TaxTMI Updates e-Newsletter
Dec 02,2020

Exemption under section 11 - proviso to section 2(15) - dominant object test - treatment of receipts in Form 26AS - reconciliation and rectification of Form 26AS - Rule 46A of the Income tax Rules

Exemption under section 11 - proviso to section 2(15) - dominant object test - Whether the assessee is entitled to exemption under section 11 as its activities are not commercial within the meaning of section 2(15) and the proviso thereto does not apply. - HELD THAT: - The Tribunal examined the AO's conclusion that receipts from hosting matches, sale of tickets, reimbursements and grants converted the assessee's activities into trade or business and thus attracted the proviso to section 2(15). The Tribunal followed its earlier decisions in the assessee's own cases for earlier assessment years and considered coordinate judicial authority holding that state cricket associations hosting matches on behalf of BCCI are not engaged in trade or commerce where such hosting is incidental to the dominant charitable object of developing the sport. Applying the dominant object test, the Tribunal found that the primary object of the association is development of cricket, that hosting matches and receiving reimbursements from BCCI are incidental and not profit driven commercial activities, and that the AO failed to demonstrate that the association was motivated by a profit making objective. On these grounds the Tribunal sustained the CIT(A)'s deletion of the business income addition and upheld allowance of exemption under section 11. [Paras 7]

Uphold CIT(A)'s finding that the proviso to section 2(15) is not attracted; exemption under section 11 allowed.

Treatment of receipts in Form 26AS - reconciliation and rectification of Form 26AS - Whether the addition for short admission of receipts from BCCI based on Form 26AS differences is sustainable. - HELD THAT: - The Tribunal considered that the AO made addition solely on the basis of a discrepancy between Form 26AS and receipts admitted by the assessee without affording opportunity. The assessee obtained corrected Form 26AS from BCCI and filed a rectification petition, and the CIT(A) reviewed the revised Form 26AS and the assessee's reconciliation showing that amounts credited to income and to balance sheet together matched the revised Form 26AS. The Tribunal held that Form 26AS entries are generated by deductors and where the assessee disputes those entries the onus lies on revenue to prove actual receipt; further, the AO rejected the rectification petition while appeal was pending and therefore could not complain later. Having examined the corrected Form 26AS and reconciliation, the Tribunal found no short admission of receipts and sustained deletion of the addition. [Paras 9]

Delete addition for short admission of receipts; CIT(A)'s deletion upheld.

Rule 46A of the Income tax Rules - reconciliation and rectification of Form 26AS - Whether the CIT(A) erred in considering the revised Form 26AS and the assessee's rectification petition in contravention of Rule 46A. - HELD THAT: - The Tribunal noted that the assessee filed a rectification petition before the AO and furnished details; the AO rejected the petition on the ground that appeal was pending before CIT(A). The Tribunal held that where a prima facie mistake exists the AO is obliged to rectify even if appeal is pending, and since the AO had rejected rectification the CIT(A) was entitled to examine the corrections. In these circumstances the CIT(A)'s consideration of the revised Form 26AS did not contravene Rule 46A and there was no infirmity in the appellate authority taking the corrected statement into account. [Paras 10]

Reject objection under Rule 46A; uphold CIT(A)'s consideration of revised Form 26AS and dismissal of the ground.

Final Conclusion: The revenue's appeal is dismissed: the Tribunal upheld the CIT(A)'s allowance of exemption under section 11 by applying the dominant object test and finding the proviso to section 2(15) inapplicable; it sustained deletion of the addition for alleged short admission of receipts after accepting the reconciled and revised Form 26AS; and it rejected the contention that consideration of the revised Form 26AS by the CIT(A) contravened Rule 46A.

Registration under Section 12AA - trusts with mixed religious and charitable objects - public benefit element in charitable purpose - application of Section 11(1)(a) - use of income or corpus for non-charitable/non-religious purpose

Registration under Section 12AA - trusts with mixed religious and charitable objects - public benefit element in charitable purpose - use of income or corpus for non-charitable/non-religious purpose - Whether a trust having both religious and charitable objects is entitled to registration under Section 12AA / exemption under Section 11(1)(a) of the Act. - HELD THAT: - The Court held that a trust with objects that are partly religious and partly charitable can be registered under Section 12AA and entitled to exemption under Section 11(1)(a) so long as no part of its income or corpus is applied to purposes which are neither charitable nor religious. The Court relied on precedent establishing that charitable purpose requires an element of public benefit and that, in the Hindu context, charity may be part of religion; accordingly, the expression 'trust for charitable purpose' may include advancement of religion. The decision in Shervani Charitable Trust was distinguished on facts because there the trust provided for the maintenance of settlors' family (a non-charitable application), which is not the case here. Applying this principle, the Court agreed with the tribunal and the Gujarat High Court view that mixed objects do not automatically disentitle registration absent diversion of income or corpus to non-charitable/non-religious uses.

Answered in favour of the assessee: registration under Section 12AA cannot be denied merely because the trust has both religious and charitable objects, provided no part of income or corpus is used for non-charitable/non-religious purposes.

Registration under Section 80G - consideration of collateral reliefs on appeal - Whether the Tribunal erred in not considering the issue pertaining to rejection of registration under Section 80G(v)(vi). - HELD THAT: - The judgment record shows that the Tribunal did not decide the 80G registration issue and the High Court's reasoning and final order do not address or adjudicate that point. The Court's deliberation focused on entitlement to registration under Section 12AA and related Section 11(1)(a) principles; it did not consider or decide the separate question of 80G registration. Consequently the 80G issue remains unadjudicated in these proceedings.

Left undecided - the Tribunal's non-consideration of the 80G registration issue was not addressed on the merits by this Court and therefore remains unadjudicated.

Final Conclusion: The substantial question on entitlement to registration under Section 12AA when a trust has mixed religious and charitable objects is answered in favour of the assessee; the revenue's appeal is dismissed. The separate issue regarding Section 80G registration was not decided by the Tribunal or this Court and remains unadjudicated.

Duty to adjudicate substantive grounds - treating grounds as academic - quash and remit for fresh adjudication - remand for fresh consideration

Duty to adjudicate substantive grounds - treating grounds as academic - quash and remit for fresh adjudication - Whether the Tribunal erred in treating ground No.16 as academic and failing to adjudicate it on merits, and what relief should follow. - HELD THAT: - The Tribunal recorded that the grounds pleaded by the assessee were academic and did not adjudicate ground No.16 on merits. The High Court, after perusal of the grounds and the Tribunal's order, found that the Tribunal ought to have considered and decided the substantive contention instead of declining to do so as academic. Consequently, the Court held that the Tribunal's failure to adjudicate ground No.16 amounted to a failure of decision-making and required corrective action. The High Court quashed the Tribunal's order insofar as it pertains to ground No.16 and remitted the matter to the Tribunal for fresh adjudication in accordance with law. [Paras 4, 5]

Tribunal's order dated 03.03.2017 insofar as it relates to ground No.16 is quashed and the matter is remitted to the Tribunal to adjudicate ground No.16 afresh in accordance with law.

Final Conclusion: The appeal is disposed of by quashing the Tribunal's order insofar as it concerns ground No.16 and remitting that ground to the Tribunal for fresh consideration and decision in accordance with law; the substantial questions of law were not answered as they became unnecessary.

Section 54EC deduction - Revisional jurisdiction under Section 263 - Where two views are possible - Prospective application of statutory amendment

Section 54EC deduction - Prospective application of statutory amendment - Assessee's entitlement to claim deduction of Rs.1 crore under Section 54EC for Assessment Year 2009-10. - HELD THAT: - The Tribunal's view that, for assessment years prior to the prospective amendment (operative from AY 2015-16), it was possible to claim deduction by investing Rs.50 lakhs in each of two financial years within six months of transfer represents a permissible interpretation of the proviso to Section 54EC. The Court noted the amendment and explanatory material relied upon by parties but treated the amendment as prospective; accordingly, the assessee's interpretation for the Assessment Year 2009-10 was a viable view. As the Assessing Officer's approach fell within the range of possible interpretations, the assessee was entitled to the view accepted by the Tribunal. [Paras 3, 9, 10]

Deduction claimed under Section 54EC for Assessment Year 2009-10 cannot be disallowed on the ground now sought by the revenue; the assessee's position is upheld.

Revisional jurisdiction under Section 263 - Where two views are possible - Validity of the Commissioner's exercise of revisional jurisdiction under Section 263 in setting aside the assessing officer's order. - HELD THAT: - Section 263 requires that the assessing officer's order be both erroneous and prejudicial to the revenue. The Supreme Court precedent reproduced by this Court establishes that where two views are possible and the assessing officer has taken one such view, that order cannot be treated as erroneous and prejudicial for the purposes of Section 263. Applying this principle, the Court found that the assessing officer's conclusion on the Section 54EC claim was one of the possible views; consequently, the exercise of revisional power by the Commissioner was not justified. [Paras 6, 7, 8, 9, 10]

The Commissioner's exercise of powers under Section 263 to set aside the assessment is not sustainable.

Final Conclusion: The substantial question is answered against the revenue and in favour of the assessee; the appeal is dismissed.

Cost of acquisition - capitalization of interest on borrowed funds - corroborative evidence - short term capital gains - reliance on registered document over subsequent uncorroborated documents - perversity review of findings of fact

Cost of acquisition - corroborative evidence - reliance on registered document over subsequent uncorroborated documents - Whether the sum of Rs. 50,00,000/- and the higher consideration claimed by the assessee could be treated as part of the cost of acquisition of the property. - HELD THAT: - The tribunal and Assessing Officer found absence of corroborative material to show any liability of Rs. 50,00,000/- to the vendor; details of payments furnished by the assessee did not mention that sum and the vendor had stated the deal was complete and any further consideration received by the assessee. The Power of Attorney and registered documents showed cost at a lower figure and the documents later produced by the assessee were held to be subsequent and contrary to the registered document. The court held that these findings rested on meticulous appreciation of evidence and therefore the claim to treat Rs. 50,00,000/- (and to elevate the cost of acquisition on that basis) was rightly denied. [Paras 6]

Claim to include Rs. 50,00,000/- or to adopt the higher claimed purchase consideration as part of cost of acquisition rejected.

Capitalization of interest on borrowed funds - short term capital gains - corroborative evidence - Whether interest of Rs. 7,00,000/- on borrowed funds could be capitalized as part of cost or allowed against short term capital gains. - HELD THAT: - The tribunal found no direct nexus between the loan advances from Dr. Manjunath and the investment in the property, noting that the loan was allegedly repaid before the sale and that no evidence established accrual of borrowing for the acquisition; the assessee did not demonstrate that borrowed funds had funded the purchase. Consequently, the tribunal agreed with the Assessing Officer in refusing capitalization of the interest. The High Court held these findings to be fact-based, supported by the record, and not perverse. [Paras 6]

Capitalization or deduction of the claimed interest of Rs. 7,00,000/- disallowed.

Final Conclusion: The substantial questions of law framed were answered against the assessee; the tribunal's fact-based findings rejecting inclusion of Rs. 50,00,000/- in cost of acquisition and disallowing capitalization of interest were held not to be perverse and the appeal was dismissed.

Rectification of mistake under Section 254(2) of the Income Tax Act - mistake apparent on the face of the record - recall of tribunal order versus impermissible review - failure to adjudicate issues on merits - alternative plea not raised by the assessee - deduction under Section 10A of the Income Tax Act

Rectification of mistake under Section 254(2) of the Income Tax Act - mistake apparent on the face of the record - alternative plea not raised by the assessee - failure to adjudicate issues on merits - Whether the Tribunal was justified in recalling its earlier order under Section 254(2) on the ground of a mistake apparent on the face of the record. - HELD THAT: - The Tribunal's original order recorded the assessee's grounds challenging the CIT(A)'s finding (recorded as grounds 8 and 9) but did not adjudicate those issues on their merits. Instead the Tribunal recorded an alternative contention in paragraph 29 which was not advanced by the assessee. This omission amounted to an error apparent on the face of the record because a recorded ground was not dealt with and an unraised alternative was attributed to the assessee. Section 254(2) permits rectification of such mistakes apparent on the record; invoking that provision to recall the earlier order was not a forbidden review but a corrective exercise to address an obvious omission in adjudication. The Tribunal therefore correctly exercised its power to recall the order which suffered from the identified mistake apparent on the face of the record. [Paras 7, 8]

The Tribunal correctly recalled its earlier order under Section 254(2) as the order contained a mistake apparent on the face of the record arising from failure to adjudicate recorded grounds and the attribution of an alternative plea not raised by the assessee.

Final Conclusion: The substantial questions are answered against the revenue and in favour of the assessee; the appeal is dismissed and the Tribunal's recall of its order under Section 254(2) is upheld.

Applicability of Section 68 to sums credited in books of account - Bank passbook/bank statement are not the assessee's books of account - Cash credits - Applicability of Section 69 to unexplained bank deposits - Burden to disprove explanation shifts to Revenue once source is offered - Addition under Section 68 unsustainable in respect of bank deposits

Applicability of Section 68 to sums credited in books of account - Bank passbook/bank statement are not the assessee's books of account - Burden to disprove explanation shifts to Revenue once source is offered - Addition under Section 68 unsustainable in respect of bank deposits - Validity of additions made under Section 68 in respect of cash deposits in the assessee's bank account - HELD THAT: - The Tribunal held that Section 68 applies only where a sum is found credited in the books of account maintained by the assessee for a previous year; a bank account, bank passbook or bank statement cannot be equated with the books of the assessee. In the present case the cash deposits were not recorded in the assessee's books and the Assessing Officer did not invoke Section 69. The assessee furnished an explanation that the deposits represented sale proceeds of agricultural land (supported by sale agreements), and once the assessee furnished a source, the burden shifted to the department to disprove that explanation. The AO did not undertake enquiries or collect evidence to controvert the asserted source. Reliance was placed on coordinate-bench decisions and the decision of the Bombay High Court in CIT v. Bhaichand N. Gandhi to the effect that bank passbooks/statements are not books of the assessee for the purpose of Section 68. Applying these principles, the Tribunal concluded that invoking Section 68 for unexplained bank deposits was unsustainable and deleted the additions made under that provision. [Paras 8, 9]

Additions made under Section 68 in respect of cash deposits in the bank account are unsustainable and are deleted; the burden to disprove the explained source rested on the Revenue which was not discharged.

Final Conclusion: The Tribunal set aside the orders of the lower authorities and deleted the additions made under Section 68 in respect of bank deposits for A.Y.2011-12; the assessee's appeal and cross-objection are allowed and the Revenue's appeal is dismissed.

Charitable purpose under section 2(15) - proviso to section 2(15) - restriction as to objects of general public utility - exemption under section 11 and registration under section 12A - valid service of notice under section 143(2) - mandatory charge of interest under section 234B

Valid service of notice under section 143(2) - Validity of assessment in view of alleged non service of statutory notice under section 143(2). - HELD THAT: - The assessee contended that the notice under section 143(2) was sent to a residential address not furnished by it, whereas the assessee had consistently furnished and used its office address in returns and for prior assessments. The Department was unable to controvert the factual position in the absence of records. The Tribunal found the factual controversy relevant and declined to decide the ground at this stage, leaving the issue open for adjudication later if necessary. [Paras 8]

Issue left undecided and kept open for adjudication at a later stage.

Charitable purpose under section 2(15) - proviso to section 2(15) - restriction as to objects of general public utility - exemption under section 11 and registration under section 12A - Whether the assessee's activities fall within 'charitable purpose' and are excluded from the proviso to section 2(15), thus entitling it to exemption under section 11. - HELD THAT: - For identical factual matrix in an earlier year the Tribunal examined at length whether the assessee, a statutory body constituted under the MHADA Act, carried out activities with profit motive or in the nature of trade, commerce or business. Applying tests such as state support/control, creation under statute, regulation of sale and pricing, sale to economically disadvantaged beneficiaries, and absence of profit motive, the Tribunal concluded that the assessee's activities are charitable and not covered by the proviso to section 2(15). The present Tribunal found the facts for the impugned years to be pari materia with the earlier adjudicated years, noted that the CIT(A) had followed the earlier reasoning, and after examining the record accepted that the earlier Tribunal's findings apply. Accordingly, the assessee is entitled to exemption under section 11 and its income/expenditure are to be computed in terms of sections 11 to 13. [Paras 9, 11, 12]

Grounds disallowing exemption under section 11 (grounds 2 and 3) are allowed; the assessee is entitled to exemption under section 11.

Excess capitalization of interest - Assessee's challenge to addition on account of excess capitalization of interest (not pressed). - HELD THAT: - The assessee informed the Tribunal that the Assessing Officer has given effect to the CIT(A)'s order and that the assessee has an appeal pending before the CIT(A) against the giving effect order. In view of these proceedings and the fact that this ground was not pressed, the Tribunal did not adjudicate the substantive controversy. [Paras 13]

Ground not pressed and dismissed.

Mandatory charge of interest under section 234B - Legitimacy of charging interest under section 234B. - HELD THAT: - The Tribunal noted that charging of interest under section 234B is mandatory and consequential. The assessee's contention that section 234B did not apply was rejected on the stated legal position; the Tribunal found no merit in the challenge to the levy of interest. [Paras 14]

Challenge to interest under section 234B is dismissed.

Final Conclusion: Both appeals (AY 2012 13 and AY 2014 15) are partly allowed: the Tribunal upheld the assessee's entitlement to exemption under section 11 (having held the proviso to section 2(15) inapplicable on the facts), left the question of validity of service of the section 143(2) notice undecided for later adjudication, dismissed the unpressed ground on excess capitalization, and rejected the challenge to interest under section 234B.

Admissibility of statements recorded under section 132(4) of the Income-tax Act - corroboration requirement for confessional statements obtained during search - treatment of unaccounted receipts vis-a -vis profit on additional works - burden on assessing officer to ascertain expenditure and profit before taxing gross unaccounted receipts - reopening of assessment under section 147/148 based on information derived from search

Treatment of unaccounted receipts vis-a -vis profit on additional works - burden on assessing officer to ascertain expenditure and profit before taxing gross unaccounted receipts - Whether the entire unaccounted receipts discovered during search could be assessed as income or only the profit element after considering expenditure on additional works. - HELD THAT: - The Tribunal found that the Assessing Officer made additions solely by treating the difference between total consideration (as per statements) and registered sale deed as income without ascertaining whether such receipts represented gross receipts for additional works and, if so, the corresponding expenditure and true profit. The AO did not enquire into whether the land was own or taken for development, cost of land, construction costs, landowner's share, or other incidental expenses, nor did he obtain documentary evidence beyond sample oral statements and whatsapp messages. In these circumstances the Tribunal endorsed the approach of the CIT(A) that only the profit element is taxable and that the AO ought to have determined expenditure and true profit (or referred cost determination to DVO or proceeded under the appropriate provision) before assessing the gross unaccounted receipts. The Tribunal therefore upheld the CIT(A)'s direction to accept the assessee's estimate of income at 30% of the additional receipts as reasonable. [Paras 10, 11]

Addition reduced to profit on additional receipts; CIT(A)'s direction to assess income at 30% of additional receipts upheld.

Admissibility of statements recorded under section 132(4) of the Income-tax Act - corroboration requirement for confessional statements obtained during search - Whether the statement recorded under section 132(4) alone, without corroborative material, could form the sole basis for making additions. - HELD THAT: - The Tribunal accepted the settled principle that a statement recorded under section 132(4) is not conclusive and cannot be the sole basis for assessment in the absence of corroborative evidence. The Tribunal observed that, while the assessee admitted receipt of additional amounts in statements, there was no independent documentary evidence unearthed from the assessee's premises to establish that the entire unaccounted receipts represented assessable income rather than receipts expended in executing additional works. Given the lack of corroborative material and absence of enquiries to determine related expenditure, the Tribunal held that the AO could not rely solely on the section 132(4) statement to bring the entire receipts to tax. [Paras 10, 11]

Statement under section 132(4) cannot alone justify taxing entire unaccounted receipts; corroboration and determination of expenditure/profit are required.

Reopening of assessment under section 147/148 based on information derived from search - Whether the reopening of assessment by issuance of notice under section 148 was valid in the present case. - HELD THAT: - Although the Revenue did not place the reasons recorded for reopening before the Tribunal, the Tribunal noted that the assessee had admitted additional receipts in the statements recorded during search and that information from the search (including whatsapp messages, accountant's notings and buyers' statements) gave the Assessing Officer reason to believe that income had escaped assessment. On that basis the Tribunal held the reassessment proceedings initiated under section 147/148 were valid and dismissed the grounds challenging the validity of reopening. [Paras 14]

Reopening under section 147/148 upheld as valid on the material collected during search.

Final Conclusion: The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s orders: the AO could not treat entire unaccounted receipts as income solely on the basis of section 132(4) statements without ascertaining related expenditure and profit; the CIT(A)'s acceptance of income at 30% of additional receipts was held reasonable; the reassessment notices under section 148 were valid; cross objections by the assessee were rendered infructuous and dismissed.

Estimation of income from undisclosed receipts - treatment of unaccounted receipts as income - consideration of unaccounted expenditure when assessing undisclosed receipts - survey under section 133A and statements under section 131 - Assessing Officer's duty to compute cost of construction and determine net profit - acceptance of estimated profit at 30% as reasonable

Treatment of unaccounted receipts as income - consideration of unaccounted expenditure when assessing undisclosed receipts - estimation of income from undisclosed receipts - Assessing Officer's duty to compute cost of construction and determine net profit - Whether the Assessing Officer was justified in treating the entire undisclosed/additional receipts found during survey as income, or whether the CIT(A)'s acceptance of the assessee's estimation of income at 30% of such receipts was sustainable. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the AO was not justified in treating the entire unaccounted receipts as assessable income where material impounded during survey indicated that (a) additional works and corresponding unaccounted expenditure were incurred, and (b) loose sheets and agreements showed receipts related partly to additional works which required deduction of construction costs. The AO estimated undisclosed receipts on a per sq.ft. basis without arriving at the actual cost of construction, without examining accounted receipts separately from unaccounted receipts, and without considering impounded evidence of cash expenditure; no departmental valuation or computation of cost and net profit was undertaken. Given the available impounded material and industry practice, taxing the entire unaccounted receipts as income was found to be unreasonable. On the determinative question of quantum, the CIT(A) applied a reasoned business practice approach and judicial precedents to accept the assessee's revised offer of income at 30% of the additional receipts as a reasonable estimate, and the Tribunal found this estimation acceptable in the circumstances and upheld the CIT(A)'s direction to assess income at 30% of such receipts. [Paras 6]

The AO's assessment treating the entire undisclosed receipts as income is set aside; the CIT(A)'s acceptance of income estimated at 30% of the additional receipts is upheld and the revenue's appeals are dismissed.

Final Conclusion: The tribunal dismissed the revenue's appeals and upheld the CIT(A)'s direction to assess income at 30% of the additional receipts discovered in the survey for A.Y. 2015-16 and A.Y. 2016-17, finding that the Assessing Officer erred in taxing the entire unaccounted receipts without accounting for available evidence of unaccounted expenditure and without computing cost of construction and net profit.

Claims for exemption under section 11 - verification on remand and absence of violation of section 13(1)(c) - Disallowance of expenses for lack of supporting particulars - partial disallowance (50%) of boarding and lodging expenses - Reasonableness of interest rate paid to related parties - market rate test for payments to interested persons - Allowability of rent where lease agreement is produced during appellate proceedings and verified - Allowability of vehicle hire charges - verification of hire agreements and use; limited disallowance where particulars not produced

Claims for exemption under section 11 - verification on remand and absence of violation of section 13(1)(c) - Whether exemption under section 11 could be allowed after the assessee furnished details on appeal and the AO's remand report contained no adverse findings or any material showing violation of section 13(1)(c). - HELD THAT: - The AO disallowed exemption and completed assessment under section 144 because the assessee had not responded to notices. On appeal the assessee furnished ledger accounts, bills and other details; the CIT(A) called for and considered the AO's remand report. The remand report recorded detailed enquiries and accepted that most expenses claimed were genuine, and did not make adverse observations about misappropriation or bring any violation of section 13(1)(c) on record. The CIT(A) therefore directed grant of exemption under section 11 and deleted the addition. The Tribunal found no material before it or before the CIT(A) to controvert the remand findings and upheld the CIT(A)'s grant of exemption. [Paras 4]

The CIT(A)'s allowance of exemption under section 11 is upheld and the department's ground is dismissed.

Disallowance of expenses for lack of supporting particulars - partial disallowance (50%) of boarding and lodging expenses - Whether the restriction of disallowance to 50% of boarding and lodging expenses was reasonable where the assessee produced bills but failed to furnish names, identity and purpose of visit for certain persons. - HELD THAT: - Although the assessee produced ledger accounts, hotel bills and bank statements during remand, it did not furnish names, identities and purposes of visits for certain entries, leaving aspects of verifiability in doubt. The AO did not impugn the genuineness of the expenditure outright but questioned completeness of particulars. The CIT(A) after remand restricted the disallowance to 50% as a proportionate response to incomplete verification, noting the assessee's engagement of outside faculty and the need for such expenditures. The Tribunal found the 50% restriction to be a reasonable exercise of discretion in the circumstances and declined to interfere. [Paras 5]

The CIT(A)'s restriction of disallowance to 50% is sustained and the department's appeal is dismissed.

Reasonableness of interest rate paid to related parties - market rate test for payments to interested persons - Whether interest paid to interested persons at 18% was disallowable where the AO proposed disallowance beyond a deemed reasonable rate and the assessee contended the rate matched market rates. - HELD THAT: - Remand proceedings showed interest payments to two interested persons at 18% on borrowings. The AO recommended disallowance of interest exceeding 12% as excessive. The CIT(A) found that the 18% rate was on par with market rates and there was no statutory ceiling on interest payable to friends or relatives; the department failed to produce material showing a lower market rate. The Tribunal accepted the CIT(A)'s factual finding that the rate was comparable to market rates and, in absence of contrary evidence from the department, upheld allowance of interest at 18%. [Paras 6]

The CIT(A)'s allowance of interest paid at 18% to interested persons is upheld and the department's ground is dismissed.

Allowability of rent where lease agreement is produced during appellate proceedings and verified - Whether rent paid for hostel building could be allowed where the lease deed was not produced at assessment but a rental agreement dated 10.04.2009 was produced before the CIT(A) and verified. - HELD THAT: - The AO initially questioned verification of certain rent payments in the absence of a lease deed. Before the CIT(A), the assessee produced a rental agreement dated 10.04.2009, asserted to be operative for the assessment year under dispute, and the CIT(A) accepted this factual position. The AO had not disputed genuineness of payments or use of the building for trust purposes in the remand report. The Tribunal found no basis to overturn the CIT(A)'s factual finding on production and verification of the rental agreement and the genuineness of rent payments. [Paras 7]

The CIT(A)'s allowance of the building rent on production of the rental agreement is upheld and the revenue's appeal is dismissed.

Allowability of vehicle hire charges - verification of hire agreements and use; limited disallowance where particulars not produced - Whether deletion by the CIT(A) of car hire charges and confirmation of a portion relating to tractor hire was justified where some hire agreements and vehicle particulars were not produced at assessment. - HELD THAT: - The assessee produced ledger accounts and written hire agreements for cars and tractors before the AO; the AO's remand report nonetheless questioned authenticity because registration certificates and log books were not produced and did not undertake independent verification with lessors. The CIT(A) found the AO had not made adequate enquiries, observed that use of the cars was not disputed, deleted the addition relating to cars and confirmed a limited disallowance in respect of tractor hire where verification remained wanting. The Tribunal found no material to contradict the CIT(A)'s factual conclusions and upheld the selective deletion and confirmation. [Paras 8]

The CIT(A)'s deletion of car rent and confirmation of limited disallowance for tractor rent is upheld and the revenue's appeal is dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s findings on all contested heads after remand verification and factual review; the department's appeal and the assessee's cross objections are dismissed and the CIT(A) order for A.Y. 2013-14 is sustained.

Revision under section 263 - Excess stock treated as business income versus unexplained investment under section 69 - Applicability of section 115BBE to income discovered on search - Difference of opinion not a ground for revision - Application of mind by the Assessing Officer

Revision under section 263 - Difference of opinion not a ground for revision - Application of mind by the Assessing Officer - Validity of Pr.CIT's revision under section 263 in directing reassessment of excess stock as unexplained investment and taxation under section 115BBE when the AO had treated and assessed the admitted excess stock as business income. - HELD THAT: - The Tribunal found that search revealed excess stock which the assessee voluntarily admitted and the AO, after calling for explanation and making enquiries, assessed the amount as business income in the assessment order. The Pr.CIT took a different view and held that the excess stock should have been assessed as unexplained investment under section 69 and taxed under section 115BBE, and hence revised the assessment under section 263. The Tribunal applied the settled principle that mere difference of opinion between the Pr.CIT and the Assessing Officer is not a permissible ground for exercise of revisionary powers under section 263 where the AO has applied his mind and made a considered decision. The Tribunal relied on the reasoning that the AO had called for explanation, examined the matter and consciously treated the amount as business income; the Pr.CIT's disagreement therefore did not establish that the assessment was erroneous or prejudicial to revenue. In these circumstances the exercise of power under section 263 was not justified and the revision was set aside. [Paras 5, 6]

Pr.CIT's revision under section 263 quashed; assessment upheld as validly made by the AO treating the excess stock as business income.

Final Conclusion: The Tribunal allowed the appeal, set aside the Pr.CIT's order passed under section 263, and held that the AO's assessment treating the excess stock as business income for A.Y. 2017-18 was a conscious application of mind and could not be reopened merely on a difference of opinion.

Revisionary power under section 263: scope and limits - difference of opinion - treatment of excess stock as business income versus unexplained investment - application of mind by the Assessing Officer and finality of a bona fide view in assessment - applicability of section 115BBE to unexplained investment assessed under section 69

Revisionary power under section 263: scope and limits - difference of opinion - treatment of excess stock as business income versus unexplained investment - application of mind by the Assessing Officer and finality of a bona fide view in assessment - applicability of section 115BBE to unexplained investment assessed under section 69 - Whether the Pr. Commissioner was justified in invoking revisionary powers under section 263 to direct re taxation of excess stock as unexplained investment under section 69 and application of section 115BBE, substituting the Assessing Officer's view that the amount was business income. - HELD THAT: - Search operations disclosed excess stock which the assessee admitted and returned as business income; the Assessing Officer, after issuing queries under section 142(1) and considering the assessee's explanation and authorities, treated the excess stock as business income and completed assessment accordingly. The Pr.CIT revisited the issue under section 263, held the excess stock to be unexplained investment within section 69, and directed taxation under section 115BBE at the higher rate. The Tribunal examined whether the AO had applied his mind and whether two reasonable views existed. Noting judicial precedents and the material on record, the Tribunal found that two views were legitimately possible-(i) treating the excess stock as business income and (ii) treating it as unexplained investment attracting section 115BBE-and that the AO had taken a conscious, considered view after enquiry. The Tribunal applied the principle that mere difference of opinion between the Assessing Officer and the Pr.CIT does not render an assessment order erroneous and prejudicial to revenue for the purposes of section 263, and that the Pr.CIT cannot substitute his opinion where the AO has applied his mind and reached a bona fide conclusion. Consequently, the exercise of revisionary power to overturn the AO's assessment on this basis was held to be impermissible. [Paras 5]

Order of the Pr.CIT under section 263 setting aside the AO's assessment and directing taxation under section 115BBE is set aside; the assessee's appeal is allowed.

Final Conclusion: Where the Assessing Officer, after making enquiries and considering the assessee's explanations, took a bona fide view that excess stock constituted business income and completed assessment accordingly, the Pr.CIT could not, by differing in opinion, exercise section 263 to reclassify the same as unexplained investment attracting section 115BBE; the revision was therefore quashed and the appeal allowed.

Reasonableness of managerial remuneration - turnover not sole basis for fixing remuneration - burden on revenue to demonstrate excess remuneration - colourable device - limited scrutiny versus complete scrutiny and requirement of prior approval to expand scope - condonation of delay

Condonation of delay - Delay in filing the appeal of 67 days was condoned. - HELD THAT: - The assessee filed a condonation petition explaining that due to serious illness of the assessee's wife, the appeal could not be filed within the statutory period and produced medical certificate. After hearing the parties the Tribunal found the explanation satisfactory and condoned the delay. [Paras 2]

Delay of 67 days in filing the appeal is condoned.

Reasonableness of managerial remuneration - turnover not sole basis for fixing remuneration - burden on revenue to demonstrate excess remuneration - colourable device - limited scrutiny versus complete scrutiny and requirement of prior approval to expand scope - Addition disallowing excess remuneration paid to the Managing Director was deleted and the AO's and CIT(A)'s conclusions upheld to be erroneous; the appeal was allowed on merits and for lack of jurisdiction in scrutiny. - HELD THAT: - The AO disallowed excess remuneration by comparing the payment to turnover and adopting the prior year's lower payment as the reasonable amount without articulating a basis for fair and reasonable remuneration. The Tribunal held that turnover alone is not a proper yardstick and that what must be examined is the services rendered by the Managing Director. The Managing Director had offered the remuneration as income and paid taxes thereon; set off of losses in his hands did not render the payment a colourable device. Once the assessee established that payment was genuine and offered to tax, the burden shifted to the revenue to establish that the remuneration was excessive with reference to comparable facts, which the AO did not undertake. Separately, the Tribunal found that the AO exceeded the scope of limited scrutiny selection by examining reasonableness of remuneration without converting the case into complete scrutiny and obtaining requisite prior approval; therefore the AO acted beyond jurisdiction. For these reasons the Tribunal set aside the addition and deleted the disallowance. [Paras 3, 4, 5, 6, 7]

The disallowance of the excess remuneration is deleted; the AO's and CIT(A)'s conclusions are set aside and the assessee's appeal is allowed.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and, on the merits, deleted the addition disallowing the excess remuneration paid to the Managing Director (A.Y.2016-17), holding that turnover alone is not a proper basis, that the revenue failed to establish excessness or a colourable device, and that the AO exceeded the scope of limited scrutiny without requisite approval; appeal allowed.

Cash credits under section 68 - books of account - bank passbook not books of assessee - unexplained bank deposits taxable under section 69 - deletion of addition

Cash credits under section 68 - books of account - bank passbook not books of assessee - unexplained bank deposits taxable under section 69 - Addition made by the Assessing Officer under section 68 in respect of cash deposits in the bank account which were not entered in the assessee's books of account. - HELD THAT: - The Tribunal held that section 68 applies only to sums found credited in the books of account maintained by the assessee. Deposits shown in the bank pass book or bank statement do not amount to entries in the assessee's books of account and therefore cannot be taxed under section 68. The proper provision for unexplained cash deposits that are not recorded in the assessee's books is section 69. Relying on coordinate bench decisions and the reasoning that a bank pass book is the bank's record and not a book maintained by the assessee, the Tribunal concluded that the addition under section 68 was unsustainable and deleted it. Because the deletion was grounded on this legal defect in invoking section 68, the Tribunal found it unnecessary to decide the alternative factual contentions on sources of deposits. [Paras 7]

Addition under section 68 in respect of bank deposits deleted; appeal allowed.

Final Conclusion: The appeal is allowed: the addition made under section 68 in respect of cash deposits in the bank account (A.Y.2014-15) is unsustainable because such deposits were not entries in the assessee's books of account; the addition is deleted and no further adjudication on merits was required.

Preventive detention - delay in execution of detention order - loss of original detention order - scanned photocopy and missing report - reference to prior detention orders - fresh grounds and relevance - subjective satisfaction of Detaining Authority - sufficiency of material and non-justiciability - delay between prejudicial activity and passing of detention order - live proximate link - variance between detention order and grounds - effect on effective representation - non-supply of non-relied upon documents - scope of disclosure - rejection of representation for supply of documents - adequacy of consideration -

Preventive detention - delay in execution of detention order - Whether the impugned detention order is vitiated by the alleged inordinate delay in execution between issuance and service. - HELD THAT: - The Court examined the chronology from surrender at Vishakhapatnam to eventual execution and found that respondents took prompt and reasonable steps on receiving intimation of surrender, sought production warrants, faced objections from the Vishakhapatnam CMM, and were impeded by the jail authorities and the detenue's conduct (including defaulting on a personal bond and prior abscondence). Applying precedents that require explanation of delay, the Court held the delay was satisfactorily explained as largely caused by the detenue's own evasion and procedural obstacles, and therefore did not vitiate the detention order. [Paras 28, 29, 31]

Delay in execution has been satisfactorily explained and does not invalidate the detention order.

Loss of original detention order - scanned photocopy and missing report - Whether loss of the original detention order and service of a scanned photocopy renders the detention illegal. - HELD THAT: - The Court held that mere loss of the original order is not a ground to quash detention where a missing report is lodged and a scanned photocopy is promptly supplied to the executing agency. The analogy to reconstruction of lost court records was applied and the cited authority on absent seal was found inapplicable where requisite signature/seal was not challenged. [Paras 32]

Execution based on the scanned photocopy after lodging of a missing report is valid; loss of original order does not vitiate detention.

Reference to prior detention orders - fresh grounds and relevance - Whether reliance on earlier detention orders vitiates the impugned detention order. - HELD THAT: - The Court accepted that while detention orders based solely on earlier orders may be quashed, mere reference to past detentions does not invalidate a fresh order if the new order is founded on independent, subsequently available facts and materials. Reading the order and grounds as a whole showed fresh factual basis for the 2015 order; hence the detention was not rendered illegal by references to earlier detentions. [Paras 33]

Reference to prior detention orders did not vitiate the impugned order because it rests on fresh facts and independent satisfaction.

Subjective satisfaction of Detaining Authority - sufficiency of material and non-justiciability - Whether the Detaining Authority's subjective satisfaction was vitiated by malice, non-application of mind or absence of relevant material. - HELD THAT: - The Court reviewed the material placed before the Detaining Authority and found that relevant facts, documents and material were considered; the Detaining Authority applied its mind and reached subjective satisfaction. The Court emphasized its limited role - not to substitute its satisfaction but to ensure the authority's decision was based on relevant material - and found no blatant malice or procedural infirmity warranting quashing. [Paras 34]

Detaining Authority applied mind on relevant material; subjective satisfaction stands and is not displaced by the Court.

Delay between prejudicial activity and passing of detention order - live proximate link - Whether the approximate 14-month gap between alleged prejudicial activity and issuance of the detention order vitiates the order. - HELD THAT: - The Court considered the sequence of investigation, recording of statements, collection of material, departmental processing and Central Screening Committee inputs leading to the order. It concluded that the live link between detrimental activities and the detention order was not snapped and the authorities satisfactorily explained the interval; consequently the delay did not render the order invalid. [Paras 35]

The period between prejudicial activity and issuance of the order was adequately explained and did not break the live link; the detention order survives this challenge.

Variance between detention order and grounds - effect on effective representation - Whether any variance between the subjective satisfaction recorded and the grounds supplied caused confusion and deprived the detenue of effective representation. - HELD THAT: - Applying authorities on grounds and particulars, the Court found that the grounds set out the basic facts and subsidiary particulars sufficiently and there was no confusion impairing the detenue's ability to make representation. The Court rejected contention of misleading variance. [Paras 36]

No material variance existed that deprived the detenue of effective representation; this ground fails.

Non-supply of non-relied upon documents - scope of disclosure - Whether failure to place certain 'vital' documents before the Detaining Authority or to supply them to the detenue vitiates the detention. - HELD THAT: - The Court held that documents necessary to form the Detaining Authority's satisfaction were placed before it and copies of relied-upon materials (about 600 pages) were supplied. Documents merely referred to but not relied upon need not be disclosed; thus non-supply of such non-relied-upon documents does not invalidate the detention. [Paras 37]

Relevant relied-upon documents were placed before the Detaining Authority and supplied; omission to supply non-relied documents does not vitiate the order.

Rejection of representation for supply of documents - adequacy of consideration - Whether the mechanical rejection of the detenue's representation dated 20th February, 2020 to supply documents rendered the detention unlawful. - HELD THAT: - The Court examined the rejection and held that where requested documents were not the basis of the Detaining Authority's satisfaction and were not relied upon, refusal to supply them does not invalidate the detention; the representation was considered and rejected for valid reasons. [Paras 38]

Rejection of the representation was not mechanical in a manner that vitiates detention; the refusal was legally sustainable.

Application for temporary/interim release during pandemic - High Powered Committee recommendations and Section 12 COFEPOSA - Whether the petitioner should be granted interim release in view of COVID-19 and medical condition under Section 12 COFEPOSA or High Powered Committee recommendations. - HELD THAT: - The Court noted the High Powered Committee's recommendations and that detenue did not fall within categories identified for interim release; respondents considered medical/age factors but declined temporary release due to detenue's habitual offending, abscondence and other relevant criteria. The Court agreed the case was not fit for interim release. [Paras 42]

Application for temporary/interim release on pandemic/medical grounds refused; case not fit for interim release under Section 12/Committee criteria.

Final Conclusion: The preventive detention order dated 30th December, 2015 under COFEPOSA was held lawful on the challenged grounds: the delay in execution and in issuance was satisfactorily explained; loss of the original order did not vitiate detention where a missing report and scanned copy were used; references to earlier detentions did not nullify the fresh factual basis; the Detaining Authority's subjective satisfaction was supported by material; alleged variance, non-supply of non-relied documents and rejection of representation did not invalidate the order; and interim release on pandemic/medical grounds was refused. The habeas corpus petition was dismissed.

Judicial dominance in selection - independence of tribunals from executive control - prospective operation of subordinate rules - assured tenure and eligibility for reappointment - eligibility of advocates as judicial members - eligibility of Indian Legal Service members as judicial members - finality of Search-cum-Selection Committee recommendations in disciplinary matters - time-bound appointment obligation after selection - establishment of an independent oversight body for tribunals - role of sponsoring department limited to Member-Secretary without vote

Judicial dominance in selection - role of sponsoring department limited to Member-Secretary without vote - Validity of the constitution and composition of the Search-cum-Selection Committees under the 2020 Rules - HELD THAT: - The Court found that the Search-cum-Selection Committees as framed in the 2020 Rules must ensure judicial dominance to preserve the independence of tribunals and to conform with binding precedents. The Chief Justice of India or his nominee must be Chairperson with a casting vote; where the Tribunal Chairperson is not a judicial member or is seeking reappointment, a retired Judge of the Supreme Court or a retired Chief Justice of a High Court nominated by the Chief Justice of India shall be a member. Secretaries of the sponsoring/parent department cannot be members with a vote; the sponsoring department Secretary may serve only as Member-Secretary/Convener without a vote. These modifications are to be read into the 2020 Rules until formal amendment is carried out. [Paras 20, 29, 30, 31]

Search-cum-Selection Committees must be reconstituted to secure judicial dominance and the sponsoring department Secretary shall be Member-Secretary/Convener without voting rights; the Chairperson shall have a casting vote.

Assured tenure and eligibility for reappointment - independence of tribunals from executive control - Validity of term of office of Chairpersons, Vice-Chairpersons and Members fixed by the 2020 Rules - HELD THAT: - The Court held that the tenure prescribed in the 2020 Rules is not in conformity with prior decisions which emphasise adequate assured tenure to ensure independence and efficiency. The Court directed that Chairpersons, Vice-Chairpersons and members shall hold office for five years and be eligible for reappointment; Rule 9(1) was to be amended to provide five years or till 70 years for Chairpersons; Rule 9(2) was to be amended to provide five years or till 67 years for other members. Reappointment must be provided for, with preference given to prior service where appropriate. [Paras 32, 34, 35, 36]

Tenure amended to five years with eligibility for reappointment; age-limits adjusted as directed (Chairperson to 70 years, other members to 67 years).

Eligibility of advocates as judicial members - Whether advocates are to be eligible for appointment as judicial members and the required minimum experience - HELD THAT: - The Court held that exclusion of advocates from consideration in a majority of tribunals under the 2020 Rules is contrary to precedent. Advocates shall be made eligible for appointment as judicial members with at least ten years' experience, and the Search-cum-Selection Committee shall consider the advocate's bar experience and relevant specialization. Reappointment for at least one term for advocates appointed young was directed to be provided with preference for prior service. [Paras 39, 40, 41]

Advocates with a minimum of ten years' experience shall be eligible for appointment as judicial members; selection shall account for experience and specialization; reappointment to be available.

Eligibility of Indian Legal Service members as judicial members - Whether members of the Indian Legal Service may be appointed as judicial members of tribunals - HELD THAT: - The Court accepted that members of the Indian Legal Service may be considered for appointment as judicial members provided they satisfy the same criteria applicable to advocates - standing at the bar, specialization and suitability - and that the Search-cum-Selection Committee shall assess their experience and knowledge in the relevant specialized branch of law. [Paras 42, 43]

Members of the Indian Legal Service are eligible to be considered as judicial members subject to fulfilment of the criteria applied to advocates and suitability as assessed by the Search-cum-Selection Committee.

Finality of Search-cum-Selection Committee recommendations in disciplinary matters - Applicable procedure for inquiry into misbehavior or incapacity of members and effect of Search-cum-Selection Committee recommendations - HELD THAT: - The Court addressed Rule 8 of the 2020 Rules and held that while the Central Government may carry out preliminary scrutiny to weed out frivolous complaints, the recommendations of the Search-cum-Selection Committee in disciplinary matters shall be final and implemented by the Central Government. The Court accepted the Attorney General's concession in this regard and directed amendment to reflect finality of the Committee's recommendations. [Paras 45, 46, 48]

Preliminary scrutiny by the Central Government is permissible only to filter frivolous complaints; the Search-cum-Selection Committee's disciplinary recommendations shall be final and implemented by the Central Government.

Time-bound appointment obligation after selection - Whether the Government must make appointments within a fixed time after the Search-cum-Selection Committee recommendation - HELD THAT: - Highlighting severe vacancies and pendency in tribunals, the Court directed that the Union of India shall make appointments within three months after the Search-cum-Selection Committee completes selection and makes recommendations. This was intended to ensure expeditious constitution of tribunals and effective adjudication. [Paras 47, 53]

Appointments to tribunals must be made within three months of the Search-cum-Selection Committee's recommendations.

Prospective operation of subordinate rules - Whether the 2020 Rules operate retrospectively from the appointed day or prospectively from their notification - HELD THAT: - The Court held that subordinate legislation (the 2020 Rules) cannot be given retrospective effect unless the parent statute expressly permits it. The 2020 Rules were notified on 12.02.2020 and, in the absence of clear statutory provision for retrospectivity, shall have prospective effect from that date. All appointments made prior to 12.02.2020 remain governed by the parent Acts and Rules (including interim orders and clarifications in Rojer Mathew) and appointments made on or after 12.02.2020 shall be governed by the 2020 Rules as modified by this judgment. [Paras 48, 50, 51, 52, 53]

2020 Rules have prospective operation from 12.02.2020; appointments prior to that date remain governed by the parent Acts and Rules; appointments under the 2020 Rules on or after 12.02.2020 subject to the court's modifications.

Establishment of an independent oversight body for tribunals - Need for and interim administrative arrangements pending creation of an independent supervisory body for tribunals - HELD THAT: - Reiterating earlier holdings, the Court directed constitution of a National Tribunals Commission to supervise appointments, disciplinary proceedings, administration and infrastructure of tribunals. As an interregnum measure the Court directed creation of a dedicated 'tribunals wing' in the Ministry of Finance to address tribunals' requirements until the Commission is established. [Paras 16, 18, 19, 20, 53]

Union of India to constitute a National Tribunals Commission; until then a separate tribunals wing in the Ministry of Finance shall cater to tribunals' administrative needs.

House rent allowance and housing provision for tribunal members - Whether housing or enhanced house rent allowance should be provided to tribunal members to attract competent appointees - HELD THAT: - The Court recognised housing scarcity and concluded Government of India must make serious efforts to provide suitable housing to Chairpersons and members; if housing is not possible, the Court directed increased house rent allowance (effective from 01.01.2021) and the option for members to choose between provided housing or enhanced allowance. The direction was framed to make tribunal posts attractive and ensure availability of competent retired judges and advocates. [Paras 37, 38, 53]

Government to endeavour to provide housing; failing that, enhanced house rent allowance ordered and option given to accept housing or the allowance (effective 01.01.2021).

Recommendation and appointment panel size - Whether the Search-cum-Selection Committee may recommend panels of two or three names or must recommend a single name - HELD THAT: - To curtail executive discretion in appointment and to secure finality in selection, the Court directed Rule 4(2) be amended so the Search-cum-Selection Committee recommends the name of one person for each post; a second suitable person may be placed on a waiting list to meet intelligence-report contingencies. This reading was to be applied until formal amendment. [Paras 31, 53]

Search-cum-Selection Committee shall recommend one name per post (with an optional waiting-list candidate); Rule 4(2) to be amended accordingly.

Final Conclusion: The Court upheld the need to preserve judicial independence of tribunals and directed extensive modifications to the Tribunal, Appellate Tribunal and other Authorities (Qualification, Experience and Other Conditions of Service of Members) Rules, 2020: Search-cum-Selection Committees must ensure judicial dominance with the Chief Justice of India (or nominee) holding a casting vote and the sponsoring Department Secretary limited to a non-voting Member-Secretary role; appointments must normally follow a single recommended name and be made within three months of recommendation; tenure is fixed at five years with eligibility for reappointment and specified age-limits; advocates (minimum ten years' experience) and suitable members of the Indian Legal Service may be considered as judicial members; disciplinary recommendations of the Search-cum-Selection Committee are to be final; enhanced housing/allowance measures and the creation of an independent National Tribunals Commission (with an interim tribunals wing in the Ministry of Finance) were directed; and the 2020 Rules operate prospectively from 12.02.2020 while appointments prior to that date remain governed by the parent Acts and Rules, subject to the Court's interim orders and savings.

Principles of natural justice - service of show cause notice - supply of documents and reasonable opportunity to be heard - substantial compliance - piercing the corporate veil - relegation of proceedings to competent statutory forum - final adjudication and right of appeal

Service of show cause notice - principles of natural justice - substantial compliance - piercing the corporate veil - Whether the show cause notice dated 21.6.2011 and the proceedings culminating in the FMC order of 23.7.2011 suffered from such infirmity of non-service or denial of hearing as to vitiate the process. - HELD THAT: - The Court found that a proper show cause notice was served on Respondent No.2 and that, on the facts, it would be a hyper-technicality to require service of a fresh show cause notice on Respondent No.1 given the communications exchanged and the manner in which the two respondents had operated interchangeably. While the Court recognised deficiencies in supply of voluminous documents relied upon (4,000 pages) and that a two week window was inadequate, it applied the test of substantial compliance of natural justice rather than a rigid formula. The Court also observed that the corporate and individual respondents had behaved in a manner indicating they treated themselves as one for purposes relevant to the proceedings, permitting recourse to piercing the corporate veil where justice so demanded. The earlier Division Bench finding of violation of natural justice was set aside by this Court in earlier proceedings, but the Court clarified that pleas of lack of opportunity are arguable on merits and must be examined by the first adjudicatory forum. [Paras 32, 33, 34, 35, 36]

No fresh show cause notice is required; the show cause notice dated 21.6.2011 is to be treated as addressing both Respondent Nos.1 and 2, subject to directions ensuring supply of documents and an adequate opportunity to be heard.

Supply of documents and reasonable opportunity to be heard - relegation of proceedings to competent statutory forum - final adjudication and right of appeal - What remedial course should be directed to cure any inadequacy in hearing and to determine the merits, including jurisdictional pleas? - HELD THAT: - Rather than directing re issuance of show cause notices, the Court directed a focused remedial process before SEBI (the successor to FMC). The Court ordered that a list of documents sought by the respondents be furnished to SEBI within two weeks and those documents be supplied by SEBI within two weeks thereafter; respondents to file their reply within four weeks of receipt; SEBI to grant personal hearings and proceed day to day with no adjournments from the respondents; and SEBI to take a final view on all pleas, legal and factual, including jurisdiction. The Court made clear that other proceedings initiated pursuant to the FMC order will remain in abeyance pending SEBI's fresh decision, and that any aggrieved party would have the remedy of appeal to the SAT. [Paras 39, 40]

Proceedings are relegated to SEBI for fresh adjudication in accordance with the specified directions (supply of documents, filing of reply, personal hearing on a day to day basis, determination of merits including jurisdiction), with existing consequent proceedings kept in abeyance and appellate remedy to SAT preserved.

Final Conclusion: The FMC order of 23.7.2011 is set aside to the extent indicated and, without requiring fresh show cause notices, the matter is directed to SEBI for completion of the adjudicatory process after furnishing withheld documents, receipt of replies and personal hearings on a day to day basis; other proceedings consequent on the FMC order shall remain in abeyance pending SEBI's decision, and parties retain the right of appeal to the SAT.