished by the dealer amounted to violation of the principles of natural justice. [Paras 6]

The assessment was set aside and the matter was remitted for fresh orders after notice and opportunity of hearing, without adjudication on the merits of the input-tax-credit claim.

Final Conclusion: The writ petition was allowed and the impugned assessment was set aside for levy beyond the show-cause notice and non-consideration of material. The assessing authority was left at liberty to proceed afresh after issuing notice and affording an opportunity of hearing.

Rectification of assessment - Authority taking advantage of its own inaction - No Person Can Benefit From Their Own Wrong - Consideration of representations seeking rectification of the rate of tax in the assessment for 2015-2016, where the representations had been made within time but remained undisposed of by the authority - HELD THAT: - The authority acknowledged receipt of the rectification request in 2020 and again in 2023, but rejected it on the ground that the prescribed four-year period had elapsed. It could not rely upon its own failure to dispose of the request made in 2020 to non-suit the petitioner. [Paras 4, 5]

The rejection endorsement was set aside and the matter was remanded to the competent authority for consideration and orders on the representations in accordance with law.

Final Conclusion: The writ petition was disposed of by setting aside the rejection of the rectification representations and remanding them for fresh consideration in accordance with law.

Alternative remedy for stay of tax recovery pending appeal - Maintainability of the writ petition seeking protection against recovery of disputed tax while the tax appeal was pending before the Tribunal - HELD THAT: - As an effective statutory remedy was available to seek stay of recovery pending disposal of the appeal before the Tribunal, the Court declined to entertain the writ petition. [Paras 4, 5]

The petitioner was left to seek stay before the Additional Commissioner; recovery of the disputed tax was stayed for six weeks to enable recourse to that remedy.

Final Conclusion: The writ petition was disposed of without examining the recovery dispute on merits, leaving the petitioner to pursue the statutory remedy for stay. Interim protection against recovery was granted for six weeks.

Violation of principles of natural justice in assessment proceedings - Service of show-cause notice and assessment order - Validity of the assessment under the CST Act where the assessee did not receive the show-cause notice preceding the assessment or the assessment order - HELD THAT: - The Court held that the material placed by the respondents established that the subsequent show-cause notice could not be served as the assessee was unavailable at its principal place of business and that the assessment order sent by registered post was returned. The assessee had therefore received neither the show-cause notice preceding the impugned assessment nor the assessment order, resulting in a violation of the principles of natural justice. [Paras 4]

The assessment order was set aside and the matter remanded to the appropriate Assessing Authority for fresh orders after due notice to the assessee; the period from the assessment order until receipt of this order was directed to be excluded for limitation purposes.

Final Conclusion: The writ petition was allowed on account of non-service of the notice and assessment order. Fresh assessment proceedings may be undertaken only after due notice to the assessee.

Drawer liability for dishonoured cheque - Deemed service and the complainant's non-appearance - Vicarious liability in sole proprietorship - Validity of statutory demand notice - Mandatory inquiry before process against out-of-jurisdiction accused - Meaning of word "shall" - Suppression of Material Facts and the Abuse of Process - Strict Construction of Penal Statutes - Sole Proprietorship - Abuse of Process - Suppression of Material Facts - Clean Hands Doctrine

Drawer liability for Dishonoured cheque - Prosecution for dishonour of a cheque against a non-signatory spouse who neither maintained the account nor drew the cheque. - HELD THAT: - Liability under Section 138 is strictly in personam and requires an identity-link between the drawer, the account holder and the signatory. The material on record established that the concern was owned by the spouse and that the cheque was drawn on an account maintained by that proprietorship; the petitioner was neither its signatory nor its account holder. Allegations of dominion and control could not substitute the statutory requirement. [Paras 31]

The petitioner could not be prosecuted as the drawer of the cheque.

Vicarious liability in sole proprietorship - Vicarious liability of a spouse for dishonour of a cheque issued by a sole proprietorship concern. - HELD THAT: - The Hon'ble Supreme Court has recently reinforced this principle in Bijoy Kumar Moni [2024 (12) TMI 1231 - SUPREME COURT] holding that "A sole proprietorship concern is not a 'Company' within the meaning of Section 141 of the NI Act. The proprietor and the proprietorship are one and the same legal entity. Consequently, Section 141 cannot be invoked to rope in any person other than the proprietor himself." Since the entity lacks a corporate or partnership persona, the concept of roping in "vicarious" parties is legally impermissible. Criminal liability in a proprietorship begins and ends with the proprietor alone.

In the present matrix, describing the entity as a "proprietorship/partnership" appears to be a strategic attempt to circumvent these restrictive boundaries. However, the "sterling quality" documents on record, specifically the GST Certificate, confirm the entity's status as a sole proprietorship. Consequently, the Petitioner, being neither the proprietor nor the signatory, cannot be held liable for the dishonour of a cheque issued by a different legal person.

A sole proprietorship has no legal existence distinct from its proprietor and is not a company for the purpose of the statutory fiction creating vicarious liability. Section 141 could not therefore be invoked to arraign the proprietor's spouse as a person in charge merely on the basis of marital relationship or bald assertions of control. [Paras 37]

The continuation of proceedings against the petitioner on a theory of vicarious liability was held to be an abuse of process.

Validity of statutory demand notice - HELD THAT: - The mandate of Proviso (b) to Section 138 requires a demand for payment of the "said amount of money." This has been judicially interpreted to mean the exact amount covered by the cheque. The purpose of the notice is to provide the drawer a "last clear chance" to rectify the default and avoid criminal prosecution.

Relying on the ratio in K.R. Indira v. Dr. G. Adinarayana [2003 (10) TMI 385 - SUPREME COURT], "a notice which does not make a demand for the amount covered by the cheque is not a notice in the eye of law and cannot be the basis for a complaint under Section 138." Without a valid notice, the "cause of action" never matures, and the Learned Magistrate lacks the foundational jurisdiction to take cognizance.

The notice and complaint demanded only a fraction of the cheque amount, creating a gross discrepancy that failed the requirement of a demand for the said amount of money. In the absence of a valid notice, the cause of action for prosecution did not arise. [Paras 44]

The demand notice was void ab initio and the prosecution founded upon it was legally unsustainable.

Mandatory inquiry before process against out-of-jurisdiction accused - HELD THAT: - The use of the word "shall" signify a mandatory procedural safeguard. As reaffirmed in Rekha Sharad Ushir [2025 (3) TMI 1339 - SUPREME COURT] and the landmark decision in Vijay Dhanuka & Ors. [2014 (3) TMI 1103 - SUPREME COURT], the purpose of this inquiry is to protect innocent persons from being vexed by unscrupulous complainants through the "ordeal of trial."

Where the accused resides beyond the Magistrate's jurisdiction, the statutory requirement to postpone process and conduct an inquiry or direct an investigation is mandatory. The Magistrate mechanically issued process against the petitioner, a resident of another State, without undertaking that safeguard or verifying the legal nexus with the cheque transaction. The omission was a jurisdictional error, not a curable irregularity. [Paras 52]

The summoning process against the petitioner was vitiated.

Suppression of Material Facts and the Abuse of Process - HELD THAT: - A review of the record reveals a persistent pattern of "calculated ambiguity" on the part of the Complainant. In the Petition of Complaint, the accused entity was described through the dual lens of a "proprietorship/partnership," and the Petitioner was consequently roped in as a "person in charge." However, the GST Registration Certificate and the loan agreements, documents produced by the Complainant itself categorically identify the entity as a sole proprietorship.

In the present matrix, the Complainant's conduct points to a strategy of institutionalized harassment. By impleading the wife of the proprietor, a resident of a distant State, through a distorted legal lens, the Complainant has attempted to use the criminal process to recover a commercial debt from a party who bears no statutory or personal liability.

As held in Pepsi Foods Ltd. & Anr.[1997 (11) TMI 518 - SUPREME COURT], summoning an accused in a criminal case is a serious matter. A Complainant cannot be permitted to maintain a prosecution by suppressing the true legal status of the parties. To allow this trial to continue against the Petitioner would be to sanction a manifest injustice and allow the "ordeal of trial" to serve as the punishment itself.

Thus, the Complainant's reliance on ambiguous descriptions and a defective claim constitutes a suppression of material facts.

Final Conclusion: The revisional application was allowed and the cheque-dishonour proceedings were quashed insofar as they concerned the petitioner. The trial was directed to continue against the remaining accused without being influenced by the findings confined to the petitioner's liability.