TaxTMI Updates e-Newsletter
Sep 25,2019

Intermediary services - place of supply of intermediary services is the location of the supplier - pure agent exclusion under Rule 33 (value of supply) - reimbursement forming part of transaction value - export of services / zero rated supply

Pure agent exclusion under Rule 33 (value of supply) - reimbursement forming part of transaction value - GST applicability on reimbursement of expenses such as salaries, rent, office expenses, travelling cost etc. - HELD THAT: - The Authority examined whether the amounts reimbursed by the foreign principal qualify for exclusion from the value of supply as expenditure incurred by a pure agent. The Authority found that the conditions for pure agent treatment are not satisfied: the supplier does not make payments to third parties under contracts between the third party and the recipient, the recipient is not shown to be liable to make payment to third parties, and the payments are not shown to be made on the principal's behalf in the requisite contractual manner. The reimbursements relate to establishment costs incurred by the applicant in India and are recovered in addition to management fees; therefore they constitute additional consideration. In view of Section 15 principles on transaction value and the requirements of the pure agent rule, such reimbursements must be included in the value of supply and are taxable under GST.

Reimbursements of salaries, rent, office expenses, travel costs etc. are part of the taxable value and GST is applicable.

Intermediary services - place of supply of intermediary services is the location of the supplier - export of services / zero rated supply - GST applicability on the management fees charged by the applicant to the foreign company for managing the outsourced job. - HELD THAT: - On the facts and nature of services proposed, the Authority concluded that the applicant arranges or facilitates supplies between vessel owners, shippers, consignees and port agents and therefore performs as an intermediary. For intermediary services the place of supply is the location of the supplier; accordingly the place of supply is within India. As a result the supply does not satisfy the conditions for export of services/zero rated treatment. Consequently the management fees charged by the applicant are subject to GST.

Management fees charged to the foreign company are taxable under GST because the applicant is an intermediary and the place of supply is in India.

Final Conclusion: The Authority holds that the applicant is an intermediary; management fees charged are taxable as the place of supply is in India, and reimbursements of establishment and related expenses do not qualify as pure agent recoveries and must be included in the taxable value - GST is therefore applicable on both the reimbursements and the management fees.

GST rate on aircraft other than personal use - GST rate on aircraft for personal use - use-based classification of goods for rate determination - No Objection Certificate (NOC) for Non Scheduled Operator's Permit (NSOP) - advance ruling withheld for want of conclusive evidence

GST rate on aircraft other than personal use - GST rate on aircraft for personal use - use-based classification of goods for rate determination - Applicability of concessional 5% GST (serial No.244) or 28% GST (serial No.176) on sale of an aircraft where purchaser has applied for NOC/NSOP but possession and ultimate use are not established. - HELD THAT: - The Authority examined the entries in Notification No.1/2017 CT(Rate) which grant 5% (IGST) to aircraft "other than those for personal use" (serial No.244) and 28% (IGST) plus cess to aircraft "for personal use" (serial No.176). The factual matrix showed that the purchaser had applied for and subsequently obtained an initial NOC to seek NSOP, but did not yet have the NSOP or conclusive evidence of actual possession or of the aircraft's ultimate use. The Authority observed that the NOC merely enables the purchaser to apply for NSOP and does not establish that the aircraft will not be used for personal purposes. Evidence on record did not conclusively demonstrate that the aircraft would be used exclusively for non personal/commercial purposes. Given that the notifications differentiate rates on the basis of actual use, and that the intended use could not be determined from the materials submitted, the Authority concluded that it could not, on the available record, pronounce which notification entry would apply to the proposed sale. The Authority therefore declined to answer the question due to lack of sufficient and conclusive information.

Question not answered for want of conclusive information establishing the aircraft's use; applicability of serial No.244 or serial No.176 depends on the aircraft's actual use.

Final Conclusion: The Authority declined to answer the applicant's question because the materials did not conclusively establish whether the aircraft would be for personal use or for other than personal (commercial) use; applicability of the 5% or 28% GST entry depends on the aircraft's actual use and cannot be determined on the present record.

Classification as parts of goods of heading 8901 - integral/essential part doctrine - applicability of concessional GST rate under Schedule I (Sr. Nos. 246 and 252) - eligibility for input tax credit under Chapter V of the CGST Act

Classification as parts of goods of heading 8901 - integral/essential part doctrine - applicability of concessional GST rate under Schedule I (Sr. Nos. 246 and 252) - Whether the custom-built marine duty hydraulic cylinders, hydraulic power pack and mooring winch supplied for fitting on the described barge qualify as 'parts' of goods of heading 8901 and attract GST at the concessional rate of 5% under Serial No. 252 read with Serial No. 246 of Schedule I of Notification No. 1/2017. - HELD THAT: - The Authority accepted the applicant's uncontested factual position that the equipment was tailor-made to the hull and operational requirements of a split hopper barge used to transport and discharge cargo mid-sea. The Authority found that the barges in question fall within Chapter 8901 as they are used for transporting and unloading goods at mid-sea. Applying the established test of whether an article is a component/part of a completed article, the Authority concluded that the bespoke hydraulic cylinders, power pack and mooring winch are integral to the barge's functioning: they keep the hull sealed during transport and enable rapid discharge by splitting the hull. Because the goods are custom-designed for and cannot be employed elsewhere, they are not mere generic hydraulic items but constitute parts of the vessel. Consequently, such goods fall under Serial No. 252 as 'Parts of goods of heading 8901' and are therefore eligible for the concessional GST rate of 5% (CGST 2.5% + SGST 2.5% or IGST 5%) prescribed in the Notification.

Answered in the affirmative: the subject custom-built marine hydraulic equipment qualify as parts of goods of heading 8901 and attract GST at 5% under Serial Nos. 246 and 252 of Schedule I of Notification No. 1/2017.

Eligibility for input tax credit under Chapter V of the CGST Act - Whether the applicant can claim input tax credit on indigenous and imported inputs used in manufacture of the above equipment if the equipment is taxed at 5% under the Notification. - HELD THAT: - The Authority examined the statutory scheme for input tax credit in Chapter V (Sections 15 to 21) of the CGST Act and observed that availment of input tax credit is governed by those provisions. Subject to satisfying the conditions and restrictions laid down in Chapter V, the applicant is entitled to claim input tax credit on inputs used in the manufacture of the goods determined to be taxable at the concessional rate.

Answered in the affirmative: input tax credit can be claimed subject to compliance with the provisions of Chapter V of the CGST Act.

Final Conclusion: The Authority ruled that the custom-built marine hydraulic cylinders, hydraulic power pack and mooring winch supplied for the described split hopper barge qualify as parts of vessels under Chapter 8901 and attract GST at the concessional rate of 5% under Serial Nos. 246 and 252 of Schedule I of Notification No. 1/2017; and the applicant may claim input tax credit on inputs used in their manufacture subject to compliance with Chapter V of the CGST Act.

Earth work - composite supply of works contract - concessional rate for works predominantly involving earth work - construction of tunnel not falling within earth work contemplated by the notification

Composite supply of works contract - concessional rate for works predominantly involving earth work - Whether the contract falls under SI No. 3A, Chapter 99 as per Notification No. 2/2018 - Central Tax (Rate) dated 25/01/2018 w.e.f. 25/01/2018. - HELD THAT: - Notification No. 2/2018 provides a concessional classification for certain composite supplies of goods and services where the value of supply of goods constitutes not more than 25% of the composite supply and subject to the supply being to specified governmental recipients. The Authority examined the factual matrix and the submissions, noting the concern that the value of supply of goods in the instant long-term tunnelling contract may exceed 25% in the current financial year and that the contracting authority (Godavari Marathwada Irrigation Development Corporation) is a government undertaking but not a Government Entity for the limited purposes of the proviso. On these factual and textual considerations the Authority concluded that the conditions of Notification No. 2/2018 are not satisfied for the appellant's contract and therefore the contract does not fall under SI No. 3A of Chapter 99 of Notification No. 2/2018.

Answered in the negative; the contract is not covered by SI No. 3A, Chapter 99 under Notification No. 2/2018 dated 25/01/2018.

Earth work - construction of tunnel not falling within earth work contemplated by the notification - Whether the contract is covered by the term "earth work" and therefore eligible under SI No. 3 (Heading 9954) as per Notification No. 31/2017 - Central Tax (Rate) dated 13/10/2017. - HELD THAT: - Entry 3(vii) of Heading 9954 grants a concessional rate where a works contract involves predominantly "earth work" (constituting more than 75% of the contract value). The GST statute and notifications do not define "earth work," so the Authority considered established dictionary and civil-engineering meanings which describe earthwork as operations connected with excavations and embankments or structures made of earth (e.g., embankments, canals, dams, road/railway earthworks). On examination of the tender and nature of the project - construction of a tunnel and allied works including excavation, support works, rock bolting, reinforcement and concreting - the Authority found that the present transaction cannot be regarded as the type of "earth work" contemplated by entry 3(vii). Having reached that conclusion, the Authority observed that the more appropriate concessional entry applicable to the transaction is item 3(iii) of Heading 9954 (construction related to canal, dam or other irrigation works) rather than the earthwork-specific entry.

Answered in the negative; the contract does not qualify as "earth work" under SI No. 3 (Heading 9954) of Notification No. 31/2017 dated 13/10/2017.

Earth work - Meaning of "earthwork" for the purposes of entry 3 of Heading 9954 and whether it applies to the applicant's contract. - HELD THAT: - Because the Authority concluded that the contract is not covered by the expression "earth work" for the reasons explained in the preceding issue (relying on dictionary/civil-engineering senses and the project being tunnelling works), it did not answer the separate question seeking a definition of "earthwork" for application to the applicant's contract. The question was therefore left unanswered in consequence of the negative finding on applicability.

Not answered.

Final Conclusion: The Authority ruled that the applicant's tunnelling contract is neither covered by SI No. 3A, Chapter 99 of Notification No. 2/2018 (25/01/2018) nor by the "earth work" entry of Heading 9954 in Notification No. 31/2017 (13/10/2017); the separate query on the definition of "earthwork" was not answered in view of the foregoing conclusions.

Classification of goods by specific heading preferred to generic heading - Disposable sterilized dialyzer or micro barrier of artificial kidney (Entry No. 255 of Schedule I to the Rate Notifications) - Classification of parts and accessories under Note 2 to Chapter 90 - Essential character/use of the product for tariff classification - Conflict between administrative circular and statute resolved in favour of the statute

Disposable sterilized dialyzer or micro barrier of artificial kidney (Entry No. 255 of Schedule I to the Rate Notifications) - Disposable medical device - Whether the product 'Dialyzer' is a "Disposable sterilized dialyzer or micro barrier of artificial kidney" within Entry No. 255 of Schedule I to the Rate Notifications. - HELD THAT: - The Authority accepted the applicant's factual and documentary material showing that the dialyzer is used for blood purification in dialysis, is sterilized, and is intended for single use (disposable). Medical parlance and the applicant's packaging and instructions (including ISO-symbols and IFU) indicate single-use and sterilised nature to avoid contamination. Given the device's role in performing the functions of a kidney externally and the risk from reuse, the Authority found that such dialyzers are used in sterilized form and disposed of after single use. Accordingly, the product falls within the description "Disposable sterilized dialyzer or micro barrier of artificial kidney" in Entry No. 255 of Schedule I to the Rate Notifications.

Dialyzers manufactured by the applicant are covered by Entry No. 255 as "Disposable sterilized dialyzer or micro barrier of artificial kidney."

Classification of goods by specific heading preferred to generic heading - Classification of parts and accessories under Note 2 to Chapter 90 - Conflict between administrative circular and statute resolved in favour of the statute - Essential character/use of the product for tariff classification - Whether the product 'Dialyzer' is classifiable under Chapter 90 (Tariff item 9018 90 31) or Chapter 84 (Tariff item 8421 29 00). - HELD THAT: - The Authority examined the nature and use of the dialyzer: it is an instrument/apparatus employed in medical dialysis, constitutionally a bundle of hollow fibers forming a semipermeable membrane and used exclusively with dialysis machines to purify blood. Heading 9018 expressly includes renal dialysis equipment, including dialyzers (9018 90 31). Note 2 to Chapter 90 provides that parts and accessories suitable solely or principally for a particular machine of Chapter 90 are to be classified with that machine; the dialyzer, even if a part, is principally suitable for dialysis machines and thus aligns with Chapter 90. The Authority also identified a conflict between Board Circular No.19/2013 (which suggested classification under 8421 29 00) and the First Schedule to the Customs Tariff Act, 1975; applying the settled principle that an Act of Parliament prevails over a circular, the statutory tariff entry governs. Applying the General Rules for Interpretation and the preference for specific descriptions over generic ones, the Authority concluded the dialyzer is classifiable under tariff item 9018 90 31.

The product 'Dialyzer' is classifiable under tariff item 9018 90 31 (Chapter 90) and not under 8421 29 00 (Chapter 84).

Final Conclusion: The Authority ruled that the applicant's dialyzers are "Disposable sterilized dialyzer or micro barrier of artificial kidney" within Entry No. 255 of Schedule I to the Rate Notifications and are classifiable under tariff item 9018 90 31 (Chapter 90); this interpretation prevails over the contrary administrative circular.

Composite supply - mixed supply - principal supply - exemption under Entry No. 66 of Notification No. 12/2017 - Central Tax (Rate) as amended by Notification No. 02/2018 - definition of "Educational Institution" under Notification No. 12/2017

Composite supply - mixed supply - Whether the services provided by the applicant constitute a composite supply or a mixed supply. - HELD THAT: - The Authority examined the nature and packaging of the applicant's services - encompassing pre-exam registration and slot booking, question bank management, provision of authorised exam centre infrastructure, invigilation/supervision, conduct of online examinations and result generation - and found these elements to be naturally bundled and supplied in conjunction with each other. The applicants charge on an exam hour basis and the ancillary activities are directed to enable the conduct of examinations. Applying the statutory definitions, the bundled services have a predominant element and are not independent supplies; accordingly they satisfy the test of a composite supply rather than a mixed supply.

Services supplied by the applicant are composite supply as defined under Section 2(30) of the CGST Act.

Principal supply - Whether conduct of examination is the principal supply within the composite supply. - HELD THAT: - Having found that the various services are naturally bundled, the Authority assessed which element constitutes the predominant element of the bundle. The conduct of examination is the core activity around which the other services (registration, slot booking, question bank management, invigilation, evaluation and result generation) are organised and performed as ancillary aids. On this factual and legal assessment the conduct of examination was held to be the predominant/ principal element of the composite supply.

Conduct of examination is the principal supply within the composite supply.

Exemption under Entry No. 66 of Notification No. 12/2017 - Central Tax (Rate) as amended by Notification No. 02/2018 - definition of "Educational Institution" under Notification No. 12/2017 - Whether the exemption under Entry No. 66 of Notification No.12/2017 (as amended) applies to the applicant's composite services where conduct of examination is the principal supply. - HELD THAT: - Entry No. 66 (as amended) grants exemption for specified services provided to an "educational institution" as defined in the notification. The Authority held that if the composite supply's principal element is conduct of examination and the recipient qualifies as an "educational institution" under the notification, the exemption may apply. The Authority considered documentary evidence submitted and found that the Work Order from the University of Delhi satisfies the definition of an educational institution; therefore the services supplied under that Work Order fall within the entry and are exempt. For other contracts/clients the applicant had not furnished sufficient information or documentary proof that the recipients fall within the notified definition, and therefore the Authority did not extend the exemption to those contracts.

Exemption under Entry No. 66 is available only where the notified conditions are satisfied; it applies to the services supplied under the University of Delhi work order but cannot be held to apply to other agreements in the absence of evidence that the recipients are educational institutions as defined.

Exemption under Entry No. 66 of Notification No. 12/2017 - Central Tax (Rate) as amended by Notification No. 02/2018 - Whether the exemption, if applicable, applies to all agreements entered into by the applicant or only to those with educational institutions. - HELD THAT: - The Authority noted that the exemption is available only for services provided to entities that meet the notification's definition of "educational institution." The applicant had produced one current Work Order (University of Delhi) which the Authority accepted as satisfying that definition and accordingly allowed exemption for that Work Order. The Authority refrained from granting a blanket exemption for all agreements because the applicant did not establish that other recipients are educational institutions under the notification; further factual and documentary proof was directed as necessary for any other contract to qualify.

The exemption is not blanket for all agreements; it is available only in respect of contracts where the recipient satisfies the definition of educational institution-specifically, the University of Delhi work order qualifies, others do not on the present record.

Final Conclusion: The applicant's services are composite in nature with conduct of examination as the principal supply. Exemption under Entry No. 66 of Notification No. 12/2017 (as amended) is available only where the notified conditions are met; on the materials before the Authority the exemption is allowed in respect of the University of Delhi work order but cannot be extended to other agreements for want of evidence that those recipients are "educational institutions" as defined in the notification.

Exemption for services provided by educational institutions under Notification No.12/2017 - exemption for services by entities registered under section 12AA by way of charitable activities - exemption for training or coaching in recreational activities by charitable entities - taxation at rates applicable to respective services - input tax credit not available on food and catering where rate is 5% without ITC - place of supply determination beyond Advance Ruling Authority's jurisdiction

Exemption for services provided by educational institutions under Notification No.12/2017 - exemption for services by entities registered under section 12AA by way of charitable activities - exemption for training or coaching in recreational activities by charitable entities - Whether the consideration received by the school from participant schools for organising the conference is exempt under Entry No. 66, Entry No. 1, Entry No. 80 or any other entry of Notification No.12/2017-Central Tax (Rate). - HELD THAT: - The Authority examined the scope of the exemption entries and held that exemptions under Notification No.12/2017 are confined to the specific services described therein and do not extend to all services connected with an educational institution. Entry 1 (services by entities registered under section 12AA by way of charitable activities) is inapplicable because the School is not registered under section 12AA for charitable activities. Entry 80 clauses (a) and (b) (training or coaching in recreational activities relating to arts, culture or sports by charitable entities) do not cover the organisation of an educational conference/gathering. Entry 66(a) (services by an educational institution to its students, faculty and staff) was found inapplicable because the holding and organisation of a conference for students and staff of other schools cannot be characterised as services provided by the educational institution to its own students, faculty and staff as contemplated by the entry. Similarly, ancillary sub clauses of Entry 66 (transportation; catering; security/cleaning/house keeping) are exempt only when supplied to the educational institution in respect of activities that themselves are covered by the exemption; where the underlying activity (the conference) is not exempt, these supplies do not become exempt merely because the recipient is an educational institution. The Authority emphasised that treating such conference activities as exempt would impermissibly broaden the exemptions beyond the legislative intent. [Paras 7]

The consideration received for organising the conference is not exempt under Entry Nos. 66, 1 or 80 or any other entry of Notification No.12/2017 and is chargeable to GST.

Taxation at rates applicable to respective services - If not exempt, what is the appropriate category of service and the applicable tax rate for services provided in organising the conference? - HELD THAT: - The Authority held that services involved in organising the conference must be classified according to the respective nature of each service and taxed at the rate applicable to that category. Illustratively, catering services would attract the rate applicable to catering (noted as taxable at the rate specified for catering, with the relevant restriction on ITC), while security, cleaning and house keeping services fall under their respective taxable categories and rates. The Authority therefore declined to treat the composite conference activity as attracting a single exemption or rate, and directed that applicable rates be those specified for the particular services supplied. [Paras 7]

Services for organising the conference are taxable at the rates applicable to the respective services.

Place of supply determination beyond Advance Ruling Authority's jurisdiction - What is the place of supply for the services related to the conference? - HELD THAT: - The Authority observed that determination of place of supply falls outside the jurisdictional competence of the Advance Ruling Authority in the present reference and therefore it refrained from adjudicating on the place of supply issue. [Paras 7]

Place of supply not decided by the Authority as it is beyond AAR's jurisdiction.

Exemption for services provided to educational institution (transportation, catering, security, cleaning, house keeping) - Whether exemptions available to service providers of transportation, catering, security, cleaning, house keeping to an educational institution up to higher secondary apply to services provided in connection with the conference? - HELD THAT: - The Authority applied the same principle that exemptions for services to educational institutions are contingent on the underlying activity being an exempted educational service. Since the conference organisation is not itself within the exempted scope, suppliers providing transportation, catering, security, cleaning or house keeping for the conference cannot claim the exemption that is available when such services are provided to an educational institution for exempted educational activities. The Authority noted that allowing exemption in the present context would extend the benefit to non exempt activities and thus is not permissible. [Paras 7]

Exemptions available to service providers for supplies to educational institutions up to higher secondary are not available for services provided for the conference.

Input tax credit not available on food and catering where rate is 5% without ITC - Whether input tax credit (ITC) is available on input services and supplies procured for the conference? - HELD THAT: - The Authority ruled that ITC on food and catering is not available where such supplies attract the notified rate of 5% without ITC. For other input services and supplies used for organising the conference, entitlement to ITC is governed by the general provisions of the GST Act and Rules; the Authority indicated that such ITC would be available or disallowed in accordance with those statutory provisions and not universally excluded. [Paras 7]

No ITC on food and catering (where rate is 5% without ITC); ITC on other input services available subject to the provisions of the GST Act and Rules.

Final Conclusion: The Authority ruled that the organising of the proposed educational conference is not exempt under the cited entries of Notification No.12/2017 and that constituent services are taxable at the rates applicable to their respective categories; the AAR declined to determine place of supply; exemptions available to service providers to educational institutions for exempt educational activities do not apply to the conference; and ITC on food and catering is not available while ITC on other inputs is governed by the GST Act and Rules.

Separation of judiciary from the executive (Article 50) - Eligibility and qualification of tribunal judicial members - Exclusion of advocates from judicial-membership eligibility - Ineligibility of Indian Legal Service officers as judicial members - Composition of adjudicatory Benches and majority of technical/administrative members - Tribunals exercising judicial functions versus courts - Parliamentary power under Article 246-A to create GST adjudicatory fora - Independence and impartiality as requisites of judicial adjudication

Exclusion of advocates from judicial-membership eligibility - Eligibility and qualification of tribunal judicial members - Validity of excluding advocates from eligibility to be appointed as Judicial Members of the GST Appellate Tribunal - HELD THAT: - The Court held that mere prior practice of considering advocates for appointment to other tribunals does not create a vested right or a constitutional right to be considered unless statutory rules provide for such a right. The right to be considered arises from statutory eligibility criteria and not from historical practice. Accordingly, the challenge under Article 14 to Section 110(1)(b) insofar as it does not include advocates was rejected. However, the Court observed that there was no explanation on record for departing from earlier practices and recommended that Parliament may reconsider the eligibility criteria to include experienced advocates in light of the nature of disputes before the Appellate Tribunal. [Paras 59, 61, 106]

Challenge to exclusion of advocates rejected; recommendation made that Parliament reconsider eligibility to include lawyers.

Ineligibility of Indian Legal Service officers as judicial members - Eligibility and qualification of tribunal judicial members - Validity of provision making Members of the Indian Legal Service (having held post of Additional Secretary for three years) eligible to be appointed as Judicial Members of the GST Appellate Tribunal - HELD THAT: - The Court concluded that this question is no longer open: the Supreme Court's precedent in Union of India v. R. Gandhi holds that persons from Indian Legal Service (or equivalent Group A posts) cannot be treated as judicial members. The observations in R. Gandhi concerning dilution of standards and ineligibility of such service officers for judicial-member posts apply to the GST Appellate Tribunal as well. Consequently Section 110(1)(b)(iii) was struck down as unconstitutional for the purpose of appointment as Judicial Member. [Paras 62, 63, 106]

Section 110(1)(b)(iii) struck down; Members of the Indian Legal Service cannot be appointed as Judicial Members.

Composition of adjudicatory Benches and majority of technical/administrative members - Independence and impartiality as requisites of judicial adjudication - Tribunals exercising judicial functions versus courts - Constitutionality of Bench composition prescribing one Judicial Member and two Technical Members (Centre and State) so that administrative/technical members outnumber the judicial member - HELD THAT: - Applying settled principles on the need for judicial independence and the permissible constitution of tribunals, the Court held that where a tribunal discharges judicial functions in disputes between State and citizens and where substantial questions of law will arise, the composition must not permit technical or administrative members to outnumber judicial members. The Court relied on precedent emphasizing judicial approach, public confidence, and separation of judiciary and executive; it noted the risk of reasonable apprehension of bias where two technical members (nominees of the State) could overrule the sole judicial member. For these reasons the provisions prescribing a three member Bench with two technical members were declared unconstitutional and struck down. [Paras 72, 75, 82, 105, 106]

Sections 109(3) and 109(9) struck down; Bench composition with two technical/administrative members and one judicial member is invalid.

Final Conclusion: The writ petitions were allowed in part: Section 110(1)(b)(iii) (eligibility of Indian Legal Service officers as judicial members) and Sections 109(3) & 109(9) (Bench composition providing two technical members and one judicial member) are struck down. The challenge to the non inclusion of advocates in Section 110(1)(b) was rejected, though the Court recommended that Parliament reconsider allowing experienced lawyers to be eligible as Judicial Members.

Summary order. Petition adjourned to 10 October 2019; respondents to file an affidavit in reply and annex the order of the ITGRC rejecting the petitioner's grievance (recording that no technical glitch was found).

IT Grievance Redressal Mechanism - IT-Grievance Redressal Committee - Nodal officers - technical and procedural issues relating to GSTN - redressal of individual grievances - publication of grievance status - time bound resolution of grievances

Technical and procedural issues relating to GSTN - IT Grievance Redressal Mechanism - Petitioners to consolidate and present all technical and procedural grievances in bullet points for resolution meetings with respondents. - HELD THAT: - The Court directed the petitioners to incorporate all technical and procedural difficulties raised in the writ petition into the bullet point presentation previously ordered, so that meetings between stakeholders and the respondents can be convened to address and resolve those issues. The Court recorded that respondents are willing to address procedural and technical problems and therefore required the petitioners to place identified grievances before the respondents in the prescribed format for consideration and remediation.

Petitioners must present all grievances in bullet points for meetings aimed at resolving technical and procedural issues with the GSTN.

IT-Grievance Redressal Committee - Nodal officers - redressal of individual grievances - Scope of the IT Grievance Redressal Mechanism includes individual grievances and the notified Committee and nodal officers are competent to address issues. - HELD THAT: - The Court examined the circular establishing the IT Grievance Redressal Mechanism and directed that the Committee and the nodal officers identified thereunder are to be treated as competent and equipped to address grievances, including individual complaints, because individual problems may reflect issues affecting similarly situated taxpayers. The Court ordered that the respondents enlarge and clarify the scope of the mechanism to make clear that individual grievances falling within the operational ambit of GSTN are cognisable under the mechanism.

Respondents to treat the IT GRM as competent to entertain and address individual as well as collective grievances arising from the GSTN.

Publication of grievance status - time bound resolution of grievances - Nodal officers - Nodal officers' contact details must be widely published and grievances compiled with fortnightly status reports specifying substance, dates, actions taken, resolution status, reasons for non resolution, and expected time for resolution; grievances to be redressed preferably within two weeks. - HELD THAT: - The Court directed that the e mail IDs and telephone numbers of nodal officers be widely circulated, including on the GST, Delhi GST and CBIC websites. It mandated that grievances received by nodal officers be collated and their status displayed on the concerned websites on a fortnightly basis, containing specified information about each grievance and an estimated timeline for resolution. The Court expressed a preference that grievances be redressed as early as possible, preferably within two weeks, and required recording of reasons where grievances are rejected or remain unresolved.

Respondents must publicise nodal contacts and maintain fortnightly, public status reports; grievances should be addressed preferably within two weeks, with reasons and timelines published where unresolved or rejected.

IT Grievance Redressal Mechanism - publication of grievance status - Respondent No.4 to upload a list of operationalized forms on the GST Network within ten days. - HELD THAT: - The Court recorded the undertaking of respondent No.4 to upload on the GSTN a list of operationalized forms and directed that this exercise be completed within ten days, thereby making form availability transparent to taxpayers and stakeholders.

Respondent No.4 to upload the list of operationalized forms on the GST Network within ten days.

IT Grievance Redressal Mechanism - time bound resolution of grievances - GSTN to file the affidavit as directed and respondents to implement the Court's directions within four weeks; matter listed for further hearing. - HELD THAT: - The Court noted the GSTN's undertaking to file an affidavit pursuant to the last order and directed that it be filed with an advance copy to the petitioners. It ordered that the directions given in the order be implemented within four weeks and listed the matter for further hearing on the specified date.

GSTN to file the affidavit and respondents to implement the directions within four weeks; matter listed for further consideration.

Final Conclusion: The Court directed the petitioners to consolidate grievances in bullet points for stakeholder meetings; expanded and clarified the scope of the IT Grievance Redressal Mechanism to include individual complaints; required publication of nodal officer contacts and fortnightly public status reports with prescribed contents and an objective of resolving grievances preferably within two weeks; ordered respondent No.4 to upload the list of operationalized forms within ten days; directed GSTN to file the affidavit and implementation of directions within four weeks, with the matter listed for further hearing.

Challenge to goods detention notice under Section 129(3) of the Central Goods and Services Tax Act, 2017 - jurisdictional objection to detention notice - release of detained goods on execution of bank guarantee - remedy by adjudication proceedings before appropriate authority

Challenge to goods detention notice under Section 129(3) of the Central Goods and Services Tax Act, 2017 - jurisdictional objection to detention notice - Petition challenging the goods detention notice was not adjudicated on merits and was disposed of as the goods had been released. - HELD THAT: - The writ petition sought to challenge the goods detention notice on the ground of jurisdiction. The Court noted that the subject goods had already been released by the respondent State Tax Officer upon the petitioner executing a bank guarantee. In view of the release of the goods and the nature of the challenge limited to the detention notice, the Court declined to adjudicate the jurisdictional grievance in the writ and instead disposed of the petition without deciding the merits. [Paras 3]

Writ petition disposed of without adjudication on merits because the goods had been released.

Release of detained goods on execution of bank guarantee - remedy by adjudication proceedings before appropriate authority - Petitioner granted liberty to pursue further remedy through adjudication proceedings before the appropriate authority. - HELD THAT: - Having recorded that the goods were released pursuant to proceedings of the State Tax Officer on the petitioner executing a bank guarantee, the Court directed that the petitioner may pursue any further remedy, if available, by initiating or continuing adjudication proceedings before the appropriate authority in the manner known to law. The order thereby remitted the controversy for resolution in the statutory adjudicatory process rather than by writ relief at this stage. [Paras 2, 3]

Liberty granted to the petitioner to seek appropriate relief in adjudication proceedings; writ disposed of.

Final Conclusion: The writ petition challenging the detention notice was disposed of as the goods had already been released on a bank guarantee; the petitioner was granted liberty to pursue any further remedy before the appropriate authority by way of adjudication.

Application for copies of seized documents under Section 67(5) of the Central Goods and Services Tax Act - furnishing of photocopies of seized documents - coercive measures during initial stage of investigation - powers of Proper Officer to act on application for seized records

Application for copies of seized documents under Section 67(5) of the Central Goods and Services Tax Act - powers of Proper Officer to act on application for seized records - Petitioner must make a proper application for photocopies of seized documents under Section 67(5) of the Central Goods and Services Tax Act and the Proper Officer shall take appropriate action thereon. - HELD THAT: - The Court recorded that it is not disputed that the mechanism for obtaining photocopies of the seized material is statutory and procedural: the assessee is required to file a proper application under the provision, following which the Proper Officer is obliged to consider and take appropriate action. The petition does not establish any entitlement outside that statutory process, and no independent direction to supply copies was issued by the Court.

No judicial direction granted for furnishing copies; petitioner to proceed by making the statutory application under Section 67(5) and the Proper Officer to act accordingly.

Coercive measures during initial stage of investigation - furnishing of interim restraint - Petitioner's prayer for restraint on coercive steps against the summoned director was not warranted at the initial stage of investigation and was not granted. - HELD THAT: - The Court noted that investigations were at an early stage and, as conceded by parties, this did not justify an order restraining the respondents from taking coercive action. Consequently, no interim protection was directed in respect of the summons to the director.

Prayer for injunction against coercive steps refused; no interim protection granted given the preliminary stage of investigation.

Final Conclusion: Writ petition dismissed as withdrawn; petitioner to seek photocopies of seized documents by making the statutory application under Section 67(5) of the CGST Act and no restraint was ordered on coercive steps during the ongoing preliminary investigation.

Deduction under section 80P(2)(b) for a primary co-operative society engaged in supplying milk raised by its members - Deduction under section 80P(2)(d) for interest/dividend derived from investments with other co-operative societies - Liberal construction of exemption provisions to promote co-operative societies - Application of consistency in successive assessment years - Deduction under section 36(1)(va) - employees' contributions subject to credit to funds by due date - Disallowance under section 40A(3) for cash payments exceeding statutory limit - Remand for fresh adjudication/verification of quantification and corresponding expense adjustment

Deduction under section 80P(2)(b) for a primary co-operative society engaged in supplying milk raised by its members - Liberal construction of exemption provisions to promote co-operative societies - Application of consistency in successive assessment years - Entitlement of the assessee (district-level cooperative milk producers' union) to deduction under section 80P(2)(b). - HELD THAT: - The Tribunal found that, notwithstanding the assessee's nomenclature as a district-level society, the assessee's activity - collecting milk produced by members of primary societies and supplying it to the federation - fell within the protective purpose of section 80P(2)(b) and warranted a liberal construction of the exemption to promote cooperative activity. The Tribunal also relied on the longstanding and consistent allowance of the claim in earlier assessment years and applied the principle of consistency to decline reopening the settled treatment in the absence of convincing reason to displace it. On this basis the Tribunal reversed the findings of the AO and CIT(A) and directed allowance of the claim under section 80P(2)(b). [Paras 6]

Assessee entitled to deduction under section 80P(2)(b); ground of appeal allowed.

Deduction under section 36(1)(va) - employees' contributions subject to credit to funds by due date - Validity of disallowance for delayed deposit of employees' Provident Fund and ESI contributions. - HELD THAT: - The assessee conceded that the issue was covered against it by the Gujarat High Court authority which holds that deduction under the relevant provision is available only if employees' contributions are credited to the respective fund on or before the statutory 'due date'. Applying that binding principle, the Tribunal found no reason to interfere with the disallowance upheld below. [Paras 7]

Disallowance for delayed PF/ESI deposit sustained; ground of appeal dismissed.

Disallowance under section 40A(3) for cash payments exceeding statutory limit - Remand for fresh adjudication/verification of quantification and corresponding expense adjustment - Appropriate treatment of alleged payments in cash exceeding the statutory limit under section 40A(3). - HELD THAT: - The Tribunal admitted documentary samples produced before it (not earlier placed before the authorities below) as necessary for adjudication and observed that the question of whether individual payments exceeded the statutory limit required fresh examination. The Revenue did not oppose remand. Consequently the Tribunal restored the issue to the file of the AO for de novo verification and adjudication, directing the assessee to co-operate. [Paras 13]

Issue remitted to AO for fresh adjudication; ground of appeal allowed for statistical purposes.

Capital gains treatment, section 50C and section 48 - restoration for fresh adjudication - Characterisation and computation of profit on sale of land (business income v. long-term capital gain) and entitlement to indexation benefit. - HELD THAT: - The AO had treated gains on sale of land as business income without applying sections 50C and 48; CIT(A) did not discuss the matter. The Tribunal held that the issue arises from AO's order and requires fresh consideration in the light of the statutory provisions for computation of capital gains. It therefore set aside the matter to the AO for de novo adjudication after affording opportunity to the assessee. [Paras 16, 17, 18]

Issue remitted to AO for fresh adjudication; ground of appeal allowed for statistical purposes.

Deduction under section 80P(2)(d) for interest/dividend from investments with other co-operative societies - Interest from deposits with nationalized/private banks not deductible under section 80P(2)(d) - Interest from deposits with co-operative banks deductible under section 80P(2)(d) - Remand for verification of netting of corresponding expenses and correct quantification - Whether interest income on deposits with various banks is deductible under section 80P(2)(d) and appropriate treatment to avoid double addition. - HELD THAT: - The Tribunal held that section 80P(2)(d) permits deduction only for interest/dividend derived from investments with other co-operative societies. Interest from deposits with nationalized or private banks cannot be claimed under that provision; interest from co-operative banks (being cooperative societies licensed as banks) qualifies for deduction under section 80P(2)(d). The Tribunal also noted calculation errors in AO's computation and double additions where interest shown in business income was also treated as income from other sources; it directed the AO to allow direct corresponding expenses attributable to interest from national/private bank deposits and remitted the specific quantification/verification to the AO for fresh examination after giving the assessee a reasonable opportunity. [Paras 24]

Interest from co-operative banks deductible under section 80P(2)(d); interest from national/private banks not deductible under that provision. Matter remitted to AO for verification/quantification and to allow corresponding expenses; ground of appeal partly allowed.

Non-pressing of issue before appellate forum - TDS disallowance under section 40(a)(ia) not pressed by assessee. - HELD THAT: - The assessee's representative expressly declined to press the issue relating to non-deduction of TDS under the cited provision. The Tribunal therefore dismissed the ground as not pressed. [Paras 14]

Ground dismissed as not pressed.

Final Conclusion: The Tribunal partly allowed the appeals. Deduction under section 80P(2)(b) was allowed in favour of the assessee for the years under consideration; disallowance for delayed PF/ESI deposits was sustained; cash-payment and capital-gains issues were remitted to the AO for fresh adjudication; interest-income treatment was partly decided (interest from co operative banks deductible under section 80P(2)(d), interest from national/private banks not deductible under that provision) with remand to the AO for correct quantification and allowance of corresponding expenses; one ground concerning TDS was dismissed as not pressed.

Reopening of assessment - reassessment proceedings - reasons to believe and live connection between reasons for reopening and additions - compensatory afforestation payment treated as revenue expenditure - intangible asset and depreciation under section 32(1)(ii) - amortisation of expenditure over lease period - revisionary jurisdiction under section 263

Reopening of assessment - reasons to believe and live connection between reasons for reopening and additions - Validity of reassessment proceedings initiated under section 147/148 for Assessment Year 2011-12 - HELD THAT: - The Tribunal considered the assessee's contention that the reasons recorded for reopening (under invoicing) ceased to survive and therefore the AO could not make additions on a different ground without issuing a fresh notice. The Tribunal examined precedents relied upon by the parties and observed that the jurisdictional Karnataka High Court decision in Shri N. Govindaraju v. ITO (supra) was directly on point and supported the revenue. Applying that reasoning to the facts, the Tribunal held that the reopening was valid because the notice was sustainable and the proceedings could proceed to tax any income found to have escaped assessment during those proceedings; accordingly the grounds attacking initiation and validity of reassessment were rejected. [Paras 10]

Grounds 1 to 10 challenging the validity of reopening for AY 2011-12 are rejected and the reassessment is held valid.

Intangible asset and depreciation under section 32(1)(ii) - compensatory afforestation payment treated as revenue expenditure - amortisation of expenditure over lease period - Allowability of depreciation claimed on acquisition cost of mining lease/licence for Assessment Years 2011-12, 2012-13 and 2014-15 - HELD THAT: - On merits the Tribunal analysed the nature of the payments made by the assessee (including payment described as Net Present Value and amounts for compensatory afforestation and related stamp/registration charges). The Tribunal accepted the factual record that substantial sums were paid pursuant to forest diversion conditions and demand notices fixing NPV, and observed that those payments were for compensatory afforestation and related statutory compliances rather than the acquisition of an intangible capital right on which depreciation under s.32(1)(ii) would lie. Relying on the assessment facts and the reasoning of the assessing officer and CIT(A), and applying precedent (including the Madras Industrial Investment Corporation principle cited), the Tribunal found no ground to treat the impugned payments as an intangible asset; the AO's approach of allowing proportionate amortisation (1/20th) was upheld. The Tribunal therefore dismissed the assessee's claim for depreciation and confirmed the disallowance for the years in question. [Paras 12, 14, 15, 21, 23]

Assessee's claim for depreciation on the mining lease/licence is disallowed; the AO's treatment (amortisation/allowance as applied) and the CIT(A)'s conclusions are upheld for AY 2011-12, 2012-13 and 2014-15.

Revisionary jurisdiction under section 263 - incorrect application of law - Validity of the Commissioner's revision order under section 263 for Assessment Year 2012-13 - HELD THAT: - The Tribunal considered the assessee's submission that multiple views were possible (depreciation at 25%, amortisation at 1/20, or application of s.35D with amortisation at 1/10) and thus section 263 could not be invoked. The Tribunal examined CIT's objection that the AO had held the expenditure was not preliminary/pre operative yet subsequently allowed amortisation under s.35D (which relates to preliminary expenditure), concluding that this amounted to incorrect application of law. The Tribunal found that the CIT's view that the assessment order was erroneous and prejudicial to the revenue was justified and that the order under section 263 suffered no infirmity. [Paras 17, 18, 19]

Assessee's appeal against the order under section 263 for AY 2012-13 is dismissed; the revision by the Commissioner is upheld.

Final Conclusion: All five appeals filed by the assessee are dismissed: the reassessment for AY 2011-12 is held valid; the claim for depreciation on the mining lease/licence is disallowed for AY 2011-12, 2012-13 and 2014-15 (AO's amortisation treatment upheld); and the Commissioner's revision under section 263 for AY 2012-13 is sustained.

Application of CBDT Circular No.17/2019 to pending appeals - requirement of incriminating material for reopening/completion under search provisions - scope and sufficiency of satisfaction for issuance of notice under section 153C - entitlement to deduction under section 35(1)(ii) where recipient held approved at time of donation

Application of CBDT Circular No.17/2019 to pending appeals - Revenue appeals involving tax effect below the revised monetary threshold were not maintainable and were to be declined. - HELD THAT: - The Tribunal examined CBDT Circular No.17/2019 and the record and found that two Revenue appeals for specified assessment years involved tax effect below the revised threshold and did not fall within any exceptions in the Circular. The Circular was held to apply retrospectively to pending appeals and to be binding on revenue authorities. In consequence the Revenue's appeals were declined as falling below the prescribed tax effect, and the corresponding assessee cross-objections were not pressed. [Paras 2, 3]

Revenue appeals for the identified years involving tax effect below the threshold are dismissed under CBDT Circular No.17/2019.

Requirement of incriminating material for reopening/completion under search provisions - Assessments framed under section 153C read with section 143(3) were invalid where no incriminating material relating to the assessee was seized during the search. - HELD THAT: - The Tribunal upheld the CIT(A)'s reliance on jurisdictional and other precedents holding that additions in search assessments under sections 153A/153C must be founded on incriminating material unearthed during the search relating to the relevant assessment years or issues. On the facts, it was recorded and undisputed that no incriminating material pertaining to the assessee was seized during the impugned search. Applying the cited precedents and following the CIT(A)'s reasoning, the Tribunal held that in absence of such incriminating material the assessments under section 153C/143(3) were unsustainable and were to be quashed; the Tribunal therefore did not adjudicate the merits of the additions. [Paras 4, 5]

Impugned assessments under section 153C read with section 143(3) are quashed for want of incriminating material relating to the assessee.

Scope and sufficiency of satisfaction for issuance of notice under section 153C - The satisfaction recorded by the Assessing Officer was insufficient because it did not indicate that the seized documents or assets "belonged to" or related to a person other than the one searched, and could not validate the impugned 153C notices. - HELD THAT: - The Tribunal considered the satisfaction note placed on record and found it did not specify that the category of seized documents or books of account "belonged to" or were of a person other than the searched entity. The Tribunal observed that the legislative amendment to section 153C (introducing the phrase "relates to") took effect from 01.06.2015 and was not applicable to the satisfaction recorded earlier. On this footing the Tribunal upheld the CIT(A)'s finding that the satisfaction was inadequate to sustain issuance of notices under section 153C and accordingly rejected the Revenue's contention. [Paras 6, 7]

The satisfaction note is inadequate to sustain notices under section 153C; the related Revenue appeals fail on this ground.

Entitlement to deduction under section 35(1)(ii) where recipient held approved at time of donation - Deduction under section 35(1)(ii) for donation to the School of Human Genetics and Population Health was allowable because the recipient held valid approval on the date of donation and the revenue failed to prove return of funds or permit cross-examination of adverse witnesses. - HELD THAT: - The Tribunal reviewed co ordinate bench decisions dealing with donations to the same recipient and factual scenarios where the recipient held requisite approval at the time of the donation. It noted that the assessing officer's case relied on statements and survey material but did not produce evidence of money being returned to the donor and did not afford the assessee opportunity to cross-examine key declarants. Given the recipient's approval at the donation date and absence of reliable evidence to the contrary, the Tribunal concluded that the disallowance was unsustainable and followed prior Tribunal rulings directing grant of the deduction. [Paras 8]

The disallowance of deduction under section 35(1)(ii) is set aside and the deduction is allowed.

Final Conclusion: All Revenue appeals are dismissed in the terms stated: two appeals declined under CBDT Circular No.17/2019, assessments under section 153C/143(3) for specified years quashed for want of incriminating material and inadequate satisfaction, and the assessee's appeal allowing deduction under section 35(1)(ii) is allowed; assessee cross objections were dismissed as not pressed.

Unexplained cash credits u/s. 68 - transactions through banking channels - addition based on suspicion cannot sustain - principles of preponderance of probability - reliance on third party statements and right to cross examination - violation of principles of natural justice

Unexplained cash credits u/s. 68 - transactions through banking channels - addition based on suspicion cannot sustain - Whether additions treating loans and advances as unexplained cash credits could be sustained - HELD THAT: - The Assessing Officer treated substantial non interest bearing amounts shown as loans and advances from certain Kolkatta concerns as unexplained cash credits. The AO's conclusion rested on the view that the alleged lenders had meagre declared incomes and that round tripping or ploughing back of funds was a possibility. The CIT(A) examined the material and found that the transactions were routed through banking channels, the creditors were identifiable and had filed audited returns, and the assessee had furnished explanations and supporting evidence which the AO had not disproved. The Tribunal, on earlier consideration of related group cases, recorded that the seized material established recurring trade transactions, that third party statements relied upon had been retracted, and that no corroborative incriminating documents were brought on record. The Tribunal further held that suspicion, conjecture and surmise cannot substitute for material evidence and that additions cannot be sustained where the AO has not rebutted the assessee's evidence. In addition, reliance on third party statements without giving the assessee an opportunity to cross examine those persons was held to impinge on principles of natural justice. Applying these conclusions to the facts of the present appeals, the additions under the cited head could not be sustained merely on suspicion or on the ground of low margins of the counterparties when transactions occurred through banking channels and the AO failed to produce contrary material or afford adequate opportunity for verification and cross examination. [Paras 7, 8, 9]

Additions treating the loans and advances as unexplained cash credits are deleted; the Revenue's grounds are dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of additions made under the head of unexplained cash credits (u/s. 68) for AYs 2010-2011 and 2011-2012, dismissing the Revenue's appeals; the assessees' cross objections were dismissed as not pressed.

Equated Monthly Installment (EMI) / Even Spread Method (ESM) versus Internal Rate of Return (IRR) for recognition of hire purchase income - Consistency of accounting method for tax purposes - Provision for Non Performing Assets (NPA) - treatment of reversal and requirement of verification - Taxability of recoveries of bad debts by a successor/amalgamated company - Allowability of business origination costs - revenue expenditure versus deferred amortisation under mercantile accounting - Applicability of colourable device principle to mutual fund transactions - Capital loss adjustment against exempt dividend under the section dealing with bonus/dividend adjustments (s.94(7) context) - Broken period interest - capital versus revenue character and need for fresh examination where classification of securities is in issue - Allowability of bad debts written off - consistency with earlier tribunal decision in assessee's case

Equated Monthly Installment (EMI) / Even Spread Method (ESM) versus Internal Rate of Return (IRR) for recognition of hire purchase income - Consistency of accounting method for tax purposes - Whether hire purchase finance charges are to be taxed on the EMI/ESM basis consistently followed by the assessee or on the IRR basis adopted in books - HELD THAT: - The Tribunal followed the decision of the Madras High Court in Tax Case Appeal No.158 of 2009 and held that, where the assessee has consistently adopted the EMI/ESM method for bifurcation of hire installments for tax purposes, the revenue cannot insist on IRR as the method of recognition for the assessment years in question. The Court noted prior decisions and the consistent historical practice of the assessee and directed the Assessing Officer to tax interest income on the EMI/ESM method which the assessee had regularly followed, allowing consequential relief. [Paras 4]

Assessee's appeals allowed on this issue; AO to tax hire purchase interest on EMI/ESM basis for AY 2004 05 and 2005 06.

Provision for Non Performing Assets (NPA) - treatment of reversal and requirement of verification - Whether reversal of provision for NPAs during the relevant year should be reduced from taxable income (and whether the claim required fresh examination) - HELD THAT: - The Tribunal observed that the assessee's claim regarding reversal of NPA provision required verification. Rather than deciding on merits, the Tribunal restored the matter to the Assessing Officer for fresh examination and decision after affording the assessee adequate opportunity. The matter was therefore not finally adjudicated on merits but remitted for factual verification and appropriate decision. [Paras 5]

Partly allowed; issue remanded to AO for fresh examination and decision after affording opportunity to the assessee for AY 2004 05 and 2005 06.

Taxability of recoveries of bad debts by a successor/amalgamated company - Whether recoveries of bad debts written off by erstwhile amalgamating companies, and recovered by the amalgamated company, are taxable in the hands of the amalgamated (successor) company - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that on amalgamation the amalgamated company inherits the assets and rights of the amalgamating companies, including the right to recover bad debts. Applying the reasoning of the Supreme Court in T. Veerabadra Rao and the discussion reproduced by the CIT(A), the Tribunal held that such recoveries represent business receipts of the amalgamated company and are assessable accordingly. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the corresponding grounds of the assessee for both assessment years. [Paras 6]

Assessee's grounds dismissed; recoveries of bad debts by the amalgamated company are taxable in its hands for AY 2004 05 and 2005 06.

Allowability of business origination costs - revenue expenditure versus deferred amortisation under mercantile accounting - Whether the balance of business origination costs deferred in books may be allowed as revenue expenditure in the relevant year - HELD THAT: - The Tribunal admitted the additional ground and, applying the Supreme Court's principle that a revenue expenditure ordinarily allowable in the year incurred may not be denied if claimed, found merit in the assessee's contention. The Tribunal accepted that the fact the assessee had amortised the amount in its books did not preclude allowing the expenditure claimed as revenue in the return, subject to the matching concept where applicable, and accordingly allowed the assessee's appeal on this issue for AY 2005 06. [Paras 7]

Assessee's appeal allowed on business origination costs for AY 2005 06.

Capital loss adjustment against exempt dividend under the section dealing with bonus/dividend adjustments (s.94(7) context) - Colourable device principle in investment transactions - Whether capital loss on sale of mutual fund units must be reduced by exempt dividend receipts and whether transactions constituted a colourable device - HELD THAT: - On the facts, the Tribunal affirmed the CIT(A)'s view. For the Sundaram Mutual Fund (dividend option) transaction, the CIT(A) found s.94(7) inapplicable because the holding period exceeded three months and the amendment relied upon by Revenue did not apply to AY 2004 05; further, the dividend was exempt and could not be set off against capital loss. For the Bond Saver bonus option transaction, the CIT(A) found no colourable device: SEBI regulation governs schemes; the assessee's investment was an insignificant proportion of the corpus, and there was insufficient basis to impute control or colourable device. The Tribunal, applying the Special Bench and subsequent affirmations, found no reason to interfere. [Paras 8]

Revenue's grounds dismissed; CIT(A)'s directions upheld - capital losses allowed without reduction by exempt dividend and bonus option loss allowed for AY 2004 05.

Broken period interest - capital versus revenue character and need for fresh examination where classification of securities is in issue - Characterisation of broken period interest on purchase/sale of government securities - whether capital (part of cost) or revenue (income) and whether fresh enquiry required - HELD THAT: - The Tribunal observed that the question turns on whether the securities are capital investments or stock in trade. Noting conflicting precedents and that factual classification had not been conclusively examined, the Tribunal remitted the issue to the Assessing Officer for fresh examination for AYs 2004 05 and 2005 06, permitting the assessee to place material and the AO to make enquiries and decide in accordance with law. [Paras 9]

Partly allowed; issue remanded to AO for fresh examination and decision for AY 2004 05 and 2005 06.

Allowability of bad debts written off - consistency with earlier tribunal decision in assessee's case - Whether the disallowance of bad debts written off by the assessee for AY 2005 06 was justified - HELD THAT: - The Tribunal noted that on identical facts the ITAT in the assessee's own earlier year had allowed the bad debt claim (ITA No.1161/Mds/2010). As the facts and circumstances were the same, the Tribunal respectfully followed that earlier tribunal decision and upheld the CIT(A)'s deletion of the AO's disallowance. [Paras 10]

Revenue's appeal dismissed; disallowance deleted and bad debt claim allowed for AY 2005 06.

Final Conclusion: The appeals are partly allowed. The Tribunal directed taxation of hire purchase interest on the EMI/ESM basis for AY 2004 05 and 2005 06; remitted the NPA reversal and broken period interest issues to the Assessing Officer for fresh examination; allowed the assessee on business origination costs and certain bad debt claims; and upheld the taxation in the hands of the amalgamated company of recoveries of bad debts from erstwhile amalgamating companies and the CIT(A)'s conclusions on the mutual fund capital loss matters.

Arm's Length Price - Transfer Pricing - comparability analysis - Selection and rejection of comparable companies - Peculiar / exceptional circumstances filter - Working capital adjustment - Interest on outstanding receivables as an international transaction - Remand for reconsideration of comparability by the TPO - Risk adjustment under Rule 10B

Transfer Pricing - comparability analysis - Selection and rejection of comparable companies - Peculiar / exceptional circumstances filter - Final determination of comparability of selected companies for benchmarking of ITeS and software development transactions for A.Y. 2013-14 and A.Y. 2014-15; specific companies excluded or retained. - HELD THAT: - The Tribunal examined the functionality, segmental disclosures, abnormal/exceptional year performance and other filters applied by the TPO/DRP. For A.Y.2013-14 Hartron Communications Ltd was excluded on account of an exceptional year of performance and peculiar circumstances (significant, non-recurring increase in BPO revenue), and Microgenetics Systems Ltd was excluded because its material outsourcing rendered its functional profile different from the assessee. Caliber Point Business Solutions Ltd was held to fail the turnover filter and therefore not included. Infosys Technologies Ltd (A.Y.2013-14) required reconsideration by the TPO (see remand). For A.Y.2014-15 several large or functionally divergent companies were excluded: Infosys BPO Services Ltd (giant company/brand/economies of scale), eClerex Services Ltd (KPO/high-end services), Cross Domain Solutions Ltd (knowledge/ KPO character), Microgenetics Systems Ltd (outsourcing model), Microland Ltd (hybrid/R&D/exceptional growth) and others were excluded where material showed functional dissimilarity or exceptional performance; MPS Ltd was held comparable. The Tribunal followed precedents and its own coordinate-bench decisions where activities and exceptional performance justified exclusion, emphasizing functional similarity, reliable segmental data and avoidance of comparables showing super-normal profits or product/ R&D-led profiles that materially differ from the assessee. [Paras 62, 66, 76, 78, 85]

Hartron Communications Ltd and Microgenetics Systems Ltd are to be excluded for the stated years; several other companies for A.Y.2014-15 are directed excluded or retained as indicated, and the AO/TPO to apply the Tribunal's directions when finalising the comparable set.

Remand for reconsideration of comparability by the TPO - Remand of specific comparability matters to AO/TPO for fresh consideration and verification. - HELD THAT: - The Tribunal found factual deficiencies or incorrect application of filters in respect of certain proposed comparables. Consequently, the comparability of Infosys Technologies Ltd (A.Y.2013-14) was remanded to the TPO to reconsider the issue by taking operating revenue into account. The comparability of Ace BPO Services Ltd (A.Y.2013-14) was remanded because the record in the paper book showed related-party transaction disclosures that the TPO/DRP had not correctly considered; the assessee to be afforded a fair hearing. For A.Y.2014-15 the Tribunal directed reconsideration of Evoke Technologies Ltd limited to the Indian-branch revenue and allowed its consideration for statistical purposes. The remands require AO/TPO to re-examine the comparability applying correct filters and to give the assessee an opportunity of hearing. [Paras 29, 32, 73]

Comparability of Infosys Technologies Ltd and Ace BPO Services Ltd (A.Y.2013-14) and Evoke Technologies Ltd (A.Y.2014-15) remanded to AO/TPO for fresh consideration in accordance with the reasons given; assessee to be heard.

Interest on outstanding receivables as an international transaction - Arm's Length Price - Whether interest on outstanding trade receivables is an international transaction and the method for computing ALP of such interest. - HELD THAT: - The Tribunal held that, following the amendment to section 92B, interest on trade receivables constitutes an international transaction and is therefore subject to TP adjustment. Pre-amendment case law relied upon by the assessee was inapplicable. The Tribunal directed that interest should be computed at the rate applicable to the relevant period, referencing SBI short-term deposit rates as the benchmark. Credit period under the intercompany agreement must be respected: where the agreement specifies a credit period, interest is to be computed only for days exceeding that period; where no credit period is specified, a credit period of 90 days or the industry average (in conjunction with the assessee's actual credit period) should be considered, and only deviation beyond that considered for ALP adjustment. The AO/TPO's allowance of a 30-day credit period for A.Y.2014-15 was held unsustainable. [Paras 86, 87]

Interest on receivables is an international transaction; compute notional interest at applicable short-term deposit rates for the relevant period, allowing credit period as per agreement (or industry benchmark where absent); AO/TPO to apply this approach.

Working capital adjustment - Risk adjustment under Rule 10B - Whether working capital adjustment and risk adjustment should be allowed. - HELD THAT: - The Tribunal observed that necessary adjustments to bring assessee and comparables to parity must be made by the AO/TPO. It noted that a working capital adjustment was allowed for A.Y.2013-14 but rejected for A.Y.2014-15 by the TPO; the Tribunal directed that working capital adjustment should be granted. On risk adjustment under Rule 10B, the Tribunal indicated that differences in functions and risks must be accounted for and directed AO/TPO to make necessary adjustments; consequential directions were given to allow appropriate working capital adjustments and to consider risk differences where applicable. [Paras 88]

AO/TPO directed to grant working capital adjustment and make all necessary adjustments (including risk adjustments where warranted) to align assessee and comparables.

Final Conclusion: The appeals for A.Y.2013-14 and A.Y.2014-15 are partly allowed: the Tribunal excluded certain comparables (including Hartron Communications Ltd and Microgenetics Systems Ltd), remanded specified comparability issues to the AO/TPO for reconsideration, affirmed that interest on outstanding receivables is an international transaction and prescribed the method for computing notional interest, and directed the AO/TPO to grant working capital adjustment and make appropriate risk/other adjustments when finalising ALP determinations.

Comparability - selection and exclusion of comparable companies - arm's length price - Transaction Net Margin Method (TNMM) - function, assets and risks (FAR) analysis - Rule 10B(2) of Income Tax Rules - segmental data - reliability of financials / exclusion for fraud tainted entities

Comparability - KPO versus BPO distinction - Exclusion of Eclerx Services Ltd. from the comparable set. - HELD THAT: - Tribunal accepted that Eclerx is a KPO/high end data analytics provider functionally different from the assessee's routine back office/ITES activities. Reliance was placed on precedent holding KPOs are not comparable to routine BPO/ITES providers and on earlier departmental treatment in the assessee's own cases. In view of functional dissimilarity and consistent judicial authority, Eclerx was directed to be excluded. [Paras 31, 32, 33]

Eclerx Services Ltd. excluded from the list of comparables.

Comparability - KPO versus BPO distinction - segmental data - Exclusion of Mold Tek Technologies Ltd. from the comparable set. - HELD THAT: - Mold Tek was found to provide high end engineering/KPO services and therefore functionally different from the assessee's routine ITES/back office services. Tribunal followed coordinate bench and Delhi High Court authority that Mold Tek's business profile and segmental nature render it non comparable; remaining detailed issues on the company were held infructuous once functional dissimilarity was established. [Paras 34, 35]

Mold Tek Technologies Ltd. excluded from the list of comparables.

Comparability - entity level profitability and segmental information - Exclusion of Accentia Technologies Ltd. from the comparable set. - HELD THAT: - Accentia carried out software product development and medical transcription activities with no reliable segmental break up; on entity level data it was functionally different. Tribunal followed earlier decisions which excluded Accentia where absence of segmental information and entity level differences made comparison infeasible. [Paras 35, 36]

Accentia Technologies Ltd. excluded from the list of comparables.

Comparability - business profile divergence - Exclusion of I Services India Pvt. Ltd. from the comparable set. - HELD THAT: - I Services operated in divergent, product oriented and high end web/hosting/DNS services distinct from the assessee's routine ITES; prior tribunal authority excluded it on similar factual matrix. In absence of comparable business profile, the company was directed to be excluded. [Paras 37]

I Services India Pvt. Ltd. excluded from the list of comparables.

Comparability - outsourcing business model - Exclusion of Coral Hubs Ltd. (Vishal Information) from the comparable set. - HELD THAT: - Coral Hubs outsourced a significant part of operations (reflected in low employee cost) and thus had a business model substantially different from the assessee, which employed its own workforce and infrastructure. Tribunal followed coordinate decisions excluding Coral Hubs for functional dissimilarity and directed exclusion. [Paras 38, 39]

Coral Hubs Ltd. excluded from the list of comparables.

Comparability - revenue composition and outsourcing pattern - Exclusion of Cosmic Global Ltd. from the comparable set. - HELD THAT: - Majority of Cosmic Global's income derived from translation services and vendor/outsourcing payments, making its cost structure and business model dissimilar to the assessee. Prior tribunal findings and the TPO's own earlier treatment supported exclusion. Tribunal directed exclusion on functional and financial dissimilarity grounds. [Paras 40, 41, 42]

Cosmic Global Ltd. excluded from the list of comparables.

Comparability - employee cost to sales ratio - Exclusion of Informed Technologies Ltd. from the comparable set. - HELD THAT: - Informed Technologies showed a materially lower employee cost to sales ratio compared with the assessee, indicating a different cost and operational profile. Tribunal relied on precedent excluding such companies where employee cost disparities demonstrate functional non comparability and directed exclusion. [Paras 43]

Informed Technologies Ltd. excluded from the list of comparables.

Comparability - Rule 10B(2) contemporaneity/financial year alignment - Exclusion of HCL Comnet Systems & Services Ltd. (HCL Connect) from the comparable set. - HELD THAT: - HCL Comnet had a different financial year ending (June) and other distinguishing features; coordinate tribunal authority directed exclusion where such temporal/operational differences impair comparability. Applying that precedent, the Tribunal excluded HCL Comnet. [Paras 44]

HCL Comnet Systems & Services Ltd. excluded from the list of comparables.

Comparability - reliability of financials - Exclusion of Maple ESolutions Ltd. from the comparable set. - HELD THAT: - Maple was part of a group under serious indictment and its financial results were found to be unreliable; tribunal precedent excludes fraud tainted or unreliable companies from comparable sets. On that basis, Maple ESolutions was directed to be excluded. [Paras 45]

Maple ESolutions Ltd. excluded from the list of comparables.

Comparability - reliability of financials - Exclusion of Triton Corp Ltd. from the comparable set (assessee's additional ground). - HELD THAT: - Triton, related to the group alleged to be under indictment and previously rejected in other assessment years, was held to have distorted financials and thus unreliable for benchmarking. Following tribunal precedent excluding such entities, Triton was directed to be excluded. [Paras 46]

Triton Corp Ltd. excluded from the list of comparables.

Comparability - segmental data - Exclusion of ICRA Techno Analytics Ltd. from the comparable set. - HELD THAT: - ICRA carried out a mix of software development, consultancy and high end services without usable segmental data; in absence of segmental break up it could not be reliably compared to the assessee's back office ITES. Tribunal relied on Delhi High Court authority and excluded ICRA for lack of segmental information and functional dissimilarity. [Paras 47]

ICRA Techno Analytics Ltd. excluded from the list of comparables.

Final Conclusion: On reassessment of the comparable set the Tribunal excluded the specified companies for functional dissimilarity, lack of segmental data or unreliability of financials; the AO/TPO is directed to recompute the arm's length price accordingly. The assessee's appeal is treated as allowed on the comparability issues and the revenue's appeal is dismissed.

Deemed dividend under section 2(22)(e) - running account vs loan/advance - effect of repayment and retention period - accumulated profits limitation on deemed dividend - exclusion where lending company is in the business of money lending - taxability under the head 'Income from other sources' u/s. 56

Deemed dividend under section 2(22)(e) - running account vs loan/advance - effect of repayment and retention period - accumulated profits limitation on deemed dividend - exclusion where lending company is in the business of money lending - Whether the amounts received by the assessee from Gurdas Agro Pvt. Ltd. qualify as loans/advances that are to be treated as deemed dividend under section 2(22)(e) and whether the character of a running account, subsequent repayment or short retention period excludes the amounts from being so treated. - HELD THAT: - The Tribunal found on the facts that the transactions between the assessee and GAPL were purely financial - receipts and payments of money carrying interest - and therefore constituted loans/advances simpliciter. The statutory fiction in s.2(22)(e) is triggered on payment of any sum by way of advance or loan by a company (not substantially owned by public) to a substantial shareholder, and the fiction applies to the extent of the payer's accumulated profits. Binding decisions of the Apex Court (including Tarulata Shyam, Navnit Lal C. Jhaveri, Sarada (P.), Mukundray K. Shah and related precedents) establish that subsequent repayment, the duration for which the credit was retained, or the existence of a running/open current account do not take a payment out of the deeming provision once the statutory conditions are satisfied. The exception applies only where the lending company is in the ordinary course of a money lending business. No business purpose or money lending status of GAPL was shown. The Assessing Officer's use of the peak credit and the revenue's computation limited to accumulated profits was therefore reasonable. On these grounds the Tribunal upheld the finding that the impugned receipts are deemed dividends to the extent of accumulated profits. [Paras 4]

The impugned receipts from GAPL are loans/advances falling within the deeming fiction of s.2(22)(e) and are not excluded by the existence of a running account, by subsequent repayment, or by the short period for which the credit was retained; the exception for lenders in the business of money lending is not attracted on the facts.

Taxability under the head 'Income from other sources' u/s. 56 - accumulated profits limitation on deemed dividend - Whether the amounts treated as deemed dividend under s.2(22)(e) are correctly assessable as 'dividend' under the head 'Income from other sources' in terms of section 56 and whether any exclusion under section 10(34) applies. - HELD THAT: - Section 56 charges to tax incomes not taxable under other heads and specifically includes 'dividends' as defined in s.2(22). The Tribunal held that a deemed dividend under s.2(22)(e) falls within the definition of 'dividend' for s.56 purposes. Section 10(34) excludes only dividends referred to in section 115 O (i.e., dividends on which tax has been paid by the distributing company under the specified provision), which covers declared/distributed dividends under the Companies Act and not deemed dividends arising from the statutory fiction. Thus, deemed dividends under s.2(22)(e) are not excluded by s.10(34) and are correctly assessable as income under s.56 to the extent of accumulated profits. [Paras 4, 5]

The deemed dividend determined under s.2(22)(e) is chargeable as 'dividend' under s.56 and is not excluded by s.10(34); the assessment thereon was valid.

Final Conclusion: The Tribunal dismissed the assessee's appeal. The receipts from Gurdas Agro Pvt. Ltd. are held to be loans/advances that are deemed dividends under s.2(22)(e) to the extent of accumulated profits, and such deemed dividends are taxable under s.56; the claims based on running account, repayment, mutual transactions or short retention period were rejected and the addition was upheld.

Admission of additional ground - requirement of satisfaction under section 153C - proceedings under section 153A precede section 153C - onus on the assessee to bring evidence for a new plea before the Tribunal - discretion of the Tribunal to admit or refuse additional grounds - review under section 254(2) of the Income-tax Act

Admission of additional ground - requirement of satisfaction under section 153C - proceedings under section 153A precede section 153C - onus on the assessee to bring evidence for a new plea before the Tribunal - discretion of the Tribunal to admit or refuse additional grounds - review under section 254(2) of the Income-tax Act - Tribunal rightly refused to admit the additional ground challenging invocation of section 153C and the Miscellaneous Applications under section 254(2) seeking recall of that order are not maintainable. - HELD THAT: - The Tribunal considered the contention that initiation of proceedings under section 153C required a recorded satisfaction by the Assessing Officer and examined whether the assessee had placed on record the materials necessary to support that plea. The Tribunal found that the assessee had not produced the Panchanama, statements or other order-sheet entries necessary to demonstrate absence of satisfaction or improper invocation of section 153C and that the additional ground raised factual matters not on record requiring investigation. The appellate bench correctly applied the principle that admission of a new ground is discretionary and that such a ground which raises issues dependent on material facts must be supported by evidence or an application under the rules to produce additional evidence. The present attempt was essentially to change the basis of assessment at the Tribunal stage without adducing the requisite material; the Tribunal's refusal to admit the ground was therefore within its discretion. The Tribunal's order was to be read as a whole and, on such reading, it had considered relevant material and drawn factual inferences; there was no error apparent or perversity warranting recall under section 254(2). Consequently the miscellaneous applications for recall/rectification were correctly dismissed. [Paras 6, 7]

Miscellaneous applications dismissed; Tribunal's rejection of the additional ground upheld and there is no ground for recalling or amending the Tribunal's order under section 254(2).

Final Conclusion: The Tribunal did not err in refusing to admit the additional ground challenging the invocation of section 153C where the assessee failed to place on record the materials necessary to support that plea; the review application under section 254(2) is dismissed and the Tribunal's order is upheld.

Arm's length price - international transaction - notional interest on overdue receivables - internal CUP - Transaction Net Margin Method (TNMM) - addition under section 68 of the Income-tax Act - upward adjustment under section 92CA

Addition under section 68 of the Income-tax Act - Validity of the addition of deposits treated as unexplained cash credit under section 68 (amount of Rs. 80,000/- sustained by lower authorities). - HELD THAT: - The Tribunal examined the nature and quantum of the small trade deposits-comprising multiple small amounts received by cheque from numerous trade dealers-and considered them in the context of the assessee's scale of operations and profitability. Given the turnover and profit before tax of the assessee, the Tribunal found no reason to doubt the genuineness of these trade deposits received in the ordinary course of business and concluded they did not attract treatment as unexplained credits. Accordingly, the assessing officer was directed to delete the addition made under section 68. [Paras 7]

Addition of Rs. 80,000 treated as unexplained under section 68 deleted; ground allowed.

Arm's length price - international transaction - notional interest on overdue receivables - internal CUP - Transaction Net Margin Method (TNMM) - upward adjustment under section 92CA - Whether notional interest computed on extended credit period to an associated enterprise constitutes a separate international transaction warranting upward adjustment to ALP under section 92CA. - HELD THAT: - The Tribunal analysed whether the extended credit period and consequent notional interest operate as a separate international transaction or are integral to the sale price and already reflected in the transfer pricing analysis. It observed that the assessee charged higher sale prices to the AE and that extended credit was part of the overall commercial arrangement such that the financial impact of the extended credit period was absorbed in the sale price. The Tribunal relied upon coordinate bench decisions and reasoning that where exports are benchmarked using TNMM and operating profit appropriately reflects the financial impact of credit terms, making a separate ALP adjustment for notional interest would double count the effect. The Tribunal also noted that comparable internal transactions (internal CUP) justified benchmarking and that extended credit was not limited to the AE alone. Applying these principles, the Tribunal held the upward adjustment by the TPO/AO was not sustainable and directed deletion of the adjustment made under section 92CA. [Paras 8, 9]

Upward adjustment for notional interest on extended credit period to the AE deleted; ground allowed.

Final Conclusion: The appeal for Assessment Year 2012-13 is allowed: the addition under section 68 is deleted and the upward transfer-pricing adjustment under section 92CA in respect of notional interest on extended credit to the associated enterprise is directed to be deleted.

Bogus expenses - genuineness of land improvement expenses - burden of proof on the assessee - reliance on inquiries from Commercial Tax/Trade Tax authorities - site verification/request for inspection - proportional disallowance as equitable relief

Bogus expenses - genuineness of land improvement expenses - burden of proof on the assessee - reliance on inquiries from Commercial Tax/Trade Tax authorities - Whether the disallowance of Rs. 51,12,040/- made by the AO and confirmed by the CIT(A) treating the payments for land improvement as bogus was justified. - HELD THAT: - The Tribunal examined the material placed before the authorities and the conduct of the AO. The assessee had produced invoices, ledger accounts, bank statements showing account payee cheque payments, photographs of the site and had requested site inspection; no summons were issued by the AO to suppliers and the AO relied primarily on reports from the Commercial Tax Department which indicated discrepancies in turnover. The lower authorities doubted genuineness because of delayed payments, the small/retail nature of suppliers and apparent mismatch in turnover, and the AO placed the onus upon the assessee once prima facie suspicion arose. The Tribunal found the AO's adverse remarks about suppliers' capacity to store materials to be general and casual and noted that mere delay in payment, small supplier status and non production of supplier confirmations before the AO are not by themselves a conclusive basis to treat expenses as wholly bogus, particularly where payments were made by account payee cheques and documentary evidence was produced. Balancing these factors, and exercising appellate discretion to do justice between parties, the Tribunal held that sustaining the entire disallowance was not warranted but some disallowance was justified on the facts. Accordingly the Tribunal reduced the disallowance to 15% of the disputed amount, confirming a proportionate addition rather than the full amount disallowed by the authorities. [Paras 11, 12, 13, 14, 15]

Disallowance confirmed only to the extent of 15% of Rs. 51,12,040/-, with the remainder allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal upheld that some disallowance was warranted but reduced the addition to 15% of the disputed land improvement expenses, thereby modifying the orders of the AO and the CIT(A).

Revision under section 263 - erroneous and prejudicial to the interest of revenue - scope of section 263 - not to make deeper or fishing enquiries - two views doctrine - assessment sustainable where two reasonable views possible - minimal inquiry by Commissioner before invoking revision - accommodation entries - reopening of assessment and reasons to believe

Revision under section 263 - erroneous and prejudicial to the interest of revenue - scope of section 263 - not to make deeper or fishing enquiries - two views doctrine - assessment sustainable where two reasonable views possible - minimal inquiry by Commissioner before invoking revision - accommodation entries - Whether the order passed by the Pr. CIT under section 263 setting aside the assessment order dated 16.12.2016 was sustainable. - HELD THAT: - The Tribunal held that the Assessing Officer had conducted enquiries during reassessment proceedings - issuing notices, obtaining replies, making independent enquiries under section 133(6) and considering documentary material - and on satisfaction accepted the assessee's explanation and completed assessment at nil. The Pr. CIT's revision under section 263 was based on seized material alleging an accommodation entry of Rs.1.5 crore and on the proposition that accommodation entries can take the form of sale of shares. However, the Commissioner did not carry out the requisite minimal inquiry or bring fresh material on record to show that the AO's view was unsustainable in law or based on incorrect application of facts. Section 263 cannot be invoked to conduct deeper, fishing or roving enquiries where the AO has taken a plausible view after due application of mind. In circumstances where two reasonable views exist, disagreement by the Commissioner without additional objective material or inquiry does not render the assessment order "erroneous and prejudicial to the interest of revenue." Consequently the conditions for exercise of jurisdiction under section 263 were not satisfied and the revision order was invalid. [Paras 5, 9, 10]

Impugned order passed by the Pr. CIT under section 263 was quashed and the appeal allowed.

Final Conclusion: The Tribunal quashed the order dated 18/21-01-2019 passed by the Pr. CIT under section 263 as unsustainable because the Assessing Officer had made necessary enquiries and taken a plausible view; the Commissioner failed to conduct minimal inquiry or produce material showing the AO's view was untenable, and section 263 cannot be used for deeper or fishing enquiries.

Revision under section 263 - Erroneous and prejudicial to the interests of the revenue - Lack of inquiry versus inadequate inquiry - Application of mind by the Assessing Officer - Quashing of revisional order and restoration of original assessment

Revision under section 263 - Erroneous and prejudicial to the interests of the revenue - Application of mind by the Assessing Officer - Lack of inquiry versus inadequate inquiry - Whether the Commissioner was justified in invoking jurisdiction under section 263 and cancelling the assessment framed u/s 143(3) on the grounds of non-inquiry into capital gains and cash deposits - HELD THAT: - The Tribunal held that the Assessing Officer had issued notices under section 142(1) and 143(3), called for specific information about immovable property and capital gains, and received documentary replies including the sale deed, bank statements and a notarised affidavit of relinquishment. The AO examined bank accounts, withdrawals and transfers and accepted the explanations regarding non-receipt of sale consideration and source of cash deposits. Applying settled principles distinguishing lack of inquiry from inadequate inquiry and noting that where the AO conducts inquiries and takes a legally permissible view the Commissioner cannot substitute his opinion, the Tribunal concluded that inquiries were sufficient and that the AO had applied his mind. Consequently the Commissioner's assumption of jurisdiction under section 263 was erroneous and prejudicial to the assessee only if there was lack of inquiry or an unsustainable view; neither was found on the record. The revisional order was therefore quashed and the AO's original assessment restored. [Paras 29, 30, 31, 32]

Ld. CIT erred in exercising revisional jurisdiction under section 263; the order passed u/s 263 is quashed and the assessment u/s 143(3) dated 01.03.2013 is restored.

Quashing of revisional order and restoration of original assessment - Infructuousness of consequential proceedings - Whether the appeal against the addition confirmed by the CIT(A) in proceedings consequent to the order u/s 263 remains maintainable after quashing the revisional order - HELD THAT: - The Tribunal observed that once the revisional order under section 263 was quashed and the original assessment order restored, all consequential proceedings and any additions made pursuant to the now-set-aside revision became infructuous. Therefore the appeal challenging the addition confirmed by the CIT(A) in the proceedings arising from the section 263 order had no live controversy to adjudicate. [Paras 34, 35]

Appeal against the additions confirmed by CIT(A) is dismissed as infructuous.

Final Conclusion: Tribunal allowed the appeal against the order passed under section 263, quashed the revisional order and restored the assessment order u/s 143(3) dated 01.03.2013; consequential appeal against additions confirmed by the CIT(A) was dismissed as infructuous.

Approval under section 80G - Rule 11AA of the Income Tax Rules, 1962 - Conditions in section 80G(5) (clauses (i) to (v)) - Registration under section 12AA - Genuineness of activities - Procedural compliance for grant of approval

Approval under section 80G - Rule 11AA of the Income Tax Rules, 1962 - Conditions in section 80G(5) (clauses (i) to (v)) - Genuineness of activities - Procedural compliance - Whether the Commissioner (Exemptions) was justified in rejecting the applicant's application for approval under section 80G of the Income Tax Act on the ground that the trust had not carried out sufficient charitable activity. - HELD THAT: - The Tribunal examined Rule 11AA and section 80G(5) and found that the ld. CIT(E) did not record any finding that the trust failed to satisfy any of the conditions contained in clauses (i) to (v) of section 80G(5). The record showed that the applicant filed Form 10G, produced its trust deed, bank account details, financial statement and evidence of activities, and had obtained registration under section 12AA. The CIT(E)'s rejection rested solely on the limited expenditure incurred by the newly formed trust (approximately Rs. 6,000) and the conclusion that 'sufficient charitable activities' had not been carried out. The Tribunal held that mere smallness of expenditure by a nascent trust with limited funds does not constitute a statutory ground for denial where none of the statutory conditions in clauses (i) to (v) are shown to be unmet and procedural requirements of Rule 11AA(1)-(3) were complied with. Rule 11AA(4) requires the Commissioner to record satisfaction in writing and grant approval where the conditions are fulfilled; conversely, rejection under sub rule (5) must be founded on non fulfillment of those conditions. As the CIT(E) did not point to any such failure and the applicant had furnished the documents and explanations called for, the Tribunal concluded that the CIT(E) erred in law in denying approval under section 80G.

The order denying approval under section 80G is set aside and the CIT(E) is directed to grant approval to the applicant under section 80G(5).

Final Conclusion: The appeal is allowed. The impugned order of the Commissioner (Exemptions) dated 27.04.2018 refusing approval under section 80G is set aside and the Commissioner is directed to grant approval under section 80G(5) after recording satisfaction in writing in accordance with Rule 11AA.

Reopening of assessment: disposal of objections and speaking order - Validity of notice under Section 143(2) - Enhancement by appellate authority without notice under Section 251(2)

Validity of notice under Section 143(2) - Notice under Section 143(2) was validly issued and the assessee had opportunity to be heard; challenge to omission of statutory notice is dismissed. - HELD THAT: - The Tribunal noted that the Assessing Officer recorded in the assessment order that notice under Section 143(2) was issued and that the assessee participated in the assessment proceedings and was heard. On this basis the contention that no statutory notice was issued was found untenable and the ground challenging issuance of notice under Section 143(2) was rejected. [Paras 10]

Dismissed

Enhancement by appellate authority without notice under Section 251(2) - Enhancement of income by the Commissioner (Appeals) without issuing a show-cause notice as required by Section 251(2) is not permissible; the assessee was not granted reasonable opportunity prior to enhancement. - HELD THAT: - The Tribunal accepted the assessee's submission that prior to enhancement under appeal the statutory requirement of affording reasonable opportunity under Section 251(2) had not been complied with. The CIT(A) confirmed and enhanced the addition but did so without issuing the notice contemplated by Section 251(2). The Tribunal held that the contention in this respect is sustainable and allowed the ground relating to enhancement without notice. [Paras 10]

Allowed

Reopening of assessment: disposal of objections and speaking order - Objections filed by the assessee to the reopening under Section 148 were not disposed of by a reasoned/speaking order; issue remanded to AO to decide objections afresh and in accordance with law. - HELD THAT: - Relying on the principle that reasons for reopening must be supplied and objections to reopening disposed of by a speaking order, and applying precedent of the Delhi High Court in Surendra Kumar Jain (as cited), the Tribunal observed that the AO proceeded to pass the reassessment order without first disposing of the objections filed by the assessee. The Tribunal remanded the matter to the Assessing Officer with directions to consider and dispose of the objections by a reasoned order, afford the assessee opportunity of hearing, and then proceed in accordance with law. The Tribunal expressly refrained from commenting on the merits of the reopened issues. [Paras 10]

Remitted to the Assessing Officer for fresh disposal of objections and further proceedings in accordance with law

Final Conclusion: The appeal is partly allowed: the challenge to omission of notice under Section 143(2) is dismissed; the enhancement by the CIT(A) without issuing notice under Section 251(2) is allowed; the matter is remanded to the Assessing Officer to dispose of objections to reopening by a reasoned order and then proceed in accordance with law; merits of the additions were not decided.

Reasonableness of limitation period - maintainability of writ under Article 226 where jurisdictional questions are raised - effect of repeal with a saving clause on pending rights and liabilities - absence of statutory machinery for recovery of an erroneously or excess paid export drawback - authority to re-determine value of export/exported goods for drawback purposes

Maintainability of writ under Article 226 where jurisdictional questions are raised - Writ petition under Article 226 is maintainable against the show cause notice. - HELD THAT: - The Court held that the petitioner raised pure questions of jurisdiction (limitation, repeal and saving clause, absence of recovery machinery, and power to reassess value) which fall within the exceptions to the rule of self-imposed restraint against entertaining writs where alternative remedies exist. Relying on established precedents, the Bench concluded that where the impugned order is 'per se without jurisdiction' or raises grounds going to the root of the authority to act, the High Court may exercise its writ jurisdiction and therefore proceeded to decide the merits. [Paras 9]

The writ petition is maintainable and the Court will entertain the challenge to the show cause notice.

Reasonableness of limitation period - limitation for issuing show cause notices in absence of prescribed period - A show cause notice under Rule 16 of the Drawback Rules, 1995 must be issued within a reasonable period and a notice issued beyond five years from the date of export is barred by limitation. - HELD THAT: - Both sides accepted that no specific limitation is prescribed in Rule 16; the Court applied the established principle that actions where no period is prescribed must be taken within a 'reasonable period' to protect accrued rights. Considering Section 28 of the Customs Act (which prescribes up to five years in cases of collusion, wilful mis-statement or suppression) and the jurisprudence applying a five-year outer limit, the Court held that a five-year period is the maximum reasonable period in the circumstances. The impugned notice was issued more than five years after the relevant events (exports and the DRI search), and therefore was held to be time-barred. [Paras 10]

Notice dated 09.02.2018 issued under Rule 16 beyond five years from export is barred by limitation and invalid.

Effect of repeal with a saving clause on pending rights and liabilities - scope of a specific saving provision vis-a -vis general saving under statutory provision - The Drawback Rules, 2017 (Rule 20) do not save recovery proceedings under Rule 16 of the repealed Drawback Rules, 1995 in respect of drawback amounts already paid and not the subject of pending claims on the date of repeal. - HELD THAT: - The Court examined Section 159A of the Customs Act and Rule 20 of the Drawback Rules, 2017. It found that Rule 20(2) specifically saves only (a) applications for determination/revision pending on commencement and (b) claims for payment of drawback pending disposal; it does not save proceedings to recover drawback already sanctioned and paid where no claim was pending on the relevant date. Because Rule 20(2) manifests a 'different intention', the general protection under Section 159A could not be invoked to save fresh recovery proceedings under the repealed Rules. Accordingly, the show cause notice issued under Rule 16 of the repealed Rules is not saved by Rule 20(2). [Paras 11]

Rule 20 of the Drawback Rules, 2017 does not validate or save the impugned recovery proceedings under Rule 16 of the repealed 1995 Rules in the facts of this case.

Absence of statutory machinery for recovery of an erroneously or excess paid export drawback - requirement of a statutory procedure/machinery before demand can be made - Rule 16 of the Drawback Rules, 1995 does not provide the necessary machinery to determine that a previously paid drawback is 'erroneous' or 'in excess' and, in the absence of such machinery, recovery proceedings under Rule 16 (as invoked in this case) are unsustainable. - HELD THAT: - The Court analysed Rule 16 and related provisions and observed that Rule 16 merely provides for repayment on demand where an amount 'has been paid erroneously or in excess' but contains no procedure to determine or adjudicate that status. By contrast, other statutory provisions (e.g., Section 28 and Section 28AAA of the Customs Act) or Rule 16A (for non-realisation of export proceeds) provide complete recovery machinery. Drawing on precedent concerning the need for statutory machinery before imposing tax or recovery, the Court concluded that Rule 16 cannot be used as a freestanding basis to initiate adjudicatory recovery of already released drawback where no procedure for determination and demand exists. [Paras 12]

In the absence of statutory machinery to determine and demand that drawback already paid was erroneous or excessive, the recovery proceedings under Rule 16 are invalid in the present factual setting.

Authority to re-determine value of export/exported goods - application of valuation rules to goods already exported - Left open (not decided) by the Court; the question whether the Department may re-determine the value of goods already assessed and exported under Section 14 read with Valuation Rules, 2007 was not adjudicated. - HELD THAT: - The Court expressly refrained from answering the remaining question concerning the Department's power to reassess value of goods already exported and the interplay of Section 14 and Valuation Rules in that context. The Bench noted that, having decided the petition on the grounds of limitation, repeal/saving and absence of recovery machinery, it was unnecessary to decide this last question and left it open. [Paras 13]

Question as to the power to re-determine value of already exported goods is left open and not decided by the Court.

Final Conclusion: The petition succeeds. The Court held the writ maintainable, ruled that a notice under Rule 16 of the Drawback Rules, 1995 issued beyond five years from the date of export is time barred, found that the Drawback Rules, 2017 do not save the impugned recovery proceedings under Rule 16, and held that Rule 16 lacks the statutory machinery to determine and demand recovery of already paid drawback; consequently the show cause notice dated 09.02.2018 is quashed. The question of reassessment of value of already exported goods was left open.

Refund of differential duty - re-assessment under Section 17(4) of the Customs Act, 1962 - statutory period for refund decision - judicial direction to decide pending refund application

Refund of differential duty - statutory period for refund decision - judicial direction to decide pending refund application - Direction to the Assistant Commissioner of Customs (Refund) to decide the petitioner's refund application within the statutory period. - HELD THAT: - The petitioner filed a refund application after the Commissioner of Customs (Appeals) accepted the declared value of imported consignments and set aside the re-assessment under Section 17(4) of the Customs Act, 1962. The court confined the relief sought to a mandate that the refund claim be decided. On being asked, the Revenue, through senior standing counsel, undertook to decide the refund application within the statutory three month period and, in any event, by 30.9.2019. In view of this categorical undertaking by the department, the court held that the limited prayer for a direction was effectively redressed and disposed of the petition accordingly.

Petition disposed of as the Revenue undertook to decide the refund application within the statutory period and by 30.9.2019.

Final Conclusion: The writ petition is disposed of by directing that the refund claim shall be decided by the Customs (Refund) authority within the statutory period, the department having undertaken to do so by 30.9.2019.

Contempt of court - non-compliance of court order - release of detained goods - show cause notice - payment of redemption fine and bank guarantee

Contempt of court - non-compliance of court order - release of detained goods - Issuance of show cause notices and initiation of contempt proceedings for non-compliance with this Court's order dated 26th July, 2019 directing release of goods. - HELD THAT: - The petitioner had paid the redemption fine, duty and penalty pursuant to the adjudicating order dated 17th May, 2019, and this Court by order dated 26th July, 2019 directed release of the goods forthwith upon receipt of Rs. 15 lacs and a bank guarantee for Rs. 15 lacs. Despite that clear direction, the Joint Director, Directorate of Revenue Intelligence, Kolkata Zonal Unit and respondent no. 1 have not released the goods. In consequence, the Court has directed that both the Joint Director and respondent no. 1 be issued notices under the Contempt of Courts Act, 1971 to show cause why contempt proceedings should not be initiated against them and to explain the reasons for non-compliance by filing affidavits by the next date of hearing. The order further directs that the respective counsels shall communicate this order to the concerned officer/respondent forthwith and records an adjournment to the listed date.

Notices under the Contempt of Courts Act, 1971 issued to the Joint Director, Directorate of Revenue Intelligence, Kolkata Zonal Unit and to respondent no. 1 to show cause for non-compliance of the Court's order dated 26th July, 2019; affidavits directed to be filed and matter adjourned.

Final Conclusion: The High Court has treated non-release of goods despite compliance by the petitioner and a prior court direction as contempt-appropriate conduct, issued show cause notices to the responsible officers under the Contempt of Courts Act, 1971, directed filing of explanatory affidavits and adjourned the matter for further hearing.

Initiation of Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 - existence of debt and default - effect of pendency of civil suit or pre existing proceedings on a Section 7 application - completeness of application under Section 7(5)(b) - Section 5(6)(a) 'dispute' and its relevance to admission under Section 7 - obligation to give notice to rectify defects under proviso to Section 7(5)(b) - application of Innoventive Industries Ltd. on debt, default and disputed claims

Effect of pendency of civil suit or pre existing proceedings on a Section 7 application - Section 5(6)(a) 'dispute' and its relevance to admission under Section 7 - application of Innoventive Industries Ltd. on debt, default and disputed claims - Whether the Adjudicating Authority was justified in dismissing the Section 7 application on the ground that a civil suit was pending and that a 'dispute' existed regarding the amount of debt under Section 5(6)(a). - HELD THAT: - The Tribunal held that the Adjudicating Authority erred in rejecting the Section 7 application merely because a civil suit was pending and a dispute in relation to the amount was asserted. Applying the principles laid down in Innoventive Industries Ltd., a financial creditor's Section 7 application has to be examined primarily on records and evidence of default; the existence of a dispute or pendency of proceedings does not ipso facto bar admission where the debt is 'due' and supported by evidence. The Tribunal found that the civil suit did not relate to or negate the Appellants' claim and therefore could not be treated as a pre existing dispute sufficient to defeat the Section 7 application. Consequently the Adjudicating Authority's reliance on Section 5(6)(a) to dismiss the petition was not sustainable. [Paras 7, 8, 10, 12, 13]

The finding that the petition was liable to be dismissed on account of a pending civil suit and a disputed amount under Section 5(6)(a) was set aside.

Existence of debt and default - initiation of Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 - Whether there was sufficient evidence on record to establish that a debt existed and that a default had occurred such that the Section 7 process could be triggered. - HELD THAT: - The Tribunal examined the documents in Form 1 and accompanying records: promissory notes in favour of the Appellants, receipts, and a deed of mortgage executed by representatives of the Corporate Debtor. On that material, the Tribunal concluded there was ample proof that the Appellants had disbursed amounts to the Corporate Debtor and that the Corporate Debtor had admitted liability by executing security and promissory notes. Applying the statutory scheme and Innoventive, the Tribunal held that a debt exceeding the statutory threshold existed and a default had occurred, warranting initiation of the insolvency resolution process. [Paras 4, 5, 8, 12, 13]

The Tribunal held that a debt due and payable, and a default, were established on the record and that the Section 7 process was properly triggerable.

Completeness of application under Section 7(5)(b) - obligation to give notice to rectify defects under proviso to Section 7(5)(b) - Whether the Section 7 application was incomplete under Section 7(5)(b) and, if so, whether the Adjudicating Authority complied with the proviso to give notice to rectify defects before rejecting the application. - HELD THAT: - The Tribunal found that the Form 1 filed by the Appellants contained particulars of the corporate debtor, particulars of financial debt, documents evidencing debt and default, and also the proposed IRP's consent and registration certificate. The Adjudicating Authority did not give the mandatory notice under the proviso to Section 7(5)(b) affording the applicant seven days to rectify any defect before rejection. For these reasons the Tribunal concluded that the application could not be rejected as 'incomplete' without first issuing the statutory notice to rectify defects. [Paras 4, 11, 12]

The Adjudicating Authority failed to follow the proviso to Section 7(5)(b) and therefore could not validly reject the application on the ground of incompleteness.

Initiation of Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 - Relief to be granted after finding the Adjudicating Authority's order unsustainable. - HELD THAT: - Having concluded that the Adjudicating Authority wrongly dismissed the Section 7 petition - both because the pendency of the civil suit and alleged dispute did not bar admission and because defects, if any, were not given the opportunity to be rectified - the Tribunal exercised its appellate power to set aside the impugned order and direct the Adjudicating Authority to proceed. The Tribunal directed that the Adjudicating Authority admit the application under Section 7 after giving notice to the respondent and allowing the respondent an opportunity to settle its claim before admission; parties were directed to appear on a fixed date. [Paras 13, 14]

Impugned order set aside; Adjudicating Authority directed to admit the Section 7 application after notice to the respondent and further proceedings as directed.

Final Conclusion: The appellate tribunal set aside the Adjudicating Authority's dismissal of the Section 7 petition, holding that the existence of a pending civil suit or alleged dispute did not preclude admission where debt and default are established on the record, that the proviso to Section 7(5)(b) was not complied with, and directed the Adjudicating Authority to admit the application after notice to the respondent and further hearing.

Withdrawal of insolvency petition post-admission - recall of Corporate Insolvency Resolution Process (CIRP) - settlement prior to constitution of Committee of Creditors - inherent powers under Rule 11 of the NCLT Rules - proceeding in rem and role of the Committee of Creditors - condition of payment of Interim Resolution Professional's costs as prerequisite to recall

Withdrawal of insolvency petition post-admission - recall of Corporate Insolvency Resolution Process (CIRP) - settlement prior to constitution of Committee of Creditors - proceeding in rem and role of the Committee of Creditors - inherent powers under Rule 11 of the NCLT Rules - Adjudicating Authority's power to permit withdrawal of an admitted IB petition and recall CIRP where settlement between parties is reached prior to constitution of the Committee of Creditors. - HELD THAT: - The Tribunal held that where the Committee of Creditors (CoC) has not yet been constituted, the Adjudicating Authority may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, permit withdrawal of an admitted petition and recall the CIRP if the parties have settled the claim. The decision follows the reasoning in the cited Supreme Court authority, Swiss Ribbons , which recognises that proceedings under the Code are proceedings in rem and requires consultation with the CoC once constituted; but it also permits the Tribunal to entertain requests for withdrawal/settlement prior to constitution of the CoC after hearing all concerned and considering relevant factors. The Tribunal further relied on the earlier appellate decision placed on record before it [Avishek Roy, Shareholder of Reacon Engineers (India) (P.) Ltd. v. Diamond Steel Enterprise] in support of permitting withdrawal at the post-admission stage when CoC is not yet constituted. Applying those principles to the facts, and noting that the IRP had made the public announcement and that the settlement amount was paid to the financial creditor before constitution of CoC, the Tribunal found no legal impediment to allowing recall of the CIRP and disposal of the main petition as withdrawn. [Paras 10, 11, 12, 16, 17]

The application for withdrawal of CP(IB) No. 325 of 2018 and recall of CIRP is allowed insofar as the settlement was reached prior to constitution of the CoC.

Condition of payment of Interim Resolution Professional's costs as prerequisite to recall - recall of Corporate Insolvency Resolution Process (CIRP) - Imposition of conditions for recall: payment of IRP's professional fees and expenses by the petitioner and corporate debtor as prerequisite for acceptance of settlement and recall of CIRP; consequence if payment is not made. - HELD THAT: - Although the Tribunal permitted withdrawal and recall of CIRP, it imposed a condition that the petitioner and the corporate debtor jointly pay a lump sum amount to the IRP towards fees and expenses incurred in initiating the CIRP, to be paid within four weeks of receipt of an authentic copy of the order and evidenced to the Registry through the IRP. The Tribunal recorded that upon proof of such payment the settlement shall be deemed accepted and CIRP recalled. It further directed that failure to make the payment within the stipulated period (unless extended by the Authority) will entitle the IRP to proceed with completion of the CIRP under the Code. These directions balance the permissibility of settlement prior to CoC constitution with protection of costs and efforts incurred by the IRP pending constitution of the CoC. [Paras 13, 14, 15, 16]

Recall of CIRP and acceptance of settlement is made conditional on payment of the IRP's fees and expenses within the stipulated period; failure to pay will result in the IRP continuing the CIRP.

Final Conclusion: The Tribunal allowed withdrawal of the admitted insolvency petition and recalled the CIRP because the dispute was settled prior to constitution of the Committee of Creditors, while conditioning the acceptance of the settlement on joint payment by the petitioner and corporate debtor of the IRP's fees and expenses within a stipulated period; failure to pay will permit the IRP to continue the CIRP. No order as to costs.

Re-opening right to file reply - ex parte proceedings due to advocate's default - relief under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016 - party not to suffer for advocate's negligence - costs to Defence Welfare Fund

Re-opening right to file reply - ex parte proceedings due to advocate's default - relief under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016 - party not to suffer for advocate's negligence - Allowing the Corporate Debtor to file a reply and to be re-heard after the matter proceeded ex parte on account of the default of its then advocate. - HELD THAT: - The Tribunal found that the matter proceeded ex parte on 13.03.2019 because none appeared for the Corporate Debtor owing to the absence/fault of its then advocate. When the fault causing non-appearance is that of the advocate, established principle prevents the litigant from being prejudiced for the advocate's negligence. The matter had subsequently been re-listed for clarifications and notices were issued, so permitting the Corporate Debtor to file its reply and to advance arguments would not prejudice the process. Applying the provisions invoked in the application, the IA was allowed and the Corporate Debtor was granted two weeks' time to file its reply with advance copy to the Financial Creditor. [Paras 8, 10]

IA allowed; Corporate Debtor permitted two weeks to file reply with advance copy to the Financial Creditor.

Costs to Defence Welfare Fund - party not to suffer for advocate's negligence - Imposition of costs on the Corporate Debtor to be paid to the Defence Welfare Fund as a condition of allowing the application. - HELD THAT: - While permitting the Corporate Debtor to file the reply and be re-heard because the default lay with its advocate, the Tribunal exercised its discretion to impose a monetary condition to vindicate procedural propriety. The IA was allowed subject to payment of costs to the Defence Welfare Fund, thus balancing the interests of fair hearing with procedural accountability. [Paras 10, 11]

Order allowing IA made subject to payment of costs of Rs. 20,000/- to the Defence Welfare Fund.

Final Conclusion: The application under Section 60(5) IBC read with Rule 11 NCLT Rules was allowed: the Corporate Debtor was permitted two weeks to file its reply (with advance copy to the Financial Creditor) after the matter had proceeded ex parte due to its advocate's default, subject to payment of costs to the Defence Welfare Fund; IA disposed of.

Approval of resolution plan under Section 31 of the Insolvency and Bankruptcy Code - binding effect of approved resolution plan on corporate debtor and stakeholders - modification of approved resolution plan to accommodate admitted operational claims - prohibition on attachment after commencement of moratorium and de-attachment of bank accounts - treatment of operational creditors not less than liquidation value as required by Section 30(2)(b) - rejection of claim of discriminatory treatment by dissenting financial creditor absent contemporaneous objection - cessation of moratorium on approval of resolution plan - obligation of Resolution Professional to forward CIRP records to the Insolvency and Bankruptcy Board of India

Approval of resolution plan under Section 31 of the Insolvency and Bankruptcy Code - binding effect of approved resolution plan on corporate debtor and stakeholders - treatment of operational creditors not less than liquidation value as required by Section 30(2)(b) - The Resolution Plan submitted by PND Infrastructure Pvt. Ltd., as approved by the Committee of Creditors, is fit for approval by the Adjudicating Authority subject to the directed modification. - HELD THAT: - The Tribunal recorded that the CIRP was conducted by the RP with due publicity, expressions of interest and competitive bidding, and that the Committee of Creditors approved the amended plan by 90.93% voting share. The plan was examined for mandatory compliance with statutory requirements including payment of insolvency resolution process costs and provision for operational creditors not being less than the liquidation outcome. The Tribunal found the plan feasible, viable and free of mala fides; the financial matrix, after a supplementary undertaking to modify distribution in favour of certain operational creditors and statutory authorities, adequately addresses stakeholders' interests and maximises asset value. Given these findings and the CoC's considered decision, the plan was approved under Section 31 and made binding on the corporate debtor and all stakeholders. [Paras 35, 36, 37, 40, 41]

Resolution Plan of PND Infrastructure Pvt. Ltd. approved under Section 31 subject to modification as per the supplementary financial matrix and directions.

Modification of approved resolution plan to accommodate admitted operational claims - undertaking by resolution applicant to provide specified distribution to employees and workmen - Applications by individual workmen alleging non-admission of claims were remedied by admitting specified treatment and the Resolution Plan was modified accordingly. - HELD THAT: - The Tribunal noted that one workman's admitted amount was already recorded and that other workmen's grievances were addressed by the Resolution Applicant's undertaking to provide payments to workmen and employees at 6.07% of admitted claims in addition to amounts in the financial matrix. The supplementary affidavit containing the modified financial matrix was filed and the Tribunal treated the grievances as rectified, allowing the applications to the extent indicated and directing the modification to be incorporated into the approved plan. [Paras 23, 24, 25, 26]

Workmen's applications disposed of as grievances rectified; plan to be modified to give the agreed treatment to employees and workmen.

Prohibition on attachment after commencement of moratorium and de-attachment of bank accounts - Income Tax and other statutory authorities as operational creditors entitled to submit claims - Orders of attachment of bank accounts made after commencement of CIRP were de-attached and the Resolution Professional (and subsequently the resolution applicant) was permitted to operate those accounts; Income Tax authority required to submit claim to participate in distribution. - HELD THAT: - Relying on the moratorium principle, the Tribunal observed that attachment orders made after commencement of CIRP violated the moratorium and impeded the resolution process. The Income Tax authority had not submitted claims despite notice and therefore could not realise amounts by attachment; the RP and resolution applicant were nonetheless directed to make provision in the modified financial matrix to distribute to statutory authorities in proportion to similarly situated operational creditors if entitled. Accordingly, specific Axis Bank accounts were ordered to be de-attached and operated for CIRP cost and resolution purposes. [Paras 27, 28, 29, 30]

Applications for de-attachment allowed; attached Axis Bank accounts de-attached and permitted to be operated, with provision to treat statutory claims in the modified financial matrix.

Rejection of claim of discriminatory treatment by dissenting financial creditor absent contemporaneous objection - CoC's commercial evaluation and majority voting on viability and financial matrix - The objection by the dissenting unsecured financial creditor that the distribution was discriminatory was rejected. - HELD THAT: - The Tribunal examined the CoC minutes and the voting record and observed no contemporaneous objection recorded by the unsecured creditor during deliberations; there are only two financial creditors who are not similarly situated. The CoC, exercising commercial judgment, approved the plan by the requisite majority. In absence of evidence of mala fide or procedural infirmity in the CoC process and given the CoC's prerogative to evaluate viability, the claim of discriminatory treatment was found without merit. [Paras 31, 38, 39, 40]

Dissenting financial creditor's objection on discriminatory distribution dismissed.

Cessation of moratorium on approval of resolution plan - obligation of Resolution Professional to forward CIRP records to the Insolvency and Bankruptcy Board of India - Upon approval of the Resolution Plan the moratorium ceases to have effect and the RP must forward CIRP records to the IBBI. - HELD THAT: - The Tribunal directed that on the plan coming into force the moratorium under the Code shall cease. It further directed the Resolution Professional to forward all records of the CIRP and the approved plan to the Insolvency and Bankruptcy Board of India for recording in its database, ensuring administrative compliance with regulatory requirements once the plan is approved and modified as ordered. [Paras 41]

Moratorium ceases; RP to forward CIRP records to the IBBI.

Final Conclusion: The Tribunal approved the Resolution Plan of PND Infrastructure Pvt. Ltd., as sanctioned by the Committee of Creditors, subject to directed modification to the financial matrix to accommodate admitted operational claims and statutory entitlements; bank attachments that violated the moratorium were de-attached and permitted to be operated for CIRP purposes; objections by certain workmen were resolved by the agreed modifications and the dissenting unsecured financial creditor's challenge to discriminatory treatment was rejected; moratorium ceases on approval and the RP is directed to forward CIRP records to the IBBI.

Pre-existing dispute - notice of dispute - petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - rejection of Section 9 application where notice/record of dispute exists - plausible contention requiring further investigation (Mobilox test)

Pre-existing dispute - notice of dispute - plausible contention requiring further investigation (Mobilox test) - Whether a pre-existing dispute was brought to the notice of the Operational Creditor before issuance of the demand notice and, if so, whether the Section 9 petition must be rejected. - HELD THAT: - The Tribunal found on the record that the Corporate Debtor had repeatedly raised the dispute regarding delayed delivery, consequential losses and proposed adjustment/credit note by emails dated 29.9.2015, 30.6.2016, 4.7.2016, 7.7.2016, 1.8.2016 and 2.8.2016, all of which pre-dated the Demand Notice of 15.1.2018 and were brought to the Operational Creditor's notice. Applying the principle in Mobilox Innovations (that an adjudicating authority must reject a Section 9 application if notice of dispute has been received or there is a record of dispute, provided the contention is plausible and not a spurious defence), the Tribunal held that the dispute was real and required further investigation rather than summary adjudication at the admission stage. The Tribunal therefore concluded that the Section 9 petition could not be admitted in presence of such pre-existing dispute and notice thereof, without deciding the merits of the dispute itself. [Paras 9, 10, 11, 12]

The petition under Section 9 of the IBC filed by the Operational Creditor is rejected on account of a pre-existing dispute brought to the Operational Creditor's notice, in accordance with the Mobilox test.

Final Conclusion: The Company petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 is rejected on the ground of a pre-existing dispute brought to the notice of the Operational Creditor; the rejection is without prejudice to the petitioner's right to seek recovery in another appropriate forum.

Operational debt - Pre-existing dispute - Dispute as defined in Section 5(6) - Demand notice under Section 8 - Rejection of Section 9 application under Section 9(5) for pre-existing dispute - Tribunal's limited inquiry into existence (not merit) of dispute

Operational debt - Pre-existing dispute - Dispute as defined in Section 5(6) - Demand notice under Section 8 - Rejection of Section 9 application under Section 9(5) for pre-existing dispute - Tribunal's limited inquiry into existence (not merit) of dispute - Whether the Section 9 application by the operational creditor is maintainable in light of a pre-existing dispute between the parties and whether the claimed amounts constitute an operational debt - HELD THAT: - The Tribunal applied the test in Mobilox Innovations to the material on record and examined (i) whether there is an operational debt, (ii) whether documentary evidence shows the debt is due and payable, and (iii) whether a dispute existed prior to receipt of the demand notice. The work order performance and completion were not supported by documents that would make the claimed repair/renovation, hire charges and revenue loss payable as an operational debt. Correspondences from the corporate debtor dated 26.12.2017, 10.08.2018, 06.09.2018 and 18.09.2018 raised objections on delivery, performance and liability prior to the demand notice dated 21.09.2018. The Tribunal noted that under the Code its inquiry under Section 9 is limited to the existence of a pre existing dispute and not to the merits; the record showed a bona fide dispute that was neither vague nor raised for the first time to evade liability. In view of a pre-existing dispute falling within the definition of dispute and the absence of adequate documentary proof of an unpaid operational debt, the application had to be rejected under the mandate of Section 9(5). [Paras 25, 26, 27, 28, 29]

Application under Section 9 is rejected and dismissed on the ground that a pre-existing dispute existed prior to the demand notice and the claim was not established as an unpaid operational debt.

Final Conclusion: The Section 9 petition filed by the operational creditor is dismissed under Section 9(5) of the Code because the corporate debtor had raised a pre-existing dispute (prior to the demand notice) and the applicant failed to establish the claim as an unpaid operational debt; the Tribunal confined its inquiry to existence of dispute and did not express any opinion on merits.

Settlement prior to constitution of the Committee of Creditors - withdrawal of application under Section 9 of the I&B Code - exercise of inherent powers under Rule 11 of the NCLAT Rules, 2016 - setting aside admission, appointment of Interim Resolution Professional and moratorium consequences - Terms of Settlement to be treated as tribunal direction

Settlement prior to constitution of the Committee of Creditors - withdrawal of application under Section 9 of the I&B Code - exercise of inherent powers under Rule 11 of the NCLAT Rules, 2016 - Settlement reached before constitution of the Committee of Creditors justifies permitting withdrawal of the Section 9 application and setting aside the admission order. - HELD THAT: - The Appellate Tribunal recorded that the parties had reached a settlement on 11th April, 2019 prior to constitution of the Committee of Creditors and, relying on the principles in Swiss Ribbons Pvt. Ltd. & Anr. as applied, exercised its inherent powers under Rule 11 of its Rules to set aside the impugned admission order dated 28th March, 2019 and to allow the Operational Creditor to withdraw the Section 9 application. The Tribunal treated the filed Terms of Settlement as binding directions to be complied with in letter and spirit and ordered closure of the proceedings before the Adjudicating Authority.

The impugned admission under Section 9 is set aside and the Section 9 application is permitted to be withdrawn; the Terms of Settlement shall be complied with.

Setting aside admission, appointment of Interim Resolution Professional and moratorium consequences - Terms of Settlement to be treated as tribunal direction - Consequences flowing from setting aside the admission - including appointment of Interim Resolution Professional, declaration of moratorium and actions taken by the Resolution Professional - are to be set aside, and the Corporate Debtor is released to function through its Board. - HELD THAT: - Having set aside the admission and permitted withdrawal, the Tribunal directed that all orders passed pursuant to the impugned order, including appointment of the Interim Resolution Professional, declaration of moratorium and actions taken by the Resolution Professional, stand set aside. The Tribunal further directed compliance with the Terms of Settlement as its own direction and specifically ordered that the Corporate Debtor pay the fees of the Interim Resolution Professional within three weeks. On these directions, the Respondent Company is released from the rigours of the I&B Code and may function independently through its Board of Directors with immediate effect.

All consequential orders pursuant to the admission (IRP appointment, moratorium and actions taken) are set aside; Corporate Debtor to pay Interim Resolution Professional's fees within three weeks; Corporate Debtor released to function through its Board.

Final Conclusion: The appeal is allowed: the admission order dated 28th March, 2019 is set aside; the Section 9 application is disposed of as withdrawn; all consequences of the admission (including appointment of Interim Resolution Professional and moratorium) are set aside; the Terms of Settlement are directed to be complied with; the Corporate Debtor shall pay the Interim Resolution Professional's fees within three weeks and the Adjudicating Authority shall close the proceedings.

Section 7 initiation of corporate insolvency resolution process - maintainability of Section 7 petition premised on regulatory circular - effect of Supreme Court judgment striking down RBI circular - RBI circular dated 12.2.2018 - liberty to file fresh petition

Section 7 initiation of corporate insolvency resolution process - maintainability of Section 7 petition premised on regulatory circular - effect of Supreme Court judgment striking down RBI circular - RBI circular dated 12.2.2018 - Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by Union Bank of India based on the RBI circular dated 12.2.2018 is not maintainable. - HELD THAT: - The Tribunal examined that the Section 7 petition was instituted pursuant to the RBI circular dated 12.2.2018. The Corporate Debtor placed on record the consortium minutes and the fact that challenge to the circular was pending before the Supreme Court in Writ Petition No.237/2019. The Tribunal noted the Supreme Court order dated 12.4.2019 which clarified that the earlier status quo has ended and, insofar as Indian banks are concerned, the RBI circular has been struck down and proceedings before the NCLT founded upon that circular must come to an end in accordance with the Supreme Court's prior judgment. In view of that binding pronouncement, the Tribunal held that a Section 7 petition premised on the struck-down circular could not be maintained and therefore could not proceed on that basis.

Petition under Section 7 filed on the basis of RBI circular dated 12.2.2018 is dismissed.

Final Conclusion: The Section 7 petition filed by Union Bank of India based on the RBI circular dated 12.2.2018 is dismissed as not maintainable in view of the Supreme Court's order; liberty is granted to the bank to file a fresh petition.

Financial Creditor - Corporate Insolvency Resolution Process - Corporate Debtor - application under Section 7 of the IBC - assignment of debt - assignee's standing to file - debt and default - challenge to assignment not maintainable in Section 7 proceedings - moratorium - Interim Resolution Professional - third party intervention/inability to be heard at admission stage

Application under Section 7 of the IBC - assignee's standing to file - assignment of debt - Maintainability of the Section 7 application filed by ARCIL acting as trustee/assignee - HELD THAT: - The Adjudicating Authority examined the Assignment Agreement and held that the Applicant, an Asset Reconstruction Company acting as Trustee of the referenced Trusts, is a Financial Creditor within the meaning of the Code and is entitled to file an application under Section 7. Rule 4(2) requiring production of the assignment deed was complied with. Reliance was placed on precedent that an assignee steps into the shoes of the original creditor and that challenges to the validity of assignment are not to be adjudicated at the admission stage under Section 7. [Paras 12, 14, 16]

The application filed by the Applicant as assignee/trustee is maintainable and the Applicant is a Financial Creditor entitled to invoke Section 7.

Debt and default - application under Section 7 of the IBC - Existence of financial debt and occurrence of default for the purpose of admission under Section 7 - HELD THAT: - On the material placed before it (loan documents, restructuring records and assignment), the Authority found that the Respondent had borrowed monies and accepted the terms and that default had occurred. The test at the admission stage is satisfaction that a default has occurred; once so satisfied, the application must be admitted unless incomplete. The application in Form 1 was found complete and the requisite documents were filed. [Paras 3, 5, 7, 10, 13]

Debt and default are established for the purposes of admission and the Section 7 application is complete.

Challenge to assignment not maintainable in Section 7 proceedings - assignment of debt - Whether the Corporate Debtor can challenge validity/legality of the Assignment Deed in the Section 7 petition - HELD THAT: - The Authority followed appellate and tribunal precedents holding that the legality or genuineness of an assignment cannot be gone into in proceedings under Section 7 and such contentions are matters for separate civil proceedings (or under Section 65 if fraud is alleged). The Adjudicating Authority therefore declined to entertain objections to the assignment and dismissed related interlocutory applications which sought rejection of the petition on that ground. [Paras 12, 20]

Objections to the Assignment Deed are not maintainable in the Section 7 admission proceedings and are rejected.

Third party intervention/inability to be heard at admission stage - application under Section 7 of the IBC - Competence of third parties (including members of JLM, shareholders, guarantors) to be heard or be joined at the admission stage under Section 7 - HELD THAT: - Relying on Supreme Court and NCLAT authorities, the Authority reiterated that at the admission stage only the Financial Creditor and the Corporate Debtor need be heard; third parties have no right to intervene or be heard. Applications seeking joinder of other parties or third party intervention were therefore dismissed as not maintainable. [Paras 19, 20]

Third party intervention and joinder applications are not permissible at the admission stage and are dismissed.

Procedural objections and interlocutory applications - Disposition of multiple interlocutory applications filed by the Corporate Debtor - HELD THAT: - The Authority examined various interlocutory applications alleging defects, requests for production of originals, challenges to trust registration, alleged abuse of process, invocation of pledged shares, and alleged failures to negotiate settlement. Finding these to be reiterations of objections already considered, barred by settled law, or not material to the Section 7 admission criteria, the Authority dismissed the listed IAs and recorded displeasure at perceived attempts to delay initiation of CIRP. [Paras 19, 20]

The interlocutory applications filed by the Corporate Debtor are dismissed.

Interim Resolution Professional - moratorium - Corporate Insolvency Resolution Process - Reliefs ordered consequent to admission - appointment of IRP and imposition of moratorium - HELD THAT: - Having admitted the Section 7 application, the Adjudicating Authority appointed the named Interim Resolution Professional, directed public announcement and claims submission, and imposed the moratorium in terms of the Code (prohibiting institution/continuation of suits, transfer or disposal of assets, enforcement of security, and recovery of property) subject to statutory exceptions. The directions for initiation of CIRP and related regulatory steps were recorded. [Paras 21, 22]

Interim Resolution Professional appointed, public announcement and claims process ordered, and moratorium imposed until completion of CIRP.

Final Conclusion: The Adjudicating Authority admitted the Section 7 petition filed by the Applicant Asset Reconstruction Company as assignee/trustee, holding that debt and default were established and that the assignee was entitled to file the petition. Challenges to the assignment and various interlocutory applications and third party intervention attempts were rejected. An Interim Resolution Professional was appointed and moratorium was imposed, and the matter was disposed of with directions to notify the parties and proceed with CIRP.

Requirement of prior RBI permission for acquisition under Regulation 7 of FEMA (Acquisition and Transfer of Immovable Property) - Confiscation under Section 13(2) of the Foreign Exchange Management Act, 1999 - Mandatory imposition of penalty under Section 13(1) of the Foreign Exchange Management Act, 1999 - Ex post facto permission by the Reserve Bank of India and its effect on FEMA proceedings - Principles of natural justice - right to cross examine witnesses relied upon by adjudicating authority - Effect of contravention on civil title - transfer not void merely by breach of FEMA/FERA - Judicial discretion in exercise of confiscation power

Requirement of prior RBI permission for acquisition under Regulation 7 of FEMA (Acquisition and Transfer of Immovable Property) - Whether the purchase of eight flats by the appellant contravened Section 6(3)(i) of FEMA read with Regulation 7 of the Acquisition Regulations. - HELD THAT: - The Tribunal found on the material that the eight flats with five parking spaces were purchased without prior permission of the Reserve Bank of India and that Regulation 7 makes prior permission an essential ingredient for nationals of specified countries. Applying the statutory scheme and the factual findings recorded below, the Tribunal held that the purchases contravened clause (i) of sub section (3) of Section 6 read with Regulation 7. The Tribunal accepted the Adjudicating Authority's conclusion on contravention while treating title under civil law as distinct from penal consequences under FEMA. [Paras 24, 25, 28]

Contravention of Section 6(3)(i) read with Regulation 7 established in respect of the eight flats and five parking spaces.

Confiscation under Section 13(2) of the Foreign Exchange Management Act, 1999 - Judicial discretion in exercise of confiscation power - Principles of natural justice - right to cross examine witnesses relied upon by adjudicating authority - Ex post facto permission by the Reserve Bank of India and its effect on FEMA proceedings - Whether the Adjudicating Authority rightly exercised its discretion under Section 13(2) to direct confiscation of the eight flats and five parking spaces. - HELD THAT: - Section 13(2) confers a discretionary power to confiscate property involved in a contravention; it is not mandatory. The Tribunal examined surrounding facts and concluded that the discretion was improperly exercised. The Tribunal relied on multiple reasons: absence of mala fide or foreign exchange loss (payments were in Indian rupees and from domestic loans/income), failure of the Adjudicating Authority to decide or permit cross examination of witnesses whose statements were relied upon (violating principles of natural justice), the pendency (and material relevance) of an application to RBI for ex post facto permission which the Adjudicating Authority declined to await, and subsequent grant of Indian citizenship to the appellant. The Tribunal held these factors required it to set aside the confiscation portion of the impugned order while leaving the finding of contravention intact. [Paras 36, 40, 44, 45, 47]

Order of confiscation under Section 13(2) quashed; Adjudicating Authority's exercise of discretion set aside for reasons stated.

Mandatory imposition of penalty under Section 13(1) of the Foreign Exchange Management Act, 1999 - Whether penalty under Section 13(1) should be imposed and, if so, its quantum. - HELD THAT: - While the Tribunal set aside confiscation under Section 13(2), it sustained the finding of contravention under Section 13(1), observing that imposition of penalty is mandatory upon adjudication of contravention. Having regard to the appellant's changing stands and conduct, the Tribunal exercised its appellate power under Section 19(6) to enhance the penalty. The Tribunal directed payment of the enhanced penalty within a specified period. [Paras 33, 35, 47]

Finding under Section 13(1) upheld; penalty enhanced to Rs. 50 lakhs and directed to be deposited as ordered.

Effect of contravention on civil title - transfer not void merely by breach of FEMA/FERA - Validity of the Adjudicating Authority's conclusion that transfers (gifts) to Ms. Sabah Galadari were ipso facto illegal and that she had no legal right to the flats. - HELD THAT: - The Tribunal reviewed precedent establishing that contravention of foreign exchange acquisition rules does not automatically invalidate civil title passing under registered instruments. Applying those principles, the Tribunal quashed the Adjudicating Authority's categorical finding that the subsequent transfer/gift to Ms. Sabah was ipso facto invalid. The Tribunal observed that inter se disputes (including claims of payment, advances, or equitable mortgages between the parties) fall outside its adjudicatory remit and must be determined by competent civil courts; no final determination on those private rights was made by the Tribunal. [Paras 31, 39, 40, 42, 47]

Findings that the transfers to Ms. Sabah were automatically illegal quashed; inter se claims left to competent civil forum for determination.

Final Conclusion: The Tribunal upheld the finding of contravention of Section 6(3)(i) read with Regulation 7 in respect of the eight flats and five parking spaces but set aside the Adjudicating Authority's confiscation order under Section 13(2) as an improper exercise of discretion (quashed). The penalty under Section 13(1) was sustained and enhanced to the amount directed by the Tribunal. The Tribunal also quashed the Adjudicating Authority's categorical finding that transfers to Ms. Sabah were ipso facto invalid and left inter se disputes between the parties to be decided by the competent civil courts.

Regular bail under Section 439 Cr.P.C - Money-laundering / proceeds of crime - Economic / white-collar offences as grave offences - Interference with investigation and tampering risk - Risk of absconding / flight from justice - Ongoing investigation as factor against bail - Broad probabilities test at bail stage

Regular bail under Section 439 Cr.P.C - Money-laundering / proceeds of crime - Interference with investigation and tampering risk - Risk of absconding / flight from justice - Ongoing investigation as factor against bail - Broad probabilities test at bail stage - Grant of regular bail to the petitioner in the money laundering prosecution - HELD THAT: - The Court rejected the petitioner's contention for bail and held that he is not entitled to be enlarged on bail. The reasons given include: (a) the grave nature and large scale of the alleged money laundering, involving proceeds of crime credited to entities controlled by the petitioner and extensive layering and integration into assets, which renders the offence a serious economic/white collar crime; (b) the investigation is still ongoing in respect of other public servants, associates and properties and the offences are interlinked such that investigation cannot be meaningfully segregated; (c) material on record, including the diaries of proceedings shown to the Court, indicate that despite being in judicial custody the petitioner was influencing co accused and interfering with the investigation, demonstrating a real risk of tampering if released; (d) there are tangible concerns about the petitioner fleeing from justice given his past conduct and the fact that his son (a co accused) has obtained foreign citizenship, notwithstanding seizure of the petitioner's passport; and (e) on the broad probabilities test applicable at the bail stage, these factors weigh decisively against bail. Applying these considerations, and having regard to precedent that white collar/economic offences involving deep rooted conspiracies and large public funds are to be viewed seriously, the Court concluded that bail should be refused. [Paras 18, 19, 20, 21, 22]

Bail application dismissed; petitioner not entitled to grant of regular bail.

Final Conclusion: The petition for regular bail under Section 439 Cr.P.C. is dismissed on grounds of the gravity and scale of the alleged money laundering, ongoing interlinked investigation, risk of tampering with evidence and real possibility of absconding; bail is therefore refused.

Attachment under Section 5 of PMLA - Provisional attachment - Bonafide third party claimant - Secured creditor's charge/encumbrance - Priority of enforcement by secured creditor vis-a -vis PMLA attachment - Coexistence of PMLA and Insolvency Code - Adjudication under Section 8 of PMLA

Secured creditor's charge/encumbrance - Bonafide third party claimant - Priority of enforcement by secured creditor vis-a -vis PMLA attachment - Whether immovable properties mortgaged to banks prior to the alleged commission of scheduled offences are liable to remain subject to PMLA attachment or whether the secured creditors' charge must be satisfied first and the attachment restricted to the surplus value. - HELD THAT: - The Tribunal applied the principle that a bona fide third party claimant who acquired interest prior to the commission of the alleged criminal activity cannot have its lawful security interest defeated merely by an attachment under PMLA. Where a secured creditor had created and registered a charge and initiated enforcement proceedings in accordance with law prior to the PMLA attachment, the attachment remains operative but must give way to satisfaction of the secured creditor's charge; only the value in excess of the secured claim is available for PMLA purposes. The Adjudicating Authority failed to demonstrate material showing that the charges were created to defeat PMLA or that the secured creditors were privy to money laundering, and the properties were shown to have been acquired and charged before the alleged offences. [Paras 31, 32, 33, 34]

The charge/encumbrance of the secured creditors survives the PMLA attachment; the attachment is restricted to the extent of surplus value beyond the secured creditors' claims and the impugned order confirming attachment is set aside in respect of the appellants' mortgaged properties.

Attachment under Section 5 of PMLA - Adjudication under Section 8 of PMLA - Whether the Adjudicating Authority applied its mind and recorded reasons sufficient to justify confirmation of provisional attachment. - HELD THAT: - The Tribunal found that the Adjudicating Authority's order and the show cause material did not disclose any reasoning to show a 'reason to believe' that the appellants were in possession of proceeds of crime or that the secured interests were tainted. The Adjudicating Authority did not examine the banks' case or the replies, and its order lacked application of mind and requisite analysis under Sections 5 and 8 of PMLA. [Paras 37]

The Adjudicating Authority's confirmation of attachment is vitiated by want of reasoned application of mind and is set aside in respect of the appellants.

Coexistence of PMLA and Insolvency Code - Priority of enforcement by secured creditor vis-a -vis PMLA attachment - Whether the Resolution Professional and the Committee of Creditors, acting under the Insolvency and Bankruptcy Code, can seek release of attached assets to pursue CIRP and resolution plans. - HELD THAT: - The Tribunal recorded that a Resolution Professional represents the collective interest of creditors and that the object of the Insolvency Code is maximisation of asset value for stakeholders. Where attachment impedes the CIRP and the secured creditors (as members of the CoC) have lawful charges created prior to alleged offences, the relief to release assets for the CIRP is appropriate subject to preservation of secured creditors' rights and availability of surplus value for PMLA. The Tribunal noted the affidavits and authorisations enabling the RP/CoC to prosecute the appeal. [Paras 28, 29, 30]

The appeal by the Resolution Professional and the Committee of Creditors for release of the attached assets is entertained and allowed to the extent necessary to enable the CIRP, while preserving the secured creditors' legal rights.

Final Conclusion: The impugned order confirming provisional attachment insofar as it affects the mortgaged properties and rights of the secured creditors/Resolution Professional is set aside and the provisional attachment quashed, subject to satisfaction of the secured creditors' charges and preservation of any excess value for PMLA purposes; no costs.

Money-laundering - proceeds of crime - attachment under PMLA - provisional attachment - appeal under Section 26 of PMLA

Proceeds of crime - money-laundering - provisional attachment - attachment under PMLA - Whether House No. M-4/9, DLF Phase II, Gurgaon was acquired from proceeds of crime and therefore liable to attachment under PMLA. - HELD THAT: - The Tribunal examined the timing and sequence of payments for the property vis-a -vis the core transactions relied upon by the respondent. The purchase was finalised in September 2009 with two instalment payments on 25 September 2009 and 29 October 2009. The Citibank Custodian Account said to be the source of proceeds and central to the fraud was opened on 27 October 2009 and, on the material on record, had no transactions prior to November 2009. The respondent did not produce bank statements or other evidence to establish that funds constituting the proceeds of the scheduled offences were used to make the payments for this house prior to the opening of the custodian account or that the property was acquired from tainted funds. The appellant was not charge sheeted, was not an accused in the criminal proceedings, and no objectionable transactions were detected in her accounts. On the basis of the material placed before it, the Tribunal concluded there was no reason to believe, on the facts proved, that the property was purchased from proceeds of crime or was involved in money laundering. [Paras 34, 41]

The provisional attachment of House No. M-4/9, DLF Phase II, Gurgaon is set aside and the attachment is released insofar as this property is concerned; the appellant is liberty to move the Special Court for release of the property in accordance with the provisions of Section 8 of the Act.

Final Conclusion: Appeal allowed insofar as release of the specific property M-4/9, DLF Phase II, Gurgaon; attachment set aside for that property and appellant directed to approach the Special Court under the statutory procedure for formal release. No costs.

Provisional attachment - attachment under PMLA - proceeds of crime - release on deposit/undertaking - no prosecution under scheduled offence

Provisional attachment - release on deposit/undertaking - attachment under PMLA - Whether the immovable property provisionally attached under PMLA could be released to the appellant on the basis of the appellant's undertaking and the post-dated cheques placed on record. - HELD THAT: - The Tribunal recorded the appellant's detailed undertaking and the filing of original post-dated cheques as proof of willingness to deposit the alleged proceeds. Relying on that undertaking and the cheques placed on record, the Tribunal set aside the adjudicating authority's confirmation of the attachment and directed release of the immovable property, subject to the condition that the property shall remain under attachment until the entire alleged proceeds are received by the respondent and the cheques are encashed. The Registrar was authorised to permit the respondent to obtain the original cheques from the record. The order conditions the release on actual receipt/encashment and not merely on the undertaking. [Paras 2, 21, 22, 23, 24]

Impugned order confirming provisional attachment modified: property to be released to appellant only after the respondent receives the entire alleged proceeds by encashment of the post-dated cheques; attachment continues until then.

Proceeds of crime - no prosecution under scheduled offence - Whether the appellant had been prosecuted or charge-sheeted under any scheduled offence in respect of the underlying Rose Valley investigations. - HELD THAT: - The Tribunal noted that no case under any scheduled offence had been filed against the appellant before any Court and that the proceedings and attachment arose from investigations and the case instituted against the Rose Valley Group and its chairman. The Tribunal further recorded that the appellant and his family members were not at any time involved directly or indirectly in running any Ponzi scheme or collection of deposits from the public and that the appellant is a real estate developer. These findings informed the Tribunal's exercise of discretion in accepting the appellant's undertaking and permitting conditional release. [Paras 4, 5, 11, 23]

The Tribunal observed that the appellant has not been charge-sheeted or prosecuted under any scheduled offence; that background influenced acceptance of the undertaking and conditional modification of the attachment order.

Final Conclusion: The Tribunal modified the adjudicating authority's order: the confirmed attachment was set aside subject to the appellant's undertaking and deposit mechanism; the immovable property shall be released only after the respondent receives the entire alleged proceeds by encashment of the post-dated cheques, and the attachment shall continue until such payment is received. No costs were awarded.

Reason to believe - second proviso to Section 5(1) of the Prevention of Money Laundering Act - provisional attachment under PMLA - recording reasons in writing - priority of secured creditor - reverse burden of proof and foundational facts - seizure and retention under Section 17 PMLA - notice under Section 8(1) PMLA

Second proviso to Section 5(1) of the Prevention of Money Laundering Act - reason to believe - recording reasons in writing - provisional attachment under PMLA - Validity of the provisional attachment passed under the second proviso to Section 5(1) PMLA in the absence of separately recorded reasons to believe. - HELD THAT: - The second proviso to Section 5(1) PMLA requires that an officer (not below Deputy Director) must have and record in writing independent 'reasons to believe' that immediate attachment is necessary because non-attachment is likely to frustrate proceedings. The Tribunal found that no separate reasons to believe were recorded at the stage contemplated by the proviso and that the provisional attachment order contains a substantively cut and paste narration of investigative material without an independent application of mind. The proviso is an exception to the general rule and carries additional checks; therefore invocation without complying with the statutory requirement of recording independent reasons renders the attachment unlawful. The Tribunal emphasized that reasons to believe must be recorded in writing, reflect honest and reasonable application of mind and cannot be concealed from the person concerned in a manner contrary to principles of fair procedure. Consequentially, attachments effected by invoking the proviso without the prescribed recording cannot be sustained. [Paras 15, 25, 31, 33, 38]

Provisional attachment effected by invoking the second proviso to Section 5(1) PMLA without recording separate reasons to believe is unsustainable and liable to be set aside in so far as it fails that mandatory requirement.

Priority of secured creditor - provisional attachment under PMLA - notice under Section 8(1) PMLA - Whether fixed deposits held as margin for bank guarantees and subject to the bank's charge could be provisionally attached and whether the Adjudicating Authority erred in confirming attachment against banks that are secured creditors. - HELD THAT: - The Tribunal examined the position of the banks as secured creditors holding exclusive charge over the fixed deposits/margin money for bank guarantees. It held that where there is no material to show nexus or knowledge of proceeds of crime by the bank, the bank's priority as a secured creditor must be respected and the Adjudicating Authority must apply its mind under Section 8(1) before issuing notice. The Tribunal found absence of requisite 'reason to believe' placed on record by the Enforcement Directorate, that the Adjudicating Authority did not adequately consider the bank's secured status, and that the banks were not shown to have any link with money laundering. On that basis the Tribunal set aside the confirmation of attachment insofar as it related to the banks and held that the banks' appeals must be allowed. [Paras 47, 48, 51, 52, 57]

Attachments in respect of the banks' fixed deposits/margin money cannot be sustained; the appeals by the banks are allowed and the impugned order set aside insofar as it affects them.

Seizure and retention under Section 17 PMLA - reason to believe - Requirement to record reasons to believe at the stage of search and seizure under Section 17 and the effect of non recording. - HELD THAT: - The Tribunal observed that separate reasons to believe were required to be recorded prior to search and seizure under Section 17(1) and that in the present case such reasons were not recorded or produced. The absence of those recorded reasons was treated as a further infirmity in the prosecution's case and as indicative of non compliance with mandatory procedural safeguards. The Tribunal noted that retention orders had been previously made by the Adjudicating Authority but stressed that recording of reasons is mandatory and its absence vitiates the exercise of statutory power. [Paras 6, 12, 25, 31]

Non recording of the required reasons to believe at the stage of search/seizure under Section 17 is a material irregularity and undermines the validity of the actions taken under that provision.

Reverse burden of proof and foundational facts - provisional attachment under PMLA - Extent of prosecution's obligation to establish foundational facts before shifting any evidentiary burden to the accused under PMLA. - HELD THAT: - The Tribunal reiterated that presumptions or reverse burdens in statutes like PMLA are permissible only after the prosecution establishes foundational facts on the basis of material. The Enforcement Directorate must first make out a prima facie case of money laundering (placement/layering) supported by material and recorded reasons; only then can any presumptive shift in burden operate. The Tribunal found that the ED had not established such foundational facts on the record presented before it and that conflicting figures produced by investigative agencies (CBI v. ED) further necessitate testing in trial. [Paras 39, 41, 42, 54, 55]

Prosecution must establish foundational facts by evidence and recorded reasons before any reverse burden or presumption can be invoked; absence of such foundation weakens the case for attachment and any shift of burden.

Provisional attachment under PMLA - Final administrative outcome as to quantum to be secured and release of the remainder of attached properties. - HELD THAT: - While setting aside attachments in part, the Tribunal accepted that CBI's charge sheet material supports a recoverable sum limited to the quantified loss relied upon in those proceedings. The Tribunal directed that appellants be secured to the extent of the amount found recoverable on the material relied upon (as recorded in the adjudicatory material) and ordered release of the remaining attached properties. The Tribunal clarified that its decision is interlocutory to the criminal trial and does not preclude adjudication of criminal liability on merits at trial. [Paras 59, 60]

The appellants (other than the banks) are to be secured to the extent of the amount identified in the adjudicatory/CBI material (the quantified recoverable sum); the remainder of attachments is released; appeals partly allowed and impugned orders modified.

Final Conclusion: The Tribunal held that invocation of the second proviso to Section 5(1) PMLA without separately recorded reasons to believe and without an independent application of mind is invalid; attachments effected on that basis could not be sustained. The appeals of the banks were allowed and their challenged attachments set aside on the basis of their secured creditor status and absence of any demonstrated nexus with proceeds of crime. In respect of other appellants the Tribunal partly allowed the appeals, securing only the quantifiable recoverable amount as per the adjudicatory/CBI material and directing release of the remainder, while leaving criminal liability to be determined at trial.

Interim orders under the Prevention of Money Laundering Act - jurisdiction of the Appellate Tribunal to pass interim orders - preservation of proceeds of crime - attachment and possession under Section 8(4) PMLA - principles akin to Order XXXVIII, CPC (remedy before judgment) - constitutional right to property (Article 300 A) weighed against preservation measures

Interim orders under the Prevention of Money Laundering Act - attachment and possession under Section 8(4) PMLA - preservation of proceeds of crime - Confirmation and continuation of the interim order restraining dispossession and maintaining attachment of the specified immovable property until final disposal of the appeal. - HELD THAT: - The Tribunal examined the material on record and found no evidence that the appellant is likely to dispose of the property or that the property was acquired from proceeds of crime. The appeal was already fixed for final hearing and the respondent had not filed a reply to the interim application despite time granted. The Tribunal held that, in the circumstances, the interim order passed on 01.08.2019 should be continued pending final disposal of the appeal and that the appellant's undertaking not to dispose of the property would be accepted. The prayer for stay of the notice under Section 8(4) and related reliefs in the pending applications was therefore allowed and the interim order confirmed until the appeal is finally decided. [Paras 16, 19]

Interim order of 01.08.2019 confirmed; attachment and status quo in respect of the property to continue till final disposal of the appeal; applications disposed of.

Jurisdiction of the Appellate Tribunal to pass interim orders - principles akin to Order XXXVIII, CPC (remedy before judgment) - constitutional right to property (Article 300 A) weighed against preservation measures - Scope of the Tribunal's power to grant interim relief under PMLA and the legal balance between property rights and preservation of proceeds of crime. - HELD THAT: - The Tribunal observed that Section 35 of PMLA empowers it to regulate its procedure and to pass interim orders guided by principles of natural justice. The object of PMLA to preserve proceeds of crime until final adjudication was noted and compared with pre existing remedies (Order XXXVIII, CPC) for preservation before judgment. The Tribunal held that possession under Section 8(4) need not always mean actual physical possession and that preservation measures are permissible where a prima facie case exists or there is material to show risk of frustrative disposition. However, in the present case no such material was found and therefore the continuation of the interim order was ordered on the basis of the record and the appellant's undertaking. [Paras 4, 5, 6, 8, 9]

The Appellate Tribunal has jurisdiction to pass interim orders under PMLA; preservation measures under the Act are to be exercised where justified, balancing property rights and the object of confiscation, and such principles informed the Tribunal's decision to continue the interim order in this matter.

Final Conclusion: The Tribunal confirmed the interim order of 01.08.2019, ordered maintenance of status quo and attachment of the specified property until final disposal of the appeal, accepted the appellant's undertaking not to dispose of the property, and disposed of the interim applications accordingly.

Priority of a bona fide secured creditor's charge vis-a -vis attachment under PMLA - provisional attachment under PMLA - requirement of material showing possession of proceeds of crime - bonafide third party claimant - proof of lawful acquisition, adequate consideration and due diligence - effect of prior enforcement under SARFAESI on PMLA attachment - impact of NCLT moratorium on continuation of civil adjudication under PMLA

Priority of a bona fide secured creditor's charge vis-a -vis attachment under PMLA - bonafide third party claimant - proof of lawful acquisition, adequate consideration and due diligence - effect of prior enforcement under SARFAESI on PMLA attachment - Validity of confirmation of provisional attachment of the mortgaged property under PMLA where a secured creditor had created and enforced its charge prior to the PMLA attachment - HELD THAT: - The Tribunal applied the principle that an attachment under PMLA does not ipso facto extinguish a prior bona fide security interest: where a secured creditor had created its mortgage and initiated enforcement under SARFAESI before the PMLA attachment, the PMLA directions operate subject to satisfaction of the secured creditor's charge and are restricted to the value in excess of that claim. The Tribunal relied on the approach in the Delhi High Court's Axis Bank decision that a third party claiming an interest must establish by cogent evidence lawful acquisition for adequate consideration, absence of complicity in the offence, and compliance with statutory formalities; if so established, the property (or that part of it) cannot be treated as proceeds of crime for purposes of confiscation. The appellant bank had taken possession under SARFAESI before the PMLA attachment, pursued recovery proceedings and undertaken due diligence; the Adjudicating Authority failed to apply its mind to these facts and the established legal tests before confirming attachment. Consequently the confirmation of the provisional attachment in respect of the mortgaged property was quashed and the appellants were left free to pursue their statutory remedies, subject to depositing any excess realisation with the Enforcement Directorate as may be appropriate. [Paras 12, 13, 14, 15, 40]

Confirmation of the provisional attachment insofar as it affected the mortgaged property was set aside; the secured creditor's rights to enforce its charge (subject to satisfaction and accounting for any excess) survive the PMLA attachment.

Provisional attachment under PMLA - requirement of material showing possession of proceeds of crime - impact of NCLT moratorium on continuation of civil adjudication under PMLA - Whether the Adjudicating Authority properly applied legal standards for provisional attachment under Section 5(1) of PMLA and whether PMLA adjudication should have continued despite an NCLT moratorium - HELD THAT: - The Tribunal held that Section 5(1) requires prima facie material showing that the property is proceeds of crime or is likely to be concealed, transferred or dealt with so as to frustrate confiscation; the Adjudicating Authority's order and accompanying show-cause lacked reasoned material demonstrating such a nexus in respect of property already in possession of the secured creditor. The Tribunal found that the Adjudicating Authority failed to consider the appellants' replies and relevant facts, and that continuation of PMLA proceedings in the face of an NCLT moratorium was contrary to legislative intent; accordingly the adjudicatory process under Section 8 should have been stayed. On these grounds the confirmation of attachment was vitiated for want of application of mind and appropriate appraisal of law and facts. [Paras 33, 37, 39, 40]

The Adjudicating Authority's confirmation of provisional attachment was quashed for lack of requisite prima facie material and for continuing PMLA adjudication despite the effect of NCLT moratorium; the proceeding and attachment were set aside.

Final Conclusion: Both impugned orders confirming provisional attachment were set aside: the attachment of the mortgaged property (Hotel Radisson Blu, Plot No. 4, Sector 13, Dwarka) was quashed, the appellants are at liberty to pursue enforcement of their security in accordance with law, and any excess realisation may be accounted to the Enforcement Directorate as required.

Writ jurisdiction - Exercise of discretionary writ jurisdiction where alternate statutory remedy exists - Appeal to Commissioner (Appeals) as an alternative statutory remedy under Section 35 - Disputed question of fact - Rejection of refund claim for non-production of original input/output invoices - Obligation to satisfy Rule 5 of the CENVAT Credit Rules and Rule 6A of the Service Tax Rules when claiming refund

Writ jurisdiction - Exercise of discretionary writ jurisdiction where alternate statutory remedy exists - Appeal to Commissioner (Appeals) as an alternative statutory remedy under Section 35 - Whether this Court should exercise writ jurisdiction to entertain challenge to the Assistant Commissioner's order rejecting the refund claim despite availability of an appeal under Section 35 of the Central Excise Act - HELD THAT: - The court found that the impugned order is appealable to the Commissioner (Appeals) under Section 35 of the Central Excise Act. The petition involves disputed questions of fact concerning the production and loss of original documents and the materiality of those documents to the refund claim. Given the existence of the efficacious statutory remedy of appeal and the presence of disputed factual questions that require factual enquiry, the court declined to exercise its writ jurisdiction. The court observed that factual disputes and the availability of the statutory appellate forum weigh against invoking extraordinary writ relief and that such disputes should be adjudicated in the statutory appeal. [Paras 6, 8]

Writ jurisdiction refused; writ petition rejected and petitioner directed to pursue remedy by filing an appeal under Section 35.

Disputed question of fact - Rejection of refund claim for non-production of original input/output invoices - Obligation to satisfy Rule 5 of the CENVAT Credit Rules and Rule 6A of the Service Tax Rules when claiming refund - Whether original documents were submitted and/or lost by the Department and whether the absence of original invoices justified rejection of the refund claim - HELD THAT: - The petitioner asserted that original documents were submitted and subsequently misplaced by the Department; the Assistant Commissioner denied any admission of loss and filed an affidavit stating that the petitioner did not specify details of original documents purportedly submitted. The impugned order records non-production of original input and output invoices, copies of self attested invoices and nexus statements required under Rule 5 of the CENVAT Credit Rules and Rule 6A of the Service Tax Rules. The court found these questions to be factual and disputed, not amenable to resolution in writ proceedings, and held that they must be examined in the statutory appeal where factual enquiry can be undertaken and evidence tested. [Paras 7]

Not decided on merits by this Court; factual controversy left to be decided in the statutory appeal to the Commissioner (Appeals).

Final Conclusion: The writ petition challenging rejection of the refund claim is dismissed for want of jurisdiction to entertain disputed questions of fact in the presence of an alternate statutory appeal under Section 35; petitioner is permitted to file an appeal before the Commissioner (Appeals) within 60 days for determination of the factual and substantive issues on merits.

Permission to withdraw writ - alternative remedy of appeal under Section 35-G of the Central Excise Act, 1944 - dismissal for want of grounds in the grounds of appeal - application for raising additional grounds not maintainable

Permission to withdraw writ - alternative remedy of appeal under Section 35-G of the Central Excise Act, 1944 - Petitioner permitted to withdraw the writ petition to enable filing of proper statutory appeal under Section 35-G of the Central Excise Act, 1944, in respect of service tax matters. - HELD THAT: - The Court, on request of learned counsel for the petitioner and upon recognising that the appropriate remedy was a statutory appeal under Section 35-G (as applicable to service tax matters), allowed the petitioner to withdraw the writ so that the petitioner may pursue the proper appellate remedy. The Court did not adjudicate the merits of the challenges to the tribunal orders but granted liberty to avail the alternative remedy identified by the Court.

Writ petition dismissed as withdrawn with liberty to file the statutory appeal under Section 35-G.

Final Conclusion: The writ petition was dismissed as withdrawn and the petitioner was granted liberty to pursue the appropriate appeal under Section 35-G of the Central Excise Act, 1944; no adjudication was made on the merits of the tribunal orders.

Monetary jurisdiction threshold - Maintainability of appeal - Instruction of CBIC on pecuniary limits - Withdrawal of appeal with liberty to raise questions of law

Monetary jurisdiction threshold - Maintainability of appeal - Instruction of CBIC on pecuniary limits - Appeal not maintainable before the High Court as the demand falls below the pecuniary threshold specified in the Departmental instruction. - HELD THAT: - Learned counsel for the appellant expressly admitted that, in view of the instructions dated 22.8.2019 issued by the Ministry of Finance (Department of Revenue, CBIC Judicial Cell), the instant appeal would not be maintainable before this Court because the demand of Rs. 75,10,289/- is below the monetary limit of Rs. 1 crore. On that concession the appellant sought withdrawal of the appeal. The Court accepted the position and dismissed the appeal as withdrawn while keeping open the substantive questions of law raised by the appellant.

Appeal dismissed as withdrawn on the basis that it is not maintainable in view of the departmental instruction regarding pecuniary limits; questions of law left open.

Final Conclusion: The High Court dismissed the appeal as withdrawn because the admitted demand falls below the CBIC-prescribed monetary threshold for maintainability before this Court; the substantial questions of law raised remain open for future adjudication.

Levy of entry tax on goods imported from outside India - Taxable event as entry into local area - Assessment year as separate unit of taxation - Section 4(6) - exemption where goods sold in course of export - No remission provision in the Old Act

Levy of entry tax on goods imported from outside India - Taxable event as entry into local area - No remission provision in the Old Act - Whether entry tax was rightly levied on machinery brought into the local area Allahabad during A.Y.2000-01 although those goods had been imported from outside India. - HELD THAT: - The Court held that under the Old Act the charge to entry tax arises upon entry of taxable goods into a local area from any place outside that local area for consumption, use or sale. The Schedule plainly included machinery of the value in question and there was no provision in the Old Act exempting imported goods or providing for remission of tax paid on such goods. The Supreme Court authority relied upon establishes that entry tax may be levied on goods imported into India once importation is complete and goods are released for home consumption. Consequently the taxable event occurred when the assessee caused entry of the machinery into the local area for use during A.Y.2000-01 and the tax liability attached at that time. [Paras 10, 11]

Levy of entry tax for A.Y.2000-01 on the machinery was valid and the assessee's contention that importation from outside India exempted the entry was rejected.

Assessment year as separate unit of taxation - Section 4(6) - exemption where goods sold in course of export - Whether the subsequent export of the machinery in A.Y.2004-05, and the exemption language in Section 4(6) of the New Act, extinguished the entry tax liability that crystallized in A.Y.2000-01. - HELD THAT: - The Court applied the principle that each assessment year is a separate self-contained unit for taxation; a taxable event and the tax liability arising therefrom are to be assessed with reference to the assessment year in which the event occurred. Absent explicit legislative provision to the contrary, subsequent events in later assessment years do not undo or negate a completed taxable event in an earlier year. Although the New Act contains Section 4(6) which exempts certain goods sold in the course of export, that provision does not retroactively erase a tax liability which had already crystallized and been payable for the earlier assessment year. Further, the New Act provides mechanisms (for example under Section 5) for refund/adjustment where applicable; no such claim was pursued before the Tribunal and therefore the subsequent export in A.Y.2004-05 did not affect the liability for A.Y.2000-01. [Paras 13, 15, 18, 20]

The export of the machinery in A.Y.2004-05 did not negate or wipe out the entry tax liability that crystallized on entry and use in A.Y.2000-01; Section 4(6) of the New Act does not operate to relieve that earlier liability in the facts of this case.

Final Conclusion: Revision dismissed; the entry tax liability crystallized upon entry and use of the machinery in A.Y.2000-01 and was not negated by subsequent export in A.Y.2004-05; no merit in the assessee's contention.

Application under Section 34 of the Arbitration and Conciliation Act, 1996 - summary proceedings - adducing fresh evidence - record of the Arbitral Tribunal - affidavits and cross-examination in Section 34 proceedings - exceptional circumstances - expeditious disposal and one year time-limit - supervisory jurisdiction under Articles 226 and 227 of the Constitution

Application under Section 34 of the Arbitration and Conciliation Act, 1996 - summary proceedings - record of the Arbitral Tribunal - Whether determination under Section 34 ordinarily requires anything beyond the record before the arbitral tribunal - HELD THAT: - Proceedings under Section 34 are summary in nature and intended for expeditious disposal. Ordinarily an application for setting aside an arbitral award will not require anything beyond the record that was before the arbitrator. The Court emphasises that the grounds for setting aside are specific and the Section 34 enquiry is restricted to whether any such ground under Section 34(2) is made out by reference to the arbitral record. This approach is reinforced by amendments to Section 34 introducing a prior notice requirement and mandating disposal within one year, reflecting the legislative objective of minimizing delay and avoiding a retrial of merits. [Paras 9, 17]

Ordinarily Section 34 proceedings shall be decided on the basis of the arbitrator's record without adducing fresh evidence.

Adducing fresh evidence - affidavits and cross-examination in Section 34 proceedings - exceptional circumstances - Whether parties may be permitted to adduce additional evidence or file affidavits and whether cross-examination should be allowed in Section 34 proceedings - HELD THAT: - While the starting point is the arbitral record, the Court recognised that matters not contained in the arbitral record and relevant to issues under Section 34(2)(a) may be brought to the court's notice by affidavits filed by both parties. Cross examination of deponents to such affidavits should not be permitted except when absolutely necessary. Permission to adduce additional evidence requires a clear showing of necessity and relevance; unspecified or generalized assertions of intending to produce additional evidence do not satisfy this requirement. The object of the statutory amendments (Sections 34(5) and (6)) is to prevent protracted procedures that would defeat the Act's intent. [Paras 17, 18]

Affidavits may be permitted to place before the court matters not in the arbitral record, but cross examination is to be allowed only if absolutely necessary and additional evidence must be shown to be necessary and relevant.

Supervisory jurisdiction under Articles 226 and 227 of the Constitution - Whether the High Court was justified in interfering with the District Judge's refusal to permit fresh evidence and ordering framing/recasting of issues - HELD THAT: - The District Judge dismissed the interlocutory application because the grounds urged could be met from the arbitral record and the award, and the applicants did not specify the nature or necessity of the additional evidence sought. The High Court's direction to "recast the issues" and permit affidavits and cross examination would amount to a retrial on merits and defeat the summary character and the statutory time frame for Section 34 proceedings. In absence of perversity in the District Judge's order, the High Court should not have interfered under its supervisory jurisdiction. [Paras 5, 19, 20]

High Court's interference was unwarranted; the District Judge's order refusing permission to adduce fresh evidence is affirmed.

Final Conclusion: The appeals are allowed; the High Court judgment permitting recasting of issues, affidavits and cross examination is set aside. Ordinarily Section 34 applications are to be decided on the arbitral record; affidavits and cross examination are exceptional measures requiring clear necessity. The District Judge's refusal to permit additional evidence is affirmed and the Section 34 petition is to be taken up and disposed of expeditiously in accordance with law.

Contempt of court - appropriation of sale proceeds - assignment of debts - enforcement of security interest - interim appellate direction - deposit subject to outcome

Contempt of court - appropriation of sale proceeds - deposit subject to outcome - Whether Alchemist is liable for contempt for not paying the sum directed to be paid to Kotak Mahindra Bank and the appropriate remedial direction. - HELD THAT: - The Court noted that both the High Court and this Court had directed that out of amounts realised by sale of the borrower's properties, Rs. 4.5 crores was to be paid to Kotak Mahindra Bank and Rs. 9 crores retained by Alchemist, with any surplus deposited in Court; these directions were not varied or vacated. Although Alchemist belatedly contended entitlement to a larger share as assignee and sought modification in the High Court, there was no justification for withholding the payment ordered by this Court. The Court observed that the application for modification was filed only in February 2017 despite liberty being granted in July 2014 and that Alchemist deposited the sum of Rs. 4.5 crores only after litigation and communications from Kotak Mahindra Bank. In view of the deposit and the surrounding facts, the Court found it unnecessary to initiate penal contempt proceedings, but required that the deposited sum be paid to Kotak Mahindra Bank subject to the contingencies recorded. [Paras 11, 12, 14]

The Rs. 4.5 crores deposited by Alchemist shall be paid to Kotak Mahindra Bank, and the contempt petitions are closed on this basis.

Interim appellate direction - enforcement of security interest - assignment of debts - Whether the question of the correctness of the sale, the proper conduct of the sale proceedings, and the exact amount due to Kotak Mahindra Bank should be adjudicated by this Court or examined by the High Court. - HELD THAT: - The Court declined to adjudicate disputed questions arising out of interim orders of the High Court concerning the propriety of the sale and contested entitlement to proceeds; it considered that such matters are better addressed by the High Court. Consequently, the Court directed that payment of the deposited sum be made to Kotak Mahindra Bank subject to the High Court's determination of the actual amount due. If the High Court finds a lesser amount due to Kotak Mahindra Bank, Kotak Mahindra Bank is directed to refund the excess with interest as determined by the High Court. [Paras 7, 13, 14]

The issues concerning conduct of the sale and the precise entitlement to proceeds are left for determination by the High Court; payment made under this order is subject to the High Court's final decision and consequent refund if necessary.

Final Conclusion: Alchemist's deposited sum of Rs. 4.5 crores shall be paid to Kotak Mahindra Bank forthwith; the payment is made subject to the High Court's determination of the actual amount due, and if the High Court finds a lesser entitlement to Kotak Mahindra Bank, the bank must refund the excess with interest. The contempt petitions are closed accordingly.

Pre-emptive purchase under Chapter XX-C - Under-valuation and market value comparison - Interpretation of agreement to sell regarding encumbrances and payment of outstanding dues

Pre-emptive purchase under Chapter XX-C - Under-valuation and market value comparison - Validity of the Central Government's decision to acquire the petitioners' apartment by pre-emptive purchase on the ground of under-valuation. - HELD THAT: - The appropriate authority acted on receipt of an agreement to sell of a similar apartment in the same building showing a substantially higher value. The Court accepted the authority's comparison with apartment No.62-B in the same block, concluding that the petitioners' declared sale price was materially lower than the contemporaneous market value, thereby justifying acquisition under Chapter XX-C. The petitioners' reliance on an asserted higher 'cost of acquisition' shown elsewhere was insufficient to displace the conclusion that the property was being sold at a price significantly below market value; the authority's use of the comparable agreement to assess true market value was not faulted.

The Court upheld the Central Government's pre-emptive purchase as justified by under-valuation assessed by reference to a comparable contemporaneous sale.

Interpretation of agreement to sell regarding encumbrances and payment of outstanding dues - Whether the unpaid amount shown as due to the developer was a liability to be discharged by the purchaser or remained the petitioners' obligation. - HELD THAT: - The Court examined the terms of the agreement to sell, noting clauses which (a) specify the total sale price and the 'balance price' payable at registration, (b) allocate registration and other incidental expenses to the purchaser, and (c) state the property is to be free from encumbrances while separately requiring the vendor to clear outstanding utility and similar dues up to registration. The agreement did not expressly provide that the purchaser would assume the unpaid dues to the developer. The Court therefore held that the unpaid sum could not be read as a purchaser's liability merely because it appeared in Form 37-I; the agreement's language indicates the petitioners remained responsible for such outstanding amounts unless expressly agreed otherwise.

The unpaid amount to the developer was not to be treated as the purchaser's liability under the terms of the agreement; the petitioners remained responsible.

Final Conclusion: The petition challenging the Central Government's pre-emptive acquisition was dismissed: the acquisition was sustained as founded on under-valuation established by a contemporaneous comparable sale, and the agreement to sell does not place the developer-dues liability on the purchaser.