TaxTMI Updates e-Newsletter
Oct 22,2021

Show-cause notice under Section 74 - Violation of principles of natural justice - Requirement to specify fraud or wilful misstatement or suppression of facts - Form GST DRC-01 as summary cannot substitute a proper show-cause notice

Show-cause notice under Section 74 - Violation of principles of natural justice - Requirement to specify fraud or wilful misstatement or suppression of facts - Validity of the impugned show-cause notice dated 07.06.2021 issued under Section 74 for the tax period JUL 2020 - SEP 2020 - HELD THAT: - The Court examined Section 74(1) which mandates that a notice be issued where it appears to the proper officer that tax has not been paid or input tax credit has been wrongly availed by reason of fraud or wilful misstatement or suppression of facts. Proceedings under Section 74 carry punitive consequences and therefore require the show-cause notice to clearly assert the specific ingredients that attract Section 74. The impugned notice was a verbatim format reproduction which did not strike out irrelevant portions and failed to state whether the allegation was that tax was unpaid/short paid/erroneously refunded or that input tax credit was wrongly availed, and critically did not plead any foundational facts of fraud, willful misstatement or suppression. Reliance on precedent established that a notice must inform the addressee of the charges and allegations so as to enable effective reply; vague or conclusory notices denying particulars amount to violation of the principle of fair hearing. Given the absence of clear charges and foundational facts in the notice, the petitioner was denied a meaningful opportunity to defend and the notice was vitiated for breach of natural justice. [Paras 12, 13, 14, 16, 17]

Impugned show-cause notice dated 07.06.2021 issued under Section 74 was quashed for being vague and violating principles of natural justice.

Form GST DRC-01 as summary cannot substitute a proper show-cause notice - Requirement to specify fraud or wilful misstatement or suppression of facts - Validity of the summary of show-cause notice in Form GST DRC-01 issued under Rule 142(1) - HELD THAT: - The Court observed that the statutory summary in Form GST DRC-01 (Annexure-2) cannot stand in place of a proper show-cause notice under Section 74. Although Annexure-2 mentioned a mismatch between GSTR-3B and 2A, it did not supply the foundational allegations required to invoke Section 74-namely particulars of fraud, willful misstatement or suppression of facts-so the summary did not cure the substantive vagueness of the principal notice. Consequently, the DRC-01 issued alongside the defective notice was also unsustainable. [Paras 17, 18]

Form GST DRC-01 (summary) issued with the impugned show-cause notice was quashed and cannot substitute for a proper notice under Section 74.

Requirement of issuing Form GST ASMT-10 prior to proceedings - Whether issuance of Form GST ASMT-10 is a condition precedent to initiation of proceedings under Section 73/74 - HELD THAT: - The Court explicitly refrained from deciding whether service of Form GST ASMT-10 is a precondition for invoking Section 73/74. The Court noted conflicting contentions but did not adjudicate the legal question and therefore left the point open for determination in any fresh proceedings. The judgment quashes the defective notice on natural justice grounds without expressing any view on the requirement or effect of ASMT-10.

Left undecided by the Court; respondents permitted to consider and act in accordance with law in any fresh proceedings.

Final Conclusion: The writ petition is allowed: the show-cause notice dated 07.06.2021 issued under Section 74 and the accompanying summary in Form GST DRC-01 are quashed for vagueness and violation of principles of natural justice; no decision is recorded on whether Form GST ASMT-10 is a condition precedent, and the respondents are at liberty to initiate fresh proceedings from the same stage in accordance with law within four weeks.

Reopening of assessment under Section 147/148 - proceedings under Section 153C - non-obstante clause in Sections 153A to 153C - relegation to alternative statutory appellate remedy - vacation of interlocutory findings and liberty to agitate issues before first appellate authority - stay of reassessment proceedings pending disposal of appeals

Reopening of assessment under Section 147/148 - proceedings under Section 153C - non-obstante clause in Sections 153A to 153C - Validity of the reopening proceedings issued under Section 148 proposing assessment under Section 143(3) r/w Section 147 where materials relied upon were obtained during search of another party - HELD THAT: - The High Court declined to adjudicate the merits of the challenge to the reopening notices. The learned Writ Court had not resolved the central contentions raised by the appellant concerning applicability of Section 153C (and the effect of the non-obstante clause in Sections 153A-153C) vis-a -vis initiation of proceedings under Section 147/148. Noting that the appellant has filed appeals before the First Appellate Authority within limitation, the High Court held that the appellant should pursue the statutory appellate remedy and that the interlocutory findings of the Writ Court which might prejudice the parties must be vacated to avoid fettering the appellate process. Consequently, all issues relating to the validity of reopening were left open for consideration and decision by the First Appellate Authority on merits. [Paras 6, 7]

Matter remitted to the First Appellate Authority for fresh consideration of all factual and legal issues, with liberty to the appellant to canvass additional grounds.

Relegation to alternative statutory appellate remedy - vacation of interlocutory findings and liberty to agitate issues before first appellate authority - stay of reassessment proceedings pending disposal of appeals - Whether the writ appeals should be entertained or the appellant should be directed to pursue the statutory appeal and what interim protection should be afforded - HELD THAT: - The Court found that the existence of an effective statutory appellate remedy warranted relegation of the dispute to the First Appellate Authority. To prevent prejudice arising from earlier interlocutory observations of the Writ Court, those findings were vacated. The High Court allowed the writ appeals, set aside the common order of the Writ Court, and granted the appellant liberty to agitate all grounds in the statutory appeals filed. In order to protect the appellant's interest during the pendency of those appeals, the Court directed that the reassessment proceedings remain stayed until disposal of the appeals by the First Appellate Authority. [Paras 6, 7, 8]

Writ appeals allowed; impugned order set aside; appellant relegated to first appellate remedy; reassessment proceedings stayed pending disposal of the appeals.

Final Conclusion: The High Court allowed the writ appeals, vacated the Writ Court's interlocutory findings, set aside the impugned order and remitted all disputed issues on the validity of the reopening to the First Appellate Authority for fresh decision; reassessment proceedings are stayed pending disposal of those appeals.

Cancellation of registration under Section 12AA(3) and registration under Section 12A - jurisdiction of the Principal Commissioner to cancel registration - retrospective cancellation of registration - reliance on assessment orders for cancellation - eligibility for deduction under Section 11 - remand for fresh consideration in view of subsequent appellate orders

Jurisdiction of the Principal Commissioner to cancel registration - cancellation of registration under Section 12AA(3) and registration under Section 12A - Whether the Principal Commissioner should re-examine and decide the question of jurisdiction and validity of cancellation of the appellant's registration under Section 12AA(3). - HELD THAT: - The Tribunal did not decide the merits of jurisdictional contention but observed that the Principal Commissioner has already passed the cancellation order and referred to assessment proceedings. Given later appellate developments altering the factual matrix, the Tribunal held that the question of jurisdiction and the validity of cancellation requires fresh judicial consideration by the Principal Commissioner in the light of the subsequent orders. The matter is thus set aside and restored to the file of the Principal Commissioner for reconsideration after affording opportunity to the assessee. [Paras 9, 10]

Restored to the file of the Principal Commissioner for fresh decision on jurisdiction and validity of cancellation after affording opportunity to the assessee.

Reliance on assessment orders for cancellation - remand for fresh consideration in view of subsequent appellate orders - Whether the Principal Commissioner's reliance on findings in the assessment orders (passed under Section 153A) to cancel registration remains tenable after the Tribunal has set aside those assessment findings. - HELD THAT: - The Tribunal noted that the Principal Commissioner referred to and in part relied upon assessment findings and search observations when cancelling registration. Subsequently, the Tribunal in separate appeals has deleted the additions and upheld entitlement to deduction under Section 11 for assessment years 2010-11 to 2016-17, changing the factual basis relied upon. In these changed circumstances, the Tribunal concluded that the cancellation order must be re-examined by the Principal Commissioner who can take judicial view after considering the appellate orders. [Paras 8, 9, 10]

Issues relating to reliance on assessment orders and the factual basis for cancellation are remitted to the Principal Commissioner for fresh examination in light of the Tribunal's subsequent orders.

Retrospective cancellation of registration - eligibility for deduction under Section 11 - Whether cancellation of registration with retrospective effect and the related findings about the trust's activities should be reconsidered by the Principal Commissioner in view of subsequent appellate determinations on entitlement to Section 11 deduction. - HELD THAT: - The assessee challenged both the retrospective operation of the cancellation and the conclusion that the trust's activities were not in accordance with its objects (including allegations of capitation fees and routing of funds). The Tribunal observed that the appeals for AY 2010-11 to 2016-17 have since been disposed of in favour of the assessee on entitlement to Section 11 relief, thereby altering the circumstances under which retrospective cancellation was ordered. Consequently, the Tribunal directed that the Principal Commissioner re-examine the retrospective nature of the cancellation and the factual findings concerning the trust's activities after giving the assessee an opportunity to be heard. [Paras 5, 8, 9, 10]

Remitted to the Principal Commissioner for fresh decision on retrospective cancellation and on whether the trust's activities negate eligibility, taking into account the Tribunal's subsequent orders and after affording opportunity to the assessee.

Final Conclusion: The order of the Principal Commissioner cancelling registration is set aside and all issues are restored to the Principal Commissioner for fresh consideration after affording the assessee adequate opportunity; the appeal is treated as allowed for statistical purposes.

CUP method (Comparable Uncontrolled Price) as the most appropriate method - comparability under Rule 10B(2) and Rule 10B(3) - Transactional Net Margin Method (TNMM) - Arm's Length Price (ALP) determination - proportionate adjustment limited to international transactions (entity level v. transaction level adjustment) - transfer pricing adjustment

CUP method (Comparable Uncontrolled Price) as the most appropriate method - comparability under Rule 10B(2) and Rule 10B(3) - Arm's Length Price (ALP) determination - CUP is not the most appropriate method for benchmarking the assessee's purchases of raw materials, finished goods, spares and consumables in the facts of this case - HELD THAT: - The assessee sought to apply CUP by comparing purchases from four related parties (in Spain, USA, China and Germany) with sales made by the German AE to German non AEs. The record shows absence of invoice data from the US and German AEs, minuscule purchases from the German AE by the assessee (1,000 kg) vis-a -vis large volumes sold by the German AE to third parties, and lack of comparable uncontrolled transactions in India for the substantial volumes purchased from Spain, USA and China. Rule 10B(2) requires comparability to be judged having regard to factors including geographical location and market conditions, and Rule 10B(3) permits use of a comparable only if differences are not likely to materially affect price or can be reasonably and accurately adjusted. The chosen comparable transactions were geographically and volumetrically disparate and no reasonably accurate adjustments were demonstrated to eliminate those material differences. For similar reasons the CUP reliance for finished goods purchases failed. Given these defects, the authorities below correctly rejected CUP as the most appropriate method on the facts and directed application of an alternative method. [Paras 6, 7, 8, 9, 11]

CUP cannot be applied as the most appropriate method; the findings of the authorities below in that regard are approved.

Transactional Net Margin Method (TNMM) - proportionate adjustment limited to international transactions (entity level v. transaction level adjustment) - transfer pricing adjustment - If TNMM is applied, the transfer pricing adjustment must be restricted to the international transactions under consideration and not applied at entity level - HELD THAT: - Having upheld that CUP is not appropriate, the Tribunal proceeded to the assessee's alternative submission that any TNMM based adjustment should be confined to the international transactions. Reliance was placed on binding judicial precedents of the jurisdiction which hold that an entity level adjustment should be proportionately restricted to the international transactions giving rise to the adjustment. In view of those authorities and the factual posture (selection/exclusion of comparables by TPO/DRP and application of mean operating margin), the Tribunal directed that the ALP of the international transaction be re determined under TNMM but that any transfer pricing addition be limited to the international transaction(s) in question. [Paras 12, 13, 14]

Re determine ALP of the specified international transaction under TNMM and restrict the resultant transfer pricing adjustment to the international transaction only.

Final Conclusion: The Tribunal held that CUP was not the most appropriate method on the facts; remitted the matter to AO/TPO to re determine the ALP of the specified international transaction under TNMM and directed that any transfer pricing adjustment be confined to the international transaction. The appeal is partly allowed for statistical purposes.

Unexplained cash credit - onus of proof under section 68 - verification of identity and existence of creditors/share applicants - notice under section 133(6) - remand for fresh adjudication

Unexplained cash credit - onus of proof under section 68 - verification of identity and existence of creditors/share applicants - notice under section 133(6) - Deletion of addition made under section 68 was not finally upheld; matter remanded for fresh adjudication after issuing fresh notices under section 133(6) to share applicants - HELD THAT: - The Assessing Officer made an addition treating share application money as unexplained credit under section 68. The assessee had produced documents (ITR acknowledgements, bank statements, confirmations) and the AO also issued notices under section 133(6) and obtained material, yet the AO recorded that directors/persons of certain share applicants were not produced and proceeded to make the addition. The CIT(A) accepted addresses and other particulars provided late in the proceedings without independent verification. The Tribunal found that the Assessing Officer did not inspect or verify the revised addresses furnished by the assessee and that the CIT(A) erred in simply accepting the assessee's contentions without ensuring such verification. In these circumstances, rather than deciding the s.68 issue on the merits, the Tribunal directed that fresh notices under section 133(6) be issued to the share applicants at the correct addresses so that the Assessing Officer can take cognizance of the relevant material and adjudicate the claim afresh, observing principles of natural justice. [Paras 7]

Remanded to the Assessing Officer for fresh adjudication after issuing fresh notices under section 133(6) to the share applicants and giving the assessee opportunity of being heard.

Final Conclusion: Revenue's appeal is partly allowed for statistical purposes and the matter is remitted to the Assessing Officer for fresh adjudication after issuance of fresh notices under section 133(6) to the share applicants and compliance with principles of natural justice.

Disallowance under Section 40(a)(ia) - tax deducted at source deposited before due date of filing return - verification of TDS payment by Assessing Officer

Disallowance under Section 40(a)(ia) - tax deducted at source deposited before due date of filing return - allowance of expenditure where TDS not deducted - verification of TDS payment by Assessing Officer - Whether the disallowance of expenditure of Rs. 38.57 crores under Section 40(a)(ia) could be sustained where the Assessing Officer did not dispute deposit of TDS before the due date of filing the return. - HELD THAT: - The Tribunal upheld the finding of the CIT(A) (paras 5.6 and 5.7) that the Assessing Officer had not disputed that tax was deposited before the due date of filing the return for the relevant year. Given that position, the disallowance under Section 40(a)(ia) for failure to deduct and deposit tax at source was not sustainable. The CIT(A) had directed the Assessing Officer to verify the amount on which tax was paid before the due date and allow the same; the Tribunal found no error in that approach and declined to interfere with the CIT(A)'s conclusion. The Revenue's contention that relief was incorrectly granted on expenditure which was neither crystallized nor subjected to TDS was rejected because the record showed deposit of the tax within the time required for claiming deduction, subject to the verification directed to the Assessing Officer. [Paras 5]

The disallowance under Section 40(a)(ia) of Rs. 38.57 crores is not sustained as the Assessing Officer did not dispute deposit of TDS before the due date; the CIT(A)'s direction to verify and allow the amount is upheld and the Revenue's appeal is dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal against the CIT(A)'s allowance of the expenditure (Rs. 38.57 crores) under Section 40(a)(ia), upholding the CIT(A)'s finding that TDS had been deposited before the due date of filing the return and that the Assessing Officer must verify the amount and allow the deduction accordingly.

Invalidity of penalty notice for not specifying limb of Section 271(1)(c) - requirement to specify whether penalty proceedings are for concealment or for furnishing inaccurate particulars - quashing of penalty under Section 271(1)(c) where notice is defective

Invalidity of penalty notice for not specifying limb of Section 271(1)(c) - quashing of penalty under Section 271(1)(c) where notice is defective - Penalty under Section 271(1)(c) r.w.s. 274 is not sustainable where the penalty notice does not specify which limb of Section 271(1)(c) - concealment of particulars of income or furnishing of inaccurate particulars - is invoked. - HELD THAT: - The Tribunal held that the penalty notice issued to the assessee was a format notice which did not strike out the inappropriate wording and, critically, failed to specify whether proceedings under Section 271(1)(c) were initiated for concealment of particulars of income or for furnishing inaccurate particulars. The Tribunal applied the principle affirmed in the decisions invoked by the parties, including the orders in Manjunatha Cotton & Ginning Factory and SSA's Emerald Meadows (the latter having its SLP dismissed), and followed the reasoning in Sahara India Life Insurance Company Ltd. and related Delhi High Court treatment, that a notice under Section 271(1)(c) read with Section 274 which does not indicate the particular limb relied upon is bad in law. Because the inception of penalty proceedings was defective for want of specification, there was no need to examine the merits of the penalty; the defective notice rendered the penalty unsustainable and liable to be deleted.

Penalty levied under Section 271(1)(c) r.w.s. 274 is quashed and deleted as the notice is defective for not specifying the limb under Section 271(1)(c).

Final Conclusion: The appeal is allowed: the Tribunal set aside the CIT(A)'s order and directed deletion of the penalty under Section 271(1)(c) because the penalty notice failed to specify whether it was for concealment or for furnishing inaccurate particulars, rendering the notice and consequent penalty void.

Supervisory jurisdiction under section 263 of the Income Tax Act, 1961 - limited scrutiny assessment - prejudice to the revenue - application of mind - verification of genuineness and source of loans

Prejudice to the revenue - reconciliation of turnover - application of mind - Whether the revisional order under section 263 could be sustained on the ground of mismatch between turnover shown in profit & loss account and turnover in the tax audit report. - HELD THAT: - The Tribunal accepted the assessee's explanation that the apparent mismatch arose from exclusion of certain 'other income' for ratios in the tax audit report and that the reconciliation placed on record was complete and justified. It further observed that the higher turnover reflected in the profit & loss account, if anything, caused prejudice to the assessee rather than to the revenue. The PCIT failed to demonstrate any absence of application of mind by the Assessing Officer or any prejudice to the revenue arising from the turnover discrepancy. Consequently, the ingredients required for exercise of revisional jurisdiction under section 263 were not made out on this point. [Paras 6, 7]

Revisional action under section 263 qua turnover mismatch is unsustainable and set aside.

Limited scrutiny assessment - application of mind - disproportionate expenses - Whether a generic increase in certain expenses, without demonstration of disproportionality to scale of operations, justified invoking section 263 to direct fresh enquiries. - HELD THAT: - The Tribunal held that a mere increase in expenses relative to the previous year does not automatically warrant a full-scale enquiry unless shown to be disproportionate to the scale of operations. The assessee's accounts were audited and certified, and the PCIT did not demonstrate that turnover remained static while expenses were inflated. The assessment had been completed under 'limited scrutiny' on specified points, and the PCIT ought to have applied mind to the overall facts, including the increase in revenue from operations. The vague and non-descript directions of the PCIT could not be sustained as a basis for revisional jurisdiction. [Paras 6, 7]

Revisional direction for enquiries into increased expenses is unfounded and cannot be sustained.

Verification of genuineness and source of loans - limited scrutiny assessment - reliance on suspicion and surmise - Whether the PCIT was justified in invoking section 263 to direct verification of an unsecured loan from a Kolkata-based company on the sole ground of the lender's location. - HELD THAT: - The Tribunal found the PCIT's approach untenable as it proceeded from suspicion merely because the lender was a Kolkata-based company. Such stereotyping could not be a basis for supervisory revision. Moreover, the matter did not fall within the scope of the limited scrutiny under which the assessment was completed, and the Assessing Officer had no mandate to expand inquiries beyond the specified points. The directions to the AO to verify the nature and source of the loan therefore amounted to travelling beyond the permissible scope and were held to be without authority of law. [Paras 4, 8]

Revisional action to direct verification of the loan on the stated grounds is arbitrary and set aside.

Final Conclusion: The revisional order passed by the Principal Commissioner of Income Tax under section 263 is quashed and set aside; the appeal of the assessee is allowed.

Requisition under section 132A and its effect on assessment procedure - Requirement to frame assessment under section 153A where section 132/132A action is taken - Assessment framed under ordinary provisions (section 143(3)) despite section 132A requisition is void ab initio - Power under section 263 cannot be exercised to perfect or revive a null and void order

Requisition under section 132A and its effect on assessment procedure - Requirement to frame assessment under section 153A - Assessment framed under ordinary provisions (section 143(3)) despite section 132A requisition is void ab initio - Power under section 263 cannot be exercised to perfect or revive a null and void order - Whether the assessment framed under section 143(3) after a requisition under section 132A is void ab initio and whether a revisional order under section 263 can be sustained in respect of such void assessment. - HELD THAT: - The Tribunal accepted the assessee's contention that a requisition under section 132A engages the special assessment procedure under section 153A and, accordingly, the normal assessment route under section 143(3) is not available. The AO framed the assessment under section 143(3) despite the recorded requisition under section 132A; this contravened the statutory scheme and rendered the assessment order incurably erroneous and void ab initio. Where an assessment order is a nullity and has no legal effect, exercise of revisional powers under section 263 to amend, perfect or revive such an order is impermissible. Consequently, the revisional order issued to set aside or direct reframing of that void assessment could not stand and had to be quashed. [Paras 8]

Assessment framed under section 143(3) despite requisition under section 132A is void ab initio; consequential revisional order under section 263 is quashed.

Final Conclusion: Appeal allowed; assessment under section 143(3) declared void for non-application of the procedure mandated by section 153A following a requisition under section 132A, and the revisional order passed under section 263 is quashed.

Limitation for issuance of assessment order - service versus dispatch of assessment order - assessment under section 144 of the Income-tax Act - addition under section 68 of the Income-tax Act - unexplained cash deposits - remand for fresh adjudication and opportunity of hearing

Limitation for issuance of assessment order - service versus dispatch of assessment order - assessment under section 144 of the Income-tax Act - Validity of assessment order dated 28.12.2011 on the ground that it was served on 15.03.2012 and therefore barred by limitation - HELD THAT: - On perusal of the assessment records the Tribunal found that the assessment order dated 28.12.2011 was dispatched on 29.12.2011 and the demand notice bears endorsement of despatch on 29.12.2011; the cover containing the assessment order was returned unserved on 02.01.2012. The Tribunal applied the settled legal position that an assessment order need only be issued/despatched beyond the control of the Assessing Officer within the prescribed period and need not have been actually served on the assessee to be within limitation. Relying on earlier High Court authority (as recorded in the order) and the documentary evidence of despatch within the limitation period (31.12.2011), the plea that the assessment was barred by limitation was rejected. [Paras 7]

Plea that the assessment order was barred by limitation is rejected; the order was dispatched within the period of limitation.

Addition under section 68 of the Income-tax Act - unexplained cash deposits - remand for fresh adjudication and opportunity of hearing - Whether the addition of Rs. 17,11,500 made u/s. 68 as unexplained cash deposit is justified on merits - HELD THAT: - Although the Assessing Officer made an addition treating the cash deposits as unexplained under section 68, the assessee had not raised merits before the CIT(A). The Tribunal, in the interests of justice, observed that the assessee had sought an opportunity to challenge the addition and directed that the matter on merits be restored to the file of the Assessing Officer. The Tribunal instructed the Assessing Officer to afford a reasonable opportunity of hearing and directed the assessee to place necessary documentary evidence to prove the source of the cash deposits, thereby remanding the substantive issue for fresh consideration. [Paras 7]

Addition under section 68 is not adjudicated on merits by the Tribunal and is remanded to the Assessing Officer for fresh consideration after affording the assessee an opportunity to prove the source of deposits.

Final Conclusion: The appeal is partly allowed: the contention of limitation in respect of the assessment order is rejected as the order was dispatched within the statutory period, while the substantive addition under section 68 is remanded to the Assessing Officer for fresh adjudication after giving the assessee a reasonable opportunity of hearing.

Deductibility of employees' contribution to provident fund and ESI - application of section 36(1)(va) and section 43B to employees' contribution - payment made before the due date of filing under section 139(1) - retrospective operation of a clarificatory tax amendment

Deductibility of employees' contribution to provident fund and ESI - payment made before the due date of filing under section 139(1) - application of section 36(1)(va) and section 43B to employees' contribution - Employees' contribution to PF and ESI remitted by the assessee before the due date for filing return under section 139(1) is allowable as deduction under section 36(1)(va). - HELD THAT: - The Tribunal found on the facts that the assessee had remitted the employees' contribution to PF and ESI prior to the due date for furnishing the return under section 139(1). Relying on the jurisdictional High Court's decision in Essae Teraoka (P.) Ltd. v. DCIT, the Tribunal applied the principle that where contribution (including employees' portion) is paid on or before the due date for filing the return, the employer is entitled to deduction. The Tribunal rejected the revenue's contention that non-compliance with the PF/ESI Acts' internal due dates converts the undeposited employees' contribution into the employer's income, noting the High Court's contrary conclusion. On this basis the A.O.'s disallowance was set aside and deduction directed to be allowed. [Paras 7]

Allow deduction for employees' contribution to PF and ESI paid before the due date of filing of return under section 139(1).

Retrospective operation of a clarificatory tax amendment - application of section 36(1)(va) and section 43B - The amendment made by the Finance Act, 2021 to section 36(1)(va) and section 43B is not applicable to A.Y. 2017-2018 and is prospective in operation from 01.04.2021. - HELD THAT: - The Tribunal examined whether the 2021 amendment was merely declaratory or operative retrospectively. Applying the Supreme Court's guidance in M.M. Aqua Technologies Ltd. that a provision said to be 'for removal of doubts' is not to be presumed retrospective where it alters the law as it earlier stood, the Tribunal held that the amendment changes the legal position adverse to the assessee and therefore cannot be treated as retrospective. The amendment is also expressly made effective from 01.04.2021. The Tribunal noted consistent orders of other benches holding the amendment to be prospective and accordingly held it inapplicable to the relevant assessment year. [Paras 7]

The Finance Act, 2021 amendment to sections 36(1)(va) and 43B does not apply to A.Y. 2017-2018; it is prospective from 01.04.2021.

Final Conclusion: The appeal is allowed: deduction of employees' PF and ESI contribution remitted before the due date of filing under section 139(1) is granted for A.Y. 2017-2018, and the Finance Act, 2021 amendments to sections 36(1)(va) and 43B are held prospective and inapplicable to the assessment year under appeal.

Disallowance under section 14A read with Rule 8D - proportionate interest disallowance attributable to tax-free income - treatment of trading stock versus investment for section 14A/Rule 8D - tax withholding obligation and disallowance under section 40(a)(ia) for payments characterised as technical fees - transaction/lease-line/transaction charges as payments for facilities of stock exchange (not taxable under section 194J) - cost of acquisition and period of holding of shares allotted on demutualisation - application of section 55(2)(ab) vis-a -vis section 50 - indexation of cost from date of original membership (demutualisation context) - rebate under section 88E - computation and inclusion/exclusion of specific expenses for share trading income - use of third member/coordinate bench precedent and supremacy of clear statutory language

Disallowance under section 14A read with Rule 8D - proportionate interest disallowance attributable to tax-free income - treatment of trading stock versus investment for section 14A/Rule 8D - Validity of addition made under section 14A read with Rule 8D in respect of expenses attributable to tax free dividend income - HELD THAT: - The Tribunal examined the assessee's balance-sheet showing own funds (share capital and reserves) exceeding the investments and noted that Rule 8D requires consideration of investments which actually yielded exempt income. The AO had included other investments (gold and silver coins) improperly while computing expenditure to earn exempt income. Applying these facts and the Tribunal's reliance on relevant precedents, the bench found no justification for interest disallowance where own funds sufficed and where only investments yielding exempt income must be considered under Rule 8D. The disallowance confirmed by the CIT(A) was therefore not sustainable. [Paras 4]

Disallowance under section 14A/Rule 8D set aside and issue decided in favour of the assessee.

Tax withholding obligation and disallowance under section 40(a)(ia) for payments characterised as technical fees - transaction/lease-line/transaction charges as payments for facilities of stock exchange (not taxable under section 194J) - Whether lease line/transaction charges payable to stock exchanges attract TDS under section 194J and consequent disallowance under section 40(a)(ia) - HELD THAT: - The Tribunal noted that earlier decisions treating such charges as technical fees were revisited by the Hon'ble Supreme Court in CIT v. Kotak Securities Ltd., which held that transaction charges are payments for facilities provided by the stock exchange and not fees attracting section 194J. In view of the Supreme Court ruling, the Tribunal concluded that the payments do not require deduction under section 194J and thus the disallowance under section 40(a)(ia) was not sustainable. [Paras 5, 9]

Findings of disallowance under section 40(a)(ia) set aside; claim allowed in favour of the assessee.

Cost of acquisition and period of holding of shares allotted on demutualisation - application of section 55(2)(ab) vis-a -vis section 50 - indexation of cost from date of original membership (demutualisation context) - specific provision (section 55(2)(ab)) prevailing over general provision (section 50) - Appropriate base year/indexation and cost of acquisition for shares allotted pursuant to BSE corporatisation/demutualisation - HELD THAT: - Relying on the Third Member decision in Techno Shares & Stock Ltd., the Tribunal held that Section 55(2)(ab) unambiguously treats cost of shares allotted on corporatisation/demutualisation as the original cost of membership; the provision does not condition that benefit on non claim of depreciation earlier. The Tribunal found that Section 50 (special rule for depreciable assets) does not apply because the shares allotted were not part of any block of assets and were not themselves depreciable; furthermore, a specific provision (Section 55(2)(ab)) governs the present situation and must prevail over the general provision. Consequently, indexation must be reckoned from the date of original membership and not from allotment of shares. [Paras 6]

CIT(A)'s finding set aside; cost and period of holding to be reckoned from original membership in terms of Section 55(2)(ab) and capital gain recalculated accordingly.

Sub brokerage confirmations under section 133(6) and admissibility of expenses - reconciliation of books vis a vis confirmations of recipients - Legitimacy of addition made on account of difference between sub brokerage as per assessee's books and amounts confirmed by recipients - HELD THAT: - The AO's addition was founded on discrepancies between the assessee's accounts and amounts reported by remisers under notices issued pursuant to section 133(6). The Tribunal observed that recipients' confirmations showed amounts higher than the disallowance and that specific differences (opening balance; TDS double deduction) explained the variances. Given the confirmations and ledger entries, the Tribunal found no justification for the disallowance and held that the CIT(A)'s confirmation was unsustainable. [Paras 7]

Addition on account of sub brokerage set aside and issue allowed in favour of the assessee.

Rebate under section 88E - computation and inclusion/exclusion of specific expenses for share trading income - restoration for fresh computation with opportunity of hearing - Correct computation of rebate under section 88E and treatment of bad debts and telephone expenses in computing eligible income - HELD THAT: - The Tribunal examined the AO's working which proportionately allocated expenses to share trading income and computed the rebate. It found that the AO/CIT(A) computation did not address or demonstrate treatment of certain specific expenses - notably bad debts and telephone expense - which the assessee contended did not pertain to trading income. As these items were not properly considered, the Tribunal did not adjudicate the substantive correctness on merits but directed restoration of the issue to the AO for recomputation after considering the aforesaid expenses and after providing the assessee an opportunity of being heard. [Paras 8]

Issue remanded to the AO for fresh computation of rebate under section 88E, considering the bad debt and telephone expenses and after affording opportunity to the assessee.

Transaction/lease-line/transaction charges as payments for facilities of stock exchange (not taxable under section 194J) - tax withholding obligation and disallowance under section 40(a)(ia) - Whether transaction charges to stock exchange are subject to TDS under section 194J and consequent disallowance under section 40(a)(ia) - HELD THAT: - Mirroring the reasoning in Issue No.2 and relying on the Hon'ble Supreme Court's decision in CIT v. Kotak Securities Ltd., the Tribunal concluded that transaction charges are payments for facilities provided by the exchange and do not fall within the scope of fees for professional or technical services under section 194J. Therefore, the disallowance under section 40(a)(ia) premised on failure to deduct TDS under section 194J was not tenable. [Paras 9]

Disallowance under section 40(a)(ia) in respect of transaction charges set aside; claim allowed in favour of the assessee.

Final Conclusion: The ITAT allowed the appeal for statistical purposes: disallowances under section 14A/Rule 8D, sub brokerage additions, and disallowances under section 40(a)(ia) in respect of lease line/transaction charges were set aside; capital gains on BSE shares to be computed with cost and period reckoned from original membership under section 55(2)(ab); the rebate under section 88E was remanded to the AO for recomputation after considering specified expenses and after affording the assessee an opportunity of hearing.

Disposal of objections to reopening notice by passing a separate speaking order - jurisdictional invalidity of reassessment for non-disposal of objections - application of the rule in GKN Driveshafts regarding reopening and disposal of objections - quashing reassessment order as opposed to restoring to Assessing Officer for fresh adjudication - undue delay in filing objections and its effect on availability of relief

Disposal of objections to reopening notice by passing a separate speaking order - jurisdictional invalidity of reassessment for non-disposal of objections - application of the rule in GKN Driveshafts regarding reopening and disposal of objections - quashing reassessment order as opposed to restoring to Assessing Officer for fresh adjudication - Reassessment for A.Y. 2011-12 quashed because Assessing Officer did not pass a separate speaking order disposing of the assessee's preliminary objections to the reopening notice. - HELD THAT: - The Tribunal found on record that the assessee filed detailed preliminary objections to the reasons for reopening (letter dated 28.07.2016) which were not disposed of by a separate speaking order before completion of reassessment. Relying on the binding approach of the Hon'ble Bombay High Court in Fomento Resorts & Hotels Ltd. and the Supreme Court's principle in GKN Driveshafts, the Tribunal held that assuming jurisdiction to reopen without first disposing of objections is ultra vires and renders the reassessment void. The Tribunal considered and distinguished the revenue's reliance on authorities treating non-disposal as merely procedural where facts showed undue delay; here there was a five month window available to the Assessing Officer, and completion of reassessment without prior disposal of objections could not be justified. Following co ordinate Tribunal precedents in the group cases and the cited High Court decisions, the Tribunal quashed the reassessment and declined to examine merits as academic. [Paras 19, 22, 23, 24, 25]

Reassessment order for A.Y. 2011-12 quashed for want of jurisdiction due to non-disposal of preliminary objections; preliminary ground allowed and other grounds left undecided as academic.

Disposal of objections to reopening notice by passing a separate speaking order - jurisdictional invalidity of reassessment for non-disposal of objections - application of the rule in GKN Driveshafts regarding reopening and disposal of objections - quashing reassessment order as opposed to restoring to Assessing Officer for fresh adjudication - Reassessment for A.Y. 2012-13 quashed for the same reason as A.Y. 2011-12-Assessing Officer did not pass a separate speaking order disposing the objections to reopening. - HELD THAT: - Facts for A.Y. 2012-13 were identical to those in A.Y. 2011-12. The Tribunal applied the same legal principles-the requirement under GKN Driveshafts and the Bombay High Court's interpretation that disposal of objections must be by a separate speaking order and that where reopening is undertaken without such disposal the reassessment is vitiated. The Tribunal followed its prior orders in related family/group matters and the binding High Court precedent, concluding that the reassessment must be quashed rather than remitted to the Assessing Officer for fresh adjudication. Consequently, the Tribunal did not adjudicate the merits. [Paras 27, 28, 29, 30, 31]

Reassessment order for A.Y. 2012-13 quashed; preliminary ground allowed and other grounds left undecided as academic.

Final Conclusion: Following binding Supreme Court and Hon'ble Bombay High Court authority and consistent Tribunal precedents, the reassessment orders for A.Y. 2011-12 and A.Y. 2012-13 were quashed because the Assessing Officer proceeded without first disposing of the assessee's objections to the reopening notice by a separate speaking order; other grounds were not adjudicated as academic.

Deduction under Chapter VI-C - Section 80P(2)(d) - deduction in respect of interest from co-operative banks - Section 80A(5) - mandatory requirement to claim Chapter VI-C deductions in the return of income - Admissibility of additional grounds/claims before appellate authorities - Retrospective effect of statutory amendment and its binding effect on appellate/revisional powers

Section 80A(5) - mandatory requirement to claim Chapter VI-C deductions in the return of income - Deduction under Chapter VI-C - Section 80P(2)(d) - deduction in respect of interest from co-operative banks - Assessee's claim of deduction under section 80P(2)(d) in respect of interest from a co-operative bank is not allowable as it was not claimed in the return of income. - HELD THAT: - The Tribunal held that sub section (5) of section 80A operates as an explicit statutory bar: where a claim for deduction under Chapter VI C is not made in the return of income, no deduction shall be allowed. Section 80P falls within Chapter VI C, and therefore the precondition of claiming the deduction in the return is mandatory. The Tribunal observed that the claim raised for the first time during scrutiny could not be entertained in view of this statutory interdiction. The decision also noted the retrospective insertion of section 80A(5) by the Finance Act, 2009 (with effect from 01/04/2003) and relied on the reasoning in higher court decisions upholding the operation of section 80A(5) to the exclusion of allowing such claims outside the return. Applying these principles to the facts, the assessee's claim, though otherwise arguable on merits, was precluded for non compliance with section 80A(5). [Paras 7, 11, 12, 13]

Claim under section 80P(2)(d) disallowed because it was not made in the return of income as required by section 80A(5).

Admissibility of additional grounds/claims before appellate authorities - Retrospective effect of statutory amendment and its binding effect on appellate/revisional powers - Assessee may seek to raise additional grounds before appellate authorities, but such admission cannot override a statutory bar like section 80A(5). - HELD THAT: - The Tribunal acknowledged the settled law that appellate authorities can admit additional grounds where facts are on record and no new evidence is required. However, it held that this principle does not permit the admission or allowance of a claim that is expressly prohibited by statute. The Tribunal referred to precedent explaining that powers of appellate or revisional authorities are subject to the restrictions enacted in the statute; where Parliament has stipulated in section 80A(5) that Chapter VI C deductions must be claimed in the return, neither admission of additional grounds nor exercise of appellate/revisional powers can be used to grant a deduction contrary to that statutory requirement. Accordingly, the claim made as an additional ground was not permitted to surmount the bar contained in section 80A(5). [Paras 9, 10, 13]

Additional ground admissible in principle but cannot be used to allow a deduction barred by section 80A(5).

Final Conclusion: Both appeals dismissed: the Tribunal upheld the denial of the Chapter VI C deduction under section 80P(2)(d) because the claim was not made in the return of income as required by section 80A(5), and held that admission of additional grounds cannot be used to circumvent that statutory bar.

Deduction under section 80IB - interest and remuneration to partners - partnership deed amendment - reopening of assessment under section 147 - principle of consistency in departmental decisions - disallowance under section 40(b)(v)

Deduction under section 80IB - interest and remuneration to partners - partnership deed amendment - Allowability of deduction under section 80IB where the partnership deed provided for interest on capital and remuneration but partners by agreement did not claim/receive such payments and a supplementary deed was executed. - HELD THAT: - The Tribunal accepted the view of the CIT(A) that mere incorporation of provisions for interest on partners' capital and for partners' remuneration in the original partnership deed does not make payment of such amounts mandatory. The assessee relied on clause permitting amendment of the deed and on a supplementary deed dated 01.04.2008, and maintained that partners exercised the option not to take remuneration and to treat capital as interest-free. The Tribunal noted and followed earlier decisions to the effect that the Assessing Officer could not compel charging of interest or remuneration by invoking the provisions considered (including reliance placed by the CIT(A) on relevant authorities). On the material before it, the Tribunal found no reason to interfere with the CIT(A)'s conclusion allowing the full deduction under section 80IB.

Deduction under section 80IB allowed; disallowance for partner's remuneration and interest on capital reversed.

Reopening of assessment under section 147 - principle of consistency in departmental decisions - Validity of reassessment and the departmental treatment when the same Assessing Officer in a subsequent assessment year accepted identical treatment for the assessee. - HELD THAT: - The Tribunal observed that the Assessing Officer reopened AY 2010-11 on the ground that interest and remuneration had not been allowed, yet in the subsequent assessment year (AY 2012-13) the same Assessing Officer accepted similar treatment and allowed the relief. The Tribunal held that the Revenue cannot adopt two contrary views in respect of the same assessee on the same issue where the relevant facts are unchanged; departmental authorities are required to adhere to the principle of consistency. The Tribunal treated the secondary contention based on inconsistency as supporting the assessee's case and found in favour of the assessee on that basis as well.

Reopening/disallowance not sustained; assessee succeeds also on the ground of departmental inconsistency.

Final Conclusion: The appeal filed by the Revenue is dismissed; the order of the CIT(A) allowing the deduction under section 80IB for AY 2010-11 is confirmed, the Assessing Officer's disallowance is reversed, and the Revenue's contrary treatment is rejected both on merits and for lack of consistency.

Deeming provision under section 56(2)(vii)(b) - stamp valuation authority valuation versus recorded consideration - additional stamp duty levied for common amenities not representing sale consideration - onus on assessing officer to verify factual assertions before invoking deemed income

Deeming provision under section 56(2)(vii)(b) - stamp valuation authority valuation versus recorded consideration - additional stamp duty levied for common amenities not representing sale consideration - onus on assessing officer to verify factual assertions before invoking deemed income - Whether the difference between the stamp valuation adopted by the Stamp Valuation Authority and the recorded sale consideration could be treated as deemed income of the assessee under section 56(2)(vii)(b) when the excess stamp duty relates to a statutory levy in respect of common amenities and not to additional sale consideration. - HELD THAT: - The Tribunal accepted the assessee's case that the excess amount reflected in the stamp valuation arose from an additional statutory stamp duty levy imposed to account for common plot, internal roads and civic amenities and not from any additional sale consideration paid to the seller. The Assessing Officer based the addition exclusively on the higher stamp valuation without verifying from the seller or otherwise whether any additional consideration was in fact paid; the Commissioner (Appeals) affirmed that addition on the basis that the deeming provision must be strictly applied but did not discard the assessee's factual explanations. The Tribunal noted that the assessee had specifically explained the statutory origin and purpose of the additional 1% levy and that the payment thereof does not alter the market value of the actual plot as assessed by SVA. In the absence of evidence that the assessee paid any consideration in excess of the recorded sale price, and given that the AO/CIT(A) did not make any effort to verify the assessee's assertion, there was no justifiable basis to treat the difference as income under section 56(2)(vii)(b). [Paras 9, 10]

The addition of Rs. 9,40,816/- made under section 56(2)(vii)(b) is deleted and the assessee's appeal is allowed.

Final Conclusion: The Tribunal held that where the excess reflected in stamp valuation arises from a statutory additional stamp duty payable in respect of common amenities and there is no evidence of additional sale consideration paid, the Assessing Officer cannot treat the difference as deemed income under section 56(2)(vii)(b) without independent verification; the addition was deleted and the appeal allowed for AY 2014-15.

Manufacture - advance authorization scheme / actual user condition - confiscation and redemption fine where goods not available - adjustment/offset of duties paid under Central Excise against Customs demand - penal liability under section 114A of the Customs Act - personal penalty on director requiring specific finding of role

Manufacture - advance authorization scheme / actual user condition - Whether the clearances by the appellant were of goods manufactured from imported inputs so as to fall outside the ambit of breach of the Advance Authorization scheme and notification no. 93/2004-Cus. - HELD THAT: - The Tribunal rejected the appellant's contention that the imported 'aluminium ingots' were subjected to manufacturing so as to constitute distinct 'aluminium alloy ingots'. The claim of branding and post import manufacture was held not credible in light of admitted aluminium content in goods supplied to the purchaser and the seized test reports which did not show material variation from import composition. The scheme underlying notification no. 93/2004 Cus. and the advance authorization regime require actual user compliance and permit sale or transfer of imported goods or goods manufactured therefrom only after fulfillment of export obligation. Since export obligations were not fulfilled and the licensing authority had not cleared clubbing of licences, the clearances amounted to breach of the post import conditions and attracted duty liability under Customs law; the adjudication that duty was payable as a logical consequence of that breach was sustained. [Paras 3, 8, 9]

The contention of manufacture was disbelieved; clearance breached the advance authorization conditions and duty liability under Customs was upheld.

Adjustment/offset of duties paid under Central Excise against Customs demand - Whether duties of Central Excise discharged on clearances could be adjusted against or set off the Customs duty liability confirmed in the adjudication. - HELD THAT: - The Tribunal observed that duties paid under the Central Excise Act, 1944 cannot be treated as automatically available for adjustment against duties leviable under the Customs Act and Customs Tariff Act unless a refund sanction under the Central Excise law has been obtained. There was no record of any sanctioned refund of central excise duties paid; accordingly the equitable plea to offset central excise duty against the confirmed customs demand was rejected. [Paras 10]

Adjustment of central excise duties against the Customs demand was not allowed in the absence of sanctioned refund under Central Excise law.

Confiscation and redemption fine where goods not available - Whether confiscation of the goods and imposition of a redemption fine were tenable where the goods had been consumed and were not available for confiscation/redemption. - HELD THAT: - Relying on the Bombay High Court decision distinguishing Weston Components, the Tribunal held that the concept of redemption fine presupposes availability of goods for redemption; where goods are not available (having been consumed into final product) confiscation and a fine in lieu of confiscation cannot be practically imposed. While the goods were liable for confiscation in law for breach of post import conditions, confiscation could not be given effect to and accordingly a redemption fine could not be sustained. [Paras 11]

Although goods were legally liable for confiscation, confiscation and any redemption fine could not be imposed because the goods were not available.

Penal liability under section 114A of the Customs Act - Whether penal liability under section 114A of the Customs Act could be sustained against the appellant for suppression in relation to the Customs demand. - HELD THAT: - Despite records of earlier clearances on payment of central excise duty, the Tribunal found suppression vis a vis the Customs Act established and sustained the imposition of penalty under section 114A. The prior payment of central excise duties did not negate the concealment or breach of the post importation conditions attracting penal consequence under Customs law. [Paras 12]

Penalty under section 114A of the Customs Act was sustained.

Personal penalty on director requiring specific finding of role - Whether the penalty under section 112 imposed on the Director, Mr. Hitesh Shah, was sustainable in the absence of a clear finding on his specific role in the diversion of goods. - HELD THAT: - The impugned order recorded liability of the Director essentially by virtue of his position in the company but did not adequately ascertain or record specific acts or role by which he participated in or caused the diversion. Applying the principle that imposition of personal penalty requires a clear finding of individual responsibility (as reflected in prior Tribunal authorities), the Tribunal found the order deficient in respect of the director and set aside the personal penalty. [Paras 13]

Penalty on the Director was set aside for lack of a specific finding of his personal role in the diversion.

Final Conclusion: Appeals disposed: customs duty liability for breach of advance authorization conditions sustained; claim of manufacture rejected; adjustment of central excise duties disallowed; penalty under section 114A sustained; confiscation and redemption fine could not be effected as goods were not available; personal penalty on the director set aside.

Abetment - penalty under section 114 of the Customs Act, 1962 - illegal omission as abetment - confiscation under section 113 of the Customs Act, 1962 - gate pass requirement for CFS/Port entry - preponderance of probabilities in quasi judicial proceedings

Penalty under section 114 of the Customs Act, 1962 - abetment - gate pass requirement for CFS/Port entry - illegal omission as abetment - preponderance of probabilities in quasi judicial proceedings - Whether the appellants are liable to penalties under section 114 of the Customs Act, 1962 for abetting the attempted export of prohibited goods by facilitating entry into CFS/Port - HELD THAT: - The Tribunal upheld the adjudicating authority's finding that the appellants facilitated the attempt to export Red Sanders by providing or permitting the use of signed letterheads and by virtue of ownership/possession of the trailer used to carry the container. The evidence showed that entry into the CFS/Port required gate passes obtained by transport agencies through the Trailer Organisers' Association and that a request in the letterhead of M/s. N.K. Transport (admitted to bear the appellant's signature) along with the Association's recommendation was submitted for the subject trailer. The appellants admitted omission in giving blank signed letterheads and the owner admitted the trailer belonged to him; the sale agreement produced during investigation was found to be an afterthought and not supported by contemporaneous proof. The Tribunal held that an omission may constitute illegal omission within clause (3) of section 107 IPC if there was a statutory or regulatory obligation to act (here, proper custody and verification in relation to gate passes and records for port entry). Applying the standard of preponderance of probabilities appropriate in quasi judicial proceedings, and having regard to the admitted signatures, the documentary trail and the tampering of seals showing stuffing after leaving CFS, the Tribunal concluded the connexions and omissions were sufficient to infer intentional aiding (abetment) to the requisite standard for imposing penalty under section 114. The Tribunal rejected the appellants' contention that mere misuse of blank letterheads or a post hoc sale agreement absolved them, treating those defences as implausible on the evidence. [Paras 32, 33, 34, 35, 36]

Penalties of Rs. 5,00,000 imposed on each appellant under section 114 are lawful and are upheld; appeals dismissed.

Final Conclusion: The Tribunal dismissed the appeals and upheld the imposition of penalties under section 114 of the Customs Act, 1962 on both appellants, concluding that their admitted omissions and the admitted use of their signed letterheads and ownership/possession of the trailer facilitated the attempt to smuggle prohibited goods and amounted to abetment on the preponderance of probabilities.

Scheme of Arrangement by way of Amalgamation - dispensing with convening of meetings - consent affidavits - conformity with Accounting Standards under Section 133 - service of notice on statutory authorities

Dispensing with convening of meetings - consent affidavits - Dispensing with convening of meetings of equity shareholders and secured/unsecured creditors of the Demerged Company for the proposed scheme. - HELD THAT: - The Tribunal examined the affidavits and certificates placed on record showing that all seven equity shareholders of the Demerged Company have filed consent affidavits representing 100% voting share, that there are three secured creditors whose consents represent 97.8% of the secured creditor value (with specified payments already made), and that there are no unsecured creditors. On this basis the Tribunal found it appropriate to dispense with convening the meetings of the equity shareholders and the secured creditors; convening a meeting of unsecured creditors did not arise due to their absence.

Meetings of the Demerged Company's equity shareholders and secured creditors are dispensed with; no meeting is required for unsecured creditors.

Dispensing with convening of meetings - consent affidavits - Dispensing with convening of meetings of equity shareholders and secured/unsecured creditors of the Resulting Company for the proposed scheme. - HELD THAT: - The Tribunal considered the affidavits and certificates showing that all four equity shareholders of the Resulting Company have filed consent affidavits representing 100% voting share, that there are no secured creditors, and that the two unsecured creditors had been fully paid and accordingly are treated as nil unsecured creditors. Given these facts, the Tribunal concluded that convening meetings of equity shareholders, secured creditors or unsecured creditors of the Resulting Company was unnecessary and dispensed with such meetings.

Meetings of the Resulting Company's equity shareholders, secured creditors and unsecured creditors are dispensed with as unnecessary.

Conformity with Accounting Standards under Section 133 - Acceptance of auditor certificates regarding the accounting treatment under the scheme. - HELD THAT: - The Tribunal noted that certificates from the respective company auditors were placed on record certifying that the accounting treatment specified in the scheme is in conformity with the Accounting Standards specified under Section 133 of the Act. The Tribunal took these certificates into account in considering the joint application under sections 230-232 of the Companies Act, 2013.

Auditors' certificates on accounting treatment conformity under Section 133 are recorded and accepted for the purposes of the petition.

Service of notice on statutory authorities - Direction to serve notice of the application on prescribed statutory authorities and regulators. - HELD THAT: - The Tribunal directed that notice of the application be served on the Regional Director, Registrar of Companies, Official Liquidator, Income Tax Department (with disclosure of necessary taxpayer particulars for proper reply), and any other sectoral regulators as required. These directions ensure statutory stakeholders are informed and have the opportunity to respond before any final sanction of the scheme.

Notices shall be served on the Regional Director, ROC, Official Liquidator, Income Tax Department (with requisite particulars) and other sectoral regulators as required.

Final Conclusion: The joint application under sections 230-232 is allowed on the terms recorded: meetings of shareholders and creditors of both companies are dispensed with as directed, auditors' certificates on accounting conformity are noted, and the application shall be served on the specified statutory authorities and regulators.

Scheme of Merger by way of Absorption - dispensation of meetings of creditors - consent of unsecured creditors - convening of shareholders' meetings - service of notices to regulatory and statutory authorities under Section 230(5) - publication and proof of service requirements - appointment of chairman and scrutinizer for shareholders' meeting - Appointed Date

Dispensation of meetings of creditors - consent of unsecured creditors - Whether meetings of unsecured creditors of the Applicant Companies could be dispensed with. - HELD THAT: - The Tribunal recorded that the unsecured creditors representing 100% in value of unsecured debt of each Applicant Company have given affidavits of 'no objection' to the proposed Scheme. In view of that unanimous consent, the statutory requirement to convene meetings of unsecured creditors was dispensed with. The Tribunal also noted that there are no secured creditors for any Applicant Company, and therefore convening meetings of secured creditors did not arise. [Paras 13, 14]

Meetings of unsecured creditors dispensed with on account of 100% no-objection affidavits; meetings of secured creditors not required as none exist.

Convening of shareholders' meetings - appointment of chairman and scrutinizer for shareholders' meeting - publication and proof of service requirements - Directions for convening meetings of equity shareholders of the Applicant Companies and related procedural requirements. - HELD THAT: - Although meetings of creditors were dispensed with, the Applicant Companies sought directions to convene meetings of their shareholders. The Tribunal accepted the prayer and fixed dates, times and modes (physical or virtual) for the shareholders' meetings, fixed the quorum, and directed adjournment procedure where quorum is not present. It approved appointment of the proposed Chairman and alternate, and the Scrutinizer, and directed filing of the Chairman's Report within seven days of conclusion of the meetings. The Tribunal further directed publication of the meeting notice in specified newspapers and service of notices to shareholders by courier/registered post/speed post/email at least 30 days prior to the meeting, and ordered filing of proof of such service and of paper publication by affidavit before the meeting. [Paras 15]

Shareholders' meetings ordered to be convened on specified dates and times with procedural directions on quorum, chairmanship, scrutiny, notice publication, service and filing of proof.

Service of notices to regulatory and statutory authorities under Section 230(5) - publication and proof of service requirements - Obligation to serve notices of the shareholders' meetings on statutory and regulatory authorities and timeline for objections. - HELD THAT: - Acting under the power conferred by the Companies Act, the Tribunal directed the Applicant Companies to serve notices of the proposed meetings to the Central Government through the Regional Director (Northern Region), Registrar of Companies (NCT of Delhi & Haryana), the Official Liquidator attached to the Delhi High Court, the jurisdictional Income Tax authorities and any sectoral regulatory authorities governing the Companies' operations, at least 30 days before the meeting date. The Tribunal directed that these authorities may raise objections or representations within 30 days of receipt of the notice, failing which it shall be presumed they have no objection. [Paras 15]

Notices to specified statutory and sectoral authorities to be served 30 days before the meeting; authorities given 30 days to raise objections, otherwise deemed to have none.

Publication and proof of service requirements - Chairman's Report filing - Filing requirements following the shareholders' meetings and presentation of the petition. - HELD THAT: - The Tribunal directed the Applicant Companies to place the meeting notice on their websites and on the registered office notice boards, and to file affidavits proving service and paper publication before the date of the meetings. It further directed that the Chairman's Report be filed with the Tribunal within seven days of the meeting(s), and that the company petition(s) be presented within seven days from the date of filing all Chairman's Reports with the Registry. [Paras 15]

Applicants to publish notices on website and notice board, file proof of service and publication, file Chairman's Reports within seven days, and present the company petition(s) within seven days thereafter.

Scheme of Merger by way of Absorption - Appointed Date - Disposition of the application under Sections 230-232 approving the procedural directions in relation to the proposed Scheme of Merger by way of Absorption with the Appointed Date. - HELD THAT: - The Tribunal considered the materials filed in support of the Scheme, including board approvals, affidavits of creditors, statutory auditor certificate and statutory compliances, and noted the stated commercial rationale for consolidation. On that basis and subject to the procedural directions issued for shareholders' meetings and service on authorities, the Tribunal allowed the application seeking directions for proceeding with the Scheme which is stated to take effect from the Appointed Date of 01.04.2020. [Paras 8, 9, 11, 12, 16]

Application allowed and procedural directions issued to carry forward the scheme process; the Scheme is to take effect from the Appointed Date of 01.04.2020, subject to compliance with the directions given.

Final Conclusion: The Tribunal allowed the application under Sections 230-232, dispensed with meetings of unsecured creditors (and noted absence of secured creditors), directed convening of shareholders' meetings with specified procedural safeguards, required service of notices on statutory and sectoral authorities and publication/proof filing, and permitted presentation of the company petition(s) after filing of Chairman's Reports; the Scheme is to operate from the Appointed Date of 01.04.2020.

Sanction of scheme of amalgamation - dispensing with meetings of equity shareholders and creditors under Section 230(1) read with Section 232(1) of the Companies Act, 2013 - convening meetings of secured and unsecured creditors - service of notice under Section 230(5) and communication to regulatory authorities - creditors' voting threshold of majority in number and three-fourths in value - use of VC/OAVM, remote e-voting and ballot process for meetings - appointment of Chairperson and Scrutinizer for creditors' meetings - reporting of meeting results in Form CAA.4

Dispensing with meetings of equity shareholders and creditors under Section 230(1) read with Section 232(1) of the Companies Act, 2013 - Whether meetings of the equity shareholders of the Transferee and Transferor companies could be dispensed with. - HELD THAT: - The Tribunal recorded that all equity shareholders of the Transferee and Transferor companies, holding 100% of the shares of the respective companies, executed affidavits consenting to waive convening and holding of meetings for consideration and approval of the Scheme of Amalgamation. In view of such unanimous consents, the Tribunal dispensed with meetings of the equity shareholders under the statutory provision permitting waiver where all shareholders consent, and made the corresponding order to that effect.

Meetings of the equity shareholders of the Transferee and Transferor companies are dispensed with.

Convening meetings of secured and unsecured creditors - use of VC/OAVM, remote e-voting and ballot process for meetings - appointment of Chairperson and Scrutinizer for creditors' meetings - creditors' voting threshold of majority in number and three-fourths in value - Directions for convening and conduct of meetings of secured and unsecured creditors of the Transferee Company to consider the Scheme. - HELD THAT: - The Tribunal directed that separate meetings of secured and unsecured creditors of the Transferee Company be convened (date and venue specified), permitting physical attendance and/or virtual attendance through VC/OAVM. The order authorised remote e-voting and ballot voting at meetings, clarified that remote e-voting precludes voting again at the meeting, and allowed authorised representatives to vote subject to production of authorisation. The Tribunal fixed the quorum rule to follow Section 103 of the Companies Act, 2013 (with virtual attendance counted), provided for adjournment where quorum not present within half an hour, and confirmed that a resolution approving the Scheme shall be deemed passed if carried by a majority in number representing three-fourths in value of the creditors voting.

Meetings of secured and unsecured creditors of the Transferee Company to be convened with prescribed modalities of attendance, voting, quorum and appointment of Chairperson and Scrutinizer.

Service of notice under Section 230(5) and communication to regulatory authorities - reporting of meeting results in Form CAA.4 - Requirements for notice, advertisement, service on statutory authorities and reporting of results of the creditors' meetings. - HELD THAT: - The Tribunal directed publication of an advertisement convening the creditors' meetings in specified newspapers at least thirty clear days prior, and service of notices (with the Scheme, statement and proxy form) on creditors by speed post/courier/email and posting on the applicants' websites. It ordered service of the notice under the statutory provision on the Regional Director, Registrar of Companies, Official Liquidator and Income Tax authorities with a statement that representations, if any, must be filed within thirty days. The Chairperson was directed to report results to the Tribunal within four weeks of conclusion in Form CAA.4, verified by affidavit, and the applicants were ordered to file an affidavit proving service and publication compliance at least seven days before the meetings.

Notices, publication, statutory service and reporting obligations imposed as directed; compliance affidavit to be filed before the meetings.

Sanction of scheme of amalgamation - Disposition of the Company Application for directions in the first stage of the Scheme of Amalgamation proceedings. - HELD THAT: - On the material and consents placed before it and pursuant to the statutory framework for schemes of compromise, arrangement and amalgamation, the Tribunal allowed the application to the extent of dispensing with shareholder meetings where affidavits of consent were furnished, and issued directions for convening and conducting creditors' meetings and for statutory notices and reporting. The order implements the procedural steps necessary for further consideration of the Scheme under the Act.

Company Application (CAA) No. 53/KB/2021 is disposed of with the directions specified.

Final Conclusion: The Tribunal allowed the application in the first stage of the scheme proceedings: meetings of equity shareholders were dispensed with on account of unanimous affidavits of consent; meetings of secured and unsecured creditors of the Transferee Company were directed to be convened with specified modalities (including VC/OAVM, remote e-voting, quorum and voting thresholds); statutory notices and service on regulatory authorities were ordered; reporting and compliance filings were directed; and the Company Application was disposed of accordingly.

Moratorium under Section 14 of the IBC, 2016 - performance bank guarantee - financial bank guarantee - invocation and encashment of bank guarantees - classification of bank guarantees as per RBI guidelines - security interest - prevention of double recovery where claim already admitted

Performance bank guarantee - financial bank guarantee - classification of bank guarantees as per RBI guidelines - The nature of the bank guarantees furnished to NSIC was financial, not performance, and therefore they do not qualify as performance bank guarantees. - HELD THAT: - The Tribunal examined the distinguishing features of financial and performance bank guarantees as set out in the RBI circular and applied those principles to the terms of the raw material assistance arrangement and the guarantees on record. The raw material assistance scheme and the agreement contemplated credit/financial support for procurement of inputs, interest charges and repayment obligations, and the guarantees were furnished to secure that financial facility. The guarantees did not contain terms indicative of securing contractual non financial obligations (i.e., obligations to perform supply or service contracts) nor were they denominated or evidenced as performance guarantees. The Respondent bank itself included the invoked guarantee amount within its claim admitted by the resolution professional, reinforcing that the guarantees operated as a financial credit substitute rather than performance security. On this basis the Tribunal held that the guarantees are financial bank guarantees and not performance bank guarantees (reasoning recorded at paragraph 15). [Paras 15]

Bank guarantees were financial in nature and not performance bank guarantees.

Moratorium under Section 14 of the IBC, 2016 - invocation and encashment of bank guarantees - prevention of double recovery where claim already admitted - Invocation and encashment of the financial bank guarantees by NSIC during the CIRP amounted to action prohibited by the moratorium and the notices of invocation were quashed. - HELD THAT: - Having concluded that the guarantees were financial guarantees, the Tribunal held that invocation and encashment by NSIC during the moratorium would be action to enforce a security interest or to recover amounts from the corporate debtor contrary to the statutory moratorium under Section 14. The Tribunal observed that the debt and claims against the corporate debtor were required to be crystallised through the claims process in CIRP and that allowing invocation would undermine the pari passu and rule based distribution envisaged by the Code and could lead to preferential recovery. The bank had already included the guarantee amount in its claim admitted by the resolution professional, and permitting separate encashment would effectively permit double recovery. For these reasons, and in exercise of its jurisdiction to enforce the Code during CIRP, the Tribunal found the invocation inconsistent with the moratorium and quashed the notices of invocation (conclusions recorded at paragraphs 15-16). [Paras 15, 16]

Notices of invocation/encashment of the bank guarantees by NSIC are quashed as barred by the moratorium.

Final Conclusion: The application by the resolution professional is allowed: the bank guarantees furnished to NSIC were held to be financial guarantees (not performance guarantees) and invocation/encashment by NSIC during the CIRP was held to be barred by the moratorium; the notices of invocation are quashed and the order is directed to be communicated to the parties and IBBI.

Existence of debt and default - operational creditor's compliance with Section 8 and Section 9 of the Insolvency and Bankruptcy Code, 2016 - admission of Section 9 application and initiation of corporate insolvency resolution process - appointment of Interim Resolution Professional - imposition of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - public announcement under Section 13(2) - duties and obligations of the Interim Resolution Professional and corporate debtor under Sections 17, 18, 19, 20 and 21

Existence of debt and default - operational creditor's compliance with Section 8 and Section 9 of the Insolvency and Bankruptcy Code, 2016 - Whether the operational creditor established existence of unpaid operational debt and default and complied with the statutory pre-conditions for filing a Section 9 petition. - HELD THAT: - The Tribunal found that the corporate debtor admitted the commercial arrangement and acknowledged partial payment, and that the operational creditor had issued the demand notice as required. The corporate debtor did not raise any dispute to the claim in its reply to the demand notice and acknowledged that payment could not be made due to financial difficulties. The applicant produced supporting evidence and the petition was held to be within limitation. Applying the statutory tests in Sections 8 and 9, the Tribunal concluded that the conditions for filing a Section 9 application - delivery of demand notice, absence of a valid notice of dispute within ten days, and existence of unpaid operational debt - were satisfied. [Paras 5]

The operational creditor established existence of the debt and default and complied with the pre-conditions under Section 8 and Section 9.

Admission of Section 9 application and initiation of corporate insolvency resolution process - Whether the Section 9 petition should be admitted and the corporate insolvency resolution process (CIRP) initiated against the corporate debtor. - HELD THAT: - Having found that the statutory pre-conditions were satisfied and that the petition was within limitation, the Tribunal exercised its duty under Section 9(5) to admit the application. The admission triggers commencement of CIRP from the date of the order and the Tribunal therefore admitted the petition and directed initiation of the insolvency resolution process with immediate effect. [Paras 6]

The Section 9 petition is admitted and CIRP is initiated against the corporate debtor with immediate effect.

Appointment of Interim Resolution Professional - disciplinary proceedings against proposed resolution professional - Whether the proposed Interim Resolution Professional (IRP) should be appointed. - HELD THAT: - The operational creditor proposed an IRP who submitted consent in Form 2 and declared that no disciplinary proceedings were pending against him. The Tribunal, satisfied with compliance regarding consent and absence of disciplinary proceedings, appointed the proposed IRP and directed him to perform the functions required under the Code and file his report within the prescribed time. [Paras 7]

Pawan Kumar Garg is appointed as Interim Resolution Professional and directed to perform duties and file report within statutory time.

Public announcement under Section 13(2) - Whether a public announcement in respect of the admission should be directed. - HELD THAT: - In terms of Section 13(2) of the Code, the Tribunal directed the IRP to make the statutory public announcement within three days of admission to notify stakeholders of the initiation of the insolvency resolution process. [Paras 8]

The IRP is directed to make the public announcement within three days of this order.

Imposition of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Whether the moratorium under Section 14 should be declared and its statutory consequences imposed. - HELD THAT: - Upon admission, the Tribunal declared the moratorium and applied the prohibitions provided by Section 14(1) - staying institution or continuation of suits and enforcement actions, restraining transfer or disposal of assets by the corporate debtor, and prohibiting actions to enforce security interests - while also preserving supply of essential goods and services under Section 14(2). The order specified the consequences and prohibited actions in conformity with the statutory text. [Paras 9, 10]

A moratorium is declared with the statutory prohibitions and protections specified in the order.

Duties and obligations of the Interim Resolution Professional and corporate debtor under Sections 17, 18, 19, 20 and 21 - What directions should be given regarding the roles, duties and cooperation obligations of the IRP, the corporate debtor and its personnel following admission? - HELD THAT: - The Tribunal directed the IRP to discharge duties under the Code, including protection and preservation of the corporate debtor's property and management of its affairs, and required all personnel, promoters and those associated with management to extend assistance and cooperation to the IRP as mandated by the statutory provisions. The IRP was also instructed to act with dedication, honesty and in strict conformity with IBC, Rules and Regulations and to file reports before the Adjudicating Authority. [Paras 11]

Directions issued that the IRP shall perform statutory functions and that the corporate debtor's personnel must cooperate with the IRP in discharge of those functions.

CIRP costs and interim funding - Whether the operational creditor should be directed to deposit funds to meet immediate expenses of the IRP and the treatment of such payment. - HELD THAT: - The Tribunal directed the operational creditor to deposit an interim fee to meet immediate IRP expenses within two weeks. It recorded that such amount shall be accountable and reimbursable by the Committee of Creditors and recoverable as CIRP cost, thereby providing for interim funding while preserving ultimate cost allocation under the Code. [Paras 12]

Operational creditor directed to deposit interim funds to meet IRP expenses, refundable and recoverable as CIRP cost.

Final Conclusion: The Tribunal admitted the Section 9 petition, initiated the corporate insolvency resolution process against the corporate debtor, appointed the proposed Interim Resolution Professional subject to his consent and absence of disciplinary proceedings, directed the statutory public announcement and declared the moratorium with attendant prohibitions and protections, imposed duties on the IRP and cooperation obligations on the corporate debtor's personnel, and ordered interim funding to meet IRP expenses recoverable as CIRP cost.

Transitional provisions - cenvat credit versus cash refund - refund of pre-deposit - Section 142 of the CGST Act - interest on delayed refund - Sandvik Asia principle on interest

Transitional provisions - Section 142 of the CGST Act - cenvat credit versus cash refund - Refund of pre-deposit allowed earlier by way of cenvat credit must be disbursed in cash in view of the transitional provisions of Section 142 of the CGST Act. - HELD THAT: - The Commissioner (Appeals)/(Audit) had affirmed refund by way of cenvat credit of an amount earlier deposited in cash and reflected in ER-I returns. The Tribunal found that such a direction was in conflict with the transitional provisions contained in Section 142 of the CGST Act, which require that on or after 1.7.2017 any adjustment regarding refund of duty or liability has to be in cash. Applying that statutory mandate, the Tribunal modified the order-in-appeal and directed the Adjudicating Authority to disburse the impugned amount in cash. [Paras 6, 8]

Order modified to direct disbursement of the refunded amount in cash.

Interest on delayed refund - Sandvik Asia principle on interest - Assessee is entitled to interest on the amount to be refunded from the date of reversal until actual refund, at the rate applied by the Supreme Court in Sandvik Asia. - HELD THAT: - The Tribunal held that interest should be paid on the amount ordered to be refunded from the date of reversal (03.11.2015) until payment of the refund in cash. The Tribunal fixed the rate of interest at 12% per annum, citing the principle laid down by the Hon'ble Supreme Court in Sandvik Asia Private Limited as the applicable yardstick for awarding interest on delayed refunds. [Paras 8]

Interest at 12% p.a. to be paid from 03.11.2015 until cash refund is made.

Final Conclusion: Appeal allowed; impugned order modified to direct cash disbursement of the disputed pre-deposit amount with interest at 12% p.a. from 03.11.2015 until payment; refund to be granted within 45 days of receipt of this order.

Reimbursable expenses - inclusion of reimbursable expenses in taxable value - taxable value for service tax liability - retrospective application of amendment to include reimbursables - precedent of M/s. Inter-continental Consultant and Technocrats Pvt. Ltd.

Reimbursable expenses - taxable value for service tax liability - inclusion of reimbursable expenses in taxable value - Postal charges/courier charges that were reimbursed by the customers are not includible in the taxable value for determining service tax for the period in question. - HELD THAT: - The records show the postal/courier charges were reimbursable expenses and the period under consideration is within 12/2004 to 3/2009. During that period reimbursable expenses were not includible in the gross value for determining service tax liability; the statutory amendment to include reimbursable expenses in gross value took effect only from 14th May 2015. The Tribunal applied the ratio of the Hon'ble Supreme Court in Union of India v. M/s. Inter-continental Consultants and Technocrats Pvt. Ltd., and followed subsequent Tribunal precedents which held that postal/courier reimbursable charges are not to be included in taxable value. In view of that binding precedent and the temporal inapplicability of the 2015 amendment to the period under adjudication, the demand of service tax on the reimbursed postal/courier charges cannot be sustained.

Demand of service tax on reimbursed postal/courier charges for the period 01.12.2004 to 31.03.2009 is set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, setting aside the demand, interest and penalties insofar as they related to reimbursed postal/courier charges for the period 01.12.2004 to 31.03.2009, applying the Supreme Court precedent that reimbursable expenses were not includible in taxable value prior to the 2015 amendment.

Refund of duty on inputs exported under Rule 18 of the Central Excise Rules, 2002 - sanction of refund within three months under section 11B of the Central Excise Act, 1944 - payment of interest on delayed refund under section 11BB of the Central Excise Act, 1944 - claim for interest on interest (interest on the interest already sanctioned) - principle in Ranbaxy on scope of interest payable for delayed refund

Payment of interest on delayed refund under section 11BB of the Central Excise Act, 1944 - claim for interest on interest (interest on the interest already sanctioned) - sanction of refund within three months under section 11B of the Central Excise Act, 1944 - principle in Ranbaxy on scope of interest payable for delayed refund - Whether the assessee was entitled to interest on the interest already sanctioned where the principal refund was sanctioned within three months and interest on that principal amount had been paid - HELD THAT: - The Tribunal examined whether a claim for interest on the interest already sanctioned falls within the scope of section 11BB where the original refund of duty (for the period 5.4.2006 to 18.8.2006) was sanctioned within three months as required under section 11B and interest on the principal refund had been paid. The claim for additional interest arose because the sanction of that interest was made after delay. The Tribunal held that the settled legal position, as laid down by the Apex Court and followed in precedent authorities, confines compensatory interest under the statutory scheme to interest on the amount of duty unpaid beyond the prescribed period; there is no statutory provision entitling interest on interest. The exceptional relief of allowing interest on interest in earlier decisions was grounded on factual delay in sanctioning the primary refund itself; where the primary refund was sanctioned within the three month period and interest on the principal was paid, a further claim for interest on that interest is not covered by section 11BB. Applying that principle to the facts (refund sanctioned within three months; interest on Rs.66,01,485/- already sanctioned), the claim for interest on interest was not maintainable and the Commissioner (Appeals) correctly rejected it. [Paras 6, 7]

Claim for interest on the interest already sanctioned was rejected as not recoverable under section 11BB; the Commissioner (Appeals) order is upheld.

Final Conclusion: The Tribunal dismissed the appeal and upheld the order rejecting the claim for interest on interest, holding that where the refund was sanctioned within the statutory three month period and interest on the refund had been paid, no further interest on that interest is payable under the statutory scheme.

Transfer to defraud revenue void - charge in favour of a banking company - non-obstante clause overriding section 34(1) - protection of transfers made for the benefit of a secured bank creditor - voidable versus void transfers and remedy by suit - Crown/state preferential right vis-a -vis secured creditors

Charge in favour of a banking company - non-obstante clause overriding section 34(1) - protection of transfers made for the benefit of a secured bank creditor - Whether the sale-deed executed on 16.07.2014 is insulated from avoidance under Section 34(1) by operation of Section 34(2) because the transaction was for the benefit of a banking company which held a prior charge. - HELD THAT: - Section 34(2) contains a non-obstante provision which excludes the operation of Section 34(1) in respect of a charge or transfer in favour of a banking company as defined under the Banking Regulation Act. Facts show a charge in favour of State Bank of India created in 2005, satisfaction of that charge pursuant to an OTS and payment by the purchaser to the bank immediately prior to and in consequence of the sale-deed. The Court construed the words "in favour of" purposively and held they include transfers made for the sole benefit of the banking company (i.e., where the charged property is sold to discharge the bank's dues without the bank first taking title). A literal, narrow meaning would produce anomalous results and frustrate the legislative purpose of Section 34(2). Consequently the sale-deed is taken out of the reach of Section 34(1) and is insulated from being set aside by the revenue under that sub-section.

The sale-deed dated 16.07.2014 is protected by Section 34(2) and is not liable to be avoided under Section 34(1) on the facts before the Court.

Transfer to defraud revenue void - voidable versus void transfers and remedy by suit - Whether, alternatively, the transfer is void or voidable for fraud and whether the revenue could directly set it aside without resort to a suit. - HELD THAT: - Section 34(1) operates to render transfers made with intent to defraud the revenue ineffective against the revenue, but the provision preserves the rights of a transferee in good faith and for consideration. Established authorities recognise that transfers made for adequate consideration and without reservation of benefit to the transferor are not impeachable merely because other creditors remain unpaid; where a transfer is voidable (not void ab initio) the proper remedy is a suit to set it aside after impleading necessary parties. Only where fraud is established on undisputed facts can a transfer be treated as nullity and set aside outside suit proceedings. In the present case no such fraud is made out on the record; the transaction was for the bank's benefit, supported by OTS, payments and bank correspondence, and hence the revenue cannot directly avoid the sale-deed without following appropriate legal process.

No prima facie fraud is established; the transfer is not to be treated as void ab initio and the revenue's remedy (if fraud were shown) would be by a suit for setting aside; such a remedy has not been made out here.

Crown/state preferential right vis-a -vis secured creditors - protection of transfers made for the benefit of a secured bank creditor - Whether the State's preferential recovery claim defeats the prior secured right of a banking company in the charged property. - HELD THAT: - The common-law principle that Crown/state dues may have preference applies mainly against unsecured creditors; it does not displace a prior perfected right of a secured creditor such as a mortgagee or pledgee. Section 34(1) creates a narrow statutory exception in favour of the Crown against certain transfers made to defraud revenue, but Section 34(2) expressly preserves and renders absolute the priority of charges/transfers in favour of banking companies. On the uncontested facts, the bank's prior charge (and the consequent transaction to satisfy it) prevails over the State's attempt to proceed against the charged property.

The State's preferential claim cannot defeat the prior secured right of the banking company in the circumstances; the revenue is restrained from proceeding against the property on that basis.

Alternative remedy and procedural objections - Whether the writ petition was premature or defective because alternative remedies before statutory authorities were not exhausted or because technical defects in the prayer existed. - HELD THAT: - The Court found it was too late to insist on alternative remedy objections where the petition was filed in 2015, parties were represented, pleadings filed and the issue was purely legal without disputed facts. Rule 285N (relating to confirmation of sale) was inapplicable because attachment and any auction had not preceded the sale-attachment occurred after the sale. The exact phrasing of the relief was not fatal where the substance of the claim and undisputed facts warranted relief in exercise of writ jurisdiction.

Objections based on alternative remedies and technical defects in the prayer were rejected; the writ petition was entertainable and proceedable to final disposal.

Final Conclusion: Writ petition allowed: on the undisputed facts a prior charge in favour of a banking company and the consequent transfer for the bank's benefit are protected by Section 34(2) of the U.P. Trade Tax Act so as to preclude avoidance under Section 34(1); no fraud is established to render the sale void, and the revenue is restrained from proceeding against the petitioner's personal assets or the property in dispute while remaining at liberty to recover dues from the transferor and its properties in accordance with law.

Duty to consider cause shown in response to show cause notice - Requirement of reasoned order in best judgment reassessment - Re-assessment under Section 27 of TNVAT Act - Input Tax Credit assessment / escaped turnover - Imposition of penalty under Section 27(4) of TNVAT Act

Duty to consider cause shown in response to show cause notice - Requirement of reasoned order in best judgment reassessment - Impugned reassessment order set aside for failure to consider the dealer's replies and for lack of reasons. - HELD THAT: - The Court found that, although show cause notices had been issued and replied to, the impugned order contains no reference to or consideration of the cause shown by the writ petitioner. Section 27 of the TNVAT Act contemplates re assessment by 'best of its judgment', which makes it imperative that the assessing authority state the reasons showing how objections were considered and why the dealer's contentions were not accepted. While reasons may be terse, they cannot be laconic or entirely absent. The impugned order's omission to record any consideration of the replies or any reasons for rejecting them vitiates the assessment and mandates setting aside on that short ground. [Paras 2, 6, 7, 8]

Impugned order dated 27.08.2021 set aside solely because the objections/replies of the dealer were not considered and no reasons were given for rejecting the dealer's position.

Re-assessment under Section 27 of TNVAT Act - Imposition of penalty under Section 27(4) of TNVAT Act - Matter remanded for de novo re-assessment/revision with direction to consider the cause shown and pass a reasoned order within a specified time; no view expressed on merits. - HELD THAT: - Having set aside the impugned order for want of consideration of the dealer's replies and absence of reasons, the Court directed the respondent to undertake de novo re assessment/revision under Section 27, considering the show cause replies and annexures already on record. The Court clarified that further opportunity to be heard was not necessary since SCNs had been issued and replied to. The respondent was directed to complete the fresh exercise expeditiously and in any event within six weeks from the date of the order. The Court expressly refrained from expressing any view on the merits of the underlying tax/ITC issues. [Paras 8, 9]

Respondent to re do reassessment/revision under Section 27 of TNVAT Act de novo, considering the dealer's replies, and pass a fresh reasoned order within six weeks; no view on merits expressed.

Final Conclusion: Writ petition allowed in part: impugned order set aside for failure to consider the dealer's replies and absence of reasons; matter remanded for de novo reassessment under Section 27 of TNVAT Act with directions to consider the cause shown and pass a reasoned order within six weeks; no adjudication on merits.