TaxTMI Updates e-Newsletter
Dec 12,2022

Re-opening of assessment after four years - failure to disclose fully and truly all material facts - reasons for re-opening must disclose the material facts relied upon - Explanation 1 to Section 147 - production of documents filed with return - link between recorded reasons and evidence

Re-opening of assessment after four years - reasons for re-opening must disclose the material facts relied upon - link between recorded reasons and evidence - Validity of the notice under Section 148/147 where the reasons furnished did not state which material facts were allegedly not fully and truly disclosed by the assessee - HELD THAT: - The Court examined the reasons supplied on 01.05.2019 and found that, although the Assessing Officer recorded that the assessee had not fully and truly disclosed "the following material facts," the reasons omitted to specify any such material facts. The authorities require that when reopening is proposed after four years the AO must state in clear and unambiguous terms which fact or material was not disclosed, so as to manifest his mind and provide the vital link between conclusion and evidence. The omission to identify the material facts deprived the assessee of an effective opportunity to object and prevented the reasons from disclosing the AO's mind. The respondents' attempt to rely on a holistic reading of earlier paragraphs or to supplement the reasons by affidavit was impermissible. In these circumstances the notice issued after the four-year period suffered from a fundamental jurisdictional infirmity and had to be quashed. [Paras 20, 21, 22, 23, 24]

The notice under Section 148/147 was quashed because the reasons failed to disclose which material facts were allegedly not fully and truly disclosed, thereby vitiating the jurisdiction to reopen after four years.

Explanation 1 to Section 147 - production of documents filed with return - failure to disclose fully and truly all material facts - Whether disclosures made in the annual accounts, audit report and tax audit report filed with the return fall within the embargo created by Explanation 1 to Section 147 - HELD THAT: - The Court considered the statutory requirement to file the tax audit report and annual accounts with the return and the contents of Note No.26 and the audit report which expressly referred to the Supreme Court proceedings and the Monitoring Committee's e-auction of the assessee's ore. Relying on precedent, the Court held that disclosures made as part of documents statutorily required to be filed with the return cannot be treated as mere production of 'books of account or other evidence' attracting Explanation 1. Given these disclosures, and the fact that the amount alleged to have escaped assessment was received and taxed in the subsequent year, the Court concluded that Explanation 1 did not apply to justify reopening after four years. The Court did not decide the accrual question in view of the findings on disclosure. [Paras 32, 33, 34, 35]

Explanation 1 to Section 147 was not attracted because the material facts were disclosed in the annual accounts and audit/tax audit reports filed with the return; reopening on the basis of Explanation 1 was therefore not permissible.

Final Conclusion: The petition is allowed: the notice dated 29.03.2019 under Section 148 and the order rejecting objections are quashed and set aside because the reasons failed to disclose the material facts said to have been undisclosed and Explanation 1 to Section 147 does not apply to the statutory disclosures made with the return.

Capital receipt versus revenue receipt - rectification under Section 154 - mistake apparent on record - tribunal power under Section 254 to entertain additional grounds and grant relief - Article 265 - no tax shall be levied or collected except by authority of law - duty of assessing officers to assist taxpayers (CBDT Circular No. 14(XL-35) of 1955)

Capital receipt versus revenue receipt - rectification under Section 154 - mistake apparent on record - tribunal power under Section 254 to entertain additional grounds and grant relief - Article 265 - no tax shall be levied or collected except by authority of law - duty of assessing officers to assist taxpayers (CBDT Circular No. 14(XL-35) of 1955) - Whether the industrial promotion assistance (sales tax subsidy) received from the State Government of West Bengal is a capital receipt and whether the Assessing Officer's refusal to rectify its inclusion in taxable income under Section 154 could be set aside by the Tribunal. - HELD THAT: - The Tribunal held that the subsidy was a capital receipt and that its inadvertent inclusion in taxable income constituted a mistake apparent on record amenable to rectification. The Tribunal followed its earlier coordinate-bench decision in Ritum Jain in which reliance was placed on authoritative decisions (including the jurisdictional Calcutta High Court on identical incentive schemes) to treat such sales tax subsidies as capital receipts. The Tribunal observed that taxing an amount which is not income conflicts with Article 265 and that established precedent and statutory administration require that officers assist taxpayers in securing relief where a non taxable receipt has been inadvertently offered to tax (drawing on the principle reflected in CBDT Circular No. 14(XL-35) of 1955). The Tribunal further noted that any bar on entertaining a fresh claim by the Assessing Officer does not preclude the exercise of appellate powers under Section 254 to admit and decide additional grounds which demonstrate that the returned amount was never taxable. Applying these principles to the facts, and finding no binding contrary precedent placed before it, the Tribunal concluded that the lower authorities erred in refusing rectification and directed exclusion of the subsidy from taxable income with consequential relief/refund. [Paras 6, 7, 8]

The Tribunal allowed the appeal, set aside the orders of the lower authorities, directed the Assessing Officer to exclude the sales tax subsidy (industrial promotion assistance) from the taxable income and to grant appropriate relief/refund.

Final Conclusion: Appeal allowed; the industrial promotion assistance received under the West Bengal scheme is to be treated as a capital receipt and the Assessing Officer is directed to exclude it from income and grant consequential relief/refund.

Comparability analysis - Arm's Length Price - Transactional Net Margin Method (TNMM) - functional comparability - remand for factual verification - depreciation on software license

Comparability analysis - functional comparability - Arm's Length Price - Exclusion of Eclerx Services Ltd. and Infosys BPO Ltd. from the assessee's list of comparables - HELD THAT: - The Tribunal noted that in earlier assessments for the assessee these two entities had been found non-comparable on grounds of being high-end KPOs, having diversified activities, brand advantage and supernormal profits. In the absence of any pleaded or proved change in facts or law, and having regard to the consistent view taken in the assessee's own prior years, the Tribunal held that it could not take a different view for the assessment year under consideration. The Tribunal therefore directed the Assessing Officer/ TPO to exclude Eclerx Services Ltd. and Infosys BPO Ltd. from the comparable set for determination of ALP. [Paras 15]

Eclerx Services Ltd. and Infosys BPO Ltd. are excluded from the list of comparable companies; Ground No. 8 partly allowed.

Comparability analysis - remand for factual verification - Arm's Length Price - Inclusion of ACE BPO Services Pvt. Ltd. and Datamatics Financial Services Ltd. as comparables remanded to Assessing Officer/TPO for fresh consideration - HELD THAT: - The assessee sought inclusion of ACE BPO Services Pvt. Ltd. and Datamatics Financial Services Ltd., asserting they meet the filters applied for comparability and offering to furnish records. The Tribunal found that segmental information and fulfilment of filters require verification on record. Consequently, the Tribunal set aside the issue to the file of the Assessing Officer/TPO for fresh consideration and directed the assessee to submit all relevant records and cooperate in the verification process. [Paras 16, 18]

Issue remanded to the Assessing Officer/TPO for fresh consideration and verification; Ground No. 9 allowed for statistical purposes.

Remand for factual verification - management fee - trade mark license fee - Disallowance of management service fee and trade mark license fee remanded for fresh factual verification - HELD THAT: - Relying on the similarity of issues and on a coordinate bench's earlier orders in the assessee's own case, the Tribunal concluded that the matter should be examined afresh by the Assessing Officer. The assessee was directed to file documentary evidence and relevant material so that the Assessing Officer may verify the claim as per law. [Paras 19, 20]

Issue restored to the file of the Assessing Officer for fresh factual verification; Ground No. 13 allowed for statistical purposes.

Depreciation on software license - remand for factual verification - Treatment of software license fee: allow depreciation at 60% rather than capitalisation with 25% depreciation - HELD THAT: - Although the TPO/DRP observed absence of documentary evidence to prove acquisition and use of software, the Tribunal noted that in the assessee's earlier years coordinate benches had allowed 60% depreciation on software purchased for business purposes. Following the consistent view in prior assessments of the assessee, the Tribunal allowed the claim and directed that depreciation be allowed at 60%. [Paras 21, 22, 23]

Depreciation on software license fee allowed at 60%; Ground No. 14 allowed.

Final Conclusion: The appeal is partly allowed: two comparables (Eclerx Services Ltd. and Infosys BPO Ltd.) are excluded from the comparable set; inclusion of ACE BPO Services Pvt. Ltd. and Datamatics Financial Services Ltd. and the claims relating to management/trade mark fees are remanded to the Assessing Officer/TPO for fresh verification; depreciation on software license fee is allowed at 60%.

Fair market value (FMV) of unquoted shares - Valuation date under Rule 11U - Application of Rule 11UA - deduction of liabilities in net asset value method - Section 56(2)(viia) - receipt of shares for inadequate consideration

Valuation date under Rule 11U - Application of Rule 11UA - deduction of liabilities in net asset value method - Fair market value (FMV) of unquoted shares - Section 56(2)(viia) - receipt of shares for inadequate consideration - Whether the Assessing Officer's valuation of shares and consequent invocation of section 56(2)(viia) was sustainable where AO did not take into account liabilities (redemption of preference shares) in computing FMV as per Rule 11U/11UA and used balance sheet figures not relating to the valuation date. - HELD THAT: - The Tribunal examined whether the AO's computation of FMV complied with Rule 11U/11UA and whether s.56(2)(viia) could be invoked. Rule 11U defines the 'valuation date' as the date on which the property or consideration is received; here the assessee subscribed to shares on 09.07.2010 (with certain preference allotments shortly thereafter), so valuation must be with reference to the balance sheets as on the valuation date. Rule 11UA requires determination of FMV of unquoted equity shares by considering the book value of assets and liabilities (i.e., NAV method), which mandates reduction for liabilities shown in the balance sheet. The AO ignored the liability in the investee companies' balance sheets arising from premium on redemption of preference shares and relied on figures as on 31.03.2010, producing a substantially higher FMV. The assessee produced contemporaneous balance sheets and a valuation report showing FMV of Rs.10 per share after accounting for the outstanding liability. The Tribunal found that AO's valuation was not in conformity with Rule 11U/11UA because liabilities outstanding as on the valuation date were not considered, and hence the addition under s.56(2)(viia) could not be sustained. The Tribunal therefore confirmed the CIT(A)'s deletion of the addition. [Paras 10, 11]

The AO's valuation and the addition under section 56(2)(viia) are set aside; the CIT(A)'s deletion is upheld.

Final Conclusion: The revenue appeal is dismissed; the addition made under section 56(2)(viia) is deleted and the CIT(A) order is confirmed.

Taxability of interest on non-performing assets - application of Section 43D to co-operative banks - retrospective operation of tax amendments - curative amendment principle - mercantile system versus cash/receipt basis for doubtful debts

Taxability of interest on non-performing assets - mercantile system versus cash/receipt basis for doubtful debts - Whether interest on loans classified as non-performing assets/sticky loans of the assessee (a non-scheduled co operative bank) is taxable on accrual (mercantile) basis or on receipt basis for the assessment years 2012-13 and 2013-14. - HELD THAT: - The Tribunal had held that the assessee should be taxed on interest on NPAs on receipt basis. The Court examined the commercial reality that cooperative banks maintain suspense accounts for interest on doubtful loans and the policy behind treating such interest as income only upon actual receipt. Having considered the legislative amendment to Section 43D and the principle that the amendment was intended to correct an omission (thereby enabling parity between cooperative and scheduled banks), the Court accepted the Tribunal's conclusion that the assessee was entitled to treat interest on sticky loans on receipt basis for the tax years in question. The Court observed that although the assessee followed mercantile accounting generally, the accepted accounting practice of transferring doubtful interest to suspense accounts supports taxation on actual receipt rather than notional accrual where recovery is doubtful. [Paras 21, 22]

The Tribunal's dismissal of the revenue's appeals is upheld; interest on NPAs is taxable on receipt basis for AYs 2012-13 and 2013-14.

Application of Section 43D to co-operative banks - retrospective operation of tax amendments - curative amendment principle - Whether the amendment extending the scope of Section 43D to cooperative banks (Finance Act, 2017) must be read as retrospective/curative so as to affect the assessment years prior to its stated effective date. - HELD THAT: - The Court examined the objects of the Finance Bill, 2017 which stated that inclusion of cooperative banks in Section 43D was intended to provide a level playing field and to cure an omission. Relying on the principle in Allied Motors that an amendment which remedies an unintended consequence and supplies an obvious omission may be construed as curative and retrospective, the Court held that the amendment is to be treated as retrospective in nature. Consequently, the treatment envisaged by Section 43D - i.e., charging interest on bad or doubtful debts to tax in the year of credit to profit and loss account or actual receipt, whichever is earlier - applies so as to validate the treatment of cooperative banks on a receipt basis for the years under consideration. [Paras 19, 21]

The amendment bringing cooperative banks within Section 43D is to be treated as curative/retrospective and supports taxing such banks on a receipt basis for the periods in issue.

Final Conclusion: The appeals are dismissed. The Tribunal's conclusion that the non scheduled co operative bank was required to tax interest on NPAs on a receipt basis for AYs 2012-13 and 2013-14 is upheld; the amendment extending Section 43D to co-operative banks is treated as curative/retrospective and supports that conclusion.

Search and seizure proceedings and seized digital evidence - unexplained investment and addition under section 69 read with section 115BBE - unexplained money and addition under section 69A read with section 115BBE - application of peak credit theory and acceptance of memoranda cash book as source - set-off of previously taxed disclosure to prevent double taxation - consequential interest consequences and direction to assessing officer - prematurity of penalty proceedings

Unexplained investment and addition under section 69 read with section 115BBE - application of peak credit theory and acceptance of memoranda cash book as source - set-off of previously taxed disclosure to prevent double taxation - Deletion of addition of Rs. 76,29,000/- treated as unexplained investment by the assessing officer. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals)'s finding that the addition could not be sustained because the investment shown in the seized digital material was covered by cash disclosed in the memoranda cash book of the assessee's father and taxed on the basis of peak credit. The CIT(A)'s detailed reasoning that part of the amount was recorded in the memoranda cash book (Rs. 40,00,000/- pertaining to the year) and that sufficient cash balance remained to cover the investment was not controverted by the Revenue. Having regard to the earlier acceptance in the related year and the absence of any contrary finding by the department, the Tribunal concluded that the investment was matched with previously disclosed and taxed cash and therefore could not be taxed again as unexplained investment. The Revenue's objection that the AO was not called to rebut the CIT(A)'s factual findings was considered and rejected on the basis that the AO's presence before the CIT(A) was on record and the CIT(A)'s conclusion rests on non-controverted material. [Paras 12]

Addition of Rs. 76,29,000/- deleted; Revenue's Ground No. 2 dismissed.

Unexplained money and addition under section 69A read with section 115BBE - denomination of seized cash and gift-on-marriage explanation - application of peak credit theory as alternative source - Deletion of addition of Rs. 16,43,150/- treated as unexplained cash found during search. - HELD THAT: - The Tribunal accepted the CIT(A)'s factual conclusion that the cash found in wrapped envelopes in the bedroom was either attributable to gifts received at the time of marriage (as supported by the denominations) or alternatively could be covered by the cash available in the father's memoranda cash book which had been disclosed and taxed on peak-credit basis. The CIT(A) had relied on the memoranda cash book submitted by the father as providing sufficient cash to cover the seized amount; that factual finding was unchallenged by the Revenue before the Tribunal. In these circumstances the addition was rightly deleted. [Paras 12]

Addition of Rs. 16,43,150/- deleted; Revenue's Ground No. 3 dismissed.

Challenge to approval under section 153D of the Act - Objection to the approval under section 153D treated as technical/infructuous and not adjudicated on merits in view of the Tribunal's concurrence with the CIT(A)'s findings on merits. - HELD THAT: - The assessee's cross-objection challenging the mechanical approval under section 153D was rendered academic by the Tribunal's acceptance of the CIT(A)'s substantive findings. Consequently the cross-objection on this ground was held to be technical and did not require separate adjudication. [Paras 14]

Cross-objection ground on section 153D held technical/infructuous and not adjudicated.

Consequential interest consequences and direction to assessing officer - Interest under sections 234A/234B/234C to be given effect to as consequential; matter remitted to AO for computation in accordance with law. - HELD THAT: - The Tribunal observed that charging of interest is consequential upon the assessment outcome and directed the assessing officer to give necessary effect in accordance with law. No substantive interference with the interest computation was undertaken by the Tribunal; the AO was directed to compute and apply interest as per applicable provisions. [Paras 14]

Interest issues to be given effect by the AO in accordance with law.

Prematurity of penalty proceedings - Challenge to initiation of penalty proceedings under section 271AAC (penalty) held premature and not adjudicated by the Tribunal. - HELD THAT: - The Tribunal noted that the penalty levy was not ripe for adjudication in the present appeals and therefore declined to examine the ground which was premature. The cross-objection in respect of penalty was not decided on merits. [Paras 14]

Penalty-related ground left undetermined as premature.

Final Conclusion: The Revenue's appeal is dismissed and the assessee's cross-objection is allowed for statistical purposes. The additions of Rs. 76,29,000 and Rs. 16,43,150 were deleted on the basis of uncontroverted factual findings that the amounts were covered by the father's disclosed memoranda cash book (and alternatively explained by marriage gifts and denominations), interest is to be given effect by the AO as consequential, and the challenge to approval under section 153D and penalty proceedings were not adjudicated as they were technical or premature.

Disallowance under section 14A - Rule 8D - Interest free funds v. investment - no disallowance of interest expense - Administrative expenses disallowance under section 14A - Disallowance not to be applied for computation of book profit under section 115JB - Remand for verification of creditor reconciliation

Disallowance under section 14A - Rule 8D - Interest free funds v. investment - no disallowance of interest expense - Administrative expenses disallowance under section 14A - Validity of disallowance under section 14A (proportionate interest and administrative expenses) while computing income under normal provisions. - HELD THAT: - The Tribunal examined whether proportionate interest expense and administrative cost attributable to exempt income could be disallowed under section 14A read with Rule 8D. On the facts the assessee had substantial interest free funds in the form of share capital which exceeded the investments yielding exempt income and made no fresh investments during the year; relying on Gujarat High Court precedents the Tribunal held that where interest free funds materially exceed investments relating to exempt income, disallowance of interest expense under section 14A is not justified. As to administrative expenses, the Tribunal accepted the settled position that such expenditures are includible for disallowance under section 14A computed as per Rule 8D, but observed that the assessee had already made a suo moto disallowance in its return (covering administrative expenditure). Consequently no further disallowance on account of administrative expenses was called for in the assessment. [Paras 6]

Assessee's appeal allowed in respect of proportionate interest disallowance; no further disallowance called for in respect of administrative expenses.

Disallowance not to be applied for computation of book profit under section 115JB - Whether disallowances under section 14A (read with Rule 8D) can be added back while computing book profit for MAT under section 115JB. - HELD THAT: - The Tribunal followed the consistent judicial position that amounts disallowed under section 14A should not be added to net profit for the purpose of computing book profit under section 115JB. The Tribunal relied on the Supreme Court decision and other High Court/ITAT authorities to hold that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without applying the section 14A/Rule 8D disallowance, and therefore the disallowance confirmed by the AO and CIT(A) could not be sustained for MAT computation. [Paras 9]

Assessee's appeal allowed in respect of disallowance made while computing income under section 115JB.

Remand for verification of creditor reconciliation - Validity of addition on account of unexplained difference in closing balance with creditor M/s Jay Metal Industries. - HELD THAT: - The AO made an addition on the ground that the assessee failed to explain a difference between its books and the creditor's ledger. The CIT(A) confirmed the addition for lack of acceptable verification. Before the Tribunal the assessee produced ledger extracts and contra ledgers and contended that the difference arose from opening balances and has been explained. The Tribunal found that the explanation and documents require fresh consideration and directed that the matter be remitted to the AO for fresh adjudication after affording the assessee an opportunity to produce necessary documents and reconcile the difference. [Paras 11, 12]

Addition set aside for fresh adjudication; matter remanded to AO for verification and opportunity to assessee.

Final Conclusion: The appeal is allowed for statistical purposes: the disallowance of proportionate interest under section 14A is set aside and no further administrative expense disallowance is warranted (ground 1 allowed); the section 14A disallowance cannot be applied in computing book profit under section 115JB (ground 2 allowed); the addition regarding the creditor balance is remanded to the AO for fresh consideration after opportunity to the assessee (ground 3 remitted).

Condonation of delay by exclusion of COVID-19 period for limitation - section 14A disallowance - proviso to section 32(1) regarding additional depreciation for assets used less than 180 days - employees' contribution to Provident Fund and operation of section 36(1)(va) and non-applicability of section 43B - deduction under section 80JJAA for employment of new regular workmen

Condonation of delay by exclusion of COVID-19 period for limitation - Admission of the appeals by condoning the delay caused in filing appeals. - HELD THAT: - The Tribunal recorded that the appeals were time-barred by 1146 and 699 days respectively and an application for condonation was filed. Relying on the judgment of the Hon'ble Supreme Court referred to in the order, the period from 15.03.2020 to 28.02.2022 was excluded for computing limitation. Since the limitation period applicable to the assessee fell within the excluded period on account of COVID-19 restrictions, the Tribunal extended the limitation and condoned the delay, admitting the appeals for adjudication. [Paras 2]

Delay condoned and appeals admitted for adjudication.

Section 14A disallowance - Deletion of disallowances made under section 14A for both assessment years where no exempt income was earned. - HELD THAT: - Both parties agreed that no exempt income was earned in the relevant years. Following consistent judicial precedents of the jurisdictional High Courts and recent decisions, the Tribunal held that section 14A cannot be invoked where no exempt income is earned during the year. Consequently, the disallowances made under section 14A (Rs.1,89,447 and Rs.68,280 for AYs 2013-14 and 2014-15 respectively) were deleted and the findings of the CIT(A) on this aspect were reversed. [Paras 5]

Disallowances under section 14A deleted for both years.

Proviso to section 32(1) regarding additional depreciation for assets used less than 180 days - Allowing balance 50% of additional depreciation in the succeeding year where assets were used for less than 180 days in the year of purchase. - HELD THAT: - The Assessing Officer disallowed the balance 50% of additional depreciation claimed in AY 2014-15 for assets purchased and put to use for less than 180 days in AY 2013-14. The Tribunal referred to prior Tribunal and High Court reasoning that the amended proviso to section 32(1) (effective from 01.04.2016) operates curatively to remove discrimination and permits the balance additional depreciation to be claimed in the immediately succeeding year. Applying that reasoning to the facts - where 50% was allowed in the year of purchase and the remaining 50% was claimed in the next year - the Tribunal held the assessee entitled to the remaining additional depreciation and reversed the CIT(A)'s finding. [Paras 6, 7, 8, 9, 10]

Remaining 50% additional depreciation allowed for AY 2014-15; CIT(A)'s order reversed on this ground.

Employees' contribution to Provident Fund and operation of section 36(1)(va) and non-applicability of section 43B - Confirmation of disallowance of employer's deduction for employee PF contributions deposited after statutory due date despite being paid before filing return. - HELD THAT: - The undisputed facts were that the employee contributions were deposited after the due date prescribed under the Provident Fund law but before filing the return under section 139(1). The Tribunal followed the Supreme Court's decision in Chekmate Services Pvt. Ltd., which held that where the employer fails to deposit employee PF/ESI contributions by the statutory due date, strict compliance with section 36(1)(va) is required and such sums are to be treated as the employer's income; section 43B cannot be invoked to relieve the employer. Applying that authoritative precedent to the facts, the Tribunal found no merit in the assessee's plea and confirmed the disallowance. [Paras 11]

Disallowance of employees' contribution to PF confirmed.

Deduction under section 80JJAA for employment of new regular workmen - Allowing the claim of deduction under section 80JJAA for the amounts corresponding to previous assessment years that were supported by the annexure to Form 10DA despite insertion of additional columns. - HELD THAT: - The Assessing Officer restricted the deduction under section 80JJAA to the current year's 30% figure on the ground that two extra columns (11 and 12) were inserted in the annexure to Form 10DA and such columns are not present in the proforma. The Tribunal observed that the audit report had in fact clarified the year-wise quantum of deduction and that the assessee's claims for the preceding assessment years had already been allowed by revenue earlier. Since the AO had accepted part of the claim (30% for the year) and only denied the carry forward amounts for a technical/formal reason, the Tribunal held that such a minor technical variation did not justify denial of legitimately eligible deductions for the prior years. Consequently, the Tribunal allowed the full claimed amounts under section 80JJAA for AYs 2013-14 and 2014-15 and reversed the CIT(A)'s finding. [Paras 13, 14, 16, 19, 20]

Deductions under section 80JJAA allowed as claimed for both years; lower authorities' restriction set aside.

Final Conclusion: Both appeals are partly allowed: delay in filing condoned; disallowances under section 14A deleted; balance additional depreciation allowed; disallowance of late-deposited employee PF contributions confirmed; deduction under section 80JJAA allowed as claimed for the respective assessment years.

Exemption under section 11 - Form 10B - rectification under section 154 - registration under section 12AA - claim to be decided on merits

Exemption under section 11 - Form 10B - rectification under section 154 - claim to be decided on merits - Whether denial of exemption under section 11 solely because the audit report in Form 10B was uploaded after filing the return and rectification under section 154 was rejected, warranted disposal without considering the merits. - HELD THAT: - The Tribunal found that the assessee is a long-standing registered trust under section 12AA and that an audit report in Form 10B was obtained though uploaded after filing the return due to technical/e filing issues. The Revenue did not dispute continued registration, the audited accounts, or existence of Form 10B. Relying on a Coordinate Bench decision and jurisdictional High Court authority cited therein, the Tribunal held that where Form 10B exists and has been filed (albeit later), the claim for exemption under section 11 should not be denied on that sole procedural ground without examination on merits. Consequently the matter was not a "mistake apparent from record" warranting dismissal of the rectification, and the Assessing Officer/CPC was directed to accept the Form 10B and verify and decide the assessee's claim under section 11 on merits. [Paras 8, 9, 10]

Form 10B filed after return must be accepted for consideration; the Assessing Officer is directed to adjudicate the claim for exemption under section 11 on merits after accepting the Form 10B.

Final Conclusion: The appeal is allowed for statistical purposes and the Assessing Officer is directed to accept the filed Form 10B and decide the exemption claim under section 11 on merits for assessment year 2016-17.

Denial of charitable exemption for diversion of trust property - application of income by way of loan to another charitable trust - donation from one charitable trust to another - treatment of borrowed funds donated by a trust - cancellation of registration under 12A for non-genuine activities

Application of income by way of loan to another charitable trust - treatment of borrowed funds donated by a trust - denial of charitable exemption for diversion of trust property - cancellation of registration under 12A for non-genuine activities - Whether the assessed addition of Rs.13.65 crores and denial of exemption (and related cancellation of registration) on account of advance of borrowed funds as donation to an associated charitable trust was sustainable. - HELD THAT: - The Tribunal considered the assessment finding that the assessee trust had received an unsecured loan and advanced the amount as a donation to a sister charitable trust, and the AO's consequent disallowance and denial of exemption. The Tribunal noted that the Coordinate Bench in a related appeal had held that donation from one charitable trust to another is not prohibited under law and that cancellation of registration from inception was unsustainable. In view of that decision and the fact that the recipient was itself a registered charitable trust, the AO's action in treating the advance as application of income warranting denial of exemption was held to be without merit. The Tribunal therefore upheld the CIT(A)'s deletion of the addition and declined to interfere with the order below. [Paras 13, 15]

The addition of Rs.13.65 crores and denial of exemption were not sustained; the revenue appeal is dismissed.

Final Conclusion: The revenue's appeal is dismissed having regard to the coordinate Bench's reasoning that donation from one registered charitable trust to another is not prohibited and the CIT(A)'s deletion of the addition is maintained; the cross-objection was dismissed as not pressed.

Addition as unexplained investment under section 69 of the Income-tax Act - application of Bombay Stock Exchange settlement rules to determine accounting year of share transactions - genuineness of share transactions and proof of source of funds

Addition as unexplained investment under section 69 of the Income-tax Act - application of Bombay Stock Exchange settlement rules to determine accounting year of share transactions - genuineness of share transactions and proof of source of funds - Deletion of addition made under section 69 in respect of purchase of shares of Sacheta Metals Ltd for A.Ys. 2005-06 and 2006-07 - HELD THAT: - The Tribunal found that although a contract note was dated 30/03/2005, under Bombay Stock Exchange settlement rules payment was required within two days and accordingly the assessee made payment by account payee cheque on 01/04/2005 and accounted for the purchase in the next year (A.Y. 2006-07). The assessee furnished documentary evidence including the contract note, DEMAT statements, bank confirmation of payment to the broker, the broker's ledger reflecting purchase on 01/04/2005, bank statements showing source of funds, and third party loan confirmation. The Assessing Officer's conclusion that the purchase was bogus merely because it was routed through a broker associated with tainted transactions was rejected: the sale proceeds were offered to tax as business income, the shares were dematerialised, payments were by account payee cheques, and the immediate source of credit was satisfactorily explained. On these factual and documentary grounds, there was no basis for treating the purchases as unexplained investments under section 69 and the additions were directed to be deleted. [Paras 7, 9, 11]

Addition under section 69 in respect of Sacheta Metals Ltd purchases for A.Ys.2005-06 and 2006-07 deleted; ground allowed.

Addition as unexplained investment under section 69 of the Income-tax Act - genuineness of share transactions and proof of source of funds - Deletion of addition made under section 69 in respect of purchase of shares of Sundaram Finance Ltd for A.Y. 2006-07 - HELD THAT: - The Tribunal applied the same reasoning as for the Sacheta Metals transactions. The assessee purchased 10,000 shares by account payee cheques from a broker linked to the same group, dematerialised the shares, and subsequently sold them through a registered broker, offering the gains to tax as business income. Documentary evidence (DEMAT statement, bank statements showing payments, and sale through a registered broker) established the transaction's genuineness and source of funds. There was no foundation for treating the purchase as a bogus entry merely because the counterparty broker was found involved in tainted transactions. Consequently, the addition under section 69 was unsustainable and ordered deleted. [Paras 10, 11]

Addition under section 69 in respect of Sundaram Finance Ltd purchases for A.Y.2006-07 deleted; ground allowed.

Final Conclusion: Both appeals are allowed: the Tribunal directed deletion of the additions made under section 69 for the purchases of shares in the specified assessment years and restored the position in accordance with the documentary evidence and BSE settlement practice.

Reasonable belief of escapement of income - reopening of assessment - verification of source of cash deposits - unexplained cash deposits - obligation of Assessing Officer to verify evidence - benefit of doubt

Reopening of assessment - reasonable belief of escapement of income - verification of source of cash deposits - Validity of reopening assessment under section 147/148 in respect of cash deposits - HELD THAT: - The Tribunal considered the reasons recorded by the Assessing Officer before issuing notice under section 148 and found that the AO had fresh material (including AIR information and the assessee's inability initially to furnish supporting evidence) which could lead a reasonable person to form the belief that income chargeable to tax had escaped assessment. It held that at the stage of issuance of the notice the test is whether relevant material existed to form a reasonable belief, not whether that material conclusively proved escapement. The Tribunal therefore rejected the contention that the assessment was reopened merely for verification and was void-ab-initio. [Paras 7]

Reopening of assessment was valid as the AO had relevant fresh material to form a reasonable belief of escapement of income.

Unexplained cash deposits - obligation of Assessing Officer to verify evidence - benefit of doubt - Whether cash deposits in the assessee's bank account were explained by repayment of a loan and retirement benefits - HELD THAT: - On the merits the Tribunal accepted that the assessee's retirement benefits of Rs. 8,50,000 were not disputed and that the assessee produced a confirmation letter from the alleged borrower. The AO, however, had disbelieved the loan-and-repayment version and made an addition of the entire cash deposits. The Tribunal held that, given the confirmation produced, the AO ought to have made further enquiries to verify the repayment (including by exercising powers under the Act) before making the addition. In absence of such verification, the Tribunal accorded the assessee the benefit of doubt to the extent of the undisputed retirement benefit (Rs. 8,50,000) and sustained the addition only in respect of the remaining amount which the assessee failed to satisfactorily explain. [Paras 8]

Deletion of addition to the extent of Rs. 8,50,000 as explained by retirement benefits; addition sustained in respect of the balance as unexplained cash deposits.

Final Conclusion: Appeal partly allowed: reopening under section 147/148 upheld; addition in respect of cash deposits reduced by deleting the portion explained by retirement benefits, while the balance was sustained as unexplained.

Revisionary jurisdiction under section 263 of the Income-tax Act - reassessment under section 147 of the Income-tax Act - inadequate enquiry cannot justify exercise of revisionary jurisdiction - Principal Commissioner cannot substitute his opinion for the Assessing Officer - reopening and revision based on the same material - erroneous order prejudicial to the interest of revenue

Revisionary jurisdiction under section 263 of the Income-tax Act - reassessment under section 147 of the Income-tax Act - reopening and revision based on the same material - Principal Commissioner cannot substitute his opinion for the Assessing Officer - inadequate enquiry cannot justify exercise of revisionary jurisdiction - Validity of the Principal Commissioner's order under section 263 setting aside the reassessment completed under section 143(3)/147. - HELD THAT: - The Tribunal found that the reasons recorded for reopening the assessment under section 147 and the reasons for initiating proceedings under section 263 were identical and arose from the same material. The Assessing Officer had called for information under section 142(1), examined records and the trade data received from the exchange, and yet made no addition in the reassessment order dated 28.12.2017. It is a settled legal position that mere allegation of inadequate enquiry by the AO, when the record shows enquiries and verification were in fact made, is not a valid ground to invoke section 263. The Principal Commissioner did not undertake any independent verification or prima facie investigation of the material before concluding that the AO's order was erroneous and prejudicial to the revenue, and thereby impermissibly substituted his own view for that of the AO. Reliance was placed on the Tribunal's reasoning in a cited decision of the jurisdictional High Court/Tribunal that where the same material was considered in reopening and reassessment, and no independent enquiry is conducted by the revisional authority, revision under section 263 is impermissible. Applying that principle to the present facts, the PCIT's order dated 16.03.2020 was held to be without jurisdiction and bad in law. [Paras 4, 5, 6, 7]

Order passed by the Principal Commissioner under section 263 is quashed and the appeal is allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, quashed the order passed by the Principal Commissioner under section 263 dated 16.03.2020 as bad in law, and upheld the reassessment order passed by the Assessing Officer for A.Y. 2010-11.

Deduction under section 10A of the Income Tax Act - Filing return of income under section 139 as condition precedent to claim statutory deduction - Condonation of delay under section 119(2)(b) and its effect on acceptance of claims - Power under section 263 to revise orders erroneous and prejudicial to the interest of Revenue - Remand for fresh adjudication by Assessing Officer - Mandatory versus directory nature of statutory filing requirements - Academic/infructuous appeal where issue is remitted for fresh decision

Deduction under section 10A of the Income Tax Act - Condonation of delay under section 119(2)(b) and its effect on acceptance of claims - Remand for fresh adjudication by Assessing Officer - Claim of deduction under section 10A for assessment year 2010-11 remitted to the Assessing Officer for fresh decision on merits. - HELD THAT: - The CBDT, by order dated 10.10.2022, condoned the delay in filing the return for AY 2010-11 but clarified that condonation does not amount to acceptance of claims made in the return and directed the Assessing Officer to deal with the eligibility for deduction on merits. The Tribunal accordingly held that the Assessing Officer must examine the assessee's entitlement to the deduction under section 10A in accordance with law and set aside the appellate order, remitting the matter to the Assessing Officer for fresh adjudication. [Paras 5, 6, 7, 8]

Order of the Commissioner (Appeals) set aside and matter remitted to the Assessing Officer to decide the section 10A claim on merits; appeal allowed for statistical purposes.

Power under section 263 to revise orders erroneous and prejudicial to the interest of Revenue - Academic/infructuous appeal where issue is remitted for fresh decision - Appeal against the Commissioner's order passed under section 263 for AY 2010-11 is academic and dismissed. - HELD THAT: - Since the Tribunal has remitted the question of the assessee's entitlement to deduction under section 10A back to the Assessing Officer for fresh consideration, the appeal challenging the Commissioner's exercise of power under section 263 has become academic and does not require separate adjudication. [Paras 9]

Appeal against the section 263 order dismissed as infructuous.

Deduction under section 10A of the Income Tax Act - Filing return of income under section 139 as condition precedent to claim statutory deduction - Mandatory versus directory nature of statutory filing requirements - For assessment years 2011-12 and 2012-13 the belated filing of return disentitles the assessee from claiming deduction under section 10A; appeals dismissed. - HELD THAT: - The Tribunal, following the Rajkot Special Bench decision in Saffire Garments v. ITO, held that filing the return under section 139 is a mandatory requirement to claim benefit under section 10A. The assessee's contention that the requirement is directory was rejected and the orders denying the deduction on account of belated filing were upheld. [Paras 10, 11, 12]

Appeals for AY 2011-12 and AY 2012-13 dismissed; deduction under section 10A denied due to belated filing.

Filing return of income under section 139 as condition precedent to claim statutory deduction - Condonation of delay under section 119(2)(b) and its effect on acceptance of claims - For assessment year 2009-10, absence of a condonation petition before the CBDT precludes entertaining the claim; appeal dismissed. - HELD THAT: - The Tribunal held that, in the absence of any petition for condonation of delay before the CBDT for AY 2009-10, the returns were belated and the statutory prerequisite of filing under section 139 was not satisfied; consequently the claim for deduction under section 10A could not be entertained. [Paras 13]

Appeal for AY 2009-10 dismissed.

Final Conclusion: The appeal in I.T.A. No. 522/Chny/2018 (AY 2010-11) is allowed for statistical purposes and the matter is remitted to the Assessing Officer to decide the section 10A claim on merits; the appeal against the section 263 order is dismissed as academic; appeals for AY 2009-10, 2011-12 and 2012-13 are dismissed for failure to meet the mandatory filing requirement under section 139 (no condonation for AY 2009-10; belated filing disentitles claim for AYs 2011-12 and 2012-13).

Revision jurisdiction under section 263 - Erroneous and prejudicial to the interests of revenue - Debatable or plausible view - Deduction/exemption under section 80P(2)(a)(i) - Deduction/exemption under section 80P(2)(d) - Explanation 2 to section 263 (where AO has examined the claim)

Revision jurisdiction under section 263 - Erroneous and prejudicial to the interests of revenue - Debatable or plausible view - Explanation 2 to section 263 (where AO has examined the claim) - Validity of assumption of jurisdiction by the Pr. CIT under section 263 in setting aside the assessment order dated 14.05.2019. - HELD THAT: - The power of revision u/s 263 can be invoked only if the assessment order is both erroneous and prejudicial to the interests of the revenue, and the error must be such that it is not a debatable or plausible view. Where the Assessing Officer has examined the claim and taken a plausible view, the order cannot be termed erroneous. The Tribunal found that the question whether interest earned on investments with cooperative banks qualified for deduction under section 80P was the subject of competing judicial opinions, and that coordinate bench decisions of the Pune Tribunal and certain High Courts supported the assessee's claim. In these circumstances the assumption of jurisdiction by the Pr. CIT was not sustainable and Explanation 2 to section 263, invoked to contend that the AO failed to examine the issue, did not justify revision. [Paras 10, 11]

Assumption of jurisdiction by the Pr. CIT under section 263 quashed; revision order set aside.

Deduction/exemption under section 80P(2)(a)(i) - Deduction/exemption under section 80P(2)(d) - Debatable or plausible view - Whether interest income earned on investments with cooperative banks is eligible for deduction/exemption under sections 80P(2)(a)(i) and 80P(2)(d). - HELD THAT: - The Tribunal applied and followed coordinate-bench precedent holding that interest earned by a cooperative society on funds invested with cooperative banks (being a species of cooperative society) is eligible for deduction/exemption under section 80P(2)(d) and also qualifies for exemption under section 80P(2)(a)(i). Given the existence of such binding/coordinate authority and the fact that the issue admits of a plausible view in favour of the assessee, the assessment could not be reopened under section 263 as erroneous and prejudicial to revenue. [Paras 10, 11]

Interest income on investments with cooperative banks held eligible for deduction/exemption under section 80P provisions; this view defeats the grounds for revision under section 263.

Final Conclusion: The appeal is allowed; the Pr. CIT's order passed under section 263 is quashed and cannot be sustained, and the assessment order accepting the returned income is restored.

Invocation of bank guarantee - Export Promotion Capital Goods (EPCG) authorisation - representation to Director General of Foreign Trade (DGFT) - abeyance of enforcement / stay of invocation - two weeks' advance notice before invocation - time bound decision by authority

Representation to Director General of Foreign Trade (DGFT) - time bound decision by authority - remand for fresh consideration - The petitioner's pending representation(s) shall be treated together and decided by the DGFT within a specified time frame. - HELD THAT: - The Court directed that the representation dated 11th June, 2021 together with the averments made in Writ Petition (C) 5197/2021 and the present petition be considered comprehensively as a single representation by the DGFT. The Court remitted the matter to the DGFT for fresh consideration and directed a time bound disposal, requiring a decision to be taken on the consolidated representation by 31st January, 2023. The order leaves the merits to be determined by the DGFT in accordance with law and records that the petitioners shall be heard as part of that process.

DGFT to consider the consolidated representation and decide it by 31st January, 2023 (remanded for fresh consideration).

Invocation of bank guarantee - two weeks' advance notice before invocation - abeyance of enforcement / stay of invocation - Bank guarantees furnished by the petitioner shall not be invoked without two weeks' advance notice to the petitioner and enforcement has been kept in abeyance pending compliance with the Court's directions. - HELD THAT: - Noting that the Customs Authority had kept enforcement in abeyance after being informed of the Court's earlier directions, the Court directed that, in the interim until the DGFT decides the consolidated representation, the petitioner's bank guarantees shall not be invoked save after giving two weeks' advance notice to the petitioner at the specified e mail addresses. This direction implements and preserves the procedural protection previously ordered by the Court, ensuring the petitioner an opportunity to avail of remedies before invocation.

Bank guarantees shall not be invoked without two weeks' advance e mail notice to the petitioner; enforcement is to remain in abeyance in accordance with these directions.

Redemption of EPCG authorisation - notification to DGFT of subsequent redemptions - Any further redemption of EPCG authorisations by the petitioner in the interim must be brought to the notice of the DGFT. - HELD THAT: - The Court required that if the petitioner redeems any additional EPCG authorisations while the representation is pending, such redeptions shall be notified to the DGFT. This ensures that the authority has up to date information relevant to its decision on the consolidated representation.

Petitioner to inform DGFT of any further EPCG redemptions during the pendency of the representation.

Right to avail remedies - post decision interim protection - If the DGFT rejects the petitioner's representation, the petitioner shall be afforded four weeks to avail of remedies, during which period the bank guarantees shall not be invoked. - HELD THAT: - The Court provided an additional interim protective measure by directing that, in the event the DGFT rejects the consolidated representation, the petitioner shall have four weeks' time to pursue available remedies in accordance with law. For that four week period, invocation of the bank guarantees is restrained, thereby allowing the petitioner a short window to seek appropriate relief post decision.

On rejection of the representation, petitioner granted four weeks to pursue remedies and bank guarantees shall remain uninvoiced during that period.

Final Conclusion: The Court disposed of the writ petition by directing the DGFT to consider the consolidated representation and decide it by 31st January, 2023; in the interim bank guarantees shall not be invoked without two weeks' advance e mail notice, the petitioner must inform the DGFT of any further EPCG redemptions, and if the representation is rejected the petitioner shall have four weeks to avail of remedies while invocation of bank guarantees remains stayed for that period.

Restoration of company struck off - justness as ground for restoration - discretion of Tribunal under Section 252(3) - Registrar's power to strike off under Section 248 - reasonable cause to believe - no jurisdiction to levy penalties on restoration but power to impose costs - filing of outstanding statutory documents as condition of restoration

Restoration of company struck off - justness as ground for restoration - discretion of Tribunal under Section 252(3) - Registrar's power to strike off under Section 248 - Whether the Appellate Tribunal should set aside the NCLT order and restore the name of the Company struck off by the RoC. - HELD THAT: - The Tribunal held that the right to seek restoration of a struck off company's name is not extinguished until the twenty year period prescribed in law expires and that Section 252(3) empowers the Tribunal to order restoration if the company was carrying on business or if it is otherwise just to restore the name. Although non filing and lapses by the company's management were established, the Appellant demonstrated ongoing commercial activity (bank transactions, payment of salaries, pendency of multiple legal proceedings to recover admitted receivables) and an intention to cure statutory defaults by filing outstanding statutory documents. The Tribunal accepted that the Registrar's power to strike off under Section 248 may be exercised where there is a reasonable cause to believe a company is not carrying on business, but emphasised that the expression "or otherwise" in Section 252(3) permits restoration where it is just, equitable and fair to do so. In exercise of its discretionary jurisdiction the Tribunal found that restoration would prevent irreparable hardship and that laches could appropriately be met by imposing costs and conditioning restoration on compliance with statutory filings and payment of applicable fees and charges. The Tribunal, therefore, intervened, set aside the impugned order and directed restoration subject to conditions (filing outstanding documents, payment of late fees/charges and payment of costs to be produced for verification). [Paras 45, 48, 49, 50]

The appeal is allowed; the NCLT order is set aside and the notice of striking off/dissolution is set aside, and the company's name is ordered to be restored to the Register of Companies subject to filing all outstanding statutory documents, payment of applicable late fees/charges and payment of costs as directed.

No jurisdiction to levy penalties on restoration but power to impose costs - filing of outstanding statutory documents as condition of restoration - What conditions may be imposed by the Tribunal when ordering restoration of a struck off company. - HELD THAT: - The Tribunal reiterated that while a court or Tribunal restoring a company has no jurisdiction to impose statutory penalties for past defaults, it may, as a condition of restoration, impose costs. Restoration was therefore made conditional on the Appellant filing all outstanding statutory returns and financial statements, completing statutory formalities including payment of any late fees or prescribed charges leviable for late filing, and payment of costs to the fund specified by the Tribunal, with production of receipt for verification before the Registrar prior to restoration taking effect. [Paras 43, 46, 50]

Restoration is conditioned on filing of all outstanding statutory documents and completion of statutory formalities including payment of late fees/charges and payment of costs, compliance with which is to be verified by the Registrar before restoration is effective.

Final Conclusion: Company Appeal (AT) No. 28 of 2021 is allowed; the NCLT order dated 04.01.2021 and the Registrar's Form STK 7 entry striking off the company's name are set aside. Restoration of the company's name is directed, subject to the appellant filing all outstanding statutory documents, completing statutory formalities including payment of applicable late fees/charges and payment of costs as directed, with verification by the Registrar.

Validity of board meeting and appointments - forgery and fabrication of corporate records - admissibility and weight of forensic opinion evidence - quorum for board meetings - allotment of shares and rectification of register of members - removal of directors and its validity - jurisdiction of company tribunal to entertain acts of oppression and mismanagement - pendency of criminal proceedings not a bar to civil/tribunal adjudication

Validity of board meeting and appointments - quorum for board meetings - forgery and fabrication of corporate records - The Board meeting dated 01.10.2012 did not take place and the appointments of Respondents 2 to 5 made purportedly at that meeting are invalid. - HELD THAT: - The Tribunal examined documentary and expert evidence and concluded that the minutes and associated documents were fabricated. Independent forensic opinions (Truth Labs and Andhra Pradesh Forensic Science Laboratories) concluded signatures did not match and indicated forgery; immigration records showed one alleged attendee was abroad on the date; consent letters bore DINs that were allotted only subsequently (indicating backdating); and Form 32 was uploaded using a DSC alleged to have been procured by forgery. The pendency of a criminal prosecution concerning the alleged forgery did not preclude the NCLT from relying on the forensic and contemporaneous documentary material to find that the meeting never took place and hence the purported appointments were void. The Tribunal therefore rejected the contention that disputed criminal facts rendered the Company-tribunal conclusion impermissible. [Paras 12, 13, 14, 15, 16]

Finding that the Board meeting of 01.10.2012 never took place; the appointments made at that meeting are invalid.

Allotment of shares and rectification of register of members - forgery and fabrication of corporate records - jurisdiction of company tribunal to entertain acts of oppression and mismanagement - The allotments of shares dated 04.03.2013 and 22.04.2013 to certain persons were illegal and liable to be cancelled with the register of members rectified. - HELD THAT: - The NCLT's findings that the allotments were illegal flowed from its conclusion that the underlying board meeting and Form 32 entries were fabricated and that the DSC used to file records was obtained by forgery. The Appellants' plea that the petition did not plead oppression and mismanagement was rejected: the Tribunal held that actions such as illegal allotment and alteration of shareholding fall within the scope of acts of oppression and mismanagement under Sections 241/242 (formerly 397/398). Consequently, the NCLT was held to be competent to order cancellation of the allotments and correction of the register. [Paras 4, 5, 10, 15, 16]

Allotments on 04.03.2013 and 22.04.2013 declared illegal; directions to cancel the allotments and rectify the register of members upheld.

Removal of directors and its validity - jurisdiction of company tribunal to entertain acts of oppression and mismanagement - The removal of the petitioners from directorship at the AGM held on 07.09.2013 was illegal and void. - HELD THAT: - Given the Tribunal's determination that the subsequent changes in directorship and shareholding were tainted by fabricated records and illegal filings, it found that the removal of petitioners under the purported processes was invalid. The Tribunal also addressed the threshold contention that proceedings under Sections 241/242 require specific pleading of oppression and mismanagement, holding that changes such as removal of directors and manipulative allotments are matters within the statutory ambit and thus properly adjudicated by the company tribunal. [Paras 4, 5, 10, 15, 16]

Removal of the petitioners from directorship held illegal and set aside.

Final Conclusion: The Appellate Tribunal found no error in the NCLT's conclusion that the Board meeting of 01.10.2012 and consequent corporate acts were fabricated, that the subsequent allotments and removals were illegal and fell within acts of oppression and mismanagement, and accordingly dismissed the appeal and upheld the NCLT order; no costs were awarded.

Breach of privacy by interception/recording of telephone calls without consent - penalty for breach of confidentiality and privacy under the Information Technology Act - criminal breach of trust and cheating under the Indian Penal Code (sections 409 and 420) - criminal conspiracy under section 120B IPC - criminal misconduct by a public servant under section 13(1)(d) of the Prevention of Corruption Act - PMLA requirement that proceeds of crime arise from a scheduled offence - grant of bail under section 45 of the PMLA

Breach of privacy by interception/recording of telephone calls without consent - right to privacy under Article 21 - Recording or tapping of phone lines without the consent of the individuals concerned is prima facie a breach of the right to privacy. - HELD THAT: - The court, applying the constitutional principle recognised in K.S. Puttaswamy, held prima facie that recording or tapping phone lines without consent infringes the right to privacy under Article 21. The court observed that consent is essential for such recording and that only State-authorised interception might be permissible subject to constitutionally permissible restrictions; however this bail proceeding does not decide the final merits of privacy or Telegraph Act violations. [Paras 31, 32, 33, 35]

Prima facie conclusion that non-consensual recording interferes with the right to privacy.

Penalty for breach of confidentiality and privacy under the Information Technology Act - scope of section 72 IT Act - Section 72 of the IT Act is not attracted insofar as the accused or ISEC were not acting 'in pursuance of any of the powers conferred under' the IT Act or the rules/regulations thereunder. - HELD THAT: - The court identified three requirements in section 72 and emphasised that the provision penalises persons acting pursuant to powers conferred under the IT Act. The applicant and ISEC had no statutory powers under the IT Act; their activities arose from a contractual engagement with NSE. Consequently, the court found that no offence under section 72 is made out on the material before it and that invocation of section 72 in the prosecution is misplaced. [Paras 40, 41, 42, 43, 44]

Section 72 IT Act cannot be invoked against the applicant on the present material.

Criminal breach of trust and cheating under the Indian Penal Code (sections 409 and 420) - essential ingredients of cheating and criminal breach of trust - Prima facie the ingredients of sections 409 and 420 IPC are not made out on the material before the court. - HELD THAT: - The court examined the elements of section 409 (entrustment and dishonest misappropriation) and section 420 (cheating requiring dishonest inducement to deliver property). It noted that NSE and ISEC had an express contractual relationship, payments were for services rendered, no victim has been identified as having suffered wrongful loss, and there is no allegation of misappropriation or dishonest inducement in the prosecution complaint. On broad probabilities, the court concluded that the essential ingredients for these scheduled offences are not established prima facie. [Paras 50, 51, 54, 55, 56]

Prima facie absence of the ingredients of sections 409 and 420 IPC.

Criminal conspiracy under section 120B IPC - existence of dishonest intent/meeting of minds - Prima facie no criminal conspiracy under section 120B IPC is made out on the material before the court. - HELD THAT: - The court observed that call-recording at NSE pre-dated ISEC's engagement and that recording was part of an ongoing arrangement since 1997. Given the contractual context and absence of evidence of an agreement to commit an illegal act, the element of criminal intent or meeting of minds necessary for criminal conspiracy is not prima facie established. Consequently, section 120B read with sections 409 and 420 is not made out on broad probabilities. [Paras 58, 59, 63]

Prima facie absence of criminal conspiracy under section 120B IPC.

Criminal misconduct by a public servant under section 13(1)(d) of the Prevention of Corruption Act - requirement of corrupt or illegal means and pecuniary advantage - Offences under section 13(1)(d) read with 13(2) of the PC Act are not made out against the applicant on the material before the court. - HELD THAT: - The court noted the essential ingredients of section 13(1)(d): a public servant using corrupt or illegal means or abusing position to obtain pecuniary advantage. The applicant was not a public servant during the relevant contractual period (2009-2011) and, in any event, no allegation of bribery, illegal gratification or abuse of office to obtain pecuniary advantage is made out. Payments were contractual remuneration and shown in tax returns. On broad probabilities the elements of criminal misconduct are absent. [Paras 68, 69, 70, 71, 72]

Prima facie absence of an offence under section 13(1)(d) PC Act against the applicant.

PMLA requirement that proceeds of crime arise from a scheduled offence - application of section 3 PMLA and grant of bail under section 45 PMLA - PMLA is not attracted prima facie because no scheduled offence (as alleged) is made out and therefore no proceeds of crime have been shown to exist; consequently the conditions in section 45 PMLA for grant of bail are satisfied on broad probabilities. - HELD THAT: - Relying on the Supreme Court's guidance in Vijay Madanlal Choudhary, the court held that PMLA applies only when property is derived from a scheduled offence and thereafter dealt with as proceeds of crime. As the court was prima facie of the view that the scheduled offences (sections 72 IT Act, 120B r/w 409 & 420 IPC, and 13(2) r/w 13(1)(d) PC Act) are not made out, there is no basis to treat the sums received as proceeds of crime under section 2(u) PMLA. Applying section 45 PMLA, the court found that the public prosecutor had opportunity to oppose bail and that there were reasonable grounds to believe the accused was not guilty and was not likely to commit an offence while on bail. [Paras 80, 81, 82, 83, 84]

Prima facie PMLA is not attracted; on broad probabilities the court found reasonable grounds under section 45 PMLA to grant bail.

Conditional grant of bail - The applicant is granted regular bail subject to specified terms and conditions. - HELD THAT: - Having found on broad probabilities that the scheduled offences and PMLA offences are not prima facie made out and that the statutory conditions of section 45 PMLA were satisfied (including opportunity to oppose bail), the court allowed the bail application and imposed customary conditions including execution of personal bond with sureties, cooperation with investigation, non-departure from the country, surrender of passport, prohibition on tampering with witnesses/evidence, and maintenance of a working mobile number for contact with the investigating officer. [Paras 84, 85, 86]

Bail granted on specified conditions.

Final Conclusion: On broad prima facie assessment the court held that the scheduled offences invoked by the prosecution (section 72 IT Act; sections 120B read with 409 and 420 IPC; and section 13(2) read with 13(1)(d) PC Act) are not made out and therefore PMLA is not attracted; accordingly, having satisfied the requirements of section 45 PMLA, the applicant was granted bail on enumerated conditions.

Valuation under Section 4(1) of the Central Excise Act (normal price/transaction value) - related party transactions and use of independent sale price as benchmark - residuary Rule 11 of the Central Excise Valuation Rules (use of reasonable means) - application of Rule 9 of the Central Excise Valuation Rules to related-party sales - binding nature of CBEC Circulars issued under Section 37B - conflict between departmental circular and statutory provisions/judicial precedent - extended period of limitation for suppression of facts and levy of penalty

Binding nature of CBEC Circulars issued under Section 37B - conflict between departmental circular and statutory provisions/judicial precedent - Validity and binding effect of the CBEC Circular dated 01.07.2002 (Point No.12) vis-a -vis the CEA and the CEVR. - HELD THAT: - The Court held that circulars issued under the Board's power are binding on the Revenue unless they are contrary to the statute or to binding judicial precedent. Past decisions recognise that departmental instructions bind the executive, but courts are not bound by circulars when they conflict with the statute or authoritative judicial interpretation. Applying those principles, the Court examined Point No.12 of the Circular and concluded that it is not contrary to the Central Excise Act or the Valuation Rules. The Circular's direction to use Rule 11 read with Rule 9 or 10 when sales are partly to related and partly to independent buyers merely mandates the use of "reasonable means" consistent with Section 4(1) and the Rules. Consequently the Circular remains binding on the Department and is consistent with statutory provisions and this Court's jurisprudence. [Paras 19, 24, 36]

Point No.12 of the CBEC Circular dated 01.07.2002 is not contrary to the CEA or the CEVR and is binding on the Revenue.

Valuation under Section 4(1) of the Central Excise Act (normal price/transaction value) - related party transactions and use of independent sale price as benchmark - residuary Rule 11 of the Central Excise Valuation Rules (use of reasonable means) - application of Rule 9 of the Central Excise Valuation Rules to related-party sales - Proper method for determining assessable value where sales are made partly to independent buyers and partly to related parties. - HELD THAT: - The Court explained that Section 4(1)(a) embodies a deeming of the 'normal price' where sales to independent buyers satisfying the statutory conditions are available. Where both independent and related party sales exist, the price charged to independent buyers can be used as the benchmark for related-party transactions, subject to non-mechanical application and due consideration of distinguishing factors. Rule 11 is the residuary provision requiring use of "reasonable means" consistent with Section 4(1) and the Rules; Point No.12 of the Circular effectively channels the Revenue to apply Section 4(1)(a) and Rule 9 via Rule 11 in such mixed-sale scenarios. Prior precedents (including SACI Allied and Xerographic) support using independent sale prices as the basis for related-party valuation when available. The Revenue must apply its mind and consider relevant material before transposing prices; a mere mechanical transposition without quasi judicial consideration would be impermissible. [Paras 33, 35, 40]

Where normal price to independent buyers is available, that price may be transposed to related-party sales to determine assessable value, applying Rule 11 as a residuary check and ensuring non-mechanical, reasoned application.

Extended period of limitation for suppression of facts and levy of penalty - binding nature of CBEC Circulars issued under Section 37B - Validity of invocation of the extended limitation period and imposition of interest and penalties in the circumstances of this case. - HELD THAT: - The Court noted there was a factual finding of suppression against the assessee, which ordinarily permits invocation of the extended five-year period and levy of interest and penalty. However, because the Department itself had been unclear about the correct valuation methodology (and given the binding Circular and its proper application), the Court exercised its discretion to disallow the imposition of interest and penalties arising from the valuation issue. The substantive demand for excise duty was confirmed (based on application of independent sale price as benchmark), but the additional fiscal consequences (interest and penalty) were not sustained. [Paras 38, 40]

Demand for excise duty confirmed; invocation of extended limitation period noted on findings of suppression but interest and penalties are not imposed in view of the Department's uncertainty on valuation methodology.

Final Conclusion: Civil Appeal allowed: the CBEC Circular (01.07.2002, Point No.12) is not contrary to the CEA/CEVR and is binding on the Revenue; the assessable value for related party sales may be determined by reference to the normal price charged to independent buyers subject to reasoned application of Rule 11 and the Rules; the duty demand is confirmed but interest and penalties are set aside.

Inadmissibility of statement for non-production for cross-examination under Section 9D - reliability of third party private documents (notebook) as basis for quantification - evidence of clandestine manufacture or unaccounted removal - requirement to investigate and link transport records to accused consignor - principles of natural justice in production/inspection of relied documents

Inadmissibility of statement for non-production for cross-examination under Section 9D - reliability of third party private documents (notebook) as basis for quantification - Admissibility and reliability of the note book and statement of Mr. Javed Gamir Sheikh relied upon to quantify and raise demand. - HELD THAT: - The Tribunal found that the entries in the note book recovered from a third party godown were said to be made by Mr. Javed Gamir Sheikh, but the Revenue did not produce him for cross examination despite relying on his statement and the note book to quantify the duty demand. The partner of the transport firm disowned both the maintenance of the register and contradicted Javed Gamir Sheikh's statement. On these facts the Tribunal held the note book to be an unreliable piece of evidence and the statement of Mr. Javed Gamir Sheikh to be inadmissible in view of non production for cross examination under Section 9D, rendering the primary evidentiary basis for the demand unsustainable. [Paras 9]

The note book is not reliable and the statement of Mr. Javed Gamir Sheikh is inadmissible; they cannot support the duty quantification.

Evidence of clandestine manufacture or unaccounted removal - reliability of ancillary documents recovered from third parties - Whether there was any admissible evidence of clandestine manufacture or unaccounted removal of Goa 1000 gutkha from the appellants' factory. - HELD THAT: - The Tribunal recorded that inspections at the appellants' factory disclosed only negligible variations in stocks and no evidence of clandestine manufacture or unaccounted removal. Documents recovered from third parties were found to pertain to other manufacturers and were erroneously relied upon by the Revenue. Witnesses relied upon by Revenue did not identify any receiver or buyer linked to the appellants and their statements did not survive cross examination. On this basis the Tribunal concluded the demand rested on assumptions and presumptions rather than admissible corroborative evidence. [Paras 11]

There is no admissible evidence of clandestine manufacture or unaccounted removal by the appellants; the demand is unsupported.

Requirement to investigate and link transport records to accused consignor - principles of natural justice in production/inspection of relied documents - Adequacy of investigation and compliance with principles of natural justice in relying on transport records and other documents without proper inquiry or furnishing for inspection. - HELD THAT: - The Tribunal noted that the transporter alleged to have booked consignments from Jodhpur (M/s. KGN Transport) was never investigated, and that statements and documents suggested multiple transporters and manufacturers for the same brand. The Revenue failed to conduct enquiries at the Jodhpur end or to identify buyers/receivers linked to the appellants. Further, the adjudicating authority relied on communications and documents from the investigating agency without making them available to the appellants for inspection, depriving them of effective opportunity to meet the case. These investigative omissions and the denial of inspection of relied documents undermined the case against the appellants. [Paras 10, 11]

Investigation was inadequate and documents relied upon were not properly furnished for inspection; procedural and evidentiary deficiencies vitiate the demand.

Final Conclusion: Appeals allowed. The impugned order in original confirming duty, penalties and confiscation is set aside as founded on inadmissible and unreliable evidence and on inadequate investigation; appellants to receive consequential benefits in accordance with law.

Area based exemption - price-cum-duty - explanation to Section 4(1)(b) - Cenvat credit - SSI benefit - penalty under Section 11AC

Price-cum-duty - explanation to Section 4(1)(b) - Re-calculation of duty on cum-duty basis where excise duty was not separately collected owing to claim of Area based exemption - HELD THAT: - The Tribunal held that, as the appellant admittedly did not collect Central Excise duty separately because of its claim to Area based exemption, the sale price realized must be treated as price-cum-duty and duty demand recalculated accordingly. The conclusion follows from the explanation inserted in Section 4(1)(b) which deems the sale price, excluding sales tax and other taxes actually paid, to include the duty payable where duty was not separately charged. Having considered competing authorities, the Tribunal applied the amended statutory concept of price-cum-duty to allow recalculation of the demand on that basis. [Paras 11]

Duty demand to be recalculated treating the sale price as price-cum-duty in accordance with the explanation to Section 4(1)(b).

Cenvat credit - Entitlement to adjust Cenvat credit against the recalculated duty demand - HELD THAT: - The Tribunal held that the appellant is entitled to avail and adjust legitimate Cenvat credit on inputs and input services while quantifying the liability. This follows from the statutory scheme of the Central Excise Act read with the Cenvat Credit Rules, which permit credit of duty on inputs, capital goods and input services. The demand payable therefore must be recomputed after allowing Cenvat credit, subject to verification under the Rules. [Paras 12]

Demand to be re-quantified after allowing/adjusting admissible Cenvat credit subject to verification by officers.

SSI benefit - Claim to SSI (Small Scale Industry) benefit for the period April 2015 to December 2015 - HELD THAT: - The Tribunal accepted that the appellant claimed SSI benefit for April 2015 to December 2015 and recorded entitlement to that benefit subject to fulfillment of other conditions under the relevant notification. The finding is limited to allowing the appellant to avail the exemption if it satisfies the statutory and notification conditions applicable to that period. [Paras 13]

Appellant entitled to SSI benefit for April 2015 to December 2015, subject to compliance with other conditions under the notification.

Penalty under Section 11AC - Validity of penalties imposed under Section 11AC on the appellant-company and its Managing Director - HELD THAT: - On the facts found, the Tribunal concluded there was no misrepresentation, suppression or fraud. The appellant had a bona fide belief in entitlement to Area based exemption and similar manufacturers in the locality had availed the benefit. In these circumstances the Tribunal held that the statutory ingredients justifying penalty under Section 11AC were not made out and therefore set aside the penalties both on the company and on its Managing Director. [Paras 14]

Penalties under Section 11AC imposed on the appellant and its Managing Director are set aside.

Final Conclusion: Appeals partly allowed: impugned orders modified to permit recalculation of duty on a price-cum-duty basis with allowance for admissible Cenvat credit, SSI exemption for April 2015-December 2015 if conditions satisfied; penalties under Section 11AC on the company and its Managing Director set aside; CENVAT credit admissible subject to verification.

Extended period of limitation under Section 11A - self-assessment and scrutiny of returns - application of Central Excise Valuation Rules (Rules 9, 10 and 11) - transaction value and related persons under Section 4 - inter-connected undertakings - time-barred demand - onus of proof for relatedness

Extended period of limitation under Section 11A - self-assessment and scrutiny of returns - time-barred demand - Whether extended period of limitation under Section 11A could be invoked against the appellant for the disputed period - HELD THAT: - The Tribunal held that Revenue's contention-that working under self-assessment renders any deficiency a suppression warranting invocation of the extended period-would nullify the normal one-year limitation and is not sustainable. The statutory scheme contemplates self-assessment coupled with mandated scrutiny by officers; if officers fail to scrutinise returns timely, that lapse does not convert an assessee's mistake into deliberate suppression. The limitation period is to be reckoned from the date of filing of the ER-1 return or the last date for filing it. Consequently, the extended period could not be invoked for a portion of the demand and the demand prior to September 2014 is time-barred. [Paras 14, 15, 16, 17, 39]

Extended period under Section 11A wrongly invoked for part of the demand; demand prior to September 2014 is time-barred.

Application of Central Excise Valuation Rules (Rules 9, 10 and 11) - transaction value and related persons under Section 4 - time-barred demand - Whether valuation was correctly determined under Valuation Rule 11 (read with Rules 4 & 7) when part sales were to related parties and part to independent buyers, and which Valuation Rules apply for the post-2013 period - HELD THAT: - The Tribunal analysed the 2013 amendment to the Valuation Rules and found that after amendment, where whole or part of sales are to related persons, Rules 9 and 10 apply and Rule 11 cannot be resorted to. The SCN, original order and impugned order invoked pre-amendment provisions and, in any event, invoked Rule 11 read with Rules 4 & 7 without establishing facts (such as absence of sale at time or place of removal) necessary to attract Rules 4 or 7. For the normal period (post-amendment) Rules 9 & 10 should have been considered; they were not invoked or applied and no demand was confirmed under Rules 9 & 10. Accordingly, the demand founded on Rule 11 (and the related invocation in the impugned order) is unsustainable for the relevant normal period. [Paras 23, 24, 28, 32, 39]

Valuation Rules were misapplied; for the post-2013 normal period Rules 9 & 10 apply and Rule 11 (as invoked) cannot sustain the demand.

Inter-connected undertakings - transaction value and related persons under Section 4 - onus of proof for relatedness - Whether the appellant and the two buyers (Vandana and Shivali) were 'related persons' or 'inter-connected undertakings' so as to sustain valuation and demand on merits - HELD THAT: - The Tribunal observed that the companies involved are corporate entities, so clauses concerning relatives or distributor relationships were inapplicable. The allegation rested on declarations in the appellant's financial statements indicating that key personnel had significant influence over the buyers. While this fact raised a possibility of common control (and thus inter-connected undertakings under the Explanation to Section 4), the SCN and record did not contain sufficient particulars or supporting evidence to establish inter-connection or control as required by Section 4's Explanation. Further, even if inter-connection were established but the entities were not related in other manners within Section 4, Rule 10(b) mandates valuation as if they are not related. On the evidence, the Revenue failed to discharge the onus to prove relatedness that would sustain the demand on merits. [Paras 33, 35, 37, 38, 39]

Evidence insufficient to hold the parties as related or interconnected for valuation; even if interconnected but not otherwise related, valuation must be as if not related and the demand does not sustain on merits.

Final Conclusion: The impugned order is set aside and the appeal allowed. The demand for the period prior to September 2014 is time-barred; for the normal period after the 2013 amendment the appropriate Valuation Rules (9 & 10) were not invoked and Rule 11 was misapplied; evidence is insufficient to establish relatedness or inter-connection that would sustain the demand, and consequential relief, if any, is granted to the appellant.