TaxTMI Updates e-Newsletter
Sep 10,2019

Penalty u/s 271(1)(c) - assessment under Section 153C - proof of addition to the declared income - no question of the Assessee not declaring the income of the particulars of the income so as to invite penalty under Section 271C - The Tribunal's deletion of the penalty is upheld and all appeals are dismissed by HC [2019 (1) TMI 656 - BOMBAY HIGH COURT] - HELD THAT:- SLP dismissed. Questions of law are kept open.

Reopening of assessment u/s 147 - non-filing of return (ITR) - reason to believe - no scrutiny assessment - failure to make reasonable inquiry - fishing expedition

The petition is allowed; the reopening notice issued for AY 2011-12 is quashed because the Assessing Officer lacked a satisfactory prima facie reason to believe and failed to make basic verification of the assessee's explanation, resulting in a prejudicial and unjustified reopening by HC [2019 (2) TMI 456 - BOMBAY HIGH COURT] - HELD THAT:- SLP dismissed.

Unexplained cash credit - Assessing Authority creating tax liability was failure on the part of the assessee to produce evidence with regard to some of the investors which was by way of a Bank statement - High Court [2018 (11) TMI 1687 - CHHATTISGARH HIGH COURT] declines to interfere with the concurrent factual findings of the Commissioner (Appeals) and the Income-tax Appellate Tribunal which accepted the bank statements and set aside the Assessing Authority's order

HELD THAT:- SLP dismissed.

Evidentiary value of statements recorded under Section 133A - power to record statements (including administering oath) during survey proceedings - use of survey statements as corroboration and not as sole basis for assessment - treatment of unexplained investments under Section 69 - onus on assessee to prove source of investment

Power to record statements (including administering oath) during survey proceedings - Section 133A(3)(iii) - Whether an income-tax authority, in survey proceedings under Section 133A, may record statements of persons and whether administering oath during such proceedings is impermissible - HELD THAT: - Section 133A(3)(iii) empowers the income-tax authority to record the statement of any person, which includes an assessee. Although Section 133A does not expressly confer the specific power to take sworn statements as Section 132(4) does, there is no statutory prohibition on administering an oath in survey proceedings. The Court held that the status of an assessee in survey proceedings is not equatable to an accused in criminal proceedings, and therefore merely because an income-tax authority administered an oath and recorded a sworn statement under Section 133A, it cannot be said that the authority lacked power to do so or that such procedure is impermissible. [Paras 9, 15]

Income-tax authority may record statements under Section 133A(3)(iii); administering oath in survey proceedings is not per se prohibited.

Evidentiary value of statements recorded under Section 133A - corroboratory value of survey statements - Whether a sworn statement made by an assessee during survey proceedings under Section 133A has no evidentiary value at all - HELD THAT: - The Court rejected the absolute proposition that statements recorded under Section 133A have no evidentiary value. Such statements are not conclusive and the person making the statement is at liberty to withdraw or explain it. However, a statement recorded during survey proceedings can have corroboratory value and may be used to support other materials before the assessing authority, including documentary evidence. The Court harmonised earlier precedents to the effect that Section 133A statements, even if sworn, do not amount to independent conclusive evidence as under Section 132(4), but they are admissible for corroboration. [Paras 11, 12, 13, 14, 15]

A sworn statement under Section 133A is not devoid of evidentiary value; it is corroboratory but not conclusive.

Use of survey statements as corroboration and not as sole basis for assessment - Whether an assessment can be made solely on the basis of a sworn statement recorded under Section 133A - HELD THAT: - The Court held that assessment cannot be founded solely on a statement recorded under Section 133A. While such a statement may corroborate other materials, the assessing officer must have independent material or evidence to substantiate the assessment. Reliance exclusively on a survey statement to make an assessment is impermissible. [Paras 15]

Assessment cannot be based solely on a statement recorded under Section 133A; such statements may only corroborate other evidence.

Treatment of unexplained investments under Section 69 - onus on assessee to prove source of investment - Whether the assessing authority was justified in treating the advance as unexplained investment under Section 69 given the assessee's inability to prove that the amount was invested by the company - HELD THAT: - Section 69 permits treating investments not recorded in books as the income of the assessee where the assessee offers no satisfactory explanation. The burden to explain the nature and source of the investment lies on the assessee. The appellant, being the company's Managing Director, failed to produce company records or other materials to establish that the amount was invested by the company and not personally. The agreement for purchase and absence of corroborative entries in the company's books constituted material supporting the assessing officer's inference. The Tribunal examined the facts and affirmed the finding; the High Court found no perversity or lack of material to justify interference. [Paras 16, 17, 18, 19, 20]

The assessing authority was justified in treating the amount as unexplained investment under Section 69 in the absence of satisfactory explanation or company records; the Tribunal's factual findings are upheld.

Final Conclusion: The Court held that income-tax authorities may record statements under Section 133A(3)(iii) and administering an oath in survey proceedings is not per se prohibited; statements recorded under Section 133A have corroboratory but not conclusive evidentiary value and cannot alone form the basis of an assessment. On the facts, the assessing officer was entitled to treat the advance as unexplained investment under Section 69 in the absence of satisfactory proof that the funds belonged to the company, and the Tribunal's factual conclusion was upheld; the appeal is dismissed.

Notice under section 148 as a jurisdictional notice - legal representative deemed to be an assessee under section 159(3) - application of section 159(2)(b) to proceedings initiated after death - curative provision under section 292B - notice issued in the name of a deceased person is invalid unless waived by participation - reopening of assessment - jurisdictional defect v. procedural irregularity

Notice under section 148 as a jurisdictional notice - notice issued in the name of a deceased person is invalid unless waived by participation - jurisdictional defect v. procedural irregularity - Validity of the notice under section 148 issued in the name of a deceased person and whether proceedings pursuant thereto can be continued against legal representatives without fresh valid notice. - HELD THAT: - The Court held that a notice under section 148 is a jurisdictional prerequisite to the Assessing Officer assuming jurisdiction under section 147. A notice issued in the name of a deceased person is not in conformity with that jurisdictional requirement. Where the legal representative does not waive the requirement of a valid notice (by, for example, filing a return in response and participating in the assessment), mere receipt of the notice by the heir or intimation of death to the department does not amount to submission to jurisdiction. The Court distinguished cases where legal representatives actively participated and thereby waived the defect. On the facts, the legal representative promptly objected and never filed a return in response to the impugned section 148 notice; accordingly, the notice must be treated as invalid and proceedings founded on it lack jurisdiction. [Paras 14, 15, 18, 19, 25]

The notice under section 148 issued to the deceased is invalid and proceedings pursuant thereto cannot be continued against the legal representatives on the basis of that notice.

Application of section 159(2)(b) to proceedings initiated after death - legal representative deemed to be an assessee under section 159(3) - Whether section 159(2)(b) permits continuation of reassessment proceedings against legal representatives when the initial notice under section 148 was issued to the deceased after his death. - HELD THAT: - Section 159(2)(b) permits proceedings which could have been taken against the deceased if he had survived to be taken against legal representatives. The Court explained the distinction between clause (a) (proceedings already initiated before death) and clause (b) (proceedings which could have been taken if the person had survived). For clause (b) to operate, a valid notice in the name of the legal representative is required; where the initial section 148 notice was issued to a dead person (and not to the heirs within limitation), the Assessing Officer cannot rely on that defective notice to continue proceedings against the heirs. Thus section 159 does not validate continuation of reassessment founded on a notice issued to the deceased after his death without fresh valid service on the legal representatives. [Paras 14, 15, 16]

Section 159(2)(b) does not permit continuation of reassessment on the basis of a section 148 notice issued to a dead person; a fresh valid notice to the legal representative is required.

Curative provision under section 292B - jurisdictional defect v. procedural irregularity - Whether section 292B cures the defect of issuing a section 148 notice in the name of a deceased person. - HELD THAT: - Section 292B can validate proceedings affected by mere mistakes, defects or omissions where the notice is in substance and effect in conformity with the intent and purpose of the Act. The Court held that where the defect goes to the jurisdictional root-such as issuance of a jurisdictional notice to a dead person without waiver by the legal representative-section 292B cannot be invoked to sustain the proceedings. The Court distinguished authorities where heirs had actively participated or filed returns (constituting waiver) and where the defect was a curable clerical error; those precedents do not assist the Revenue where the heir consistently objected and did not submit to jurisdiction. [Paras 17, 18, 23]

Section 292B cannot cure the jurisdictional defect of a section 148 notice issued to a deceased person when the legal representative has not waived the requirement of a valid notice.

Final Conclusion: The writ succeeds. The impugned notice under section 148 for Assessment Year 2011-12 issued in the name of the deceased is quashed as invalid, and all consequential proceedings pursuant thereto are terminated; the Assessing Officer may, if permissible within limitation, issue fresh notice to the legal representative in accordance with law.

Summary order. The appeals under Section 260A are dismissed on account of low tax effect in terms of CBDT Circular No.17/2019 dated 08.08.2019; the substantial questions of law are left open and liberty is granted to the Revenue to move for restoration if the tax effect exceeds the threshold.

Allowability of expenditure under Section 37 of the Income Tax Act - wholly and exclusively for the purposes of business - commercial expediency - nexus between expenditure and business - memorandum of understanding with Government not opposed to public policy - remand for verification of expenditure and nexus

Allowability of expenditure under Section 37 of the Income Tax Act - wholly and exclusively for the purposes of business - commercial expediency - memorandum of understanding with Government not opposed to public policy - Disallowance of amounts spent by the assessee on construction of 169 houses as not being allowable business expenditure under Section 37. - HELD THAT: - The Court examined Section 37 and the authorities cited to conclude that expenditure need not arise directly out of trade but must be laid out wholly and exclusively for the purposes of the business; expenditure voluntarily incurred on grounds of commercial expediency may qualify. The MOU between the assessee and the Government of Karnataka, entered in the context of a public appeal after catastrophic floods, involved provision of land, designs and logistical support by the State and was a philanthropic project undertaken at the State's request. The Tribunal erred in treating the MOU as opposed to public policy. Given the nature of the business (iron ore extraction and trading) and the practical need to maintain goodwill and facilitate dealings with Government authorities for permits and clearances, the Court held that the expenditure falls within the realm of business expenditure on the test of commercial expediency and should not have been disallowed as a matter of law. [Paras 26, 28, 29, 31]

Substantial question of law answered against the revenue and in favour of the assessee; the disallowance was not justified as a matter of law.

Nexus between expenditure and business - remand for verification of expenditure and nexus - Extent of admissibility of the claimed deduction and requirement of factual verification by the assessing officer. - HELD THAT: - Although the Court held that, in law, the expenditure can qualify as business expenditure under Section 37 on the basis of commercial expediency and the MOU, it emphasised that the assessing officer must not accept claims blindly. The AO is required to scrutinise and satisfy himself about the actual incurrence of the expenditure and the factual nexus between the expenditure and the work undertaken by the assessee before allowing the deduction. Accordingly, the assessment proceedings were remitted for examination in the light of the Court's observations. [Paras 30]

Assessment proceedings remitted to the assessing officer for verification of incurrence and nexus; AO to examine the claim in light of the Court's observations.

Final Conclusion: Appeals allowed; Tribunal order set aside. Assessment years 2011-12 and 2012-13 remitted to the assessing officer to examine the claim of deduction in accordance with the Court's legal conclusions concerning commercial expediency, public policy validity of the MOU and requirement of factual nexus and verification.

Recognition of income in hire-purchase transactions - internal rate of return (IRR) method - even spread method (EMI method) - consistency of accounting method for taxability - taxability of reversal of provisions for non-performing assets - addition under Section 41(1) - requirement of prior allowance - remand for verification of prior deduction

Recognition of income in hire-purchase transactions - internal rate of return (IRR) method - even spread method (EMI method) - consistency of accounting method for taxability - Tribunal's conclusion that the IRR method is the appropriate method was set aside and the Even Spread/EMI method was accepted for the assessment years in question. - HELD THAT: - The Court recorded that the substantial question of law no.1 is answered in favour of the assessee following the Division Bench's earlier reasoning which relied on the decision in Commissioner of Income Tax v. Ashok Leyland Finance Ltd. The Court noted that the assessee had consistently adopted the EMI method in its returns though its books reflected a different bifurcation (Sum of Digits method) and that the coordinate Bench had held taxability in accordance with the consistently followed EMI method. The Andhra Pradesh High Court decision relied on by the Revenue was treated as distinguishable on the facts, and no reason was found to take a different view for the assessment year under consideration. The Court therefore upheld taxability in accordance with the EMI method as consistently followed by the assessee. [Paras 4]

Substantial question of law no.1 answered in favour of the assessee; income recognition to follow the EMI/even spread method as consistently adopted.

Taxability of reversal of provisions for non-performing assets - addition under Section 41(1) - requirement of prior allowance - remand for verification of prior deduction - Whether a reversal of provisions made in earlier years (credited in the current year) is taxable where those earlier provisions were not allowed as deductions was not finally decided on merits and is remanded for fresh consideration by the Assessing Officer. - HELD THAT: - The Court observed that the factual position as to whether the provisions were allowed as deductions in earlier assessment years had not been examined by the Assessing Officer. Reliance was placed on precedent which requires a finding that a deduction or allowance was made in an earlier year before an addition under the relevant provision can be sustained. The Court further noted that the assessee had not specifically urged before the lower authorities the contention now advanced, and that earlier authorities (including the Supreme Court's statement of law on exclusions from Section 36/Section 37 arguments) limit the scope of such claims. Given the absence of any finding by the Tribunal or Assessing Officer on whether the provision had been allowed earlier, the matter must be remitted to the Assessing Officer for fresh factual and legal consideration and verification of whether prior allowance was made in the earlier years. [Paras 11, 12]

Matter remitted to the Assessing Officer to determine, after verification, whether the provisions in earlier years were allowed as deductions and to decide the taxability of the reversal accordingly.

Final Conclusion: Appeal allowed in part: substantial question of law no.1 answered in favour of the assessee (EMI/even spread method to govern recognition of hire-purchase income); on the question of taxability of reversal of provisions for non-performing assets the matter is remanded to the Assessing Officer for fresh consideration of whether the provisions were allowed as deductions in earlier years; no costs.

Validity of reassessment for non-communication of reasons - Duty to communicate reasons for reopening an assessment - Exceptional power to reopen assessment and strict compliance with prerequisites - Rectification under Section 254(2) is not a review of merits - Mistake apparent from the record

Validity of reassessment for non-communication of reasons - Duty to communicate reasons for reopening an assessment - Exceptional power to reopen assessment and strict compliance with prerequisites - Assessment framed under section 147 read with section 143(3) without communicating the reasons recorded for issuance of notice under section 148 is invalid. - HELD THAT: - The Tribunal found that the Assessing Officer issued notice under section 148, the assessee complied and specifically requested communication of the reasons recorded for reopening, but the AO completed the assessment without furnishing those reasons. Applying the principle in GKN Driveshafts (relied upon by the ITAT) and subsequent High Court and Tribunal decisions, the Bench held that the power to reopen is exceptional and the prerequisite of reasons to believe must be strictly complied with, including communication of the reasons on request. On these facts the reassessments were quashed and the assessee's appeals allowed; having quashed the assessments, the Tribunal did not adjudicate grounds on merits. [Paras 4]

Assessment under section 147 r.w.s. 143(3) made without communicating the recorded reasons is quashed and the assessee's appeal is allowed.

Rectification under Section 254(2) is not a review of merits - Mistake apparent from the record - Miscellaneous applications under section 254(2) seeking recall of the Tribunal's order on the ground that an earlier Supreme Court decision (S. Narayanappa) was not considered are not maintainable as 'mistake apparent from the record' where they amount to review of the Tribunal's application of law to facts. - HELD THAT: - The Bench examined the scope of section 254(2) and followed the coordinate authority that the power to amend an order to rectify a 'mistake apparent from the record' cannot be used to re-open or review the Tribunal's application of legal principles to the facts or to reconsider findings. The Department had not relied on the S. Narayanappa decision during the original appeal; the present Miscellaneous Applications sought reappraisal of precedent and facts already considered, which is impermissible under section 254(2). The Tribunal therefore found no mistake apparent from the record and dismissed the Miscellaneous Applications. [Paras 4, 5]

Miscellaneous Applications filed by the revenue are dismissed.

Final Conclusion: The Tribunal's earlier orders quashing reassessments for non-communication of reasons are upheld; the revenue's Miscellaneous Applications under section 254(2) seeking reconsideration are dismissed as impermissible attempts at review rather than rectification of a mistake apparent from the record.

Unexplained cash deposits - Explanation of cash receipts and corroboration by third parties - Deletion of additions on production of confirmations and documentary evidence - Penalty under section 271(1)(c) contingent on validity of underlying addition

Explanation of cash receipts and corroboration by third parties - Deletion of additions on production of confirmations and documentary evidence - Whether the cash deposit of Rs. 3,73,459/- in the assessee's bank account represented maintenance charges received from Datamation Consultants Pvt. Ltd. and was rightly treated as unexplained. - HELD THAT: - The Tribunal examined the maintenance agreement, ledger entries, TDS certificates and confirmations produced by the assessee and noted that Datamation had orally confirmed payment of maintenance and electricity charges during remand proceedings. The CIT(A) had earlier cancelled penalty in respect of this receipt after Datamation's confirmation. On the basis of documentary records in the paper book and the corroboration before the Assessing Officer, the Tribunal held that the cash deposit was explained as maintenance charges received from Datamation and the addition was not sustainable. [Paras 11]

Addition of Rs. 3,73,459/- deleted.

Explanation of cash receipts and corroboration by third parties - Deletion of additions on production of confirmations and documentary evidence - Whether the cash deposit of Rs. 1,77,277/- representing electricity charges received from Datamation Consultants Pvt. Ltd. was exigible to addition as unexplained cash. - HELD THAT: - The assessee explained that electricity charges recovered from Datamation and others were received in cash during the year and debited in earlier years; the Assessing Officer rejected the explanation. However, on remand Datamation orally confirmed payment of electricity charges. The Tribunal found that Datamation's corroboration supported the assessee's explanation and, on totality of evidence, the addition was not justified. [Paras 13]

Addition of Rs. 1,77,277/- deleted.

Unexplained cash deposits - Deletion of additions on production of confirmations and documentary evidence - Whether the addition of Rs. 1,67,558/- as loans and advances received back was justified. - HELD THAT: - The Assessing Officer treated amounts received back as unexplained since the assessee allegedly failed to explain prior advances. The assessee produced balance sheets, trial balances, confirmations, PAN details and affidavits of parties. The Tribunal found these documents sufficient, observed that the affidavits and confirmations were not shown to be false, and, considering the small amounts and the totality of facts, concluded that the addition was not warranted. [Paras 15]

Addition of Rs. 1,67,558/- deleted.

Unexplained cash deposits - Whether the cash deposit of Rs. 5,000/- received from 'Deepak' was explained and liable to deletion. - HELD THAT: - The Assessing Officer found no evidence that an office boy was employed or that cash was received from Deepak and treated the receipt as an afterthought; the CIT(A) sustained the addition. The assessee failed to produce evidence to rebut the finding. In absence of satisfactory proof, the Tribunal did not interfere with the addition. [Paras 17]

Addition of Rs. 5,000/- sustained.

Penalty under section 271(1)(c) contingent on validity of underlying addition - Deletion of additions on production of confirmations and documentary evidence - Whether the penalty levied under section 271(1)(c) in respect of the addition of Rs. 1,67,558/- should be sustained. - HELD THAT: - The penalty was imposed by reference to the addition which the Tribunal has deleted after finding the receipts explained by documentary evidence and confirmations. As the foundational addition no longer subsists, the rationale for the penalty fails. The Tribunal directed cancellation of the penalty and set aside the CIT(A)'s order sustaining it. [Paras 21]

Penalty under section 271(1)(c) set aside and directed to be cancelled.

Final Conclusion: The appeal against several additions is partly allowed: additions of Rs. 3,73,459/-, Rs. 1,77,277/- and Rs. 1,67,558/- are deleted while the addition of Rs. 5,000/- is sustained; the penalty under section 271(1)(c) founded on the deleted addition is set aside.

Jurisdiction under section 263 of the Income-tax Act - Erroneous and prejudicial to the interests of the Revenue - Application of mind and possible view taken by Assessing Officer - Denial of exemption under sections 11 and 12 on account of violation of section 13(1)(c) read with section 13(3) - Limits on revisionary power where assessing officer has examined material

Jurisdiction under section 263 of the Income-tax Act - Application of mind and possible view taken by Assessing Officer - Erroneous and prejudicial to the interests of the Revenue - Denial of exemption under sections 11 and 12 on account of violation of section 13(1)(c) read with section 13(3) - Whether the Commissioner (Appeals) was justified in invoking jurisdiction under section 263 to set aside the assessment framed u/s 143(3) for AY 2012-13 - HELD THAT: - The Tribunal held that the Assessing Officer had considered the assessee's explanations and material on record and framed a speaking assessment order on the question of denial of exemption under sections 11 and 12 on account of alleged violation of section 13(1)(c) read with section 13(3). The Tribunal noted earlier Tribunal decisions in the assessee's own case for earlier years in favour of the assessee and observed that the Revenue's non challenge of those Tribunal orders for 'low tax effect' did not constitute an adverse view against the assessee. Applying established precedent, the Tribunal reiterated the twin conditions for exercise of section 263 - that the assessment order must be both erroneous and prejudicial to revenue - and emphasised that mere disagreement with a possible view taken by the Assessing Officer is not a ground for revision. As the Assessing Officer had applied his mind and recorded reasons, the exercise of revisionary power by the CIT(E) was held to be unjustified and beyond jurisdiction. [Paras 9, 10, 11, 12]

The invocation of section 263 was not justified; the order of the CIT(E) setting aside the assessment is set aside and the assessee's appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the CIT(E)'s order passed under section 263 and restored the assessment order passed u/s 143(3) for AY 2012-13 on the ground that the Assessing Officer had taken a possible view after applying his mind and the conditions for invoking section 263 were not satisfied.

Exemption under Section 54 - one residential house requirement of Section 54 - adjacent flats treated as one residential unit - extended period for filing return under Section 139(4) - penalty under Section 271(1)(c)

Exemption under Section 54 - adjacent flats treated as one residential unit - extended period for filing return under Section 139(4) - Whether the assessee's investments in Flats ETS2-489 and ETS2-490 qualify for exemption under Section 54 having regard to treatment of adjacent flats as one residential unit and payments made within the extended period under Section 139(4). - HELD THAT: - The Tribunal noted that the Assessing Officer accepted the assessee's contention that Flats ETS2-489 and ETS2-490, being adjacent, on the same floor and having common facilities, may be considered as a single residential unit and allowed part of the claimed exemption corresponding to payments made up to the date of filing the return. The assessee contended that payments were made up to the extended date for filing under Section 139(4) and relied on precedents holding that the time under Section 139(1) is subject to the extension in Section 139(4), so investments made within that extended period qualify for exemption under Section 54. The Tribunal observed that the Ld. CIT(A) did not examine the question of which payments were actually made within the extended period and therefore recorded that the matter requires verification. Following the decisions of the Punjab & Haryana High Court relied upon, the Tribunal directed that the claim in respect of Flats 489 and 490 be remanded to the file of the Ld. CIT(A) for verification of investments made up to the extended period under Section 139(4), with opportunity to the assessee to be heard, and for fresh decision in accordance with law. [Paras 3, 4, 6, 8]

Remanded to the Ld. CIT(A) for verification whether payments for Flats ETS2-489 and ETS2-490 were made within the extended period under Section 139(4) and for fresh adjudication of the Section 54 claim accordingly.

Exemption under Section 54 - one residential house requirement of Section 54 - Whether the assessee's investment in Flat K-1003 qualifies for exemption under Section 54. - HELD THAT: - The Tribunal examined the language of Section 54 and noted that the provision permits exemption in respect of investment in one residential house in India. The assessee sought to avail benefit in relation to Flat K-1003 in addition to the adjacent flats treated as one unit. The Tribunal observed that the amendment relied upon by the assessee was prospective and could not be applied to enlarge the assessee's entitlement retroactively. Applying the statutory requirement that the exemption is available for investment in one residential house, the Tribunal held that the claim in respect of Flat K-1003 is not allowable. The authorities below were held to have correctly denied the exemption as regards K-1003. [Paras 3, 4, 8]

Claim for exemption under Section 54 in respect of Flat K-1003 rejected; orders of authorities below upheld on this point.

Penalty under Section 271(1)(c) - Exemption under Section 54 - Whether the penalty under Section 271(1)(c) imposed on the assessee should be sustained in light of the foregoing decisions on the Section 54 claim. - HELD THAT: - The Tribunal observed that part of the quantum issue (Section 54 claim) has been remanded for verification and fresh decision. As the penalty was levied in respect of the addition arising from the Section 54 disallowance, the Tribunal considered it appropriate that the penalty matter be restored to the Ld. CIT(A) to be re-decided after the quantum appeal is re-determined. The Ld. CIT(A) was directed to re-decide the penalty issue after deciding the capital gains/Section 54 question, giving the assessee reasonable opportunity of being heard. [Paras 10]

Penalty proceedings under Section 271(1)(c) set aside and remanded to the Ld. CIT(A) for fresh adjudication after the quantum (Section 54) issue is re-decided.

Final Conclusion: Appeal regarding the Section 54 claim in respect of Flats ETS2-489 and ETS2-490 remitted to the Ld. CIT(A) for verification of payments made within the extended period under Section 139(4) and fresh decision; claim in respect of Flat K-1003 dismissed and sustained against the assessee; the penalty under Section 271(1)(c) remitted to the Ld. CIT(A) for re determination after the quantum is decided.

Penalty under section 271(1)(c) - concealment of income - furnishing inaccurate particulars of income - substantial question of law - debatable additions

Penalty under section 271(1)(c) - substantial question of law - debatable additions - concealment of income - furnishing inaccurate particulars of income - Whether the penalty imposed on the assessee under section 271(1)(c) should be sustained where the additions against which penalty was levied are the subject matter of substantial questions of law admitted by the High Court and where the assessing officer did not specify concealment or furnishing of inaccurate particulars in the initiating notice. - HELD THAT: - The Tribunal found that the assessing officer initiated penalty proceedings without specifying in the notice under section 274 whether the charge was for concealment of income or for furnishing inaccurate particulars, and ultimately imposed penalty on the basis of 'tax evasion', which is not the statutory requirement under section 271(1)(c). Further, for the year under consideration the Hon'ble Karnataka High Court had admitted substantial questions of law challenging the taxability/additions which formed the basis for the penalty; admission of substantial questions of law renders the additions debatable. The Tribunal relied on the principle reflected in the decisions of the High Court in CIT vs Ankita Electronics Pvt Ltd. and CIT vs Dr Hirsha N. Biliangady, that where additions are debatable (as evidenced by admission of substantial questions of law), there is no concealment or furnishing of inaccurate particulars warranting penalty under section 271(1)(c). Applying these conclusions, the Tribunal held that penalty could not be sustained.

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

Final Conclusion: Because the disputed additions were rendered debatable by admission of substantial questions of law by the High Court and the penalty proceedings were not properly grounded as concealment or furnishing of inaccurate particulars, the Tribunal deleted the penalty under section 271(1)(c) and allowed the assessee's appeal.

Penalty under Section 271(1)(c) - Explanation 1 to Section 271(1)(c) - Bonafide and genuine mistake - Voluntary disclosure during assessment proceedings - TDS credit evidenced by Form 16 and Form 26AS

Penalty under Section 271(1)(c) - Explanation 1 to Section 271(1)(c) - Bonafide and genuine mistake - TDS credit evidenced by Form 16 and Form 26AS - Voluntary disclosure during assessment proceedings - Whether penalty under Section 271(1)(c) for failure to disclose additional salary and corresponding TDS can be sustained. - HELD THAT: - The assessee originally filed the return based on an earlier Form No.16 showing salary and TDS of a lower amount. The employer subsequently issued a revised Form No.16 and revised 24Q reflecting additional salary and additional TDS, and the revised figures were reflected in Form 26AS. The assessee did not claim the additional TDS in the original return but, when the case was selected for scrutiny, voluntarily furnished a revised computation declaring the additional salary and TDS before the Assessing Officer during assessment proceedings. The Tribunal found this to be a bonafide and genuine error rather than an attempt to furnish inaccurate particulars or to conceal income; there was no prejudice to revenue because the additional TDS had been deducted and disclosed by the employer in revised returns. On these facts the case falls within the scope of Explanation 1 to Section 271(1)(c), which removes the levy of penalty in such circumstances. Applying these principles, the Tribunal concluded that the penalty could not be sustained.

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

Final Conclusion: The Tribunal allowed the appeal for AY 2013-14, deleting the penalty under Section 271(1)(c) on the finding of a bonafide and genuine error covered by Explanation 1, and that there was no prejudice to the revenue as the additional TDS had been deducted and disclosed.

Reopening of assessment and issuance of notice under section 148 - reason to believe for invoking section 147 - application of mind to information received from departmental data - cash deposits in bank account not ipso facto constituting taxable income - quashing of reassessment on account of incorrect facts and mere suspicion

Reopening of assessment and issuance of notice under section 148 - reason to believe for invoking section 147 - application of mind to information received from departmental data - Validity of the reassessment proceedings initiated under section 147/148 for A.Y. 2010-2011 - HELD THAT: - The Tribunal held that the assessing officer's reasons for reopening were based on information from departmental records that the assessee had made cash deposits and investments, without proper application of mind to the material on record. The reasons recorded wrongly recited facts (overstating cash deposits) and failed to recognise that the assessing officer had accepted the source for the share investments and that the actual contested cash deposits were different. The Tribunal followed earlier decisions of the Delhi Bench of the Tribunal (Shri Arvind Yadav and Shri Abrar Ahmad Qasimi ) which held that mere entry of cash deposits in a bank account, without independent application of mind or other corroborative material, cannot sustain a 'reason to believe' that income chargeable to tax has escaped assessment. Because the reopening relied on incorrect facts and amounted to mere suspicion rather than an objectively recorded reasoned belief, the reassessment was held to be invalid and quashed. [Paras 7]

Reopening of assessment under section 147/148 quashed for want of valid 'reason to believe' and lack of application of mind.

Cash deposits in bank account not ipso facto constituting taxable income - quashing of reassessment on account of incorrect facts and mere suspicion - Deletion of the addition made in the reassessment arising from the challenged cash deposits - HELD THAT: - Since the reopening was held to be bad in law, the consequential addition made in the reassessment could not stand. The Tribunal noted that deposits in bank account per se do not amount to income and, given the flawed basis for reopening and the acceptance by the assessing officer of certain claimed sources, the addition based on the presumed unexplained deposits was unsustainable. Accordingly, following the quashing of reassessment, the addition made in the reassessment proceedings was deleted. [Paras 7, 8]

Addition made in the reassessment deleted; appeal allowed.

Final Conclusion: The Tribunal quashed the reassessment proceedings for A.Y. 2010-2011 for lack of valid reason to believe and absence of application of mind, and deleted the additions made in the reassessment; the assessee's appeal is allowed.

Anticipatory bail - offence under Section 135 of the Customs Act, 1962 - market-value threshold rendering offence non-bailable under the Customs Act - socio-economic offences as a distinct category for bail consideration - custodial investigation/interrogation necessity in conspiracy cases - repeated smuggling conspiracy

Anticipatory bail - offence under Section 135 of the Customs Act, 1962 - market-value threshold rendering offence non-bailable under the Customs Act - Anticipatory bail application of the petitioner was rejected. - HELD THAT: - The Court found that the allegations and material on record indicate the petitioner acted as the financier and king-pin in a racket that imported gold illegally on multiple occasions. The declared market value of the smuggled gold exceeds the threshold which, under the statutory scheme relied upon by the authorities, renders the offence non-bailable. Given that the offence is non-bailable and the petitioner is alleged to have furnished funds for purchase and transportation of the gold, the balance of considerations did not favour grant of anticipatory bail.

Anticipatory bail is refused.

Custodial investigation/interrogation necessity in conspiracy cases - repeated smuggling conspiracy - socio-economic offences as a distinct category for bail consideration - Custodial interrogation of the petitioner is necessary for further investigation into the alleged multi-occasion smuggling conspiracy. - HELD THAT: - The Court noted that the investigation disclosed prior similar incidents and interconnected roles of multiple accused, including admissions/statements indicating repeated smuggling and the petitioner's alleged role in financing and coordinating delivery. The existence of an alleged deep-rooted conspiracy and the need to probe the full scope of the racket weighed in favour of custodial interrogation. The Court also accepted the respondent's submission that socio-economic offences of this nature require a different approach on bail, reinforcing the need for continued investigative custody.

Custodial interrogation is required; anticipatory bail denied to enable further probe.

Final Conclusion: Considering the material on record that alleges the petitioner to be the financier and central figure in a repeated gold-smuggling conspiracy and that the market value renders the offence non-bailable, the High Court dismissed the petition for anticipatory bail to permit custodial investigation.

Confiscation under Customs Act, 1962 - Burden of proof regarding smuggling and foreign origin - Penalty under Section 112(b) and Section 114AA of the Customs Act, 1962 - Release of seized goods

Confiscation under Customs Act, 1962 - Burden of proof regarding smuggling and foreign origin - Seized gold held by the appellants was liable for absolute confiscation as smuggled goods - HELD THAT: - Tribunal examined the material relied upon by revenue and the defence evidence. Chemical examination showed purity levels of 99.63%, 99.79% and 99.70%, which the Tribunal noted were lower than the purity ordinarily attributed to gold of foreign origin. The appellant produced delivery documentation, an authorization and bank payment evidence showing purchase from Shri Shivanshu Agarwal, and asserted lawful possession. Revenue did not establish the chain of smuggling or the foreign origin of the seized gold and did not demonstrate that Shri Shivanshu Agarwal had obtained smuggled gold; further, Shri Shivanshu Agarwal was not made a party to penalty proceedings. On this material, the Tribunal held that the revenue failed to discharge the onus of proving that the gold was smuggled into India and therefore that the statutory prerequisite for confiscation was not established.

Confiscation of 2997 grams of gold set aside; the seized gold held not to be smuggled and therefore not liable for confiscation.

Penalty under Section 112(b) and Section 114AA of the Customs Act, 1962 - Release of seized goods - Penalties imposed on the appellants under the Customs Act were justified in law - HELD THAT: - Penalties were imposed by the Original Adjudicating Authority after treating the goods as smuggled. Having concluded that revenue failed to prove smuggling or foreign origin and that the appellant had established purchase through banking channels, the Tribunal found no basis to sustain penalties imposed for dealing with smuggled goods. In light of the setting aside of confiscation and absence of proof to sustain penal consequences, the concomitant penalties could not stand. The Tribunal therefore directed release of the seized goods forthwith.

Penalties imposed on both appellants set aside and the seized gold ordered to be released at the earliest.

Final Conclusion: On the record the revenue failed to prove that the seized gold was smuggled or of foreign origin; confiscation and the penalties imposed thereon are set aside and the seized gold is directed to be released to the appellants forthwith.

Constitutional validity of Section 140(5) of the Companies Act, 2013 - interpretation of the word 'action' in the second proviso to Section 140(5) as meaning prosecution - effect of auditor's resignation on maintainability of proceedings under Section 140(5) - requirement of a final SFIO investigation report under Section 212 for initiation of prosecution

Constitutional validity of Section 140(5) of the Companies Act, 2013 - Constitutional challenge to sub-section (5) of Section 140 of the Companies Act, 2013 is not finally adjudicated and requires fuller consideration. - HELD THAT: - The petitioners challenge the vires of sub-section (5) of Section 140, which empowers the Tribunal to direct change of auditor on satisfaction of fraudulent conduct and contains provisos imposing debarment and 'action' under Section 447. The Court recorded submissions on the scope and consequences of sub-section (5) but did not finally decide the constitutional validity of the provision. The matter was held to raise arguable points necessitating detailed hearing and determination on merits rather than summary adjudication at the interim stage.

Constitutional challenge to Section 140(5) is to be heard on merits; no final determination at this stage.

Interpretation of the word 'action' in the second proviso to Section 140(5) as meaning prosecution - Whether the term 'action' in the second proviso to Section 140(5) must be read down as 'prosecution' was considered but not finally decided; the Court recorded a prima facie view that it would have to be read as 'prosecution' if that contention is accepted. - HELD THAT: - Counsel for the petitioners contended that the proviso renders the auditor liable to action under Section 447 and that such a construct raises Article 21 concerns. Respondent maintained that 'action' means 'prosecution' under Section 447. The Court observed, in a prima facie way, that even accepting the respondent's contention the word 'action' would require to be read down as 'prosecution'. This observation was recorded as an interim view and not as a final interpretative ruling; the issue requires fuller adjudication. [Paras 6, 7, 8]

Interpretation of 'action' is left for final determination; prima facie view recorded that it would be read as 'prosecution'.

Effect of auditor's resignation on maintainability of proceedings under Section 140(5) - Whether resignation of the auditor precludes continuation of proceedings under Section 140(5) is an arguable issue requiring detailed consideration; prima facie merit found in petitioners' contention that provisos operate upon a Tribunal direction to change auditor. - HELD THAT: - The petitioners contend that once BSR resigned and ceased to be auditor with effect from 19th June 2019, proceedings under Section 140(5) cannot be maintained. The respondents contend resignation does not absolve the auditor and proceedings may continue. The Court noted that the substantive part of sub-section (5) deals with directing the company to change its auditor and that the operation of the provisos would prima facie arise only upon such a direction by the Tribunal. Given the competing contentions and relevant cross-references to related provisions (including Section 132(4B) and Section 141(3)(h)), the Court found the issue requires fuller scrutiny. [Paras 9, 10, 11]

Maintainability of Section 140(5) proceedings post-resignation is to be decided after detailed hearing; prima facie merit found for petitioners' challenge.

Requirement of a final SFIO investigation report under Section 212 for initiation of prosecution - Whether the SFIO report placed before the Central Government was an interim or a final report for the purposes of initiating prosecution under Section 212 is undecided and remanded for consideration; prima facie concerns recorded about the sanction issued on an allegedly interim report and the adequacy of application of mind. - HELD THAT: - Section 212(11)-(15) were relied upon to submit that prosecution can be initiated only after a final report, equated to a report under Section 173 CrPC. Petitioners argued the SFIO's report was interim and voluminous, and that the sanction order issued the next day could not reflect proper consideration. The SFIO respondent maintained the report was final. The Court found this to be an arguable point necessitating responses from Respondent No.1 and Respondent No.2 and further deliberation. [Paras 12, 13]

Whether prosecution was validly sanctioned on the SFIO report is to be examined on merits; the question is remanded for detailed consideration.

Final Conclusion: Hearing deferred for detailed consideration of the contested legal issues identified above; interim directions granted restraining continuation of proceedings under Section 140(5) in Company Petition No.2062 of 2019 and restraining coercive action in Criminal Complaint CC No.20/2019 pending next date of hearing.

Financial debt - default - admission of petition under Section 7 of the Code - completeness of application under Section 7(2) - interim resolution professional - disciplinary proceedings - moratorium under Section 14 - commencement and effect of corporate insolvency resolution process

Financial debt - default - The Corporate Debtor owed a financial debt to the Financial Creditor and was in default. - HELD THAT: - The Tribunal examined the documents filed by the applicant - including board resolutions authorising inter-corporate deposits, account statements, ledger and working computation - and found that the material established the existence of a financial debt and that the Corporate Debtor had defaulted in payment. The Corporate Debtor, through its director, admitted the claim and recommended commencement of insolvency proceedings, which corroborated the finding of default. [Paras 8, 10]

Existence of financial debt and occurrence of default are established.

Completeness of application under Section 7(2) - interim resolution professional - disciplinary proceedings - The Section 7 application was complete in all respects and the proposed interim resolution professional had no disciplinary proceedings pending. - HELD THAT: - The Tribunal verified that the petition was filed in the prescribed Form 1 and the prescribed fee was paid. The applicant proposed a named interim resolution professional and annexed Form 2, which included a declaration that no disciplinary proceedings were pending against him. The Tribunal, applying the threshold inquiries required on admission (existence of default, completeness of the application, and status of the proposed IRP), was satisfied on these points. [Paras 8, 11, 12]

The application is complete and no disciplinary proceedings are pending against the proposed interim resolution professional.

Admission of petition under Section 7 of the Code - commencement and effect of corporate insolvency resolution process - moratorium under Section 14 - The petition under Section 7 was admitted and the moratorium under Section 14 was declared with specified prohibitions and temporal effect. - HELD THAT: - Having found existence of default and that the statutory and procedural requirements were met, the Tribunal held that the petition deserved admission. On admission, the Tribunal declared the moratorium in terms of sub section (1) of Section 14, setting out the prohibitions on institution or continuation of suits or proceedings, transfer or disposal of assets, actions to enforce security interests, and recovery of property occupied by the Corporate Debtor. The Tribunal also specified that the moratorium shall be effective from the date of receipt of an authenticated copy of the order until completion of the corporate insolvency resolution process or until approval of a resolution plan or liquidation as applicable. [Paras 12, 13, 14, 16]

The Section 7 petition is admitted and moratorium is declared with the stated scope and duration.

Supply of goods and essential services during moratorium - Supply of goods and essential services to the Corporate Debtor shall not be terminated, suspended or interrupted during the moratorium. - HELD THAT: - The Tribunal directed that any continuing supply of goods and essential services to the Corporate Debtor must not be terminated, suspended or interrupted during the moratorium period, subject to transactions otherwise notified by the Central Government in consultation with a financial sector regulator. [Paras 15]

Supply of goods and essential services shall continue during the moratorium and shall not be terminated, suspended or interrupted.

Final Conclusion: The Tribunal admitted the Section 7 petition filed by the Financial Creditor against the Corporate Debtor, having found existence of financial debt and default and that the application and proposed interim resolution professional satisfied the statutory requirements; a moratorium was declared with directions on its scope, duration and continuation of essential supplies, and the petition was disposed of with no order as to costs.

Settlement after completion of resolution process - Liquidation under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 - Scheme of arrangement under Section 230 of the Companies Act, 2013 - Powers and duties of the liquidator post-liquidation order - Application of precedential guidance in Y. Shivram Prasad

Settlement after completion of resolution process - Liquidation under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 - Whether a settlement with promoters and creditors can be permitted after completion of the resolution process and after an order for liquidation has been passed under Section 33(2) of the I&B Code. - HELD THAT: - The Tribunal noted that once the resolution process is complete and the Adjudicating Authority has ordered liquidation under Section 33(2) of the I&B Code, the appellate forum cannot permit a post-hoc settlement between the promoters and creditors that would alter the consequences of the completed process. Reliance was placed on the prior decisions, including S.C. Sekaran and Y. Shivram Prasad, which establish that settlements or revival by promoters cannot be allowed to bypass or frustrate the statutory liquidation framework after completion of resolution. Consequently, the Appellate Tribunal declined to entertain the appellant's contention that payment or compromise by the promoter could avert liquidation.

Settlements with promoters and creditors after completion of the resolution process and following a liquidation order under Section 33(2) I&B Code are not permissible; the appellant's plea for such settlement is rejected.

Scheme of arrangement under Section 230 of the Companies Act, 2013 - Powers and duties of the liquidator post-liquidation order - Application of precedential guidance in Y. Shivram Prasad - Whether relief under Section 230 of the Companies Act, 2013 could be applied to save the corporate debtor and what directions should govern the liquidator's conduct. - HELD THAT: - The Tribunal observed that the suggestion to invoke Section 230 of the Companies Act, 2013 for a scheme of arrangement was not a ground on which the Appellate Tribunal could order revival or permit a settlement after the resolution process and liquidation order. The Bench directed that the liquidator must proceed in accordance with the established procedure and the guidance laid down in Y. Shivram Prasad, which delineates how a liquidator should carry out the liquidation process. There was no direction to reconsider or stay the liquidation; instead the liquidator was to follow the precedent in conducting liquidation steps.

Invocation of Section 230 cannot be used to circumvent a liquidation order; the liquidator is directed to proceed in the conduct of liquidation consistent with the decision in Y. Shivram Prasad.

Final Conclusion: The appeal is dismissed with the observation that post-resolution settlements to avert liquidation cannot be permitted and the liquidator shall proceed with the liquidation in accordance with the Tribunal's precedential guidance; no costs.

Service tax demand for erection, commissioning and installation/work contract services - maintainability of departmental appeal before the High Court where demand is below monetary threshold - monetary limit for departmental appeals - withdrawal of appeal with liberty to agitate question of law - operation of appellate order of CESTAT

Maintainability of departmental appeal before the High Court where demand is below monetary threshold - monetary limit for departmental appeals - Appeal before the High Court is not maintainable in view of Department of Revenue instructions where the departmental demand is below the specified monetary limit. - HELD THAT: - Learned counsel for the appellant admitted that in view of instructions dated 22.8.2019 issued by the Ministry of Finance (Department of Revenue, CBIC Judicial Cell) the instant appeal would not be maintainable before this Court because the aggregate demand to be recovered (for the periods 2009-10 to 2012-13 and 2013-14) falls below the departmental monetary threshold of Rs. 1 crore. The Court recorded this position and proceeded on the basis of the concession made by the appellant's counsel.

Appeal found not maintainable before the High Court on the grounds conceded by the appellant that the demand falls below the departmental monetary limit.

Withdrawal of appeal with liberty to agitate question of law - operation of appellate order of CESTAT - Appellant's prayer to withdraw the appeal was acceded to and the appeal was dismissed as withdrawn while leaving open the question of law. - HELD THAT: - On the admission regarding maintainability and the appellant's prayer for withdrawal, the Court permitted withdrawal of the appeal but expressly left open the question of law raised against the CESTAT order dated 22.3.2018. The Court did not adjudicate the merits of the service tax demand or the correctness of the CESTAT decision, and no operative order was passed restoring the original adjudication order.

Appeal dismissed as withdrawn with liberty to pursue the question of law; no adjudication on merits and no restoration of the original adjudicating order.

Final Conclusion: The appeal was dismissed as withdrawn on the appellant's admission that, per CBIC instructions dated 22.8.2019, the High Court appeal was not maintainable because the departmental demand is below the prescribed monetary threshold; the substantive question of law raised against the CESTAT order remains open.

Maintainability of appeal - monetary jurisdictional limit for appeals - withdrawal of appeal with liberty to raise questions of law - condonation of delay

Maintainability of appeal - monetary jurisdictional limit for appeals - withdrawal of appeal with liberty to raise questions of law - Appeal dismissed as withdrawn in view of departmental instruction rendering the appeal not maintainable as the demand was below the monetary threshold; leave granted to keep question of law open. - HELD THAT: - Learned counsel for the appellant admitted that Ministry of Finance / CBIC instruction dated 22.8.2019 precludes maintainability of the instant appeal because the demand sought to be recovered is below the prescribed monetary limit of Rs. 1 crore. In consequence, the appellant sought withdrawal of the appeal while preserving the questions of law pleaded. The Court accepted the concession and dismissed the appeal as withdrawn, expressly leaving the question(s) of law open for future adjudication.

Appeal dismissed as withdrawn with liberty to keep the question(s) of law open; applications for condonation of delay need not be decided.

Final Conclusion: The appeal was dismissed as withdrawn in view of the CBIC instruction that the matter was not maintainable because the demand was below the Rs. 1 crore threshold; the substantive questions of law were left open and no orders were passed on the condonation applications.

Input Service - place of removal - Cenvat Credit - transport of excisable goods between units of same assessee - distinction in application of Ultra Tech Cement Ltd.

Input Service - place of removal - Cenvat Credit - transport of excisable goods between units of same assessee - Entitlement to Cenvat credit of Service Tax paid on transportation of excisable goods from one manufacturing unit of the assessee to another unit of the same assessee where the goods were subsequently incorporated and sold. - HELD THAT: - The Court held that the amended definition of Input Service (substituting 'upto' the place of removal) and the extended wording of clause (iii) of the definition of place of removal - which covers 'any other place or premises from where the excisable goods are to be sold after their clearance from the factory' - embrace a situation where semi-finished excisable goods are transported from one unit of the assessee to another unit where further processing occurs and the final product is sold. The inter-unit transport in that factual matrix falls within the meaning of 'place of removal' and hence the transport service is an Input Service eligible for Cenvat Credit. The Court distinguished the decision in Ultra Tech Cement Ltd., observing that Ultra Tech dealt with outward transport from place of removal to the buyer's premises and therefore is not applicable to intra-assessee transfers; accordingly Ultra Tech supports inclusion of transport services that are availed upto the final place of removal by sale. The Tribunal's mechanical application of Ultra Tech without comparing factual distinctions was held to be erroneous. [Paras 9, 10, 11, 12, 13]

Assessee entitled to Cenvat credit of Service Tax paid on transport of goods from Chennai Unit 1 to Jamshedpur Unit 2; orders of adjudicating authority and Tribunal set aside.

Final Conclusion: Appeals allowed. The Tribunal's order is set aside and the Revenue is directed to permit Cenvat credit of Service Tax paid on transport of excisable goods from the Chennai unit to the Jamshedpur unit of the assessee; no costs.

Summary order. Special Leave Petition disposed of because the amount involved is less than Rs. 2 crore and is covered by the communication dated 22.08.2019; questions of law are left open.

Maintainability of appeal - monetary jurisdictional limit - withdrawal of appeal - reservation of substantial questions of law - condonation of delay

Maintainability of appeal - monetary jurisdictional limit - withdrawal of appeal - Appeal before the High Court was not maintainable in view of departmental instruction given the demand amount was below the prescribed monetary threshold, and the appeal was dismissed as withdrawn. - HELD THAT: - Learned counsel for the appellant admitted that in light of the instructions dated 22.8.2019 issued by the Ministry of Finance (Department of Revenue, CBIC Judicial Cell) the instant appeal would not be maintainable before the High Court because the demand (Rs. 55,91,573/-) fell below the monetary limit of Rs. 1 crore. On that admission, the appellant sought withdrawal of the appeal. The Court accepted the withdrawal while expressly leaving open the substantial questions of law raised by the parties. Consequently, the appeal was dismissed as withdrawn rather than being decided on merits.

Appeal dismissed as withdrawn for want of maintainability in view of the departmental instruction; substantial questions of law left open.

Condonation of delay - Application for condonation of delay under Section 5 of the Limitation Act was not decided. - HELD THAT: - Because the main appeal was dismissed as withdrawn, the Court did not adjudicate the application seeking condonation of delay of 1471 days. The application was therefore left undecided and no order was passed on it.

No order on the condonation application; it remains undecided.

Final Conclusion: The High Court accepted the appellant's admission that the appeal was not maintainable under the departmental instruction and dismissed the appeal as withdrawn while reserving the substantial questions of law; the application for condonation of delay was not decided.

Service of order - right to certified copy - remand for fresh consideration - release of bank accounts pending appellate remedy - registration of writ petition without impugned order copy

Right to certified copy - service of order - Direction to respondents to furnish certified copy of the order in original dated 31.10.2012 to the petitioner and to provide the copy already supplied to petitioner's counsel. - HELD THAT: - The Court recorded that the petitioner did not possess the original order sought to be challenged and that the respondent has admitted absence of acknowledgment of service. The Registry ought not to have proceeded without the impugned order. In light of these facts the Court directed respondents to issue the certified copy of the order dated 31.10.2012 within 15 days and directed the respondent-counsel to supply the copy already provided to the petitioner's counsel. This direction was procedural and does not decide the merits of the order itself. [Paras 3, 5]

Respondents to issue the certified copy of the order dated 31.10.2012 within 15 days and supply the copy to the petitioner's counsel.

Remand for fresh consideration - service of order - Petitioner's remedy to file an appeal and requirement that the appellate authority consider the claim that the original order was not served before passing orders on appeal. - HELD THAT: - The Court refrained from adjudicating the merits and instead relegated the dispute to the appropriate appellate forum. Upon receipt of the certified copy, the petitioner was permitted to file an appeal if so advised. The appellate authority was directed to consider, as part of that appeal or proceedings, the petitioner's contention that the order in original was not served and thereafter pass necessary orders. The Court thus remanded factual and legal questions concerning service and the impugned order to the appellate forum for fresh consideration. [Paras 6]

Petitioner may file an appeal; appellate authority to consider the non-service claim and pass appropriate orders.

Release of bank accounts pending appellate remedy - remand for fresh consideration - Direction that the petitioner may apply to the appellate authority for release of bank accounts and that the appellate authority shall decide such application within 15 days of its receipt. - HELD THAT: - The Court did not itself order release of the bank accounts but provided a prompt procedural remedy by directing the petitioner to approach the appellate authority. The appellate authority was mandated to consider any application for release and pass appropriate orders within a fixed time frame of 15 days, ensuring expeditious interim relief while leaving substantive adjudication to the appellate forum. [Paras 7]

Petitioner may apply to the appellate authority for release of the sealed bank account; the appellate authority to decide the application within 15 days.

Final Conclusion: Writ petition disposed of on procedural directions: respondents ordered to supply certified copy of the order dated 31.10.2012; petitioner permitted to file an appeal; appellate authority directed to consider non-service contention and to decide any application for release of bank accounts within 15 days; merits kept open.

Clubbing of clearances - SSI exemption benefit - control and management test - separate legal entity/status - maintainability of departmental appeal

Clubbing of clearances - SSI exemption benefit - control and management test - separate legal entity/status - Whether the clearances of M/s Kumar Polyextrusion should be clubbed with M/s Mali Pipe Industries for denying SSI exemption under Notification No. 8/2003-CE for the financial years 2005-06 and 2006-07. - HELD THAT: - The Tribunal accepted the Revenue's evidence that, despite separate registrations on paper, the operations, control and management of M/s Kumar Polyextrusion were exercised by the proprietor of M/s Mali Pipe Industries. Recorded statements of the proprietors and employees showed common control: managerial direction, preparation of invoices, purchase of raw materials, financing and instructions emanated from Shri Kumar Shankar Mali; the proprietress of M/s Kumar Polyextrusion admitted lack of involvement and signing at her husband's direction. These statements were not retracted or shown to be procured by coercion and therefore could not be ignored. Having regard to the common control and management, the factual matrix fell within the scope of authorities where separate units under common control are to be clubbed for calculating eligibility for SSI exemption. The Tribunal found that the Commissioner (Appeals) misappreciated the evidence and therefore restored the adjudicating authority's conclusion on clubbing of clearances, holding that the clearances of both units must be clubbed for the purpose of SSI exemption determination. [Paras 11, 13, 14, 16]

Clearances of M/s Kumar Polyextrusion are to be clubbed with those of M/s Mali Pipe Industries for assessing entitlement to SSI exemption for 2005-06 and 2006-07; the adjudication order on clubbing is restored.

Maintainability of departmental appeal - Whether Revenue's single appeal challenging the Commissioner (Appeals) order is maintainable despite multiple respondents. - HELD THAT: - The Tribunal accepted the Revenue's submission that it complied with Rule 6A of the CESTAT (Procedure) Rules, 1982 and filed appeal to the extent it was aggrieved. As the Commissioner (Appeals) had partly allowed the appeal and modified the adjudication order, the Department filed one appeal challenging only that part. The Tribunal found this course permissible and held the appeal sustainable. [Paras 15]

The Revenue's appeal is maintainable.

Final Conclusion: The Tribunal allowed the Revenue's appeal on the clubbing issue, restored the adjudicating authority's demand (duty, interest and penalty) insofar as clearances of M/s Kumar Polyextrusion are to be clubbed with M/s Mali Pipe Industries for SSI exemption purposes for 2005-06 and 2006-07; the appeal was held maintainable and disposed accordingly.

Interest on delayed refund under Section 35FF - Refund of pre-deposit under Section 35F - Three-month period for refund - Applicability of post-amendment provisions to pre-amendment deposits

Interest on delayed refund under Section 35FF - Three-month period for refund - The appellant is entitled to interest under Section 35FF for delay in refund where the sanctioned refund was not paid within three months of communication of the appellate order. - HELD THAT: - The Tribunal examined Section 35FF which provides that where an amount deposited under the proviso to Section 35F is required to be refunded consequent upon an appellate order and such amount is not refunded within three months from the date of communication of that order to the adjudicating authority, interest at the rate specified in Section 11BB shall be payable from expiry of three months until refund. The Assistant Commissioner's order sanctioned the refund but without interest and the Tribunal found that the refund was sanctioned beyond three months of the claim/communication, rendering the findings in the original order erroneous. Applying the statutory mandate of Section 35FF, the appellant was held entitled to interest on the refunded pre-deposit from expiry of the three-month period until actual refund. [Paras 4, 5]

Order set aside and appellant entitled to interest under Section 35FF for delayed refund; appeal allowed.

Refund of pre-deposit under Section 35F - Applicability of post-amendment provisions to pre-amendment deposits - The amended provision (Section 35FF as introduced by Finance Act (No. 2), 2014) applies to refund claims filed after the amendment even though the pre-deposit was made before the amendment. - HELD THAT: - The Tribunal noted that although the pre-deposit was made prior to the 2014 amendment, the application for refund was filed on 04.04.2017 and the sanction order was passed on 31.07.2017, both after the amendment came into effect. Therefore, Section 35FF is applicable to the present refund claim. The Tribunal rejected any contention that the earlier timing of the pre-deposit would exclude the claim from the post-amendment interest provision, holding the amended provision to squarely cover the present case. [Paras 4, 5]

Section 35FF applies to the refund claim filed post-amendment despite the pre-deposit having been made earlier; appellant entitled to interest accordingly.

Final Conclusion: The appeal is allowed; the order sanctioning the refund without interest is set aside and the appellant is entitled to interest under Section 35FF on the refunded pre-deposit from the expiry of three months until actual payment.

Power under Section 25 of the KVAT Act to reopen completed assessments - procedure under Section 56 of the KVAT Act for cancellation/revision of compounding permission - compounding scheme / permission for compounding as a concluded statutory contract - contractual effect of compounding agreement and its effect on subsequent reassessment - jurisdictional validity of compounding orders and voidness ab initio

Power under Section 25 of the KVAT Act to reopen completed assessments - procedure under Section 56 of the KVAT Act for cancellation/revision of compounding permission - compounding scheme / permission for compounding as a concluded statutory contract - Whether proceedings under the re-opening provision can be initiated without first cancelling the permission granted for payment of tax at the compounded rate. - HELD THAT: - The Court noted divergent judicial precedents on whether an assessment completed under a compounding scheme can be reopened by invoking the re-opening power without cancelling the compounding permission. Some precedents treat the compounding permission as creating a concluded statutory contract binding both parties and hence immune from re-opening except through cancellation of the compounding order; other decisions treat the re-opening power as available notwithstanding compounding. Given the conflict in authority and the legal importance of whether the compounding permission must be cancelled (or is amenable to re-opening directly), the Court refrained from resolving the question itself and considered it appropriate to obtain an authoritative pronouncement by a Full Bench. [Paras 12, 14]

Question referred to a Full Bench for authoritative determination.

Jurisdictional validity of compounding orders and voidness ab initio - compounding scheme / permission for compounding as a concluded statutory contract - Whether compounding permissions that allegedly suffer from lack of jurisdiction are null and void ab initio and thus treatable as non est in law, distinct from erroneous exercise of jurisdiction. - HELD THAT: - The Government raised a separate contention that the compounding permissions in the present cases may be void for want of jurisdiction and therefore non est. The Court observed that this question is distinct from whether re-opening can be done without cancelling the compounding permission and noted that it is a debatable issue requiring authoritative consideration. In view of the existing divergence of precedents and the separable nature of the jurisdictional nullity question, the Court did not decide the matter on the merits and directed that it also be placed before the Full Bench. [Paras 13, 14]

Question referred to a Full Bench for authoritative determination.

Final Conclusion: Divergent precedents on (a) the availability of the re-opening power in cases assessed under the compounding scheme and (b) the consequences of alleged jurisdictional infirmity in compounding permissions warrant an authoritative pronouncement; both questions are accordingly referred to a Full Bench for decision and the matters are to be posted before the Full Bench.

Arbitration clause - scope of arbitration agreement - reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 - disputes arising out of, in connection with or relating to the agreement - party autonomy in appointing arbitral tribunal (sub clauses (c), (d) and (e) of Clause 19) - bar on court proceedings in matters arising during arbitration

Scope of arbitration agreement - disputes arising out of, in connection with or relating to the agreement - reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 - Whether the dispute between the parties concerning sharing of lease rents is covered by Clause 19 of the Addendum and therefore mandatorily referable to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. - HELD THAT: - Clause 19 of the Addendum applies to "any dispute or difference arising among the Parties out of, in connection with or relating to the Agreement" and prescribes procedures for resolution, including negotiation and, if unresolved, reference to arbitration. The respondents' claims for their share of rents derive from the Development Agreements, Supplementary Development Agreements and the Addendum; the societies, owners and developer are parties to those agreements. Clause 13 entrusts societies with collection and pooling of lease rents and distribution to owners, linking the rent sharing dispute to the Addendum and the agreements. Sub clauses (c), (d) and (e) of Clause 19 set out the mode of arbitration depending on the nature of the owners' dispute, but do not restrict Clause 19's applicability to a narrow class of controversies. Reading Clause 19 as a whole, disputes in connection with or relating to the Agreement fall within its scope and must be referred to arbitration. The High Court and the District Judge erred in holding the rent sharing dispute outside Clause 19 and declining reference to arbitration. [Paras 6, 7, 8]

The rent sharing dispute is covered by Clause 19 of the Addendum and the applications under Section 8 are allowed; the dispute is to be referred to arbitration.

Final Conclusion: The appeals are allowed; the High Court and the District Judge orders declining reference to arbitration are quashed and set aside, the Section 8 applications are allowed and the disputes between the parties are directed to be referred to arbitration.

Evidence on affidavit - Summon and examine under Section 145(2) - Affidavit treated as examination-in-chief - Cross-examination of deponent to facts in affidavit - No requirement to assign reasons in application under Section 145(2) - Magistrate's duty to summon on application

Evidence on affidavit - Affidavit treated as examination-in-chief - Cross-examination of deponent to facts in affidavit - Nature and extent of examination when a person who has given evidence by affidavit is summoned under S.145(2). - HELD THAT: - The Court held that S.145(1) permits the complainant's evidence to be given by affidavit which, subject to just exceptions, may be read in evidence. Section 145(2) authorises the court to summon and examine any person who has given evidence on affidavit; where an application is made by the accused the court is obliged to summon such person. The affidavit already on record amounts to the deponent's examination-in-chief; consequently, when the deponent is summoned under S.145(2) at the instance of the accused, the proper incident is cross-examination as to the facts contained in the affidavit. The provision does not require the deponent to repeat examination-in-chief orally once more, and the word "examine" in S.145(2) is to be construed in that context consistent with the object and scheme of Sections 143-146 and decisions of the Apex Court. [Paras 10, 11, 12, 13, 14]

On summoning under S.145(2) the affidavit stands as examination-in-chief and the deponent can be subjected to cross-examination as to the facts therein; re-taking of examination-in-chief is not required.

Summon and examine under Section 145(2) - No requirement to assign reasons in application under Section 145(2) - Magistrate's duty to summon on application - Whether an application under S.145(2) must set out reasons and specific particulars of legal liability to justify summoning the complainant or its witnesses. - HELD THAT: - The Court found that the second part of S.145(2) imposes an obligation on the court to summon a person giving evidence on affidavit if the prosecution or the accused makes an application. The provision contains no mandate that the applicant must assign reasons in the application or narrate specifics of what was legally due. Accordingly, dismissal of the accused's application on the ground that he had not mentioned what was legally due or that the cheque amount was not legally recoverable was not tenable. The accused's pleaded defence that a blank cheque was issued as security and that the complainant filled in a wrong amount constituted adequate grounds for seeking cross-examination of the complainant and its witnesses to protect his defence and to elicit truth. [Paras 4, 6, 15, 16, 17]

An applicant under S.145(2) is not required to assign detailed reasons in the application; where an application is made the court is obliged to summon the deponent and allow cross-examination of the facts in the affidavit.

Summon and examine under Section 145(2) - Remedy by quashing impugned order - Whether the impugned order rejecting the accused's application under S.145(2) should be quashed and appropriate relief granted. - HELD THAT: - Applying the legal principles above to the facts, the Court observed that the learned Magistrate's refusal to permit cross-examination on the stated grounds was not plausible. The accused had specifically pleaded that a blank cheque was issued as security and that the complainant filled an incorrect amount, and had sought cross-examination to elicit those facts. There was no prejudice to the complainant in permitting such cross-examination; on the contrary, it would assist the court in adjudication of the controversy. In view of these considerations and the mandatory duty under S.145(2) upon receipt of an application, interference was warranted. [Paras 15, 16, 17, 18]

Impugned order dated 2.2.2019 is quashed and set aside; the accused's application under S.145(2) is allowed and the trial court is directed to fix a date for cross-examination of the complainant and its witnesses.

Final Conclusion: The petition is allowed: the High Court set aside the Magistrate's order refusing the accused's application under S.145(2), held that an affidavit constitutes examination-in-chief and deponents summoned under S.145(2) may be cross-examined as to the affidavit's contents without re-taking examination-in-chief, and directed the trial court to fix a date for cross-examination of the complainant and its witnesses.