TaxTMI Updates e-Newsletter
Oct 18,2021

Amendment of writ petition - ultra vires challenge to Circular - leave to amend without changing character of petition - dispensing with re-verification - time frame for filing amended petition and pleadings

Amendment of writ petition - leave to amend without changing character of petition - ultra vires challenge to Circular - Application for amendment of the writ petition was allowed - HELD THAT: - The court examined the application to amend the yet-to-be-admitted writ petition so as to include a declaration that the Circular dated October 9, 2018 is ultra vires Section 16 of the Integrated Goods and Services Tax Act, 2017 read with Rule 96 of the Central Goods and Services Tax Rules, 2017 and to seek setting aside of the orders in appeal dated July 5 and 6, 2021 and consequential amendment of shipping bills under section 149 of the Customs Act, 1962. The court found that the proposed amendments would not alter the original character of the writ petition and therefore granted permission to amend. The respondents did not seriously oppose the amendment, though they sought time to file a reply if amendment were permitted. The court, applying the ordinary principle that amendments which do not change the fundamental character of a petition should be permitted, allowed the application. [Paras 3, 4]

Amendment permitted; application for amendment allowed.

Dispensing with re-verification - time frame for filing amended petition and pleadings - Procedural directions regarding filing of amended petition, re-verification and timetable for replies - HELD THAT: - The court directed that the petitioner file the copy of the amended writ petition within seven days and expressly dispensed with re-verification. The petitioner was ordered to serve the amended petition on the assisting advocate for the respondents. The respondents were granted four weeks from receipt of the amended petition to file their reply-affidavit and the petitioner was allowed one week thereafter to file any rejoinder. The writ petition was listed for hearing on the specified date. [Paras 5, 6]

Amended petition to be filed within seven days; re-verification dispensed with; respondents given four weeks to file reply and one week for rejoinder; matter listed for hearing on the specified date.

Final Conclusion: The application to amend the writ petition was allowed on the ground that the amendments do not change its original character; procedural directions were issued for filing the amended petition, dispensation of re-verification and timelines for the respondents' reply and rejoinder, and the matter was listed for hearing.

Review petition under Section 114 read with Order 47 Rule 1 of the Code of Civil Procedure - Condonation of delay - Bank guarantee encashment and refund pending appellate pre-deposit under Sections 107 and 112 of the CGST Act - Pre-deposit and stay of recovery on filing appeal - Detention, seizure and penalty under Section 129 of the CGST Act - Refund procedure and interest under Section 54 read with Section 56 and Section 115 of the CGST Act

Condonation of delay - Delay in filing the review petition - HELD THAT: - The review applicants sought condonation for a delay of fifty days in filing the review petition. Upon hearing and on consideration of the averments in the interim application, the Court found sufficient cause to condone the delay and allowed the interim application to that extent. [Paras 3, 4]

Delay in filing the review petition is condoned.

Review petition under Section 114 read with Order 47 Rule 1 of the Code of Civil Procedure - Bank guarantee encashment and refund pending appellate pre-deposit under Sections 107 and 112 of the CGST Act - Detention, seizure and penalty under Section 129 of the CGST Act - Refund procedure and interest under Section 54 read with Section 56 and Section 115 of the CGST Act - Maintainability of the review petition and whether grounds urged constituted grounds for review - HELD THAT: - The review petition challenged the earlier writ judgment which had directed refund of amounts encashed under eight bank guarantees and ordered furnishing of fresh bank guarantee(s) for the balance. The review applicants raised factual and legal contentions concerning the nature and independence of bank guarantees, applicability of Section 129, the refund mechanism under Section 54, entitlement to refund only of amounts actually deposited, and the treasuries to which recovered IGST is credited. The Court examined whether those contentions disclosed an error apparent on the face of the record or any other ground permitting review under Section 114/Order 47 Rule 1 CPC. The Court concluded that the grounds advanced were essentially matters fit for appeal rather than review, that there was no error apparent on the face of the record, and no overlooked material or sufficient cause for rehearing a concluded matter. [Paras 11, 12, 13, 29]

Review petition dismissed as not maintainable; no error apparent on the face of the record and no grounds for rehearing.

Final Conclusion: The interim application for condonation of delay is allowed; however, on merits the review petition is dismissed because the grounds urged are appealable matters and do not satisfy the threshold for review under Section 114 read with Order 47 Rule 1 CPC.

Addition under section 69 on account of undisclosed interest - assessment under section 153A read with section 143(3) of the Income tax Act - verification of foreign bank account by competent authorities - remand for fresh adjudication

Addition under section 69 on account of undisclosed interest - verification of foreign bank account by competent authorities - remand for fresh adjudication - assessment under section 153A read with section 143(3) of the Income tax Act - Whether the addition of Rs. 5,83,739 made as undisclosed interest for AY 2010-11 should be sustained or requires fresh adjudication in view of unresolved verification of the HSBC, Geneva account and the coordinate bench decision in AY 2006-07. - HELD THAT: - The Tribunal found that the addition for AY 2010-11 is an offshoot of the assessment based on the foreign bank account in HSBC, Geneva, the principal dispute in AY 2006-07. In the coordinate bench order for AY 2006-07 the matter was partly allowed for statistical purposes and remitted because verificatory letters from the competent Swiss authorities had not been received and, in the absence of such verificatory report, it could not be conclusively proved that the accounts belonged to the assessee. Given that the present assessment under section 153A read with section 143(3) arises from the same foreign account issue and the verificatory report remains outstanding, the Tribunal refrained from deciding the merits of the addition for AY 2010-11. Instead, following the approach in the AY 2006-07 order, the Tribunal set aside the appellate order and remitted the matter to the Assessing Officer for fresh adjudication in accordance with law after obtaining the requisite verification from the bank and after affording the assessee an opportunity of being heard. [Paras 11, 12, 13]

Impugned order of the CIT(A) set aside; matter remitted to the Assessing Officer to decide afresh after obtaining verificatory report and giving the assessee opportunity of hearing; appeal allowed for statistical purposes.

Final Conclusion: The revenue appeal is allowed for statistical purposes: the deletion by the CIT(A) is set aside and the assessment for AY 2010-11 remitted to the Assessing Officer for fresh adjudication in accordance with law after obtaining the verificatory report regarding the foreign bank account and after giving the assessee an opportunity to be heard.

Best judgment assessment - estimation of net profit - sale bill as primary document - comparability of profit rates - unexplained credit treated as income under section 68 principle - remand for verification of source of credit - disallowance of interest to partners where assessment completed under best judgment

Best judgment assessment - estimation of net profit - sale bill as primary document - comparability of profit rates - Validity of AO's estimation of net profit at 2% of sales and confirmation by CIT(A). - HELD THAT: - The Tribunal affirmed that invokation of the best judgment procedure was valid because the assessee failed to produce books and primary documents (sale bills) when called for, thereby justifying application of the provision for estimation. In the absence of past history for the assessee, reliance on comparable cases is the appropriate test; the Tribunal examined the comparable case relied upon and found that a normal profit rate of about 3% would be relevant and that the AO's adoption of 2% is reasonable. The Tribunal therefore upheld the estimation of net profit at 2% of sales as not excessive. [Paras 5]

Estimation of net profit at 2% of turnover upheld; ground 1 dismissed.

Unexplained credit treated as income under section 68 principle - remand for verification of source of credit - Validity of additions treating partners' credited amounts as unexplained and whether assessee discharged the burden of proof; one credit rejected and the other remanded. - HELD THAT: - The Tribunal held that credits in the firm's books require satisfactory explanation of their nature and source; since the firm came into existence with effect from 01.04.2004, credits reflected as opening capital had to be satisfactorily explained as to source. For the Rs. 80,000 credited to one partner, the explanation of accumulated savings was unsubstantiated and was therefore rightly treated as not proved. As regards the Rs. 37,00,000 credited to the other partner, the Tribunal found that while the assessee made a prima facie case, the material on record did not satisfactorily establish date-wise cash withdrawals or direct linkage to the investment; in the interest of justice and because underlying audited accounts appear to exist, the matter was remitted to the AO for fresh consideration and verification with liberty to draw inferences if the assessee fails to cooperate. [Paras 6, 8]

Credit of Rs. 80,000 treated as unexplained and not proved; addition sustained. The Rs. 37,00,000 credit set aside and remitted to the AO for verification and adjudication afresh.

Disallowance of interest to partners - effect of best judgment assessment on deductions - Claim for allowance of interest to partners disallowed. - HELD THAT: - The Tribunal held that once assessment is completed under the best judgment procedure, claims such as interest to partners are not allowable where they are inconsistent with the application of that procedure and the firms' admitted position. Further, to the extent the firm's capital is regarded as unexplained and brought to tax, any claim for interest on such capital would not survive. [Paras 9]

Claim for interest to partners rejected.

Final Conclusion: The appeal is partly allowed in part: the AO's estimation of net profit at 2% of turnover for AY 2005-06 is upheld; the Rs. 80,000 credit to one partner is treated as unexplained and not proved, while the Rs. 37,00,000 credit is remitted to the AO for fresh verification; the claim for interest to partners is disallowed.

Deductibility of interest under Section 36(1)(iii) of the Income Tax Act, 1961 - capitalisation of borrowing costs - qualifying asset - put to use - application of Accounting Standard AS-16 to borrowing costs - matching concept of accounting - inventory versus capital asset distinction

Deductibility of interest under Section 36(1)(iii) of the Income Tax Act, 1961 - put to use - capitalisation of borrowing costs - inventory versus capital asset distinction - application of Accounting Standard AS-16 to borrowing costs - Allowability of interest paid on loan obtained for purchase of land at MRC Nagar for AY 2015-16 under Section 36(1)(iii) where the Assessing Officer treated the interest as required to be capitalised because the asset was not 'put to use'. - HELD THAT: - The Tribunal's finding that the loan from IFCI was for the assessee's business was accepted. The Assessing Officer's disallowance rested on the proviso to Section 36(1)(iii) which excludes interest on capital borrowed for acquisition of an asset from deduction until the asset is first put to use. The Tribunal and this Court held that the proviso applies to capital assets held to facilitate business activity and not to inventory acquired in the ordinary course of a real estate business. The assessee, engaged in property development, produced an abstract of project expenses and ledger entries showing demolition, site works and various project-specific expenditures during the year; these facts demonstrate that the MRC Nagar property was put to use for the business. Treating each project as a stand-alone enterprise and applying the matching principle or AS-16 to require capitalisation of the interest in the circumstances would lead to an incorrect application of the proviso. The Special Bench decision in Wallstreet Construction Ltd. concerned the project-completion method and is not factually apposite. Accordingly, the interest was allowable under Section 36(1)(iii) for AY 2015-16. [Paras 18, 19, 20, 21]

Interest on the loan for purchase of MRC Nagar land was allowable under Section 36(1)(iii) for AY 2015-16 because the property was shown to have been put to use in the business and the proviso does not apply to inventory held in the ordinary course of the real estate business.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal was right to allow the assessee's claim for interest for Assessment Year 2015-16 and the substantial questions of law are answered against the Revenue.

Right to personal hearing - opportunity of hearing - show cause notice - reopening and scrutiny assessment - limitation / time-bar - setting aside assessment order - remand to Assessment Officer for fresh decision - consequential penalty and demand notices

Right to personal hearing - opportunity of hearing - show cause notice - Validity of the assessment order passed on 23.09.2021 without granting the personal hearing requested by the petitioner. - HELD THAT: - The assessment order was passed on 23.09.2021 though the petitioner had filed a reply on 22.09.2021 and expressly sought personal hearing as permitted by the notice. The Assessment Officer relied on earlier opportunities afforded and on the impending limitation date, but the Court found that even accepting urgency there remained sufficient time to grant a personal hearing. For these reasons the impugned assessment order was held to be unsustainable and was set aside. The Court expressly did not decide the merits of the assessment. [Paras 2, 3, 4]

Assessment order dated 23.09.2021 set aside for having been passed without granting the requested personal hearing; no observation on merits.

Remand to Assessment Officer for fresh decision - reopening and scrutiny assessment - limitation / time-bar - Directions on remand for fresh assessment proceedings and the manner in which they are to be conducted. - HELD THAT: - The matter was remitted to the Assessing Officer with a direction to pass a fresh assessment order in accordance with law. The Court prescribed a time limit of six weeks from upload of the order on the High Court website for completion of the fresh assessment and required that the Assessing Officer grant a personal hearing to the petitioner in accordance with the applicable rules. The remand was procedural and did not constitute an adjudication on the substantive merits of the assessment. [Paras 4]

Matter remanded to the Assessment Officer to pass a fresh assessment order within six weeks and to grant the petitioner a personal hearing.

Consequential penalty and demand notices - setting aside assessment order - Fate of consequential penalty and demand notices issued pursuant to the impugned assessment order. - HELD THAT: - As a consequence of setting aside the assessment order, the Court also set aside the consequential penalty notice and demand notice. This relief followed from the principal order being quashed and was ordered without adjudication on the underlying merits. [Paras 6]

Consequential penalty notice and demand notice set aside.

Final Conclusion: The assessment order dated 23.09.2021 is set aside for being passed without granting the requested personal hearing; the matter is remanded to the Assessing Officer to rehear and pass a fresh assessment within six weeks (with a personal hearing), and the consequential penalty and demand notices are set aside; no observations made on merits.

Faceless Assessment Scheme - violation of principles of natural justice - personal hearing - remand for reconsideration - addition under Section 68 of the Income Tax Act

Faceless Assessment Scheme - violation of principles of natural justice - personal hearing - Whether the assessment framed and completed under the Faceless Assessment Scheme suffers from violation of principles of natural justice for lack of personal hearing. - HELD THAT: - The Court accepted that ordinarily remedy against an assessment order lies before the appellate authorities, but recognised established exceptions enabling writ jurisdiction, one of which is breach of principles of natural justice. Although notices were issued and documents were filed by the assessee and enquiries made to the lenders, the assessee did not request a personal hearing under the Faceless Assessment Scheme. Given the very large addition under consideration, the Court found that the opportunity for a personal hearing is an integral facet of natural justice and, to avoid further delay and a re-run before the appellate authorities, entertained the writ petition on this limited ground. The Court did not adjudicate the merits of the addition under Section 68; instead it set aside the impugned assessment order and remitted the matter to the assessing authority for fresh consideration after granting a one day personal hearing to the assessee within the specified time-frame. The remand directs that after the one day personal hearing the revenue may pass a fresh assessment order on merits in accordance with law, and precludes any further personal hearing requests by the assessee. [Paras 20, 21, 24, 25, 27]

Impugned assessment order set aside and matter remitted for reconsideration; respondent to grant one day personal hearing to the assessee between 1st and 8th October, after which the assessing authority may pass a fresh order on merits.

Final Conclusion: Writ petition allowed on the limited ground of breach of principles of natural justice for want of a personal hearing; assessment order dated 26.08.2021 set aside and matter remitted for fresh consideration after one day personal hearing as directed; merits of the addition under Section 68 left open for decision by the assessing authority.

Addition to income on the basis of third-party bank stock statement - reliance on bank stock statement without independent verification - estimates in bank stock statements - notice under section 133(6) - addition based on difference in cash-in-hand reported to bank - additions founded on mere suspicion or estimate - books of account duly audited and not rejected - consistency of tribunal decisions in assessee's subsequent assessment year - household withdrawals-addition on presumed lifestyle expenditure

Addition to income on the basis of third-party bank stock statement - reliance on bank stock statement without independent verification - estimates in bank stock statements - books of account duly audited and not rejected - Deletion of addition of Rs. 2,19,65,351/- made by AO on account of difference between stock as per bank statement (28.02.2013) and stock as per books as on 31.03.2013. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the addition. The AO's reliance on the stock statement furnished to the bank was held inadequate because the assessee's books were duly maintained and audited and had not been rejected by the AO. The stock figure furnished to the bank on 28.02.2013 was found to be an estimate made prior to year end and the assessee produced a bank certified stock statement for 31.03.2013 which tallied with books. The Tribunal placed weight on the identical decision in the assessee's own succeeding assessment year, where the authorities below had relied on the bank's general practice rather than verifying case specific facts, and observed that no enquiries were made from the physical verification authority (Agriculture Department). In absence of independent, case specific verification or any defect pointed out in the books, an addition based solely on the earlier bank statement was unsustainable; the rule of consistency with the Tribunal's succeeding year order was followed. [Paras 11]

The deletion of the addition of Rs. 2,19,65,351/- was upheld and the Revenue's ground in this regard dismissed.

Addition based on difference in cash-in-hand reported to bank - reliance on bank stock statement without independent verification - additions founded on mere suspicion or estimate - books of account duly audited and not rejected - Deletion of addition of Rs. 9,04,506/- made by AO on account of discrepancy between cash-in-hand reported to bank and cash as per books. - HELD THAT: - The Tribunal found no infirmity in the CIT(A)'s deletion. The AO's addition rested on the figure shown to the bank, a third party source, without independent or case specific evidence to impeach the audited books. The CIT(A) relied on decisions of the jurisdictional High Court and Madras High Court to hold that a bank submitted statement, when shown to be an estimate and absent contrary material, cannot be the sole basis for addition. In absence of any material contradicting the books, the addition was unsustainable. [Paras 12]

The deletion of the addition of Rs. 9,04,506/- was upheld and the Revenue's ground in this regard dismissed.

Household withdrawals-addition on presumed lifestyle expenditure - additions founded on mere suspicion or estimate - books of account duly audited and not rejected - consistency of tribunal decisions in assessee's subsequent assessment year - Deletion of addition of Rs. 2,47,990/- made by AO by estimating household expenses higher than withdrawals shown. - HELD THAT: - The Tribunal sustained the CIT(A)'s deletion. The AO's estimate of household expenditure lacked evidentiary foundation: the family composition, residence in own house, ancestral agricultural land and agricultural income were accepted facts and no material was produced to show extravagant spending. The Tribunal also relied on its own decision in the succeeding assessment year, applying the rule of consistency, and held that additions based on presumption and surmise are not permissible when the AO has not produced contrary evidence to displace the assessee's explanation. [Paras 13]

The deletion of the addition of Rs. 2,47,990/- was upheld and the Revenue's ground in this regard dismissed.

Final Conclusion: Following the reasoning that the AO's additions were founded on bank statements or estimates without independent, case specific verification and in view of the assessee's audited books and consistent Tribunal decisions (including the succeeding assessment year), all three additions impugned were upheld as deleted by the CIT(A); the Revenue's appeal is dismissed.

Condonation of delay for sufficient cause under section 253(5) - Admission of appeal in the interest of substantial justice - Reopening of assessment under section 147 and ex parte assessment under section 144 - Principles of natural justice and right to be heard - Remand/restoration to Assessing Officer for fresh adjudication

Condonation of delay for sufficient cause under section 253(5) - Admission of appeal in the interest of substantial justice - Delay of 48 days in filing the appeals was condoned and the appeals were admitted for adjudication. - HELD THAT: - The Tribunal applied the established principle that the expression 'sufficient cause' is elastic and must be construed to sub-serve substantial justice. The assessee explained the delay as caused by COVID-19 lockdowns and there was no finding of mala fide or deliberate delay. Relying on the settled principle that non-deliberate delay should not defeat meritorious claims and that condonation merely permits adjudication on merits, the Tribunal found the explanation sufficient. Having been satisfied that there was no culpable negligence or mala fides and that the assessee had manifested intent to settle tax liability, the Tribunal, in exercise of its power under section 253(5), condoned the delay and admitted the appeals for adjudication on merits. [Paras 6, 7, 8]

Delay condoned; appeals admitted for adjudication.

Principles of natural justice and right to be heard - Remand/restoration to Assessing Officer for fresh adjudication - Reopening of assessment under section 147 and ex parte assessment under section 144 - Assessment order and the penalty confirmation were set aside and the matters restored to the Assessing Officer for fresh decision after considering the additional evidence and providing opportunity of hearing. - HELD THAT: - The Tribunal found that the Assessing Officer had reopened assessment after receiving information of a property sale and had passed an ex parte assessment because no one appeared in response to notices. The assessee had filed applications and a paper book containing documents (purchase/sale deeds, bank statements, affidavits, computation, Rule 46A application and related material) which the erstwhile appellate forum (NFAC/CIT(A)) did not consider, having dismissed the appeal on the ground that only a jurisdictional plea was raised. Given that those documents bore on the merits and that the assessee had asserted non-receipt of notices, the Tribunal held that the assessee's rights stood prejudiced and that principles of natural justice required reconsideration. Consequently, the Tribunal restored the quantum appeal to the Assessing Officer with directions to decide afresh after affording adequate opportunity of hearing and to consider all documents; the penalty appeal was likewise restored for fresh adjudication. [Paras 12, 16]

Matters remanded to the Assessing Officer for fresh adjudication after considering the additional evidence and affording opportunity of hearing.

Final Conclusion: The Tribunal condoned the delay of 48 days and admitted the appeals; the assessment and penalty confirmations were set aside and both matters were restored to the Assessing Officer for fresh decision after consideration of the documents filed by the assessee and after affording adequate opportunity of hearing; appeals allowed for statistical purposes.

Reopening of assessment under section 147 - sanction for issuance of notice under section 151 - application of mind by sanctioning authority - reason to believe - addition as unexplained money under section 69A - primacy of registered instrument over contrary oral evidence (Section 92, Evidence Act) - burden of proof where fact is especially within knowledge (Section 106, Evidence Act)

Sanction for issuance of notice under section 151 - application of mind by sanctioning authority - reopening of assessment under section 147 - reason to believe - Validity of the sanction recorded for initiation of reassessment proceedings and legality of reopening the assessment under section 147/151. - HELD THAT: - Reopening was initiated on information of cash deposits in the assessee's bank account and the Assessing Officer recorded reasons to believe that income had escaped assessment. The Tribunal applied the principle that at the stage of initiating reassessment what is required is 'reason to believe' and not conclusive proof of escapement. The Tribunal considered the jurisprudence of the jurisdictional High Court in CIT v. Uttam Chand Nahar, which holds that satisfaction by the Commissioner under section 151 must be based on the reasons recorded by the AO and need not be independent of them. On the facts, the satisfaction recorded by the Commissioner was an endorsement of the AO's reasons and the reopening thus satisfied the requirements of section 151/147; the contention that a brief endorsement (e.g., 'yes'/'approved') amounted to absence of application of mind was rejected in view of the AO's recorded reasons and the controlling jurisdictional precedent. Accordingly, the sanction and reopening were held valid and the ground challenging notice and assessment was dismissed. [Paras 9, 10]

Sanction and reopening under section 147/151 held valid; ground challenging notice and reassessment dismissed.

Addition as unexplained money under section 69A - primacy of registered instrument over contrary oral evidence (Section 92, Evidence Act) - burden of proof where fact is especially within knowledge (Section 106, Evidence Act) - Sustainability of addition made under section 69A by treating the cash deposited as unexplained money in view of the assessee's plea that deposits represented sale consideration of agricultural land. - HELD THAT: - The assessee claimed the cash deposits derived from the sale of agricultural land and relied on affidavits and statements of co-owners; the AO relied on the registered sale deed and statements of the purchasers showing a lower consideration recorded in the conveyance deed. The Tribunal emphasized that where the transfer is reduced to a registered document, Section 92 of the Evidence Act excludes contrary oral evidence; further Section 106 places the burden of proving facts especially within a party's knowledge on that party. The assessee did not produce a revised registered document or other cogent evidence to overturn the registered sale deed which recorded the consideration at the lower amount, nor sought cross-examination in a manner that altered the evidentiary effect of the registered instrument. The Tribunal therefore found the AO's reliance on the registered deed and purchaser statements justified and declined to apply the coordinate-bench decision relied upon by the assessee. Consequently, the addition under section 69A was upheld. [Paras 11, 13]

Addition under section 69A upheld; ground seeking deletion of addition dismissed.

Final Conclusion: Both grounds raised by the assessee - challenge to reopening/sanction and challenge to the addition under section 69A - were rejected and the appeal is dismissed.

Deemed fiction additions - reliance on survey inventory and trading account not on record - natural justice - failure to furnish inventory and basis of valuation - onus of proof on revenue for allegation of bogus purchases - insufficiency of seized/search material to sustain additions

Deemed fiction additions - reliance on survey inventory and trading account not on record - natural justice - failure to furnish inventory and basis of valuation - onus of proof on revenue for allegation of bogus purchases - insufficiency of seized/search material to sustain additions - Validity of additions made by the Assessing Officer on account of excess/undisclosed stock and alleged bogus purchases which were founded on survey inventories and trading accounts not placed on record and without adequate verification - HELD THAT: - The Assessing Officer made additions treating differences between physical stock (as per survey) and books as undisclosed investment/ bogus purchases. The CIT(A) called for and considered the AO's remand report which confirmed that handwritten inventory sheets and trading account copies on which additions were purportedly based were not available in the file; physical verification of stock at Pragati Warehouse and other godowns/mandi was not carried out; and the inventory sheet was incomplete (blank rate/total columns) so valuation basis was not provided. The assessee's explanations - that stock was stored at other warehouses (Pragati and Narmada Valley) and that items described as "Channi/Chunni" were recorded as "Channa" in books - were supported by the survey statement and the inventory itself. The AO did not make specific enquiries from mandi authorities or other sellers to substantiate alleged bogus purchases and failed to discharge the burden of proof. The Tribunal found, on facts, that additions amounted to conjecture/guesswork and were made under a deeming fiction without cogent/positive/incriminating material; principles of natural justice were infringed by non supply of valuation/inventory documents. In these circumstances the CIT(A)'s deletion of the additions was held to be justified and was confirmed. [Paras 9, 10, 11]

Additions on account of excess/undisclosed stock and alleged bogus purchases are unsustainable and are deleted; Revenue's appeal dismissed.

Final Conclusion: On the facts and material on record the Tribunal found no infirmity in the CIT(A)'s conclusion that the AO's additions were based on incomplete/unsupported survey material, failed to meet the burden of proof and violated principles of natural justice; accordingly the additions for AY 2016-17 are deleted and the departmental appeal is dismissed.

Appeal against draft order under section 144C(1) and appealability under section 246A - distinction between a draft order and an order of assessment completed under section 144C(3) / 144C(13) read with section 143(3) - effect of misdescription of a draft order as a completed assessment - maintainability of appeal before the Commissioner (Appeals)

Appeal against draft order under section 144C(1) and appealability under section 246A - distinction between a draft order and an order of assessment completed under section 144C(3) / 144C(13) read with section 143(3) - effect of misdescription of a draft order as a completed assessment - The validity and maintainability of the appeal filed against the draft order forwarded under section 144C(1). - HELD THAT: - The Tribunal found that a draft order forwarded under section 144C(1) is only a draft of the proposed order of assessment and does not finally determine the total income or the amount payable or refundable; by contrast, an order completed on the basis of the draft under section 144C(3) or pursuant to directions under section 144C(13) read with section 143(3) is an order of assessment. Section 246A permits appeal against an order of assessment under section 143(3); there is no provision permitting an appeal against a mere draft order. Consequently, an appeal filed against the draft order is not maintainable. The Tribunal acknowledged that the Assessing Officer erred in describing the draft as if completed under section 144C(13), which may explain the assessee's conduct and afford a bona fide reason for subsequent delay in filing the appeal against the final assessment, but held that such misdescription cannot convert a non-appealable draft into an appealable order or compel the appellate authority to decide the appeal on merits. The legally effective remedy is an appeal against the assessment order completed under section 144C(3) read with section 143(3).

Appeal against the draft order was rightly held not maintainable; therefore the CIT(A) correctly dismissed it as defective.

Final Conclusion: The appeal is dismissed: an appeal against a draft order under section 144C(1) is not maintainable before the Commissioner (Appeals); the assessee's remedy lies in challenging the assessment order completed under section 144C(3) read with section 143(3).

Deductibility of employees' contribution to PF/ESI where deposited after statutory due date but before filing of return - prima facie adjustment under section 143(1)(a)(iv) - binding effect of jurisdictional High Court decisions on interpretation of Section 36(1)(va) and Section 43B - temporal scope of amendment by Finance Act, 2021 - non-retrospectivity to earlier assessment years

Deductibility of employees' contribution to PF/ESI where deposited after statutory due date but before filing of return - binding effect of jurisdictional High Court decisions on interpretation of Section 36(1)(va) and Section 43B - temporal scope of amendment by Finance Act, 2021 - non-retrospectivity to earlier assessment years - prima facie adjustment under section 143(1)(a)(iv) - Employees' contribution to PF/ESI paid after the statutory due date under respective enactments but deposited before the due date for filing the return of income is not liable to be disallowed under Section 36(1)(va) read with Section 43B for the impugned assessment year. - HELD THAT: - The Tribunal found on the facts that the employees' contribution collected by the assessee was deposited before the due date for filing the return under section 139(1). The Coordinate Bench's reasoning in K.P. Airtech (and a line of decisions of the Hon'ble Rajasthan High Court) holds that contributions paid after the statutory due date but before filing the return cannot be disallowed under Section 43B read with Section 36(1)(va). The Assessing Officer's primafacie adjustment under section 143(1)(a)(iv) was therefore unsustainable on merits. The CIT(A)'s reliance on the explanation inserted by the Finance Act, 2021 was not applicable to the impugned year because the Finance Act itself and its memorandum expressly state the amendment takes effect from 1st April 2021 and applies to assessment year 2021-22 and subsequent years; consequently the amendment could not be applied to the assessment year before the Court. In view of the binding decisions of the jurisdictional High Court and the temporal limitation of the 2021 amendment, the Tribunal directed deletion of the addition made by CPC. [Paras 6, 7, 8]

Addition of Rs. 97,290 made while processing the return under section 143(1) on account of delayed deposit of employees' PF/ESI is deleted as the contributions were deposited before the due date of filing the return and the Finance Act, 2021 amendment is not applicable to the impugned assessment year.

Final Conclusion: The appeal succeeds: the adjustment disallowing employees' PF/ESI contribution made during processing under section 143(1) is deleted because the contributions were deposited before the due date for filing the return and the 2021 amendment does not apply to the assessment year in dispute.

Registration under section 12AA of the Income-tax Act - genuineness of objects and activities - proposed activities form part of 'activities' - irrevocability clause in trust deed - examination of activities including proposed activities

Registration under section 12AA of the Income-tax Act - genuineness of objects and activities - proposed activities form part of 'activities' - irrevocability clause in trust deed - Whether the application for registration under section 12AA should be rejected where (a) the trust had undertaken limited charitable expenditure in earlier years, and (b) the original trust deed lacked an irrevocability clause but a supplementary deed containing such clause was filed before the Commissioner. - HELD THAT: - The Tribunal found that the assessee filed detailed documentary material, including Form-10A, trust deed, note on activities for prior years and books, before the Commissioner and that a supplementary deed containing an irrevocability clause was also on record prior to the order. The Commissioner's rejection relied on (i) a finding of no meaningful charitable activity and (ii) absence of an irrevocability clause in the original deed; the Tribunal held the latter contention unsustainable because the supplementary deed containing the irrevocability clause was available to the Commissioner when he passed the order. On the question of activities, the Tribunal applied the legal principle in Ananda Social & Educational Trust that, for registration under section 12AA, the term 'activities' includes proposed activities and the Commissioner must examine the genuineness of objects and the activities proposed to be carried out. Having considered the objects in the trust deed together with the note on activities placed on record, the Tribunal concluded that the activities are genuine in relation to the objects, and that the Commissioner's rejection on the ground of limited past expenditure was not a valid basis for denial of registration. [Paras 5, 6]

Assessee's application for registration under section 12AA is to be granted; the order of the CIT(Exemption) rejecting registration is set aside and remitted with direction to grant registration forthwith.

Final Conclusion: Appeal allowed. The Tribunal directed the Commissioner to grant registration under section 12AA, holding that the assessee's objects are charitable, the activities (including proposed activities) are genuine when examined against the trust deed and accompanying material, and the supplementary deed cured the objection regarding irrevocability.

Deductibility of interest as business expenditure under Section 36(1)(iii) - Commercial expediency doctrine - Nexus between borrowed funds and interest-free advances - Allowance of interest where non interest bearing own funds are deployed for business - Reliance on precedents for business nexus (including Hero Cycles and S.A. Builders)

Deductibility of interest as business expenditure under Section 36(1)(iii) - Nexus between borrowed funds and interest-free advances - Commercial expediency doctrine - Deletion of the disallowance of interest of Rs. 2,28,000 under Section 36(1)(iii) upheld. - HELD THAT: - The Tribunal examined whether interest paid on borrowed funds was deductible where the assessee had deployed substantial non interest bearing funds as interest free advances to related and business connected parties. The assessee produced tax audit certification and evidence that advances were made to a group company (where the assessee was director and shareholder), to a supplier as deposit to secure regular supply, and to a broker instrumental in procuring business. Applying the principle of commercial expediency (as explained in S.A. Builders) and the test of business nexus (as applied in Hero Cycles), the Tribunal held that the advances had a direct nexus with the assessee's business and were given to advance or protect business interests. The Tribunal also noted that there is no statutory compulsion to charge interest on lending and that deployment of own non interest bearing funds for business purposes does not negate the entitlement to deduct interest on borrowed funds used in the business. The CIT(A)'s reasoning was found to be speaking and supported by material on record; on the facts, the disallowance was rightly deleted and did not call for interference. [Paras 9, 10, 11]

The deletion of the addition made under Section 36(1)(iii) was sustained and the Revenue's appeal dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of the disallowance of interest under Section 36(1)(iii) on the ground that the interest free advances were made for commercial and business expediency with a sufficient nexus to the assessee's business; Revenue's appeal is dismissed.

Fees for technical services - Reimbursement of expenses - Application of ratio in DIT v. A.P. Moller Maersk - Section 115A(1)(b)(B) - beneficial tax rate - Interpretation of statutory conditions for treaty/Act benefit - Opportunity of being heard / natural justice - Rule of consistency in taxation

Fees for technical services - Reimbursement of expenses - Application of ratio in DIT v. A.P. Moller Maersk - Reimbursement of travel expenses is not taxable as fee for technical services and the addition was deleted. - HELD THAT: - The Tribunal examined the agreement between the parties and the factual matrix and found a clear bifurcation between fees for training/technical services and third party/external costs reimbursed on a cost to cost basis. Applying the Supreme Court's ratio in DIT v. A.P. Moller Maersk, the Tribunal held that amounts received purely as reimbursement without any profit element cannot be taxed as FTS. The assessing officer and DRP's reliance on departmental observations and an amendment to the agreement was held inadequate to distinguish the Tribunal's consistent earlier findings in the assessee's own case; the amendment did not effect a substantive change in the spirit of the clause. Consequently, following coordinate bench decisions for earlier assessment years, the addition was directed to be deleted. [Paras 7]

Addition of reimbursement of travel expenses was deleted and this ground is allowed.

Section 115A(1)(b)(B) - beneficial tax rate - Interpretation of statutory conditions for treaty/Act benefit - Opportunity of being heard / natural justice - Rule of consistency in taxation - Applicability of the 10% rate under section 115A(1)(b)(B) to the payments received towards FTS was not finally adjudicated and was restored to the assessing officer for fresh consideration. - HELD THAT: - The Tribunal found that the assessing officer applied a 15% treaty rate based on a factual misconception and that the DRP did not address the error or allow the assessee an opportunity to establish fulfillment of the conditions in section 115A(1). The Tribunal noted that the Finance Act, 2015 made the 10% rate applicable from 01 04 2016 (i.e. relevant to AY 2016 17) and that 'consultancy services' fall within the Explanation to section 9(1)(vii) so as to be covered by FTS. The Tribunal observed that the question whether the statutory conditions (such as requisite approvals) are mandatorily to be satisfied where no specific approval procedure is required by RBI/Central Government was not examined by the lower authorities. In view of these deficiencies and the need to afford the assessee a hearing, the matter was remitted to the assessing officer to examine RBI/master direction and other regulatory aspects, the applicability of precedents relied upon by the assessee, and to decide after giving a reasonable opportunity of being heard. [Paras 17]

Issue of applicable tax rate under section 115A(1)(b)(B) restored to the assessing officer for fresh adjudication after providing the assessee an opportunity of being heard; ground allowed for statistical purposes.

Final Conclusion: The Tribunal deleted the addition treating travel reimbursements as FTS, following the Tribunal's earlier decisions and the ratio in DIT v. A.P. Moller Maersk; the question of the correct rate of tax (10% under section 115A(1)(b)(B) versus treaty rate) was not finally decided and was remanded to the assessing officer for fresh adjudication with directions to consider RBI/master direction, statutory conditions, relevant precedents and to afford the assessee a hearing.

Penalty under section 271(1)(c) - Quashing of assessment proceedings initiated under section 147 - Interdependence of penalty on sustaining of quantum additions - Principle that penalty cannot survive where the foundational additions are deleted

Penalty under section 271(1)(c) - Quashing of assessment proceedings initiated under section 147 - Interdependence of penalty on sustaining of quantum additions - Whether the penalty levied under section 271(1)(c) can survive after the assessment order making the corresponding additions has been quashed and the additions deleted. - HELD THAT: - The Tribunal noted that the assessment order dated 30.03.2013, which contained the additions on the basis of which penalty under section 271(1)(c) was levied, has been quashed by the Commissioner of Income Tax (Appeals) by order dated 15.09.2020, with a finding that the additions cannot survive. The Revenue did not challenge that appellate order and, in the changed circumstances, the Tribunal held there is no basis to sustain the penalty which was predicated on those additions. The Tribunal relied on the established principle that when the additions forming the foundation for a concealment penalty are deleted, the penalty cannot stand independently, and therefore the penalty must be cancelled. Applying that principle to the facts of the case, the Tribunal concluded that the penalty levied by the Assessing Officer and partly confirmed earlier by the CIT(A) has no legs to stand and must be set aside.

Penalty under section 271(1)(c) cancelled as the assessment order and corresponding additions have been quashed and deleted.

Final Conclusion: The appeal is allowed: the penalty levied under section 271(1)(c) is set aside because the assessment order containing the additions on which the penalty was based has been quashed and the additions deleted, leaving no basis to sustain the penalty.

Detention certificate - waiver of demurrage and detention charges - one-time relaxation under Article 14 of the Plant Quarantine (Regulations of Import into India) Order, 2003 - Writ of Mandamus

Detention certificate - waiver of demurrage and detention charges - Writ of Mandamus - Entitlement of the petitioner to obtain a detention certificate and consequent waiver of demurrage and detention charges for the imported consignment and whether further direction of this Court was necessary in view of respondent's steps. - HELD THAT: - The petition sought a mandamus directing issuance of a detention certificate and waiver of demurrage and detention charges in respect of goods imported under bill of entry No.7899664 dated 13.06.2020. The Court noted earlier orders granting onetime relaxation under the Plant Quarantine (Regulations of Import into India) Order, 2003 and release of the goods on 12.07.2021. The respondent, through the learned Standing Counsel, placed on record that a legal opinion was rendered on 07.08.2021 and that the Assistant Commissioner (Legal) communicated on 09.08.2021 to the Assistant Commissioner (Import) to pass necessary orders to issue the detention certificate and to waive demurrage charges. In view of this assurance and the steps already taken by the departmental officers, the Court recorded that the required orders would be passed by the Assistant Commissioner (Import) at Tuticorin within the shortest possible time and found that no further coercive direction from this Court was necessary. The Court therefore disposed of the writ petition by recording the departmental undertaking and the expected compliance, without awarding costs. [Paras 9, 11]

Writ petition disposed of by recording that the Assistant Commissioner (Import) will pass necessary orders to issue the detention certificate and grant waiver of demurrage and detention charges within the shortest possible time; no order as to costs.

Final Conclusion: The petition is disposed of by recording departmental action and assurance that the Assistant Commissioner (Import), Tuticorin will issue the detention certificate and grant waiver of demurrage and detention charges in accordance with the earlier orders; no costs.

Principles of natural justice - service of notice - right to fair hearing - duties of adjudicating authority/Tribunal while exercising judicial functions - remand for fresh hearing - tribunal to be guided by principles of natural justice despite not being bound by CPC procedure

Service of notice - right to fair hearing - principles of natural justice - Whether the impugned Tribunal order could stand where there was no clear finding as to which respondents were served and the petitioners complained of not having been afforded an opportunity of hearing - HELD THAT: - The Court examined the portion of the Tribunal's order dealing with service and hearing and noted that although the Union of India had made efforts to serve the petition, the Tribunal recorded that some respondents had received copies while others had not received the entire paperbook and adjournment requested on that account was denied (extracted in the order). The Tribunal made no specific finding identifying which respondents were served and which were not. Since the Tribunal discharges judicial functions, proceedings must be conducted in a just and fair manner; notice is the first point of fair hearing and even persons facing serious allegations are entitled to notice and hearing. Section 424 of the Companies Act, 2013 requires the Tribunal to be guided by the principles of natural justice notwithstanding that it is not bound by CPC procedure. The absence of clarity on service and the denial of adjournment without ensuring adequate opportunity to those who said they had not received papers struck at the fairness of the proceeding. In these circumstances the Court held that the matter required fresh consideration by the Tribunal and that relegation to the remedy of appeal would not be appropriate where the grievance was denial of hearing. [Paras 17, 18, 19, 20, 21]

Order dated 31/08/2021 set aside insofar as it concerns the petitioners and the matter is remanded to the Tribunal to hear the petitioners afresh and pass appropriate orders in accordance with law.

Remand for fresh hearing - alternative remedy of appeal - Whether the petitioners should be relegated to the alternative remedy of appeal instead of being heard afresh by the Tribunal - HELD THAT: - The Court observed that where petitioners complain of not being afforded a fair hearing, permitting them to pursue an appellate remedy would not be just or proper. Given the interim nature of the Tribunal's order and the specific complaint about absence of hearing and unclear service, the Court exercised writ jurisdiction to remand the matter for a fresh hearing rather than directing the petitioners to seek relief by way of appeal. All contentions were kept open for the Tribunal's fresh consideration. [Paras 19, 20, 21]

Petitioners are not relegated to the remedy of appeal; Tribunal directed to hear them afresh and pass orders within four weeks.

Final Conclusion: Writ petitions disposed of by remitting the matter to the Tribunal: the Tribunal's order dated 31/08/2021 is set aside insofar as it affects the petitioners and the Tribunal is directed to hear the petitioners afresh and pass appropriate orders in accordance with law within four weeks; all contentions remain open.

Supersession of Board of Directors and appointment of Administrator under Section 45-IE of the Reserve Bank of India Act, 1934 - Inspection of non-banking financial company under Section 45-N of the Reserve Bank of India Act, 1934 - Regulatory supervisory concerns: defaults, evergreening, slump exchange without NOCs, inadequate CRAR and NOF, weak governance and non compliance - Judicial restraint in interfering with expert regulatory action of the Reserve Bank of India - Initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code and related Rules

Supersession of Board of Directors and appointment of Administrator under Section 45-IE of the Reserve Bank of India Act, 1934 - Inspection of non-banking financial company under Section 45-N of the Reserve Bank of India Act, 1934 - Regulatory supervisory concerns: defaults, evergreening, slump exchange without NOCs, inadequate CRAR and NOF, weak governance and non compliance - Judicial restraint in interfering with expert regulatory action of the Reserve Bank of India - Validity of the Reserve Bank of India's order dated 01.10.2021 superseding the board of Srei Infrastructure Finance Limited and appointing an administrator - HELD THAT: - The Court recorded that RBI's statutory inspection as on 31.03.2020 revealed serious deterioration in the financial position of the company and that the company had defaulted in repayment obligations; the annexure to the impugned order set out supervisory concerns including large borrowings with defaults, slump exchange effected despite non receipt of majority NOCs, failure to maintain regulatory CRAR and NOF, indications of evergreening from a special audit, and persistent non compliance despite supervisory engagement. The Court held that these findings fall squarely within the class of concerns which Parliament has entrusted to RBI and that, on the basis of its statutory powers under Section 45 IE (in conjunction with inspection under Section 45 N), RBI was entitled to supersede the board and appoint an administrator to secure proper management and protect creditors/depositors. The Court further held that there need not be a proximate or immediate event contemporaneous with the order for action to be valid, and that the history of non rectification and prior transactions (such as the slump exchange) and inspection findings justified RBI's decision making. Applying the principle of judicial restraint in regulatory and financial matters and relying on the approach of the Supreme Court in Peerless General Finance and Investment Company Limited , the Court declined to interfere with RBI's exercise of statutory powers. [Paras 9, 10, 12, 13]

Writ petition challenging the supersession order is dismissed; the Court will not interfere with RBI's action.

Initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code and related Rules - Press release announcing prospective application to NCLT to appoint administrator as insolvency resolution professional - Treatment of RBI's press release dated 04.10.2021 announcing intent to initiate insolvency resolution proceedings and to apply to NCLT for appointment of the administrator as insolvency resolution professional - HELD THAT: - The Court noted the press release advising that RBI intended to initiate insolvency resolution under the Insolvency and Bankruptcy Code and the applicable Rules and would apply to the National Company Law Tribunal to appoint the administrator as the insolvency resolution professional. Having upheld RBI's supervisory action and its statutory competence to supersede the board and appoint an administrator, the Court was not persuaded to restrain or otherwise interfere with the press release or RBI's announced intention to initiate resolution proceedings before the NCLT; the matter lies within RBI's regulatory and statutory domain and, if pursued, before the appropriate insolvency forum. [Paras 11, 12]

No interference with the press release or RBI's stated intention to initiate insolvency proceedings; matter left to the statutory process.

Final Conclusion: The writ petition challenging RBI's order of supersession of the board and appointment of an administrator and the related press release is dismissed; the Court declines to exercise extraordinary jurisdiction to interfere with RBI's regulatory action, and there shall be no order as to costs.

Financial debt - operational debt - financial creditor - operational creditor - consideration for the time value of money - commercial effect of a borrowing - Section 5(8)(f) of the Code - any transaction having the commercial effect of a borrowing - Rule 3(1)(d) - requirements of a financial contract

Financial debt - Section 5(8)(f) of the Code - any transaction having the commercial effect of a borrowing - consideration for the time value of money - commercial effect of a borrowing - Whether the amounts received by the Corporate Debtor as a termed 'Security Deposit' together with interest fall within the definition of 'financial debt' under Section 5(8) of the Code (including clause (f)) or constitute an 'operational debt'. - HELD THAT: - The Tribunal applied the statutory test in Section 5(8) - a 'financial debt' is a debt disbursed against consideration for the time value of money and may include any transaction having the commercial effect of a borrowing. The court examined the agreements, bank transfers, accounting treatment and tax deduction entries and relied on authorities emphasising that characterization depends on the intention of parties and surrounding circumstances. The Agreements required the Appellant to deposit specified sums which carried interest at 21% per annum and the Corporate Debtor had credited interest in its books and tax was deducted on interest paid. The Tribunal held that the payment of interest and the acceptance and accounting of the sums by the Corporate Debtor constituted consideration for the time value of money and demonstrated the commercial effect of borrowing. Consequently, the Appellant qualified as a financial creditor in respect of the security deposit and interest, and the debt could not be confined to the label 'security deposit' or treated as purely operational merely because it arose in the context of a sales-promotion arrangement. The Tribunal held the ratio of the Supreme Court in Orator Marketing (regarding clause (f) and commercial effect) to be applicable and decisive on the facts. [Paras 18, 19, 21, 22, 24]

The security deposit and interest are 'financial debt' within Section 5(8) of the Code and the Appellant is a Financial Creditor in respect thereof; the Impugned Order classifying the claim as operational debt is set aside.

Final Conclusion: The Appeal is allowed. The amounts taken by the Corporate Debtor as 'security deposit' together with interest are held to be a 'financial debt' under Section 5(8) (including clause (f)) of the Code; the Impugned Order treating the claim as an operational debt is set aside and the Adjudicating Authority is requested to proceed expeditiously.

Scheme of Compromise or Arrangement under Section 230 of the Companies Act, 2013 - Directory nature of Regulation 2B(1) of IBBI (Liquidation Process) Regulations, 2016 - Obligation of the Liquidator to place a proposed scheme before the creditors - Preference for resolution over liquidation and maximisation of assets

Directory nature of Regulation 2B(1) of IBBI (Liquidation Process) Regulations, 2016 - Timeline for submission of a scheme under Section 230 - Regulation 2B(1) of the Liquidation Regulations and the 90 day timeline do not operate as an absolute bar to consideration of a Section 230 scheme. - HELD THAT: - The Tribunal examined the interplay between the IBC, the Liquidation Regulations and appellate guidance in Y. Shivram and S.C. Sekaran. While Regulation 2B(1) prescribes completion of a compromise or arrangement within ninety days of the liquidation order, the Tribunal held that the Code itself prescribes no rigid timeline for submission of a scheme. The NCLAT in Y. Shivram recognised that the Adjudicating Authority may extend the period where there is a chance of approval of the arrangement. On this basis the Tribunal treated Regulation 2B(1) as directory rather than mandatory and concluded that expiry of the 90 day period does not automatically preclude consideration of a scheme under Section 230. [Paras 11, 12, 17]

Regulation 2B(1) is directory; the 90 day timeline is not an absolute bar to a Section 230 scheme being considered.

Scheme of Compromise or Arrangement under Section 230 of the Companies Act, 2013 - Obligation of the Liquidator to place a proposed scheme before the creditors - Procedure directed by appellate order - The Liquidator is directed to place the Section 230 scheme submitted by the applicant before the creditors for consideration in accordance with the NCLAT directions. - HELD THAT: - The NCLAT had granted liberty to the applicant to approach the Liquidator under Section 230 and directed the Liquidator to act in accordance with Y. Shivram. The Tribunal found that although the scheme was submitted after the 90 day period, the Liquidator had not placed the scheme before the sole financial creditor (CoC) for consideration and that liquidation attempts over two years had not yielded a sale. Given the statutory preference for resolution over liquidation and the failure so far to realise value, the Tribunal held it appropriate to direct the Liquidator to place the scheme before the creditors without further delay and to comply with the NCLAT directions. [Paras 8, 13, 14, 17, 18]

Liquidator to place the applicant's Section 230 scheme before the creditors for consideration in compliance with NCLAT directions.

Preference for resolution over liquidation and maximisation of assets - Status quo in liquidation proceedings pending consideration of a scheme - Maintain status quo of the corporate debtor's assets until the creditors decide on the scheme on merits; liquidator to file a status report thereafter. - HELD THAT: - The Tribunal emphasised the object of the Code to prefer resolution and maximise asset value. Noting unsuccessful auction attempts and the absence of progress in liquidation, the Tribunal directed that assets be kept in status quo while creditors consider the scheme. The Liquidator was ordered to file a compliance/status report within 30 days and to record in writing reasons if the scheme is rejected by the creditors. [Paras 17, 19, 20]

Assets to remain in status quo; Liquidator to file a status report within 30 days and record reasons if creditors reject the scheme.

Final Conclusion: Application allowed. The Liquidator is directed to place the applicant's Section 230 scheme before the creditors for consideration (Regulation 2B(1) treated as directory), maintain status quo over the corporate debtor's assets pending the creditors' decision, and file a compliance report within 30 days; reasons must be recorded if the scheme is rejected.

Limitation for refund claims where initial claim returned for defects - refund of service tax on input services used in authorised operations of SEZ units - exemptions under the Special Economic Zones Act, 2005 and overriding effect of Section 51 - requirement of statutory auditor's certificate for refund applications - proof of payment and production of original invoices versus photocopies - recognition of Unit Approval Committee/Development Commissioner approval of specified services

Limitation for refund claims where initial claim returned for defects - refund of service tax on input services used in authorised operations of SEZ units - Whether the refund claims were time-barred and whether the date of original filing or the date of re-submission after defect-removal is the relevant date for limitation - HELD THAT: - The Tribunal found that the appellant had filed the refund claims on or before the last date prescribed and the Department returned the claims by issuing Deficiency Memos requesting documents without rejecting them on merits. The Deficiency Memo did not set any time-limit for re-submission. Relying on precedent and departmental circulars accepting higher fora decisions, the Tribunal held that where a claim is filed within the limitation period and returned for removal of defects, the original filing date is the relevant date for computing limitation. The Tribunal also held that the exemption afforded by the SEZ Act cannot be denied by applying procedural conditions of notifications issued under the Finance Act when Section 26 and the overriding provision in Section 51 of the SEZ Act apply to exempt services provided to SEZ units.

Rejection on the ground of being time-barred set aside; original filing date to be reckoned for limitation and claim allowed on this aspect.

Requirement of statutory auditor's certificate for refund applications - Whether the refund claims could be rejected because the Chartered Accountant certificate was not signed by the statutory auditor engaged during the period to which the refund pertains - HELD THAT: - The appellant produced an auditor's certificate issued by the statutory auditor engaged at the time of filing the refund applications. The Tribunal accepted the appellant's explanation that the auditor who certified the financial statements at the time of filing was the statutory auditor for that point in time and that the Notification requirement was complied with. No error was found in accepting the certificate issued by the statutory auditor engaged when the claims were filed.

Rejection of refund claims on this ground set aside.

Recognition of Unit Approval Committee/Development Commissioner approval of specified services - refund of service tax on input services used in authorised operations of SEZ units - Whether refund could be denied on the ground that certain services were not included in the list of 'specified services' used for authorised operations - HELD THAT: - The Tribunal observed that the services in question had been approved for authorised operations by the competent authority (UAC/Development Commissioner). In the absence of cogent reasons by the Department to reject that approval, the authorities below could not substitute their own view to hold that the services were not used for authorised operations. The Tribunal applied earlier decisions holding that recognition by competent SEZ authorities is determinative for entitlement to exemption/refund.

Rejection of refund claims on this ground set aside.

Proof of payment and production of original invoices versus photocopies - refund of service tax on input services used in authorised operations of SEZ units - Whether the refund claims could be rejected for non-submission of original invoices when photocopies and other proof of payment were produced - HELD THAT: - The Tribunal noted that the Notification requires proof of payment for specified services and service tax paid. The appellant produced photocopies of invoices and asserted possession of originals; the Department did not dispute that services were provided to SEZ units. While the Tribunal held that substantive benefit should not be denied for purely procedural lapses if proof of payment is established, it did not finally decide entitlement on the basis of photocopies alone. Instead, the Tribunal remanded the matter to the Adjudicating Authority to verify the copies/documents produced and to decide the issue after such verification.

Issue remanded to the Adjudicating Authority for verification of the invoices/documents produced by the appellant and reconsideration.

Final Conclusion: Appeals partly allowed: rejections on grounds of limitation, auditor's certificate and non-recognition of specified services set aside; issue of non-production of original invoices remanded to the Adjudicating Authority for verification and fresh decision with consequential benefits, if any.

Export of services - place of provision of services - intermediary - establishments of a distinct person (Explanation 3(b) to clause (44) of Section 65B) - refund of tax paid under mistake of law with interest

Export of services - establishments of a distinct person (Explanation 3(b) to clause (44) of Section 65B) - Rule 6A(1)(f) - Whether the services provided by the appellant to its parent company in Hong Kong qualify as export of services having regard to the requirement that the provider and recipient are not merely establishments of a distinct person. - HELD THAT: - The Tribunal examined Explanation 3(b) to clause (44) of Section 65B and held that the statutory test treats an establishment in the taxable territory and another establishment of the same person in a non taxable territory as establishments of distinct persons only where they are establishments of the same person. In the present case the appellant and its Hong Kong parent are separate legal entities and not the same person; the separate entity principle applies. Reliance on Vodafone International Holdings BV and the Gujarat High Court decision in Linde Engineering was noted to support that a subsidiary and its parent located in different territories are distinct taxpayers for the purpose of the provision. On these findings the condition in Rule 6A(1)(f) is satisfied and does not preclude treatment as export of services. [Paras 9, 14]

Condition (f) of Rule 6A(1) is satisfied; the recipient and provider are not to be treated as establishments of the same person for denying export of services.

Place of provision of services - intermediary - Rule 2(f) and Rule 9 of Place of Provision of Services Rules, 2012 - Rule 6A(1)(d) - Whether the appellant's services fall within the definition of an "intermediary" so that the place of provision is in India and clause (d) of Rule 6A(1) is not satisfied. - HELD THAT: - The Tribunal considered the definition of "intermediary" under Rule 2(f) and the Place of Provision Rules. An intermediary is one who arranges or facilitates a provision of service or supply of goods between parties but does not include a person who provides the main service or supplies goods on his own account. The factual finding recorded is that the appellant provided services on its own account on a principal to principal basis - performing procurement related assistance, quality checks and dispatch supervision - and was not merely arranging or facilitating the main service between the foreign parent and Indian third parties. Therefore the appellant does not fall within the definition of an intermediary and the place of provision is outside India. Clause (d) of Rule 6A(1) is consequently satisfied. [Paras 10, 14]

Services rendered by the appellant are not "intermediary" services; the place of provision is outside India and condition (d) of Rule 6A(1) is satisfied, supporting treatment as export of services.

Refund of tax paid under mistake of law with interest - Whether the appellant is entitled to refund of service tax paid (and interest) on the ground that the tax was paid under a mistake of law because the services were export of services. - HELD THAT: - Having held that the services qualified as export of services and no service tax was payable, the Tribunal concluded that the amounts paid as service tax were deposited under a mistake of law and therefore do not partake the character of tax. The Tribunal treated the payments as revenue deposits and held that no limitation barred refund of such deposits. In the exercise of the appellate jurisdiction the Tribunal set aside the orders refusing refund and directed the Adjudicating Authority to grant refund with interest at the stated rate from the end of three months from the date of application until date of disbursement. [Paras 11, 15]

Appellant entitled to refund of service tax paid under mistake of law together with interest; adjudicating authority directed to refund within thirty days with interest as ordered.

Final Conclusion: The Tribunal allowed the appeals, holding that the services provided by the appellant to its Hong Kong parent qualify as export of services because the provider and recipient are distinct legal entities for this purpose and the appellant did not act as an intermediary; the service tax paid under mistake of law is refundable with interest and the Adjudicating Authority is directed to effect refund within thirty days.

Franchisee service - representational right - definition of "franchise" (amended w.e.f. 16.06.2005) - taxable service as service provided to a franchisee by franchisor - distinction between franchise arrangement and agency/sub contract

Franchisee service - distinction between franchise arrangement and agency/sub contract - Whether the Home Solution Service Providers (HSSPs) engaged by the assessee constituted "franchisees" and the assessee rendered taxable "franchisee service" to them. - HELD THAT: - The Tribunal upheld the Commissioner's factual and legal conclusion that HSSPs functioned as independent service providers/ subcontractors and custodians of receipts rather than as franchisees. The agreement and practical operation showed that HSSPs raised bills in their own name, retained a distinct identity before customers, and were required to maintain a separate bank account to hold and remit amounts which remained the property of the company. HSSPs did not bear the commercial risk of the business; they earned fixed and variable consideration and remitted net contribution to the company. The arrangement evidenced supervision and service provision on behalf of the company, but not the surrender of HSSP identity or such representational substitution of identity as would characterise a franchise relationship. On these factual and legal foundations the Tribunal held that the activity did not amount to provision of franchisee service by the assessee to HSSPs. [Paras 4]

HSSPs were not franchisees; the assessee did not provide taxable "franchisee service" and is not liable under clause (zze) of Section 65(105).

Representational right - definition of "franchise" (amended w.e.f. 16.06.2005) - taxable service as service provided to a franchisee by franchisor - Whether the amended statutory definition of "franchise" (post 16.06.2005) requires grant of "representational right" to characterise a franchise and attract service tax under the franchisee service head. - HELD THAT: - The Tribunal accepted the settled legal test that, following the 16.06.2005 amendment, a franchise requires grant of a representational right such that the franchisee loses its separate identity and represents the franchisor to the outside world. Reliance was placed on earlier decisions which interpret the amended definition to mean that absence of representational right precludes classification as a franchise. Applying that test to the agreement and conduct, the Tribunal found no grant of representational rights: the agreement expressly forbade HSSPs from holding out as agents of the company, bills to customers lacked company logo, and the contractual and operational matrix did not subsume HSSP identity into that of the company. Consequently the amended definition did not permit taxing the arrangement as franchisee service. [Paras 4]

The amended definition requires representational rights for a franchise; no such rights were granted here and therefore the franchisee service head is not attracted.

Final Conclusion: The Revenue appeal is dismissed; the adjudicating authority's order holding that Home Solution Service Providers are not franchisees and that the assessee is not liable to pay service tax as a franchisor is upheld; cross objections are disposed of.

Exemption conditioned on manufacture out of duty paid inputs - deemed duty paid character of goods purchased from open market - downstream manufacture treated as made out of duty paid inputs - onus on revenue to prove inputs procured from open market were non-duty paid - invocation of extended period of limitation where no fraud, collusion or wilful suppression

Exemption conditioned on manufacture out of duty paid inputs - deemed duty paid character of goods purchased from open market - Entitlement to exemption notifications in respect of twisted yarn manufactured at the twisting unit. - HELD THAT: - The Tribunal held that twisted yarn manufactured out of textured yarn on which excise duty was paid (including textured yarn textured in-house and captively consumed) was eligible for the notified exemption. Further, where textured or draw-twisted yarn was purchased from manufacturers under Central Excise invoices, exemption was clearly available. As to textured or draw-twisted yarn procured from the open market under commercial invoices, the revenue failed to establish that such inputs were non-duty paid; the Tribunal applied precedents holding that goods bought from the open market are to be deemed duty paid unless the department adduces evidence to the contrary and that a purchaser may presume duty has been paid on dutiable goods. On these bases the adjudicating authority's demand in respect of twisted yarn was unsustainable. [Paras 4]

Demand on twisted yarn set aside; exemption upheld in respect of twisted yarn manufactured from duty-paid or deemed duty-paid inputs.

Downstream manufacture treated as made out of duty paid inputs - exemption conditioned on manufacture out of duty paid inputs - Entitlement to exemption notifications in respect of dyed yarn manufactured at the dyeing unit. - HELD THAT: - The Tribunal found that dyed yarn made from twisted yarn (where the underlying textured or draw-twisted yarn had borne excise duty) must be regarded as having been manufactured out of duty-paid inputs and therefore qualified for the concessional exemption. The Tribunal relied on prior decisions establishing that where an intermediate product is manufactured from duty-paid inputs and that intermediate is then used to manufacture a further product, the final product is to be treated as having been made out of duty-paid material. For dyed yarn produced from textured or draw-twisted yarn purchased from the open market, the revenue did not prove those market purchases were non-duty paid; hence exemption was available. [Paras 4]

Demand on dyed yarn set aside; dyed yarn held eligible for exemption when made from duty-paid (or deemed duty-paid) inputs.

Onus on revenue to prove inputs procured from open market were non-duty paid - Whether inputs procured from the open market on commercial invoices can be treated as duty paid or otherwise. - HELD THAT: - The Tribunal recorded that dutiable goods available in the market do not attract nil rate of duty and, absent evidence, cannot be presumed exempt or non-duty paid. The department failed to establish that the yarn bought on commercial invoices was non-duty paid. Applying authorities which hold that purchasers may presume duty has been paid on open-market purchases and that exemption cannot be denied unless the revenue proves otherwise, the Tribunal concluded that open-market purchases are to be treated as duty paid for the purposes of the notifications unless contrary evidence is shown. The adjudicating authority's contrary conclusion based solely on commercial invoices and statements was held insufficient. [Paras 4]

Inputs procured from open market treated as deemed duty paid in absence of evidence to the contrary; revenue failed to discharge onus.

Invocation of extended period of limitation where no fraud, collusion or wilful suppression - Applicability of extended period of limitation for the demand covering June, 1998 to February, 2003. - HELD THAT: - The Tribunal examined the limitation plea and found that the appellants had a bona fide belief, supported by several judicial decisions, that the notifications applied and that open-market purchases were deemed duty paid. No fraud, collusion, wilful mis-statement or suppression was established. The Tribunal further observed that in an identical earlier matter involving Kiran Industries the longer period of limitation was held inapplicable and that the adjudicating authority had been directed by the Tribunal to follow that decision; accordingly, invoking the extended period was not sustainable. [Paras 4]

Extended period of limitation not attracted; demand barred to the extent based on larger limitation period.

Consolidated appeal where single common order - Whether a single consolidated appeal was maintainable despite two units being involved. - HELD THAT: - The Tribunal noted this was the third round of appeals and that the revenue had not disputed consolidation earlier; both units belonged to the same company and a single common Order in Original covered both. In these circumstances the Tribunal held that one consolidated appeal was sufficient and the revenue's objection under procedural rules was not tenable at this stage. [Paras 4]

Single consolidated appeal held maintainable; revenue's procedural objection rejected.

Final Conclusion: The impugned Order in Original is set aside. The appeals are allowed: exemptions in respect of the twisted and dyed yarns (for the period June, 1998 to February, 2003) are upheld because the inputs were duty paid or deemed duty paid and the extended period of limitation is not attracted; consequential reliefs to follow in accordance with law.

Transaction value - valuation of excisable goods - inclusion of additional consideration flowing directly or indirectly from the buyer - Rule 5 of the Central Excise (Valuation) Rules, 1975 - liquidated damages/compensation as part of consideration

Transaction value - inclusion of additional consideration flowing directly or indirectly from the buyer - Rule 5 of the Central Excise (Valuation) Rules, 1975 - liquidated damages/compensation as part of consideration - Whether the amount received by the appellant from Honda Siel Car India Ltd. as compensation/liquidated damages for non-lifting of tailor made auto parts is includible in the transaction value of the goods for purposes of excise valuation. - HELD THAT: - The Tribunal upheld the concurrent findings of the adjudicating authority and the Commissioner (Appeals) that the compensation received was payable in respect of the very goods manufactured for Honda India but sold to other buyers following cancellation. The factual matrix showed that although the contract did not expressly obligate Honda India to pay upon cancellation, the appellant raised debit notes and received substantial amounts from Honda India to make up for the reduced realisation on those manufactured goods. Given that duty is chargeable on the transaction value and that Rule 5 refers to additional consideration flowing directly or indirectly from the buyer, the Tribunal accepted the view that under the particular business arrangement the compensation effectively flowed indirectly from the buyers of the goods. The Tribunal distinguished authorities relied upon by the appellant as resting on different facts where there was no evidence of any flow back of consideration from the buyer. On this basis the compensation was held to be part of the aggregate consideration liable to be included in the transaction value.

The amount received from Honda India as compensation/liquidated damages is includible in the transaction value of the goods and liable to be treated as additional consideration for excise valuation.

Final Conclusion: The appeal is dismissed; there is no error in treating the compensation received from Honda India as part of the transaction value of the manufactured goods and includible for purpose of excise valuation.

Look Out Circular as a coercive measure - Quashing of Look Out Circular for want of specific case or procedure - Right to travel under Article 19(1)(b) and personal liberty under Article 21 - Requirement of notice before cancellation of interim bail and issuance of warrant - Role of Resolution Professional and effect of NCLT-approved resolution plan on criminal/statutory investigations

Look Out Circular as a coercive measure - Quashing of Look Out Circular for want of specific case or procedure - Validity of Look Out Circular No.2021405597 issued against the petitioner - HELD THAT: - The Court found that the Look Out Circular was issued by respondent authorities without there being any specific case made out against the petitioner and despite the petitioner having cooperated by responding to summons. The Court observed that LOCs are coercive instruments issued under executive memoranda and that their exercise is susceptible to arbitrary use in absence of legislative regulation. Applying the principle that personal liberty and the right to travel cannot be curtailed except by fair, just and reasonable procedure, the Court concluded that issuance and operation of the impugned LOC could not be sustained in the facts of this case.

Look Out Circular No.2021405597 is quashed; petitioner to cooperate by video conferencing if required and authorities may seek assistance of the Resolution Professional.

Requirement of notice before cancellation of interim bail and issuance of warrant - Procedure for curtailing personal liberty - Validity of the order cancelling interim bail and issuing warrant without notice to the petitioner - HELD THAT: - The Court held that the learned Magistrate erred in cancelling the interim bail and issuing a warrant on a put-up petition without giving notice to the petitioner. The order dated 30.09.2021 was passed on a date that was not the assigned date and the put-up petition ought to have been intimated to the petitioner; in view of the Magistrate's earlier finding that no substance of accusation was disclosed, issuance of a warrant was unjustified. The decision emphasises that orders affecting personal liberty require adherence to fair procedure.

The cancellation of interim bail and the warrant issued on that basis were not justified; interim bail cancellation was set aside in the course of quashing the LOC.

Right to travel under Article 19(1)(b) and personal liberty under Article 21 - Look Out Circular as a coercive measure - Applicability of fundamental rights to travel abroad in the context of a Look Out Circular - HELD THAT: - Relying on settled constitutional doctrine, the Court reiterated that the right to travel abroad is part of the fundamental rights guaranteed under Articles 19(1)(b) and 21 and that any restriction on that right must conform to fair, just and reasonable procedure. Given the absence of a specific registered case against the petitioner and his cooperation with investigation, the impugned executive action curtailing movement could not be sustained. The Court further observed that LOCs, being executive measures, would benefit from legislative regulation to prevent arbitrary exercise.

Petitioner's fundamental right to travel was recognised and taken into account in quashing the LOC; the Court called for legislative regulation of LOC issuance.

Role of Resolution Professional and effect of NCLT-approved resolution plan on criminal/statutory investigations - Effect of NCLT proceedings and the control of the respondent company by the Resolution Professional on the obligation of the petitioner to produce company records - HELD THAT: - The Court noted that the respondent company was under insolvency proceedings before the NCLT, a Resolution Professional had been appointed and the management and control of the company vested in the Resolution Professional. The petitioner, as a suspended director/CM D, had limited operational control and had already informed authorities that documents relevant to the enquiry were under the control of the Resolution Professional. The Court observed that authorities seeking further investigation or documents post-approval of the resolution plan should seek assistance of the Resolution Professional and that many claims pertaining to pre-effective-date periods were addressed by the approved resolution plan.

Authorities were directed to seek assistance of the Resolution Professional for further investigation; the petitioner was not to be treated as custodian of company records in place of the Resolution Professional.

Final Conclusion: Writ petition allowed; Look Out Circular No.2021405597 quashed, the cancellation of interim bail and warrant issuance were found unjustified without notice, petitioner's fundamental right to travel affirmed, and authorities directed to coordinate with the Resolution Professional for further investigation; no order as to costs.