TaxTMI Updates e-Newsletter
Sep 18,2020

Composite supply - principal supply - treatment of composite supply as principal supply under Section 8 - classification of services - room or unit accommodation services (Sub heading 996311) - human health services (Heading 9993) - exemption under Entry No.74 of Notification No.12/2017 Central Tax (Rate)

Composite supply - principal supply - room or unit accommodation services (Sub heading 996311) - human health services (Heading 9993) - exemption under Entry No.74 of Notification No.12/2017 Central Tax (Rate) - treatment of composite supply as principal supply under Section 8 - Whether the applicant's services qualify for exemption under Entry No.74 of Notification No.12/2017 Central Tax (Rate) dated 28.06.2017. - HELD THAT: - The Authority examined the applicant's published packages and programme schedule and found the offerings to be a single bundled programme consisting of accommodation, food and therapies that are provided only on a residence/stay basis. The components are naturally bundled and interdependent so as to constitute a composite supply, with accommodation being the mandatory and dominant element. Applying the statutory rule that a composite supply is to be treated as a supply of its principal supply (the rule in Section 8), the composite package is to be classified as room or unit accommodation services (Sub heading 996311) rather than as human health services (Heading 9993). Entry No.74 grants exemption only to services falling under Heading 9993. Because the applicant's composite supply is to be treated as accommodation under Sub heading 996311, the exemption in Entry No.74 of Notification No.12/2017 Central Tax (Rate) does not apply to the applicant. [Paras 15, 16, 17, 18]

The applicant is not eligible for the exemption under Entry No.74 of Notification No.12/2017 Central Tax (Rate) dated 28.06.2017 because its composite residential wellness packages are to be treated as accommodation services under Sub heading 996311.

Final Conclusion: The Authority rules that M/s. Oswal Industries Ltd. (M/s. Nimba Nature Cure Village) does not qualify for the Nil rated exemption under Entry No.74 of Notification No.12/2017 Central Tax (Rate) as its bundled residential wellness packages are composite supplies whose principal supply is accommodation and are therefore taxable as accommodation services.

Services relating to conduct of examination - exemption under Notification No. 12/2017-C.T. (Rate) Sr. No. 66(b)(iv) - definition of "educational institution" for ancillary service exemption - interpretation of the phrase "in relation to"

Services relating to conduct of examination - exemption under Notification No. 12/2017-C.T. (Rate) Sr. No. 66(b)(iv) - definition of "educational institution" for ancillary service exemption - interpretation of the phrase "in relation to" - Whether ASSET educational assessment services supplied to schools qualify as services relating to conduct of examination and are exempt from GST under Sr. No. 66(b)(iv) of Notification No.12/2017-C.T. (Rate). - HELD THAT: - The Authority found that the recipient schools fall within the notification's definition of "educational institution" as they provide education up to higher secondary (paragraph 20). The ASSET service consists of setting and supplying question papers (physical and online) and furnishing student- and class-wise assessment reports which schools incorporate into their examination and evaluation process; the contractual terms require ASSET results to be taken into account in the schools' overall assessment (paragraphs 16, 21, 21.1). The Authority applied established authorities and the ordinary meaning of "in relation to" to hold that the phrase is broad and covers auxiliary services that help an educational institution in the act of conducting examinations (paragraphs 21.2, 21.4). Noting prior AAR decisions treating printing and related services as covered by entry 66(b)(iv), and distinguishing that the applicant here also prepares the questions (which remains within the ambit of services "relating to" conduct of examination), the Authority concluded both conditions for exemption are met: recipient is an educational institution and the supplied services relate to conduct of examination (paragraphs 22, 21.3). [Paras 20, 21, 23]

ASSET services supplied to eligible schools qualify as services "relating to" the conduct of examination and are exempt from GST under Sr. No. 66(b)(iv) of Notification No.12/2017-C.T. (Rate).

Final Conclusion: The Authority ruled that the ASSET educational assessment services supplied to schools (used by those schools in their examination and evaluation process) satisfy the notification's conditions and are exempt from GST under entry Sr. No. 66(b)(iv) of Notification No.12/2017-C.T. (Rate).

Treatment of construction as supply of services under para 5(b) of Schedule II - partial building use permission / part completion - first occupation as relevant milestone for supply characterisation - reversal of input tax credit under Rule 42 and Rule 43 - claiming Input Tax Credit under Sections 16 and 17 - Notification No. 16/2019-CT dated 29.03.2019

Treatment of construction as supply of services under para 5(b) of Schedule II - partial building use permission / part completion - first occupation as relevant milestone for supply characterisation - Selling of residential flats after issuance of completion certificate/part building use permission for commercial shops or after first occupancy in the building is an exempt supply or not. - HELD THAT: - Para 5(b) of Schedule II treats construction of a building or part thereof intended for sale as supply of services except where the entire consideration is received only after issuance of the completion certificate for the relevant building (where required) or after first occupation, whichever is earlier. The applicant had produced a Building Use Permission dated 26.09.2017 which applied only to the ground and first floors (commercial shops) and not to the residential units; there was no evidence that completion certificate or building use permission was issued in respect of residential flats, nor that residential units had been occupied by buyers. The Authority therefore held that the completion/use permission granted only for the commercial portion does not exempt subsequent sale of the residential flats from being treated as a supply of services under Para 5(b). [Paras 8]

Negative - sale of the residential flats is not an exempt supply and shall be treated as supply of services under Para 5(b) of Schedule II.

Reversal of input tax credit under Rule 42 and Rule 43 - Notification No. 16/2019-CT dated 29.03.2019 - Manner of reversal of Input Tax Credit on expenses incurred up to the date of completion certificate of the commercial shops. - HELD THAT: - The Authority indicated that the procedure and mechanism for reversal of Input Tax Credit relating to expenses incurred up to the date of the completion certificate are governed by the applicable rules and notification. Specifically, reversal is to be effected in accordance with Rule 42 and Rule 43 of the CGST Rules read with Notification No. 16/2019-CT dated 29.03.2019, which lay down the method and apportionment for reversal where credit pertains to supplies attributable to exempt or non-taxable supplies. [Paras 9]

The manner of reversal of ITC is as provided under Rule 42 and Rule 43 read with Notification No. 16/2019-CT dated 29.03.2019.

Claiming Input Tax Credit under Sections 16 and 17 - reversal of input tax credit under Rule 42 and Rule 43 - Notification No. 16/2019-CT dated 29.03.2019 - Manner of claiming Input Tax Credit on expenses incurred after the date of completion certificate of commercial shops. - HELD THAT: - The Authority stated that entitlement to and procedure for claiming Input Tax Credit on expenses incurred after the relevant completion/use permission are governed by the general provisions on input tax credit. The manner of claiming ITC is provided under Sections 16 and 17 of the CGST Act read together with Rules 42 and 43 of the CGST Rules and Notification No. 16/2019-CT dated 29.03.2019, which collectively determine eligibility, apportionment and reversal where supplies are for both taxable and exempt supplies. [Paras 10]

Input Tax Credit on expenses after the completion certificate is to be claimed in accordance with Sections 16 and 17 read with Rules 42 and 43 and Notification No. 16/2019-CT dated 29.03.2019.

Final Conclusion: Advance Ruling: (1) Sale of the residential flats is not exempt and shall be treated as supply of services under Para 5(b) of Schedule II since completion/use permission was only for the commercial portion; (2) reversal of ITC up to the date of the commercial completion/use permission is governed by Rule 42 and Rule 43 read with Notification No. 16/2019-CT dated 29.03.2019; (3) claiming of ITC after that date is governed by Sections 16 and 17 read with Rules 42 and 43 and Notification No. 16/2019-CT dated 29.03.2019.

Maintainability of writ petition in presence of alternative statutory remedy - appeal under Section 107 of the Goods and Services Tax Act, 2017 - refund claim pending adjudication - directive to decide on merits after hearing within fixed time

Maintainability of writ petition in presence of alternative statutory remedy - appeal under Section 107 of the Goods and Services Tax Act, 2017 - Writ petition challenging order dated 17/06/2020 rejecting the first refund claim is not maintainable when an alternative statutory remedy exists. - HELD THAT: - The Court held that the order rejecting the refund claim is appealable under the statutory appeal mechanism and therefore the petition under Article 226 should not be entertained. Reliance was placed on the established principle that where an effective alternative remedy is provided by statute, the High Court will ordinarily refuse to entertain a writ petition, subject to narrowly defined exceptions (such as total violation of natural justice or actions beyond statutory power). In the present case no such exception was found; therefore the petitioner must pursue the remedy of appeal in accordance with law before the appropriate forum. [Paras 4, 5, 6]

Writ petition challenging the order dated 17/06/2020 refused; petitioner is at liberty to prefer an appeal as provided under the statute.

Refund claim pending adjudication - directive to decide on merits after hearing within fixed time - Pending refund application dated 23/01/2020 must be decided by the respondent-authorities in accordance with law after giving adequate opportunity of being heard, within three weeks. - HELD THAT: - The Court observed that the second refund claim remained undecided and therefore directed the concerned authorities to dispose of the application in accordance with applicable law, rules, regulations and government policies, after affording the petitioner an adequate hearing. A specific time-bound direction of three weeks was issued for final decision to ensure adjudication on merits without delay. [Paras 7, 8, 9]

Respondent-authorities directed to decide the refund application dated 23/01/2020 on merits after hearing, within three weeks.

Final Conclusion: Exemption applications allowed; writ petition challenging the rejection dated 17/06/2020 is declined for want of alternative remedy and the petitioner may prefer the statutory appeal; the separate refund claim of 23/01/2020 is remitted for fresh decision by the authorities within three weeks after giving the petitioner an opportunity of hearing.

Exemption under Section 10(23FB) - deeming operation under Section 115U (including subsections (1), (3) and (5)) - treatment of Security Transaction Tax where STT is borne by the investor versus the Venture Capital Fund - availability of exemption under Section 10(38) in relation to STT

Exemption under Section 10(23FB) - deeming operation under Section 115U (including subsections (1) and (3)) - treatment of Security Transaction Tax where STT is borne by the investor versus the Venture Capital Fund - availability of exemption under Section 10(38) - Whether the assessee is entitled to the benefit of exemption in respect of income distributed by a Venture Capital Fund where the question of who bore the Security Transaction Tax (STT) arose - HELD THAT: - The Court recorded that the core controversy was factual - whether STT on the relevant transaction was borne by the assessee or by the Venture Capital Fund. The assessee relied on the combined operation of Section 10(23FB) (exemption of income of a Venture Capital Fund) and Section 115U(1) and (3) (deeming the income of the Fund to be of the same nature and proportion in the hands of the investor). The assessee also contended that STT was debited to the assessee's account by the Fund and accordingly claimed exemption under Section 10(38). The Commissioner (Appeals) made a factual finding that STT was borne by the assessee and this finding was noted and examined by the Tribunal. The High Court observed that the Revenue's challenge raised no substantial question of law but rested on factual disputes already considered and resolved by the lower authorities. The Court therefore declined to disturb the factual conclusion that the STT liability was borne by the assessee and accepted the Tribunal's direction to allow consideration of the exemption claim under the relevant provisions. [Paras 7, 8]

Factual finding that STT was borne by the assessee was upheld and, on that basis, the Tribunal's affirmation of the assessee's entitlement to relief under the provisions relied upon was not interfered with.

Remand to Assessing Officer to consider claim under Section 111A - Whether the matter required remand for fresh consideration of the claim of Short Term Capital Gain (STCG) in light of conditions under Section 111A - HELD THAT: - The Tribunal had remitted the issue to the Assessing Officer to examine the claim relating to STCG afresh in the light of the conditions specified under Section 111A. The High Court noted and recorded that the Tribunal had remanded consideration of that specific claim to the Assessing Officer for appropriate adjudication rather than deciding it finally on merit. This remand was observed as part of the Tribunal's order and was not disturbed by the High Court. [Paras 4]

The remand to the Assessing Officer to consider the claim under Section 111A was recorded and left to be examined afresh as directed by the Tribunal.

Final Conclusion: The Revenue's appeal is dismissed. The High Court found no substantial question of law for interference with the Tribunal's order: the factual finding that STT was borne by the assessee was upheld and the Tribunal's remand to the Assessing Officer on the STCG claim under Section 111A was left undisturbed.

Fees for technical services under Explanation 2 to Section 9(1)(vii) - obligation to deduct tax at source under Section 195(1) - managerial, technical or consultancy services - facilitation/inspection services not amounting to consultancy or technical services - tribunal as fact-finding authority and perversity review

Fees for technical services under Explanation 2 to Section 9(1)(vii) - obligation to deduct tax at source under Section 195(1) - managerial, technical or consultancy services - facilitation/inspection services not amounting to consultancy or technical services - Whether the payments made by the assessee to the non-resident company constitute 'fees for technical services' within the meaning of Explanation 2 to Section 9(1)(vii) and thereby attracted the obligation to deduct tax at source under Section 195(1). - HELD THAT: - The court examined the agreement and contemporaneous documents produced by the assessee and accepted the tribunal's factual finding that the non-resident company's role was limited to physical inspection of imported material against samples approved by the assessee and coordination to ensure timely shipment. The non-resident was not involved in identifying suppliers, selecting material, negotiating price, or providing advice or expert managerial/technical consultancy; the services were described in the agreement as information and tracking services. Applying the ordinary meaning of 'managerial, technical or consultancy services' and the authorities construing 'consultancy', the court held that mere facilitation, inspection and coordination-where no technical knowledge or advisory input is furnished-do not constitute 'fees for technical services' under Explanation 2. Since the payments did not qualify as FTS, the statutory obligation to deduct tax under Section 195(1) did not arise in the facts found by the tribunal. [Paras 8]

Payments to the non-resident were not fees for technical services and did not attract TDS under Section 195(1).

Tribunal as fact-finding authority and perversity review - Whether the tribunal's finding that the services were not consultancy/technical services is perverse and liable to be set aside by the High Court. - HELD THAT: - The court reiterated the settled principle that the tribunal is the fact-finding authority and its findings of fact can be interfered with by the High Court only on the limited ground of perversity. On the record, the tribunal had conducted a meticulous appreciation of the documents and evidence furnished by the assessee, and the revenue had not specifically alleged perversity in the memo of appeal. The High Court found the tribunal's conclusion to be supported by the material on record and not perverse, and therefore declined to disturb it. [Paras 8]

Tribunal's factual finding that the services did not amount to consultancy/technical services is not perverse and is affirmed.

Final Conclusion: Substantial questions of law framed were answered against the revenue: the payments did not constitute 'fees for technical services' within Explanation 2 to Section 9(1)(vii) and no TDS obligation under Section 195(1) arose on the facts; the tribunal's factual findings are not perverse. The revenue's appeal is dismissed.

Manufacturing versus processing - classification of activity as manufacture for income tax purposes - precedential reliance on earlier bench decision

Manufacturing versus processing - classification of activity as manufacture for income tax purposes - Assessee's activity of polishing crystals and assembling glass and crystals was held to be manufacturing rather than mere processing. - HELD THAT: - The substantial question of law admitted under Section 260 A asked whether the Tribunal was justified in treating the assessee's operations as manufacturing rather than mere processing. When the matter was taken up, counsel for the parties informed the Court that the question had already been answered by a Coordinate Bench by judgment dated 19.01.2015 in ITA No.351/2009 c/w ITA No.352/2009. Having regard to the parties' joint submission and for the reasons recorded in the earlier judgment, the Court answered the substantial question against the revenue and in favour of the assessee, adopting the reasoning and conclusion of the earlier Bench rather than re examining the factual or technical distinctions afresh in this appeal.

The substantial question of law is answered against the revenue and in favour of the assessee; the appeal is dismissed.

Final Conclusion: The High Court, relying on a prior Bench decision (dated 19.01.2015 in ITA No.351/2009 c/w ITA No.352/2009), held that the activities in question constitute manufacturing and dismissed the revenue's appeal.

Remission or cessation of trading liability as sine qua non for invoking Section 41(1) of the Income tax Act, 1961 - Addition under Section 41(1) - requirement of benefit obtained by assessee - Admissibility of additional evidence on remand and its bearing on assessment - Delay in payment of liabilities not ipso facto constituting income under Section 41(1)

Remission or cessation of trading liability as sine qua non for invoking Section 41(1) of the Income tax Act, 1961 - Addition under Section 41(1) - requirement of benefit obtained by assessee - Validity of additions under section 41(1) in respect of sundry creditors in the assessee's books - HELD THAT: - The Tribunal held that section 41(1) can be invoked only where the assessee obtains a benefit by way of remission or cessation of a loss, expenditure or trading liability; mere continuation of a liability or delay in payment does not attract section 41(1). The Assessing Officer made additions to the entire ledger of sundry creditors on the ground that confirmations were not furnished, but in remand proceedings the AO identified inconsistencies only in two specific creditor accounts. For the remaining creditors the assessee furnished ledger extracts, explanations and evidence of periodic transactions, and the AO did not point to any remission or cessation of liability. Applying the statutory test, the Tribunal sustained the CIT(A)'s conclusion that additions under section 41(1) were not called for except in respect of the two accounts in which inconsistencies were specifically found and confirmed by the CIT(A). [Paras 4]

Additions under section 41(1) deleted except insofar as confirmed by the CIT(A) in respect of two specific creditors.

Admissibility of additional evidence on remand and its bearing on assessment - Procedural fairness - opportunity of hearing before completion of assessment - Whether the CIT(A) was justified in admitting additional evidence on remand and directing verification, and consequence of AO's failure to point further inconsistencies - HELD THAT: - The Tribunal noted that the AO completed assessment without granting adequate opportunity for effective scrutiny. The CIT(A) admitted additional evidence submitted by the assessee and directed a remand report; although the AO objected to admission of that evidence, his remand report did not establish inconsistencies except in two accounts. Given the procedural deficiency in granting opportunity and the absence of any finding of remission or cessation of liability in remand, the Tribunal upheld the CIT(A)'s admission of evidence and consequent deletion of the additions in respect of the other creditors. [Paras 3, 4]

Admission of additional evidence on remand was sustained and, in view of the AO's remand report, led to deletion of additions except as confirmed for the two specified creditors.

Final Conclusion: The appeal is dismissed: the Tribunal upholds the deletion of additions made under section 41(1) for Assessment Year 2011-12 except for additions confirmed by the CIT(A) in respect of two creditor accounts, which were not appealed by the assessee.

Definition of "charitable purpose" in Section 2(15) - advancement of any other object of general public utility - proviso to Section 2(15) - exclusion for activities in the nature of trade, commerce or business unless undertaken in course of actual carrying out of object and aggregate receipts do not exceed 20% of total receipts - exemption under Section 11 of the Income-tax Act - activities incidental to dominant object / business incidental under Section 11(4A) - principle of mutuality - surplus generated incidental to objects / profit motive - registration under Section 12A (recognition of objects)

Proviso to Section 2(15) - exclusion for activities in the nature of trade, commerce or business unless undertaken in course of actual carrying out of object and aggregate receipts do not exceed 20% of total receipts - exemption under Section 11 of the Income-tax Act - activities incidental to dominant object / business incidental under Section 11(4A) - surplus generated incidental to objects / profit motive - Whether holding of conventions, receipt of participation and sponsorship fees and related activities of the assessee fall within the proviso to Section 2(15) as activities in the nature of trade, commerce or business and thereby disentitle the assessee to exemption under Section 11. - HELD THAT: - The Tribunal examined the registered objects of the assessee (advancement of an object of general public utility by a national confederation of real estate associations) and the nature, frequency and purpose of the activities challenged by the revenue (annual convention, seminars, publications, subscriptions and sponsorships). It applied the post amendment proviso to Section 2(15) (applicable to A.Y. 2016 17) and relevant explanatory notes, and followed precedent holding that activities which are integrally in furtherance of the dominant charitable object and are not carried out as regular commercial ventures do not become trade/business merely because fees or sponsorships are charged. The Tribunal accepted the assessee's uncontested factual position as to the once a year convention, its educational nature, the beneficiary focus on members/industry and that any surplus was incidental and applied to objects; it rejected the lower authorities' reliance on the existence of term deposits and generated interest as proof of profit motive. On this basis the Tribunal concluded that the activities challenged were not in the nature of trade, commerce or business so as to attract the exclusion in Section 2(15), and the assessee remained eligible for deduction under Section 11. [Paras 11, 13]

Vacated the orders of the lower authorities; held that the conventions and related receipts are incidental to the dominant object of public utility and do not amount to activities in the nature of trade, commerce or business; directed allowance of deduction under Section 11.

Principle of mutuality - surplus generated incidental to objects / profit motive - registration under Section 12A (recognition of objects) - Whether the interest earned on deposits/term deposits or the question of mutuality should be adjudicated in favour of the assessee in the appeals before the Tribunal. - HELD THAT: - For A.Y. 2016 17 the Tribunal specifically considered the revenue's contention that parking of accumulated funds in term deposits and receipt of interest evidenced a profit motive and justified denial of exemption. It held that the term deposits represented accumulated funds over many years and that deposit with a scheduled bank is an authorised mode under Section 11(5)(iii); the existence of deposits and interest did not, by itself, establish a dominant profit motive and therefore could not disentitle the assessee. However, the Tribunal noted that the assessee's alternative plea based on the principle of mutuality had been pleaded but was not ripe for final adjudication after allowing the main relief; accordingly the Tribunal refrained from deciding the mutuality ground and left it open for future consideration. The same approach was followed for A.Y. 2014 15 where, having allowed the Section 11 plea, the Tribunal did not decide the mutuality contention. [Paras 12, 14, 22]

Rejected the revenue's inference of a profit motive from term deposits and interest; directed allowance of exemption under Section 11. The assessee's alternative claim based on mutuality was left open for future consideration (not finally adjudicated).

Final Conclusion: Both appeals for A.Y. 2016 17 and A.Y. 2014 15 are allowed: the Tribunal held that the assessee's conventions, sponsorships and related receipts are incidental to its dominant object of public utility and do not amount to trade, commerce or business under the proviso to Section 2(15); exemption under Section 11 is directed to be allowed. The revenue's contention that term deposits and interest demonstrated a profit motive was rejected; the assessee's alternative mutuality plea was left open.

Deduction under Section 80P(2)(a)(i) - primary agricultural credit society - registrar's certificate not conclusive for entitlement - assessment-year-wise verification of eligibility - remand for fresh factual enquiry

Deduction under Section 80P(2)(a)(i) - primary agricultural credit society - registrar's certificate not conclusive for entitlement - assessment-year-wise verification of eligibility - remand for fresh factual enquiry - Whether the Assessing Officer was justified in denying the claim of deduction under Section 80P(2)(a)(i) without a detailed inquiry into the nature and purpose of loan disbursements and whether the matter required fresh consideration in view of the Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. CIT. - HELD THAT: - The Tribunal recorded that the Assessing Officer disallowed the 80P claim on the ground that the societies were essentially carrying on banking business and agricultural credit disbursements were only minuscule. The Tribunal observed that loan narration in audit reports is not conclusive to determine whether particular advances were for agricultural purposes and that the AO had not examined the details of individual loan disbursements to ascertain their purpose. Citing the Full Bench decision in Mavilayi, which holds that after insertion of sub-section (4) the AO must conduct an inquiry into the factual activities of the society and is not bound by the registration certificate classifying the society as a primary agricultural credit society, the Tribunal held that the matter requires reassessment. The Tribunal directed the AO to list instances where loans were disbursed for non-agricultural purposes, examine the nature and purpose of each disbursement for the assessment years in question, apply the Full Bench dictum, and decide eligibility year-by-year in accordance with law. Accordingly, the question of entitlement to deduction was not finally adjudicated on merits by the Tribunal but remanded for fresh factual enquiry and decision by the AO. [Paras 7]

Issue restored to the file of the Assessing Officer for fresh examination and decision in accordance with the Full Bench dictum in Mavilayi; AO to examine purpose of individual loan disbursements and determine eligibility year-wise.

Final Conclusion: The Tribunal allowed the appeals for statistical purposes by restoring the disputed issue to the Assessing Officer for fresh factual enquiry and decision in accordance with the Full Bench decision in Mavilayi; the stay applications were dismissed as infructuous.

Deduction under Section 80P(2)(a)(i) of the Income tax Act - Primary agricultural credit society - Registration certificate not conclusive - Assessing Officer's factual inquiry into activities - Each assessment year is separate

Deduction under Section 80P(2)(a)(i) of the Income tax Act - Primary agricultural credit society - Assessing Officer's factual inquiry into activities - Registration certificate not conclusive - Each assessment year is separate - Whether the denial of deduction claimed u/s 80P(2)(a)(i) for assessment year 2014-2015 could be sustained without a fresh factual examination of the nature and purpose of loan disbursements - HELD THAT: - The Tribunal, applying the Full Bench decision in The Mavilayi Service Co operative Bank Ltd. v. CIT, held that after the insertion of sub section (4) of Section 80P the Assessing Officer is not bound by the classificatory certificate issued by the Registrar and must conduct a year specific factual inquiry into the society's activities. Mere narration in statutory audit loan extracts or the existence of a registration certificate is not conclusive to determine whether loans are for agricultural purposes; the AO must examine the details and purposes of individual disbursements and identify instances of non agricultural lending before denying the claim. Consequently, the matter requires fresh adjudication by the Assessing Officer in accordance with the Full Bench dictum and the principle that each assessment year stands on its own. [Paras 6]

Issue restored to the file of the Assessing Officer for fresh examination of the nature and purpose of loan disbursements and a decision in accordance with law; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the appellate confirmation and remitted the matter to the Assessing Officer to undertake a year specific factual inquiry into the nature and purpose of loans for AY 2014 2015 in accordance with the Full Bench ruling, and allowed the appeal for statistical purposes.

Deduction under Section 80P - primary agricultural credit society - business of banking - Assessing Officer's factual inquiry into activities - registration certificate not conclusive - each assessment year is a separate unit - remand for fresh examination

Deduction under Section 80P - primary agricultural credit society - Assessing Officer's factual inquiry into activities - registration certificate not conclusive - each assessment year is a separate unit - Whether the claim of deduction under Section 80P(2) of the Income tax Act was correctly denied by the Assessing Officer and upheld by the Commissioner (Appeals), and what further action is required. - HELD THAT: - The Tribunal examined the conflicting jurisprudence of the jurisdictional High Court and the Full Bench decision in The Mavilayi Service Co operative Bank Ltd. v. CIT, which holds that after insertion of sub section (4) to Section 80P the Assessing Officer must enquire into the factual activities of the society and is not bound by the registration certificate classifying it as a primary agricultural credit society. In the present cases the AO concluded that the assessee was essentially doing banking business and that agricultural credit disbursements were minuscule, but he did not undertake a loan by loan examination to determine the purpose of individual advances (for example, whether gold loans were for agricultural purposes). In view of the Full Bench dictum and the principle that each assessment year stands on its own, the Tribunal held that the entitlement to deduction cannot be finally denied without a detailed factual inquiry into the nature and purpose of disbursements for the relevant years. Accordingly the Tribunal restored the matter to the file of the AO with directions to examine the activities and individual loan disbursements in accordance with the Full Bench decision and to decide the claim for deduction for each assessment year in accordance with law. [Paras 7]

The Tribunal remanded the issue to the Assessing Officer for fresh factual examination of the nature and purpose of loan disbursements for assessment years 2009 2010 and 2014 2015, directing the AO to decide the claim for deduction under Section 80P in accordance with the Full Bench ruling; appeals allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the confirmation of disallowance and remitted the matter to the Assessing Officer for a detailed year wise enquiry into the activities and loan disbursements of the assessee to determine entitlement to deduction under Section 80P for AYs 2009 2010 and 2014 2015, following the Full Bench decision of the Kerala High Court; appeals disposed of as allowed for statistical purposes.

Undisclosed income - penalty under Section 271AAB - search and seizure under Section 132 - past savings of family members as defence to undisclosed income - valuation and timing of acquisition of jewellery - advances not constituting undisclosed income under Section 271AAB - deeming provisions under Sections 69 and 69B not extendable to penalty under Section 271AAB

Undisclosed income - penalty under Section 271AAB - past savings of family members as defence to undisclosed income - Penalty imposed under section 271AAB on cash found at premises - HELD THAT: - The Tribunal held that the cash seized (Rs. 1.70 crores) was shown in the statement recorded under section 132(4) as past savings of various family members and that the assessee placed on record withdrawals and declared incomes of family members over earlier years. Applying the coordinate bench decision in Shri Gopal Das Sokhiya, the Tribunal concluded that past savings of family members cannot be ignored and, in absence of any clear finding that the cash did not represent other family members' past savings, the amount cannot be treated as the assessee's undisclosed income within the definition of the Explanation to section 271AAB. On these facts the penalty on the cash disclosure was deleted. [Paras 3]

Penalty on cash found deleted; appeal of assessee allowed on this ground.

Valuation and timing of acquisition of jewellery - undisclosed income - penalty under Section 271AAB - Penalty imposed under section 271AAB on jewellery found at premises - HELD THAT: - The Tribunal found no incriminating material to show that the jewellery was acquired by the assessee during the year under consideration or out of undisclosed income. The Department applied current market valuation on gross weight without ascertaining year of acquisition; some jewellery was shown to be old or inherited and belonged to family members. Following the reasoning in Shri Gopal Das Sokhiya, the Tribunal held that mere declaration in a statement under section 132(4) does not ipso facto convert the jewellery into the assessee's undisclosed income, and incorrect valuation/timing of acquisition precludes treating the jewellery as undisclosed income under the Explanation to section 271AAB. Consequently the penalty relating to jewellery was deleted. [Paras 3]

Penalty on jewellery deleted; appeal of assessee allowed on this ground.

Advances not constituting undisclosed income under Section 271AAB - deeming provisions under Sections 69 and 69B not extendable to penalty under Section 271AAB - penalty under Section 271AAB - Penalty imposed under section 271AAB on advances recorded in seized documents - HELD THAT: - The Tribunal examined the seized loose papers showing advances (Rs. 4.85 crores) which the assessee admitted in statement under section 132(4) and offered to tax. Relying on coordinate-bench decisions (including Rajender Kumar Gupta and Raja Ram Maheshwari), the Tribunal accepted that an advance (an outflow) is conceptually different from an income (an inflow) and that the specific definition of 'undisclosed income' in section 271AAB contemplates an inflow represented in books or documents found on search. The Tribunal further held that deeming fictions in sections 69/69B, even if available for quantum, cannot be automatically extended to penalty proceedings under section 271AAB. No new facts were shown to rebut the CIT(A)'s reasoning; accordingly the Tribunal found no reason to interfere with deletion of penalty on advances by the CIT(A). [Paras 4, 6]

Penalty on advances deleted; appeal of the Revenue dismissed.

Final Conclusion: The Tribunal allowed the assessee's appeal by deleting the penalty under section 271AAB insofar as it related to cash found and jewellery, and dismissed the Revenue's appeal by upholding deletion of the penalty imposed on advances; appeals disposed of accordingly.

Applicability of section 69C - Burden of proof on assessee to establish genuineness of purchases - Unverifiable elements in purchases and reasonable disallowance

Applicability of section 69C - Burden of proof on assessee to establish genuineness of purchases - Unverifiable elements in purchases and reasonable disallowance - Whether the Assessing Officer was justified in invoking section 69C and making addition of the full amount of purchases recorded from identified hawala parties, and whether the CIT(A)'s restriction of the addition to 3% of such purchases was sustainable. - HELD THAT: - The Tribunal held that section 69C could not be invoked to treat the entire purchases as unexplained income where the purchases were duly recorded in the assessee's books and payments were made through banking channels and recorded in the books. The tribunal agreed with the CIT(A)'s conclusion that, although the suppliers were identified as hawala operators and the documentary source claimed by the assessee was unverifiable, the existence of corresponding sales and quantitative parity between purchases and sales established that purchases themselves were not wholly fabricated. The tribunal accepted that the source claimed (bills of the named parties) was unverifiable and that some unaccounted outflow for handling/commission in hawala-type transactions was likely. On that basis, applying a reasonableness principle, the CIT(A)'s estimate of 3% of the disputed purchases as the unverifiable/unaccounted element was held fair; the Revenue's plea for a larger percentage was rejected after noting the assessee's low trading margins and other factual matrix. Consequently, the AO's addition of the full amount under section 69C was reversed and the limited disallowance of 3% upheld. [Paras 7, 8]

Section 69C did not apply to treat the entire recorded purchases as unexplained income; the CIT(A)'s restriction to disallow 3% of the disputed purchases as the unverifiable element is upheld and the Assessing Officer's full addition is set aside.

Final Conclusion: The Revenue's appeal is dismissed; the order of the CIT(A) restricting the addition to 3% of the disputed purchases is upheld.

Condonation of delay - electronic filing of appeals and CBDT circulars - technical difficulties in e-filing as reasonable cause - disallowance of notional interest as diversion of borrowed funds - availability and utilisation of interest-free funds - deductibility of interest under section 36(1)(iii) - disallowance for delayed payment of employees' provident fund under section 36(1)(va)

Condonation of delay - electronic filing of appeals and CBDT circulars - technical difficulties in e-filing as reasonable cause - Whether the delay in filing the appeal before the Tribunal was liable to be condoned where the appeal before the CIT(A) was affected by difficulties in electronic filing and reliance was placed on the CBDT notifications and circulars - HELD THAT: - The Tribunal found that the appellate order was served late at the authorised representative's office and the appellant could file the appeal before the Tribunal only after obtaining the order from its representative, resulting in an approximate delay of 50 days. The Tribunal accepted the assessee's explanation that difficulties in electronic filing introduced by the newly prescribed e-appeal procedure and the extended windows under the CBDT circulars constituted a bona fide cause for delay. Relying on co-ordinate Bench decisions dealing with similar factual difficulties in e-filing, the Tribunal held that dismissal of the appeal by the CIT(A) on limitation grounds was arbitrary and unjustified and that the delay ought to be condoned. [Paras 2, 4, 5, 6]

Delay in filing the appeal is condoned and the CIT(A)'s order dismissing the appeal on limitation grounds is quashed.

Disallowance of notional interest as diversion of borrowed funds - availability and utilisation of interest-free funds - deductibility of interest under section 36(1)(iii) - Whether proportionate disallowance of interest under a notional diversion theory could be sustained where the assessee demonstrated that interest-free own funds were available and used for interest-free advances - HELD THAT: - The Tribunal examined the assessment record and the assessee's submissions showing the composition and quantum of interest-free funds and that interest-free advances were made for business-related purposes to parties closely linked to the assessee's operations. The Revenue's disallowance rested on a notional calculation treating interest-free advances as diversion of borrowed funds. The Tribunal relied on the Coordinate Bench's earlier order in the assessee's own case (AY 2012-13), which had held that where sufficient interest-free funds exist and advances are made out of such funds for bona fide business purposes, notional disallowance of proportionate interest under section 36(1)(iii) is not warranted. Applying that decision to the identical facts of these years, the Tribunal found no ground to sustain the disallowance and deleted the addition for AY 2013-14 and, mutatis mutandis, for AY 2014-15. [Paras 7, 8, 9, 13]

The additions disallowing interest under section 36(1)(iii) are deleted for AY 2013-14 and AY 2014-15.

Disallowance for delayed payment of employees' provident fund under section 36(1)(va) - Whether expense for delayed payment of employees' contribution to Provident Fund was allowable where payment was made after the due date under the Provident Fund Act - HELD THAT: - The Tribunal noted that the assessee had admittedly made delayed payment of employees' provident fund contribution after the statutory due date under the Provident Fund Act. Having regard to the relevant judicial precedent of the Gujarat High Court which negates allowance of such delayed payment as business expenditure, the Tribunal held that the Revenue was justified in rejecting the claim. The Tribunal found no merit in the assessee's challenge to that disallowance. [Paras 10, 11]

The ground challenging disallowance under section 36(1)(va) is dismissed; the disallowance is sustained.

Final Conclusion: The Tribunal condoned the delay in filing the appeals before it and quashed the CIT(A)'s dismissal on limitation grounds; it deleted the additions disallowing interest under section 36(1)(iii) for AY 2013-14 and AY 2014-15 on the basis of available interest-free funds and earlier co-ordinate Bench precedent; and it upheld the disallowance of the expense for delayed payment of employees' provident fund under section 36(1)(va).

Rejection of books of account under section 145(3) - Verification of purchases and accommodation entries - Best judgment assessment and estimation of income - Use of comparable third-party data for estimation - Prohibition on arbitrary additions after rejection of books

Rejection of books of account under section 145(3) - Verification of purchases and accommodation entries - Whether the books of account could be rejected under section 145(3) because purchases from M/s Surya Diam and M/s Maximus Gems were unsubstantiated and constituted accommodation/bogus entries - HELD THAT: - The Tribunal upheld the finding of the CIT(A) that the purchases from the two concerns remained unverified and unsubstantiated in material respects. The Assessing Officer relied on the investigation into the Bhanwar Lal Jain group and recorded admissions by the seller entities that they provided paper bills and refunded payments in cash, and the assessee failed to produce confirmations from those parties to establish actual delivery. As the impugned purchases comprised a sizable proportion of total purchases (almost 40%) and the assessee did not discharge the initial onus to substantiate them, the books results could not be accepted as representing true and fair results. On this basis the rejection of the books of account under section 145(3) by the CIT(A) was sustained.

Rejection of the books of account under section 145(3) upheld and the purchases in question treated as unverifiable/accommodation entries for the purposes of assessment.

Best judgment assessment and estimation of income - Use of comparable third-party data for estimation - Prohibition on arbitrary additions after rejection of books - Whether the Assessing Officer's method of making trading addition (25% of purchases) while books stood rejected was appropriate, and the course to be followed for quantification of income - HELD THAT: - The Tribunal accepted that once books are rejected the Assessing Officer must make an assessment on the basis of his best judgment and a fair estimate of income, but such estimation must be anchored to relevant material on record and not be arbitrary or capricious. Past history of the assessee could have been used where relevant, but here the assessee's first effective year of operations precluded reliance on its own prior history and no comparable third party data was placed on record. In view of the absence of reliable comparables and the requirement that estimation have nexus with material on record, the Tribunal set aside the quantification and directed remand to the Assessing Officer for limited purposes: to identify comparable third party data, compare it with the gross profit rate of 8.5% declared by the assessee, and determine the quantum of addition, allowing the assessee to identify and produce such comparable data for verification.

Quantification set aside and matter remanded to the Assessing Officer to determine addition on best judgment basis using comparable third party data and by comparing with the assessee's declared gross profit, ensuring the estimate is nexus based and not arbitrary.

Final Conclusion: The Tribunal sustained the CIT(A)'s rejection of books under section 145(3) as purchases from the two sellers were unverified, but set aside the quantification (addition computed as a percentage of purchases) and remanded the matter to the Assessing Officer to make a best judgment assessment using comparable third party data and comparison with the assessee's declared gross profit, with opportunity for the assessee to furnish such comparables.

Condonation of delay - surrender during survey and evidentiary reconciliation - treatment of interest on unrecorded advances - calculation of interest period and rate in survey-related additions - valuation of stock at interim date and reconciliation with books - double addition and revenue neutrality of stock valuation adjustments

Condonation of delay - Delay of 31 days in filing the appeal was condoned and the appeal admitted for adjudication. - HELD THAT: - The assessee explained the delay as caused by misplacement of the impugned order by the regular tax consultant and subsequent oversight. The Tribunal, after hearing parties and considering the affidavit and precedents, found that a reasonable cause existed for the delay and exercise of discretion to condone the delay was warranted. The appeal was accordingly admitted. [Paras 4]

Delay condoned and appeal admitted.

Treatment of interest on unrecorded advances - calculation of interest period and rate in survey-related additions - surrender during survey and evidentiary reconciliation - Addition of interest of Rs.80,250/- was partly sustained and partly modified: rate of 12% p.a. as applied by AO was generally sustained, uplift to 18% p.a. by CIT(A) was accepted only in respect of the transaction with M/s Aditya Mineral Products, and interest periods were adjusted where documentary evidence showed two month advances. - HELD THAT: - There were six independent advance transactions captured on hundis found during search. The AO applied 12% p.a. for the whole year; CIT(A) enhanced the rate to 18% p.a. without issuing a separate show cause under section 251(2) (contention of assessee). The Tribunal analysed the record transaction wise: where a specific rate (1.5% per month) appeared on the hundi for Aditya Mineral Products, the Tribunal held that 18% p.a. should apply to that transaction; for Kiran Industries, Jai Jinendra Textiles and MP Enterprises documentary material supported a two month period and interest should be calculated for two months; for other transactions, in absence of contrary material, interest may be calculated from September to the end of the financial year. Overall, the AO's rate of 12% p.a. was deemed reasonable except as above. The Tribunal disposed the ground by directing interest to be computed accordingly. [Paras 10]

Appeal allowed in part: sustain AO's 12% p.a. generally; apply 18% p.a. for Aditya Minerals; apply two month period for Kiran Industries, Jai Jinendra Textiles and MP Enterprises; compute interest for other transactions from September to year end.

Valuation of stock at interim date and reconciliation with books - double addition and revenue neutrality of stock valuation adjustments - surrender during survey and evidentiary reconciliation - Addition on account of excess stock of Rs.3,15,275/- found on survey was deleted after accepting the assessee's reconciliations and supporting documents in respect of multiple valuation and timing errors. - HELD THAT: - A mid year survey recorded physical stock at a higher market valuation than the books, producing an alleged excess. The assessee furnished a detailed reconciliation, trading account adjustments and supplier affidavits showing timing differences, valuation at selling price instead of cost, delivery prior to survey with invoices received later, and errors in opening stock. The AO had summarily rejected these reconciliations because they were not produced during the survey; the CIT(A) examined the submissions and granted partial relief. The Tribunal examined the reconciliations and supporting material and found the assessee's explanations satisfactory on multiple points: reduction for gross profit rate (deleting that addition), deletion of the claimed overvaluation of mineral powder and the purchases delivered before survey (deleting those additions), and acceptance of product differentiation and opening stock correction items. Given that corrected books were accepted by the revenue and that valuation differences would be revenue neutral, the Tribunal deleted the addition. [Paras 21]

Addition on account of excess stock deleted; ground of appeal allowed.

Final Conclusion: The Tribunal condoned the delay and admitted the appeal; the interest addition was modified transaction wise (AO's 12% p.a. generally sustained, 18% p.a. applied to Aditya Minerals, and specific two month periods directed where evidenced) and the addition for excess stock found on survey was deleted after accepting the assessee's reconciliations and supporting documents.

Reduction of actual cost under Explanation 10 to Section 43(1) of the Act - purpose test for classification of subsidy - capital receipt versus revenue receipt - depreciation claim on assets and effect of subsidy treatment

Reduction of actual cost under Explanation 10 to Section 43(1) of the Act - depreciation claim on assets and effect of subsidy treatment - purpose test for classification of subsidy - Validity of reducing the cost of plant and machinery by the capital subsidy received under the TUF scheme and consequent disallowance of depreciation. - HELD THAT: - The Tribunal upheld the first appellate authority's finding that the capital subsidy under the Technology Upgradation Fund Scheme (TUFS) was not linked directly or indirectly to any particular asset purchased by the assessee. Relying on the purpose test as applied in judicial precedents, the subsidy was held to be an incentive aimed at promoting competitiveness and technology upgradation in the textile industry rather than a payment intended to meet a portion of the actual cost of specific capital assets. In those circumstances Explanation 10 to Section 43(1) did not mandate reduction of the asset's cost by the subsidy amount, and the assessment officer's action of reducing the value of plant and machinery and disallowing depreciation was found unsustainable. The revenue did not controvert the factual finding of absence of linkage to any particular asset.

The disallowance of depreciation by reducing the cost of plant and machinery on account of TUFS capital subsidy was deleted; the subsidy was to be credited to capital reserve and not to be reduced from asset cost.

Capital receipt versus revenue receipt - purpose test for classification of subsidy - Whether interest subsidies received under the TUF and State Government schemes are capital receipts or revenue receipts. - HELD THAT: - The Tribunal affirmed the first appellate authority's conclusion that interest subsidies given under TUFS and comparable State Government schemes were granted to facilitate establishment of new units and to promote industry, with the objective of enhancing competitiveness rather than augmenting the assessee's profit in the ordinary course. Applying the purpose test and following relevant precedents, the interest subsidies - though measured as a percentage of interest paid - were treated as capital receipts. The assessment order contained no discussion on the nature of these receipts, and the appellate finding that they are capital in nature was accepted as correct on the facts and law presented.

The interest subsidies under the TUFS and State schemes were held to be capital receipts and not taxable as revenue; the appellate treatment in favour of the assessee was upheld.

Final Conclusion: Both appeals filed by the revenue for A.Y.2013-14 and A.Y.2014-15 were dismissed: the disallowance of depreciation on account of TUFS capital subsidy was deleted and the interest subsidies were held to be capital receipts, with the first appellate authority's orders affirmed.

Ad-hoc disallowance - genuineness of expenditure - evidentiary burden for deduction - rejection of books of account under section 145(3) - assessment in the manner provided in section 144 (best judgment assessment) - principle of Rule of Law

Ad-hoc disallowance - genuineness of expenditure - rejection of books of account under section 145(3) - assessment in the manner provided in section 144 (best judgment assessment) - principle of Rule of Law - Deletion of the ad-hoc 10% disallowance (Rs. 2,09,135/-) made by the Assessing Officer and confirmed by the Commissioner (Appeals). - HELD THAT: - The Tribunal held that while an assessee claiming expenditure must produce evidence, the Assessing Officer cannot resort to a broad ad hoc estimate of expenditure without following the statutory procedure. If the AO is not satisfied about the correctness or completeness of accounts he must, as prescribed by the Act, first reject the books of account under section 145(3) and proceed, if necessary, under section 144 to make a best judgment assessment. In the present case the AO did not undertake an item wise rejection nor reject the books under section 145(3), but proceeded to make an arbitrary 10% disallowance of cash payments supported by vouchers and registers. That approach bypassed the statutory safeguards and amounted to an arbitrary exercise in violation of the Rule of Law. The CIT(A) erred in confirming the ad hoc disallowance; accordingly the disallowance could not be sustained and was directed to be deleted. [Paras 9]

The ad hoc disallowance of Rs. 2,09,135/- (10% of claimed cash expenses) is deleted and the assessee's appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal for Assessment Year 2015-16, directing deletion of the ad hoc disallowance because the Assessing Officer failed to follow the statutory procedure of rejecting books under section 145(3) and proceeding under section 144 before making an estimate; the CIT(A)'s confirmation was set aside.

Penalty under Section 114 of the Customs Act - confiscation and consequential penalty - evidentiary value of retracted statements - attempt to export and prohibition on export of red sanders - jurisdiction of Single Member Bench under Section 129C(4)

Jurisdiction of Single Member Bench under Section 129C(4) - Jurisdiction of Single Member Bench to hear appeal challenging only the penalty of Rs. 5 lakhs. - HELD THAT: - The Tribunal examined whether a Single Member Bench could entertain the appeal when confiscation orders arising from a common order-in-original involved goods of value exceeding the monetary threshold for Single Member disposal. The Tribunal held that where the appellant challenges only the penalty imposed on him and there is no confiscation in his hands, the monetary value of confiscated goods in the common order does not oust the jurisdiction of the Single Member Bench to decide the penalty appeal. Reliance was placed on Tribunal precedents treating separate reliefs as distinct appeals and the view that the subject-matter of the present appeal is limited to the penalty of Rs. 5 lakhs, thus falling within the competence of a Single Member. [Paras 8, 9]

Jurisdiction held to lie with the Single Member Bench and the appeal proceeded to final disposal by that Bench.

Confiscation and consequential penalty - evidentiary value of retracted statements - attempt to export and prohibition on export of red sanders - penalty under Section 114 of the Customs Act - Whether the penalty imposed under Section 114 could be sustained in view of the findings on confiscation and the evidentiary value of retracted statements. - HELD THAT: - The Tribunal considered the Division Bench's earlier decision on the common show cause notice and order-in-original, which concluded that the Revenue's case of attempted export was founded principally on statements that had been retracted and thus lacked evidentiary value, and that there was no independent documentary or port-area evidence showing intent to export. Relying on those findings and the record (including retractions by the appellant and others, absence of documents evidencing export intent, recovery not linked to customs area, and call records and seized documents which the Revenue urged as corroboration), the Bench held that no case of confiscation or abetment was made out against the appellant. Since confiscation was set aside and the foundational case failed for want of reliable evidence, the consequential penalty under Section 114 could not be sustained. The Tribunal also addressed the form of the show cause notice and held that the notice read as a whole sufficiently informed of liability to penalty. [Paras 5, 11, 12, 13]

The penalty imposed under Section 114 was set aside and the appeal allowed.

Final Conclusion: The Single Member Bench had jurisdiction to decide the appeal limited to the penalty of Rs. 5 lakhs; on merits the Tribunal, following the Division Bench findings that the Revenue's case rested on retracted statements and lacked evidence of attempt to export, set aside the confiscation and consequently quashed the penalty under Section 114, allowing the appeal.

Penalty for abetment and acts leading to confiscation under Section 114(iii) - Penalty for making or using false or incorrect documents under Section 114AA - Knowledge and intention in penalty under Section 114AA - Employee acting on employer's directions and scope of personal liability

Penalty for abetment and acts leading to confiscation under Section 114(iii) - Employee acting on employer's directions and scope of personal liability - Whether the appellant is liable to penalty under Section 114(iii) for acts or omissions rendering goods liable to confiscation or for abetting such acts. - HELD THAT: - The Tribunal examined the role of the appellant, who was an accountant employed by the principal accused and who prepared invoices, packing lists and performed bank-related work as directed by his employer. The record showed that the appellant did not present any documents to Customs, did not participate in export clearance, and did not engage in negotiation or procurement of goods. The Tribunal held that there was no established attempt by the appellant to export goods improperly nor evidence of abetment of acts rendering goods liable to confiscation. On this basis the penalty under Section 114(iii) was found not attracted and was set aside. [Paras 16, 20]

Penalty under Section 114(iii) set aside.

Penalty for making or using false or incorrect documents under Section 114AA - Knowledge and intention in penalty under Section 114AA - Employee acting on employer's directions and scope of personal liability - Whether the appellant is liable to penalty under Section 114AA for knowingly making, signing or using false or incorrect documents in transactions for purposes of the Customs Act. - HELD THAT: - Although the Tribunal found that the appellant acted as an employee and prepared documents at the direction of his employer, the material established that he knowingly prepared invoices and packing lists and was aware of the practice of preparing two parallel sets of invoices - one undervalued for the buyer and another inflated for claiming export benefits. That knowledge of the falsity of documents brought the appellant within the mischief of Section 114AA. However, having regard to his position as an employee and the absence of additional personal gain beyond salary, the Tribunal exercised its discretion to reduce the monetary consequence of the penalty to the amount already deposited as pre-deposit. [Paras 17, 21]

Penalty under Section 114AA sustained but reduced to the amount already deposited (Rs. 1,12,500).

Final Conclusion: The appeal is allowed in part: the penalty imposed under Section 114(iii) is set aside, while liability under Section 114AA is upheld but the monetary penalty is reduced to the pre-deposit already paid by the appellant.

Personal liability and penalty under Section 114(1) of the Customs Act, 1962 - Knowledge and abetment - Suspicion versus corroborative evidence - Preponderance of probability and standard of proof for imposing penalties

Personal liability and penalty under Section 114(1) of the Customs Act, 1962 - Suspicion versus corroborative evidence - Knowledge and abetment - Whether the penalties imposed on the appellants under Section 114(1) of the Customs Act, 1962 can be sustained in the absence of direct or corroborative evidence establishing their knowledge or complicity, where the authorities have acted on suspicion. - HELD THAT: - The Tribunal found that the appellants - a transport agent, a CHA and a person who arranged the CHA/container - performed routine commercial functions and that the stuffing at the factory was carried out in the presence of the exporter's director and a Central Excise superintendent. The DRI obtained statements and the exporter's director admitted responsibility for the smuggling and stated that the appellants were not party to the plan. Both authorities below admitted absence of direct proof and relied on suspicion and the alleged preponderance of probability to impose personal penalties. The Tribunal reiterated that to impose personal penalty under Section 114(1) there must be acceptable legal evidence of acts of commission or omission by the person charged and, to sustain a finding of aiding or abetting, there must be material establishing knowledge of the illegal activity. Mere suspicion or inferences without corroborative evidence cannot substitute for such proof. Reliance on decisions cited by the respondent was held inapplicable to the facts because here penalties rested only on suspicion. Applying these principles, the Tribunal concluded that the impugned order and the penalties were not sustainable in law. [Paras 6]

Impugned order set aside; penalties imposed on the appellants under Section 114(1) of the Customs Act, 1962 are quashed.

Final Conclusion: The appeals are allowed. The Tribunal set aside the Commissioner (Appeals) order and quashed the penalties imposed on the appellants, holding that suspicion without corroborative evidence and proof of knowledge is insufficient to sustain personal penalties under Section 114(1) of the Customs Act, 1962.

Scheme of merger by absorption - dispensation of shareholder meetings on consent affidavits - notice to secured and unsecured creditors under section 230(3) of the Companies Act, 2013 - service of notice on statutory and regulatory authorities under section 230(5) and rule 8 of the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 - service of notice on the Official Liquidator and assistance in scrutiny of books - affidavit of service to demonstrate compliance

Dispensation of shareholder meetings on consent affidavits - scheme of merger by absorption - Convening and holding of meetings of equity and preference shareholders of the Applicant Companies were dispensed with on the basis of filed consent affidavits. - HELD THAT: - The Tribunal recorded that the Scheme is a merger by absorption between the two applicant companies and that the respective Boards had approved the Scheme. The meeting of Equity Shareholders of Applicant Company No.1 was dispensed with in view of thirteen consent affidavits annexed as Exhibit M. Similarly, meetings of Equity Shareholders and the single Preference Shareholder of Applicant Company No.2 were dispensed with in view of the consent affidavits annexed as Exhibit N. The dispensation is therefore granted on the basis of unanimous or requisite consents evidenced by the affidavits filed with the Company Application. [Paras 4, 5, 6]

Meetings of the equity and preference shareholders as specified were dispensed with pursuant to the consent affidavits on record.

Notice to secured and unsecured creditors under section 230(3) of the Companies Act, 2013 - Meetings of creditors were dispensed with but each Applicant Company was directed to issue notice to its secured and unsecured creditors under section 230(3), allowing them to submit representations to the Tribunal. - HELD THAT: - Although no compromise with creditors was claimed and the applicants sought dispensation of creditors' meetings, the Tribunal required that every creditor be put on notice. The applicant companies were directed to serve notices to secured and unsecured creditors as mandated, with a direction that creditors may submit representations to the Tribunal and simultaneously serve copies of such representations on the relevant applicant company. The Tribunal emphasised that any objections received would be considered at the final sanction hearing. [Paras 7, 8]

Creditor meetings dispensed with, subject to the requirement that notices be issued to all secured and unsecured creditors and any representations be considered at final hearing.

Service of notice on statutory and regulatory authorities under section 230(5) and rule 8 of the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 - The Applicant Companies were directed to serve notice of the Scheme on the Central Government through the Regional Director (Western Region), Registrar of Companies, and the concerned Income Tax Authority pursuant to section 230(5) and rule 8. - HELD THAT: - The Tribunal specified the statutory authorities to be notified and the mode of service in accordance with the Companies Act, 2013 and the Compromises, Arrangements & Amalgamations Rules, 2016. It further provided that if no response is received from these authorities within thirty days of receipt of the notice, it would be presumed they have no objection to the proposed Scheme. This direction ensures statutory stakeholders are given an opportunity to examine and respond to the proposed arrangement before final sanction. [Paras 9]

Applicants to serve notice on the Regional Director, Registrar of Companies and the concerned Income Tax Authority; absence of response within 30 days to be treated as no objection.

Service of notice on the Official Liquidator and assistance in scrutiny of books - The Transferor Company was directed to serve notice on the Official Liquidator, High Court, Bombay; the Tribunal appointed a Chartered Accountant to assist the Official Liquidator in scrutinising the Transferor Company's books for the last five years and fixed fees to be paid by the Transferor Company. - HELD THAT: - Pursuant to section 230(5) and rule 8, the Transferor Company must notify the Official Liquidator. To facilitate scrutiny, the Tribunal appointed M/s PC Ghadiali & Co., Chartered Accountants to assist the Official Liquidator in examining the Transferor Company's books for the preceding five years and mandated payment of the specified fees by the Transferor Company for this purpose. The Tribunal also provided that if no representation is received from the Official Liquidator within thirty days of receipt of notice, it will be presumed the Official Liquidator has no objection or representation regarding the Scheme. [Paras 10]

Transferor to serve notice on the Official Liquidator; Tribunal-appointed chartered accountants to assist in scrutiny and fees payable by the Transferor; silence within 30 days to be treated as no objection.

Affidavit of service to demonstrate compliance - Applicants were directed to file an affidavit of service within ten working days after serving notices on the specified regulatory authorities, reporting compliance to the Tribunal. - HELD THAT: - The Tribunal required formal proof of compliance with its directions by ordering the applicant companies to file an affidavit of service within the stipulated timeframe after effecting service of notices on the Regional Director, Registrar of Companies, Income Tax Authority and Official Liquidator. This ensures the Tribunal has a record that statutory and regulatory notifications have been effected before the matter proceeds to final hearing. [Paras 11]

Applicants to file an affidavit of service within ten working days confirming compliance with the notice directions.

Final Conclusion: The Tribunal granted dispensation of the specified shareholders' and creditors' meetings subject to statutory notice requirements; directed service of notices on creditors and designated regulatory authorities (including the Official Liquidator), appointed a chartered accountant to assist the Official Liquidator with prescribed fees, and required filing of affidavits of service to demonstrate compliance prior to final hearing.

Removal of director under Section 169 of the Companies Act, 2013 - Entitlement of a director to be heard on a resolution to remove under Section 169(3) - Validity of convening and notice for Extra Ordinary General Meeting - Interim injunctive relief in proceedings under Sections 241, 242 and 244 - Principle of quasi partnership/closely held company and protection against removal of nominee director

Removal of director under Section 169 of the Companies Act, 2013 - Entitlement of a director to be heard on a resolution to remove under Section 169(3) - Validity of convening and notice for Extra Ordinary General Meeting - Validity of the process by which original Petitioner No.4 was removed as director of respondent No.1 - HELD THAT: - The Tribunal examined whether the notice and procedure for convening the EGM to consider removal of the director complied with the statutory entitlement under Section 169(3). The record shows that a Special Notice dated 21.5.2020 and the intimation dated 26.5.2020 convening the meeting were served on the director concerned and the meeting was ultimately held (adjourned to 7.7.2020). The director received the notice but did not make any representation at the meeting. The EGM passed the resolution for removal by majority. The Appellate Tribunal found no illegality in service of notice, in convening the meeting or in the conduct of the EGM, and noted that the director was afforded the statutory opportunity to be heard but did not avail it. Having considered the contentions about harassment, alleged improper agenda circulation and complaints as pleaded by the appellants, the Tribunal held that those matters did not establish procedural illegality in the removal under the statutory mechanism. Consequently the impugned order dismissing the appellants' interim application was not interfered with on this ground.

The removal of original Petitioner No.4 was held to have been effected in accordance with the statutory notice and meeting procedure; no illegality was found and the impugned order in respect of that relief is upheld.

Interim injunctive relief in proceedings under Sections 241, 242 and 244 - Principle of quasi partnership/closely held company and protection against removal of nominee director - Whether the Appellate Tribunal should decide the merits of the pending Company Petition under Sections 241, 242 and 244 or grant interim relief restraining actions of the majority shareholders - HELD THAT: - The Tribunal noted that the main Company Petition under Sections 241, 242 and 244 remains pending before the NCLT and declined to express any definitive view on the merits of that petition. While the appellants urged invocation of quasi partnership principles to protect nominee directors, the Tribunal observed that the Resolution Plan and related documents did not confer specific ongoing management rights on either party and that the facts did not demonstrate a family style quasi partnership bringing the dispute within that doctrine. The Appellate Tribunal therefore confined itself to deciding only the limited question of the removal process and did not adjudicate the substantive company petition; the petition and its attendant issues were left to be decided by the NCLT.

The Tribunal refrained from deciding the pending company petition or granting the interim measures sought; those matters remain for determination by the NCLT and the appeal does not warrant interference with the dismissal of the interim application.

Final Conclusion: The appeals are dismissed. The impugned order dismissing the interim application is upheld; no illegality was found in the notice and EGM procedure removing the director. The substantive company petition under Sections 241, 242 and 244 remains pending and is to be decided by the NCLT; any interim orders, if any, stand vacated.

Operational debt - operational creditor - sub-distribution agreement as creating creditor-debtor relationship - admission under Section 9 of Insolvency & Bankruptcy Code, 2016 - dispute raised under Section 8(2)(a) of the Insolvency & Bankruptcy Code, 2016 - limitation for filing application under Section 9

Sub-distribution agreement as creating creditor-debtor relationship - operational creditor - Whether M/s. Park Network Pvt. Ltd. is an operational creditor vis-a -vis M/s. PP Telecell Marketing Pvt. Ltd. by virtue of the Sub-Distribution Agreement dated 15.4.2015. - HELD THAT: - The Tribunal examined clauses of the Sub-Distribution Agreement, including obligations and pricing/payment terms (clauses 4 and 5 and Annexure C), which establish that the Distributor (M/s. PP Telecell Marketing Pvt. Ltd.) sold products to the Sub-Distributor (M/s. Park Network Pvt. Ltd.), bore responsibility for price drops and specified payment/credit terms. There is no contractual obligation on the manufacturer (M/s. Syntech (HK) Technology Ltd.) in the SDA. On this factual and contractual basis, the relationship of seller-buyer under the SDA gives rise to a creditor-debtor relationship between the Corporate Debtor and the Operational Creditor, making M/s. Park Network Pvt. Ltd. an operational creditor for the purposes of the IBC framework. [Paras 18]

M/s. Park Network Pvt. Ltd. is an operational creditor in relation to M/s. PP Telecell Marketing Pvt. Ltd.

Operational debt - admission under Section 9 of Insolvency & Bankruptcy Code, 2016 - Whether the claimed amount shown in the ledger and communicated by e-mail constitutes an operational debt such as to warrant admission of the Section 9 application (leaving aside quantification). - HELD THAT: - Having accepted the contractual scheme whereby the Distributor bears cost of price drops and credits are reflected in the ledger, the Tribunal inferred that the amount reflected in the Corporate Debtor's ledger (as communicated on 5.1.2019) pertains to liabilities arising from the provision of goods/services under the SDA. Though the exact quantum was not finally determined by the appellate forum, the Tribunal held that the existence of a debt in the name of the Corporate Debtor vis-a -vis the Operational Creditor is established for the limited purpose of assessing admissibility under Section 9, subject to threshold and quantification not being decided at this stage. [Paras 20]

The amount standing in the Corporate Debtor's ledger is inferred to be an operational debt for the purposes of admitting the Section 9 application; quantum to be determined separately.

Dispute raised under Section 8(2)(a) of the Insolvency & Bankruptcy Code, 2016 - limitation for filing application under Section 9 - Whether the reply to the demand notice raised a bonafide and pre-existing dispute under Section 8(2)(a), and whether the Section 9 application was filed within limitation. - HELD THAT: - The Corporate Debtor replied to the demand notice asserting that the amount was not its liability and there was no direct transaction; however, on examination of the SDA and accompanying ledger and communications, the Tribunal found that the contractual relationship and the ledger entries undermined the contention of a genuine dispute as defined in Section 8(2)(a). Accordingly the purported dispute was held to be imaginary. Separately, the Tribunal noted the date of default as recorded in the Section 9 application and the filing date before the Adjudicating Authority and held that the application was filed within the prescribed period. [Paras 21, 22]

The dispute raised by the Corporate Debtor did not constitute a bona fide dispute under Section 8(2)(a); the Section 9 application was filed within limitation.

Final Conclusion: The Appellate Tribunal found that the Sub-Distribution Agreement established an operational creditor-debtor relationship, that the claimed ledger amount constituted an operational debt for the purpose of admission under Section 9 (leaving quantification aside), that the dispute raised by the Corporate Debtor was not a bona fide dispute under Section 8(2)(a), and that the Section 9 application was filed within limitation; the appeal against admission was dismissed.

Judicial review of commercial wisdom of Committee of Creditors - scope of interference under Section 31(1) and Section 61(3) of the I&B Code - valuation-fair value and liquidation value as non-mandatory benchmarks for bids - compliance of a resolution plan with statutory and regulatory parameters - constitution and quorum of the Adjudicating Authority Bench

Scope of interference under Section 31(1) and Section 61(3) of the I&B Code - judicial review of commercial wisdom of Committee of Creditors - compliance of a resolution plan with statutory and regulatory parameters - Whether the appeal is maintainable where appellants challenge approval of a resolution plan without alleging any breach of statutory grounds under Section 61(3) or material irregularity by the Resolution Professional. - HELD THAT: - The Tribunal held that the appeal did not raise any determinable question under the limited grounds of Section 61(3) and that no case was made out of conflict with law or material irregularity in the conduct of the CIRP. The record showed the Committee of Creditors had approved the resolution plan with requisite majority after evaluation, the plan complied with statutory and regulatory parameters, and the Adjudicating Authority found the plan to meet requirements of Section 30(2) and related provisions. Judicial intervention to reassess the commercial wisdom of the CoC is impermissible except on the narrow statutory grounds; absent such grounds the appeal is not maintainable. [Paras 8]

Appeal not maintainable and liable to be dismissed at threshold for failing to invoke the limited statutory grounds for interference with approval of the resolution plan.

Valuation-fair value and liquidation value as non-mandatory benchmarks for bids - judicial review of commercial wisdom of Committee of Creditors - Whether a resolution applicant's offer must correspond to the fair value or liquidation value determined during CIRP, and whether discrepancy in valuation justifies setting aside approval. - HELD THAT: - The Tribunal applied the principle that neither the Code nor the Regulations mandate that a resolution applicant's bid must match the fair value or liquidation value. Relying on binding precedents cited in the judgment, the court emphasised that valuation processes assist the CoC but do not fetter its commercial judgment. The Committee of Creditors had considered fair value and liquidation value but, in its commercial wisdom, approved the plan offering the best feasible and viable outcome for stakeholders. The Tribunal reiterated that the Adjudicating Authority and appellate forum cannot substitute judicial or equitable assessment for the commercial decision of the CoC absent statutory non-compliance or material irregularity. [Paras 10]

Discrepancy between the bid and the assessed fair or liquidation value does not, by itself, justify interference with approval of the resolution plan.

Constitution and quorum of the Adjudicating Authority Bench - Whether the impugned order was vitiated for want of proper constitution or quorum of the Bench that heard and passed the order. - HELD THAT: - The Tribunal recorded that during the COVID-19 period a Special Bench had been reconstituted by the President of the NCLT to hear matters virtually. The Special Bench heard the matter and pronounced the impugned order. In these circumstances, the objection to bench constitution and urgency was repelled, having regard to the statutory timelines and the need to ensure access to justice during the pandemic. [Paras 9]

Objection to constitution of the Bench and to urgency is rejected; the impugned order is not vitiated on this ground.

Final Conclusion: The appeal is dismissed as not maintainable and having no merit: the Committee of Creditors' approval of the resolution plan was a non-justiciable commercial decision within the limited scope of statutory review, the bid need not match fair or liquidation value, and the Bench that heard the matter was validly constituted.

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - existence of financial debt and default - applicability of RBI circular dated 7th June, 2019 - effect of parallel proceedings before sectoral regulator on maintainability - adjustment of payments received from third parties vis-a -vis default - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional

Applicability of RBI circular dated 7th June, 2019 - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether the RBI circular dated 7th June, 2019 operates retrospectively to preclude filing of the Section 7 petition - HELD THAT: - The Adjudicating Authority found that the RBI circular relied upon by the corporate debtor has prospective effect and cannot be given retrospective operation to defeat a petition filed on 11.04.2019. The Authority observed that the Code is a self-contained code and the RBI directions cannot override statutory rights under Section 7; the circular's scheme to activate resolution under the prudential framework arises only after a default. Consequently, the circular did not apply to defaults which occurred prior to its date and did not render the petition incompetent. [Paras 25, 31, 32]

The RBI circular dated 7th June, 2019 does not operate retrospectively and does not bar admission of the Section 7 petition filed in April 2019.

Effect of parallel proceedings before sectoral regulator on maintainability - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether pendency of proceedings before the Uttar Pradesh Electricity Regulatory Commission (or other fora) precludes maintainability of the Section 7 petition - HELD THAT: - The Authority held that pendency of proceedings before UPERC between the corporate debtor and UPPTCL does not furnish a ground to reject the Section 7 application. The adjudicatory process under Section 7 is independent; in absence of any stay or bar, parallel civil, regulatory or criminal proceedings do not defeat the statutory right of a financial creditor to trigger CIRP once debt and default are established. [Paras 21, 25]

The pendency of proceedings before UPERC does not affect maintainability of the Section 7 petition.

Adjustment of payments received from third parties vis-a -vis default - existence of financial debt and default - Whether receipt of direct payments by the financial creditor from UPPTCL and other instrumentalities negates existence of default - HELD THAT: - The Authority noted that the financial creditor admitted receipt of two payments from UPPTCL which were adjusted towards interest, delay charges and related components. On the material before it, the Authority found no evidence that such receipts eliminated the indebtedness claimed. For the purpose of Section 7, the adjudicating authority must be satisfied of existence of debt and default from records of the information utility or other evidence; here the petitioner produced documents and the admitted receipts were shown to have been adjusted without discharging the debt. [Paras 22, 26]

The admitted receipts from UPPTCL did not negate the existence of default; the objection based on such receipts was rejected.

Existence of financial debt and default - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Whether the financial creditor has established a financial debt and default sufficient to admit the Section 7 petition and, if so, consequential reliefs (CIRP admission, moratorium and appointment of IRP) - HELD THAT: - The Authority examined the Facility Agreement and accompanying documents and observed that the corporate debtor did not deny having taken the Rupee Term Loan from the financial creditor. The corporate debtor was contractually obliged to repay principal and interest in 48 quarterly instalments and failed to do so. Relying on the statutory test under Section 7 and the scheme in Innoventive Industries, the Authority held that the petitioner proved existence of debt and default from documentary evidence. The petition was found complete and within limitation (date of default 13.07.2018). Consequently, the petition was admitted, moratorium under Section 14 was declared, and the proposed interim resolution professional was appointed after verification of registration and absence of disciplinary proceedings. [Paras 28, 30, 31, 33, 34]

The Section 7 petition is admitted: CIRP of the corporate debtor is initiated, moratorium under Section 14 is ordered, and the nominated IRP is appointed.

Final Conclusion: The Tribunal admitted the Section 7 petition filed by the financial creditor, held that the RBI circular of 7th June 2019 does not apply retrospectively, found pendency of regulatory proceedings and receipt of certain payments did not preclude admission, declared moratorium under Section 14 of the Code, and appointed the proposed Interim Resolution Professional to proceed with the CIRP.

Financial Creditor - Financial Debt - time value of money - Committee of Creditors constitution void ab initio - arbitration agreement - withdrawal of application under Section 12A - objective of the Insolvency and Bankruptcy Code - resolution and maximisation of value

Financial Creditor - Financial Debt - time value of money - arbitration agreement - Status of Respondent No. 2 (Mr. Mukeshbhai Nanubhai Desai) as a Financial Creditor and validity of his claim - HELD THAT: - On construction of the MOU executed between the parties, Respondent No. 2 is shown as entitled to 25% of net profit of the project and the MOU provides for resolution of disputes by arbitration. The Notes to Accounts reflect an entry described as a term loan, but there is no contemporaneous record of any time value of money or interest payable to Respondent No. 2. The material before the Tribunal therefore indicates that the amounts paid by Respondent No. 2 were towards development/construction and entitle him to a share of profit rather than a debt repayable with interest; reliance on precedent (Saregama India Ltd. v. Home Movie Makers Pvt. Ltd.) supports the conclusion that amounts not disbursed against consideration for the time value of money do not qualify as a "Financial Debt". Even on the assumption of a loan, the payment alleged dates back to 2014 and would be barred by limitation. For these reasons Respondent No. 2 cannot be treated as a Financial Creditor for constitution of the COC. [Paras 12, 13, 14, 23, 25]

Respondent No. 2 is not a Financial Creditor; his claim does not constitute a Financial Debt and cannot be the basis for constituting the Committee of Creditors.

Committee of Creditors constitution void ab initio - withdrawal of application under Section 12A - objective of the Insolvency and Bankruptcy Code - resolution and maximisation of value - Consequences for the validity of the COC and direction regarding withdrawal of the CIRP application - HELD THAT: - Because the sole member of the COC was held not to be a Financial Creditor, the COC constituted by the Resolution Professional is void ab initio. The Tribunal recorded that no other claimants came forward following the public announcement and observed the policy objective of the Code favouring resolution and maximisation of value where the corporate debtor appears to be a going concern. The Operational Creditor is granted liberty to seek withdrawal of its application; the Resolution Professional is directed to endeavour to file Form FA to process the Operational Creditor's withdrawal application before the Adjudicating Authority as may be appropriate. [Paras 16, 18, 19, 25]

The COC so constituted is void ab initio; Operational Creditor may apply for withdrawal and the RP shall endeavour to file Form FA to seek withdrawal before the Adjudicating Authority.

Final Conclusion: Application allowed: Respondent No. 2 is not a Financial Creditor and the Committee of Creditors constituted by the Resolution Professional is void ab initio; Operational Creditor has liberty to seek withdrawal of CIRP and the RP is directed to make efforts to file the requisite Form FA for withdrawal before the Adjudicating Authority.

Restoration of company petition - withdrawal of application as not pressed - refusal of liberty to file fresh identical application - allegations of forgery and perjury to be pursued before criminal forum - tribunal not competent to order criminal prosecution - relegation to earlier stage of hearing

Withdrawal of application as not pressed - refusal of liberty to file fresh identical application - IA Nos. 41 & 42 of 2020 dismissed as not pressed and no liberty granted to file a fresh application for the same prayer. - HELD THAT: - The Financial Creditor filed IA Nos. 41 & 42 of 2020 for restoration but subsequently sought withdrawal by memo. The Tribunal held that a party has the prerogative to withdraw an application voluntarily and that the memo of withdrawal could not be objected to by the Corporate Debtor. However, having voluntarily withdrawn the application, the Applicant could not be permitted to reagitate the identical prayer by filing a fresh application; grant of liberty to file another application for the same relief was refused. The Tribunal distinguished the act of permitting withdrawal from allowing re filing of the selfsame claim and thus dismissed IA Nos. 41 & 42 as not pressed while denying liberty to file another application for the same prayer. [Paras 6]

IA Nos. 41 & 42 of 2020 dismissed as not pressed; no liberty to file another application for the same prayer.

Tribunal not competent to order criminal prosecution - allegations of forgery and perjury to be pursued before criminal forum - Allegations of forgery and perjury in IA Nos. 51 and 52 of 2020 are not adjudicated by the Tribunal and the parties are directed to approach the appropriate criminal forum; the Tribunal will not order prosecution. - HELD THAT: - The Corporate Debtor alleged falsification of signatures and perjury in relation to the verifying affidavits and sought criminal consequences and cross examination. The Tribunal observed that questions of forgery and perjury fall within the exclusive domain of criminal courts and that it would be inappropriate and beyond the Tribunal's jurisdiction to order criminal prosecution or to decide those allegations. Accordingly, IA Nos. 51 and 52 were disposed of with the observation that the Respondent may pursue the allegations before the competent authority; such adjudication or investigation would remain uninfluenced by the Tribunal's orders. [Paras 6, 11]

IA Nos. 51 & 52 disposed of with direction to approach appropriate criminal forum; Tribunal refrains from ordering prosecution or adjudicating those allegations.

Relegation to earlier stage of hearing - restoration of company petition - The present Company Petition is restored to file and relegated to the stage of hearing as on 11.02.2020; listed for further hearing. - HELD THAT: - The Tribunal found that the disposal order dated 13.02.2020 was contingent upon admission in a separate petition which was subsequently withdrawn, thereby removing the basis for disposing the present petition. Emphasising the primacy of adjudication on merits and that procedure should not foreclose substantive rights, the Tribunal concluded that the Financial Creditor should not be left without remedy. Consequently, the Company Petition was restored to file and placed back to the stage of hearing as of 11.02.2020, with further listing for hearing on the notified date. [Paras 11]

Company Petition restored to file and relegated to the stage of hearing as on 11.02.2020; posted for further hearing.

Materials in IA No. 62 as evidence and criminal appraisal - IA No. 62 of 2020 (forensic report/evidence) dismissed as infructuous; materials are to be appraised only in criminal proceedings. - HELD THAT: - The Tribunal observed that materials placed in IA No. 62 are evidentiary in nature and their appraisal falls within the scope of a criminal trial. Acceptance or appraisal of such material in the present proceedings would be irrelevant and redundant. Therefore IA No. 62 was dismissed as infructuous, and any investigation or trial based on those materials remains open to the appropriate authorities without being influenced by the Tribunal's order. [Paras 11]

IA No. 62 of 2020 dismissed as infructuous; evidentiary materials reserved for criminal appraisal.

Final Conclusion: The Tribunal dismissed IA Nos. 41 & 42 as not pressed and denied liberty to refile the same prayer; disposed IA Nos. 51 & 52 with direction to pursue forgery/perjury allegations before the competent criminal forum; dismissed IA No. 62 as infructuous; and restored the Company Petition to file, relegating it to the stage of hearing as on 11.02.2020 for further adjudication.

Approval of resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 - Judicial review limited to compliance with Section 30(2) of the Code and the CIRP Regulations - Commercial wisdom of the Committee of Creditors and its non justiciability - Compliance with amended Form H and Regulation 36B(4A) regarding performance security

Commercial wisdom of the Committee of Creditors and its non justiciability - Right of promoters/ex management to challenge COC decision - Objections of the ex management (Respondent No.2) to the Resolution Plan were considered and rejected. - HELD THAT: - The Tribunal examined the objections raised by Respondent No.2 that the COC decision and the quantum offered were against the alleged valuation and that the ex management was not given opportunity to participate. Having considered the record of service, notices and minutes of COC meetings and the provisions and authorities cited, the Tribunal held that the role of the Adjudicating Authority is confined to examining compliance with Section 30(2) of the Code and the CIRP Regulations and not to substitute its view for the commercial decision of the COC. Reliance was placed on Supreme Court pronouncements recognising the primacy of the COC's commercial wisdom and limiting judicial intervention. The Tribunal found the reply and documentary evidence filed by the Resolution Professional plausible and therefore rejected the objections as devoid of merit. [Paras 6, 7, 9, 12, 13]

Objections raised by Respondent No.2 are rejected; the COC decision is not displaced by the Tribunal's independent valuation or commercial assessment.

Compliance with amended Form H and Regulation 36B(4A) regarding performance security - Requirement of demonstrating availability of financial resources and performance bank guarantees - Whether the Resolution Applicant and Resolution Professional complied with the amended Form H and provided evidence of performance security and financial resources. - HELD THAT: - The Tribunal directed supplementation of the record and receipt of an affidavit and documentary proof. The Resolution Professional filed an amended Form H and supporting documents including renewal of performance bank guarantee(s), comfort letters and evidence of financial commitments. On perusal of the additional affidavit and documents filed in compliance with the Tribunal's direction, it was held that the Resolution Plan satisfies the amended Form H requirements and demonstrates the existence/renewal of performance security and sources of settlement. [Paras 10, 11]

The Resolution Plan, as supplemented, complies with the amended Form H and the requirements concerning performance security and financial resources.

Approval of resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 - Judicial review limited to compliance with Section 30(2) of the Code and the CIRP Regulations - Whether the Resolution Plan submitted by M/s NCJ Infrastructure Private Limited complies with the mandatory requirements of Section 30 and related regulations and is fit for approval under Section 31(1). - HELD THAT: - The Tribunal examined the Resolution Plan against the mandatory parameters set out in Section 30 and relevant CIRP Regulations, including treatment of CIRP costs, payment to operational creditors, change in management, monitoring committee provisions and declarations under Section 29 A. The COC had approved the plan with the requisite voting share (100%) and recorded reasons under Regulation 39(3). The Tribunal, noting documentary evidence of compliance, the COC's resolution and the statutory scheme limiting the Adjudicating Authority to scrutiny for compliance, concluded that the plan met the statutory and regulatory standards for approval. [Paras 19, 20, 21, 24, 25]

The Resolution Plan is approved under Section 31(1) of the IBC, 2016 and is binding on the Corporate Debtor and all stakeholders.

Final Conclusion: The Tribunal allowed CA 441/ND/2019, held that the objections of the ex management lacked merit, found the Resolution Plan (as supplemented) compliant with statutory and regulatory requirements including amended Form H, and approved the Resolution Plan under Section 31(1) of the IBC, 2016, with the plan to become effective from the date of the order.

Right to supply of relied-on documents - access to Scrutiny/Verification Report - adjudicating authority cannot delegate adjudicatory power - personal hearing and opportunity to file final reply - adjudication process should not be stalled

Right to supply of relied-on documents - access to Scrutiny/Verification Report - adjudicating authority cannot delegate adjudicatory power - personal hearing and opportunity to file final reply - The petitioner is entitled to be furnished with a copy of the Scrutiny/Verification Report prepared by the third respondent which the first respondent proposes to rely upon in adjudication. - HELD THAT: - The Court found that the verification exercise and the Scrutiny Report were undertaken after the petitioner had filed an interim reply to the show cause notice and that the first respondent intended to rely on that report. The adjudicating authority cannot delegate its adjudicatory power so as to deny the party access to a document which will be relied upon to pass an adverse order. Refusal to furnish the report would cause prejudice and could lead to the quashing of any subsequent adverse order solely on that ground. The Court distinguished earlier authority relied upon by the respondents on the basis that in that case the demand for relied-on documents was made at the show-cause stage, whereas in the present case the report was prepared subsequently; accordingly, furnishing the report will not prejudice the department but will avoid multiplicity of proceedings. The Court accordingly directed that the report be supplied and that the petitioner be permitted to file a final reply and participate in the personal hearing within a specified short period, while observing that the petitioner must cooperate so adjudication can be concluded expeditiously.

The impugned order is quashed; the first respondent is directed to furnish the Scrutiny/Verification Report to the petitioner and the petitioner shall file its final reply and participate in the personal hearing within four weeks, after which adjudication shall proceed.

Final Conclusion: Writ petition allowed; direction issued to provide the Scrutiny/Verification Report to the petitioner and to permit filing of final reply and personal hearing within four weeks; impugned order quashed; no order as to costs.

Harmonisation of competing arbitration clauses - arbitration clause in a main or umbrella agreement prevailing where disputes relate to the main agreement and connected matters - appointment under Section 11 of the Arbitration and Conciliation Act, 1996 - first invocation principle in arbitration - competence of an already constituted arbitral tribunal where clause providing for ICC arbitration has been invoked

Harmonisation of competing arbitration clauses - arbitration clause in a main or umbrella agreement prevailing where disputes relate to the main agreement and connected matters - Whether the arbitration clause contained in the Agreement dated 31.03.2018 (Clause 23) governs the disputes between the parties or the arbitration clause in the individual purchase orders (Clause 7) governs. - HELD THAT: - The Court held that where two documents between the same parties relate to the same overall transaction and one is a comprehensive agreement governing pricing, payment and related mechanisms, the arbitration clause in the main/umbrella agreement governs disputes that pertain to the main agreement and matters connected therewith. The applicant's own invocation and pleadings show that the price, payment terms, deductions and reconciliation issues arise under the Pricing Agreement dated 31.03.2018 and its internal mechanisms. The purchase orders contain more limited supply terms and do not set out the overall pricing and accounting mechanism. The Agreement expressly contemplated coverage of transactions commencing earlier and was comprehensive in scope. Applying the principle of reconciling overlapping clauses (as explained in Olympus Superstructures), the Court concluded that Clause 23 of the main agreement governs the present disputes which predominantly concern pricing and payment adjustments arising under the Pricing Agreement. [Paras 11, 12, 13, 14]

The arbitration clause in the Agreement dated 31.03.2018 (Clause 23) governs the disputes between the parties; Clause 7 of the purchase orders does not govern the present dispute.

Appointment under Section 11 of the Arbitration and Conciliation Act, 1996 - first invocation principle in arbitration - competence of an already constituted arbitral tribunal where clause providing for ICC arbitration has been invoked - Whether the petitioner's Section 11 application invoking Clause 7 of the purchase orders for appointment of an arbitrator is maintainable when the respondent had earlier invoked Clause 23 and an ICC tribunal has been constituted. - HELD THAT: - The Court noted that the respondent was the first to invoke the arbitration procedure under Clause 23 of the Pricing Agreement by issuing the pre-arbitration notice and initiating ICC proceedings. The Arbitral Tribunal under Clause 23 had been constituted (names and appointment communicated). Given the Tribunal already constituted under the main agreement and the Court's conclusion that Clause 23 governs the disputes, an application under Section 11 seeking appointment under the purchase order clause was not sustainable. The Court also observed that the subject matter advanced by the petitioner in its reply demonstrates that the disputes fall to be determined under the Pricing Agreement and may be dealt with by the ICC tribunal, including issues that overlap with individual purchase orders. [Paras 9, 14, 15, 16, 17]

The Section 11 petition seeking appointment of an arbitrator under Clause 7 of the purchase orders is not maintainable and is dismissed; the ICC tribunal constituted under Clause 23 remains the appropriate forum.

Final Conclusion: The petitions are dismissed: the arbitration clause in the Agreement dated 31.03.2018 governs the disputes between the parties and, since the respondent had validly invoked that clause and an ICC arbitral tribunal has been constituted, the Section 11 application for appointment under the purchase orders is not sustainable; Arbitration Application No.15/2020 and SLP No.10264/2020 are dismissed with no order as to costs.

Vicarious liability under Section 141 of the Negotiable Instruments Act - requirement of specific averments in the complaint - non-executive director not liable for company offences absent charge of day-to-day affairs - Magistrate's duty to apply mind before taking cognizance - exercise of High Court's inherent jurisdiction under Section 482 Cr.P.C. to prevent abuse of process

Vicarious liability under Section 141 of the Negotiable Instruments Act - requirement of specific averments in the complaint - non-executive director not liable for company offences absent charge of day-to-day affairs - Whether the complaint contained the specific averments necessary to fasten vicarious criminal liability on the petitioner under Section 141 of the Negotiable Instruments Act and whether proceedings against the petitioner should be quashed. - HELD THAT: - The Court held that Section 141 creates vicarious liability which must be strictly pleaded. A complaint must specifically aver that, at the time of the offence, the person sought to be made liable was in charge of and responsible for the conduct of the company's business; mere recital of directorship is insufficient. The judgments of this Court and the Supreme Court were applied to reiterate that only those who were at the helm of affairs, or otherwise clearly in charge (for example, managing director or authorized signatory), can be vicariously prosecuted without further specific averments. In the present case the complaint merely described the petitioner as a Director and contained a broad statement that the second and third accused were "in charge of the managing all such business activities" without unambiguous particulars of the petitioner's role or control over day-to-day affairs. The petitioner is alleged to be a non-executive director and there were no specific factual averments showing she was in charge of, or responsible for, conduct of the business at the relevant time. Consequently, the Magistrate issued process without the requisite specific averments and without adequate application of mind as to Section 141's requirements. Given the absence of necessary averments and to prevent abuse of process, the Court found it appropriate to quash the proceedings insofar as they related to the petitioner. [Paras 6, 10]

Proceedings under Sections 138 and 141 of the Negotiable Instruments Act are quashed insofar as the petitioner is concerned for lack of specific averments establishing vicarious liability; the complaint did not meet the statutory requirement that the accused be shown to have been in charge of and responsible for the company's business at the relevant time.

Final Conclusion: The petitions are allowed and the criminal proceedings in the listed complaint numbers are quashed as against the petitioner for failure to aver facts necessary to fasten vicarious liability under Section 141 of the Negotiable Instruments Act; trial against the other accused is to continue and be completed within six months.

Offence under Section 138 of the Negotiable Instruments Act - presumption under Section 139 of the Negotiable Instruments Act - rebuttal of statutory presumption - dishonour of cheque for insufficiency of funds - scope of criminal revision under Section 397 r/w 401 CrPC

Offence under Section 138 of the Negotiable Instruments Act - dishonour of cheque for insufficiency of funds - presumption under Section 139 of the Negotiable Instruments Act - rebuttal of statutory presumption - Whether the conviction under Section 138 of the Negotiable Instruments Act could be sustained on the evidence on record. - HELD THAT: - The Court applied the statutory presumption arising under Section 139 in the context of a cheque drawn for discharge of debt and considered whether the accused had rebutted that presumption. The material findings recorded by the trial and appellate Courts - receipt of Rs. 4 lakhs by the accused on 25.03.2012, issuance of the cheque, presentation on 26.03.2012 and its return for insufficient funds, service of statutory notice and its acknowledgment, and absence of payment within the statutory period - were accepted as proved. The complainant's bank statement (Ex.P6) was held sufficient to show available funds and the complainant's capacity to part with the amount; the accused did not seriously dispute the cheque or his signature and failed to substantiate the defence that the cheque was a blank cheque misused years earlier. The Court reiterated that the defence need only produce evidence creating a reasonable possibility that the presumption is untrue; here the accused's contentions were not proved to that standard and the lower Courts' concurrent findings did not suffer from illegality, perversity or impropriety warranting interference. [Paras 17, 19, 20]

Conviction under Section 138 of the Negotiable Instruments Act is sustained; the revision petition is dismissed.

Scope of criminal revision under Section 397 r/w 401 CrPC - Whether this Court should interfere in exercise of revisional jurisdiction to re-appreciate evidence. - HELD THAT: - The Court reiterated the limited scope of revision under Section 397 r/w 401 CrPC: interference is permissible only if there is illegality, perversity or impropriety in the findings of the trial or appellate Courts. Absent such jurisdictional defects, the Court will not act as a second appellate forum to reappraise the evidence. Applying this principle to the present record, the Court found no such defect in the concurrent findings which supported conviction. [Paras 17, 18, 20]

No interference under revisional jurisdiction; the revision is dismissed.

Effect of interim deposit on final relief - Disposition of the interim deposit made pursuant to earlier order of this Court. - HELD THAT: - The Court noted that pursuant to an earlier order staying sentence, the accused had deposited a sum directed to the trial court's credit. As the revision is dismissed, the Court permitted the respondent to withdraw the deposited amount and directed the trial Court to secure and confine the accused to undergo the sentence as imposed by the trial Court. [Paras 21]

Respondent permitted to withdraw the interim deposit; trial Court to secure the accused for undergoing the sentence.

Final Conclusion: The Criminal Revision is dismissed; the conviction and sentence under Section 138 of the Negotiable Instruments Act are upheld, the respondent is permitted to withdraw the interim deposit made to the trial Court, and the trial Court is directed to ensure execution of the sentence.

Presumption under Section 139 of the Negotiable Instruments Act - Requirement to prove legally enforceable debt for offence under Section 138 - Rebuttable presumption and standard of proof by preponderance of probabilities - Evidence required from complainant to establish debt (invoices/agreements) - Consequences of non-production of documentary evidence on proof of debt

Requirement to prove legally enforceable debt for offence under Section 138 - Evidence required from complainant to establish debt (invoices/agreements) - Complainant must prove existence of a legally valid and enforceable debt payable as on the date of issuance of the cheque to sustain prosecution under Section 138. - HELD THAT: - The Court held that although a dishonoured cheque and demand notice are material, the complainant must still establish that a legally enforceable debt was due and payable on the date the cheque was issued. The complainant produced the cheque, banker's memo of dishonour and demand/reply notices but did not produce invoices or the agreement which he earlier admitted to possessing; subsequently he disavowed their existence. Given that liquor is an excisable commodity ordinarily accompanied by invoices, the non-production of invoices despite specific notice to produce them undermined the case that the cheque was issued to discharge a legally valid debt. The Court applied these considerations to conclude that the complainant failed to prove the debt element required for Section 138. [Paras 17, 18]

Complainant failed to prove existence of legally enforceable debt; requirement to prove debt for Section 138 not satisfied.

Presumption under Section 139 of the Negotiable Instruments Act - Rebuttable presumption and standard of proof by preponderance of probabilities - The presumption under Section 139 is rebuttable and can be displaced by the accused by raising a probable defence on the preponderance of probabilities; the accused need not always lead oral evidence. - HELD THAT: - Relying on the principles summarised from authority, the Court observed that Section 139 creates a presumption in favour of the cheque-holder but it is rebuttable. The accused may rebut the presumption by adducing evidence or by pointing to materials on record which give rise to a probable defence. It is not mandatory for the accused to enter the witness box; rebuttal may be effected by the defence notices and by highlighting lacunae in the complainant's case. In this case the accused had denied liability, asserted that blank cheques were misused and called for production of invoices; those materials and the complainant's failure to produce invoices were held sufficient to rebut the presumption on the preponderance of probabilities. [Paras 13, 14, 15, 17]

Section 139 presumption was properly rebutted on the materials; accused were not obliged to lead further oral evidence.

Consequences of non-production of documentary evidence on proof of debt - Requirement to prove legally enforceable debt for offence under Section 138 - The First Appellate Court's conclusion that the complainant failed to prove a legally valid debt and its consequent acquittal of the accused does not suffer legal infirmity and requires no interference. - HELD THAT: - After reviewing the pleadings, exhibits and oral submissions, the High Court found no error in the appellate court's approach. The appellate court correctly applied the legal tests: it recognised the statutory presumption under Section 139, required proof of legally enforceable debt for conviction under Section 138, and found that the complainant's non-production of invoices and inconsistent testimony meant the requisite debt was not established. On these grounds the appellate court's setting aside of the trial court's conviction was upheld. [Paras 19]

Impugned judgment of the First Appellate Court is proper; no interference warranted.

Final Conclusion: Appeal dismissed; the First Appellate Court correctly held that the complainant failed to prove a legally enforceable debt and that the presumption under Section 139 was rebutted on the materials, warranting no interference with the acquittal.