TaxTMI Updates e-Newsletter
Sep 29,2020

Investigation into related business entities - maintenance of books of accounts in business premises under Section 35 of the CGST and KsGST Act, 2017 - digital maintenance of accounts - departmental discretion in allocation of investigating officer - assessee's inability to choose investigating officer - judicial interference under Article 226 - production of books of accounts in digital mode

Investigation into related business entities - departmental discretion in allocation of investigating officer - assessee's inability to choose investigating officer - Whether the High Court should direct transfer of investigation from the officer authorised at Ernakulam to an officer at Kollam or require the Department to sit at Kollam for the petitioners' matters. - HELD THAT: - The Court upheld the learned Single Judge's conclusion that the State's tax officers conducting investigation at Ernakulam were authorised to continue proceedings. The Department had recorded substantial factual grounds-including numerous inspections concentrated in Ernakulam and Thrissur and variations in stock at the Ernakulam branch-justifying continuation by the Ernakulam officer. The Court rejected the contention that the petitioners may dictate the situs of investigation or select the investigating officer; allocation of officers is a matter for the Department's administration and not the assessee's choice. Requests based on location of the petitioners' lawyer or convenience were held insufficient to displace the Department's decision to proceed at Ernakulam. [Paras 3, 4, 5]

Refusal to transfer the investigation or require the Ernakulam officer to conduct proceedings from Kollam affirmed; no interference under Article 226 with the Department's allocation of the investigating officer.

Maintenance of books of accounts in business premises under Section 35 of the CGST and KsGST Act, 2017 - digital maintenance of accounts - production of books of accounts in digital mode - Whether the petitioners' claim that books are maintained at Head Office in Kollam justifies shifting proceedings, and whether books may be produced in digital form. - HELD THAT: - Relying on the Department's statement and the statutory requirement that books be maintained at business premises, the Court accepted the Department's position that the books could not be treated as necessarily located at the Head Office for purposes of shifting the investigation. The Department also stated that accounts are maintained digitally, undermining the petitioners' ground that voluminous physical transport justified relocation. Consequently, the Court allowed production of books in digital mode and granted the petitioners one month's time for production from the date of the order. [Paras 3, 6]

Petitioners' contention about books being at Head Office rejected; production may be in digital mode and one month's time granted for production.

Judicial interference under Article 226 - Whether any additional protective directions were required concerning supply of copies of documents seized and intended to be relied on by the Department. - HELD THAT: - The Court noted that the learned Single Judge had already made adequate safeguards regarding supply of copies of seized documents, which were not challenged before the Division Bench. The Court reiterated and reaffirmed those safety measures without altering them. [Paras 6]

Existing safeguards regarding supply of copies of seized documents affirmed; no further directions issued.

Final Conclusion: Writ appeals dismissed in limine; no interference with the Single Judge's refusal to transfer or relocate the investigation, production of books allowed in digital mode with one month's time, and prior safeguards for supply of seized documents reaffirmed.

Right to production of impugned order - remedy under the CGST Act - direction for expeditious adjudication - preservation of merits for adjudicatory authority

Right to production of impugned order - remedy under the CGST Act - Supply of a copy of the order leading to the demand order to the petitioner's counsel and recognition of alternate statutory remedies. - HELD THAT: - The High Court directed that a copy of the order passed by the authorities which led to the demand order dated 29.06.2020 be supplied to the petitioner through its counsel by the next day. The court refrained from examining contested factual assertions about prior proceedings, noting that the petitioner has efficacious remedies under the CGST Act and that receipt of the order would enable the petitioner to pursue appeal or revision under the statutory scheme. The court thereby ensured access to the document necessary for invoking statutory remedies without adjudicating the substantive merits of the demand.

Copy of the impugned order to be supplied to the petitioner's counsel forthwith; petitioner to be left to pursue remedies under the CGST Act.

Direction for expeditious adjudication - preservation of merits for adjudicatory authority - Obligation of the adjudicatory authority to decide any proceedings initiated by the petitioner expeditiously, with merits left open. - HELD THAT: - Upon the petitioner taking recourse to the statutory remedies, the court directed the adjudicatory authority to decide the matter expeditiously and preferably within three months. The court explicitly left all issues on merits open for the adjudicatory authority to consider, and recorded undertakings as to cooperation and avoidance of unnecessary adjournments. The direction constitutes a remit to the competent authority to dispose of the proceedings promptly, without the High Court expressing any view on substantive questions raised in the petition.

Adjudicatory authority to decide the petitioner's proceedings expeditiously (preferably within three months); merits not decided by the High Court.

Final Conclusion: Writ petition disposed by directing immediate supply of the order underlying the demand notice and mandating expeditious adjudication by the competent authority; substantive issues left open for decision under the CGST Act.

Release of detained goods and conveyance on deposit and bank guarantee - right to be heard before action under Section 130 of the Act - challenge to show cause notice not pressed - authority's liberty to proceed in accordance with law

Release of detained goods and conveyance on deposit and bank guarantee - challenge to show cause notice not pressed - right to be heard before action under Section 130 of the Act - authority's liberty to proceed in accordance with law - Direction for release of the detained truck and goods on deposit of tax and penalty and furnishing of a bank guarantee, without adjudicating merits of the show cause notice - HELD THAT: - The petitioner did not press the challenge to the impugned Form GST MOV-10 notice but sought release of the detained truck. The petitioner offered to deposit the tax and penalty and to furnish a bank guarantee for the balance said to represent the value of the confiscated conveyance. Exercising supervisory jurisdiction under Article 226, the Court directed immediate release of the goods and conveyance on deposit of the tax and penalty and on furnishing of the bank guarantee of the balance amount. The Court recorded that it has not gone into the merits of the matter and that the competent authority remains free to proceed further in accordance with law. The petitioner was also afforded the opportunity of being heard before any order under Section 130 is passed by the authority.

The petition is disposed by directing deposit of tax and penalty and furnishing of a bank guarantee for the balance; on compliance the authority shall release the goods and conveyance, while retaining liberty to continue statutory proceedings.

Final Conclusion: Petition disposed directing release of the detained truck and goods on deposit of tax and penalty and on furnishing a bank guarantee for the balance; the Court did not adjudicate the merits of the show cause notice and the authority may proceed in accordance with law.

Detention of goods under GST - stock transfer vs. sale under GST - e.way bill and invoice mismatch - verification of GST registration on portal - payment under economic duress and refund - interest on refund

Detention of goods under GST - e.way bill and invoice mismatch - stock transfer vs. sale under GST - verification of GST registration on portal - Detention of the vehicle and recovery of tax and penalty from the petitioner was unsustainable. - HELD THAT: - The Court found on the material before it that the petitioner's Telangana registration itself disclosed principal place of business at Hayathnagar and an additional place of business at Bongulur village, Ibrahimpatnam Mandal. The detaining officer's conclusion of mismatch between the e.way bill/invoice and actual destination was incorrect because the destination (Bongulur depot) formed part of the petitioner's registered places of business. The respondents could and should have verified these particulars on the GST portal. The petitioner's transfer of goods from its Ranipet office to its depot at Bongulur was a stock transfer and did not involve any illicit sale attracting tax and penalty; the payment made to secure release of goods was made under economic compulsion and did not validate the demand. [Paras 12, 13, 14, 15, 16]

Detention and demand of tax and penalty were illegal and unsustainable; the collection was made when the petitioner's registered details already disclosed the destination depot.

Payment under economic duress and refund - interest on refund - Tax and penalty collected from the petitioner must be refunded with interest and costs. - HELD THAT: - Because the collection was held to be wrongful and was paid by the petitioner under apprehension of confiscation and arrest, the respondents were directed to refund the amounts collected. The Court specified that the refund include interest at the stated rate from the date of collection until payment and also awarded costs to the petitioner. The direction is final and unconditional subject to the time frame specified by the Court. [Paras 17]

Respondents directed to refund the tax and penalty with interest and to pay costs to the petitioner.

Final Conclusion: Writ petition allowed; respondents directed to refund the tax and penalty collected (paid under economic duress) with interest and to pay costs to the petitioner.

Inspection under Section 67(1) of the Central GST Act, 2017 - summons under Section 70 of the Central GST Act, 2017 - demand under Section 73 or 74 of the CGST Act, 2017 - solicitation of particulars during an ongoing investigation - preliminary communication not amounting to a demand

Solicitation of particulars during an ongoing investigation - preliminary communication not amounting to a demand - demand under Section 73 or 74 of the CGST Act, 2017 - Whether the impugned communications requesting particulars during an ongoing DGGI investigation amount to a basis for immediate demand or for quashing by writ. - HELD THAT: - The communications dated 15.07.2020 and 18.07.2020 merely sought information and particulars from the petitioner in the course of an investigation authorised by an inspection order under Section 67(1) and accompanied by summons under Section 70. The office communication expressly records that the investigation is continuing and that any demand would be issued, after completion of the investigation, by way of a notice under Section 73 or 74 in accordance with law. The court therefore found that the impugned communications do not themselves raise a demand nor do they furnish a legal basis for the apprehension that a demand has already been or will be raised on the strength of those communications alone. Given that no demand has been made and further action is to follow statutory procedure, there is no ground to quash the communications at this interlocutory stage. [Paras 3, 4]

The writ petitions are closed as the impugned communications are requests for particulars in an ongoing investigation and do not amount to a demand; no costs.

Final Conclusion: The High Court closed the writ petitions, recording that the impugned communications only solicited particulars in the course of an ongoing DGGI investigation and did not by themselves constitute a demand; any demand will be issued only after completion of the investigation in accordance with law.

Maintainability of appeal in respect of issues not covered by revision notice under Section 263 - scope of revision under Section 263 - remand for fresh adjudication on merits - quashing of appellate and tribunal orders

Maintainability of appeal in respect of issues not covered by revision notice under Section 263 - scope of revision under Section 263 - Appeal was maintainable in respect of those grounds which were not the subject matter of the notice issued under Section 263 of the Act and therefore required adjudication on merits by the Commissioner of Income Tax (Appeals). - HELD THAT: - The Court held that the scope of revision under Section 263 is limited to the matters specified in the notice under that provision and does not oust the appellate forum of its jurisdiction to adjudicate grounds in an appeal which were not touched by the revision notice. Where an appeal raises issues beyond the scope of the Section 263 notice, the Commissioner of Income Tax (Appeals) ought to have considered and decided those grounds on merits rather than treating the appeal as infructuous. Applying this principle to the facts, the Court found that the Commissioner of Income Tax (Appeals) and the Tribunal erred in refusing to adjudicate the appeal insofar as it related to matters not subject to the Section 263 notice, and thus those portions of the appellate proceedings must be reopened for decision on merits. [Paras 5]

First substantial question of law answered in favour of the assessee; the Commissioner of Income Tax (Appeals) ought to adjudicate the appeal afresh on merits in respect of grounds not subject to the Section 263 notice.

Remand for fresh adjudication on merits - quashing of appellate and tribunal orders - Orders of the Commissioner of Income Tax (Appeals) and the Tribunal were quashed and the matter remitted for fresh adjudication on the limited scope identified by the Court. - HELD THAT: - Having concluded that the appeal was maintainable in respect of issues outside the Section 263 notice, the Court set aside the orders of the Commissioner of Income Tax (Appeals) and the Tribunal insofar as they failed to decide such issues. The matter was remitted to the Commissioner of Income Tax (Appeals) with a direction to adjudicate the appeal afresh on merits in respect of those grounds. The Court did not consider it necessary to answer the remaining substantial questions of law because the resolution of the first question dictated the appropriate remedy. [Paras 5]

Orders of the Commissioner of Income Tax (Appeals) and the Tribunal quashed; appeal remitted to the Commissioner of Income Tax (Appeals) for fresh adjudication on merits in respect of grounds not subject to the Section 263 notice.

Final Conclusion: The appeal is allowed to the extent indicated: the orders of the Commissioner of Income Tax (Appeals) and the Tribunal are quashed and the matter remitted to the Commissioner of Income Tax (Appeals) to decide afresh on merits those grounds which were not the subject matter of the Section 263 notice.

Appropriateness of transfer pricing method - CUP method versus Transactional Net Margin Method (TNMM) - arm's length price - remand for fresh adjudication - allowability of commission as business expenditure - onus on the assessee to prove agency services - finality of adjudication and expeditious disposal

Appropriateness of transfer pricing method - CUP method versus Transactional Net Margin Method (TNMM) - arm's length price - remand for fresh adjudication - finality of adjudication and expeditious disposal - Whether the Tribunal correctly held that the CUP method was the appropriate method for determining the arm's length price for AY 2009-10 and whether the remand made by the Tribunal was proper. - HELD THAT: - The High Court held that the selection of the most appropriate transfer pricing method is a fact driven determination for the fact finding authorities and not a question of law (para 13). However, the Court found that the Tribunal had misread its earlier order dated 21.12.2012: that earlier order constituted an open remand and did not finally select CUP over TNMM (paras 14-15). The High Court observed that the Tribunal's impugned order effectively treated CUP as finally decided for the assessee and remitted the computation to lower authorities, which has spawned multiplicity of litigation and repeated remands (paras 16-18). The Court directed that the Tribunal, as the final fact finding appellate forum, should decide the appropriateness of the method on merits, calling and considering relevant evidence (including external comparables) and avoid further open remands; mathematical computation could be left to authorities below if appropriate (paras 17-18). The Tribunal's order for AY 2009 10 was set aside and the matter was remitted back to the Tribunal to decide the issue on merits after giving both parties an opportunity and, if necessary, permitting additional evidence (para 20). [Paras 15, 16, 17, 18, 20]

Tribunal's finding that CUP was the appropriate method was set aside as based on a misreading of its earlier order; the matter is remitted to the Tribunal to determine on merits which TP method is most appropriate for AY 2009-10, with liberty to call evidence and to conclude the appeals without further open remands.

Allowability of commission as business expenditure - onus on the assessee to prove agency services - arm's length price - remand for fresh adjudication - Whether the commission paid to M/s. The Central Agency (TCA) should be allowed as business expenditure for AY 2009-10 or whether the TPO/Tribunal could treat the arms length price as nil in absence of proof of services. - HELD THAT: - The High Court noted the Tribunal had disallowed the commission on the ground that the assessee failed to produce evidence of agency services and that mere invoices did not prove services rendered; onus to show services rested on the assessee (para 4). The Court found the Tribunal's reasons insufficiently distinguishable from precedent relied upon by the assessee and left the issue open for the Tribunal to re decide after examining the past history and materials (para 19). The High Court therefore set aside the Tribunal's order and remitted the question for fresh and fair consideration by the Tribunal in the light of available materials and allowing both sides to adduce evidence (para 20). [Paras 4, 19, 20]

Tribunal's disallowance is set aside and the question of allowability of the commission to TCA is remitted to the Tribunal for fresh consideration on the merits, with liberty to examine past years' treatment and to permit additional evidence.

Final Conclusion: The order of the Tribunal dated 16.11.2016 for AY 2009-10 is set aside. Both the question of the appropriate transfer pricing method (CUP v. TNMM) and the allowability of commission paid to the Central Agency are remitted to the Tribunal for fresh, merit based adjudication after affording parties an opportunity to adduce evidence; the Tribunal is requested to decide the appeals within six months.

Violation of principles of natural justice - ex parte / best judgment assessment made without hearing - obligation to disclose to assessee information relied upon by assessing officer - maintainability of writ under Article 226 notwithstanding alternative statutory remedy where natural justice is breached - effect of an order of a Court on limitation - time extension for completion of assessment under Section 153(6)(i) - remand for de novo assessment with direction to afford opportunity of hearing - lifting of bank attachment and refund consequent to quashing of assessment

Violation of principles of natural justice - ex parte / best judgment assessment made without hearing - obligation to disclose to assessee information relied upon by assessing officer - The impugned assessment order is vitiated for want of compliance with the principles of natural justice and is liable to be quashed. - HELD THAT: - The Court found that the Assessing Officer made substantial additions on the basis of information in his possession (including bank collected data) without communicating those particulars to the petitioners or providing any opportunity to explain. The assessment thus proceeded in an ex parte manner akin to a best judgment assessment, whereas the order purports to have been passed under the regular assessment provision which mandates giving the assessee a chance to rebut proposed additions. The replies and documents earlier uploaded by the petitioners were not considered by the Assessing Officer before making the additions. For these reasons the assessment order was held to be in breach of natural justice and was quashed. [Paras 6, 7, 8]

Impugned assessment order quashed for failure to accord opportunity and for not disclosing to the assessee the information relied upon.

Maintainability of writ under Article 226 notwithstanding alternative statutory remedy when natural justice is breached - The writ petition under Article 226 is maintainable despite the existence of an alternative remedy of appeal, because the impugned order is vitiated by violation of natural justice. - HELD THAT: - Relying on established precedents, the Court held that the availability of an efficacious statutory remedy does not operate as an absolute bar to exercise of writ jurisdiction where there has been a breach of the principles of natural justice. Given the Assessing Officer's failure to disclose or consider material relied upon for making additions, the exceptional circumstance justifies interference under Article 226. [Paras 9]

Writ petition entertained and allowed on grounds of breach of natural justice.

Effect of an order of a Court on limitation - time extension for completion of assessment under Section 153(6)(i) - remand for de novo assessment with direction to afford opportunity of hearing - On remand by this Court, the Assessing Officer is entitled to complete a fresh assessment within twelve months from the end of the month in which the remand order is received, under the proviso of Section 153(6)(i). - HELD THAT: - The Court considered competing authorities and statutory language and concluded that an order of any Court in a proceeding (other than by way of appeal or reference under the Act) engages the limitation extension provision now reflected in Section 153(6)(i). A remand by the High Court therefore operates as a Court order for the purpose of extending the period for completing assessment, and the Assessing Officer may pass a de novo assessment after furnishing the assessee with the information in his possession and an adequate opportunity to be heard, within twelve months from the end of the month in which the remand order is received. [Paras 11, 13, 17, 19]

Matter remanded to the Assessing Officer to pass fresh assessment de novo after providing records and opportunity of hearing, to be completed within twelve months from the end of the month in which this Court's order is received.

Lifting of bank attachment and refund consequent to quashing of assessment - Attachment of the petitioners' bank account must be lifted and amounts appropriated refunded as consequential relief to the quashing of the assessment order. - HELD THAT: - Because the assessment order was quashed for want of compliance with natural justice, measures taken to recover the assessed dues by way of bank attachment cannot subsist. The Court directed the respondent to lift the attachment on the petitioners' bank account and to pass consequential orders for refund of amounts appropriated from those accounts. [Paras 19]

Attachment to be lifted and appropriated amounts to be refunded; consequential directions issued to the respondent.

Final Conclusion: The petition is allowed: the assessment order for A.Y. 2017-18 is quashed for breach of natural justice; the matter is remanded for de novo assessment after furnishing the information relied upon and affording opportunity of hearing, to be completed within twelve months from the end of the month in which this Court's order is received; the bank attachment is to be lifted and amounts appropriated refunded.

Transfer pricing comparability - Exclusion of non-comparable companies as comparables - Cost allocation for segmental margins - Remand for verification of segmental cost allocation by Dispute Resolution Panel - Allowability of belated provident fund contribution under section 36(1)(va) read with section 2(24)(x) and section 43B(b) if paid on or before the due date for filing return - Admission of additional grounds of appeal in the interest of natural justice

Transfer pricing comparability - Exclusion of non-comparable companies as comparables - Exclusion of four specified comparables from the final list for benchmarking under Chapter X - HELD THAT: - The Tribunal considered the functional profile and contemporaneous precedent dealing with identical or similar comparables for the same assessment year. Having examined the annual reports and reasoning of earlier coordinate decisions, the Tribunal concluded that Infosys Ltd., Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., and Genesys International Corporation Ltd. are functionally different or possess significant intangibles such that they are not comparable with the assessee's software development and support service activities. The Tribunal followed prior findings that the first three companies are product/giant risk-taking/software-product oriented entities lacking segmental SWD disclosures, and that Genesys' GIS/geospatial business and intangibles preclude its use as a comparable. The Tribunal found no material to justify departing from those conclusions and held that the reasons given by the TPO are to be regarded as endorsed by the DRP where applicable. [Paras 17]

The four specified companies are excluded from the final list of comparables; the ground is allowed partly.

Cost allocation for segmental margins - Remand for verification of segmental cost allocation by Dispute Resolution Panel - Validity of the TPO's reworking of the assessee's cost allocation and margin for the Associated Enterprise segment - HELD THAT: - The assessee asserted that its Master Service Agreement and statement of work support a cost-plus pricing (cost +15%) with separately maintained records and segment-specific cost allocation producing an operating margin consistent with the agreement. The TPO reallocated costs on the basis of revenue ratios because the assessee had not sufficiently explained or substantiated its allocation basis before the TPO/DRP. The Tribunal found that the matter requires verification of the allocation basis and documentary substantiation. In the interest of justice and because the issue was raised and considered below, the Tribunal remitted the matter to the DRP for verification, directing the assessee to file necessary documents and the DRP to pass a reasoned order after giving opportunity of hearing. [Paras 18]

Issue remitted to the DRP for fresh verification and reasoned decision after affording the assessee an opportunity to substantiate its cost allocation.

Allowability of belated provident fund contribution under section 36(1)(va) read with section 2(24)(x) and section 43B(b) - Whether employee provident fund contributions deposited after the due date but before filing the return are allowable deduction and whether addition sustained by authorities was valid - HELD THAT: - The Tribunal observed that Karnataka High Court authority holds, and the Supreme Court has upheld, that contributions to PF and ESI covered by the mandatory statutory provision are allowable even if paid beyond the stipulated period, provided they are paid on or before the due date for furnishing the return under section 139(1). Applying that ratio, the Tribunal remanded the matter to the assessing officer to verify whether the assessee's employee contributions were paid on or before the due date of filing the return. If so, the addition cannot be sustained. [Paras 19]

Remitted to the AO to verify payment before the return filing due date; if verified, the addition must be deleted.

Admission of additional grounds of appeal in the interest of natural justice - Admission of the assessee's additional ground challenging rejection of segmental results and revenue-based cost allocation - HELD THAT: - The Tribunal examined the application to admit an additional ground and found that the additional ground arose from facts on record, had been considered by authorities below, and did not require further factual investigation. Applying the principles of natural justice and relevant precedent, the Tribunal admitted the additional ground for adjudication. [Paras 14, 15]

Application for admission of the additional ground is allowed and the ground is admitted.

Final Conclusion: The appeal is allowed in part: four specified comparable companies are excluded from the final comparable list; the dispute on cost allocation and resultant margin is remitted to the DRP for verification and a reasoned decision after giving the assessee opportunity to substantiate its allocation; the issue of belated PF contribution is remitted to the AO to verify payment before the return filing due date and, if so, the addition shall be deleted; the application to admit the additional ground is allowed.

Comparability of comparable companies - functional comparability - turnover filter in comparability analysis - admission of additional grounds to retract from TP study - binding effect of Dispute Resolution Panel directions - working capital adjustment in transfer pricing computation

Admission of additional grounds to retract from TP study - comparability of comparable companies - Additional grounds filed by the assessee to exclude certain comparables were admitted and the assessee was permitted to retract from its original TP study. - HELD THAT: - The Tribunal accepted the assessee's submission that the additional grounds did not require fresh investigation and relied on precedent permitting retraction from comparables chosen in the TP study where functional dissimilarity or other valid reasons exist. In light of jurisdictional and Special Bench authorities cited, the Tribunal admitted the additional grounds for adjudication and allowed the assessee to challenge comparables originally selected in its TP study. [Paras 3, 10]

Additional grounds admitted; assessee allowed to seek exclusion of comparables originally included in its TP study.

Functional comparability - comparability of comparable companies - M/s. Acropetal Technologies Ltd. (Seg.), M/s. Accentia Technologies Ltd., ICRA Online Ltd. and Jeevan Scientific Technology Ltd. were held to be non-comparable and directed to be excluded from the list of comparables. - HELD THAT: - On the facts of the case and following co-ordinate Tribunal decisions for the same assessment year, the Tribunal found that these companies were functionally dissimilar (diverse functions reported under single segment, lack of segmental break-up, presence of high-end KPO/ERP activities, or other peculiar circumstances affecting margins) and therefore not comparable to the assessee's routine low-end ITES functions. The Tribunal followed earlier findings and directed their exclusion from the comparability set. [Paras 13]

Directed exclusion of Acropetal, Accentia, ICRA Online and Jeevan Scientific from the list of comparables.

Turnover filter in comparability analysis - binding effect of Dispute Resolution Panel directions - comparability of comparable companies - Whether Infosys BPO Ltd., Mindtree Limited and I-Gate Global Solutions Ltd. should be excluded on account of the DRP's turnover filter was remitted to the Assessing Officer/Transfer Pricing Officer for examination. - HELD THAT: - The DRP had directed exclusion of companies with turnover below Rs.1 crore or above Rs.200 crores. The DRP direction became final in absence of a revenue appeal. Given the assessee's turnover and the DRP direction, the Tribunal directed the AO/TPO to verify and decide whether Infosys BPO Ltd., Mindtree Limited and I-Gate Global Solutions Ltd. fall to be excluded under the DRP's turnover filter and to give effect to the DRP's directions accordingly. [Paras 14]

Ground restored to AO/TPO for examination and decision whether Infosys BPO, Mindtree and I-Gate are to be excluded under the DRP turnover filter.

Working capital adjustment in transfer pricing computation - The contention that the Working Capital Adjustment of 1.47% should have been deducted (instead of 0.13%) from the ALP margin was rejected. - HELD THAT: - The Tribunal held that the claim that the working capital adjustment should have been 1.47% rather than 0.13% ought to have been raised by rectification and was not raised before the DRP. Absent raising the point before the DRP and in view of procedural rules on rectification, the ground was not accepted. [Paras 15]

Ground rejected; no change to the working capital adjustment adopted by the TPO.

Final Conclusion: The appeal is partly allowed: additional grounds were admitted; certain comparables (Acropetal, Accentia, ICRA Online and Jeevan Scientific) are directed to be excluded; the question whether Infosys BPO, Mindtree and I-Gate fall foul of the DRP turnover filter is remanded to the AO/TPO for examination; the claim on higher working capital adjustment is rejected.

Treatment of non-vendible stock in valuation of closing and opening inventory - allowability of additional depreciation under section 32(1)(iia) on plant and machinery used in coal extraction - remand for factual verification of asset breakup and admissibility of additional depreciation - treatment of stowing subsidy receipts and subsidy receivable in profit & loss account - verifiability and proof for deduction of operating expenses (hire charges and grants) - allowability of donations and applicability of section 80G/deduction under business expediency - deductibility of corporate social responsibility and welfare expenditures as business expenditure

Treatment of non-vendible stock in valuation of closing and opening inventory - Deletion of addition computed as difference between opening and closing value of non vendible coal for AY 2009 10 - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the addition because the coordinate bench in the assessee's earlier proceedings had taken the value of the identified non vendible coal as nil for the previous year, which made both opening and closing values nil for AY 2009 10. No change in facts or law was demonstrated by the Revenue, and the Tribunal therefore followed its earlier decision holding that there was no increase in cost of stock and the addition was correctly deleted. [Paras 4, 5]

Addition of Rs. 22,43,24,000/- on account of difference in non vendible coal valuation is deleted; Revenue's ground dismissed.

Allowability of additional depreciation under section 32(1)(iia) on plant and machinery used in coal extraction - remand for factual verification of asset breakup and admissibility of additional depreciation - Admissibility of additional depreciation claimed for AY 2009 10 remitted to AO for fresh adjudication after verification - HELD THAT: - Although the AO had initially allowed only 50% and CIT(A) allowed 80%, the Tribunal noted that the issue had been the subject of earlier tribunal directions and that the AO, while giving effect, subsequently allowed 100% after verification. Nevertheless, because the Revenue challenged the absence of detailed break up and justification, the Tribunal set aside the matter to the AO for fresh adjudication and directed the assessee to produce full details of plant and machinery used for coal extraction. The Tribunal also observed that the assessee is a PSU whose audited accounts (CAG audited) carry evidentiary weight, but left factual verification to the AO. [Paras 6, 7]

Issue remanded to AO for fresh verification and adjudication; parties directed to produce required details; grounds allowed for statistical purposes.

Treatment of stowing subsidy receipts and subsidy receivable in profit & loss account - Deletion of addition related to alleged under reporting of stowing subsidy for AY 2009 10 - HELD THAT: - The Tribunal agreed with the CIT(A) that the amount treated by the AO as concealed income related to subsidy receivable from earlier years and not to the current year. The assessee's consistent accounting policy treating subsidy receivable as including amounts due from earlier years was noted. On ledger scrutiny it was found that the disputed amount pertained to earlier years and had already been offered to tax in those years. Accordingly the AO erred in treating the amount as current year income. [Paras 8, 9, 10]

Addition of Rs. 98.79 lacs on account of stowing subsidy deleted; Revenue's ground dismissed.

Verifiability and proof for deduction of operating expenses (hire charges and grants) - remand for factual verification of incurring of expenses and admissibility - Claimed hire charges of buses/ambulances and grants to sports/recreation clubs for AY 2012 13 remitted to AO for fresh consideration - HELD THAT: - The Tribunal followed its earlier coordinate bench decisions in the assessee's own cases which found that the existence and incurrence of such expenses required verification. The Tribunal set aside the CIT(A)'s order and remanded the question of incurring and evidentiary substantiation of these expenses to the AO for fresh consideration, with liberty to the assessee to adduce supporting evidence. [Paras 11, 12]

Matter remanded to AO for verification and fresh adjudication; ground allowed for statistical purposes.

Allowability of donations and applicability of section 80G/deduction under business expediency - remand for factual verification of donee status and allocation between local clubs and charitable institutions - Claimed donations of Rs.17 lacs for AY 2012 13 remitted to AO for verification of particulars and donee status - HELD THAT: - The AO disallowed the entire amount for lack of proof. The CIT(A) allowed 50%. The Tribunal held that donations to local clubs (e.g., for Durga Puja) and donations to Ramakrishna Mission/Bharat Sevashram Sangha require verification: the AO should verify the amounts attributable to local clubs and, if proved, may allow 100% as business expenditure; for donations to institutions, deduction should be given in accordance with law if the donees possess valid 80G certification. The matter is therefore remitted for factual verification and consequent relief as per law. [Paras 13, 14]

Issue remanded to AO for factual verification and to grant deduction in accordance with law; grounds set aside for statistical purposes.

Deductibility of corporate social responsibility and welfare expenditures as business expenditure - Allowability of CSR/welfare expenditure disallowed ad hoc by AO for AY 2012 13 - HELD THAT: - The Tribunal observed that the assessee is a PSU with CAG audited accounts, incurred the expenditure with competent authority approval, and the payments related to welfare of employees and local communities in the operational area, and were also connected to obligations under the National Coal Wage Agreement. The Tribunal followed the coordinate bench authority (Southern Coalfields) which held such community/welfare expenditure to be deductible as incurred wholly and exclusively for business by considerations of commercial expediency. The amendment and Explanation to section 37(1) introduced w.e.f. 01.04.2015 do not apply retrospectively. On this basis the Tribunal directed the AO to allow the CSR/welfare expenditure. [Paras 15, 16, 17]

Ad hoc disallowance of CSR expenses set aside; AO directed to allow the CSR/welfare expenditure as business expenditure.

Final Conclusion: The Tribunal partly allowed the cross appeals: for AY 2009 10 the addition on non vendible coal and the stowing subsidy addition were deleted; the claim for additional depreciation under section 32(1)(iia) is remitted to the AO for fresh verification; for AY 2012 13 the issues of hire charges/grants and donations are remitted to the AO for factual verification, while the ad hoc disallowance of CSR/welfare expenditure is directed to be allowed by the AO.

Carry forward of capital losses - set-off of brought forward capital losses against exempt capital gains - treatment of losses vis-a -vis exempt income under DTAA - application of Section 90(2) and Article 13 of the India-Mauritius DTAA - finality of assessment order on carry forward once allowed under Section 143(3) - interest under section 234C - exclusion of tax deductible at source for computation

Carry forward of capital losses - set-off of brought forward capital losses against exempt capital gains - treatment of losses vis-a -vis exempt income under DTAA - application of Section 90(2) and Article 13 of the India-Mauritius DTAA - Entitlement to carry forward short-term capital losses brought forward from earlier years without first setting them off against short-term and long-term capital gains of A.Y. 2013-14 which were exempt under Article 13 of the India-Mauritius DTAA. - HELD THAT: - The Tribunal held that the DRP's direction to adjust brought forward short-term capital losses (STCL) against the short-term and long-term capital gains shown for A.Y. 2013-14 (which were admitted to be exempt under Article 13 of the India-Mauritius DTAA) lacked reasoning and was unsustainable. The DRP had earlier vacated the AO's draft denial of carry forward because the STCL had already been determined and allowed to be carried forward by the AO in the assessment for A.Y. 2012-13; that conclusion attained finality as the Revenue did not challenge it. The Tribunal followed precedent (Flagship) to conclude that where capital gains in the year are not exigible to tax in India under the DTAA, there is no occasion to adjust brought forward losses against such exempt gains. The AO/DRP's view that losses relating to an exempt source cease to be part of "total income" and therefore cannot be carried forward was rejected because the losses were already determined and permitted to be carried forward in an earlier assessment year. The AO was directed to allow carry forward of the full STCL brought forward to subsequent years. [Paras 11, 12]

Brought forward short-term capital losses of Rs. 3,926,36,70,910/- are to be allowed to be carried forward to subsequent years without adjustment against exempt capital gains of A.Y. 2013-14; Grounds 1 and 2 allowed.

Carry forward of capital losses - finality of assessment order on carry forward once allowed under Section 143(3) - treatment of losses vis-a -vis exempt income under DTAA - Entitlement to carry forward long-term capital losses brought forward from earlier years (determined and allowed in A.Y. 2012-13) and whether those losses must be set off against long-term capital gains of A.Y. 2013-14 which were claimed exempt under the DTAA. - HELD THAT: - The Tribunal noted that the long-term capital losses (LTCL) amounting to Rs. 7,63,95,386/- were determined and allowed to be carried forward by the AO in the assessment for A.Y. 2012-13, and that the DRP's rationale for allowing STCL carry forward equally applied to LTCL. Having allowed STCL to be carried forward without adjustment against exempt gains, the Tribunal held there is no justification to deny carry forward of similarly situated LTCL or to require their set-off against exempt long-term gains shown for A.Y. 2013-14. Consequently, the LTCL brought forward must be allowed to be carried forward to subsequent years without being set off against the exempt gain of the year under consideration. [Paras 7, 13]

Brought forward long-term capital losses of Rs. 7,63,95,386/- are to be carried forward to subsequent years without set-off against the long-term capital gain of A.Y. 2013-14; Ground 3 allowed.

Interest under section 234C - exclusion of tax deductible at source for computation - Whether interest under section 234C should be levied on the taxpayer in respect of tax attributable to interest income on which tax was deductible at source but was not deducted by the payer. - HELD THAT: - The Tribunal accepted the assessee's submission that for computation of interest under section 234C the tax due on returned income must be reduced by tax deductible at source in accordance with the Explanation to section 234C. The interest income from Indian Oil Corporation was liable to TDS but the payer failed to deduct it; the assessee deposited the tax on self-assessment. Citing the Bombay High Court authority, the Tribunal held that where the duty to deduct TDS is cast on the payer and the payer fails to do so, the tax deductible at source must be excluded while computing interest under section 234C. The AO was directed to recompute interest under section 234C accordingly. [Paras 15, 16]

Interest under section 234C in relation to the interest income must be recomputed after excluding the tax deductible at source; Ground 6 allowed to that extent.

Grounds not pressed - Grounds 4 and 5 (alleged inadvertent consideration/misclassification of certain capital gains/losses) were not pressed by the assessee. - HELD THAT: - The authorized representative expressly did not press Grounds 4 and 5. The Tribunal recorded the concession and dismissed those grounds as not pressed. [Paras 14]

Grounds 4 and 5 dismissed as not pressed.

Final Conclusion: The appeal is allowed. The Tribunal directed that (i) the full short-term capital losses and long-term capital losses brought forward (as previously determined and allowed in earlier assessment proceedings) be carried forward to subsequent years without being set off against capital gains of A.Y. 2013-14 which were exempt under Article 13 of the India-Mauritius DTAA, (ii) interest under section 234C is to be recomputed excluding the tax deductible at source in respect of the interest income, and (iii) Grounds 4 and 5 are dismissed as not pressed.

Explanation under section 68 - Onus of the assessee under section 68 - Creditworthiness and genuineness of the creditor - Admissibility and reliance on statement recorded under section 131 - Duty of the Assessing Officer to verify creditor where creditor is an income tax assessee

Explanation under section 68 - Onus of the assessee under section 68 - Creditworthiness and genuineness of the creditor - Duty of the Assessing Officer to verify creditor where creditor is an income tax assessee - Addition of Rs. 55,00,000 made by AO under section 68 sustaining as income of the assessee - HELD THAT: - The Tribunal found that the assessee discharged the initial onus under section 68 by establishing the identity of the lender (M/s. GRREPL), the genuineness of the transaction (loan agreement, security by immovable properties, repayment schedule and continuing repayments) and the creditworthiness of the lender (RBI registration as NBFC, audited financial statements, tax payments and bank receipts showing source). Once the assessee met the statutory requirements, the burden shifted to the Assessing Officer to disprove the documents and the lender's creditworthiness. The AO did not controvert or materially infirm the documents produced, nor did he undertake adequate enquiries of the lender's own assessment records; instead he relied on an unsubstantiated statement of an ex director. Applying settled principles that the AO must verify the creditor (or approach the creditor's assessing officer) before rejecting credible documentary evidence and that failure to prove that the creditor's funds originated from the assessee negates treating the credit as assessee's income, the Tribunal held the addition unsustainable. [Paras 5, 12, 13]

Addition under section 68 deleted; appeal allowed on merits.

Admissibility and reliance on statement recorded under section 131 - Duty of the Assessing Officer to verify creditor where creditor is an income tax assessee - Validity of AO's reliance on an alleged statement of an ex director (recorded under section 131) which was neither supplied to the assessee nor tested by cross examination - HELD THAT: - The Tribunal held that the AO erred in relying on an alleged statement of the ex director (Shri Nangalia), who had ceased to be director well before the transaction, without furnishing a copy of such statement to the assessee and without testing it by cross examination. A statement reportedly recorded behind the assessee's back cannot be the basis for drawing adverse inference unless served and tested; reliance on such unsubstantiated material is impermissible. Consequently, the AO's adverse conclusion founded on that statement could not supplant the documentary proof furnished by the assessee. [Paras 4, 5, 12]

AO's reliance on the unserved/untested statement was held to be untenable and could not sustain the addition.

Final Conclusion: The Tribunal held that the assessee had satisfactorily proved the identity, creditworthiness and genuineness of the loan from M/s. GRREPL; the Assessing Officer failed to rebut the evidence and impermissibly relied on an unserved/untested statement of an ex director. The addition under section 68 was deleted and the appeal was allowed.

Characterisation of distribution fee as royalty - transfer pricing comparability and use of software distributor/industry comparables - benchmarking methodology and applicability of CUP versus TNMM - admission of additional ground claiming deduction of education and secondary and higher education cess as business expense - rectification under Section 154 and determination of short grant of TDS and interest under Section 234A - mandatory levy of interest consequent to tax shortfall (Sections 234B and 234D) - prematurity of challenge to initiation of penalty proceedings under Section 271(1)(c)

Characterisation of distribution fee as royalty - Payment described as 'distribution fee' is not in the nature of 'royalty'. - HELD THAT: - The Tribunal followed the coordinate bench decision in the assessee's own earlier proceedings and the decisions of the Hon'ble Bombay High Court which held that distribution fee paid by channel distributors cannot be characterized as royalty. The Department produced no distinguishing facts or authority to rebut those conclusions. In view of the accepted factual parity with prior years and binding precedents relied upon by the Tribunal, the re characterisation to 'royalty' was set aside.

Ground challenging characterization of distribution fee as royalty allowed; distribution fee held not to be royalty.

Transfer pricing comparability and use of software distributor/industry comparables - Rejection of specified comparable companies (Advance Technology Ltd., Integra Telecommunication and Software Ltd., Sonata Information Technology Ltd., Trijal Industries Ltd.) remitted to Assessing Officer/ TPO for verification of segmental data and recomputation of transfer pricing adjustment. - HELD THAT: - The Tribunal noted that the same comparables were accepted in the assessee's own earlier assessment year after examination of segmental financial data. The TPO had rejected those comparables summarily without verifying segmental information. Following the coordinate bench's earlier findings, the matter was restored to the AO/TPO with directions to verify segmental data for relevant years under Rule 10B(4), grant the assessee opportunity of hearing and recompute the TP adjustment afresh.

Grounds challenging rejection of the four comparables are allowed for statistical purposes and remitted to AO/TPO for fresh verification and recomputation.

Benchmarking methodology and applicability of CUP versus TNMM - Challenges to choice of CUP (and related arguments on TNMM) became academic in view of the finding that the distribution fee is not royalty. - HELD THAT: - Because the Tribunal held that the payment in question is not royalty, the TPO/DRP's adoption of CUP (premised on treating the payment as royalty) fell away. Accordingly, the Tribunal did not adjudicate the methodological dispute on benchmarking and treated those grounds as academic.

Grounds on benchmarking methodology not adjudicated as they became academic.

Rectification under Section 154 and determination of short grant of TDS and interest under Section 234A - Claim of short grant of TDS and challenge to interest under Section 234A remitted to Assessing Officer by directing decision on the pending rectification application within three months. - HELD THAT: - The assessee had filed an application under Section 154 seeking rectification on TDS credit and related interest. The Tribunal found the rectification petition pending and directed the Assessing Officer to decide the application by a speaking order within three months from receipt of the Tribunal's order, treating the grounds as allowed for statistical purposes subject to AO's decision on rectification.

AO directed to decide the rectification petition under Section 154 within three months; grounds on TDS short grant and Section 234A allowed for statistical purposes with that direction.

Mandatory levy of interest consequent to tax shortfall (Sections 234B and 234D) - Assessee's challenges to interest under Sections 234B and 234D dismissed; levy held to be mandatory and consequential. - HELD THAT: - The Tribunal observed that the levy of interest under Sections 234B and 234D is statutory, mandatory and consequential upon the assessment, and accordingly the assessee's objections lacked merit.

Grounds contesting interest under Sections 234B and 234D dismissed.

Prematurity of challenge to initiation of penalty proceedings under Section 271(1)(c) - Challenge to initiation of penalty proceedings under Section 271(1)(c) dismissed as premature. - HELD THAT: - The Tribunal held that assailing the initiation of penalty proceedings at the appellate stage was premature and not ripe for adjudication, and therefore declined to entertain the ground.

Ground challenging initiation of penalty proceedings dismissed as premature.

Admission of additional ground claiming deduction of education and secondary and higher education cess as business expense - Additional ground seeking deduction of education and secondary and higher education cess under 'profits and gains from business or profession' admitted and remitted to Assessing Officer for decision after hearing. - HELD THAT: - Relying on the coordinate bench decision in the assessee's own immediately preceding year and the Bombay High Court's reasoning in Sesa Goa Ltd., the Tribunal found the additional ground to be a pure question of law with necessary facts already on record. The Department's objections based on limitations of upward revision under Section 143(2) and Goetze were found insufficient to bar admission. The Tribunal admitted the ground and restored it to the AO with directions to consider and pass a speaking order after affording the assessee an opportunity of hearing.

Additional ground admitted; issue remitted to Assessing Officer for adjudication with opportunity to the assessee.

Final Conclusion: Appeal partly allowed. Distribution fee held not to be royalty; specified comparables directed to be re examined and TP adjustment recomputed by AO/TPO; methodological benchmarking grounds treated as academic; rectification petition on TDS and Section 234A directed to be decided by AO within three months; challenges to interest under Sections 234B and 234D dismissed; penalty challenge held premature; additional ground on deduction of education cess admitted and remitted to AO for decision.

Deductibility of interest under section 57(iii) - expenditure laid out wholly and exclusively for earning interest income - Disallowance under section 14A read with Rule 8D(2)(iii) - allocation of administrative expenses to exempt dividend income - Taxation of unexplained cash consideration / unaccounted sale consideration

Deductibility of interest under section 57(iii) - expenditure laid out wholly and exclusively for earning interest income - Allowability of interest expenditure claimed against interest income - HELD THAT: - The Tribunal examined the facts that the assessee is regularly engaged in arranging funds and earning interest by lending, brought evidence of attempts to arrange funds for lending to Supreme Mega Constructions LLP, and produced bank statements showing borrowing and payments. Although the immediate transaction with Supreme Mega did not materialise and funds were returned, the Tribunal held that the assessee's business/objective was to earn interest by arranging and refinancing funds. Consequently, interest incurred in that course constituted loss or expenditure in earning interest income and was allowable. The Tribunal therefore allowed the ground challenging the disallowance of interest expenditure and directed that such expenditure be treated as allowable in computing income (recognising the commercial object and continuity of the activity rather than requiring a literal contemporaneous direct link for each rupee of interest). [Paras 21]

Disallowance of interest expenditure was deleted and the interest expense allowed.

Disallowance under section 14A read with Rule 8D(2)(iii) - allocation of administrative expenses to exempt dividend income - Validity and quantum of disallowance under section 14A read with Rule 8D(2)(iii) in respect of administrative expenses attributable to exempt dividend income - HELD THAT: - The Tribunal found that the assessing officer applied the formula in Rule 8D(2)(iii) using average investment but had not restricted the computation to investments which actually earned the exempt dividend. The Tribunal analysed the assessee's accounts, noted the total administrative expenses and the proportion of exempt income to gross income (31%), and directed that AO should re-compute disallowance by (a) eliminating investments which did not yield the exempt income and applying Rule 8D(2)(iii) to the relevant investments, and (b) comparing the revised Rule 8D disallowance with 31% of administrative expenses (being the proportionate share) and, if the Rule 8D result is less than 31% of admin expenses, disallow the Rule 8D amount; otherwise disallow 31% of admin expenses. The Tribunal accordingly remitted the matter to the AO for fresh computation and verification. [Paras 24]

Issue remitted to the assessing officer for recomputation of disallowance under section 14A/Rule 8D(2)(iii) as directed.

Taxation of unexplained cash consideration / unaccounted sale consideration - Sustainability of addition made as unaccounted cash consideration in respect of sale proceeds alleged to have been paid in cash - HELD THAT: - The Tribunal reviewed the material seized from a third party and the assessment officer's reliance on findings in the third party's assessment. Although photocopies of hundies were signed for Growmore Investments & Developers Pvt. Ltd., the Tribunal observed that the evidentiary nexus linking the assessee personally to receipt of cash was absent. The seized documents were loose/photocopies recovered from a third party, third-party explanations and affidavits (including those of Bliss GVS personnel and a fourth party) supported that the hundies related to other transactions or were used by a third party for personal cash requirements, and that the bank-channel RTGS loan and refund existed. The Tribunal found no cogent material proving that the assessee received unaccounted cash consideration and held that the addition rested on presumptions and assumptions. Accordingly the addition in the assessee's hands was deleted. [Paras 32, 33]

Addition as unaccounted cash consideration was deleted.

Final Conclusion: The appeal was partly allowed: the disallowance of interest expenditure under section 57(iii) was deleted (interest expense allowed), the addition for unaccounted cash sale consideration was deleted, and the section 14A/Rule 8D(2)(iii) disallowance was set aside for recomputation by the AO in accordance with the Tribunal's directions.

Interest on refunds under Section 244A - Proviso to Section 244A(1)(a) - 10% embargo on interest for refunds out of prepaid taxes - Residual operation of Section 244A(1)(b) - refunds other than prepaid taxes (including self-assessment tax) - Computation of interest - 'month or part of a month' rule - Re-computation and effect of appellate/assessment orders under Section 244A(3)

Proviso to Section 244A(1)(a) - 10% embargo on interest for refunds out of prepaid taxes - Residual operation of Section 244A(1)(b) - refunds other than prepaid taxes (including self-assessment tax) - Applicability of the proviso to Section 244A(1)(a) to refunds arising out of self-assessment tax and refund components - HELD THAT: - The court held that the proviso to Section 244A(1)(a) applies only to refunds that fall within clause (a) (refunds out of taxes collected at source or paid by way of advance tax or treated as paid under Section 199) and therefore the 10% embargo is confined to those prepaid-tax refunds. Self-assessment tax paid under Section 140A falls within the residuary clause (b) and is not subject to the proviso to clause (a). Consequently, interest on refund of self-assessment tax is payable under Section 244A(1)(b) from the date(s) of payment of such tax to the date of grant of refund. The court reviewed the purpose and operation of Section 244A(3) as a re-computational mechanism and rejected the proposition that subsection (3) nullifies the proviso to clause (a). The decision was informed by precedents, statutory construction principles and earlier High Court and Supreme Court pronouncements, and the court concluded that prior to 01.06.2016 the 10% embargo did not apply to refunds of self-assessment tax, while noting that statutory amendment after 01.06.2016 changes the scope going forward. [Paras 31, 32, 55, 63, 64]

The proviso to Section 244A(1)(a) is applicable only to refunds falling under clause (a); refunds of self-assessment tax fall under clause (b) and attract interest from the date of payment. The assessee is entitled to interest on the self-assessment tax component of the refund for the assessment years before the amendment of 01.06.2016, and the AO is directed to compute and grant interest accordingly.

Computation of interest - 'month or part of a month' rule - Analogy with Sections 234A/234B/234C for rounding to month - Whether payment made on the last day of a month (even by few hours) qualifies as 'part of a month' for computing interest under Section 244A - HELD THAT: - The Tribunal held that the phrase 'month or part of a month' in Section 244A must be given effect consistently with analogous provisions (Sections 234A, 234B & 234C) and that a single day is to be treated as part of the month for computation of interest. Applying that principle, taxes paid on 31.01.2003 and 28.02.2003 were held to qualify for interest for the months of January and February respectively. The AO's contention that at least one entire day beyond the date is required was rejected and the CIT(A)'s approach in allowing interest for such payments was upheld. [Paras 65, 66, 67, 68]

Payments made on the last day of a month constitute 'part of a month' and are eligible for interest for that month; the assessee is entitled to interest for the months in which payments on 31.01.2003 and 28.02.2003 were made.

Final Conclusion: The Tribunal allowed the assessee's appeals and dismissed the revenue's appeals. It directed the Assessing Officer to compute and grant interest under Section 244A: (a) the 10% proviso to Section 244A(1)(a) applies only to refunds out of prepaid taxes under clause (a), and does not bar interest on refunds of self-assessment tax which are governed by clause (b) (for the assessment years before 01.06.2016); and (b) a payment made on the last day of a month qualifies as 'part of a month' for interest computation under Section 244A.

Capital asset - rights in property - surrender of allotment / extinguishment of rights - transfer by extinguishment of rights under section 47 and chargeability under section 45 - long term capital gains - exemption under section 54/54F of the Act - assessment as income from other sources

Capital asset - rights in property - surrender of allotment / extinguishment of rights - long term capital gains - exemption under section 54/54F of the Act - assessment as income from other sources - Whether the compensation received on cancellation/surrender of allotment of the flat constitutes capital gain (long term) arising from transfer of a capital asset (rights in the property) and is eligible for exemption under section 54/54F, instead of being taxable as income from other sources. - HELD THAT: - The Tribunal examined the allotment letter together with bank statements, ledger entries and the cancellation correspondence and held that the assessee had acquired a right in the proposed flat by virtue of the allotment and payment of advances. Following the coordinate-bench decision in ACIT v. Ashwin S. Bhalekar, the Tribunal reasoned that extinguishment or surrender of such proprietary/right-to-title is an extinguishment of rights falling within the concept of transfer (and chargeability under section 45) and, where the holding period exceeds three years, results in long term capital gains. Since the assessee had invested the sale proceeds in a residential flat within the statutory period and satisfied the conditions for claiming relief, the denial of exemption and characterization of the compensation as income from other sources by the AO and CIT(A) was incorrect. Applying that reasoning to the facts, the Tribunal allowed the appeal and set aside the characterization as income from other sources, directing that the matter be treated as capital gain eligible for exemption under section 54/54F as pleaded by the assessee. [Paras 7, 8]

Assessee's surrender of allotment constituted transfer of a right in property giving rise to long term capital gain and the claim for exemption under section 54/54F is allowable; the addition as income from other sources is deleted and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2012-13, holding that the compensation received on cancellation/surrender of the allotment is a capital receipt arising from transfer of rights in the property, eligible to be treated as long term capital gain and for exemption under section 54/54F; the assessment treating the amount as income from other sources is set aside.

Admission of additional evidence under Rule 29 ITAT Rules - remand for verification of evidence - best judgment assessment under Section 144 r.w.s.147 - treatment of unexplained cash credits under Section 68 - principle of natural justice (opportunity to be heard)

Admission of additional evidence under Rule 29 ITAT Rules - principle of natural justice (opportunity to be heard) - Additional evidence filed under Rule 29 of the ITAT Rules is admitted and the matter is remitted for fresh consideration. - HELD THAT: - The Tribunal considered the assessee's application under Rule 29 for admission of documents not produced before the Assessing Officer or the CIT(A). The Revenue objected on the ground that the Assessing Officer was denied the opportunity to examine the evidence. The Tribunal observed that the Assessing Officer should be given an opportunity to verify and examine the material and, in the interest of justice, admitted the additional evidence and directed that the disputed issues together with the admitted evidence be transmitted to the Assessing Officer for fresh verification and consideration. The Tribunal therefore set aside the CIT(A)'s order to enable the lower authority to examine the newly admitted material in the first instance. [Paras 5, 6]

Additional evidence admitted; CIT(A) order set aside and matter remitted to the Assessing Officer for verification and examination of the evidence.

Remand for verification of evidence - best judgment assessment under Section 144 r.w.s.147 - treatment of unexplained cash credits under Section 68 - Validity of the additions treated as unexplained cash credits and the best judgment assessment is remitted to the Assessing Officer for fresh enquiry and verification in light of the admitted evidence. - HELD THAT: - The Assessing Officer had completed a best judgment assessment under Section 144 read with Section 147 after treating bank deposits as unexplained cash credits under Section 68, on account of absence of documentary explanation at assessment. The Tribunal found that with additional evidence now admitted, the Assessing Officer should reassess the question of source and genuineness of the deposits (including the claims of advances returned by farmers, opening cash balance and self-withdrawals) and reconsider the correctness of the additions and the exercise of best judgment assessment. The Tribunal therefore remitted these substantive issues to the Assessing Officer for fresh adjudication and verification of the claims supported by the newly admitted material. [Paras 5, 6]

Substantive issues concerning the unexplained cash credits and the best judgment assessment remitted to the Assessing Officer for fresh verification and decision.

Final Conclusion: The order of the CIT(A) is set aside; additional evidence is admitted; the matters relating to bank deposits, additions under Section 68 and the assessment made under Section 144 r.w.s.147 are remitted to the Assessing Officer for verification and fresh consideration; the appeal is allowed for statistical purposes.

Speculative transaction - commodity derivatives trading - recognized association (for commodity derivatives) - set-off of losses and aggregation of profits/losses from trading in commodity derivatives across exchanges - deeming under Section 43(5)(e) for commodity derivatives chargeable to Commodity Transaction Tax - deeming under Section 28 Explanation (2) that speculative transactions forming a business constitute a distinct business

Speculative transaction - commodity derivatives trading - set-off of losses and aggregation of profits/losses from trading in commodity derivatives across exchanges - deeming under Section 28 Explanation (2) that speculative transactions forming a business constitute a distinct business - Whether loss incurred by the assessee on commodity derivatives traded on NMCE, Ahmedabad could be set off against profit from commodity derivatives traded on MCX by treating the activities as one business of derivative trading - HELD THAT: - The Tribunal found on the facts that the assessee carried on one and only business of trading in commodity derivatives across multiple exchanges and was a member of both MCX and NMCE. Applying the statutory scheme, the Tribunal held that derivative transactions in commodities are, in general, 'speculative transactions' within the meaning of the proviso to section 43(5) unless brought out of that definition by clause (e) (i.e., carried out on a recognised association and chargeable to Commodity Transaction Tax). Independent of the clause (e) deeming, the Tribunal relied on the deeming in Section 28 Explanation (2) and the character of the assessee's activity to conclude that where speculative transactions constitute the assessee's single business, the income from those transactions on different exchanges must be treated as one business for taxation purposes and aggregated. On that basis, the speculative loss incurred on NMCE was held eligible to be set off against speculative profit on MCX. The Tribunal further noted and followed a co-ordinate bench decision in the assessee's own case for A.Y. 2012-13, which reached the same conclusion that derivative trading in commodity across exchanges is one business and losses/profits should be allowed to be set off. [Paras 9, 10, 11, 13, 14]

Loss from NMCE, Ahmedabad is a speculative loss and, viewed as part of the assessee's single business of commodity derivative trading, is allowable to be set off against profit from MCX; the assessee's appeal for A.Y. 2014-15 is allowed.

Speculative transaction - commodity derivatives trading - recognized association (for commodity derivatives) - deeming under Section 43(5)(e) for commodity derivatives chargeable to Commodity Transaction Tax - Whether the Commissioner (Appeals) correctly deleted the disallowance of losses from derivative trading on NMCE for Asst. Year 2009-10 and A.Y. 2011-12 and whether revenue's appeals should be dismissed - HELD THAT: - For earlier assessment years (prior to the operational effect of clause (e) from A.Y.2014-15), the Tribunal observed that commodity derivatives transactions were not excluded from the definition of speculative transactions and, on the identical facts, the assessee's business of trading in commodity derivatives across exchanges was to be treated as one business. The Tribunal noted that the lower authorities had followed the view that recognition by CBDT under Section 43(5)(e) differentiated exchanges, but held that this distinction does not alter the character of the assessee's composite business for those years. Respectfully following the co ordinate bench decision in the assessee's own case for A.Y. 2012-13, and finding no contrary evidence from Revenue, the Tribunal upheld the Commissioner (Appeals) in deleting the disallowances and dismissed the Revenue's appeals for Asst. Year 2009-10 and A.Y. 2011-12. [Paras 16, 17, 18]

The Commissioner (Appeals)'s deletions are upheld and the Revenue's appeals for Asst. Year 2009-10 and A.Y. 2011-12 are dismissed.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2014-15 by directing deletion of the disallowance of loss on NMCE and permitting set-off against MCX profits, and dismissed the Revenue's appeals for Asst. Year 2009-10 and A.Y. 2011-12, holding that the assessee's commodity derivative trading across exchanges constitutes a single business and that losses and profits therefrom are to be aggregated for taxation.

Reopening of assessment on the basis of fresh tangible material and nexus between reasons recorded and escapement of income - Remission or cessation of trading liability and chargeability under section 41(1) - Genuineness of creditors and evidentiary weight of enquiries under section 133(6) - Temporal test for invocation of section 41(1) - year in which liability ceases to exist

Reopening of assessment on the basis of fresh tangible material and nexus between reasons recorded and escapement of income - Validity of reopening the assessment beyond four years under section 147 in respect of AY 2010-11. - HELD THAT: - The Tribunal upheld the reopening. The AO relied on material obtained during a post-assessment survey and related enquiries which, prima facie, indicated escapement of income; hence there existed a nexus between the reasons recorded and the alleged escapement. The Tribunal applied the settled test that reasons to believe need not amount to a concluded prima facie proof but must constitute material sufficient to justify reopening, and relied on precedents that the sufficiency or correctness of such material is not to be adjudicated at the notice stage. On that basis the reopening was held to be on a valid footing. [Paras 11]

Reopening of assessment for AY 2010-11 was valid and the ground challenging reopening is dismissed.

Remission or cessation of trading liability and chargeability under section 41(1) - Genuineness of creditors and evidentiary weight of enquiries under section 133(6) - Temporal test for invocation of section 41(1) - year in which liability ceases to exist - Whether the addition on account of cessation of trading liability under section 41(1) for AY 2010-11 (claimed amount) was sustainable. - HELD THAT: - The Tribunal examined the three conditions for invoking section 41(1): existence of trading liability previously allowed as deduction, accrual of benefit by remission or cessation, and occurrence of such cessation in the year under consideration. The assessee's books and financial statements showed conversion of trading liabilities into share application money on 31/03/2009 and allotment of shares thereafter; therefore the Tribunal found that, on the material on record, the liability was extinguished in the financial year 2008-09 (relevant to AY 2009-10) and not in AY 2010-11. The Tribunal held that once liability was paid/converted with creditors' consent in AY 2009-10, it could not be treated as ceasing in AY 2010-11 for invoking section 41(1). Further, while the AO relied on non-response to section 133(6) notices and subsequent gifting of shares as indicia of non-genuineness, the Tribunal held non-response alone could not be the sole basis for drawing an adverse inference where the assessee had produced evidence of conversion and payment in the earlier year; and the other facts relied upon did not satisfy the statutory conditions for section 41(1) in respect of AY 2010-11. [Paras 15, 16]

Additions made under section 41(1) for AY 2010-11 are not sustainable; the AO and CIT(A) erred and the addition is deleted.

Final Conclusion: The appeal is partly allowed: reopening of assessment for AY 2010-11 is sustained, but the addition on account of cessation/remission of trading liability under section 41(1) for AY 2010-11 is deleted as the liability stood extinguished in the earlier year.

Importation under Carnet de Passages en Douane - application of customs duty on used/secondhand vehicles - availment of depreciation benefit under Central Board circular - appellate remedy under the Customs Act - condonation of delay by Commissioner (Appeals)

Importation under Carnet de Passages en Douane - application of customs duty on used/secondhand vehicles - availment of depreciation benefit under Central Board circular - Whether the bringing of the vehicle under Ext.P1 amounts to import and whether the petitioner is entitled to have customs duty computed taking into account depreciation as per Ext.P5 Circular - HELD THAT: - The Court held that the question whether the vehicle brought into India under Carnet de Passages en Douane constitutes import, and whether the petitioner is entitled to import the vehicle by paying customs and claim reduction on account of depreciation under the Board's circular, involves mixed questions of law and fact. These matters fall within the statutory adjudicatory and appellate machinery under the Customs Act and require consideration on merits by the competent appellate authority. Since the petitioner has not availed the prescribed appellate remedy, the Court declined to decide the substantive controversy on the merits and directed that the issue be addressed in the first instance by the Commissioner (Appeals). [Paras 7]

Substantive questions as to import status and entitlement to depreciation benefits are not finally decided by this Court and are directed to be considered and decided on merits by the Commissioner (Appeals) under the Customs Act.

Appellate remedy under the Customs Act - condonation of delay by Commissioner (Appeals) - Whether the petitioner should be relegated to the appellate remedy and what interim and procedural directions should be given - HELD THAT: - The Court exercised its supervisory jurisdiction to require the petitioner to pursue the statutory appeal before the Commissioner (Appeals) under Section 128 of the Customs Act. The petitioner was permitted to file the appeal within two weeks and to accompany it with a petition for condonation of delay. The Court directed that if such a petition for condonation is filed, the Commissioner (Appeals) shall treat the delay as condoned on the basis that the petitioner has bona fide prosecuted the matter before the High Court, and thereafter decide the appeal on merits after affording personal hearing. The Court further ordered that no coercive action pursuant to Ext.P4 shall be taken against the petitioner pending the decision of the Commissioner (Appeals), provided the petitioner files the appeal as directed. [Paras 7]

Writ petition disposed by relegating the petitioner to file an appeal to the Commissioner (Appeals) within two weeks with a condonation petition; Commissioner to condone delay and decide the appeal on merits after personal hearing; interim protection against coercive steps until disposal of the appeal if filed as directed.

Final Conclusion: Writ petition disposed of by directing the petitioner to prefer an appeal to the Commissioner (Appeals) under the Customs Act within two weeks (with a condonation petition); the Commissioner (Appeals) to condone delay and decide the appeal on merits after personal hearing; no coercive action pursuant to Ext.P4 shall be taken pending the appellate decision if the appeal is filed as directed.

Scheme of Amalgamation - Maintainability under Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Dispensation of Shareholders' Meetings - Convening of Unsecured Creditors' Meetings - Appointment of Chairperson, Alternate Chairperson and Scrutinizer - Payment of fees and expenses to Chairperson/Alternate Chairperson/Scrutinizer - Supplementary Accounting Statement and circulation of documents - Compliance with Accounting Standards - Notice to Central Government, Registrar, Official Liquidator and Income Tax Department

Maintainability under Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Joint application for sanction of the Scheme is maintainable under the Rules. - HELD THAT: - The Tribunal recorded that the application is the first joint motion filed by the applicant companies seeking sanction of the Scheme and expressly noted that the joint application is maintainable in terms of Rule 3(2) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The Tribunal proceeded to consider the supporting records, board resolutions and accompanying documents in view of that maintainability finding. [Paras 1, 30]

Application is maintainable and the Tribunal proceeded to issue directions for the first motion.

Dispensation of Shareholders' Meetings - Dispensation of convening meetings of equity shareholders of all applicant companies was allowed on the basis of filed consent affidavits. - HELD THAT: - The Tribunal recorded that all equity shareholders of each Transferor Company and the Transferee Company had given their consent/no objection affidavits and therefore dispensed with calling shareholder meetings for the applicant companies. This finding was based on the certified shareholders' lists and the affidavits placed on record. [Paras 18, 21, 24, 27, 38]

Meetings of equity shareholders of all applicant companies dispensed with subject to the recorded consents.

Convening of Unsecured Creditors' Meetings - Meetings of unsecured creditors of Transferor Companies 1, 2 and 3 were ordered to be convened (with specified dates, times and quorums); meeting of unsecured creditors of the Transferee Company was dispensed with. - HELD THAT: - The Tribunal, after noting the certificates showing numbers of unsecured creditors and the absence of secured creditors, directed that unsecured creditors' meetings for Transferor Companies 1, 2 and 3 be convened on 18.04.2020 at specified times and places with specified quorum requirements; it dispensed with convening the unsecured creditors' meeting of the Transferee Company on the basis of consent affidavits of all unsecured creditors. The order also provided adjournment and quorum completion procedures and allowed voting in person, by proxy, electronic means or postal ballot as applicable. [Paras 25, 26, 28, 29, 38]

Unsecured creditors' meetings of Transferor Companies 1-3 to be convened as directed; unsecured creditors' meeting of Transferee Company dispensed with.

Appointment of Chairperson, Alternate Chairperson and Scrutinizer - Payment of fees and expenses to Chairperson/Alternate Chairperson/Scrutinizer - Chairperson, Alternate Chairperson and Scrutinizer were appointed for the meetings and their remuneration and expense-bearing arrangements were fixed. - HELD THAT: - The Tribunal appointed the named persons as Chairperson, Alternate Chairperson and Scrutinizer for the meetings to be called under the order, fixed their respective fees, and directed that the fees and travelling/out-of-pocket expenses be borne by the Transferor Companies 1, 2 and 3. The Chairperson was directed to report the results in Form No. CAA-4 within seven days of the conclusion of the meetings, assisted by the company representatives and the Scrutinizer. [Paras 38]

Appointments and remuneration fixed; fees and expenses to be borne by Transferor Companies 1-3; reporting obligations imposed on the Chairperson.

Supplementary Accounting Statement and circulation of documents - Compliance with Accounting Standards - Statutory auditors' certificates confirming conformity of accounting treatment with Accounting Standards were recorded; supplementary accounting statements as of 31.12.2019 and prescribed documents were directed to be circulated to creditors. - HELD THAT: - The Tribunal noted that the statutory auditors of the applicant companies furnished certificates stating that the accounting treatment in the Scheme conforms with the Accounting Standards under Section 133 of the Companies Act, 2013. Further, the Transferor Companies were directed to circulate the supplementary accounting statement as on 31.12.2019 for the meetings in terms of Section 230(2) and to send with notices copies of the Scheme, the explanatory statement and other documents required under the Act and Rules. [Paras 31, 32, 38]

Accounting treatment conformity recorded and supplementary accounting statement and other prescribed documents to be circulated for the meetings.

Notice to Central Government, Registrar, Official Liquidator and Income Tax Department - Directions issued to send statutory notices in Form CAA-3 with the Scheme and explanatory materials to Central Government (Regional Director), Registrar, Official Liquidator and Income Tax Department, with provision for representations within 30 days. - HELD THAT: - The Tribunal directed each applicant company to send notices in Form No. CAA-3 along with the Scheme, explanatory statement and disclosures to the Regional Director (Northern Region), Registrar of Companies, Official Liquidator and the Income Tax Department (and any sectoral regulator, if applicable), specifying the manner and timeline for receipt of representations to the Tribunal and simultaneous supply of such representations to the companies, failing which no objection would be presumed. [Paras 38]

Statutory notices to specified authorities to be sent in accordance with Section 230(5) and Rule 8 of the Rules, allowing 30 days for representations.

Final Conclusion: The Tribunal found the first motion application maintainable, recorded statutory certifications and shareholders' consents, dispensed with shareholders' meetings, ordered convening of unsecured creditors' meetings for the three Transferor Companies while dispensing the Transferee Company's unsecured creditors' meeting, appointed and fixed remuneration of meeting officials, directed circulation of supplementary accounts and prescribed documents, required statutory notices to regulators and authorities, and disposed of the first motion petition with the specified directions.

Interim administration - inherent power - deadlock in management - director disqualification - appointment of interim administrator under Rule 11 of the National Company Law Tribunal Rules, 2016 - prevention of abuse of process

Interim administration - inherent power - appointment of interim administrator under Rule 11 of the National Company Law Tribunal Rules, 2016 - deadlock in management - director disqualification - prevention of abuse of process - Authority of the Tribunal to appoint an interim administrator to manage the affairs of the 1st Respondent-Company pending disposal of the main company petition. - HELD THAT: - The Tribunal found that there existed a management deadlock and substantial issues as to the qualification of directors of the 1st Respondent-Company arising from statutory disqualification and disputed appointments of persons who were not members. Although the interlocutory application was filed after the 90 day period specified under Section 273(1) and related contentions on delay were raised, the Tribunal exercised its inherent power under Rule 11 of the National Company Law Tribunal Rules, 2016 to meet the ends of justice and to prevent abuse of the Tribunal's process. In view of the alleged absence of a validly constituted board and the likely prejudice to the company, the Tribunal held that appointment of an interim administrator was necessary to look after the management and affairs of the company until the main Company Petition is finally disposed of. The Tribunal directed the parties to suggest qualified persons for appointment and specified that the costs of the administrator shall be borne by the company. [Paras 12, 13]

IA/25/KOB/2020 is allowed and an interim administrator is to be appointed to manage the 1st Respondent-Company until disposal of the main Company Petition; parties to suggest names and costs to be borne by the company.

Final Conclusion: The Tribunal allowed the interlocutory application and directed appointment of an interim administrator under its inherent powers (Rule 11, NCLT Rules, 2016) to manage the 1st Respondent-Company pending disposal of the main Company Petition, with the administrator's costs to be borne by the company.

Maintainability of writ petition in the presence of an effective alternative remedy - availability of appeal to the National Company Law Appellate Tribunal under Section 61 of the Insolvency and Bankruptcy Code - jurisdiction of the National Company Law Tribunal to inquire into allegations of fraud in initiation of Corporate Insolvency Resolution Process - constitutional remedy under Article 226 where the adjudicatory forum is coram non-judice

Maintainability of writ petition in the presence of an effective alternative remedy - availability of appeal to the National Company Law Appellate Tribunal under Section 61 of the Insolvency and Bankruptcy Code - Whether the High Court should entertain the writ petition challenging the NCLT order when an appeal lies to the NCLAT under Section 61 of the Code. - HELD THAT: - The Court held that the petitioners have an effective alternative remedy by way of appeal to the NCLAT under Section 61 of the Code and therefore the High Court will not ordinarily entertain a writ under Article 226 to challenge an NCLT order. The Court relied on the principle that remedy of appeal to the specially constituted appellate forum under the Code ought to be availed of unless there is an inherent lack of jurisdiction in the NCLT. Applying that principle to the facts, the petitioners were granted liberty to prefer an appeal to the NCLAT and the writ petition was dismissed for want of alternative remedy not being exhausted. The Court expressly refrained from commenting on the merits of the contentions raised by the petitioners. [Paras 5, 7, 8, 9]

Writ petition dismissed with liberty to agitate grievances before the NCLAT under Section 61; no comment on merits.

Jurisdiction of the National Company Law Tribunal to inquire into allegations of fraud in initiation of Corporate Insolvency Resolution Process - constitutional remedy under Article 226 where the adjudicatory forum is coram non-judice - Scope of NCLT's jurisdiction to entertain and investigate allegations such as manipulation, falsification of accounts or fraud and the limited circumstances in which the High Court may invoke Article 226. - HELD THAT: - Relying on the law as discussed in precedent, the Court observed that the NCLT has jurisdiction under Section 60 to entertain insolvency proceedings and is competent to enquire into allegations of fraud in the initiation of the Corporate Insolvency Resolution Process. The High Court's jurisdiction under Article 226 to interfere is confined to exceptional cases where the NCLT is coram non-judice or otherwise without jurisdiction; mere allegations of wrongful exercise of jurisdiction will not ordinarily permit bypassing the appellate remedy under the Code. Allegations of manipulation, falsification and misappropriation raised by the petitioners can be considered in the appeal to the NCLAT. [Paras 5, 6]

NCLT is competent to examine allegations of fraud; High Court will not substitute appellate remedy unless the NCLT is coram non-judice.

Final Conclusion: The writ petition challenging the NCLT order is dismissed on the ground that an effective alternative remedy by appeal to the NCLAT under Section 61 of the Code is available; questions regarding alleged manipulation or fraud are to be considered in the appellate proceedings, and the High Court has not expressed any opinion on the merits.

Operational debt - demand notice in Form 3 and prescribed particulars - Section 8 and Section 9 IBC demand notice and application requirements - default and date of default - continuous business dealings / running account - bank certificate confirming non-payment - pre-existing dispute - limitation for operational debt claims - opportunity of hearing / principles of natural justice

Operational debt - demand notice in Form 3 and prescribed particulars - bank certificate confirming non-payment - pre-existing dispute - Existence of operational debt and default in payment in respect of the supplies claimed - HELD THAT: - The Adjudicatory relationship between the parties under the Master Service Agreement and Managed Services Agreement establishes the sums claimed as "operational debt" within the meaning of the Code. The Demand Notice (Form 3) filed by the Operational Creditor identified two distinct entries: one for supply and installation of 804 trackers (Rs. 50,32,028/-) and another for 30 trackers (Rs. 3,67,200/-). The claim relating to 804 trackers was not supported by contemporaneous invoices, signed purchase orders or delivery challans evidencing receipt and hence was not established as required by Sections 8 and 9; the email dated 15.10.2015 was only an account statement for review and not unambiguous proof of delivery. By contrast, the Corporate Debtor admitted placement of purchase order and receipt of 30 trackers in its reply to the Demand Notice; the bank certificate also established non-payment of the amount claimed for the 30 trackers. On these bases the Adjudicating Authority correctly found that at least the debt in respect of 30 trackers was an admitted operational debt in default and could ground admissibility of the Section 9 application. [Paras 16, 17, 18, 20, 21]

The claim for 804 trackers was not established for want of required supporting documents, whereas the debt for 30 trackers was an admitted operational debt in default and accordingly constituted a valid basis for the Section 9 application.

Limitation for operational debt claims - continuous business dealings / running account - default and date of default - Whether the Section 9 application was within limitation - HELD THAT: - The Operational Creditor asserted continuous supplies and a running account, with the last acknowledged supply (purchase order) dated 12.12.2015. The Section 9 application was filed within three years of that date in respect of the admitted claim for 30 trackers; therefore that part of the claim fell within limitation. Given the pleaded course of dealing and the acknowledged 30-tracker supply, the Adjudicatory Authority's conclusion that the application as to the admitted claim was filed within limitation was held to be correct. [Paras 22, 23]

The Section 9 application insofar as it related to the unpaid claim for 30 trackers (purchase order dated 12.12.2015) was filed within limitation and thus maintainable.

Opportunity of hearing / principles of natural justice - Whether the Corporate Debtor was denied reasonable opportunity of hearing - HELD THAT: - The Corporate Debtor contended that oral arguments on the final hearing date were not afforded. The Adjudicating Authority, however, considered written and earlier oral submissions made on the previous hearing date and, in view of the statutory timelines under the Code, closed arguments and delivered the judgment after taking those submissions into account. The Tribunal found no denial of reasonable opportunity to be heard. [Paras 24]

No breach of natural justice was made out; the Corporate Debtor was given reasonable opportunity and the Adjudicating Authority did not err in proceeding to judgment.

Final Conclusion: The Tribunal found no infirmity in the Adjudicating Authority's order admitting the Section 9 application: the debt in respect of 30 trackers was an admitted operational debt in default and within limitation, the larger claim for 804 trackers was not sufficiently proved, and there was no denial of opportunity to be heard; the interim stay was vacated and the IRP was directed to proceed with CIRP.

Priority payment to dissenting financial creditors - applicability of Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 to pending CIRP - compliance of Regulation 38 of the CIRP Regulations - liquidation-value comparison test under Section 30(2)

Priority payment to dissenting financial creditors - applicability of Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 to pending CIRP - compliance of Regulation 38 of the CIRP Regulations - liquidation-value comparison test under Section 30(2) - Whether the amended provision requiring priority payment to dissenting financial creditors applied to the pending resolution plan and whether the Resolution Plan complied with that requirement so as to entitle the dissenting financial creditor to priority payment. - HELD THAT: - The Tribunal examined the amended statutory scheme and the re-consideration of the resolution plan by the Committee of Creditors after the amendment and after the Supreme Court's decision. The CoC and Resolution Professional computed the liquidation value and compared amounts available under the Resolution Plan to amounts available on liquidation. The Resolution Plan offered the Applicant an amount greater than the liquidation entitlement and provided for upfront payment within three months. On that basis the Adjudicating Authority found that the requirement of Section 30(2) and Regulation 38 regarding priority payment to dissenting financial creditors was met. Consequentially the IA seeking declaration/modification was admitted and the CoC/Resolution Applicant was directed to pay the Applicant as per the Code. [Paras 10, 11]

The Tribunal held that the amended priority provisions applied and were complied with by the Resolution Plan; the IA was admitted and the CoC/Resolution Applicant was directed to pay the dissenting financial creditor as provided in the plan.

Final Conclusion: The application was admitted: the Tribunal found that the amended Section 30(2)(b)(ii) and Regulation 38 applied to the pending CIRP and that the Resolution Plan satisfied the liquidation-value comparison test by providing the dissenting financial creditor an amount higher than the liquidation entitlement (with upfront payment); the CoC/Resolution Applicant was directed to effect payment accordingly and the IA was disposed of with those observations and instructions.

Liquidation under Section 33 of the Insolvency and Bankruptcy Code, 2016 - Commercial wisdom of the Committee of Creditors - Cessation of moratorium on initiation of liquidation under Section 14 - Appointment and powers of the Liquidator under Sections 35 to 50 and 52 to 54 and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - Public announcement and statutory communications on liquidation - Prohibition on institution of suits against the corporate debtor during liquidation subject to Section 52

Liquidation under Section 33 of the Insolvency and Bankruptcy Code, 2016 - Commercial wisdom of the Committee of Creditors - Cessation of moratorium on initiation of liquidation under Section 14 - Appointment and powers of the Liquidator under Sections 35 to 50 and 52 to 54 and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - Public announcement and statutory communications on liquidation - Liquidation of the Corporate Debtor (Terrene Pharma Pvt. Ltd.) was ordered and the Resolution Professional was appointed as Liquidator, with ancillary directions consequent to liquidation. - HELD THAT: - The Adjudicating Authority recorded that no viable or feasible resolution plan had been received and that the corporate debtor had no running business and assets insufficient relative to liabilities. The Committee of Creditors, in its commercial judgment reached in its meeting, resolved for liquidation. The Authority declined to interfere with the commercial wisdom of the CoC, applying the principle that neither the Adjudicating Authority nor the Appellate Authority may reverse the CoC's commercial decision as affirmed in the cited decisions. Consequent upon the CoC's resolution and the lack of viable plans, the Authority allowed the application under Section 33 and ordered initiation of liquidation. The order directed that the moratorium under Section 14 shall cease from the date of liquidation, required the Liquidator to make a public announcement and to communicate the order to the registrar with whom the corporate debtor is registered, and prescribed that suits may not be instituted by or against the corporate debtor except as permitted under Section 52 and that the Liquidator may institute proceedings with prior approval of the Authority. The order further recorded that officers, employees and workmen are deemed discharged (subject to continuation of business by the Liquidator), that powers of directors and KMP vest in the Liquidator, and that the Liquidator shall exercise the statutory duties and be entitled to fees in accordance with the Code and Regulations.

IA allowed; liquidation of the corporate debtor ordered and the Resolution Professional appointed as Liquidator with the ancillary directions set out in the order.

Final Conclusion: The Tribunal allowed the application for liquidation, held that the CoC's commercial decision for liquidation will not be interfered with in the absence of viable resolution plans, directed cessation of the moratorium on liquidation, appointed the RP as Liquidator and issued consequential statutory directions for the conduct of the liquidation process.

Bench recusal - placement before Co-ordinate/Appropriate Bench - direction to submit fresh compliance certificate (Form H) - verification of avoidance/Section 66 and related transactions in compliance - referral to President NCLT for constitution of Bench

Bench recusal - placement before Co-ordinate/Appropriate Bench - Bench recusal and administrative placement of the matter. - HELD THAT: - During hearing counsel for the resolution professional informed the Bench that one member had a personal prejudice regarding the RP. The Bench recorded recusal and directed the Registry to place the matter before the Co-ordinate/Appropriate Bench. That administrative direction to re-place the matter was made to ensure transparency and fairness in adjudication and to effect recusal of the member who expressed personal prejudice.

Registry directed to place the matter before the Co-ordinate/Appropriate Bench consequent to the Bench's recusal.

Direction to submit fresh compliance certificate (Form H) - verification of avoidance/Section 66 and related transactions in compliance - Requirement for the resolution professional to file a fresh, fully completed Form 'H' (compliance certificate) addressing avoidance/Section 66 and related entries. - HELD THAT: - The compliance certificate (Form 'H') filed by the RP contained 'NA' entries where affirmative or negative answers were required in respect of determinations under Regulation 35(A) and details of applications under Sections concerning preferential, undervalued, extortionate credit and fraudulent transactions. The Adjudicating Authority found these omissions material to approval of the resolution plan and directed the RP (through counsel) to submit a duly filled fresh Form 'H' covering all points of the resolution process so that the Authority may peruse and consider approval of the plan.

RP directed to submit a fresh, duly completed Form 'H' addressing all required particulars, including avoidance/Section 66 related entries, for consideration of the resolution plan.

Referral to President NCLT for constitution of Bench - Administrative referral to the President, NCLT, Delhi for arrangement of another Judicial Member so the undersigned Member (T) and a different Judicial Member (J) may decide the resolution plan on merits. - HELD THAT: - Although one Member expressed the view that the Bench should recuse, the other Member recorded disagreement and considered it appropriate that the matter be disposed of on merits by a Bench comprising the undersigned Member (T) and a different Judicial Member (J). For this purpose the Registry was directed to refer the matter to the President, NCLT, Delhi for arrangement of an alternate Judicial Member so that the Bench could proceed without further loss of time and decide the resolution plan on merit.

Registry directed to refer the matter to the President, NCLT, Delhi to arrange another Judicial Member enabling the undersigned Member (T) and a different Judicial Member (J) to adjudicate the resolution plan on merits.

Final Conclusion: The Bench recorded recusal by one member and directed administrative re-placement before a Co-ordinate/Appropriate Bench; directed the RP to file a fresh, fully completed Form 'H' addressing avoidance/Section 66 and related entries; and ordered the Registry to refer the matter to the President, NCLT, Delhi to arrange another Judicial Member so that the undersigned Member (T) and a different Judicial Member (J) may dispose of the resolution plan on merits.

Usance period of Letter of Credit - Trade Credit (buyers' credit / suppliers' credit) - operating cycle - contractual fixation of credit terms / Sanction Letter - discretion of lender to extend usance period - binding nature of RBI instructions under Section 35A of the Banking Regulation Act, 1949

Usance period of Letter of Credit - contractual fixation of credit terms / Sanction Letter - discretion of lender to extend usance period - entitlement of the petitioners to an extension of the usance period of their Letter of Credit facility from 180 days to 270 days - HELD THAT: - The court held that the usance period for the L/C is governed by the contractual terms agreed between the parties as reflected in the Sanction Letters dated March 15, 2018 and January 22, 2019, which fixed the upper limit of the usance period at 180 days and allowed issuance over 120 days only selectively at branch discretion. The decision to extend usance is a matter of the lender's commercial discretion and cannot be claimed as a matter of right by the petitioners. The bank's exercise of discretion against extension was supported by consortium minutes, the trade credit committee decision and IEM reports. A court cannot substitute its view for the parties' contract and direct modification of the agreed credit terms. [Paras 26, 33, 37, 38, 39]

Petitioners are not entitled to extension of the L/C usance period from 180 days to 270 days; writ petition dismissed

Trade Credit (buyers' credit / suppliers' credit) - operating cycle - Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 - whether the Trade Credit Policy-Revised Framework (RBI March 13, 2019) or the 2018 Regulations altered the usance period available to the petitioners or entitled them to credit up to the operating cycle - HELD THAT: - The court concluded that the Trade Credit framework in the 2018 Regulations and the Trade Credit Policy relate to credits raised from overseas suppliers/banks (buyers' and suppliers' credit) and thus to foreign exchange management. Where both importer and creditor bank are situated in India, the concept of Trade Credit (as defined in Regulation 2(xvii) and read with Regulation 4B and Regulation 5A) is inapplicable. The Master Direction - Import of Goods and Services (January 1, 2016, updated April 1, 2019) governs remittance against imports in the present domestic-bank context. Consequently the March 13, 2019 Policy did not alter the position regarding the usance period available to these petitioners. [Paras 29, 31, 32, 35, 36]

Trade Credit Policy 2019 / 2018 Regulations do not entitle the petitioners to change the usance period fixed by their contract; the Trade Credit regime pertains to overseas credit and is not applicable here

Binding nature of RBI instructions under Section 35A of the Banking Regulation Act, 1949 - binding effect of RBI letters of instruction - whether earlier RBI instruction letters relied on by the bank (May 21, 2018 and August 27, 2018) were binding or negated by subsequent Regulations so as to affect the usance period - HELD THAT: - The court observed that the RBI letters of May 21, 2018 and August 27, 2018, which reiterated the 180-day position, are binding on the respondent-bank in terms of Section 35A of the Banking Regulation Act, 1949. The petitioners' contention that the 2018 Regulations or the March 13, 2019 Policy negated those instructions was rejected because those instruments govern trade credit from overseas banks and do not alter the regulatory matrix applicable to the present domestic-bank L/C facilities. [Paras 12, 34, 35]

RBI instruction letters relied upon by the bank are of mandatory nature for the respondent-bank and do not stand negated by the 2018 Regulations insofar as domestic L/C usance is concerned

Repayment obligation - post-expiry interest and penal rate for non-payment - directions for repayment of the loan amount and interest consequences for non-payment - HELD THAT: - The court directed the petitioners to repay the loan amount pertaining to the credit facilities obtained from the State Bank of India within 30 days with interest at the rate specified by the court for the post-expiry period of the 180-day credit. The order also prescribed a higher rate of interest to be applied in the event of failure to repay within the 30-day period. These are enforcement directions ancillary to dismissal of the writ petition. [Paras 40]

Petitioners to repay within 30 days with court-ordered interest; failure will attract higher penal rate as directed

Final Conclusion: Writ petition dismissed. The court held that the usance period for the L/C is determined by the parties' contract and the lender's discretion; the Trade Credit regulatory framework for overseas borrowings does not alter the contractual 180 day usance fixed by the Sanction Letters and RBI instructions relied upon by the bank remain binding; petitioners ordered to repay within 30 days with interest as directed, failing which a higher penal rate applies.

Provisional attachment - transfer of provisionally attached funds to a third-party creditor pending adjudication - implementing interim protective measure without adjudicating merits - role of Adjudicating Authority under the PMLA in final determination of ownership

Provisional attachment - transfer of provisionally attached funds to a third-party creditor pending adjudication - Direction to transfer the portion of provisionally attached funds acknowledged to belong to the National Housing Bank (NHB) to the NHB as an interim measure. - HELD THAT: - The Court recorded that the Petitioner admits that a specified portion of the provisionally attached fixed deposits belongs to the NHB and that the NHB has demanded repayment of the unutilised refinance. In the peculiar facts where frozen funds would otherwise remain immobilised with the Directorate of Enforcement, the Court directed HDFC Bank to transfer that portion from the provisionally attached account to the NHB so the funds may be put to governmental use, subject to the final decision of the Adjudicating Authority under the PMLA. The order is an interim protective measure and does not constitute a ruling on the merits of the attachment or on the ultimate entitlement to the funds. The Court also imposed a mechanism for restoration if the Adjudicating Authority later directs re-deposit: the NHB must re-deposit the principal within six weeks of such order and no interest would be payable by NHB; the receipt shall be credited to the Petitioner's account and any re-deposit shall be debited from that account. (See paras. 6-10, 12.) [Paras 6, 7, 8, 9, 10]

HDFC Bank directed to transfer the admitted NHB portion of the provisionally attached funds to NHB as an interim measure, subject to the Adjudicating Authority's final order; NHB to re-deposit if so directed within six weeks and without payment of interest.

Provisional attachment - role of Adjudicating Authority under the PMLA in final determination of ownership - Continuation of the provisional attachment in respect of the remaining amounts and preservation of parties' rights to pursue adjudication under the PMLA. - HELD THAT: - The Court declined to quash the provisional attachment insofar as amounts other than the NHB-acknowledged portion are concerned, and left open the substantive controversy for adjudication by the Adjudicating Authority under the PMLA. The Petitioner is permitted to agitate its pleas before that Authority and is to be impleaded and heard in the attachment proceedings prior to any final order. The Court expressly refrained from considering the merits of the attachment or disputes between the Petitioner and NHB, preserving all rights and remedies of the parties. (See paras. 6, 8, 11, 12.) [Paras 6, 8, 11, 12]

Provisional attachment to continue in respect of remaining amounts; Petitioner to be impleaded and heard before the Adjudicating Authority, which shall finally determine entitlement to the funds.

Final Conclusion: The petition is disposed of by directing transfer of the NHB-acknowledged portion of the provisionally attached funds to NHB as an interim measure, while the provisional attachment in respect of remaining amounts continues and all parties retain their rights to final adjudication under the PMLA.

Bail on furnishing personal bond and local sureties - non-tampering with prosecution evidence - cooperation in trial and prohibition on seeking adjournments - obligation to remain present at trial and consequences for non-attendance under Section 229-A IPC - proclamation under Section 82 Cr.P.C. and proceedings under Section 174-A IPC for failure to appear - requirement to attend specified hearings (opening of case, framing of charge, recording under Section 313 Cr.P.C.) and abuse of bail - term/short-term bail committee orders and effect on bail

Bail on furnishing personal bond and local sureties - bail in case registered under sections 420, 467, 468, 471, 406, 504 and 506 IPC - Applicant Ashish Sharma released on regular bail in respect of case Crime No. 366 of 2019, subject to furnishing a personal bond and two local sureties of like amount. - HELD THAT: - Having heard the parties and perused the record, the High Court, without expressing any opinion on the merits, found that the applicant, detained since 4.1.2020, is not likely to flee or tamper with evidence and may be enlarged on bail. The court accordingly directed release of the applicant on furnishing the specified personal bond and two local sureties to the satisfaction of the trial court, while preserving the prosecution's case for trial.

Applicant shall be released on bail on furnishing a personal bond and two local sureties each of the like amount to the satisfaction of the concerned court.

Non-tampering with prosecution evidence - cooperation in trial and prohibition on seeking adjournments - obligation to remain present at trial and consequences for non-attendance under Section 229-A IPC - proclamation under Section 82 Cr.P.C. and proceedings under Section 174-A IPC for failure to appear - requirement to attend specified hearings (opening of case, framing of charge, recording under Section 313 Cr.P.C.) and abuse of bail - term/short-term bail committee orders and effect on bail - Bail is subject to enumerated conditions restraining tampering, mandating cooperation and attendance, and specifying legal consequences for breach or misuse of bail. - HELD THAT: - The court imposed several express conditions to be complied with by the applicant: refrain from intimidating or pressurising witnesses or tampering with prosecution evidence; sincerely cooperate in trial without seeking adjournments; abstain from further criminal activity; remain present before the trial court on each date fixed (personally or through counsel), failing which the trial court may proceed under the penal provision indicated by the High Court; attend in person for opening of the case, framing of charge and recording of statement under Section 313 Cr.P.C., default in which, if deliberate or without sufficient cause, may be treated as abuse of liberty of bail; and that if a proclamation under Section 82 Cr.P.C. is issued and the applicant fails to appear, proceedings under the penal provision specified shall follow. The order also clarifies that any short-term bail previously granted by the committee will have the effect that this bail becomes operative only after such short-term bail period ends. Breach of any condition is made a ground for cancellation of bail.

Bail granted is conditional; non-compliance with the enumerated conditions will entitle the trial court to cancel bail and take appropriate proceedings as specified.

Final Conclusion: The High Court allowed the applicant's bail application in Crime No. 366 of 2019 and ordered his release on furnishing a personal bond and two local sureties, subject to specified conditions governing conduct, cooperation, attendance and consequences for breach; breach of any condition may result in cancellation of bail and initiation of appropriate proceedings.

Presumption under Section 139 of the Negotiable Instruments Act - rebuttal of presumption by proof on preponderance of probability - existence of a legally enforceable debt - maintainability of complaint by an individual where cheque is in favour of a firm - dishonour of cheque for insufficiency of funds - burden of proof after rebuttal of presumption

Presumption under Section 139 of the Negotiable Instruments Act - rebuttal of presumption by proof on preponderance of probability - existence of a legally enforceable debt - burden of proof after rebuttal of presumption - Whether the complainant proved that the accused committed an offence punishable under Section 138 of the Negotiable Instruments Act by establishing a legally enforceable debt. - HELD THAT: - The cheque issuance and its dishonour were established, invoking the statutory presumption in favour of the payee under Section 139. That presumption, however, is rebuttable. The accused did not adduce affirmative evidence but subjected the complainant to detailed cross-examination and disputed the delivery and related documentary proof. The complainant produced an invoice cum delivery challan and a partnership deed only during trial; the invoice lacked essential particulars (make/model, filled proof-of-delivery fields, temporary registration/insurance details), contained an admitted discrepancy between the invoice amount and the cheque amount, and the alleged recipient's signature was specifically disputed. The late production and the material deficiencies in Ex. P-10 and the unexplained mismatch in sale consideration created a preponderance of probability in favour of doubt regarding delivery and the existence of a legally enforceable debt. Having found the statutory presumption rebutted, the burden reverted to the complainant, who failed to discharge it; consequently the ingredients of Section 138 were not established. [Paras 14, 15, 16, 17]

Presumption under Section 139 was rebutted; complainant failed to prove existence of a legally enforceable debt and therefore offence under Section 138 was not established.

Maintainability of complaint by an individual where cheque is in favour of a firm - authorization requirement for firm/society/company to file complaint - Whether the complaint was maintainable when the cheque was drawn in favour of the firm but the complaint was filed by the individual in his personal capacity. - HELD THAT: - The transaction and cheque related to Sri. Venkateshwara Tractors; the cheque was drawn in the firm's name. The complainant repeatedly stated in evidence that he filed the complaint in his personal capacity and did not exhibit that he was authorised to sue on behalf of the firm. The partnership deed (Ex. P-11) was produced during trial and its dates and stamping raised further doubts. In the absence of any proof of authorization or power of attorney, a complaint by an individual in respect of a cheque payable to a firm is not maintainable. This defect independently supports non-maintainability of the complaint. [Paras 18, 19, 20]

Complaint was not maintainable because it was filed by the individual in his personal capacity though the cheque was in favour of the firm and no authorisation was shown.

Final Conclusion: The High Court found the statutory presumption under Section 139 rebutted on the evidence and also held the complaint not maintainable as it was filed by the individual though the cheque was in the firm's name; the acquittal of the accused is therefore upheld and the appeal is dismissed.