TaxTMI Updates e-Newsletter
Sep 24,2022

Cancellation of registration - non-application of mind - denial of reasoned order - Article 14 of the Constitution of India - fundamental right to carry on trade under Article 19 - power to condone delay under Section 107(4) of the GST Act - limitation bar on appeals - opportunity of hearing - fresh adjudication and compliance with Section 29 of the GST Act

Cancellation of registration - non-application of mind - denial of reasoned order - Article 14 of the Constitution of India - fundamental right to carry on trade under Article 19 - The order dated 13.02.2020 cancelling the petitioner's GST registration was vitiated for want of application of mind and absence of reasons and was set aside. - HELD THAT: - The cancellation order does not disclose any reasons or any application of mind. A quasi-judicial order affecting the petitioner's right to carry on business under Article 19 requires reasons; reasons are the heart and soul of a judicial or administrative order. In the absence of any reasons or consideration recorded in the impugned order, the order fails the test of Article 14 and cannot stand. Reliance placed on authorities to the effect that administrative/quasi-judicial orders must indicate reasons was noted. Consequently the cancellation order dated 13.02.2020 is set aside. [Paras 6, 7, 8]

Impugned cancellation order dated 13.02.2020 set aside for want of application of mind and absence of reasons.

Power to condone delay under Section 107(4) of the GST Act - limitation bar on appeals - The Appellate Authority's view that it has no power to condone delay under the statutory scheme and that the appeal was barred by limitation was not faulted. - HELD THAT: - The Appellate Authority dismissed the appeal as barred by the prescribed period of limitation and recorded that no statutory power to condone delay exists under Section 107(4) of the GST Act. The Court accepted that position and observed there was no infirmity in the appellate authority's conclusion that delay could not be condoned within the statutory framework. [Paras 5]

Appellate order dismissing the appeal as time-barred (and declining to condone delay) sustained; no fault found with the Appellate Authority's view on the lack of power to condone delay.

Opportunity of hearing - fresh adjudication and compliance with Section 29 of the GST Act - Proceedings were remitted to the Adjudicating Authority for fresh consideration after affording the petitioner an opportunity to reply and be heard; further action to follow the law including Section 29 of the GST Act. - HELD THAT: - Having set aside the cancellation order, the Court directed the petitioner to file a reply to the show-cause notice within three weeks. The Assistant Commissioner (Adjudicating Authority) was directed to afford hearing to the petitioner and to pass a fresh order after considering the defence raised. The Court further directed that subsequent action shall proceed in accordance with law as prescribed under Section 29 of the GST Act. [Paras 9, 10]

Matter remitted to the Adjudicating Authority for fresh adjudication after giving opportunity of hearing and compliance with applicable provisions of the GST Act.

Final Conclusion: The cancellation order dated 13.02.2020 is set aside for want of application of mind and absence of reasons; the appeal dismissed as time-barred by the Appellate Authority (which has no power to condone delay under the statutory scheme) was not faulted; the matter is remitted to the Adjudicating Authority to decide afresh after the petitioner files a reply and is afforded an opportunity of hearing, with further action to follow the provisions of the GST Act.

Classification under Tariff Item 0804 50 40 - GST rate on mango pulp - distinction between fresh, sliced and dried, and other forms of mangoes under heading 0804 - effect of GST Council recommendation and administrative clarification - interpretation of Notification No.1/2017-Central Tax (Rate) and subsequent amendment

Classification under Tariff Item 0804 50 40 - GST rate on mango pulp - effect of GST Council recommendation and administrative clarification - Authorities were not justified in charging GST at 18% on Mango pulp; the correct rate is 12%. - HELD THAT: - The Authority for Advance Ruling had held mango pulp/puree taxable at 18% and the Appellate Authority modified that order to classify the product under Tariff Item 0804 50 40 and charge GST at 18%. Subsequently, the Department of Revenue issued a Circular dated 03.08.2022, recording the GST Council's recommendation that mangoes under CTH 0804 (including mango pulp, other than fresh mangoes and sliced, dried mangoes) attract GST at 12%, while mangoes sliced and dried were reduced to 5%. The Court accepted this administrative clarification and the Council's recommendation as determinative for classification and applicable rate, concluding that mango pulp falls within the category of other forms of dried mango under heading 0804 and was always meant to attract GST at 12%. Consequently, the appellate order imposing 18% is incorrect and the petitioner is liable to pay GST on mango pulp at 12%. [Paras 7, 8]

Appellate Authority's order charging 18% is set aside insofar as it relates to mango pulp; mango pulp is liable to GST at 12%.

Final Conclusion: Writ petition disposed of by holding that mango pulp is classifiable under heading 0804 and attracts GST at 12%; the order imposing GST at 18% is incorrect; no order as to costs.

Release of confiscated conveyance on deposit of fine - fine in lieu of confiscation - confiscation of conveyance - deposit without prejudice to rights and contentions

Release of confiscated conveyance on deposit of fine - fine in lieu of confiscation - deposit without prejudice to rights and contentions - Petitioner/respondent entitled to release of the confiscated conveyance on depositing the fine determined in lieu of confiscation, subject to the outcome of the petition and without prejudice to rights. - HELD THAT: - The Court recorded that the owner of the conveyance ordered to be confiscated had offered to deposit the amount determined as fine in lieu of confiscation and that the respondent-Authorities did not oppose release of the vehicle if such deposit was made. Taking into consideration the offer to deposit the fine and the submissions of the parties, and having regard to the facts and circumstances, the Court directed release of the vehicle to the owner on condition of depositing the specified fine by the date fixed. The Court expressly clarified that the deposit is to be made without prejudice to the owner's rights and contentions raised in the petition and that the release is subject to the ultimate outcome of the petition. [Paras 5]

Conveyance GJ-06-AV-4708 to be released to respondent No.5 on deposit of Rs.3,16,350/- on or before 15th September, 2022; deposit to be without prejudice and release subject to outcome of the petition.

Final Conclusion: The High Court directed conditional release of the confiscated conveyance upon deposit of the fine determined in lieu of confiscation, reserving all rights and subjecting the release to the final adjudication of the petition.

Transitional Credit - TRAN-1 filing - portal reopening by Goods and Services Tax Network - technical glitches as ground for extension of filing period - binding effect of Supreme Court directions

Transitional Credit - TRAN-1 filing - portal reopening by Goods and Services Tax Network - technical glitches as ground for extension of filing period - Petitioner permitted to avail the remedy of filing TRAN-1 during the period the GSTN portal was ordered by the Supreme Court to be reopened. - HELD THAT: - The High Court accepted that the petitioner was unable to file TRAN-1 on account of technical glitches. Relying on the final order of the Supreme Court dated 22.07.2022 (which directed GSTN to open a common portal for filing TRAN-1 and TRAN-2 from 01.09.2022 to 31.10.2022 and provided for subsequent verification by the authorities), and given that neither Central GST nor State GST contested the applicability of that order, the Court directed that the petitioner may avail the remedy made available by the Supreme Court within the specified period. The Court recorded that the appellate/implementation directions of the Supreme Court govern the present situation and therefore granted the petitioner the benefit of the reopened filing window.

Petitioner may file TRAN-1 in the reopened GSTN portal in terms of the Supreme Court order of 22.07.2022 (portal open 01.09.2022 to 31.10.2022); petition disposed.

Final Conclusion: The writ petition is disposed with a direction that the petitioner is entitled to avail the opportunity to file TRAN-1 during the period the GSTN portal was reopened by the Supreme Court (01.09.2022 to 31.10.2022), with verification and further proceedings to follow as directed by the apex Court.

Provisional attachment under the Central Goods and Services Tax regime - exercise of drastic powers with circumspection - bank guarantee as conditional relief for lifting attachment - security limited to disputed tax amount pending adjudication - protection of revenue versus prejudice to commercial livelihood

Provisional attachment under the Central Goods and Services Tax regime - exercise of drastic powers with circumspection - protection of revenue versus prejudice to commercial livelihood - Validity of the attachment of the petitioner's bank account under the provisional attachment procedure and the requirement for lifting that attachment - HELD THAT: - The court recognised that powers of provisional attachment under the GST scheme are drastic and must be exercised with due care and circumspection. Although the department recorded reasons to suspect bogus invoicing by a vendor and claimed wrongful availment of input tax credit, the adjudicatory process against the petitioner had not been completed and no demand had been finally determined. Balancing the State's interest in securing revenue against the petitioner's difficulty in carrying on business when the current account is frozen, the court found it unreasonable to insist that any interim security must cover interest and penalty as well as tax while adjudication is pending. It held that requiring a bank guarantee limited to the disputed tax amount would adequately protect the revenue at this interlocutory stage without imposing disproportionate hardship on the petitioner. The court expressly refrained from expressing any opinion on the merits of the underlying tax liability, which remains for the adjudicatory process. [Paras 5, 6]

Attachment of the petitioner's bank account set aside on condition that the petitioner furnishes a bank guarantee equivalent to the disputed tax amount of Rs. 6,10,511/-, the court reserving all issues on merits for the adjudicatory process

Final Conclusion: The petition is allowed; the provisional attachment of the petitioner's bank account is lifted on the petitioner furnishing a bank guarantee equal to the disputed tax amount, interest and penalty not being required to be secured at this interim stage, and no opinion is expressed on the merits of the tax liability.

Transitional credit - TRAN-1 - technical glitch in GSTN portal - filing and revision of forms for availing transitional credit - verification of transitional credit claims by assessing officers

Transitional credit - TRAN-1 - technical glitch in GSTN portal - Petitioners' claim for carry forward of Cenvat credit through TRAN-1 despite earlier failure of online filing due to technical error - HELD THAT: - The High Court accepted that the core grievance was the petitioners' inability to successfully file TRAN-1 on account of a technical error on the online portal, resulting in loss of transitional input tax credit. The court observed that the issue is governed by the Supreme Court's decision in Union of India v. Filco Trade Centre Pvt. Ltd. and allied matters dated 22.07.2020, which authorized a limited remedial window and directed GSTN to open a common portal for filing/revising TRAN-1/TRAN-2 and required subsequent verification by authorities. Applying those directions, the High Court disposed the petition by directing compliance with the Supreme Court's order, thereby permitting the petitioners to avail the remedial mechanism prescribed at the higher judicial level for carrying forward transitional credit.

Petition allowed and disposed of in terms of the Supreme Court's directions permitting filing/revision of TRAN-1 pursuant to the GSTN window and subsequent verification by authorities.

Filing and revision of forms for availing transitional credit - verification of transitional credit claims by assessing officers - Relief available and procedure to be followed for filing/revising TRAN-1 and for verification of the claimed transitional credit - HELD THAT: - The court directed that the petitioners' grievance be addressed in accordance with the procedural relief outlined by the Supreme Court: GSTN to open a common portal for a limited period to enable filing or revision of TRAN-1/TRAN-2; GSTN to ensure absence of technical glitches during that period; and the concerned officers to verify the veracity of claims within the stipulated period by granting appropriate opportunity to the parties and passing orders on merits, after which allowed transitional credit is to be reflected in the Electronic Credit Ledger. The High Court therefore confined its order to directing implementation of the Supreme Court's remedial scheme rather than undertaking fresh merits adjudication.

Directed compliance with the Supreme Court's procedural directions concerning opening of portal, facilitation of filing/revision, verification by officers, and reflection of allowed transitional credit in the Electronic Credit Ledger.

Final Conclusion: The petition is disposed of by directing that the petitioners be afforded the benefit of the remedial scheme laid down by the Supreme Court in Union of India v. Filco Trade Centre Pvt. Ltd. (22.07.2020), permitting filing/revision of TRAN-1/TRAN-2 during the prescribed portal window and subjecting claims to verification by concerned officers, with allowed transitional credit to be reflected in the Electronic Credit Ledger.

Validity of assessment order passed against a deceased person - Order under Section 263 questioned as void for being passed against non-existent person - Amendment of memo of appeal - Remand for fresh consideration by the Tribunal

Amendment of memo of appeal - Amendment to the memo of appeal to raise the question of the assessee's death was permitted. - HELD THAT: - The appellant sought to amend the memo of appeal to insert a contention that the order dated 16-03-2016 under Section 263 was passed after the death of the assessee and was therefore illegal as being against a non-existent person. The Court allowed the proposed amendment to the memo of appeal and dispensed with re-verification, permitting the specific plea to be raised before the Tribunal. [Paras 3]

Application to amend the memo of appeal was allowed and the amendment was directed to be carried out forthwith.

Validity of assessment order passed against a deceased person - Order under Section 263 questioned as void for being passed against non-existent person - Remand for fresh consideration by the Tribunal - Whether the order under Section 263 passed after the assessee's death is a nullity and requires fresh consideration by the Tribunal. - HELD THAT: - The record established that the assessee had died on 22-01-2016 and that the Principal Commissioner passed the impugned order on 16-03-2016. The fact of death had been communicated to and acknowledged by the department prior to passing the order and was reflected in the order itself. Because the question of whether an adjudicatory order passed after the death of the assessee is void has direct bearing on the controversy but was not argued before the Tribunal, the High Court remanded that limited question to the Tribunal for fresh consideration, leaving other grounds raised in the memo of appeal open for adjudication. [Paras 4, 5, 6]

Matter remanded to the Tribunal to decide, within the observations made, the limited issue of legality of the order passed post the assessee's death; other issues left open.

Final Conclusion: Amendment to the memo of appeal permitted to raise the plea that the Section 263 order was passed after the assessee's death; the matter is remanded to the ITAT for fresh consideration of that limited question within the observations of this Court, other issues remaining open.

Deduction under Section 80IC for undertakings in special category States - Classification of existing undertakings and substantial expansion under Section 80IC(2)(b) - Interpretation and applicability of Section 14A and Rule 8D of the Income Tax Rules - Requirement of Assessing Officer's recorded satisfaction before invoking machinery provisions for disallowance - Nexus between borrowings/investments and exempt income for apportionment of expenditure

Deduction under Section 80IC for undertakings in special category States - Classification of existing undertakings and substantial expansion under Section 80IC(2)(b) - Benefit of deduction under Section 80IC was rightly allowed to the assessee for the assessment years in question despite the assessing officer's view that no substantial expansion had been undertaken. - HELD THAT: - The Tribunal and the Commissioner (Appeals) correctly interpreted clause (b) of Section 80IC(2) which covers: (i) undertakings that have begun or begin to manufacture articles specified in the Fourteenth Schedule; (ii) undertakings which manufacture or produce articles specified in the Fourteenth Schedule; and (iii) undertakings which commence operations specified in the Fourteenth Schedule and undertake substantial expansion during the specified period. The assessing officer overlooked that an existing unit manufacturing an item standing in the Fourteenth Schedule (mineral based industry, clause-16 of Part-A) falls squarely within the provision even if it had earlier claimed benefit under Section 80IB. A consistent departmental approach is required unless a factual distinction for a particular year is established; no such factual distinction was pointed out by the assessing officer. Therefore denial of deduction solely on the ground that there was no substantial expansion was incorrect. [Paras 7, 8, 9, 10, 11]

Tribunal's affirmation of CIT(A)'s grant of deduction under Section 80IC is upheld and the substantial question of law is answered against the revenue.

Interpretation and applicability of Section 14A and Rule 8D of the Income Tax Rules - Requirement of Assessing Officer's recorded satisfaction before invoking machinery provisions for disallowance - Nexus between borrowings/investments and exempt income for apportionment of expenditure - Assessing officer erred in applying Rule 8D (and making disallowance under Section 14A) without recording requisite satisfaction and despite findings that own funds exceeded investments; the Tribunal's deletion of the disallowance is sustainable. - HELD THAT: - The Tribunal correctly applied the principles laid down in Higher Court and Supreme Court authorities requiring that before invoking the computation mechanism under Rule 8D an Assessing Officer must record an objective satisfaction that the assessee's claim (including that no expenditure was incurred) is untenable. The assessing officer rejected the assessee's explanation without reasons and applied the machinery provision straightaway. On facts the Tribunal found that the assessee had sufficient own funds such that no proportionate disallowance was warranted because nexus between the expenditure disallowed and earning of exempt income was not established. Decisions cited (including the Supreme Court authorities noted by the Tribunal) support that where own funds exceed investments, proportionate disallowance under Section 14A is not called for and separate accounting is not statutorily mandated. In view of these legal and factual findings the revenue has not established grounds for interference. [Paras 13, 14, 15]

Tribunal's deletion of additions made under Section 14A (and rejection of invocation of Rule 8D without recorded satisfaction) is upheld and the appeals are dismissed against the revenue on this issue.

Final Conclusion: All three appeals are dismissed. The High Court upholds the Tribunal's allowance of deduction under Section 80IC to the assessee for the stated assessment years and affirms deletion of disallowances under Section 14A where the Assessing Officer failed to record requisite satisfaction and nexus between expenditure and exempt income was not established.

Reopening of assessment based on change of opinion - reassessment invalid where original explanation accepted in assessment order - tangible material as pre-condition for reopening assessment - distinction between power to reassess and power to review

Reopening of assessment based on change of opinion - reassessment invalid where original explanation accepted in assessment order - distinction between power to reassess and power to review - Validity of reassessment proceedings reopening the assessment for A.Y.2008-09 on the ground that deductions previously allowed were 'inadvertently' allowed without verifying reversal of provisions. - HELD THAT: - The Court found on the material on record that the Assessing Officer had issued a questionnaire before passing the original assessment, the assessee had responded and the explanation regarding creation and reversal of provisions was recorded and accepted in the original assessment. The subsequent reassessment under the premise that the deduction was 'inadvertently' allowed amounted to a change of opinion by the AO. Relying upon the principle that reassessment must be founded on "reason to believe" supported by tangible material and not on mere change of opinion, and distinguishing reassessment from review, the Court held that reopening the assessment on the ground of inadvertent allowance was impermissible. Applying the precedents cited in the judgment, the re-opening was therefore invalid and the additions made by the AO in the reassessment could not be sustained. [Paras 17, 18, 21, 22]

Reassessment for A.Y.2008-09 reopening deductions on the basis of inadvertent allowance/change of opinion is invalid; the assessee's appeal is allowed.

Final Conclusion: Assessee's appeal is allowed; the reassessment for A.Y.2008-09 premised on 'inadvertent' allowance/change of opinion is held invalid and the Revenue's cross-appeal is dismissed.

Disallowance under section 14A - computation under Rule 8D - restriction of disallowance to the extent of exempt income - computation of book profit under section 115JB (MAT) excluding section 14A disallowance - prospective effect of Finance Act, 2022 amendment to section 14A

Disallowance under section 14A - computation under Rule 8D - restriction of disallowance to the extent of exempt income - Whether the disallowance computed under section 14A read with Rule 8D can be restricted to the amount of exempt income earned for the assessment years 2014-15 and 2016-17. - HELD THAT: - The Tribunal accepted the view recorded by the ld. CIT(A) and coordinate benches that, on the facts of these years, no expenditure directly or indirectly relatable to earning the exempt dividend income was debited to profit and loss account and that the Assessing Officer's application of the notional Rule 8D computation produced disallowances disproportionate to the exempt receipts. Reliance was placed on earlier Tribunal decisions in the assessee's own case and other judicial precedents directing that a section 14A disallowance may be restricted to the extent of the exempt income where facts do not establish expenditure incurred for earning such income. The Tribunal found no reason to interfere and dismissed Revenue's ground challenging the restriction for both assessment years. [Paras 7]

Disallowance under section 14A read with Rule 8D restricted to the extent of exempt income for AYs 2014-15 and 2016-17; Revenue's challenge dismissed.

Computation of book profit under section 115JB (MAT) excluding section 14A disallowance - prospective effect of Finance Act, 2022 amendment to section 14A - Whether the disallowance under section 14A r.w. Rule 8D is to be imported for computing book profit under section 115JB for the assessment years in question, and whether the Finance Act, 2022 amendment alters that position for these years. - HELD THAT: - Following the ld. CIT(A)'s reliance on the Special Bench and coordinate Tribunal decisions, the Tribunal held that the clause in Explanation I to section 115JB is to be applied without resort to the section 14A/Rule 8D computation and therefore the section 14A disallowance should not be included while computing MAT book profit. The Revenue's contention based on the Finance Act, 2022 amendment was rejected because the amendment takes effect from 1 April 2022 and applies to AY 2022-23 and subsequent years; it does not change the legal position for the assessment years before the Tribunal. The Tribunal also noted relevant High Court treatment and that the change in law was not retrospective to the years under appeal. [Paras 8]

Section 14A/Rule 8D disallowance is not to be imported for computing book profit under section 115JB for the years before the Tribunal; Revenue's plea based on the 2022 amendment rejected as inapplicable.

Final Conclusion: Both appeals filed by the Revenue for AY 2014-15 and AY 2016-17 are dismissed: the section 14A disallowances are restricted to the extent of exempt income, and such disallowances are not to be included in computation of book profit under section 115JB for the years under appeal; the Finance Act, 2022 amendment is prospective and does not affect these assessment years.

Revision of assessment under section 263 of the Income Tax Act - reopening of assessment under section 147 of the Income Tax Act - erroneous and prejudicial to the interests of revenue - duty of the Assessing Officer to make inquiries and investigations - setting aside assessment for want of proper inquiry

Revision of assessment under section 263 of the Income Tax Act - erroneous and prejudicial to the interests of revenue - duty of the Assessing Officer to make inquiries and investigations - setting aside assessment for want of proper inquiry - reopening of assessment under section 147 of the Income Tax Act - Validity of the revisional order under section 263 setting aside the assessment on the ground that the Assessing Officer failed to make inquiries in respect of specified issues, rendering the assessment erroneous and prejudicial to the revenue. - HELD THAT: - The Principal Commissioner of Income-tax issued a show cause notice under section 263 identifying five specific areas in which no inquiries were conducted by the Assessing Officer (cash deposits, land development charges, unsecured loans/confirmations, advances for land purchase, and treatment of short-term capital gains). No reply was filed to the show cause notice. The Revisional Authority examined the assessment order, found that the Assessing Officer had passed the assessment without making the necessary inquiries where circumstances demanded investigation, and concluded that the assessment was both erroneous and prejudicial to the interest of the revenue. The Tribunal, on perusal of the record and in absence of any material or submissions from the assessee, held that the Revisional Authority had applied the correct legal test - that an assessment made without required inquiries which result in loss to revenue can be set aside under section 263 - and that the exercise of revisional power to direct fresh assessment after affording opportunity to the assessee was justified. The Tribunal declined to disturb the revisional order in light of the undisputed lack of inquiry and absence of any contrary material before it.

The revisional order under section 263 setting aside the assessment was upheld; the assessee's appeal is dismissed.

Final Conclusion: The Tribunal affirms the Principal Commissioner's order under section 263 holding that the assessment for AY 2008-09 was rendered erroneous and prejudicial to the revenue due to lack of requisite inquiries; the assessment is set aside for fresh adjudication and the assessee's appeal is dismissed.

Deductibility of ESOP expenditure under section 37(1) - Revenue v. capital character of employee stock option payments - Book entries not determinative for taxability - Reimbursement to parent for ESOP expenses treated as employer's expenditure - Remand for factual verification

Deductibility of ESOP expenditure under section 37(1) - Revenue v. capital character of employee stock option payments - Book entries not determinative for taxability - Reimbursement to parent for ESOP expenses treated as employer's expenditure - Claim for deduction of ESOP expenditure of Rs.2,58,48,144/- by the assessee - HELD THAT: - The Tribunal accepted the legal proposition that expenditure incurred to compensate employees by granting stock options is in principle revenue in nature and deductible under section 37(1), relying on judicial precedents. The Tribunal noted the assessee's case that (i) ESOPs were granted by the parent company but related to employees deputed to the assessee, (ii) the assessee reimbursed the parent company for the ESOP cost, and (iii) the amount was related to the year under consideration though invoiced and paid in the subsequent year and was reflected in re-casted comparative financial statements. The revenue's contentions that (a) the ESOPs were issued by the parent (not the assessee), (b) the cost was treated by the parent as capital contribution, and (c) the expense was not debited to the assessee's profit and loss account were considered. While the Tribunal found the assessee's legal submissions to have considerable cogency and recorded that many factual assertions supported allowability, it observed that several factual aspects (deputation of employees, timing and recasting of financials, documentary proof and actual payment flow) required verification. Accordingly, rather than deciding the claim on merits itself, the Tribunal directed the Assessing Officer to verify these factual aspects and to pass an appropriate order in light of the Tribunal's observations and the legal position favouring allowability of ESOP expenditure where reimbursement and service connection are established. [Paras 9, 10, 11]

Issue remitted to the Assessing Officer for factual verification of deputation, timing/recasting of accounts and payment, and for passing of consequential order in accordance with the Tribunal's observations.

Deduction of education cess as business expenditure - Claim for deduction of education cess and secondary and higher education cess amounting to Rs.17,54,051/- - HELD THAT: - The assessee's counsel expressly declined to press this ground of appeal before the Tribunal. In consequence, the Tribunal recorded that the ground was not pressed and declined to adjudicate it on merits. [Paras 12]

Ground dismissed as not pressed.

Final Conclusion: The appeal is partly allowed for statistical purposes: the ESOP expenditure claim is remitted to the Assessing Officer for factual verification and fresh adjudication in accordance with the Tribunal's observations; the education cess ground is dismissed as not pressed.

Under-invoicing/under-valuation of inter-unit transfers - claim of tax benefit through relocation of profits to avail differential deductions under 80IB and 80IC - comparability of transfer price - relevance of functions performed, assets employed and risks borne - binding effect of valuation accepted by Central Excise authorities on income tax assessment - burden on revenue to prove deliberate under invoicing

Under-invoicing/under-valuation of inter-unit transfers - comparability of transfer price - relevance of functions performed, assets employed and risks borne - burden on revenue to prove deliberate under invoicing - Addition to taxable income on account of alleged under invoicing of goods transferred by Puducherry unit to Guwahati unit was not sustainable. - HELD THAT: - The Tribunal examined the price differential relied upon by the Assessing Officer and the CIT(A) and found that mere difference in rates charged by two suppliers is not by itself proof of deliberate under invoicing. Pricing depends on functions performed, assets employed, location and costs involved. The assessee produced a chart and cost data showing that goods supplied by the Puducherry unit were semi finished and underwent further processing at the Guwahati unit; when the branch transfer price plus the additional processing cost at Guwahati is compared with the landed cost of goods purchased from the third party, the net difference per unit was negligible. The Tribunal held that the Assessing Officer relied solely on rate comparison without adequate consideration of these material factors and without independent evidence to establish intentional suppression of income, and therefore the additions made on the basis of that comparison were erroneous. [Paras 9, 11]

Additions for suppression of income by reason of alleged under valuation/under invoicing are deleted.

Binding effect of valuation accepted by Central Excise authorities on income tax assessment - burden on revenue to prove deliberate under invoicing - Value of goods accepted by Central Excise authorities for excise duty purposes is a material factor which the income tax authority ought not to disregard while estimating assessable value for income tax purposes. - HELD THAT: - The Tribunal observed that the assessee was regularly assessed under the Central Excise regime and the branch transfer value declared by the assessee was accepted by the Central Excise authorities under the Central Excise Valuation Rules. In such circumstances, the income tax authorities cannot lightly substitute a different value purely on the basis of comparison with third party rates without demonstrating why the excise accepted valuation is incorrect. The Tribunal relied on the principle that where a competent authority has accepted a valuation and there is no contrary determination by that authority, the income tax authority must give weight to that acceptance and cannot proceed to make additions without independent evidence of mis valuation. [Paras 10]

The Assessing Officer was not justified in disputing the excise accepted valuation solely on the basis of third party rates; the excise acceptance strengthens the assessee's case and supports deletion of the additions.

Final Conclusion: The Tribunal, after considering the comparative pricing, the assessee's explanation of semi finished transfers and additional processing costs, and the acceptance of valuation by Central Excise authorities, held that the additions for alleged under valuation/under invoicing were unjustified and directed deletion of the additions for the assessment years 2008 09 to 2012 13; the appeals are allowed.

Deductibility of employees' contribution to EPF/ESI where deposited before due date for filing return u/s 139(1) - Interaction of section 36(1)(va) disallowance with section 43B principles - Prospective operation of Finance Act, 2021 inserting Explanation 2 to section 36(1)(va) with effect from A.Y. 2021-22 - Reliance on High Court precedents and principle of consistency of tribunal decisions - Deletion of additions made under section 36(1)(va) where amounts were paid before due date of return

Deductibility of employees' contribution to EPF/ESI where deposited before due date for filing return u/s 139(1) - Prospective operation of Finance Act, 2021 inserting Explanation 2 to section 36(1)(va) - Reliance on High Court precedents and principle of consistency - Whether employees' contribution to Provident Fund and ESI paid after the statutory due date under respective Acts but before the due date for filing return under section 139(1) are allowable deduction and additions under section 36(1)(va) should be deleted for the assessment years before A.Y. 2021-22. - HELD THAT: - The Tribunal held that where the employees' share of EPF/ESI was deposited before the due date for filing the return under section 139(1), deduction under section 36(1)(va) cannot be denied for assessment years antecedent to the amendment effected by the Finance Act, 2021. The Tribunal applied the ratio of authoritative High Court decisions, including the jurisdictional Bombay High Court in CIT v. Ghatge Patil Transports Ltd. and the Himachal Pradesh High Court in CIT v. Nipso Polyfabriks Ltd., which treat employees' and employers' contributions alike and allow deduction if deposited before the return-filing due date. The Tribunal observed that Explanation 2 inserted by the Finance Act, 2021 - providing that the provisions of section 43B shall not determine the due date under clause (va) - operates prospectively w.e.f. 01-04-2021 (applicable to A.Y. 2021-22 and subsequent years) as per the Finance Bill memorandum, and therefore cannot be applied to the assessment years before A.Y. 2021-22. Following consistency with co-ordinate tribunal decisions, the Tribunal directed deletion of the additions made u/s 36(1)(va) in the appeals under consideration. [Paras 4, 5, 6, 7]

Additions under section 36(1)(va) deleted as employees' contributions were deposited before the due date for filing return; the prospective amendment by Finance Act, 2021 is not applicable to the assessment years before A.Y. 2021-22.

Final Conclusion: All four appeals allowed; additions made under section 36(1)(va) deleted for the assessment years in issue (A.Y. 2018-19 and A.Y. 2019-20) because the employees' contributions were deposited before the due date for filing returns and the Finance Act, 2021 amendment operates prospectively from A.Y. 2021-22.

Deduction under section 80IB(10) - pro rata deduction for completed part of housing project - completion of project inclusive of common amenities as condition for eligibility - strict interpretation of taxing statute - remand for fresh adjudication on merits

Deduction under section 80IB(10) - completion of project inclusive of common amenities as condition for eligibility - pro rata deduction for completed part of housing project - strict interpretation of taxing statute - Whether the assessee was entitled to claim section 80IB(10) deduction in respect of the part-completed wings (C to F) of the 'Green Lands' project for the assessment year 2012-13. - HELD THAT: - The Tribunal reversed the CIT(A)'s allowance of the deduction for the part-completed wings. Although the assessee produced a part completion certificate dated 29-03-2012 for wings C to F, the site plan and that certificate demonstrated that essential common amenities (compound wall, sewage treatment plant, drainage, common parking) were not completed by the scheduled completion date and the certificate itself acknowledged outstanding drainage work to be completed at the assessee's cost. Relying on the principle that taxing statute provisions, including deductions, must be strictly construed and applying the established requirement that completion for 80IB(10) contemplates the project (or completed part) being habitable with necessary amenities, the Tribunal found the wings C-F were not shown to have been completed in the requisite sense by the prescribed date and therefore the CIT(A)'s allowance could not stand. The Tribunal consequently revived the Assessing Officer's disallowance and directed restoration of the assessment on this issue for AY 2012-13. [Paras 5, 8]

Tribunal allowed the Revenue's appeal and held that the assessee was not entitled to the claimed section 80IB(10) deduction for wings C-F of the project as they were not completed with requisite common amenities by the prescribed date; the assessment disallowance is to be revived.

Deduction under section 80IB(10) - pro rata deduction for completed part of housing project - remand for fresh adjudication on merits - Whether the CIT(A)'s allowance of section 80IB(10) deduction qua wings A, B and G of the 'Green Lands' project was properly decided on merits for AYs 2012-13 and 2013-14. - HELD THAT: - The Tribunal found that the CIT(A) had not adjudicated the merits of the claim for wings A, B and G but had proceeded on the basis of his earlier discussion regarding wings C-F. Because the CIT(A)'s orders did not contain an independent consideration on the merits for these wings (involving 43, 43 and 35 flats respectively), the Tribunal considered it appropriate to remit the matter. The twin appeals for AYs 2012-13 and 2013-14 were therefore restored to the CIT(A) for fresh adjudication in accordance with law. [Paras 9]

Tribunal allowed the Revenue's latter appeals for statistical purposes by restoring the matters to the CIT(A) for fresh, merit-based adjudication on the claims relating to wings A, B and G.

Final Conclusion: The appeal in ITA No.576/PUN/2020 is allowed by reviving the disallowance of the assessee's section 80IB(10) claim qua wings C-F for AY 2012-13 on the ground that requisite common amenities were not shown completed by the prescribed date; the appeals IT(SS)A Nos.02 & 03/PUN/2021 are restored to the CIT(A) for fresh consideration on the merits in respect of wings A, B and G for the relevant years.

Reopening of assessment for escaped income (reassessment under section 147/148) - Requirement of nexus between recorded reasons for reopening and the additions made - Scope of reassessment and limits under Explanation 3 to section 147 - Additions under unexplained investments (reconstruction under section 69/69A) - Validity of making addition on presumptive basis under section 44AD where reopening reasons relate to unexplained investment

Reopening of assessment for escaped income (reassessment under section 147/148) - Requirement of nexus between recorded reasons for reopening and the additions made - Scope of reassessment and limits under Explanation 3 to section 147 - Validity of making addition on presumptive basis under section 44AD where reopening reasons relate to unexplained investment - Additions under unexplained investments (reconstruction under section 69/69A) - Whether the Assessing Officer could, in proceedings reopened on the basis of reasons to believe income had escaped assessment by virtue of alleged unexplained investments/transactions, make an addition by computing net profit @8% of turnover under the presumptive scheme instead of assessing the items which formed the recorded reasons to believe, and whether such assessment is sustainable. - HELD THAT: - The reassessment was initiated on recorded reasons relating to alleged unexplained credits/transactions with two Mumbai firms and potential escapement under the unexplained investments provisions. During assessment the Assessing Officer found discrepancies between VAT returns and declared turnover and, notwithstanding the recorded reasons, made an addition by applying the presumptive profit rate under section 44AD on total turnover. The Tribunal applied the principle that while Explanation 3 permits the Assessing Officer to take into account items not specifically mentioned in the reasons, that power is not a licence for a roving enquiry to make additions unrelated to the very basis on which the reassessment was initiated. Reliance was placed on the reasoning in Ranbaxy (as noticed by the Tribunal) that the Assessing Officer's jurisdiction to reassess other issues ceases when the reasons for initiation no longer survive; the power to include additional items is circumscribed and cannot be invoked to substitute a different theory of addition (presumptive profit @8%) where the recorded reasons pointed to unexplained investments/transactions. In the facts found by the Tribunal the Assessing Officer did not assess the items which formed the basis of reopening under the unexplained investment provisions and instead made an inconsistent addition under the presumptive provision; consequently the reassessment was held to be bad in law and the addition deleted. [Paras 5, 6]

Addition made by applying presumptive profit @8% under section 44AD was unsustainable as it lacked nexus with the recorded reasons for reopening and is deleted; appeal allowed.

Final Conclusion: The reassessment and the addition computed by applying the presumptive profit rate were quashed for lacking nexus with the recorded reasons for reopening; the addition is deleted and the appeal is allowed.

Assessment under section 153A - unabated assessment proceedings - material found in the course of search - requisition under section 132A - use of material received post-search - addition towards unaccounted sales - disallowance under section 10B - show cause notice by DRI - transfer pricing adjustment - tax credit verification

Assessment under section 153A - unabated assessment proceedings - material found in the course of search - addition towards unaccounted sales - disallowance under section 10B - Legitimacy of additions/disallowance made under section 153A in assessments already completed (unabated assessments) for AY 2009-10 to AY 2013-14 where no incriminating material was found in the search. - HELD THAT: - For AY 2009-10 to AY 2013-14 the assessments were already completed or returns accepted prior to the search and thus are unabated assessment proceedings. The Tribunal applied the principle that in unabated assessments the scope of reopening under section 153A is limited to income that is detected and emanates from incriminating material found in the course of the search. The additions towards alleged unaccounted sales and the disallowance under section 10B made by the AO were not based on any incriminating material seized during the search but on a show cause notice issued by DRI after the search. Absent any incriminating material discovered in the search connecting the alleged transactions to undisclosed income of the assessee, the additions and the disallowance cannot be sustained and are liable to be deleted. [Paras 9, 10, 11]

Additions towards unaccounted sales and disallowance under section 10B for AY 2009-10 to AY 2013-14 deleted.

Transfer pricing adjustment - assessment under section 153A - Treatment of transfer pricing adjustment raised in relation to regular assessments but not arising from the orders under appeal (AY 2009-10). - HELD THAT: - The Tribunal observed that the transfer pricing adjustment did not arise out of the orders under challenge before it and therefore the ground cannot be adjudicated in these appeals. The Tribunal directed the Assessing Officer to give effect to appellate orders passed in the original assessment proceedings so that any transfer pricing consequences are appropriately reflected. [Paras 11, 12]

Ground dismissed as not maintainable in these appeals; AO directed to give effect to appellate orders in original assessment proceedings.

Tax credit verification - Claim of tax credit for AY 2009-10. - HELD THAT: - The Tribunal directed that the Assessing Officer verify the tax credit claimed by the assessee during the regular assessment and allow the credit if supported by records. The direction requires administrative verification and appropriate adjustment. [Paras 13]

Assessing Officer to verify and allow the tax credit claimed for AY 2009-10.

Use of material received post-search - show cause notice by DRI - requisition under section 132A - addition towards unaccounted sales - Whether the AO could base additions for AY 2014-15 and AY 2015-16 on a show cause notice issued by DRI after the search but before conclusion of proceedings without complying with the requisition procedure under section 132A. - HELD THAT: - For AY 2014-15 and AY 2015-16 the AO made additions by adopting the deviations tabulated in the DRI show cause notice issued on the same day the AO issued notice under section 153A. The Tribunal found as an admitted fact that no incriminating material was seized in the IT search and the AO relied entirely on the post-search DRI show cause notice. Section 132A provides a specific mechanism by which documents or assets taken into custody by another authority may be requisitioned for income-tax proceedings; absent compliance with that procedure the material cannot be treated as having been seized or as incriminating material under section 132. The DRI show cause notice was not a concluded finding and the Revenue did not show compliance with section 132A. The Tribunal therefore held that the AO could not treat the DRI show cause notice as incriminating material to sustain additions and deleted the additions made for these years. [Paras 15, 16, 17, 18, 19]

Additions based on the DRI show cause notice for AY 2014-15 and AY 2015-16 deleted for non-compliance with section 132A and absence of incriminating material seized during the search.

Grounds not pressed - Grounds which the assessee did not press at hearing. - HELD THAT: - Certain grounds raised in the grounds of appeal (including challenge to validity of the search and specified transfer pricing / stock difference grounds for later years) were not pressed by the assessee at the hearing. The Tribunal recorded those grounds as not pressed and dismissed them accordingly. [Paras 3, 20, 21]

Grounds not pressed by the assessee dismissed as not pressed.

Final Conclusion: The appeals are partly allowed: additions towards unaccounted sales and the disallowance under section 10B for AY 2009-10 to AY 2013-14 are deleted for lack of incriminating material seized in the search; additions for AY 2014-15 and AY 2015-16 based solely on the DRI show cause notice are deleted for non-compliance with the requisition procedure under section 132A and absence of seized material; the AO is directed to give effect to appellate orders in relation to transfer pricing adjustments and to verify and allow the tax credit for AY 2009-10; grounds not pressed by the assessee are dismissed.

Limited scrutiny under CASS - Conversion of limited scrutiny into complete scrutiny without competent authority's approval - Scope of scrutiny - "high ratio of refund to TDS" vis-a -vis examination of unrelated expenditures - Nature of legal and professional fees - revenue expenditure versus capital expenditure - Admissibility of documentary evidence and powers of the Commissioner (Appeals) under section 250(4) - Wholly and exclusively for the purpose of business

Limited scrutiny under CASS - Conversion of limited scrutiny into complete scrutiny without competent authority's approval - Scope of scrutiny - "high ratio of refund to TDS" vis-a -vis examination of unrelated expenditures - Jurisdictional validity of examination of disputed expenditures in a case selected for limited scrutiny on the ground of high ratio of refund to TDS - HELD THAT: - The Tribunal held that limited scrutiny directed at a "high ratio of refund to TDS" must principally examine receipts and heads affecting TDS credit and refund claims, and does not entitle the Assessing Officer to traverse unrelated expenditures so as to effect a complete scrutiny without mandatory prior approval. Allowing a contention that "high ratio of refund to TDS" permits examination of all expenditures would enable the AO to circumvent statutory safeguards and Board instructions governing conversion of limited to complete scrutiny. The exercise of jurisdiction by the AO to examine disputed expenses under the limited-scrutiny tag was therefore vitiated and rendered the additions arising from that exercise illegal. [Paras 5]

Additions made after expanding the scope of limited scrutiny into a complete scrutiny without requisite justification/approval were illegal; ground allowed.

Nature of legal and professional fees - revenue expenditure versus capital expenditure - Wholly and exclusively for the purpose of business - Whether professional/legal fees incurred in obtaining advice on regulatory compliance for acquisition/holding of redeemable preference shares are capital expenditure or deductible revenue expenditure - HELD THAT: - The Tribunal found that expenses incurred for obtaining legal and tax opinions to ensure that proposed investments complied with regulatory requirements did not create or add value to the capital asset nor reduce its risk, but were incurred to ensure the transaction conformed with law. Such professional fees, being incurred to enable the assessee to carry on business in a law observant manner and not resulting in any enduring asset, could not be characterised as capital expenditure. Consequently the disallowance treating these fees as capital in nature could not be sustained. [Paras 6]

Disallowance of the professional/legal fees as capital expenditure was not sustainable; ground allowed.

Admissibility of documentary evidence and powers of the Commissioner (Appeals) under section 250(4) - Wholly and exclusively for the purpose of business - Whether the Commissioner (Appeals) erred in admitting and relying on invoices and other documents without calling for a remand report and whether disallowances for lack of evidence were justified - HELD THAT: - The Tribunal noted that the assessee had placed copies of invoices, engagement agreements and supporting documents on record before the Commissioner (Appeals) and that the AO's disallowance rested on alleged non production of evidence. The Bench observed that where the appellate authority is confronted with a claim that documents were filed at assessment, it has wide powers under section 250(4) to call for the AO's comments or make inquiries; further, professional and business promotion expenses may legitimately lack immediate revenue correlation but still be wholly and exclusively for business. Considering the invoices and other documentary material available on record, the AO's findings were found to be incorrect and rightly set aside by the Commissioner (Appeals). [Paras 8, 9, 10, 11, 12]

Commissioner (Appeals) was justified in considering the invoices and other evidence; disallowances for alleged lack of evidence were properly reversed.

Final Conclusion: The assessee's appeal is allowed insofar as additions were made after an improper expansion of limited scrutiny and insofar as legal/professional and business promotion expenses were treated as non deductible; the Revenue's appeal is dismissed.

Reopening of assessment - reason to believe - nexus between recorded reasons and additions - limits of reassessment power under section 147/148 - quashing of reassessment where recorded reasons disproved

Reopening of assessment - reason to believe - nexus between recorded reasons and additions - limits of reassessment power under section 147/148 - quashing of reassessment where recorded reasons disproved - Validity of reassessment proceedings and additions where the assessing officer accepted the assessee's contention on the subject-matter of the recorded reasons but made unrelated additions. - HELD THAT: - The Tribunal found that the reasons recorded for issuance of notice under section 148 related to alleged undisclosed investments and assets connected with the Mars Educational Trust. In the assessment the AO did not make any addition on the very matters forming the recorded reasons; instead, the AO assessed unrelated income (business income for non-production of books). The Court applied the established principle that if, after issuing a notice under section 148, the AO concludes that the income for which he had formed a reason to believe has not in fact escaped assessment, he cannot proceed to independently assess some other income without issuing a fresh valid notice; the reassessment power is circumscribed by the recorded reasons. The recorded reasons were held erroneous and not established on true facts, the AO acted beyond jurisdiction in making additions not connected with the reasons to reopen, and therefore the reassessment order was non est. The Tribunal noted that the CIT(A) did not adjudicate the legal point, and no contrary material was produced by the Revenue. Relying on the legal position that reassessment must be confined to matters forming the reasons to believe and that a fresh notice is required for independently identified issues, the additions were quashed. [Paras 9]

The reassessment and the additions made by the AO, being unconnected with and contrary to the recorded reasons for reopening, were quashed as beyond the AO's jurisdiction.

Final Conclusion: Appeals allowed; the reassessment orders and additions sustained by the AO for A.Y. 2008-09 and A.Y. 2009-10 are quashed because the AO acted beyond the scope of the recorded reasons to believe and assessed income not covered by the reasons without issuing a fresh valid notice.

Revisionary jurisdiction under Section 263 - Explanation (2) to Section 263 - assessment erroneous if passed without inquiries or verification which should have been made - assessment treatment of excess stock as business income - classification of unexplained investment under Section 69C and taxation under Section 115BBE - applicability of Section 269ST to payer versus receiver - requirement of prima facie material before exercise of revisional power

Revisionary jurisdiction under Section 263 - Explanation (2) to Section 263 - assessment erroneous if passed without inquiries or verification which should have been made - assessment treatment of excess stock as business income - requirement of prima facie material before exercise of revisional power - Whether the Principal Commissioner of Income Tax was justified in invoking Section 263 to set aside the AO's acceptance of additional income offered as business income on account of excess stock - HELD THAT: - The Tribunal held that the PCIT must have some prima facie material to form an opinion that an assessment order is erroneous and prejudicial to revenue before invoking Section 263. The AO had recorded the details of the excess physical stock vis-a -vis book stock, included the admitted amount in the computation and treated it as business income after making enquiries. Invocation of Explanation (2) to Section 263 does not permit the PCIT to substitute his view or direct fishing enquiries where the AO has made inquiries, applied his mind and taken a plausible view. The PCIT produced no material to show the excess stock arose from a source other than the assessee's business; accordingly the exercise of revisional power to reclassify the admitted excess stock as unexplained investment taxable under Section 115BBE was held unwarranted and the order under Section 263 was quashed in respect of this issue. The Tribunal relied on the principle that revision cannot be exercised merely because the Commissioner would have come to a different conclusion and that Explanation (2) is to be invoked only in cases of gross inadequacy of inquiry. [Paras 12, 13, 14, 15, 16]

PCIT's order under Section 263 quashed insofar as it set aside the AO's acceptance of the excess stock as business income; no jurisdiction to direct further enquiry in the absence of prima facie material.

Applicability of Section 269ST to payer versus receiver - revisionary jurisdiction under Section 263 - Whether Section 269ST (and penalty under Section 271DA) applies to the assessee in respect of amounts paid in cash and whether PCIT was justified in setting aside the assessment for failure to examine applicability of Section 269ST - HELD THAT: - The Tribunal observed that Section 269ST prohibits receipt of certain cash amounts and that the penalty under Section 271DA is framed against the person receiving such sum. On the facts the assessee was the payer of the cash amount which, per the AO's record, had also been disclosed and taxed as undisclosed income in AY 2017-18. Since the statutory prohibition and penalty under Sections 269ST/271DA target the receiver, the PCIT's invocation of Section 263 to direct verification on account of alleged contravention of Section 269ST by the assessee was unsustainable. Consequently, the PCIT's direction on this point was quashed. [Paras 17, 18, 19, 20]

PCIT's order under Section 263 quashed insofar as it directed inquiry into applicability of Section 269ST to amounts paid by the assessee; Section 269ST/271DA apply to the receiver, not the payer.

Final Conclusion: The Tribunal allowed the assessee's appeal: the PCIT had wrongly invoked revisional powers under Section 263 to substitute his view for that of the AO regarding (i) treatment of admitted excess stock (which the AO had examined and treated as business income) and (ii) alleged contravention of Section 269ST by the assessee (the provision and penalty apply to the receiver). The impugned Section 263 order was quashed on both counts.

Genuineness of purchases and purchase invoices - burden of proof in cases of alleged bogus purchases - rejection of books of account under section 145(3) of the Income Tax Act, 1961 - reliance on information received from a state VAT/Investigation agency - value of remand enquiries and verification by the Assessing Officer

Genuineness of purchases and purchase invoices - burden of proof in cases of alleged bogus purchases - Whether the purchases from the three suppliers could be held to be bogus and additions sustained on that basis. - HELD THAT: - The Tribunal examined the record including the material placed by the assessee, the show-cause notice, the assessment order and the remand proceedings. The Assessing Officer primarily relied on information from the Mumbai VAT investigation and observed that the assessee had not produced delivery or receipt evidence to prove actual receipt of goods. The CIT(A) also examined the evidence and sought remand verification from the AO. On review the AO's remand report did not produce independent evidence contradicting the assessee's case; enquiries to the purchaser Mettler Toledo and other verification steps remained unanswered. The Tribunal held that, in the absence of affirmative material gathered by the revenue to rebut the assessee's evidence, purchases could not be declared bogus merely on the basis of inference from the VAT department's report. The admitted accounting of income from the contract and records showing the transaction as source of revenue militated against treating the purchases used to earn that revenue as fictitious. [Paras 10, 11]

Additions sustained on the ground that purchases were bogus cannot be upheld where the revenue failed to collect independent corroborative evidence and the assessee's account of the transactions remained uncontradicted.

Reliance on information received from a state VAT/Investigation agency - value of remand enquiries and verification by the Assessing Officer - rejection of books of account under section 145(3) of the Income Tax Act, 1961 - Whether the Assessing Officer and the Commissioner (Appeals) were justified in disturbing the trading results and treating books/invoices as unreliable on the basis of the VAT department information and the remand verification. - HELD THAT: - The Tribunal noted that the AO and CIT(A) placed significant reliance on the investigation report of the VAT Department, Mumbai, but when specific verification was directed by the CIT(A) the AO's remand proceedings failed to secure decisive responses from third parties (including Mettler Toledo) or to produce bank/transportation evidence that would rebut the assessee's account. The Tribunal emphasised that mere presumption in favour of the VAT report, without independent corroborative material or successful remand verification, is insufficient to reject books or to confirm additions under the pretext of non-genuine purchases. Consequently, the Tribunal found that the procedural step of remand did not result in any material that justified disturbing the declared trading results or invoking rejection under section 145(3). [Paras 9, 10]

Reliance solely on third party investigation reports and inconclusive remand replies does not justify rejection of books or confirmation of additions; the matter could not be sustained on the material before the revenue.

Final Conclusion: The appeal is allowed: the additions made by the Assessing Officer and confirmed by the CIT(A) on the ground of alleged bogus purchases are deleted because the revenue failed to obtain independent corroborative evidence on remand and the assessee's accounts and claimed source of income remained unrefuted.

Extended period of limitation - willful misstatement and suppression of facts - requirement of a positive act to invoke extended limitation - bona fide belief in classification - self-assessment and duty of importer to classify - change of departmental view does not itself establish suppression - classification of goods

Extended period of limitation - willful misstatement and suppression of facts - requirement of a positive act to invoke extended limitation - bona fide belief in classification - change of departmental view does not itself establish suppression - classification of goods - Whether demand could be sustained under the extended period of limitation on the ground of willful mis-statement or suppression of facts in classification of imported goods - HELD THAT: - The Court upheld the CESTAT's conclusion that the extended period could not be invoked because there was no evidence of a deliberate or positive act of suppression or willful misstatement by the importer. The CESTAT found, and this Court agreed, that the importer had consistently declared the goods under the same tariff heading during March 2012 to February 2015, had furnished literature and composition details when called for, and the department was aware of and had completed assessments on that basis. The Court applied the established principle that for invocation of the extended limitation a positive act, fraud or willful suppression must be shown and mere change of view by the department or a later reclassification does not convert earlier bona fide declarations into suppression. Decisions of the Apex Court were relied upon for the propositions that misstatement or suppression must be wilful and that bona fide belief in classification negates the inference of intent to evade duty. Given these findings, the CESTAT's setting aside of the demand on limitation grounds was held to be sustainable and not liable to interference. [Paras 13, 14, 15, 16, 17]

The CESTAT's setting aside of the demand for being barred by limitation was affirmed; extended limitation could not be invoked in absence of willful misstatement or suppression.

Final Conclusion: The High Court dismissed the appeal and declined to interfere with the CESTAT's order setting aside the demand as barred by limitation, holding that no willful misstatement or suppression was shown to justify invocation of the extended period of limitation.

Redemption fine - penalty under Section 112 of the Customs Act, 1962 - confiscation under Section 111(d) of the Customs Act, 1962 - mens rea / intention for imposition of penalty - DGFT authorization and excess import over authorization - distinction between prohibited import and irregular import - bona fide defence

Redemption fine - penalty under Section 112 of the Customs Act, 1962 - mens rea / intention for imposition of penalty - DGFT authorization and excess import over authorization - distinction between prohibited import and irregular import - bona fide defence - Validity of the First Appellate Authority's waiver of the redemption fine and reduction of the penalty imposed under Section 112 of the Customs Act, 1962 - HELD THAT: - The appeal challenged the First Appellate Authority's deletion of the redemption fine and reduction of the penalty. The adjudicating authority had found imports in excess of DGFT authorization and proposed confiscation and penalties, but the First Appellate Authority recorded that mens rea was not established and accepted the respondent's plea that the licence accounting (debited licence for single-cut bead tyres) and the material on record did not demonstrate use of the goods other than for intended purposes. The Tribunal examined the TRC decision and the DGFT authorization and held that the excess import was irregular rather than prohibited; there was sufficient material showing a valid authorization for a quantity and no basis to treat part of the import as prohibited while another part permitted. Penalties under Section 112 require conscious acts or omissions and intention is material to imposing penalty under clauses (a) or (b); given the absence of established mala fides and the accepted bona fide contentions, the conditions for penalty under Section 112 were not satisfied. Applying these principles, the Tribunal found no error in the First Appellate Authority's conclusions to set aside the redemption fine and to reduce the penalty. [Paras 7, 8, 9, 10, 11]

The waiver of the redemption fine and the reduction of the penalty by the First Appellate Authority are upheld; the Revenue's appeal is dismissed.

Final Conclusion: The Appellate Tribunal dismissed the Revenue's appeal, upholding the First Appellate Authority's deletion of the redemption fine and reduction of the penalty under Section 112, on the basis that mens rea was not established and the excess import was irregular rather than prohibited.

Section 7 of the Insolvency and Bankruptcy Code, 2016 - financial debt - co borrower liability - pledge versus guarantee and indemnity - admission of petition under Section 7 - appellate review of factual findings under the IBC - prohibition on double recovery

Section 7 of the Insolvency and Bankruptcy Code, 2016 - admission of petition under Section 7 - appellate review of factual findings under the IBC - co borrower liability - The maintainability of a Section 7 petition against Doshi Holdings and the correctness of the appellate factual finding that Doshi Holdings was a borrower under the Loan cum Pledge Agreements. - HELD THAT: - The Appellate Authority (NCLAT) found on the material that Doshi Holdings was a party to the Loan cum Pledge Agreements in its dual capacity as borrower and pledgor, and that the documents (loan agreements, loan receipts and demand promissory notes) supported the conclusion that Doshi Holdings had admitted receipt and obligation. The Supreme Court held that the interpretation adopted by the Appellate Authority was a plausible one and, being a final fact finding, was not to be disturbed in an appeal under Section 62 of the IBC. Consequently, admission of the Section 7 petition against Doshi Holdings was upheld. [Paras 33, 34, 38]

The admission of the Section 7 petition against Doshi Holdings was proper and the Appellate Authority's factual finding that Doshi Holdings was a borrower is not interfered with.

Financial debt - pledge versus guarantee and indemnity - Whether creation of a pledge alone, without disbursal to the pledgor, converts the pledgor into a financial debtor under the definition of "financial debt." - HELD THAT: - The Court recognised the distinct legal characters of contract of indemnity, contract of guarantee and pledge and accepted that a pledgor per se may not be a financial debtor. However, the Court observed that determination of financial debt depends on the factual matrix and the contractual obligations undertaken. In the present case the Appellate Authority found on facts that Doshi Holdings had obligations as borrower (including loan receipts and promissory notes), and therefore the mere fact of pledging did not preclude liability as a borrower. The legal proposition that pledge alone does not automatically convert a pledgor into a financial debtor was acknowledged, but on the facts Doshi Holdings was held to be a borrower. [Paras 35, 36]

A pledge alone may not make a pledgor a financial debtor, but on the facts the Appellate Authority rightly held Doshi Holdings to be a borrower liable as a corporate debtor.

Co borrower liability - prohibition on double recovery - Whether initiation of CIRP proceedings against two entities in respect of the same loan documents and same claim is impermissible and whether a resolution for one borrower discharges liability of the co borrower. - HELD THAT: - The Court held that where two entities are borrowers and fall within the ambit of corporate debtors, proceedings under Section 7 can be initiated against both. The Court clarified that initiation against both is permissible because the same amount cannot be realised twice; any recovery realised from one reduces the claim against the other. By parity of reasoning with authority on guarantors, approval of a resolution in respect of one borrower does not automatically discharge a co borrower. Thus, there is no bar to initiating proceedings against both borrowers, subject to the rule that double recovery is prohibited. [Paras 36, 37]

Proceedings under Section 7 may be initiated against both co borrowers; recovery must be adjusted so as to prevent double recovery.

Final Conclusion: The appeal is dismissed. The Appellate Authority's factual conclusion that Doshi Holdings was a borrower under the Loan cum Pledge Agreements is a permissible interpretation and is not to be disturbed; although a pledge alone does not automatically create a financial debt, on the facts Doshi Holdings was liable as a corporate debtor, and initiation of CIRP against both co borrowers is permissible provided there is no double recovery.

Withdrawal of application under Section 7 of the Insolvency and Bankruptcy Code prior to constitution of Committee of Creditors - application for withdrawal under Section 12A of the IBC - inherent powers of the Adjudicating Authority under Rule 11 of the NCLT Rules - constitution of Committee of Creditors - proceeding in rem and the role of Committee of Creditors - settlement between parties and its effect on CIRP

Withdrawal of application under Section 7 of the Insolvency and Bankruptcy Code prior to constitution of Committee of Creditors - application for withdrawal under Section 12A of the IBC - Applicant seeking to withdraw an admitted Section 7 petition before constitution of the Committee of Creditors - HELD THAT: - The Court held that Section 12A permits withdrawal of an application admitted under Section 7 where an application for withdrawal is made by the applicant; the requirement of approval by the Committee of Creditors arises only after the Committee is constituted. Consequently, before constitution of the Committee of Creditors there is no bar on the applicant withdrawing an admitted Section 7 application. This conclusion is supported by the object and purpose of the IBC read with Rule 11 of the NCLT Rules which permits the Tribunal, in exercise of its inherent powers, to pass orders necessary to meet the ends of justice and prevent abuse of process, including permitting withdrawal or settlement so as to enable the corporate debtor to carry on business free of impediment. The Court also noted that settlements should not be stifled in anticipation of claims from third parties and that withdrawal by the applicant does not preclude other financial creditors from initiating proceedings under the IBC. [Paras 24, 25, 28, 29, 30]

An applicant may withdraw an admitted Section 7 petition prior to constitution of the Committee of Creditors; the Tribunal, under Rule 11, may permit such withdrawal or settlement after hearing relevant parties.

Inherent powers of the Adjudicating Authority under Rule 11 of the NCLT Rules - constitution of Committee of Creditors - proceeding in rem and the role of Committee of Creditors - Scope of NCLAT/NCLT powers to stay constitution of CoC and to deal with settlement before CoC constitution - HELD THAT: - The Court observed that where the Committee of Creditors is not yet constituted a party can approach the NCLT directly and the Tribunal may, exercising its inherent powers under Rule 11, allow or disallow an application for withdrawal or settlement after hearing all parties and considering relevant factors. The interim order of the NCLAT which stayed constitution of the CoC but permitted the IRP to proceed with CIRP and publication, while not taking on record the settlement, was an interim order and did not call for interference in this appeal. [Paras 22, 25, 31]

The NCLT, exercising inherent powers under Rule 11, is the appropriate forum to consider withdrawal/settlement before constitution of CoC; the NCLAT's interim order did not merit interference in this appeal.

Settlement between parties and its effect on CIRP - application for withdrawal under Section 12A of the IBC - Direction for adjudicating authority to decide pending settlement/withdrawal application - HELD THAT: - The Court noted that the application filed under Section 12A for withdrawal of the proceeding was pending before the NCLT. Given the conclusions on the competence to permit withdrawal prior to constitution of the CoC and the object of the IBC, the matter was to be considered and decided by the NCLT in the light of the observations made by this Court. The direction is to enable the Adjudicating Authority to take a final view after hearing the parties and considering the facts. [Paras 21, 32]

The NCLT is directed to take up and decide the pending Section 12A settlement/withdrawal application in light of the observations made by this Court; the matter is remanded for decision by the Adjudicating Authority.

Interim orders and scope of appellate interference - Whether the interim order of the NCLAT required further interference by this Court - HELD THAT: - The Court found that the impugned order of the NCLAT was an interim order which stayed constitution of the CoC but did not preclude the NCLT from deciding the pending settlement/withdrawal application. No substantial question of law arose requiring this Court's determination; accordingly, the appeal did not warrant interference with the interim order. [Paras 22, 32]

The appeal is dismissed; no interference with the interim order of the NCLAT was warranted in these proceedings.

Final Conclusion: The appeal is dismissed. The impugned interim order of the NCLAT does not warrant interference; the National Company Law Tribunal is directed to take up and decide the pending application under Section 12A of the IBC (seeking withdrawal/settlement) in accordance with the observations of this Court regarding withdrawal before constitution of the Committee of Creditors.

Continuing guarantee - co-extensive liability of surety and principal debtor - effect of One Time Settlement (OTS) vis-a -vis novation - invocation of guarantee and admission by creditor - recovery certificate as fresh cause of action - limitation and acknowledgement under Section 18 of the Limitation Act

Continuing guarantee - co-extensive liability of surety and principal debtor - invocation of guarantee and admission by creditor - Liability of the corporate guarantor and correctness of admission of the Section 7 petition. - HELD THAT: - The Tribunal held that the guarantee deed contained express clauses making the guarantor's liability continuing and co-extensive with that of the principal borrower (Clauses 2, 3, 5, 9 and 10). The guarantee had been invoked by the original lender on 03.03.2015 and proceedings under DRT/SARFAESI were instituted against the corporate debtor and borrower since 2013; the One Time Settlement (OTS) and related proceedings involved the corporate debtor and were signed by the appellant. Clause 3 treated acknowledgements by the borrower as binding on the guarantor and Clause 10 waived surety protections, supporting the conclusion that the guarantor remained liable and that the adjudicating authority rightly admitted the Section 7 petition. [Paras 6, 9, 16, 18]

The guarantor is liable; the Adjudicating Authority was justified in admitting the Section 7 petition.

Effect of One Time Settlement (OTS) vis-a -vis novation - continuing guarantee - Whether the OTS amounted to a novation discharging the guarantor. - HELD THAT: - Applying settled principles on novation, the Tribunal found that the OTS constituted a terms-of-settlement and not a substitution of contract by mutual consent that would discharge the original guarantee. Reliance was placed on authority holding that where rights under the original contract are kept alive and not rescinded, there is no novation. The appellant having signed and benefited from the OTS could not contend that the guarantee was thereby discharged. [Paras 16, 17]

The OTS is not a novation and does not discharge the guarantor; it is a settlement of the borrower's liability.

Recovery certificate as fresh cause of action - limitation and acknowledgement under Section 18 of the Limitation Act - continuing guarantee - Whether the Section 7 petition was barred by limitation. - HELD THAT: - The Tribunal held that the Recovery Certificate issued by the DRT (25.04.2016) and the subsequent OTS/part payment and financial statements constitute events which give rise to a fresh cause of action or acknowledgement extending limitation. Reliance was placed on precedent that a Recovery Certificate gives the creditor a fresh right to recover decretal dues and that offers/acknowledgements and continuing guarantees can extend limitation. Considering the chronology including the warrant of attachment and date of filing, the petition was held not time-barred. [Paras 16]

The Section 7 petition is not barred by limitation.

Final Conclusion: Appeal dismissed; the adjudicating authority correctly admitted the Section 7 petition because the guarantee was continuing and co-extensive, the OTS did not operate as a novation discharging the guarantor, and the petition was not barred by limitation.

Locus standi of Resolution Professional post-approval of resolution plan - maintainability of proceedings under Section 66 after approval of resolution plan - functus officio of Resolution Professional - interpretation of clause 5.2.10 of the approved resolution plan concerning continuation of RP Applications - Regulation 38 - pursuit of avoidance and fraudulent or wrongful trading proceedings after approval of resolution plan - recommendation of Insolvency Law Committee on limitation of filing by successful resolution applicant

Locus standi of Resolution Professional post-approval of resolution plan - functus officio of Resolution Professional - interpretation of clause 5.2.10 of the approved resolution plan concerning continuation of RP Applications - maintainability of proceedings under Section 66 after approval of resolution plan - Regulation 38 - pursuit of avoidance and fraudulent or wrongful trading proceedings after approval of resolution plan - recommendation of Insolvency Law Committee on limitation of filing by successful resolution applicant - The Adjudicating Authority did not err in dismissing the Section 66 application for want of locus of the (erstwhile) Resolution Professional after approval of the resolution plan. - HELD THAT: - The Tribunal held that once the resolution plan attained finality the Resolution Professional becomes functus officio and cannot, thereafter, maintain or prosecute applications under Section 66 on behalf of the corporate debtor. The role of the Resolution Professional is confined to the resolution process as envisaged by the Code and Section 23; post-approval, responsibility to pursue any avoidance or fraudulent/wrongful trading proceedings rests with the new management/Committee of Creditors as contemplated by the approved plan. Clause 5.2.10 of the resolution plan clarifies that RP Applications initiated during CIRP may be continued during the CIRP by the RP but, from the Approval Date, the Committee of Creditors/Financial Creditors shall endeavour to take such applications to their logical end in their name and bear the costs. This interpretation is consistent with (a) the wording of the approved resolution plan, (b) Regulation 38 which requires resolution plans to provide for the manner in which such proceedings will be pursued after approval, and (c) the Insolvency Law Committee's recommendation against permitting the successful resolution applicant to file such applications so as to avoid returns not factored into bids. On these bases, the Adjudicating Authority's finding that the erstwhile Resolution Professional lacked locus standi did not suffer from material irregularity or patent illegality.

Comp App (AT)(CH)(INS) No.347/2022 dismissed; the impugned dismissal for want of locus standi is upheld.

Final Conclusion: The appeal is dismissed. The Tribunal affirms that after approval of the resolution plan the erstwhile Resolution Professional is functus officio and lacks locus to prosecute Section 66 proceedings; continuation of such proceedings post-approval is to be undertaken in the name of, and at the cost of, the Committee of Creditors/financial creditors as provided in the approved resolution plan and consistent statutory/regulatory guidance.

Pre-existing dispute - Effect of pre-existing dispute under Section 8(2) on Section 9 proceedings - Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - Plausible contention requiring further investigation (admission stage test) - Operational creditor's entitlement to initiate CIRP - Doctrine of privity of contract

Pre-existing dispute - Effect of pre-existing dispute under Section 8(2) on Section 9 proceedings - Plausible contention requiring further investigation (admission stage test) - Existence of a pre existing dispute between the corporate debtor and its contracting supplier, and its effect on the maintainability of the Section 9 petition - HELD THAT: - The Adjudicating Authority applied the test laid down in Innoventive and Mobilox to determine admissibility at the admission stage: whether a plausible contention of a pre existing dispute exists such that the dispute is not a patently feeble or a moonshine defence and requires further investigation. The corporate debtor produced contemporaneous communications with the original supplier (CCIL) asserting quality complaints, requests to CCIL to take back goods, admissions by CCIL to examine complaints and to lift materials, and statements that CCIL would bear liability and settle with its dealer. Those materials constituted tangible evidence of a dispute existing prior to or contemporaneous with the invoice/demand, thereby satisfying the threshold of a plausible pre existing dispute. In view of that finding, the statutory scheme excludes the operational creditor from proceeding under Section 9 and the petition could not be admitted for initiation of CIRP. The Authority therefore declined to examine other contentions (including the asserted jural relationship/privity) as admission was barred by the established pre existing dispute. [Paras 11, 12]

Petition under Section 9 dismissed for being barred by a pre existing dispute; further remedies remain open to the corporate debtor.

Final Conclusion: The Company Petition under Section 9 of the IBC was dismissed because the Adjudicating Authority found a plausible, pre existing dispute supported by contemporaneous communications, thereby precluding admission of the petition; the corporate debtor is at liberty to pursue other remedies.

Maintainability under Section 10A of the Code - Impartment of security as an Event of Default - Date of default as seven days after loan recall notice - Corporate Insolvency Resolution Process - Dishonour of post-dated cheque not determinative of date of default

Maintainability under Section 10A of the Code - Impartment of security as an Event of Default - Date of default as seven days after loan recall notice - Dishonour of post-dated cheque not determinative of date of default - Whether the petition under Section 7 is maintainable in view of Section 10A as the date of default falls within the period barred by Section 10A - HELD THAT: - The Tribunal examined the loan agreement, the cure notice dated 20.10.2020, the Loan Recall Notice dated 15.12.2020 and the bank communication regarding dishonoured cheques. Clause 12.1 (including impairment of security) and Clause 12.2 of the loan agreement bring impairment of security within the scope of an 'Event of Default'. The borrower did not cure the impairment after the cure notice, and the lender recalled the loan by notice dated 15.12.2020 calling for repayment within seven days. Consequently, the operative date of default is the seventh day following receipt of the Loan Recall Notice (around 23.12.2020), and not the later date when post-dated cheques were dishonoured. Section 10A bars filing applications for defaults occurring on or after 25.03.2020 for the prescribed period; the Tribunal construed the statutory embargo purposively and held that the default, as determined above, falls within the moratorium under Section 10A. Having held the petition barred by Section 10A, the Tribunal declined to adjudicate the merits of the claim. [Paras 7, 11, 13, 14]

The petition is not maintainable under Section 10A and is dismissed.

Final Conclusion: The application under Section 7 is dismissed as not maintainable because the Tribunal found that the event of default (impairment of security and failure to cure) resulted in a date of default within the period barred by Section 10A of the Code; the merits were not considered.

Retrospective operation of amendments made by way of substitution - reverse charge mechanism for service tax on legal services - interpretation of Notification No.30/2012 and its subsequent amendments - liability for service tax on services rendered by Senior Advocates for the period 01.04.2016 to 05.06.2016 - quashing of demand notice issued for alleged forward charge liability

Interpretation of Notification No.30/2012 and its subsequent amendments - retrospective operation of amendments made by way of substitution - Whether the amendments to Notification No.30/2012 effected by Notification No.18/2016-ST dated 01.03.2016 and Notification No.34/2016-ST dated 06.06.2016 are substitutions and, if so, whether they relate back to the original notification dated 20.06.2012. - HELD THAT: - The Court examined Notification No.30/2012 and the two subsequent notifications dated 01.03.2016 and 06.06.2016 and found both amendments were effected by way of substitution. Reliance was placed on settled principles that a substitutional amendment may be construed to relate back to the original instrument where the legislative intent and mode of amendment justify such retrospectivity. Having applied the tests and authorities cited in the judgment (including the principles extracted from Zile Singh and related decisions reproduced in the judgment), the Court held that both amendments by substitution are to be treated as relating back to the date of the original notification (20.06.2012). The determinative finding is that the nature of the amendments was substitutional and that, on that footing, they operate with retrospective effect to the extent indicated in the judgment. [Paras 13]

Both amendments were by way of substitution and relate back to Notification No.30/2012 with effect from 20.06.2012.

Reverse charge mechanism for service tax on legal services - liability for service tax on services rendered by Senior Advocates for the period 01.04.2016 to 05.06.2016 - quashing of demand notice - Whether the demand notice dated 20.10.2021 seeking service tax from the petitioner for legal services rendered by a Senior Advocate for the period 01.04.2016 to 05.06.2016 is sustainable. - HELD THAT: - On the conclusion that the substitutional amendments relate back to the original notification, the Court held that the legal regime in force for the relevant period continued to operate such that service tax for legal services by Senior Advocates for 01.04.2016 to 05.06.2016 was to be governed by the Reverse Charge Mechanism as reflected in the notifications and judicial orders relied upon in the record. Consequently, the demand raised on a forward charge basis for that period could not be sustained. Applying this legal conclusion to the facts before it, the Court found the impugned demand notice to be legally infirm. [Paras 14, 15, 16]

The demand notice dated 20.10.2021 for the period 01.04.2016 to 05.06.2016 is not sustainable and is quashed and set aside.

Final Conclusion: The writ petition is allowed to the extent of quashing the demand notice dated 20.10.2021; the Court held that the amendments by substitution to Notification No.30/2012 operate as relating back to the original notification and, accordingly, the demand for service tax on Senior Advocates for the period 01.04.2016 to 05.06.2016 is unsustainable.

Declared service under Section 66E(e) - Definition of service under Section 65B(44) - Consideration as defined in Explanation (a) to Section 67 - Liquidated damages / penalty / late delivery charges not consideration for a service - Intention of the parties and construction of the contract - Section 74 of the Contract Act-pre-determined damages and penalty

Declared service under Section 66E(e) - Definition of service under Section 65B(44) - Liquidated damages / penalty / late delivery charges not consideration for a service - Intention of the parties and construction of the contract - Section 74 of the Contract Act-pre-determined damages and penalty - Whether amounts recovered as liquidated damages/penalty/late delivery charges are taxable as a declared service under Section 66E(e) of the Finance Act, 1994. - HELD THAT: - The Tribunal held that a taxable service under Section 66E(e), read with the definition of "service" in Section 65B(44), requires an activity carried out by one person for another for consideration, where the agreement itself contemplates consideration for agreeing to refrain from, to tolerate, or to do an act. The contractual intention must be gathered from the agreement as a whole. Penal or liquidated damages clauses operate as a safeguard of commercial interest and are not the motive for entering into the contract; recovery under such clauses does not represent consideration for any activity or toleration contemplated as a service. Explanation (a) to Section 67, which defines "consideration" for taxable services, does not convert recovery of liquidated damages into consideration for a service because neither the appellant performs an activity to earn such compensation nor is there an intention by the other party to be tolerated or to procure that penalty. The principle in Section 74 of the Contract Act, regarding pre-determined compensation or penalty, reinforces that such stipulations are remedies for breach and do not amount to separate taxable services. Applying these legal propositions, the Tribunal concluded that amounts collected as liquidated damages/penalty/late delivery charges cannot be subjected to service tax under Section 66E(e). [Paras 9, 10]

Amounts recovered as liquidated damages/penalty/late delivery charges are not taxable as a declared service under Section 66E(e); the impugned demand is unsustainable.

Final Conclusion: The appeal is allowed; the order confirming service-tax demand for the period July 2012 to March 2017 is set aside.

Composite work contract - works contract service - classification of taxable service - registration not conclusive on nature of service - taxability prior to 01.07.2012 - application of precedents in determining nature of contract

Composite work contract - works contract service - taxability prior to 01.07.2012 - classification of taxable service - Whether the services rendered by the respondent, involving supply and erection/installation of electric poles and street lighting during 2009-2010 to 2010-2011, were taxable under erection, commissioning and installation services (ECIS) or constituted composite works contracts not liable to service tax for the period prior to 01.07.2012. - HELD THAT: - The Tribunal found it undisputed that the contracts involved both supply of goods and rendering of services, and therefore amounted to composite contracts falling within the species of works contract. Reliance was placed on the principle that the nature of the contract - whether for supply of goods, rendering of services, or both - determines classification, and that the species of works contract is distinct. The Tribunal rejected Revenue's contention that the Supreme Court decision in Gannon Dunkerley & Co. & Ors. Versus State of Rajasthan was inapplicable because it arose in a sales tax context, holding that the underlying test of the nature of the contract is common to both sales and service tax contexts. The Tribunal further held that works contract services were brought explicitly within the service-tax net only w.e.f. 01.07.2012 and that prior to that date such composite contracts were not taxable as services, relying on the Supreme Court decision in Commissioner of Central Excise & Customs, Kerala versus Larsen & Toubro Ltd.. The submission that ECIS was a more specific classification and therefore should prevail was repelled on the basis that works contracts cannot be treated as services simplicitor falling under other sub-clauses; and the fact of the respondent having obtained registration under ECIS was held not to be conclusive of the true nature of the service. Applying these principles to the contracts for 2009-2010 to 2010-2011, the Tribunal concluded the services were composite works contracts and not taxable as ECIS for the period in question. [Paras 6, 7, 8]

The services in dispute were composite works contracts and, being prior to 01.07.2012, were not liable to service tax; the impugned order dropping proceedings was upheld.

Final Conclusion: Revenue's appeal is dismissed; the impugned order dropping proceedings is upheld as the contracts for 2009-2010 to 2010-2011 were composite works contracts not taxable as erection, commissioning and installation services prior to 01.07.2012.

Cenvat credit admissibility - invoice/bill or Challan under Rule 9(1) of the Cenvat Credit Rules, 2004 - Air Way Bill as sufficient document for Cenvat credit - scope of a show cause cum demand notice - entertainment of grounds not raised in the show cause notice

Cenvat credit admissibility - invoice/bill or Challan under Rule 9(1) of the Cenvat Credit Rules, 2004 - Air Way Bill as sufficient document for Cenvat credit - Whether Cenvat credit could be denied on the ground that the documents relied upon did not contain all particulars required under Rule 9(1) of the Cenvat Credit Rules, 2004, and whether Air Way Bills/CSR could be treated as invoices for this purpose. - HELD THAT: - The adjudicating authority examined the copies of the Air Way Bills and found they contained the essential particulars ordinarily required in an invoice/bill or Challan - including a unique Air Way Bill number, service tax registration number of the airline, names of service provider and receiver, value and nature of service and service tax amount - and therefore could be regarded as invoices within the framework of the Service Tax and Cenvat Credit Rules. The Tribunal upheld the adjudicator's conclusion and the High Court found no perversity in that approach. The Court accepted that, on the facts before it, the documents relied upon met the statutory requisites and the appellant had not shown any legal error in the Tribunal's conclusion to sustain a denial of credit. [Paras 4, 5, 6]

Cenvat credit could not be denied on the ground that the Air Way Bills/CSR lacked the required particulars; the documents were sufficient for claiming credit.

Scope of a show cause cum demand notice - entertainment of grounds not raised in the show cause notice - Whether the Tribunal was correct in refusing to entertain the revenue's alternate ground that the activity was not an 'output service' because that ground was not the basis of the show cause cum demand notice. - HELD THAT: - The Court reiterated that a show cause notice frames the foundation for adjudication, levy and recovery; grounds not pleaded in the show cause notice cannot be raised as a basis for reversing the adjudicating authority's order. The Tribunal dismissed the appeal insofar as it relied on a ground outside the scope of the show cause notice, and the High Court held that the Tribunal's approach was not perverse, given that the revenue's alternative contention did not feature in the notice of demand. [Paras 5, 6]

Tribunal correctly declined to allow the appeal on a ground that was not the basis of the show cause cum demand notice.

Final Conclusion: The High Court found no infirmity in the Tribunal's conclusions - that the Air Way Bills/CSR satisfied the requisites for claiming Cenvat credit and that grounds not pleaded in the show cause notice could not be entertained - and dismissed the central excise appeal.

Extension of time under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - applicability of Chapter V of the Finance Act to extend time for compliance under indirect tax settlement schemes - payment with interest for delayed compliance under a settlement scheme - enabling of departmental portal for remittance to effect settlement

Extension of time under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - applicability of Chapter V of the Finance Act to extend time for compliance under indirect tax settlement schemes - payment with interest for delayed compliance under a settlement scheme - enabling of departmental portal for remittance to effect settlement - Petitioner in W.P.No.2942 of 2021 entitled to remit SVLDRS determined amount after the original deadline, subject to payment of interest and enabling of the portal. - HELD THAT: - The Court applied the reasoning in N. Sundararajan v. Union of India to hold that the time limit for completion of payment under the Indirect Tax SVLDRS scheme could be construed to stand extended till 30.09.2020 under Chapter V of the Finance Act, and that appellants who expressed readiness to make payment by that date are not to be penalised for delay. In the facts of W.P.No.2942 of 2021 the petitioner had communicated readiness to remit on 31.07.2020 and thus was entitled to make the remittance; the Court directed that remittance be permitted within four weeks from receipt of the order and imposed interest at 15% from 01.07.2020 until date of remittance. The respondents were directed to enable the portal forthwith to permit payment. [Paras 6, 8, 9, 11]

W.P.No.2942 of 2021 disposed permitting remittance within four weeks with interest at 15% from 01.07.2020 and portal to be enabled.

Extension of time under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - payment with interest for delayed compliance under a settlement scheme - Petitioner in W.P.No.19919 of 2020 not entitled to extension where steps to remit were initiated only in October 2021, well beyond the extended period. - HELD THAT: - The Court distinguished the position of the petitioner in W.P.No.19919 of 2020 on facts: despite Forms SVLDRS 1, 3 and 4 having been filed/issued earlier, the petitioner delayed making the remittance and sought extension only in October 2021, which was materially beyond the extended period recognized by the Court in N. Sundararajan. In view of the delay and the timing of the petitioner's actions, the Court refused to grant the mandamus for extension of time. [Paras 12]

W.P.No.19919 of 2020 dismissed.

Procedural disposal on withdrawal - W.P.No.17428 of 2022 disposed as withdrawn. - HELD THAT: - The petition was recorded as withdrawn and accordingly dismissed without adjudication on the merits. [Paras 13]

W.P.No.17428 of 2022 dismissed as withdrawn.

Final Conclusion: The Court applied the ratio of N. Sundararajan to permit one petitioner to remit the SVLDRS amount with interest and with portal facilitation, refused relief to a petitioner whose request was made after the extended period, and dismissed a third petition as withdrawn; no costs were awarded.

Cenvat credit - input services - outdoor catering services - interpretation of amendment effective 01.04.2011 - penalty for suppression or mis-declaration - bona fide belief / interpretational error - adjustment of amounts already paid

Cenvat credit - input services - outdoor catering services - interpretation of amendment effective 01.04.2011 - Eligibility of cenvat credit on outdoor catering services for the period January 2010 to April 2015 - HELD THAT: - The amendment to the definition of "input services" effective 01.04.2011 excluded services in the nature of outdoor catering services. Applying that amendment and following the conclusion of the Hon'ble Supreme Court in Toyota Kirloskar Motors P. Ltd., the Tribunal held that credit on outdoor catering services is not admissible for the period after 01.04.2011. Conversely, for the period prior to 01.04.2011 the appellant remained eligible to avail cenvat credit on such services. [Paras 7]

Credit allowed for the period prior to 01.04.2011 and disallowed for the period after 01.04.2011

Penalty for suppression or mis-declaration - bona fide belief / interpretational error - Whether penalty should be sustained for availing credit on outdoor catering services - HELD THAT: - The Tribunal found the controversy to be interpretational in nature and observed that the dispute had reached the Apex Court. There was no positive evidence of deliberate suppression or intent to evade duty by the appellant. In view of the interpretational character of the claim and absence of evidence of intentional concealment, the imposition of penalty was set aside. [Paras 8]

Penalty imposed is set aside

Adjustment of amounts already paid - Whether amounts already paid by the appellant can be adjusted against the demand - HELD THAT: - The appellant had already paid the amount claimed as credit along with interest. The Tribunal permitted adjustment of sums already paid in accordance with its findings on eligibility of credit, thereby allowing the appellant to set off payments made against any confirmed demand. [Paras 3, 9]

Amount already paid by the appellant may be adjusted against the demand

Final Conclusion: Appeal partly allowed: cenvat credit on outdoor catering services upheld for the period prior to 01.04.2011 and denied for the period after 01.04.2011; penalty is set aside; amounts already paid may be adjusted accordingly.

Admissibility of Cenvat credit on outward transportation where sale is on FOR basis - Freight forming part of assessable value / integral to price - Precedent effect of Tribunal's earlier decision on identical facts

Admissibility of Cenvat credit on outward transportation where sale is on FOR basis - Freight forming part of assessable value / integral to price - Precedent effect of Tribunal's earlier decision on identical facts - Cenvat credit in respect of outward GTA is admissible where the sale is on FOR basis and freight is integral to the price of the goods. - HELD THAT: - The Tribunal recorded that it was not disputed that the sale was on FOR basis and that freight was borne by the appellant. On identical facts the Tribunal had earlier decided the appellant's own case (Order No. A/10307/2022 dated 05.04.2022) holding that where freight is inclusive in the price of goods and not charged separately, it forms part of the assessable value and Cenvat credit on outward transportation is admissible. That earlier decision relied on this Tribunal's decisions in Sanghi Industries Ltd. and Ultratech Cement Ltd., which were upheld by the Hon'ble Gujarat High Court, and took into account the effect of the Supreme Court decision in CCE & ST vs. Ultratech Cement Ltd. and the consequential Board Circular. Given the identical factual matrix and the precedential value of the appellant's earlier order, the Tribunal held the issue was no longer res integra and allowed the appeal, setting aside the impugned order.

Appeal allowed; Cenvat credit on outward transportation admitted as the sale was on FOR basis and freight formed part of the price.

Final Conclusion: The appeal is allowed on the ground that, on the undisputed facts of FOR sale with freight integral to the price, Cenvat credit on outward transportation is admissible; the Tribunal's prior decision in the appellant's own case on identical facts governs the result.

Inter-state sale - central sales tax payable to proper State - transfer of tax collected by one State to another State - Section 22(1B) of the Central Sales Tax Act, 1956 (insertion by Finance Act, 2010) - retention of tax by a State not leviable by it

Inter-state sale - central sales tax payable to proper State - Sale effected through RSO, Vijayawada to APSRTC is an inter-state sale and central sales tax on that transaction is payable to the State of Jharkhand, not to the State of Andhra Pradesh. - HELD THAT: - The Court recorded that it was not in dispute that the transactions through RSO, Vijayawada in respect of buses sold to APSRTC were inter-state sales. Consequently, liability to pay central sales tax in respect of those transactions lies with the State of Jharkhand. The tax paid to Andhra Pradesh treating the sales as stock transfers was therefore not leviable by Andhra Pradesh and cannot be retained by that State. [Paras 3]

The transactions are inter-state sales and the central sales tax in respect thereof is payable to the State of Jharkhand; Andhra Pradesh cannot retain the tax collected on those transactions.

Section 22(1B) of the Central Sales Tax Act, 1956 (insertion by Finance Act, 2010) - transfer of tax collected by one State to another State - Whether the Appellate Authority erred in not directing refund or transfer of tax collected to the State entitled to it in respect of transactions decided to be inter-state, given that Section 22(1B) was inserted after the impugned order. - HELD THAT: - The Court observed that prior to the insertion of Section 22(1B), the Appellate Authority had no statutory power to direct refund or transfer of tax collected by a State which the Authority had held was not due to that State. Since the impugned order was passed before insertion of Section 22(1B), the Appellate Authority cannot be faulted for not issuing directions now permissible under the subsequently inserted provision. Nevertheless, the Court invoked the principle embodied in Section 22(1B) to direct a practical remedy in the present case. [Paras 4]

Non-issuance of a direction by the Appellate Authority in the impugned pre-insertion order is not an error; however, the Court may direct transfer of the tax collected in accordance with the remedy now reflected in Section 22(1B).

Transfer of tax collected by one State to another State - retention of tax by a State not leviable by it - Procedure to be followed for transfer and adjustment of the central sales tax collected by Andhra Pradesh in respect of the transactions found to be inter-state. - HELD THAT: - The Court directed that the State of Andhra Pradesh must transfer to the State of Jharkhand the amount of central sales tax deposited by the appellant with Andhra Pradesh in respect of the contested transactions, subject to the appellant producing proof of the tax so paid (having treated the sales as stock transfers). Upon verification of the proof, Andhra Pradesh is to transfer the amount to Jharkhand, and Jharkhand is to adjust the transferred amount against the appellant's central sales tax liability on those inter-state sales. The Court stipulated that this exercise be completed within three months. [Paras 5, 6]

Andhra Pradesh shall, after verification of proof of tax payment by the appellant, transfer the tax collected to Jharkhand, and Jharkhand shall adjust the same against the appellant's liability; the transfer/adjustment is to be completed within three months.

Final Conclusion: Appeal disposed of by directing verification of proof of tax payment by the appellant and consequent transfer by the State of Andhra Pradesh to the State of Jharkhand of the central sales tax collected on transactions held to be inter-state, with adjustment by Jharkhand against the appellant's liability, to be completed within three months.

Revision of assessment - limitation for escaped turnover under Section 18 - assessment by notice - recomputation of turnover after limitation period - denial of concessional rate claimed by Form C - criminal prosecution for tax offences and limitation under Section 468 of CrPC

Revision of assessment - limitation for escaped turnover under Section 18 - recomputation of turnover after limitation period - Re-computation of turnover and revision of the original assessment for 2003-2004 by notice dated 04.12.2020 was impermissible and barred by law. - HELD THAT: - The assessment for the period 2003-2004 had been completed by order dated 10.08.2007 after scrutiny of books and Form C declarations. Section 18 prescribes a five-year limitation for determination of escaped turnover, which for 2003-04 expired by 31.03.2009. The impugned notice dated 04.12.2020 sought to re-compute turnover and deny exemption long after that period, effectively revising the original assessment. Such retrospective re-determination is beyond the time permitted and is legally impermissible. The Court therefore set aside the re-computation of turnover and the consequent denial of exemption under the Central Sales Tax Act. [Paras 2, 4, 6, 7]

Re-computation of turnover and revision of the assessment by the notice dated 04.12.2020 set aside as barred by Section 18; denial of exemption overturned.

Assessment by notice - Making an assessment by issuing the impugned notice (rather than following assessment procedure) was impermissible. - HELD THAT: - The officer, in the course of issuing the notice, proceeded to compute tax and interest and directed payment, thereby purporting to make an assessment through the notice itself. The Court found that making an assessment in a notice is impermissible and contradicted the statutory assessment scheme; the form and substance of the impugned notice were therefore irregular and unlawful. [Paras 3, 6, 7]

Assessment cannot be validly made by the impugned notice; such assessment is impermissible and set aside.

Criminal prosecution for tax offences and limitation under Section 468 of CrPC - Proceeding to contemplate criminal liability under tax statutes based on the impugned notice was misconceived because escapement was not validly determined within the statutory limitation. - HELD THAT: - Section 468 of the CrPC prescribes limitation periods for prosecution of offences. The Court observed that limitation for prosecution is triggered only after a valid determination that turnover has escaped assessment. Since escapement was not determined within the time permitted by Section 18 of the Act, the impugned notice could not properly found criminal proceedings under Section 49 of the Act or corresponding provisions of the Central Sales Tax Act. Accordingly, the notice which sought recalculation to pursue penal consequences was unsustainable. [Paras 8, 9, 10, 11]

Notice contemplating criminal liability quashed as escapement could not be validly determined beyond the limitation period; consequential penal action cannot be founded on the impugned notice.

Final Conclusion: The notice dated 04.12.2020 insofar as it re-computed turnover, denied concessional treatment claimed by Form C, purported to assess tax by notice and contemplated penal consequences, is quashed; the writ petition is allowed and the connected petition is closed.

Survival of pending proceedings on repeal or substitution of statutory regime - continuance of the Authority for Clarification and Advance Ruling following enactment of successor taxation statute - applicability of saving provisions to pending applications before specialized authorities - effect of interim order and status quo on pending assessments

Survival of pending proceedings on repeal or substitution of statutory regime - continuance of the Authority for Clarification and Advance Ruling following enactment of successor taxation statute - applicability of saving provisions to pending applications before specialized authorities - Application filed before the Authority for Clarification and Advance Ruling under the Tamil Nadu Value Added Tax regime and the impugned order dated 26.04.2019 do not survive following enactment of the Tamil Nadu Goods and Services Tax regime in the form contended by the petitioner. - HELD THAT: - The Court accepted the petitioner's contention that with the enactment of the TNGST Act (the successor taxation statute) the Authority as constituted under the earlier TNVAT regime does not continue in the same form and, consequently, the earlier application and the impugned order cannot survive. While the respondents relied on the saving provisions in the successor statute, the Court found it unnecessary to examine that defence because it acceded to the petitioner's primary submission and concluded that both the application and the impugned order would no longer subsist. The Court therefore set aside the process under challenge on that basis and disposed the petition accordingly.

The application and the impugned order do not survive following the enactment of the successor GST statute and are thus treated as no longer subsisting.

Effect of interim order and status quo on pending assessments - completion of pending assessments in accordance with law - Pending assessments for the periods indicated are to be completed within a specified time notwithstanding the earlier interpretation that all assessments should be kept pending. - HELD THAT: - The Court observed that assessments for various years had been kept pending awaiting disposal of the writ petition and that an earlier interim order had been interpreted by the respondents to mean that all assessments should be kept pending. The Court clarified its position by directing that the pending assessments relating to the periods before the Court (2014-15 and 2017-18) be completed in accordance with law within a period of 16 weeks, thereby removing any blanket withholding of assessment action occasioned by the interim direction.

Pending assessments for 2014-15 and 2017-18 shall be completed in accordance with law within 16 weeks.

Final Conclusion: Writ petition disposed by holding that the application and the impugned ACAR order do not survive after the GST enactment as contended by the petitioner; assessments for 2014-15 and 2017-18 directed to be completed in accordance with law within 16 weeks. No costs.

Sale free from encumbrances - as is, where is - vesting of rights on sale of vessels under Section 8 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 - anchorage fees - port dues

Sale free from encumbrances - as is, where is - anchorage fees - Liability of the purchaser (NKD) to pay anchorage and light dues and the basis for computing anchorage charges after the sale of the vessel. - HELD THAT: - The Court accepted the Division Bench's conclusion that the vessel was sold on an 'as is, where is' basis and free from encumbrances, but the terms of sale made clear that all charges, dues and expenses in respect of the vessel shall be borne and paid by the purchaser from the date of sanction of the sale. Prior anchorage before the date of sale does not constitute an encumbrance that immunises the purchaser from anchorage fees charged after the sale. Anchorage charges were therefore properly levied from the date of sale/sanction and are to be computed according to the applicable scale of rates based on the total period the vessel remained at the anchorage (with the higher rate applying where the vessel had been at anchorage for more than 30 days). The Division Bench's view that it was incorrect to treat prior anchorage as an encumbrance for the purposes of post-sale anchorage fees was affirmed. [Paras 23]

NKD is liable for anchorage charges levied from the date of sale/sanction and such charges are to be computed by reference to the period the vessel remained at anchorage; the Division Bench's order setting aside the Single Bench order is upheld.

Final Conclusion: The Division Bench's judgment setting aside the Single Bench's order was upheld; the appeal is dismissed.

Power under Section 311 CrPC to summon, recall or re-examine witnesses where evidence is essential to just decision - Duty of the court to discover the truth and prevent failure of justice - Exercise of discretion under Section 311 CrPC must be judicious and not mechanical - Permitting additional evidence to avoid lacunae in prosecution or complainant's case versus impermissible improvement of case

Power under Section 311 CrPC to summon, recall or re-examine witnesses where evidence is essential to just decision - Exercise of discretion under Section 311 CrPC must be judicious and not mechanical - Permitting additional evidence to avoid lacunae in prosecution or complainant's case versus impermissible improvement of case - Whether the trial court erred in dismissing the complainant's application under Section 311 Cr.P.C. seeking permission to place foundational documents on record and to file a supplementary affidavit of its witness. - HELD THAT: - The High Court held that Section 311 Cr.P.C. empowers the court at any stage to summon, examine, recall or re-examine persons whose evidence appears essential to the just decision of the case, imposing a duty on the court to consider such applications when necessary to discover the truth. While the power is wide, it must be exercised judiciously and not mechanically. Reliance on precedent that parties should not be permitted to improve their case does not justify a blanket refusal where the additional evidence is foundational and essential for maintainability and just adjudication. In the facts before the Court the documents sought to be exhibited were foundational to prove lawful institution of the complaint and the trial court's categorical refusal to permit their production amounted to an unreasonable exercise of discretion. Having considered the authorities and the object of Section 311, the High Court concluded that the impugned orders were set aside and the complainant was granted liberty to file the additional affidavit of CW-2 and place the documents on record and lead evidence as directed by the trial court. [Paras 10, 11, 13, 15, 16]

Impugned orders dated 01.11.2018 and 21.01.2019 were set aside and the petitioner was granted liberty to file supplementary affidavit of CW-2 and to place the foundational documents on record and lead evidence as per directions of the trial court.

Final Conclusion: The High Court allowed the petition, set aside the trial court's orders refusing permission under Section 311 Cr.P.C., and granted liberty to the complainant to file additional affidavit and to place the specified foundational documents on record for further proceedings.

Section 482 Cr.P.C. - quashing of criminal proceedings - Section 138 of the Negotiable Instruments Act - cheque issued as security - void contract / unlawful consideration under Section 23 of the Indian Contract Act - triable issue / appreciation of evidence at trial - exercise of inherent jurisdiction sparingly

Section 138 of the Negotiable Instruments Act - void contract / unlawful consideration under Section 23 of the Indian Contract Act - triable issue / appreciation of evidence at trial - Whether the criminal complaint under Section 138 N.I. Act can be quashed at the threshold on the ground that the compromise agreement is void for unlawful consideration under Section 23 Indian Contract Act. - HELD THAT: - The Court considered the petitioner's plea that the compromise agreement is void and the consideration unlawful under Section 23, and that consequently no legally enforceable debt exists attracting Section 138. The Court examined the agreement and the averments in the complaint, noting that the petitioner was a signatory to the compromise and that the complainant's pleadings allege receipt of part payment and issuance of a cheque for the balance. The Court held that allegations of illegality in the consideration were not sufficiently elaborated to displace the prima facie case made out by the complaint and that such factual contentions touch triable issues which cannot be decided in proceedings under Section 482. Reliance was placed on precedents that disputes as to facts or as to whether an agreement negates the obligation to honour a cheque are matters for trial and not for summary quashing under inherent jurisdiction. [Paras 12, 13, 14, 21, 23]

Petitioner's challenge to the complaint as founded on a void agreement / unlawful consideration is not a ground for quashing under Section 482; it is a triable issue and the petition in this regard is dismissed.

Section 138 of the Negotiable Instruments Act - cheque issued as security - triable issue / appreciation of evidence at trial - Whether the cheque, though labelled as issued 'as security', precludes prosecution under Section 138 and warrants quashing of the complaint. - HELD THAT: - The Court addressed the petitioner's contention that the cheque was issued only as security and therefore did not discharge any legally enforceable debt. Citing authoritative decisions, the Court observed that mere labelling of a cheque as 'security' does not in itself remove its character as an instrument to meet a legally enforceable liability; whether a cheque issued as security matures for presentation or was not for discharge of any debt is a question of fact and a defence available to the drawer at trial. Accordingly, the Court found that the 'security' plea cannot be adjudicated in a Section 482 petition and that the averments in the complaint suffice to make out a prima facie case requiring trial. [Paras 16, 17, 18, 19, 20]

The contention that the cheque was issued only as security does not justify quashing; it is a matter for trial and the petition on this ground is dismissed.

Section 482 Cr.P.C. - quashing of criminal proceedings - exercise of inherent jurisdiction sparingly - Whether the High Court should exercise its inherent jurisdiction to quash the criminal proceedings in C.C.No.202 of 2018 and what directions, if any, should be given for disposal of the trial. - HELD THAT: - The Court reiterated the settled principle that inherent jurisdiction under Section 482 is to be exercised sparingly and that the High Court should not embark upon appreciation of evidence while considering a quash petition. On the material before it, the Court found a prima facie case against the petitioner and held that the exceptional jurisdiction to quash is not made out. Given the pendency of the criminal proceedings since 2018, the Court considered it appropriate to direct expeditious disposal of the trial by the trial court. [Paras 22, 23, 24, 25]

Criminal Original Petition dismissed; trial in C.C.No.202 of 2018 to proceed and be disposed of expeditiously, preferably within three months from receipt of the order.

Final Conclusion: The petition under Section 482 Cr.P.C. to quash complaint in C.C.No.202 of 2018 is dismissed. Contentions that the compromise agreement is void or that the cheque was issued only as security raise triable issues and cannot be decided in a quash petition; the trial court is directed to conclude the trial expeditiously, preferably within three months.

Quashing of criminal proceedings under inherent jurisdiction of High Court - offence under Section 138 of Negotiable Instruments Act - post-dated cheque and cheque given as security covered by Section 138 - appreciation of evidence not permissible in Section 482 petition - exercise of inherent jurisdiction under Section 482 Cr.P.C. to be sparingly and only in exceptional cases - direction for expeditious disposal of pending trial

Quashing of criminal proceedings under inherent jurisdiction of High Court - offence under Section 138 of Negotiable Instruments Act - post-dated cheque and cheque given as security covered by Section 138 - appreciation of evidence not permissible in Section 482 petition - exercise of inherent jurisdiction under Section 482 Cr.P.C. to be sparingly and only in exceptional cases - Whether the criminal proceedings in S.T.C.No.182 of 2019 liable to be quashed under Section 482 Cr.P.C. - HELD THAT: - The petitioners' contentions that the cheque was a post-dated instrument issued as security and that no legally enforceable liability existed raise disputed questions of fact - including the date of issuance and the purpose of the cheque - which cannot be resolved on a petition under Section 482 Cr.P.C. The Court relied on the principle that post-dated cheques and cheques given as security can fall within the ambit of Section 138 of the Negotiable Instruments Act, as explained in the authorities cited, and that such factual defences are matters for trial. The Court reiterated that inherent jurisdiction under Section 482 Cr.P.C. is exceptional, must be exercised sparingly, and does not permit appreciation of evidence at the quash stage. On the material before it, a prima facie case is made out against the petitioner and therefore quashing is not warranted. [Paras 12, 14, 15, 16, 17]

Criminal Original Petition seeking quashal of S.T.C.No.182 of 2019 is dismissed and the proceedings are not quashed.

Direction for expeditious disposal of pending trial - Direction as to the timeline for completion of the trial in S.T.C.No.182 of 2019. - HELD THAT: - Noting that the case has been pending since 2019, the High Court exercised its supervisory power to give administrative directions for prompt disposal. The learned Judicial Magistrate, Manapparai, was directed to complete the trial and dispose of S.T.C.No.182 of 2019 expeditiously, preferably within three months from receipt of the order. [Paras 18, 19]

Trial in S.T.C.No.182 of 2019 to be completed expeditiously, preferably within three months from receipt of a copy of this order.

Final Conclusion: The petition under Section 482 Cr.P.C. seeking quashal of criminal proceedings alleging offence under Section 138 NI Act is dismissed for lack of merit; factual disputes as to the nature and date of the cheque require trial, and the trial court is directed to conclude S.T.C.No.182 of 2019 expeditiously, preferably within three months.

Rebuttable statutory presumption as to consideration of negotiable instruments under Section 118 of the Negotiable Instruments Act - proof of consideration and effect of bank withdrawals and absence of contemporaneous communications - oral settlement - evidentiary insufficiency for enforcement - entitlement to contractual interest - prohibition on awarding interest on interest where contract prescribes a fixed lump-sum monthly amount - franchise agreement claim defeated by absence of performance or pre-suit demand - co stakeholding and right of access - no exclusive injunctive relief for dispossession where parties are joint stakeholders

Rebuttable statutory presumption as to consideration of negotiable instruments under Section 118 of the Negotiable Instruments Act - proof of consideration and effect of bank withdrawals and absence of contemporaneous communications - Promissory notes exhibited in favour of the plaintiff were not supported by consideration and the plaintiff is not entitled to recover the alleged loan claimed thereunder. - HELD THAT: - The court applied the statutory presumption in Section 118 of the NI Act but held that the presumption is rebuttable. Having considered the oral admissions, the bank statements and the absence of contemporaneous communications or transfers to the defendant, the court found the claimed cash loans improbable. Withdrawals from the plaintiff's accounts did not establish that cash loans were given to the defendant in the asserted tranches, and the plaintiff failed, even after reopening evidence, to establish probable consideration for the promissory notes. On that basis the initial onus shifted to the plaintiff and was not discharged. [Paras 17, 19, 20, 21, 22]

Issue No.6 in C.S.183 of 2020 is decided for the defendant (Ramesh); the promissory notes are not supported by consideration and the alleged loan is not recoverable by the plaintiff (Suresh Prabhu).

Proof of consideration and effect of bank withdrawals and absence of contemporaneous communications - co stakeholding and right of access - no exclusive injunctive relief for dispossession where parties are joint stakeholders - The defendant (Ramesh) made substantial financial contributions to the two fitness centres and was an important stakeholder; it cannot be concluded that he merely handed over the centres to the plaintiff for maintenance. - HELD THAT: - Documentary and oral evidence, including bank statements, installation reports bearing the defendant's name and signature, invoices, delivery challans and vouchers, established that the defendant contributed substantial sums and incurred expenses for equipment and interiors. Although some invoices bore the name of the plaintiff, the totality of evidence supported the conclusion that the defendant was a significant co investor. The court rejected the plaintiff's contention that the defendant was merely the owner who handed over maintenance to the plaintiff. [Paras 23, 24, 25]

Issue Nos.1 and 2 in C.S.183 of 2020 are decided in favour of the defendant (Ramesh) and against the plaintiff (Suresh Prabhu).

Oral settlement - evidentiary insufficiency for enforcement - The plaintiff in C.S.68 of 2021 failed to prove the alleged oral settlement that the plaintiff in that suit was to be paid the stated aggregate amount; the claim is not established. - HELD THAT: - The court found no documentary evidence of the purported settlement and reliance was placed solely on oral assertions and on a set of cheques for modest sums. While some cheques were issued and one cleared, the evidence was insufficient to establish the aggregate settlement amount alleged. The limited proof of partial payments did not permit a rational finding in favour of the plaintiff's comprehensive settlement claim. [Paras 26, 27]

Issue Nos.1 to 3 in C.S.68 of 2021 are decided in favour of the defendant (Suresh Prabhu) and against the plaintiff (Ramesh); the settlement claim is not proved.

Entitlement to contractual interest - prohibition on awarding interest on interest where contract prescribes a fixed lump-sum monthly amount - The plaintiff is entitled to recover the specified monthly sums due under the Memorandum of Agreement for the loan of Rs.40,00,000/-, but not further interest on that quantified monthly amount. - HELD THAT: - The MoA expressly quantified the monthly liability and the defendant admitted receipt of the Rs.40,00,000/-. The defendant admitted non payment from December 2017, but the MoA provided a fixed monthly sum rather than a conventional rate of interest that would permit compounding. The court therefore allowed the principal claim corresponding to the unpaid monthly amounts but rejected the plaintiff's claim for additional interest calculated at 18% per annum on that aggregate (i.e., interest on interest). [Paras 28, 29]

Issue Nos.3 and 4 in C.S.183 of 2020 are decided in favour of the plaintiff (limited to the principal claim arising from the quantified monthly liability) and against the defendant as to further interest.

Franchise agreement - absence of performance or pre-suit demand - The plaintiff is not entitled to recover the claimed royalty and franchise fee under the Franchise Agreement for lack of evidence that the agreements were acted upon or that royalties were demanded pre suit. - HELD THAT: - Although two franchise agreements were produced, the plaintiff produced no evidence of performance, despatch or receipt of the invoice for the non refundable fee, nor proof of pre suit demands for royalty. The court found the plaintiff failed to prove that the franchise agreements were acted upon in the manner alleged and therefore denied the franchise/royalty claim. [Paras 30, 31]

Issue No.5 in C.S.183 of 2020 is decided against the plaintiff (Suresh Prabhu) and in favour of the defendant (Ramesh).

Co stakeholding and right of access - no exclusive injunctive relief for dispossession where parties are joint stakeholders - Neither party is entitled to an injunction restraining the other from possession or from operating the business at the two centres; both are co stakeholders entitled to joint management and access. - HELD THAT: - The court inferred joint stakeholding from the evidence of contributions by the defendant and the conduct of the parties. Because both parties have substantial interests and the defendant was not barred from access as a co stakeholder, exclusive injunctive relief was inappropriate. The court held that neither party can be permitted to deny or impede access to the other and refused injunctive relief to both. [Paras 32]

Applications for permanent injunctions restraining possession or operation of the business are dismissed; neither party is entitled to exclusive injunctive relief.

Final Conclusion: C.S.183 of 2020 is partly decreed: the plaintiff succeeds on the limited claim corresponding to the unpaid monthly sum under the MoA (principal claim allowed) but fails on the promissory note loan claim, franchise/royalty claim and injunctive reliefs. C.S.68 of 2021 is dismissed for failure to prove the alleged settlement; both parties are held to be co stakeholders and shall bear their respective costs.

Dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881 - maintainability of complaint through a power of attorney - statutory presumption under Section 118 of the Negotiable Instruments Act, 1881 - proof of debt/consideration by ledger maintained in ordinary course of business - service of statutory notice as condition precedent - standard of proof in cheque dishonour cases as laid down in Rangappa v. Srimohan

Maintainability of complaint through a power of attorney - Dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881 - Complaint filed by the payee through a duly executed power of attorney is maintainable where the power agent proves the transaction and presents the cheque returned unpaid. - HELD THAT: - The Court found that the complainant firm was represented by its owner through a power agent and the Power of Attorney (Ex.P-1) was produced and relied upon. The power agent deposed and marked documentary evidence (Ex.P-1 to Ex.P-8) to establish the sale transactions and the issuance of the cheque (Ex.P-2). The facts of the cited A.C. Narayanan decision were distinguished as relating to complaints filed without any supporting document such as a power of attorney or board/resolution. In the present case the existence of a valid power of attorney and the agent's testimony, combined with supporting documents, rendered the complaint maintainable and the courts below were justified in entertaining and deciding the complaint under Section 138 NI Act. [Paras 6, 8]

The complaint through the power agent was maintainable and the trial and appellate courts rightly proceeded to convict under Section 138 NI Act.

Proof of debt/consideration by ledger maintained in ordinary course of business - statutory presumption under Section 118 of the Negotiable Instruments Act, 1881 - standard of proof in cheque dishonour cases as laid down in Rangappa v. Srimohan - Ledger extract maintained in the ordinary course of business proving balance due, coupled with the cheque and service of statutory notice, sufficed to invoke statutory presumption and the accused failed to rebut it. - HELD THAT: - The ledger extract (Ex.P-8) was held to prove the outstanding liability as on the relevant date. The cheque (Ex.P-2) was presented and returned with the memo of payment stopped (Ex.P-3). Statutory notice was sent and received (Ex.P-5 to Ex.P-7). Applying the settled standard of proof in Section 138 cases (as in Rangappa), once the complainant established the cheque, its presentation and return and service of notice, the statutory presumption under Section 118 arose. The accused admitted the signature but offered the defence that transactions had ceased earlier; that plea was disbelieved on the documentary ledger evidence and the accused did not produce material to rebut the presumption even on the preponderance of probabilities. A variation in ink of the payee's name on the cheque, by itself, did not vitiate the claim where foundational facts and debt were otherwise proved. [Paras 5, 6, 7, 8]

The ledger and supporting documents established the debt; the statutory presumption applied and the accused failed to rebut it, justifying conviction under Section 138.

Review of concurrent findings by revisional court - scope of interference in revisional jurisdiction - No infirmity was demonstrated in the concurrent findings of the trial and appellate courts to warrant interference in revision. - HELD THAT: - The grounds urged in revision - absence of vehicle number, unsigned invoice, marking of summons-produced document as prosecution exhibit, non-examination of owner, alleged unsustainable power of attorney, and delay/misuse contentions - were examined against the record. The Court found these contentions factually misplaced or insufficient to impeach the findings based on oral testimony and the ledger evidence. The High Court distinguished the authorities relied upon by the petitioner as factually different. Given the evidence on record and the accused's failure to rebut, the revisional jurisdiction did not permit upsetting the concurrent convictions and sentences. [Paras 3, 4, 7, 8, 9]

Revision dismissed; concurrent findings of guilt and sentence confirmed and no interference warranted.

Final Conclusion: Criminal Revision dismissed; convictions and sentences under Section 138 NI Act affirmed by the trial and appellate courts are confirmed, bail bonds (if any) stand cancelled and the trial court is directed to secure the accused for the remaining period of sentence.