TaxTMI Updates e-Newsletter
Dec 03,2021

Manual filing and processing under rule 97A - Non-obstante clause - Scope and applicability of Circular No. 125/44/2019-GST (impugned circular) - Orders and directions issued under section 168 of the CGST Act - Rule-making power under section 164 of the CGST Act

Manual filing and processing under rule 97A - Scope and applicability of Circular No. 125/44/2019-GST (impugned circular) - Non-obstante clause - Whether the impugned circular can prohibit manual filing and processing of refund applications despite rule 97A permitting manual filing. - HELD THAT: - Rule 97A, inserted into Chapter X by exercise of rule-making power under section 164, contains a non-obstante clause providing that any reference to electronic filing in Chapter X shall, in respect of that process or procedure, include manual filing and processing in the prescribed forms. Chapter X otherwise prescribes electronic filing of refund applications on the common portal. The impugned circular requires refund applications to be filed and processed electronically. The Court held that the impugned circular is binding on officers for applications filed electronically but cannot be construed to override or derogate from the statutory rule 97A. To accept the respondents' construction would render rule 97A redundant and defeat the legislative purpose; hence the circular cannot be applied so as to deny a taxpayer the statutory right to file a refund application manually where rule 97A permits manual filing and processing. The decision in F. S. Enterprise was distinguished on the ground that instructions under section 168 cannot be used to displace a statutory rule made under section 164 when an officer performs statutory duties. [Paras 6, 7, 8, 9, 10]

The impugned circular applies only to applications filed electronically on the common portal and has no applicability to refund applications filed manually; rule 97A permitting manual filing must be given effect.

Orders and directions issued under section 168 of the CGST Act - Processing of manually filed refund applications - Remedial directions on the petitioner's manually filed refund applications and validity of the Superintendent's letter refusing manual processing. - HELD THAT: - The Superintendent's letter refusing to process the petitioner's manually filed refund applications was set aside because it applied the impugned circular beyond its permissible scope. The Court directed that the petitioner be permitted to file the refund application afresh manually within a fortnight and ordered the Superintendent to process it and conclude the matter as early as possible, preferably within two months. The Court required that any rejection be supported by reasons and if allowed, refunds be effected without delay to the extent eligibility is established. [Paras 11]

Letter dated 27th July 2021 set aside; petitioner permitted to file manual refund application afresh within a fortnight and Superintendent directed to process and conclude the application expeditiously with reasoned orders, and to effect refunds promptly if allowed.

Final Conclusion: Writ petition allowed: the impugned circular is confined to electronic filings and cannot oust the statutory right of manual filing under rule 97A; the Superintendent's letter refusing manual processing is set aside and directions are given for fresh manual filing and expeditious, reasoned disposal.

Principles of Natural Justice - opportunity of personal hearing - validity of orders under Section 169(1)(c) and (d) of the Central Goods and Services Tax Act, 2017 where Principles of Natural Justice not complied with - opportunity of hearing under Section 75(4) of the Tamil Nadu Goods and Services Tax Act, 2017 - remand for fresh consideration after affording personal hearing

Principles of Natural Justice - opportunity of personal hearing - validity of orders under Section 169(1)(c) and (d) of the Central Goods and Services Tax Act, 2017 where Principles of Natural Justice not complied with - opportunity of hearing under Section 75(4) of the Tamil Nadu Goods and Services Tax Act, 2017 - remand for fresh consideration after affording personal hearing - Impugned orders passed without affording a personal hearing to the petitioners and the consequent remedy. - HELD THAT: - The Court found that the impugned orders dated 01.02.2021 and 12.12.2019 were passed against the petitioners without affording an opportunity of personal hearing. While the respondents relied on statutory provisions under the Central Goods and Services Tax framework, the Court held that non compliance with the Principles of Natural Justice renders such notices and orders of no consequence. The Court further observed that Section 75(4) of the Tamil Nadu Goods and Services Tax Act, 2017 requires that an opportunity of hearing be granted where a request in writing is received from the person chargeable or where an adverse decision is contemplated; accordingly, the absence of a personal hearing warranted quashing of the impugned orders and remitting the matter to the respondents. The Court directed that the respondents shall pass appropriate orders after giving the petitioners an opportunity of personal hearing and complete that exercise within forty five days from receipt of the order. [Paras 3]

Impugned orders quashed for failure to afford personal hearing; matter remitted to respondents to pass fresh orders after giving opportunity of personal hearing in terms of Section 75(4) of the Tamil Nadu Goods and Services Tax Act, 2017 within forty five days.

Final Conclusion: Writ petitions disposed by quashing the impugned orders passed without affording personal hearing and remitting the matter to the respondents to decide afresh after giving the petitioners an opportunity of personal hearing within forty five days; no costs.

Lease as supply - Levy of GST on lease of land - Lease premium as consideration for lease - Exemption for renting of residential dwelling - Strict interpretation of exemption notifications - Upfront concession fee exemption under Entry No. 41 of Notification No.12/2017 - Definition of lease under Transfer of Property Act

Lease as supply - Levy of GST on lease of land - Definition of lease under Transfer of Property Act - GST is leviable on residential land provided on lease basis. - HELD THAT: - The GST Act's inclusive definition of 'supply' and Entry No. 2 of Schedule II classify lease of land and buildings as a supply of service; the Transfer of Property Act defines lease and recognises premium and rent as forms of consideration. A one-time premium does not change the nature of the transaction from a lease to a sale; consequently a premium received for grant of lease is within the taxable ambit as a lease-related supply. The legislature has, however, provided a conditional exemption for certain upfront concession fees for leases exceeding thirty years under Entry No. 41 of Notification No.12/2017, showing that treatment of lease premiums was a legislative choice rather than an exclusion from taxability. [Paras 7, 8]

GST is leviable on lease premium for residential land.

Exemption for renting of residential dwelling - Strict interpretation of exemption notifications - Levy of GST on lease rent and maintenance charges - GST is leviable on maintenance charges and lease rent received in respect of such residential land. - HELD THAT: - Entry No.12 of Notification No.12/2017 grants exemption only to 'services by way of renting of residential dwelling for use as residence' and does not refer separately to land. Where a parcel of land is leased (even if for construction of a residential dwelling by the lessee) the exemption for renting a residential dwelling does not extend to lease of land. Exemption notifications must be strictly construed; the wording indicates the benefit is confined to renting of a residential dwelling and not to leases of land or separate charges such as maintenance when these arise in the context of leased residential land. [Paras 7, 8]

GST is leviable on maintenance charges and periodic lease rent in respect of residential land leased by the applicant.

Final Conclusion: The Authority rules that GST is leviable on (a) lease premiums received for residential land and (b) maintenance charges and lease rent received in respect of such leased residential land; this ruling is subject to statutory provisions and any conditional exemptions specified by notification.

Addition under Section 69A (undisclosed cash receipts) - admissibility of electronic records under Section 65B of the Indian Evidence Act - reliance on documents and CDs seized during survey/search - requirement of enquiry before making hypothetical additions

Addition under Section 69A (undisclosed cash receipts) - reliance on documents and CDs seized during survey/search - requirement of enquiry before making hypothetical additions - Deletion by the Tribunal of the addition made under Section 69A based on a letter found on a CD and multiplication of that difference across other flats sold. - HELD THAT: - The Court upheld the Tribunal's conclusion that the Assessing Officer's addition was founded on conjecture and was made on a hypothetical basis without adequate enquiry. The Tribunal accepted the assessee's explanation and contemporaneous evidence that the particular transaction underwent earlier negotiation, cancellation and subsequent sale at a different price; the purchaser filed an affidavit and proofs of payment supporting the declared sale consideration. The Assessing Officer neither investigated these explanations nor conducted further enquiries to verify the seized material before extrapolating the single instance to other transactions. Given this absence of independent corroboration and the factual findings accepted by the Tribunal, the High Court found no perversity or error of law in deleting the addition.

The deletion of the addition under Section 69A was affirmed; the Assessing Officer's hypothetical multiplication and corresponding addition were set aside.

Admissibility of electronic records under Section 65B of the Indian Evidence Act - reliance on documents and CDs seized during survey/search - Whether the Tribunal erred in not treating the impounded CD and documents as admissible evidence under Section 65B to uphold the addition. - HELD THAT: - The Court recorded that the Tribunal examined the material found on the CD and accepted the assessee's explanation and documentary proof regarding the actual sale consideration. The Tribunal did not err in its approach to the electronic material; it applied fact-based scrutiny rather than mechanically admitting the CD as determinative of undisclosed income. On these facts, the High Court found no legal error in the Tribunal's handling of the electronic evidence and no basis to disturb its conclusion.

The Tribunal's treatment of the impounded CD and related documents was upheld and did not sustain the addition under Section 69A.

Final Conclusion: The appeal is dismissed; the Tribunal's order deleting the addition under Section 69A is affirmed for lack of adequate enquiry and on acceptance of the assessee's factual explanations, with no order as to costs.

Reopening of assessment - validity of nil TDS certificate under Section 197 - deduction of tax at source under Section 195 - liability of payer acting on certificate - permanent establishment - misrepresentation in procuring certificate

Reopening of assessment - misrepresentation in procuring certificate - Whether the reassessment proceedings reopening assessments for the stated years on the ground of alleged misrepresentation were sustainable. - HELD THAT: - The Court examined the reasons recorded for reopening which alleged that the petitioner had misrepresented facts by procuring a "Nil" TDS certificate and that Reuters UK had a permanent establishment in India through the petitioner. The agreements relied upon by the Assessing Officer to support reopening had been placed before the ACIT (TDS) at the time the no-objection certificate was sought; thus the material was available to the authority when the certificate was issued. Even accepting, for the sake of argument, the Assessing Officer's interpretation of those agreements, the reasons for reopening did not justify invalidating the assessment where the petitioner had acted on a certificate issued by the revenue authority. The Court concluded that the reasons recorded could not be accepted and the reopening was not sustainable on the pleaded grounds. [Paras 7, 9]

Reopening of assessments on the stated grounds was held unsustainable; the Rule was made absolute in favour of the petitioner.

Validity of nil TDS certificate under Section 197 - deduction of tax at source under Section 195 - liability of payer acting on certificate - permanent establishment - Whether the petitioner was liable for failure to deduct tax at source having remitted sums to Reuters UK on the basis of a "Nil" certificate, and whether Reuters UK had a taxable presence in India. - HELD THAT: - The certificate issued by ACIT (TDS) authorised payments to Reuters UK without deduction of tax at source and on the face of it satisfied the requirements of Section 197. Where an assessee acts upon such a certificate issued by the revenue authority, the determination-even if later held to be in error-does not ordinarily render the assessee liable for short deduction of tax. The Court noted that the ITAT, in an order annexed to an affidavit, had held for Assessment Year 1997-1998 that the petitioner was not in default in making payments pursuant to the Nil certificate and that Reuters UK did not have a permanent establishment in India; consequently the distribution fees were not taxable in India. On these grounds, the contention that the petitioner forfeited the amounts remitted or was liable for TDS was rejected. [Paras 5, 6, 8]

The "Nil" TDS certificate was effective for the petitioner's actions; the petitioner was not liable for failure to deduct tax on payments made to Reuters UK, and Reuters UK was held not to have a permanent establishment in India for the stated assessment year considered by the ITAT.

Final Conclusion: The High Court allowed the petition, holding the reassessment unjustified and upholding the legal effect of the Nil TDS certificate as relieving the petitioner of liability for deduction on payments to Reuters UK; accordingly the Rule was made absolute in the petitioner's favour.

Reopening of assessment - Proviso to Section 147 - reassessment time-barred after four years unless failure to disclose - Failure to disclose fully and truly all material facts necessary for assessment - Reasons recorded for reopening must disclose the Assessing Officer's mind - Jurisdictional limits on reassessment

Reopening of assessment - Proviso to Section 147 - reassessment time-barred after four years unless failure to disclose - Failure to disclose fully and truly all material facts necessary for assessment - Reasons recorded for reopening must disclose the Assessing Officer's mind - Validity of the notice dated 28/3/2005 under Section 148 reopening assessment for Assessment Year 1998-1999 - HELD THAT: - The Court examined the reasons recorded for reopening and found no statement or cogent indication that the assessee had failed to disclose fully and truly all material facts necessary for the assessment year. The proviso to Section 147 bars reopening after four years unless such failure to disclose exists; reasons must manifest the Assessing Officer's mind and disclose which material facts were not disclosed and how that rendered the assessment escapable. Reliance on Crompton Greaves Ltd. was accepted only to the extent that failure to disclose may be inferred from the reasons if those reasons contain clear and cogent indication; in the present case no such indication exists. The Court further relied on the principle in Hindustan Lever Ltd. that reasons cannot be supplemented and must be clear, unambiguous and linked to evidence. Absent any material in the reasons demonstrating failure to disclose, the notice was beyond jurisdiction and liable to be quashed. [Paras 6, 7, 8, 9]

Impugned notice dated 28/3/2005 under Section 148 and consequential orders were quashed for want of jurisdiction as the reasons did not disclose failure to disclose material facts necessary for Assessment Year 1998-1999.

Final Conclusion: The writ petition is allowed; the reopening notice dated 28/3/2005 for Assessment Year 1998-1999 and the consequential orders are quashed and set aside for failure to comply with the proviso to Section 147.

Reopening of assessment after four years and proviso to Section 147 - requirement to furnish reasons recorded for issue of notice under Section 148 - failure to disclose fully and truly all material facts as jurisdictional condition for reassessment - interpretation of deduction under Section 33AC as allowable against total income (pre-amendment) - effect of subsequent amendment restricting Section 33AC to shipping business profits (with effect from 1-4-1996)

Reopening of assessment after four years and proviso to Section 147 - requirement to furnish reasons recorded for issue of notice under Section 148 - failure to disclose fully and truly all material facts as jurisdictional condition for reassessment - Validity of the notice dated 30th November, 2000 issued under Section 148 for Assessment Year 1994-95 in view of the four-year bar and the proviso to Section 147 and the absence of furnished reasons showing failure to disclose material facts. - HELD THAT: - The Court held that Section 147 and its proviso impose a strict jurisdictional limitation: where more than four years have elapsed from the end of the relevant assessment year, reassessment can be initiated only if the Assessing Officer has reason to believe that income has escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The recorded reasons for reopening must be furnished to the assessee when sought so as to enable effective objection; failure to furnish such reasons renders reassessment proceedings vulnerable. On the material before the Court the notice was issued after the four-year period and the reasons placed on record do not disclose any finding that the assessee failed to disclose fully and truly all material facts; instead they proceed from perusal of the assessee's own records. In those circumstances the jurisdictional threshold for reopening under the proviso to Section 147 was not satisfied and the notice could not be sustained. [Paras 6, 9, 12]

Notice under Section 148 dated 30-11-2000 quashed for want of jurisdiction as the proviso to Section 147 was not satisfied and reasons showing failure to disclose material facts were not disclosed to the assessee.

Interpretation of deduction under Section 33AC as allowable against total income (pre-amendment) - effect of subsequent amendment restricting Section 33AC to shipping business profits (with effect from 1-4-1996) - Whether deduction under Section 33AC as claimed by the assessee for Assessment Year 1994-95 was properly allowable in respect of amounts such as dividend income, long term capital gains and interest. - HELD THAT: - The Court analysed Section 33AC as it stood for the relevant year and concluded that the deduction prior to the Finance Act, 1995 amendment was to be allowed on the basis of total income (computed before deduction under that section and Chapter VI-A) so long as the amount was debited to profit and loss account and credited to the specified reserve account and utilised as prescribed. The subsequent amendment (effective 1-4-1996) restricting the deduction to fifty per cent of profits derived from the business of operation of ships demonstrates that before the amendment the legislative scheme permitted deduction calculated with reference to total income. The Central Board of Direct Taxes' Circular (No.717) corroborates this position and confirms that the post-1996 restriction was intended to curb claims in respect of non-shipping activities. Therefore, allowing Section 33AC deduction in respect of dividend, capital gains and interest for AY 1994-95 was not a valid ground to initiate reassessment. [Paras 10, 11]

Deduction under Section 33AC for AY 1994-95 is to be determined with reference to total income as the provision stood then; the post-1996 amendment does not affect AY 1994-95, and the Assessing Officer's contention that such deduction was improperly allowed in respect of non-shipping income did not justify reopening.

Final Conclusion: The petition is allowed; the notice dated 30-11-2000 issued under Section 148 is quashed. The Court held that the proviso to Section 147 was not satisfied and that the Section 33AC deduction for AY 1994-95 was correctly understood as allowable against total income as it stood prior to the amendment effective 1-4-1996.

Rectification of Form 3 - credit of taxes paid/deducted - refund of excess tax - interest on refund - direction for payment of refund - Vivad se Vishwas Scheme

Rectification of Form 3 - credit of taxes paid/deducted - refund of excess tax - direction for payment of refund - Petition disposed with direction that if the petitioner is entitled to refund following rectification of Form 3, the respondents shall pay the refund within 15 days of receipt of certified copy of the order. - HELD THAT: - The Court recorded that Form 3 in respect of the petitioner was rectified after earlier directions and that, on rectification, the petitioner was shown to be entitled to a refund. The respondents' representative did not deny these factual assertions and had earlier indicated that on merits the claim ought to be accepted, subject to technical/portal difficulties. In view of the rectification, the respondents were directed to pay any refund due to the petitioner within a short specified period to finalise the matter without further delay. The Court therefore disposed of the writ petition by issuing a time-bound direction for payment, leaving the entitlement as reflected by the rectified Form 3 to be effectuated by the respondents. [Paras 3, 5]

Respondents directed to pay any refund to which the petitioner is entitled within 15 days from receipt of certified copy of the order.

Final Conclusion: Writ petition disposed by directing respondents to pay any refund due to the petitioner following rectification of Form 3 within 15 days of receiving the certified copy of this order; connected applications disposed.

Revised return under Section 139(5) - Requirement of electronic filing for revised returns - Effect of sanction of scheme of arrangement/demerger on tax liability - Protective assessment - Non-acceptance of belated/manual revised return - Quashing of assessment and remand for processing revised return - Inapplicability of executive condonation where revised return could not be filed electronically

Revised return under Section 139(5) - Requirement of electronic filing for revised returns - Effect of sanction of scheme of arrangement/demerger on tax liability - Non-acceptance of belated/manual revised return - Protective assessment - Validity of non-electronic, belated revised return filed after sanction of demerger and consequent entitlement to processing of that revised return and quashing of protective assessment. - HELD THAT: - The Court found that the petitioner could not file a revised return electronically within the time prescribed by Section 139(5) because the NCLT sanction of the demerger (effective retrospectively from 01.04.2017 but pronounced on 17.03.2020) was only made available after the statutory period for revision had lapsed. Relying on the legal position reflected in the authorities invoked by the parties, the Court recognised that where a demerger sanctioned by NCLT alters the assessee's tax position, the assessee is entitled to have the revised return treated as operative and the original return loses significance. The respondent's refusal to process the revised return solely on the ground that it was filed manually and belatedly (and that the department's practice requires electronic filing) was held to be impermissible in the circumstances. Consequently, the protective assessment framed against the petitioner could not stand without considering the filed revised return. The Court directed that the assessment be quashed to enable the respondent to process the revised return; if the department's system genuinely precludes electronic acceptance, the petitioner must be given a short, reasonable opportunity (minimum one week) to file electronically, failing which the physically filed copy already submitted should be taken into account. The Court further observed that administrative limitations of electronic filing software should be remedied to avoid unnecessary litigation when the law entitles a taxpayer to revise returns following judicial or statutory corporate orders. [Paras 8, 9, 10, 11]

Assessment quashed; respondent directed to process the revised return filed by the petitioner and, if necessary, permit electronic filing within a short reasonable time or accept the physical submission already made.

Final Conclusion: Petition allowed. The assessment is quashed and the revenue is directed to process the petitioner's revised return for AY 2018-19 (permitting electronic filing within a short time if required or treating the physically filed revised return as valid), with a further admonition to remedy software limitations that prevent lawful electronic filing.

Reconditioning/repair as revenue expenditure - capital expenditure - enduring advantage test - distinction of precedent - replacement of parts versus creation of new asset

Reconditioning/repair as revenue expenditure - enduring advantage test - replacement of parts versus creation of new asset - distinction of precedent - Reconditioning/repair expenditure on plant and machinery is to be treated as revenue expenditure and not capital expenditure for Assessment Year 2013-14. - HELD THAT: - The Tribunal found on the material on record - production chart, internal inspection and investment proposal, purchase orders, commissioning report and quotations for new machines - that the machines were subject to accuracy/size-variation problems and were overhauled by replacing parts and retrofitting CNC controls rather than replaced in toto. The coordinate Bench's earlier decision in the assessee's own case for AYs 1995-96 to 1999-00, which distinguished the facts from the AY 1994-95 decision (where machines were lying idle and reconditioning imparted an enduring benefit), was followed. The Tribunal noted that merely because repairs improve performance does not convert them into capital expenditure and applied the enduring-advantage test: since only parts were replaced to preserve and operate the existing assets and no new asset was created, the expenditure did not confer an enduring advantage akin to purchase of a new machine. The decision of the Hon'ble Madras High Court in Neyveli Lignite Corporation Ltd. on replacement of parts being revenue in nature was also relied upon. On these grounds the impugned disallowance was reversed for AY 2013-14.

Expenditure on reconditioning/repair of plant and machinery is held to be revenue expenditure and the addition is deleted for Assessment Year 2013-14.

Final Conclusion: The appeal for Assessment Year 2013-14 is partly allowed by treating the reconditioning/repair expenditure as revenue expenditure; the appeal for Assessment Year 2014-15 is dismissed as not pressed.

Exemption under section 11 - registration under section 12A - identity of society and institution - proof of identity and proof of address in PAN application - consistency of past assessments - substance over form

Exemption under section 11 - registration under section 12A - identity of society and institution - proof of identity and proof of address in PAN application - consistency of past assessments - Entitlement of the assessee to exemption under section 11 on the basis of registration granted under section 12A to the parent society. - HELD THAT: - The Tribunal found as fact that the Raebareli Polytechnic Association (the parent society) was registered under section 12A and that the Feroze Gandhi Institute of Engineering & Technology (the assessee) was formed by that society to carry out its objects of imparting education. The PAN application filed by the institute on 24/08/2005 enclosed the society's registration certificate as proof of identity and address, and the Department allotted PAN to the institute on that basis. The Tribunal held that acceptance by the Department of the society's registration certificate in the PAN process demonstrates that the society and the institute are one and the same for the relevant purposes. The society had no other source of income or other institution and had not separately filed returns until obtaining a separate PAN for assessment year 2015-16. The assessee had been consistently granted exemption under section 11/12A in assessments from AY 2010-11 onwards on the strength of the society's registration. In view of these facts, the Tribunal concluded that the assessee was entitled to claim exemption under section 11 on the basis of the registration granted to the parent society, and that the Assessing Officer should allow the exemption accordingly. [Paras 4]

Appeal allowed and the Assessing Officer directed to allow exemption to the assessee under section 11 of the Act.

Final Conclusion: The appeal is allowed; the Tribunal held that the institute, being formed and run by the registered society and having its PAN allotted on the strength of the society's registration, is entitled to exemption under section 11 on the basis of the society's registration under section 12A, and directed the Assessing Officer to grant the exemption.

Addition on alleged bogus purchases - estimation of profit on unverified purchases - onus to prove veracity of purchases - incidental profit on grey market cash purchases - non-applicability of VAT on fabrics - reassessment after reopening under section 147 - reliance on coordinate Bench precedent for quantification

Addition on alleged bogus purchases - estimation of profit on unverified purchases - non-applicability of VAT on fabrics - incidental profit on grey market cash purchases - reliance on coordinate Bench precedent for quantification - Whether the addition confirmed by the CIT(A), computed by estimating profit at 12.5% on purchases treated as bogus, was justified, and if not, what percentage of the value of such purchases should be brought to tax. - HELD THAT: - The Tribunal found no dispute that the assessee traded in fabrics, that the questioned purchases were of fabrics and that corresponding sales were not doubted by Revenue. Purchase of fabrics does not attract VAT; therefore the profit element estimated by the authorities could not lawfully include a VAT component. The AO and CIT(A) applied a 12.5% mark-up (attributing 10% to VAT and 2.5% to incidental profit). The Tribunal held that, excluding any putative VAT component, only the incidental benefit arising from cash purchases in the grey market is taxable. Applying the view of a coordinate Bench in Max Realties LLP v. DCIT (ITA Nos.7544/Mum/2019 & 161/Mum/2020 dated 16/08/2021), the incidental profit was estimated at 1% of the value of the ingenuine purchases. Accordingly, the Tribunal directed that only 1% of the disputed purchases' value be added to income and the balance of the addition made on the basis of 12.5% be deleted. [Paras 3, 4]

Addition confirmed at 12.5% is set aside in part; only 1% of the value of the ingenuine purchases is to be brought to tax and the remainder of the addition deleted.

Final Conclusion: Appeal partly allowed; directed that the assessing officer shall add 1% of the value of the impugned purchases to the assessee's income and delete the balance of the addition made on the basis of 12.5%.

Revisionary jurisdiction under Section 263 - Disallowance of bogus/hawala purchases - Profit element addition on bogus purchases - Precedential weight of jurisdictional High Court decision

Revisionary jurisdiction under Section 263 - Precedential weight of jurisdictional High Court decision - Validity of the Pr. Commissioner's assumption of revisionary jurisdiction under Section 263 in setting aside the assessment order. - HELD THAT: - The Tribunal examined whether the Pr. Commissioner was justified in invoking Section 263 to set aside the assessment order which had disallowed 20% of the purchases found to be bogus. The Tribunal applied the principle that revision under Section 263 is available only where the assessment order is erroneous and prejudicial to the revenue. Having regard to the facts that the Assessing Officer had disallowed 20% of the purchases and that the jurisdictional High Court had in comparable circumstances sustained only a 10% addition as the reasonable profit element where bogus purchases were consumed, the Tribunal concluded that the Commissioner could not validly fault the assessment so as to invoke Section 263. In these circumstances the exercise of revisionary jurisdiction was held to be uncalled for and not valid in law. [Paras 9]

Revisionary order passed by the Pr. Commissioner under Section 263 was invalid and was set aside.

Disallowance of bogus/hawala purchases - Profit element addition on bogus purchases - Precedential weight of jurisdictional High Court decision - Extent of addition/disallowance warranted where purchases are held to be bogus but the goods were consumed by the assessee. - HELD THAT: - On the question of quantum, the Tribunal considered the factual finding that bogus/hawala purchase bills were consumed in construction activity and the binding precedent of the jurisdictional High Court in Pr.CIT v. Paramshakti Distributors Pvt. Ltd., which sustained an addition of 10% of such purchases as the profit element. The Tribunal noted consistent treatment in a recent bench decision that followed the High Court and applied the principle that where purchases evidenced by hawala bills are consumed (and sales or use is accounted for), taxing the embedded profit element is appropriate rather than adding the entire purchase amount. Since the Assessing Officer had already disallowed 20%, which exceeds the 10% benchmark held reasonable by the jurisdictional High Court, there was no cause for the Commissioner to interfere in the assessment on this ground. [Paras 7, 8, 9]

Addition limited to the profit element; the Assessing Officer's disallowance of 20% being higher than the 10% recognised by the jurisdictional High Court did not warrant revision, and the assessee's appeal was allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal: the Pr. Commissioner's order under Section 263 was held invalid in law and there was no justification to disturb the assessment which had disallowed 20% of the purchases, particularly in view of the jurisdictional High Court authority holding 10% as the reasonable profit element where bogus purchases were consumed.

Treatment of non-genuine purchases - estimation of profit element on bogus purchases - inapplicability of Shoreline Hotels precedent to non-genuine purchases - acceptance of sales precludes treating entire purchases as non-genuine - condonation of delay in filing appeal

Condonation of delay in filing appeal - Admission of the appeal despite filing three days late by condoning the delay. - HELD THAT: - The Tribunal considered the assessee's affidavit explaining the three day delay-mother's serious illness and change of chartered accountant-and noted that the Revenue raised no substantial objection. In view of the explanation and absence of prejudice to the Department, the Tribunal exercised its discretion to condone the short delay and admit the appeal. [Paras 3, 4]

Delay of three days in filing the appeal is condoned and the appeal is admitted.

Inapplicability of Shoreline Hotels precedent to non-genuine purchases - treatment of non-genuine purchases - Whether the Commissioner of Income Tax (Appeals) was justified in enhancing the disallowance to 100% of purchases by relying on the Shoreline Hotels decision. - HELD THAT: - The Tribunal held that the Shoreline Hotels decision arose in a different factual and statutory context and cannot be applied mechanically to cases of alleged non genuine purchases by trading concerns. The Tribunal agreed with the Coordinate Bench's distinction that Shoreline dealt with a different factual matrix (including proceedings under section 263) and therefore the CIT(A) erred in enhancing the disallowance to 100% of purchases by relying on that authority. [Paras 5, 9, 10]

Enhancement of disallowance to 100% by reliance on Shoreline Hotels is not justified.

Acceptance of sales precludes treating entire purchases as non-genuine - estimation of profit element on bogus purchases - Whether, where sales have been accepted as genuine, the entire purchase amount can be treated as taxable or only the profit element embedded in such purchases is liable to be disallowed. - HELD THAT: - The Tribunal noted that sales effected from the purchases were accepted as genuine; relying on precedents cited in the impugned order, it observed that acceptance of sales militates against treating the whole purchase value as income. The correct approach is to estimate and disallow only the profit element embedded in non genuine purchases rather than adding the entire purchase amount. Given the assessee's business of trading in ferrous and non ferrous metals and submissions about VAT savings and probable profit, the Tribunal found it just and appropriate to estimate the profit element. [Paras 11]

Entire purchases cannot be treated as taxable where sales are accepted; only the profit element embedded in such purchases is to be disallowed.

Estimation of profit element on bogus purchases - Quantification of the profit element to be disallowed in respect of non genuine purchases. - HELD THAT: - Considering the nature of the assessee's trading business and the assessee's submission that VAT benefit was about 4% with probable profit around 1%, the Tribunal exercised its evaluative discretion to fix a reasonable estimate of the profit element. On the totality of facts and circumstances the Tribunal determined that 6% fairly represents the profit element embedded in the non genuine purchases for the assessment year under consideration and directed the Assessing Officer to compute income accordingly. [Paras 12]

Disallowance in respect of non genuine purchases is restricted to 6% of such purchases; Assessing Officer to compute income for A.Y.2009-10 accordingly.

Final Conclusion: The appeal is admitted by condoning three days' delay; the CIT(A)'s enhancement of the disallowance to 100% is set aside as inapplicable; only the profit element in the non genuine purchases is to be disallowed and the Tribunal directs the Assessing Officer to restrict the disallowance to 6% of the impugned purchases and compute income for A.Y.2009-10 accordingly.

Allowability of business expenditure under section 37(1) read with section 43B(f) - allowability of prior period expenses under mercantile system when liability crystallizes - disallowance under section 40(a)(ia) for failure to deduct tax at source - remand for factual verification of payments - burden of proof for current year consumption of materials and repairs

Remand for factual verification of payments - allowability of business expenditure under section 37(1) read with section 43B(f) - Whether leave encashment payments made by the assessee for all units during the year are to be verified and allowed if supported - HELD THAT: - The CIT(A) found that the tax auditor's Form 3CD compilation omitted payments by the Kochi unit and reduced the disallowance to a specified sum, but directed factual verification. The Tribunal observed that the issue requires examination of payments across all units and directed the Assessing Officer to verify the payments made by the assessee (including Rasayani and Kochi), afford the assessee an opportunity to produce details, and allow deduction to the extent payments are proved. The matter is remitted for verification and consequent adjustment. [Paras 7]

Remitted to the Assessing Officer to verify payments for all units and allow deduction if found credible; ground allowed for statistical purposes.

Disallowance under section 40(a)(ia) for failure to deduct tax at source - Whether the sum debited by the bank and recovered from the assessee attracts disallowance under section 40(a)(ia) - HELD THAT: - The Assessing Officer treated the amount debited from the assessee's account as a payment by the assessee to the consultant and invoked section 40(a)(ia). The Tribunal examined the bank's intimation and the consultant's bill and found that the consultant was appointed and paid by the bank for securing the bank's mortgage requirements; the bank alone contracted and settled the fees and thereafter recovered the amount from the assessee. Since the services were not availed of and paid directly by the assessee, the obligation to deduct tax at source under section 40(a)(ia) did not arise on the assessee. Accordingly the disallowance was not tenable. [Paras 9]

Addition under section 40(a)(ia) deleted; ground allowed.

Allowability of prior period expenses under mercantile system when liability crystallizes - Whether interest/bank charges debited as prior period items in the year are allowable in Assessment Year 2011 12 - HELD THAT: - The Assessing Officer held that the bank charges related to earlier years and, under the mercantile system, crystallized liabilities of earlier years cannot be allowed in the current year. The Tribunal, following the decision of the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd., observed that an expense relating to an earlier transaction is allowable in the later year if the liability was not crystallized or quantified earlier and is properly brought to account when it crystallized. Applying that principle, the Tribunal found the assessee's case favourable and allowed the appeal in respect of the interest/bank charges debited as prior period items. [Paras 13, 14]

Addition in respect of interest/bank charges set aside; ground allowed.

Burden of proof for current year consumption of materials and repairs - Whether material consumption and repairs & maintenance amounts claimed by the assessee relate to the current assessment year and are allowable - HELD THAT: - The Assessing Officer disallowed the claimed amounts because the assessee did not produce evidence to establish that the expenditures related to the current year. The CIT(A) sustained the disallowances on the same basis. Before the Tribunal the assessee again failed to produce documentary proof showing that the material consumption and repair expenses pertained to the relevant assessment year. In absence of proof that these expenditures crystallized or were incurred in the assessment year, the Tribunal upheld the disallowances. [Paras 15]

Disallowances in respect of material consumption and repairs & maintenance sustained; grounds dismissed.

Final Conclusion: The appeal is partly allowed: the disallowance under section 40(a)(ia) and the prior period interest/bank charges were set aside in favour of the assessee; the leave encashment claim was remitted to the Assessing Officer for verification of payments across units and allowance if proved; disallowances for material consumption and repairs were sustained.

Onus under Section 68 of the Income Tax Act, 1961 - identity, creditworthiness and genuineness of creditors - addition under Section 68 - proof of source of loan and not source of source - effect of non-service/non-receipt of notice under Section 133(6)

Onus under Section 68 of the Income Tax Act, 1961 - identity, creditworthiness and genuineness of creditors - addition under Section 68 - Whether the addition of Rs. 50,87,000/- made under Section 68 could be sustained where the assessee produced confirmations, PAN, ITR acknowledgements, ROC records and related documentary evidence of the creditors. - HELD THAT: - The Tribunal examined the materials placed on record by the assessee including account entries, confirmations signed by the alleged lenders, PAN and Income Tax Return acknowledgements, bank/payment particulars and Registrar of Companies records. On this factual and documentary foundation the Tribunal held that the assessee had discharged the primary onus cast upon it under Section 68 to establish the identity, creditworthiness and genuineness of the unsecured loans. The Remand Report recording non-service or non-location of third parties did not, by itself, justify sustaining the addition where the assessee had placed consistent and cogent documentary evidence. Reliance by the Revenue on mere non-appearance of third parties during departmental verification and on the remand report was held insufficient to negative the evidentiary material furnished by the assessee. Applying these principles the Tribunal concluded that the addition was not sustainable and deleted the addition made under Section 68.

Addition of Rs. 50,87,000/- under Section 68 deleted; appeal allowed.

Effect of non-service/non-receipt of notice under Section 133(6) - proof of source of loan and not source of source - Whether non-service or non-receipt of notices under Section 133(6) and absence of enquiry replies conclusively render the transactions bogus, and whether the assessee was required to prove the source of source of funds of the creditor companies. - HELD THAT: - The Tribunal held that non-service or non-receipt of departmental notices to the creditor companies and the fact that departmental officers could not elicit attendance does not ipso facto establish that the transactions are bogus. The assessee is required to prove the source of the loan to itself (i.e., identity, creditworthiness and genuineness of the creditor and the transaction) and is not obliged to prove the source of the creditor's funds (the source of source) beyond the extent relevant to Section 68. Precedents relied upon by the assessee were considered to support the proposition that absence of third-party verification does not automatically negate primary documentary proof furnished by the assessee. Consequently, the CIT(A)'s reliance on non-service of notices and lack of replies to sustain the addition was found to be untenable.

Non-service/non-receipt of Section 133(6) notices did not by itself justify treating the loans as bogus; assessee need not prove source of source.

Final Conclusion: On the facts and documentary evidence produced by the assessee, the Tribunal found that the primary onus under Section 68 was discharged; the addition of Rs. 50,87,000/- was deleted and the appeal allowed.

Mis-declaration by Customs House Agent - penalty under Section 114(i) of the Customs Act, 1962 - application of Section 50(2) of the Customs Act, 1962 to supporting actors in export documentation - mens rea, recklessness and misuse of Customs House Agent licence - duties and obligations under the Customs House Agents Licensing Regulations, 2004 - non-exclusivity of remedies under the Regulations vis-a -vis penal provisions of the Customs Act - enhancement of penalty by appellate authority

Mis-declaration by Customs House Agent - penalty under Section 114(i) of the Customs Act, 1962 - mens rea, recklessness and misuse of Customs House Agent licence - Liability of the Customs House Agent for mis-declaration and imposition of penalty under Section 114(i) of the Customs Act, 1962 - HELD THAT: - The Court found on the materials and admissions that the appellant had handed over signed blank Annexure-A to an employee at Tuticorin, which was subsequently used in the export transaction that carried prohibited goods. That admission and the attendant facts establish reckless and negligent conduct amounting to misuse of the Customs House Agent licence. In the scheme of conspiracy and where the CHA form with the appellant's signature facilitated the mis-declaration, the CHA cannot escape liability by pleading ignorance. A CHA who is a party to mis-declaration is liable to penalty under Section 114(i). The Court relied on the statutory scheme and factual findings to uphold the conclusion that the appellant was not a bona fide CHA and that imposition of penalty was justified. [Paras 13, 15, 16, 19]

Appellant held liable under Section 114(i) for being party to the mis-declaration; penalty is sustainable.

Application of Section 50(2) of the Customs Act, 1962 to supporting actors in export documentation - mis-declaration by Customs House Agent - Whether Section 50(2) (declaration by exporter in the shipping bill) precludes penal liability of a Customs House Agent who facilitated mis-declaration - HELD THAT: - Although Section 50(2) requires the exporter to make a declaration in the shipping bill, the Court held that this does not immunise a CHA who contributes to or facilitates mis-declaration. The character and role of the CHA must be assessed on mens rea and conduct; a CHA who recklessly permits his licence and signed documents to be misused and thereby causes attempt to export prohibited goods can be proceeded against under the Customs Act notwithstanding that the statutory declaration provision is directed at exporters. [Paras 10, 13, 15, 19]

Section 50(2) does not bar imposing penalty on a CHA who is implicated in mis-declaration; CHA liability under Section 114(i) can be sustained.

Duties and obligations under the Customs House Agents Licensing Regulations, 2004 - non-exclusivity of remedies under the Regulations vis-a -vis penal provisions of the Customs Act - Whether contraventions by a Customs House Agent can be punished under the Customs Act in addition to proceedings under the CHALR 2004 - HELD THAT: - The Court observed that the CHALR 2004, made under Section 146(2), imposes duties on CHAs (including due diligence and non-transferability of licence). However, those Regulations constitute additional obligations and do not oust penal provisions of the parent Act. Where the misuse or reckless lending of the CHA licence amounts to a grave offence such as facilitating export of prohibited goods, action under the Regulations may be taken but is not exclusive; the authorities may also proceed under the Customs Act and impose penalties under Section 114(i). [Paras 13, 17, 18, 19]

Proceedings and penalties under the Customs Act are permissible in addition to action under CHALR 2004; the Regulations do not provide the sole remedy.

Enhancement of penalty by appellate authority - penalty under Section 114(i) of the Customs Act, 1962 - Whether enhancement of penalty from Rs. 3,00,000 to Rs. 5,00,000 by the CESTAT was excessive or unsustainable - HELD THAT: - The Tribunal found the initial penalty inadequate in view of the gravity of the misconduct and enhanced it. The High Court examined the factual findings that the CHA had allowed misuse of his licence and concluded there was no illegality or perversity in enhancing the penalty. The Court noted the appellate power to increase penalty where the original amount is inadequate and found the enhanced penalty not to be an excessive exercise of authority. [Paras 6, 16, 20]

Enhancement of the penalty to Rs. 5,00,000 is sustainable and not excessive.

Final Conclusion: All substantial questions of law raised by the appellant were answered against him: the CHA was held liable for facilitating mis-declaration and punishable under Section 114(i) of the Customs Act; Section 50(2) does not immunise a CHA who contributes to mis-declaration; remedies under CHALR 2004 are not exclusive of penal action under the Customs Act; and the Tribunal's enhancement of the penalty to Rs. 5,00,000 was upheld. The appeals are dismissed.

Restoration of company struck off from register - compliance with filing of statutory returns and audited financial statements - power to strike off company for default in filing - payment of costs for revival - publication in Official Gazette upon restoration - restoration subject to reservation of actions for other violations

Restoration of company struck off from register - power to strike off company for default in filing - The application for restoration of the company's name struck off from the Register of Companies was allowed. - HELD THAT: - The Tribunal considered that the company had been struck off after default in filing annual returns and financial statements, but the record contained audited balance sheets for the years up to 31.03.2020 and evidence of meetings and some filings. The Tribunal observed that the company had minimal share capital and cash balances and concluded that, in view of the material on record and the circumstances, it was just and proper to restore the company's name to the Register from the date of striking off. The Tribunal exercised the restorative jurisdiction under the Companies Act, while recognising that the striking off had occurred under the Registrar's exercise of power for defaults in filings. [Paras 10, 11, 12]

The petition for restoration is allowed and the Registrar is directed to restore the company's status as if it had not been struck off.

Compliance with filing of statutory returns and audited financial statements - payment of costs for revival - publication in Official Gazette upon restoration - Restoration is made conditional on compliance with filing of pending statutory documents, payment of prescribed fees and costs, delivery of certified copy of the order, and Gazette publication by the Registrar. - HELD THAT: - The Tribunal directed the company to file all pending statutory documents, including annual accounts and annual returns for the financial years in default, along with prescribed fees/additional fee/fine within 30 days from the date of restoration. The company was directed to ensure personal compliance by its representative. The Tribunal also directed payment of the specified cost for revival by online payment within 30 days and permitted delivery of a certified copy of the order to the Registrar; upon such delivery and compliance the Registrar was directed to publish the order in the Official Gazette. These conditions form the mechanism to give effect to restoration while securing compliance with statutory filing requirements. [Paras 13, 14, 15, 16, 17]

Restoration is subject to the company filing all pending returns/accounts and payment of prescribed fees and the cost for revival, followed by delivery of the certified order and Gazette publication.

Restoration subject to reservation of actions for other violations - The order restoring the company's name does not preclude the Registrar from taking appropriate action for any other violations committed before or during striking off. - HELD THAT: - The Tribunal confined its order to violations that led to the striking off and expressly clarified that restoration will not impede the Registrar of Companies from initiating or continuing appropriate proceedings under law for any other alleged violations or offences by the company prior to or during the striking off. This preserves the Registrar's statutory powers to act on other infractions notwithstanding restoration. [Paras 18]

Restoration is without prejudice to the Registrar's right to take action for any other violations or offences.

Final Conclusion: The Tribunal allowed the company's application for restoration of its name on the Register subject to specified conditions: filing all pending statutory documents and payment of prescribed fees and the cost for revival within 30 days, delivery of a certified copy of the order to the Registrar and consequent Gazette publication; the restoration does not bar the Registrar from taking action for other violations.

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - existence of default - acknowledgement of debt by counter signing audited balance sheet - forensic audit corroboration of receipt and utilization of funds - non reply to statutory demand notice - judicial interference with satisfaction of threshold for admission

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - existence of default - acknowledgement of debt by counter signing audited balance sheet - forensic audit corroboration of receipt and utilization of funds - non reply to statutory demand notice - Whether the Adjudicating Authority erred in admitting the Section 7 petition and initiating CIRP against the corporate debtor - HELD THAT: - The Appellate Tribunal found that essential facts material to the question of default were admitted on the record. It recorded that a loan agreement dated 02.08.2013 existed and that a substantial portion of the loan was disbursed to the corporate debtor; partial repayments towards principal and interest were made and thereafter payments ceased. The corporate debtor issued a confirmation of outstanding balance on 01.04.2019 and did not reply to the legal demand notice. The Appellant had counter signed the audited balance sheet for 2015 16 thereby acknowledging the debt, and payment instruments and conduct indicated awareness and admission of the financial debt. The Tribunal also noted the Forensic Audit, relied upon by the Respondent and taken into account by the Adjudicating Authority, which recorded receipt of funds from the Respondent and admitted that a portion was properly utilised in the company. On this admitted matrix the Tribunal concluded there was no illegality in the Adjudicating Authority's satisfaction of the existence of default and its consequent admission under Section 7. [Paras 20, 21]

The Adjudicating Authority's order admitting the Section 7 petition and initiating CIRP is affirmed and the appeal is dismissed.

Final Conclusion: The Appellate Tribunal affirmed the NCLT's admission of the Section 7 petition: admitted facts, acknowledgement of debt, lack of response to demand and the forensic audit together supported the finding of default; there was no illegality warranting interference and the appeal is dismissed.

Pre-existing dispute - requirement under Section 8(2) of the Insolvency and Bankruptcy Code, 2016 to raise existence of dispute within 10 days of receipt of demand notice - definition of "dispute" under Section 5(6) of the Insolvency and Bankruptcy Code, 2016 - effect of a prior termination of contract on existence of dispute - finalisation of running account bills at head office versus site verification - effect of existence of dispute on maintainability of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016

Pre-existing dispute - requirement under Section 8(2) of the Insolvency and Bankruptcy Code, 2016 to raise existence of dispute within 10 days of receipt of demand notice - definition of "dispute" under Section 5(6) of the Insolvency and Bankruptcy Code, 2016 - effect of a prior termination of contract on existence of dispute - Whether the Adjudicating Authority was correct in rejecting the Section 9 application on the ground of a pre-existing dispute between the parties. - HELD THAT: - The Tribunal upheld the Adjudicating Authority's conclusion that a pre-existing dispute existed before the demand notice of 13.09.2017. The Court applied the inclusive definition of "dispute" under Section 5(6) of the Code and the procedural requirement in Section 8(2) (that the Corporate Debtor bring any existence of dispute to the notice of the Operational Creditor within ten days). The Corporate Debtor's reply to the demand notice of 23.09.2017 and its reply to the Section 9 application identified earlier communications, notices and correspondence (including termination by letter dated 20.11.2014 and antecedent letters/emails) asserting breaches, claims for recoveries and invocation of the contractual dispute resolution process. The Adjudicating Authority recorded material findings (including that the contract had been terminated, that various breaches and claims had been alleged and that disputes had been referred to the contractually prescribed dispute resolution mechanism) which the Tribunal found supported the conclusion that disputes existed prior to the demand notice. The Tribunal rejected the appellant's reliance on a completion certificate and site verification of running bills as sufficient to negate the existence of inter se disputes recorded by the Corporate Debtor, noting that finalisation of bills at head office and the asserted recoveries meant the certificate and site verifications did not erase the pleaded disputes. Consequently, the Tribunal found no error in the Adjudicating Authority's decision to refuse to entertain the Section 9 petition on maintainability grounds arising from the pre-existing dispute. [Paras 16, 18, 19, 20]

Adjudicating Authority's rejection of the Section 9 application on the ground of a pre-existing dispute is upheld.

Final Conclusion: The appeal is dismissed; the rejection of the Section 9 application for want of maintainability due to a pre-existing dispute is upheld, without prejudice to the appellant's right to pursue its contractual claims in accordance with the work order.

Pre-existing dispute - application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - operational debt - default - admission under Section 9(5) - acknowledgement of debt by cheque - dishonour of cheque

Pre-existing dispute - application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - admission under Section 9(5) - acknowledgement of debt by cheque - The Section 9 application was rightly rejected because a pre-existing dispute between the parties existed and the statutory prerequisites for admission were not satisfied. - HELD THAT: - The Tribunal affirmed the Adjudicating Authority's finding that the corporate debtor had established a pre-existing dispute by issuing and delivering debit notes in relation to the impugned invoices. The issuance of debit notes and contemporaneous correspondence, together with ledger entries and prior commercial dealings, demonstrated dispute regarding quality and deliveries that arose before or contemporaneously with the demand. The operational creditor's reliance on post-dated cheques was considered: although issuance of cheques can ordinarily amount to an acknowledgement of debt, here the cheques were stopped by the corporate debtor (and not dishonoured for lack of funds), which reinforced the existence of a dispute rather than an unqualified admission. Applying the statutory scheme of Sections 8-9 and the principles in Mobilox Innovations and subsequent authority, the Tribunal held that the three conditions for admission under Section 9 - existence of an operational debt due and payable, default, and absence of a pre-existing dispute/record of dispute - were not met; consequently the Adjudicating Authority correctly exercised its power under Section 9(5) to reject the application. [Paras 2, 8, 10, 11, 13]

Appeal dismissed; the Adjudicating Authority's order rejecting the Section 9 application for existence of a pre-existing dispute is upheld.

Final Conclusion: The Tribunal dismissed the appeal and upheld the Adjudicating Authority's rejection of the Section 9 petition on the ground of a pre-existing dispute and non-fulfillment of the conditions for admission under the Code; interim orders stood vacated.

Investigation under PMLA prior to filing of final report in predicate offence - Provisional attachment under the second proviso to Section 5(1)(b) of the PMLA - Summons for production of documents under Section 50 of the PMLA - Mandatory use of Form V prescribed under the Rules for summons - Invalidity of unilateral deviations from statutory summons format

Investigation under PMLA prior to filing of final report in predicate offence - Provisional attachment under the second proviso to Section 5(1)(b) of the PMLA - Whether the Enforcement Directorate has jurisdiction to initiate investigation under the PMLA and take action prior to filing of the final report in the predicate (scheduled) offence. - HELD THAT: - The Court held that commencement of proceedings under the PMLA is not dependent upon completion of the predicate offence investigation or filing of the final report under Section 173 Cr.P.C. The statutory regime, particularly the Explanation to Section 44(1) and the second proviso to Section 5(1)(b), enables the Directorate to act on prima facie material and, in extraordinary circumstances, to attach property if there is reason to believe non attachment would frustrate proceedings. Thus the Enforcement Directorate may register a money laundering case and issue summons under the PMLA soon after registration of a scheduled offence, provided there is prima facie material to suspect proceeds of crime or an attempt at money laundering. [Paras 14, 15, 18]

Enforcement Directorate may initiate investigation under the PMLA and act under the second proviso to Section 5(1)(b) before filing of the final report in the predicate offence.

Summons for production of documents under Section 50 of the PMLA - Scope of powers to compel attendance and production - Whether the summons issued under Section 50(2) and (3) of the PMLA for production of documents is within the Enforcement Directorate's jurisdiction and can be challenged merely because the predicate offence investigation is incomplete. - HELD THAT: - The Court found that the impugned summons was issued under Section 50 for the purpose of investigation to ascertain whether money laundering had occurred and is therefore within the Directorate's competence. The summons is distinguishable from an order of provisional attachment under Section 5; production summons are a permissible means to collect material and to verify whether proceeds of crime exist. The established principle that summonses are not ordinarily quashed except in exceptional cases was noted; the proper course is compliance and production of documents, subject to challenge if the summons is otherwise illegal. [Paras 13, 18]

Issuance of summons under Section 50 for production of documents is permissible and not precluded by pendency of the predicate offence investigation.

Mandatory use of Form V prescribed under the Rules for summons - Invalidity of unilateral deviations from statutory summons format - Whether the additional instruction in the impugned summons requiring the recipient not to depart without the Assistant Director's permission, which does not appear in Form V, is valid. - HELD THAT: - The Rules mandate that summons under Section 50(2) and (3) be issued in Form V. The Court observed that the impugned summons contained an extra clause directing the recipient not to depart until permitted, a provision not found in the statutory form. While the authority may, on grounds supported by material, detain or remand a person in accordance with law, an unilateral alteration of the prescribed format that is prejudicial to the recipient and contrary to Section 50(3) must be quashed. Consequently the Court set aside the defective summons and directed the respondent to issue fresh summons in Form V for production of documents on a future date. [Paras 16, 17, 19]

The additional instruction to remain until permitted is contrary to the prescribed Form V and is quashed; respondent to issue fresh summons in Form V.

Final Conclusion: The writ petitions are disposed of by holding that the Enforcement Directorate lawfully may investigate under the PMLA and issue summons under Section 50 notwithstanding that the predicate offence final report is not yet filed; however, the impugned summons is quashed to the extent it departs from the statutorily prescribed Form V (the clause forbidding departure without permission) and the respondent is directed to issue fresh summons in Form V for production of documents. No costs.

Deletion from array of parties under Order I Rule 10 CPC - proper party and necessary party - improper impleadment - cause of action - principal-to-principal contract - Order XXXVII CPC - scope of summary suit - dominus litis

Deletion from array of parties under Order I Rule 10 CPC - proper party and necessary party - improper impleadment - cause of action - Whether the petitioner/defendant no.2 was a proper or necessary party to the suit and liable to be retained in the array of parties. - HELD THAT: - The Court examined the plaint, the agreement dated 29.09.2005 and the relief claimed to determine whether any cause of action was disclosed against the petitioner/defendant no.2. The claim in the suit was founded on the dishonour of two cheques issued by respondent no.2/defendant no.1 and the admitted liability reflected in the plaint, with amounts arising from non-supply of C Forms expressly excluded from the relief claimed. Clause 4 of the parties' agreement recorded a principal-to-principal relationship and expressly fixed responsibility on respondent no.2/defendant no.1 for default in deposit/submission of C Forms (and for payment of the 6% difference in sales tax). The trial court's reliance on correspondence from the petitioner about furnishing particulars for C Forms, and its conclusion that petitioner was under an express or implied obligation, was found to be erroneous because those letters did not admit liability to pay the tax differential and the plaint did not plead any cause of action against the petitioner. The suit was instituted under Order XXXVII CPC on the basis of admitted liability evidenced by the cheques; if recovery based on non-issuance of C Forms were the subject, Order XXXVII would not be the appropriate remedy. The plaintiff has not sought any relief against the petitioner in the plaint and has not pressed impleadment in these proceedings (having been proceeded ex parte before this Court). Further, respondent no.2/defendant no.1 conceded that a separate suit would be necessary to establish any liability of the petitioner for non-deposit of Forms C. In these circumstances the petitioner is neither a necessary nor a proper party and retention of the petitioner in the suit would amount to impermissible expansion of the relief claimed. [Paras 26, 29, 31, 32, 33]

Petitioner/defendant no.2 is neither a proper nor a necessary party to the suit and is to be deleted from the array of parties.

Final Conclusion: The petition is allowed; the impugned order is set aside and the petitioner/defendant no.2 is deleted from the array of parties in the suit.

Liability to pay despite alleged delayed delivery of goods - presumption under Section 118 of the Negotiable Instruments Act, 1881 - failure to rebut statutory presumption - territorial jurisdiction of forum where cause of action partly arose - non-joinder of a third party as not vitiating suit where defendant appeared and defended - award of interest and denial of pre-suit interest

Liability to pay despite alleged delayed delivery of goods - admission by conduct and email communications - Plaintiff established supply of goods and defendant failed to establish short or delayed supply sufficient to excuse payment. - HELD THAT: - The Court found from documentary and oral evidence, including the defendant's admissions in evidence and email communications (Ex.P9(a)), that hardware and software were delivered and that the defendant had requested the plaintiff to hold the cheque. The purchase order (Ex.P3) did not stipulate a time-limit or a contractual right to cancel or withhold payment for delayed supply, and no objection was raised at delivery. The defendant's pleaded case was of delayed supply rather than non-supply; that case was not established. Consequentially, the defence that delayed supply excused payment was rejected and the plaintiff's entitlement to recover the contracted price was upheld. [Paras 16, 18, 19]

Defendant liable to pay the price; contention of short/delayed supply not accepted.

Presumption under Section 118 of the Negotiable Instruments Act, 1881 - failure to rebut statutory presumption - The post dated/ security cheque issued by the defendant attracted the presumption under Section 118 of the Negotiable Instruments Act and the defendant failed to rebut that presumption. - HELD THAT: - Even if the cheque was said to be issued as a security, the Court held that because the plaintiff established supply and the defendant did not satisfactorily rebut the statutory presumption, the cheque gives rise to the presumption of consideration under Section 118. The defendant's evidence fell short of displacing that presumption; hence the cheque supported the plaintiff's claim. [Paras 21]

Presumption under Section 118 applies and is not rebutted; cheque supports plaintiff's claim.

Territorial jurisdiction of forum where cause of action partly arose - prejudice and participation waiving jurisdictional objection - Commercial Court, Bengaluru had territorial jurisdiction to try the suit and the defendant's jurisdictional plea was not sustainable. - HELD THAT: - The trial Court concluded, on the basis of admissions in evidence, that part of the cause of action arose in Bengaluru. This Court agreed that the jurisdictional objection did not go into the root of the matter; the defendant had appeared, led evidence and suffered no prejudice by trial in Bengaluru. Accordingly, the plea that only Delhi courts had jurisdiction was rejected. [Paras 22]

Bengaluru Court had territorial jurisdiction; jurisdictional objection dismissed.

Non-joinder of a third party as not vitiating suit where defendant appeared and defended - The contention of non-joinder of the manufacturer as a necessary party did not render the suit bad or warrant setting aside the decree. - HELD THAT: - Although the defendant contended that a third party (the manufacturer) was a necessary party, the Court treated the contention in light of the parties' conduct and the evidence. The defendant participated in trial, admitted aspects of the transaction and did not establish that non-joinder caused prejudice or that the third party's presence was indispensable for adjudication of the contractual claim between the plaintiff and defendant. No separate claim by the defendant against the plaintiff for damages was prosecuted.

Non-joinder contention rejected; suit not vitiated by alleged absence of manufacturer.

Award of interest and denial of pre-suit interest - The Commercial Court's decree for principal with interest at 9% per annum from the date of suit was upheld; pre-suit interest claimed at a higher rate was declined. - HELD THAT: - The trial Court had decreed recovery of the principal sum with interest at 9% per annum from the date of suit until realization, declining the plaintiff's claim for interest at a higher rate prior to institution of the suit. This appellate Court found no error in that exercise of discretion or in the calculation adopted and confirmed the interest award and refusal of the pre-suit higher interest. [Paras 20]

Decree confirmed awarding principal with interest @9% p.a. from date of suit; claim for higher pre-suit interest declined.

Final Conclusion: Appeal dismissed; impugned judgment and decree dated 10.12.2020 of the Commercial Court, Bengaluru in COM.O.S.No.5871/2016 are confirmed and the plaintiff's decree for recovery of the principal sum with interest at 9% per annum from the date of suit is upheld.