TMI Tax Updates e-Newsletter
May 13,2025

(i) Whether the writ petition challenging the show cause notice issued under Section 74(1) of the CGST Act, 2017 is maintainable in view of the availability of an alternate statutory remedy under the CGST Act;

(ii) Whether the issuance of the show cause notice was in violation of the principles of natural justice or tainted by any pre-conceived mind;

(iii) Whether the amendment to the explanation to Section 16(2)(b) of the CGST Act should be applied retrospectively;

(iv) Whether proceedings under Section 74 of the CGST Act survive in the absence of willful suppression;

and (v) The scope and limits of the High Court's writ jurisdiction under Article 226 of the Constitution in the context of tax proceedings initiated under the CGST Act.

Issue-wise Detailed Analysis

1. Maintainability of Writ Petition Against Show Cause Notice in Presence of Alternate Remedy

The Court examined the principle that where a statute creates a right and prescribes a specific statutory remedy for enforcement or challenge, that remedy must ordinarily be exhausted before invoking the discretionary writ jurisdiction under Article 226 of the Constitution. The CGST Act provides an alternate statutory remedy under Section 107 for aggrieved parties to challenge orders passed in adjudication proceedings.

The Court relied on authoritative precedents, including a three-judge bench decision of the Supreme Court which held that the existence of an alternate remedy is not an absolute bar to writ jurisdiction but writ petitions are maintainable only in exceptional circumstances such as breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to the vires of legislation.

In the instant case, the petitioner had challenged a mere show cause notice issued under Section 74(1) of the CGST Act, which was yet to be adjudicated. The Court observed that the petitioner had not established any exceptional circumstance warranting bypass of the alternate remedy. The show cause notice was not shown to have been issued with pre-conceived mind or in violation of natural justice. The proceedings were at a preliminary stage and it was premature to quash the notice by writ jurisdiction.

The Court referred to a recent Supreme Court judgment wherein the High Court had prematurely entertained a writ petition against a show cause notice and granted relief which was set aside on appeal, emphasizing the need to exhaust statutory remedies.

Thus, the Court concluded that the writ petition was not maintainable on the ground of availability of efficacious alternate remedy and the petitioner must pursue the remedy under Section 107 of the CGST Act after adjudication of the show cause notice.

2. Alleged Violation of Natural Justice and Pre-conceived Mind

The petitioner contended that the show cause notice was issued with a pre-conceived mind and violated principles of natural justice. The Court examined the material on record, including the detailed show cause notice running into 15 pages and the submissions made by the petitioner before the authorities.

The Court held that mere issuance of a show cause notice does not imply violation of natural justice or bias. The petitioner had opportunity to file detailed replies and produce evidence. The proceedings were at a preliminary stage, and the adjudicating authority was yet to consider the merits. Hence, no ground existed to interfere at this stage.

The Court underscored that the principles of natural justice would be fully observed during adjudication and the petitioner's rights would be protected in that process.

3. Retrospective Application of Amendment to Explanation to Section 16(2)(b)

The petitioner sought a writ mandamus holding that the amendment to the explanation to Section 16(2)(b) of the CGST Act be applied retrospectively to validate the input tax credit claimed for the period 2017-18 to 2021-22.

The Court did not express any opinion on this issue as it was not necessary at the maintainability stage. The question of retrospective applicability and entitlement to input tax credit was to be adjudicated by the appropriate authority in the statutory proceedings.

4. Survival of Proceedings Under Section 74 Without Willful Suppression

The petitioner argued that proceedings under Section 74 of the CGST Act, which deals with determination of tax not paid or short paid due to fraud or willful misstatement or suppression of facts, do not survive in absence of willful suppression.

The Court observed that this issue was also a matter of fact and merits to be examined by the adjudicating authority. No determination could be made at the writ stage against the petitioner's claim. The petitioner was free to raise this defence during adjudication.

5. Scope of High Court's Writ Jurisdiction in Tax Matters

The Court reiterated the settled principle that writ jurisdiction under Article 226 is discretionary and not a substitute for statutory remedies. It is to be exercised sparingly in tax matters where detailed statutory procedures exist.

The Court highlighted exceptions where writ jurisdiction may be invoked, such as violation of fundamental rights, natural justice, jurisdictional errors, or constitutional validity challenges. None of these exceptions were found applicable in the present case.

Significant Holdings

"The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation."

"Merely because the petitioner has been served with the show cause notice would not mean that the same has been issued with the pre-conceived mind and in violation of natural justice. The proceedings are still at the stage of show cause notice, which has been assailed in the instant case. Therefore, the petitioner cannot raise this claim, that too, at this stage."

"It is premature for the High Court to quash a show cause notice by invoking Article 226 of the Constitution of India. It is premature for the High Court to opine anything whether there was any evasion of tax or not, the same is required to be considered in an appropriate proceedings for which show cause notice has already been issued to the petitioner."

"When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This Rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion."

"All the contentions/defences which may be available to the petitioner are kept open to be considered by the appropriate authority in accordance with law and on its own merits."

In conclusion, the Court dismissed the writ petition as not maintainable, emphasizing the primacy of statutory remedies under the CGST Act and the premature nature of challenging a show cause notice by writ petition. The petitioner was directed to pursue its grievance through the prescribed statutory channels, preserving all substantive defenses for adjudication by the competent authority.

The core legal questions considered by the Court in this matter are:

• Whether the petitioner is entitled to pre-arrest bail under Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) in the complaint registered under Sections 132(1)(b) and 132(1)(c) of the Central Goods and Service Tax Act, 2017 (GST Act) read with corresponding Punjab GST provisions.
• Whether the petitioner has been falsely implicated in the alleged offences involving issuance and use of false invoices without actual supply of goods.
• Whether the petitioner has any role, proprietorship, or partnership in the firms implicated in the complaint, namely M/s Disha Enterprises, Sarthak Enterprises, and Kashbhi Accessories Point.
• Whether the petitioner has cooperated with the investigation or is evading the process of law.
• Whether custodial interrogation of the petitioner is necessary for further investigation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Pre-Arrest Bail under Section 482 BNSS

Relevant Legal Framework and Precedents: Section 482 BNSS empowers the High Court to exercise inherent powers to prevent abuse of process of law and to secure the ends of justice, including granting pre-arrest bail. The Court must balance the right of the accused against the need for effective investigation and prosecution, especially in economic offences under GST laws.

Court's Interpretation and Reasoning: The Court examined the allegations and the evidence produced by the respondents, including the statements of a key witness, the Director-cum-Authorized Signatory of M/s Jay Kay Hosiery Mills Pvt. Ltd., recorded under Section 70 of the CGST Act. The statements reveal that the petitioner was involved in trading fake invoices without actual supply of goods and availed substantial input tax credit (ITC) amounting to Rs. 84.19 crore.

Key Evidence and Findings: The witness identified the petitioner as the person managing three firms used for issuing false invoices. The petitioner provided GST and account numbers of these firms, facilitating money transfers. The witness also confirmed that the petitioner did not deal directly with buyers but coordinated through a middleman, Mr. Ripan Kumar Jain. Numerous invoices and e-waybill analyses indicated no actual movement of goods, confirming the fraudulent nature of transactions.

Application of Law to Facts: The GST Act criminalizes issuance and use of false invoices to claim ITC. The petitioner's involvement in managing firms issuing such invoices and availing ITC without supply of goods constitutes an offence under Sections 132(1)(b) and 132(1)(c) of the GST Act. Given the prima facie evidence, the Court found that the petitioner's custodial interrogation is essential for unearthing the truth.

Treatment of Competing Arguments: The petitioner contended that he was falsely implicated, had no proprietorship or partnership in the firms, and had no role in the alleged crime. He also claimed non-receipt of complaint and expressed willingness to cooperate. The respondents countered that the petitioner was deliberately evading the process of law despite repeated notices and was the key person managing the firms.

Conclusions: The Court found the petitioner's contentions unsubstantiated in light of the documentary and testimonial evidence. The petitioner's evasiveness and the gravity of the offence militated against granting pre-arrest bail.

Issue 2: Falsity of Invoices and Non-Supply of Goods

Relevant Legal Framework and Precedents: Sections 132(1)(b) and (c) of the GST Act penalize issuance and use of invoices without actual supply of goods or services. The law aims to curb tax evasion and fraudulent claims of ITC.

Court's Interpretation and Reasoning: The Court relied heavily on the statements of the Director of M/s Jay Kay Hosiery Mills Pvt. Ltd., who admitted to trading in fake invoices and parallel invoices without actual supply. The e-waybill analysis corroborated the absence of goods movement, reinforcing the fraudulent nature of transactions.

Key Evidence and Findings: Detailed tables of suppliers, GSTINs, taxable values, and ITC availed were produced. The witness explained the modus operandi involving multiple firms with cancelled GST registrations, issuance of fake invoices, and transfer of funds through bank accounts without actual goods movement. The petitioner was identified as the person managing these firms and facilitating these transactions.

Application of Law to Facts: The evidence established a clear pattern of tax evasion through fake invoicing. The petitioner's role in managing the firms and providing GST and account details for fraudulent transactions implicated him directly under the GST Act offences.

Treatment of Competing Arguments: The petitioner denied involvement or proprietorship and claimed innocence. However, the Court gave greater weight to the detailed statement of the witness and documentary evidence, which were consistent and comprehensive.

Conclusions: The Court concluded that the invoices were indeed false and used to claim ineligible ITC, and the petitioner was complicit in this scheme.

Issue 3: Role and Identity of the Petitioner in the Firms

Relevant Legal Framework and Precedents: Liability under the GST Act extends to persons who manage or control firms involved in issuance of false invoices. The Court must ascertain whether the petitioner had any proprietorship, partnership, or managerial role in the implicated firms.

Court's Interpretation and Reasoning: The witness statements identified the petitioner as the person managing three firms used for fake invoicing. The petitioner's provision of GSTIN and bank account details further established his control over these entities. The petitioner's failure to respond to repeated notices and evasion of investigation reinforced this conclusion.

Key Evidence and Findings: The witness specifically named the petitioner as the managing person. The petitioner's mobile numbers and addresses were linked to the registered addresses of the firms. The petitioner's own admissions during investigation, such as signing ledger copies and acknowledging understanding of invoices, indicated involvement.

Application of Law to Facts: The petitioner's control and management of the firms engaged in fraudulent activities attract liability under the GST Act. Mere denial without substantive rebuttal was insufficient.

Treatment of Competing Arguments: The petitioner's denial of proprietorship and role was rejected in view of the evidence and witness statements.

Conclusions: The Court found that the petitioner was indeed managing the affairs of the implicated firms and was not an innocent third party.

Issue 4: Cooperation with Investigation and Evasion of Process

Relevant Legal Framework and Precedents: Courts consider cooperation with investigation as a factor in granting bail. Deliberate evasion or non-cooperation weighs against bail.

Court's Interpretation and Reasoning: The respondents submitted that the petitioner ignored four repeated notices and was evading the process of law. The petitioner's willingness to join proceedings was noted but contradicted by the conduct during investigation.

Key Evidence and Findings: The petitioner's non-appearance despite notices and the need for custodial interrogation suggested evasion. The Court observed that custodial interrogation was necessary to uncover the truth.

Application of Law to Facts: The petitioner's conduct did not merit the concession of pre-arrest bail.

Treatment of Competing Arguments: The petitioner's claim of readiness to cooperate was not supported by the record.

Conclusions: The Court held that the petitioner was deliberately evading investigation and thus bail was not justified.

Issue 5: Necessity of Custodial Interrogation

Relevant Legal Framework and Precedents: Custodial interrogation is warranted where it is necessary to uncover the truth and where the accused's involvement is prima facie established.

Court's Interpretation and Reasoning: Given the complexity and scale of the fraudulent transactions, the Court found custodial interrogation of the petitioner essential to unearth further evidence and clarify the modus operandi.

Key Evidence and Findings: The large sums involved, detailed invoices, and the petitioner's role in managing firms indicated the need for custodial interrogation.

Application of Law to Facts: The Court declined pre-arrest bail to enable custodial interrogation.

Conclusions: Custodial interrogation was deemed necessary and pre-arrest bail was refused accordingly.

3. SIGNIFICANT HOLDINGS

The Court held:

"From perusal of the above extract, prima facie, complicity of the petitioner is well apparent; therefore, his custodial investigation would be very much necessary to unearth the truth."

The Court established the core principle that in cases of economic offences involving large-scale tax evasion through false invoicing, where prima facie evidence implicates the accused, custodial interrogation is justified and pre-arrest bail may be refused.

The Court concluded that the petitioner's denial of involvement was contradicted by detailed witness statements and documentary evidence, and that the petitioner's deliberate evasion of the investigation process militated against the grant of pre-arrest bail.

Accordingly, the petition for pre-arrest bail was dismissed, with the Court clarifying that the observations made were not expressions of opinion on the merits of the case, and that pending applications stood disposed of.

- Whether the petitioner, as proprietor of M/s Kashbhi Accessories Point, is entitled to pre-arrest bail under Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) in the alleged offence under Sections 132(1)(b) and 132(1)(c) of the Central Goods and Service Tax Act, 2017 (CGST Act) read with Punjab GST Act, 2017, for wrongful availment of Input Tax Credit (ITC) through fake invoicesRs.

- Whether the petitioner has evaded the process of law and misused interim protection granted earlier, thereby disentitling him from the concession of pre-arrest bailRs.

- Whether custodial investigation of the petitioner is necessary to unearth the true facts of the alleged crimeRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Pre-Arrest Bail under Section 482 BNSS for Alleged Wrongful Availment of ITC

Relevant Legal Framework and Precedents: The provisions of Section 482 BNSS empower the High Court to exercise inherent powers to prevent abuse of the process of any court or to secure the ends of justice. Sections 132(1)(b) and 132(1)(c) of the CGST Act criminalize wrongful availment or utilization of ITC by means of fraud or issuance of fake invoices. The Punjab GST Act, 2017 supplements the CGST Act for the state jurisdiction.

Court's Interpretation and Reasoning: The Court noted that the petitioner was the sole proprietor of M/s Kashbhi Accessories Point and was alleged to have availed ITC amounting to Rs. 1.60 Crore through fake invoices without actual receipt or supply of goods/services. The respondent-department's submissions detailed multiple suppliers whose GST registrations were found to be obtained by fraud, wilful misstatement, or suppression of facts, and many of these suppliers were non-existent at their declared principal places of business (PPOB). The total ineligible ITC availed was approximately Rs. 1.62 Crore, corroborating the allegations.

Key Evidence and Findings: The department's table of suppliers, along with reasons for cancellation or remarks, established a prima facie case of fraudulent availment of ITC. Several suppliers were found non-existent, registrations were cancelled under Section 29(2)(e) of the CGST Act for fraud or misstatement, and physical verifications revealed discrepancies. The petitioner's firm was thus implicated in receiving ineligible ITC from these fraudulent suppliers.

Application of Law to Facts: Given the prima facie evidence of fraudulent ITC availment and the petitioner's proprietorship status, the Court found that the allegations were substantial and fell within the scope of Sections 132(1)(b) and 132(1)(c) of the CGST Act. The petitioner's claim of being a sleeping partner was not supported by the record, which identified him as the sole proprietor.

Treatment of Competing Arguments: The petitioner contended that he was falsely implicated, was a sleeping partner, and not engaged in day-to-day business activities, with co-accused managing operations. He also relied on interim protection granted earlier. The respondent countered that the petitioner deliberately evaded investigation despite multiple notices and that custodial interrogation was necessary. The Court gave significant weight to the department's evidence and the petitioner's non-cooperation.

Conclusion: The Court held that the petitioner, as proprietor, was prima facie involved in the wrongful availment of ITC and was not entitled to pre-arrest bail on this ground.

Issue 2: Petitioner's Evasion of Process of Law and Misuse of Interim Protection

Relevant Legal Framework: The Court's inherent power under Section 482 BNSS includes ensuring that interim reliefs are not misused and that accused persons cooperate with investigation. Non-compliance with notices and evasion of investigation are relevant considerations in bail applications.

Court's Interpretation and Reasoning: The Court observed that despite four repeated notices (three before and one after interim protection), the petitioner did not join the investigation and his whereabouts remained unknown. This conduct amounted to evasion of the process of law and misuse of the interim protection granted by the Co-ordinate Bench on 09.04.2025.

Key Evidence and Findings: The record showed non-appearance despite notices. The petitioner's failure to cooperate was viewed as deliberate and obstructive.

Application of Law to Facts: The Court emphasized that such conduct disentitles the petitioner from the concession of pre-arrest bail, as it impedes the investigation and judicial process.

Treatment of Competing Arguments: The petitioner's readiness to join proceedings was contradicted by his actual non-appearance and evasion. The Court rejected the petitioner's claim of innocence based on this conduct.

Conclusion: The Court concluded that the petitioner's evasion and misuse of interim protection warranted dismissal of the bail plea.

Issue 3: Necessity of Custodial Investigation

Relevant Legal Framework: Custodial interrogation is permitted under the GST laws when required to uncover the truth in complex fraud cases involving elaborate schemes of fake invoices and ITC misuse.

Court's Interpretation and Reasoning: The respondent-department submitted that custodial investigation was necessary to unearth the true facts. Given the scale of alleged fraud and non-cooperation of the petitioner, the Court found this submission reasonable.

Key Evidence and Findings: The extensive list of fraudulent suppliers and the petitioner's evasion supported the need for custodial interrogation.

Application of Law to Facts: The Court recognized the gravity of the offence and the importance of custodial investigation for effective prosecution.

Treatment of Competing Arguments: The petitioner did not specifically contest the necessity of custodial investigation but sought bail to avoid arrest. The Court prioritized the investigation's integrity over the petitioner's convenience.

Conclusion: Custodial investigation was deemed necessary, further negating the petitioner's entitlement to pre-arrest bail.

3. SIGNIFICANT HOLDINGS

- "Prima facie, it is evident that petitioner is the proprietor of M/s Kashbhi Accessories Point."

- "Despite three notices (prior to the interim order) and one subsequent thereto, he did not come forward; rather his whereabouts are not known. Thus, petitioner is evading the process of law and misusing the interim concession; hence he does not deserve the concession of pre-arrest bail."

- "The proprietorship firm of the petitioner was indulged in wrongful availment/utilization of fraudulent ITC in violations of the provisions of the CGST Act, 2017 and Punjab GST Act, 2017 and Rules made thereunder."

- "There is no option except to dismiss the petition."

- The Court clarified that "above observations be not construed as an expression of opinion on merits of the case in any manner."

Core principles established include the recognition that proprietorship status entails responsibility for wrongful availment of ITC, non-cooperation with investigation and evasion of process disentitle an accused from pre-arrest bail, and custodial investigation is justified in complex GST fraud cases. The Court emphasized that interim protection must not be misused to evade legal processes.

Final determinations were that the petitioner was not entitled to pre-arrest bail, the petition was dismissed, and pending applications were disposed of accordingly.

In essence, the issue was whether Section 61, which empowers scrutiny of returns to identify discrepancies within the returns or related particulars, can be invoked merely because the transaction value declared by a dealer is lower than the prevailing market price of the goods sold.

Another related issue was the proper scope and procedural limits of Section 61 of the JGST Act, vis-`a-vis other provisions such as Sections 65 to 67 (investigative powers) and Sections 73 and 74 (adjudication and determination of tax dues), and whether the issuance of notices under Section 61 without pointing out actual discrepancies in returns constituted premature or unlawful action.

Regarding the first issue, the Court analyzed Section 61 of the JGST Act, which provides that the proper officer may scrutinize the return and related particulars furnished by a registered person to verify correctness and inform the person of any discrepancies noticed. The statute further provides that if the explanation is satisfactory, no further action is taken; otherwise, the proper officer may initiate further proceedings under Sections 65, 66, 67, or proceed to determine tax dues under Sections 73 or 74.

The Court noted that the legislative scheme contemplates a graduated process: initial scrutiny of returns under Section 61 to identify discrepancies within the returns or related particulars, followed by investigative or adjudicatory actions if discrepancies are not satisfactorily explained or corrected.

Applying this framework, the Court observed that in the present cases, the notices under Section 61 did not identify any actual discrepancies within the returns filed by the petitioners. Instead, the notices compared the declared transaction value with the prevailing market price and alleged that the petitioners had undervalued their supplies. This, the Court held, was beyond the scope of Section 61, which is limited to scrutiny of returns and related particulars, not an inquiry into the correctness of the declared transaction value vis-`a-vis market price.

The Court emphasized that under Section 15 of the JGST Act, the value of supply is the transaction value, i.e., the consideration actually received for the supply. A dealer is entitled to sell goods at any price agreed upon with the purchaser, including a price lower than the prevailing market price. The mere fact that the transaction value is less than market price does not, by itself, constitute a discrepancy in the return or a basis for invoking Section 61 scrutiny.

The Court relied on precedent establishing that unless the transaction is a sham or there is evidence of fraud or misstatement, the Revenue cannot assess tax on the difference between market price and transaction value. The Court referred to a Division Bench decision of the same High Court which held that selling goods at a concessional or lower rate than market price does not justify initiating proceedings under Section 61.

On the competing argument by the State that subsequent notices also highlighted other discrepancies in returns and that the notices under Section 61 are merely procedural and without adverse consequences, the Court acknowledged that Section 61 notices are preliminary and procedural. However, the Court found that issuing notices solely based on comparison with market price, without identifying discrepancies in the returns, was an overreach of jurisdiction.

The Court clarified that it was not expressing any opinion on other alleged discrepancies mentioned in the notices. The Assessing Officer remains free to issue fresh notices strictly limited to discrepancies within the returns, as permitted by Section 61.

In conclusion, the Court held that the notices issued under Section 61 of the JGST Act solely on the ground that the declared transaction value was lower than the market price were wholly without jurisdiction and beyond the scope of the statute. Such notices were quashed and set aside.

The Court summarized the statutory scheme as follows: Section 61 is for scrutiny of returns and related particulars to identify discrepancies within those returns; investigative powers under Sections 65 to 67 and adjudicatory powers under Sections 73 and 74 are separate and can be invoked if discrepancies are found and not satisfactorily explained.

Significant holdings include the following verbatim excerpt from the judgment:

"We are of the firm opinion that notices issued comparing the particulars at which Petitioners have sold their goods with that of prevalent market price, is wholly without jurisdiction and beyond the scope of Section 61 of the Act. In fact, it is settled law that unless transactions of sale are shown to be sham transactions or the mere fact that the goods were sold at a concessional rate/rate less than market price would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value."

The Court thus established the core principle that Section 61 scrutiny must be confined to discrepancies within the returns and related particulars, and cannot be extended to question the transaction value declared by a dealer merely because it is lower than the market price.

Final determinations on the issues were:

1. Notices issued under Section 61 of the JGST Act solely on the basis of comparison of declared transaction value with market price are beyond jurisdiction and liable to be quashed.

2. The Assessing Officer may issue fresh notices under Section 61 if actual discrepancies within returns are found, but cannot initiate scrutiny proceedings merely on the ground of lower declared prices.

3. The statutory scheme contemplates a graduated enforcement process, with Section 61 limited to return scrutiny, and other sections governing investigation and adjudication.

4. The writ petitions challenging the impugned notices under Section 61 were allowed to the extent indicated, and the notices were quashed and set aside.

- Whether the Assistant Commissioner was obligated to provide an opportunity of personal hearing to the petitioner before passing an order under Section 73(9) of the U.P. Goods and Services Act, 2017 ("Act").

- Whether the failure to provide such opportunity of personal hearing violated the procedural safeguards prescribed under Section 75(4) of the Act.

- Whether the petitioner's contention that the alleged excess Input Tax Credit (ITC) claimed was a bona fide mistake and revenue neutral was adequately considered, and whether the petitioner was denied the chance to substantiate this plea.

- Whether the writ petition challenging the order passed without personal hearing is maintainable or whether the petitioner should have resorted to the statutory appeal remedy under Section 107 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Obligation to Provide Personal Hearing before Passing Order under Section 73(9)

Relevant Legal Framework and Precedents:

Section 73 of the Act deals with determination of tax not paid or short paid or erroneously refunded or ITC wrongly availed or utilized. Subsection (9) empowers the authority to pass an order after considering the show cause notice and reply. Section 75(4) mandates that before passing any order which is prejudicial to any person, an opportunity of personal hearing must be provided.

Court's Interpretation and Reasoning:

The Court noted that the Assistant Commissioner issued a show cause notice under Section 73 and fixed 03.01.2025 as the date for personal hearing. However, the petitioner filed its reply only on 17.01.2025, after the scheduled hearing date. Despite this, the Assistant Commissioner passed the order on 28.02.2025 without affording any further opportunity for personal hearing.

The Court emphasized that the statutory scheme requires the authority to afford an opportunity of personal hearing before passing an adverse order. The fact that the petitioner's reply was filed after the initially fixed hearing date did not absolve the authority from the duty to provide a fresh hearing date, especially since there was sufficient time between the reply and the order.

Key Evidence and Findings:

The record showed that the petitioner's reply was received on 17.01.2025, and the order was passed on 28.02.2025 without any hearing. The Assistant Commissioner did not communicate any fresh hearing date to the petitioner.

Application of Law to Facts:

The Court held that the failure to provide an opportunity of personal hearing before passing the order was contrary to the express mandate of Section 75(4) of the Act. The procedural lapse vitiated the order impugned.

Treatment of Competing Arguments:

The Respondent contended that the petitioner's reply was considered and that the petitioner should have availed the statutory appeal remedy under Section 107. The Court, however, distinguished this by focusing on the procedural requirement of personal hearing, which is a prerequisite to passing any order under Section 73(9). The lack of personal hearing was a fundamental procedural violation that could not be cured by an appeal.

Conclusions:

The Court concluded that the Assistant Commissioner was bound to provide an opportunity of personal hearing after receiving the petitioner's reply and before passing the order, and the failure to do so rendered the order invalid.

Issue 2: Consideration of Petitioner's Plea Regarding Mistaken ITC Claim

Relevant Legal Framework and Precedents:

The Act permits correction of errors in ITC claims, and the principle of revenue neutrality applies where excess ITC is claimed by mistake but does not result in actual loss to revenue. The petitioner claimed that ITC was availed in the wrong head (CGST-SGST instead of IGST) due to a bona fide mistake.

Court's Interpretation and Reasoning:

The Court observed that the petitioner's explanation was substantive and relevant to the allegations in the show cause notice. However, since no personal hearing was granted, the petitioner was deprived of the opportunity to substantiate this plea with evidence or arguments.

Key Evidence and Findings:

The petitioner's reply to the show cause notice explicitly stated the nature of the mistake and its revenue neutral character. The Assistant Commissioner found deficiencies in the reply but did not communicate these to the petitioner or allow the petitioner to address them in a hearing.

Application of Law to Facts:

Given the procedural lapse, the Court found that the petitioner's plea was not properly tested or adjudicated. The failure to allow a hearing prevented the petitioner from clarifying or rectifying the alleged discrepancies.

Treatment of Competing Arguments:

The Respondent argued that the reply was considered and the order was justified. The Court rejected this on the ground that consideration without hearing, especially when deficiencies are found, is insufficient and contrary to principles of natural justice.

Conclusions:

The Court held that the petitioner was entitled to a fair opportunity to substantiate its plea regarding the mistaken ITC claim, which was denied, warranting quashing of the order and remand for fresh adjudication.

Issue 3: Maintainability of Writ Petition in Light of Alternative Remedy

Relevant Legal Framework and Precedents:

Section 107 of the Act provides for an appeal against orders passed under Section 73. Generally, statutory remedies are to be exhausted before approaching the writ jurisdiction.

Court's Interpretation and Reasoning:

The Respondent contended that the writ petition was premature and barred by the availability of an alternative statutory remedy. The Court acknowledged this principle but noted that the writ petition challenged a fundamental procedural violation - denial of opportunity of personal hearing - which goes to the root of the order's validity.

Key Evidence and Findings:

The procedural lapse was established on record, and the Court found that the petitioner was deprived of a basic right under the Act.

Application of Law to Facts:

The Court distinguished this case from routine challenges on merits and held that where a fundamental procedural right is denied, immediate judicial intervention is justified to prevent miscarriage of justice.

Treatment of Competing Arguments:

The Court balanced the need to respect alternative remedies with the necessity to uphold procedural fairness and natural justice.

Conclusions:

The writ petition was held maintainable to the extent of quashing the impugned order and remanding the matter for fresh consideration with personal hearing.

3. SIGNIFICANT HOLDINGS

"Not fixing a date for providing personal hearing, is contrary to the spirit of the provisions of Section 75(4) of the Act, which inter alia requires grant of opportunity of personal hearing before passing an adverse order."

"Looking to the nature of

The core legal questions considered by the Court are:

• Whether the Appellate Authority was justified in rejecting the appeal solely on the ground of non-compliance with the pre-deposit requirement under sub-section (6) of Section 107 of the CGST Act, 2017, when the appeal was heard on merits without prior intimation of such defect to the appellant;
• Whether the principles of natural justice were violated by the Appellate Authority in proceeding with the hearing on merits without pointing out the defect regarding non-furnishing of pre-deposit;
• Whether the appellant should be given an opportunity to cure the defect by making the requisite pre-deposit after the hearing had already commenced;
• The scope and application of Section 107(6) of the CGST Act and Rule 108 of the CGST Rules in relation to filing appeals before the Appellate Authority.

Issue-wise Detailed Analysis

Issue 1: Validity of Rejection of Appeal on Ground of Non-Compliance with Pre-Deposit Requirement After Hearing on Merits

The legal framework relevant to this issue is Section 107(6) of the CGST Act, 2017, which mandates that a pre-deposit of a specified amount must be made by the appellant at the time of filing an appeal before the Appellate Authority. Rule 108 of the CGST Rules further elaborates the procedural requirements for filing appeals, including the necessity of pre-deposit.

Precedents in GST jurisprudence emphasize strict compliance with statutory requirements for filing appeals, including pre-deposit, as a condition precedent for entertaining the appeal. However, the Court noted that in the present case, the Appellate Authority proceeded to hear the appeal on merits despite the absence of proof of pre-deposit, effectively admitting the appeal.

The Court observed that the Appellate Authority, after conducting the hearing and considering submissions on merits, rejected the appeal solely on the ground of non-compliance with Section 107(6) by not furnishing the pre-deposit. The Court found this approach legally untenable because the appellant was not given prior notice or an opportunity to rectify the defect before the hearing commenced.

The Court reasoned that once the appeal has been admitted and heard on merits, it is improper to dismiss the appeal on a technical ground of pre-deposit non-compliance without affording the appellant an opportunity to cure the defect. This procedural lapse amounted to a denial of due process.

Issue 2: Violation of Principles of Natural Justice

The principles of natural justice require that a party be given a fair opportunity to present its case and be informed of any defects or deficiencies that might affect the adjudication. The Court found that the Appellate Authority failed to notify the appellant of the defect regarding the pre-deposit requirement before proceeding with the hearing.

The Court emphasized that the Appellate Authority should have pointed out the defect much prior to the notice of hearing, thereby enabling the appellant to comply with the statutory requirement. The absence of such intimation resulted in a violation of natural justice, as the appellant was deprived of an opportunity to remedy the defect and have the appeal heard on merits without technical impediments.

The Court noted the concession by the learned Senior Advocate for the appellant that had the defect been pointed out, the appellant would have complied with the pre-deposit requirement.

Issue 3: Grant of Opportunity to Cure Defect by Making Pre-Deposit Post-Hearing

Given the peculiar factual matrix where the appeal was heard on merits without prior notice of defect, the Court considered whether it would be appropriate to allow the appellant to deposit the requisite amount post-facto.

The Court observed that in the interest of justice and to uphold the appellant's right to be heard, it was expedient to grant a limited time for compliance with Section 107(6). The appellant was accordingly granted five days to make the pre-deposit.

The Court directed that upon such deposit being made, the Appellate Authority must consider the compliance and proceed to hear the appeal in accordance with law, ensuring the appellant is informed of the hearing dates. This approach balances the need for procedural compliance with fairness and avoids undue hardship caused by technical dismissal.

Issue 4: Interpretation and Application of Section 107(6) of the CGST Act and Rule 108 of the CGST Rules

Section 107(6) of the CGST Act imposes a mandatory pre-deposit requirement for filing appeals before the Appellate Authority, and Rule 108 prescribes the procedural modalities. The Court acknowledged the statutory mandate but clarified that strict enforcement must be tempered with procedural fairness.

The Court underscored that the statutory requirement is intended to ensure compliance and discourage frivolous appeals, but not to cause injustice through rigid application without affording reasonable opportunity to comply.

The Court's interpretation emphasizes that non-compliance with pre-deposit requirements should be addressed by giving notice and opportunity to cure before rejecting an appeal, especially where the appeal has already been admitted and heard on merits.

Significant Holdings

The Court held:

"When the appeal is admitted and the Appellate Authority proceeds to hear the matter on merit, the Office of the Appellate Authority should have brought to the notice of the Petitioner with regard to defect in filing of appeal much prior to issue of notice of hearing."

"Having not intimated the Petitioner with regard to defect, even though it is admitted that the appeal was admitted for hearing due to inadvertence, there is violation of principles of natural justice."

"In the event such deposit is made, the Appellate Authority shall consider the same and proceed to hear the appeal in accordance with law by intimating the date(s) of hearing to the Petitioner."

The core principles established are:

• An appeal cannot be rejected on technical grounds of non-compliance with pre-deposit requirements after the appeal has been admitted and heard on merits without prior notice to the appellant;
• The Appellate Authority must notify any defects in filing, including non-furnishing of pre-deposit, before proceeding with the hearing to comply with principles of natural justice;
• The appellant should be given an opportunity to cure defects, including making the requisite pre-deposit, even after the hearing has commenced, if the defect was not pointed out earlier;
• Strict compliance with statutory provisions must be balanced with procedural fairness to avoid injustice.

On the facts, the Court set aside the impugned order dismissing the appeal and directed the appellant to deposit the pre-deposit amount within five days. Upon such compliance, the Appellate Authority was directed to proceed with the appeal hearing in accordance with law.

The core legal questions considered by the Court were:

• Whether the Petitioner, whose refund application was rejected and who is required to submit an undertaking via PMT-03 form for re-crediting the rejected IGST refund amount, can be enabled to file such undertaking through the GST portal;
• Whether the GST Network portal procedure for submission of the PMT-03 form is functioning properly and accessible to the Petitioner;
• Whether the Petitioner's grievance regarding the non-availability or non-functionality of the online mechanism for submitting the undertaking can be addressed through judicial intervention under Article 226 of the Constitution of India;
• The appropriate remedy and mechanism to be provided to the Petitioner for enabling submission of the undertaking and consequent re-credit of the rejected refund amount.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement and Procedure for Submission of Undertaking (PMT-03) for Re-crediting Rejected Refund Amount

The legal framework governing Goods and Services Tax (GST) refunds and re-crediting of rejected amounts is embedded within the GST laws and rules, which mandate that when a refund application is rejected, the taxpayer may either file an appeal or submit an undertaking to re-credit the rejected amount back to the electronic credit ledger. The PMT-03 form is the prescribed mode for submitting such undertaking online.

The Court noted that the Deputy Commissioner's order explicitly offered the Petitioner two options upon rejection of the refund application: to file an appeal or to submit an undertaking via PMT-03 for re-crediting the inadmissible refund amount. This is consistent with the procedural safeguards and mechanisms under the GST regime to ensure due process and proper accounting of tax credits.

The Respondent's counsel outlined the prescribed procedure for submitting the PMT-03 form through the GST portal, which involves accessing the case details page, selecting the ORDERS tab, and clicking a hyperlinked icon to upload the undertaking. This procedure is designed to be user-friendly and accessible to taxpayers.

Issue 2: Non-Functionality of the GST Portal for Submission of Undertaking by the Petitioner

The Petitioner contended that despite repeated attempts, the GST portal did not enable them to upload or submit the PMT-03 undertaking form. The Petitioner also contacted the GST Department help desk without receiving any response, and raised a technical ticket which remained unresolved. This raised the issue of the operational efficacy of the GST Network portal and the accessibility of the prescribed mechanism for taxpayers.

The Court observed that the prescribed procedure, while clear in theory, was not functioning effectively in the Petitioner's case. The inability to submit the undertaking online effectively denied the Petitioner the statutory option to re-credit the rejected refund amount, thereby causing prejudice.

Issue 3: Judicial Intervention and Appropriate Relief

Given the Petitioner's inability to avail the prescribed online mechanism despite willingness to comply, the Court considered whether judicial intervention was warranted to facilitate the Petitioner's statutory rights. The Court recognized that the issue was essentially technical and administrative, relating to the functionality of the GST Network portal.

Rather than issuing a direction to the GST authorities to unilaterally enable the portal, the Court directed the Petitioner's official to personally approach the GST Network Office at Aerocity, New Delhi, on a specified date and time. The Court mandated that the concerned GST officer render all necessary assistance to enable the Petitioner to upload the PMT-03 forms, and that the portal functionality be restored or enabled within one week.

This approach balanced the need for judicial oversight with the administrative nature of the grievance, ensuring that the Petitioner's rights were protected without overstepping into executive functions.

Application of Law to Facts and Treatment of Competing Arguments

The Petitioner's argument focused on the practical impediment to exercising the statutory option of submitting an undertaking, emphasizing the non-functioning portal and lack of departmental response. The Respondent's position relied on the existence of a clear procedural mechanism, implying that the Petitioner's difficulties were either technical or procedural in nature.

The Court's reasoning acknowledged the Respondent's procedural framework but found that the framework was ineffective in practice for the Petitioner. The Court's directive for personal assistance and enabling the portal was a pragmatic solution respecting both parties' positions.

3. SIGNIFICANT HOLDINGS

The Court held:

"The entire issue is very small which can be resolved with the help of the GST Network. From what has been submitted, the above mentioned procedure which is prescribed by the GST Network does not seem to be working insofar as the Petitioner is concerned."

"The official of the Petitioner may visit the GST office on the aforesaid date and time and the concerned GST officer in the said office shall render whatever assistance as may be needed to the Petitioner to upload the PMT-03 forms. The same shall be enabled within a period of one week."

Core principles established include:

• The statutory mechanism for re-crediting rejected GST refund amounts through submission of an undertaking (PMT-03) must be accessible and functional;
• Where the prescribed online mechanism is non-functional or inaccessible, the taxpayer is entitled to assistance to exercise their statutory rights;
• Judicial intervention under Article 226 is appropriate to ensure administrative compliance with procedural requirements and to protect taxpayer rights;
• Practical and administrative remedies, such as direct assistance from GST Network officials, are effective means to resolve technical impediments without disturbing the regulatory framework.

Final determinations on each issue were that the Petitioner's grievance about the non-functioning portal was well-founded; the prescribed procedure was inadequate in practice; and the GST authorities were directed to facilitate the Petitioner's submission of the undertaking within a stipulated timeframe, thereby safeguarding the Petitioner's rights under the GST laws.

1. Whether the impugned Notifications Nos. 9/2023-Central Tax and 56/2023-Central Tax issued under Section 168A of the Central Goods and Services Tax Act, 2017 (GST Act) are valid and in compliance with statutory requirements, particularly regarding the necessity of prior GST Council recommendation and adherence to procedural mandates.

2. Whether the extension of time limits for adjudication of show cause notices (SCNs) and passing of orders under Section 73 of the GST Act and corresponding State GST Acts for the financial year 2019-20, as effected by these notifications, is legally permissible.

3. Whether the petitioner was afforded a fair opportunity to respond to the SCN dated 28th May 2024, given the manner of service through the GST portal's 'Additional Notices Tab' and whether the impugned adjudication order was passed ex-parte without due process.

4. The impact of ongoing judicial proceedings in various High Courts and the Supreme Court on the validity of the impugned notifications and consequent orders.

Issue-wise Detailed Analysis:

Validity of the Impugned Notifications (Nos. 9/2023 and 56/2023-Central Tax):

The legal framework revolves around Section 168A of the Central GST Act, which mandates that any extension of the time limit for adjudication of SCNs and passing of orders requires prior recommendation by the GST Council. The petitioner challenged the notifications on grounds that the proper procedure was not followed, particularly contending that Notification No. 56/2023 was issued without prior GST Council recommendation, and ratification was given post issuance, thus violating the statutory mandate.

The Court noted that this issue has been the subject of extensive litigation across various High Courts with divergent views: the Allahabad and Patna High Courts upheld the validity of Notifications Nos. 9 and 56 respectively, while the Guwahati High Court quashed Notification No. 56. The Telangana High Court expressed reservations regarding Notification No. 56, and this matter is presently sub judice before the Supreme Court in SLP No. 4240/2025.

The Supreme Court's limited order in the said SLP highlighted the cleavage of opinion among High Courts and issued notice for hearing, indicating the central legal question whether the time-limit extensions under Section 168A could be validly effected by these notifications.

The Delhi High Court, recognizing the pendency of the Supreme Court proceedings and judicial discipline, refrained from expressing an opinion on the vires of the notifications and aligned with the Punjab and Haryana High Court's approach to await the Supreme Court's final determination.

Opportunity to be Heard and Validity of Adjudication Proceedings:

The petitioner contended that the SCN dated 28th May 2024 was uploaded on the GST portal under the 'Additional Notices Tab', which was not adequately visible or brought to its notice, resulting in non-filing of replies and absence from personal hearings. Consequently, the impugned order was passed ex-parte, violating principles of natural justice.

The Respondent Department asserted that post 16th January 2024, the GST portal was rectified to ensure visibility of notices and that the SCN was issued after this date.

The Court relied on its prior decisions where similar issues were considered. It referred to the judgment in W.P.(C) 13727/2024 (Neelgiri Machinery) and other precedents where the Court had remanded matters back to the adjudicating authorities to ensure fair opportunity to file replies and participate in hearings, especially where notices were uploaded under the 'Additional Notices Tab' which was not adequately accessible.

The Court emphasized that orders should not be passed in default and that the petitioner must be given an opportunity to be heard on merits. It underscored the importance of procedural fairness and transparency in adjudication under GST law.

Application of Law to Facts:

Given the factual matrix that the petitioner did not receive proper notice and was deprived of opportunity to respond to the SCN, the Court set aside the impugned demand orders dated 23rd April 2024 and 5th December 2023. It directed the petitioner to file replies within thirty days to the SCNs dated 4th December 2023 and 23rd September 2023. The Court mandated that hearing notices shall not only be uploaded on the portal but also communicated via e-mail and mobile to ensure actual receipt.

The Court remanded the matter to the adjudicating authority to consider the petitioner's submissions afresh and pass orders in accordance with law, ensuring compliance with principles of natural justice.

Treatment of Competing Arguments:

The Court acknowledged the Respondent Department's submission about rectification of the GST portal but found that the petitioner's grievance regarding lack of notice and opportunity was substantiated. The Court balanced the need to uphold procedural fairness with the ongoing legal uncertainty regarding the validity of the impugned notifications, leaving the question of their vires open for the Supreme Court's decision.

The Court also recognized the multiplicity of cases and the varied judicial pronouncements on the issue, demonstrating judicial restraint by not pronouncing on the validity of the notifications but focusing on ensuring fair adjudication in the interim.

Conclusions:

The Court concluded that:

- The impugned adjudication orders passed without affording the petitioner an opportunity to respond and be heard were unsustainable and were set aside.

- The petitioner must be granted a fresh opportunity to file replies and participate in hearings, with proper communication of notices beyond mere portal upload.

- The question of validity of the impugned notifications remains open and subject to the Supreme Court's final adjudication.

- All rights and remedies of the parties are preserved, and access to the GST portal shall be provided to the petitioner for uploading replies and accessing notices.

Significant Holdings:

The Court's key legal reasoning includes the following verbatim excerpt from its prior order in a similar matter, which it adopted here:

"It is the petitioner's case that he had not received the impugned SCN and, therefore, he had no opportunity to respond to the same. For the same reason, the petitioner claims that he had not appear for a personal hearing before the Adjudicating Authority... Possibly, the petitioner did not have access to the Notices as they were projected on the GST Portal under the tab 'Additional Notices & Orders'. The said issue has now been addressed and the 'Additional Notices & Orders' tab is placed under the general menu and adjacent to the tab 'Notices & Orders'. In view of the above, the present petition is allowed and the impugned order is set aside. The respondent is granted another opportunity to reply to the impugned SCN within a period of two weeks from date. The Adjudicating Authority shall consider the same and pass such order, as it deems fit, after affording the petitioner an opportunity to be heard."

The Court established the core principle that procedural fairness and the right to be heard are fundamental in GST adjudication proceedings, and mere technical compliance with portal notifications is insufficient if actual notice is not effectively communicated.

Further, the Court underscored the principle of judicial discipline by deferring the question of validity of the impugned notifications to the Supreme Court, thereby preserving the status quo and avoiding conflicting decisions.

Finally, the Court's order preserves the petitioner's substantive rights and remedies, ensuring that the adjudication process is conducted in accordance with law and natural justice.

• Whether the impugned order dismissing the appeal without hearing the petitioner and without notice on the date it was passed violates the principles of natural justice.
• Whether the authority was obligated under the relevant statutory provisions to pass a reasoned and speaking order on the merits of the appeal.
• Whether the procedure followed by the appellate authority in passing the impugned order complies with the requirements under the UPGST Act, 2017 and the CGST Act.

Issue-wise detailed analysis:

1. Violation of Principles of Natural Justice Due to Passing of Ex-Parte Order Without Notice

Relevant legal framework and precedents: The principles of natural justice require that no order affecting the rights of a party should be passed without giving that party an opportunity to be heard. The Court referred to the precedent set in the judgment of this Court in the case of M/S Videocon D2H LTD., which emphasized the necessity of notice and opportunity before passing an order adverse to a party. The CGST Act and UPGST Act do not explicitly dispense with this requirement in appeal proceedings.

Court's interpretation and reasoning: The Court noted that the last date fixed for hearing was 18.01.2022, on which the petitioner did not appear. However, instead of passing the order on that date, the appellate authority passed the order dismissing the appeal on 20.01.2022 without giving any notice or intimation to the petitioner. This was held to be a violation of natural justice since the petitioner was not put to notice on the date the order was passed, rendering the order ex-parte and invalid.

Key evidence and findings: The record showed the non-appearance of the petitioner on 18.01.2022 and the subsequent passing of the order on 20.01.2022 without notice. The authority's own observations indicated that the petitioner had lost interest, but no procedural safeguards were followed to inform the petitioner of the change in the date of order.

Application of law to facts: The Court applied the principle that if an order is not passed on the date fixed and is deferred to a subsequent date, the party must be given notice of the new date. The absence of such notice invalidated the order passed on 20.01.2022.

Treatment of competing arguments: The State argued that ample opportunity had been provided and the petitioner avoided the hearing. The Court rejected this argument on the ground that procedural fairness requires notice of the actual date of order, which was not given.

Conclusion: The impugned order was held to be violative of natural justice and hence unsustainable on this ground.

2. Requirement of Passing a Reasoned and Speaking Order Under Section 107(12) of CGST Act

Relevant legal framework and precedents: Section 107(12) of the CGST Act mandates that appellate authorities must pass reasoned orders on the merits of the case. The Apex Court's judgment in Assistant Commissioner, Commercial Tax Department, Works Contract & Leasing, Kota Versus M/s Shukla & Brothers was cited, which deprecated passing of non-speaking or non-reasoned orders.

Court's interpretation and reasoning: The Court observed that the impugned order merely dismissed the appeal without assigning proper reasons. Such a practice is contrary to the statutory requirement and judicial precedent, which insists on reasoned orders to ensure transparency and accountability.

Key evidence and findings: The order itself was examined and found to lack any detailed reasoning or explanation for dismissal, other than a brief and vague observation about the petitioner's interest.

Application of law to facts: The statutory mandate and judicial guidance were applied to conclude that the order failed to meet the minimum standards of reasoned adjudication.

Treatment of competing arguments: The State did not specifically contest the requirement of a reasoned order but relied on procedural default by the petitioner. The Court held that irrespective of procedural lapses, the authority must pass a reasoned order.

Conclusion: The impugned order was legally deficient for lack of proper reasoning and thus unsustainable.

3. Procedural Compliance and Opportunity to be Heard

Relevant legal framework and precedents: The combined reading of the UPGST Act, 2017 and CGST Act requires that appeal proceedings be conducted fairly with due opportunity to the appellant. The Court relied on the principles enshrined in the cited precedents and statutory provisions.

Court's interpretation and reasoning: The Court emphasized that the appellate authority must ensure that the appellant is given a fair chance to present the case before passing any order. The absence of notice on the date of order and failure to pass a reasoned order violated this procedural fairness.

Key evidence and findings: The petitioner's absence on the fixed date and the subsequent passing of the order without notice or hearing were critical facts.

Application of law to facts: The Court held that the authority's failure to pass the order on the fixed date and to notify the petitioner of the subsequent date amounted to procedural impropriety.

Treatment of competing arguments: The State's contention that the petitioner avoided hearing was not accepted as justification for the procedural lapses.

Conclusion: Procedural non-compliance rendered the impugned order invalid.

Significant holdings:

"It is not in dispute that the last date fixed was 18.01.2022 and the petitioner did not appear. Instead of passing the order on the date fixed the authority concerned has passed an order dismissing the appeal on 20.01.2022, which shows that on the date on which the impugned order was passed, i.e., on 20.01.2022, the petitioner was never put to notice which itself is in violation of principles of natural justice."

"Section 107 (12) of the CGST Act specifically provides for passing a reasoned and speaking order. The impugned order shows that no proper reason has been assigned. Once the authority wants to pass an order the reason for passing such order must be given."

"The impugned order dated 20.01.2022 passed by the respondent no.1 cannot be sustained in the eyes of law."

The Court quashed the impugned order and remanded the matter back to the appellate authority to decide the appeal on merits after giving due opportunity of hearing to the petitioner, preferably within three months from the production of the certified copy of the judgment.

The core legal questions considered by the Court include:

(a) Whether the Petitioner was justified in making payments towards Mineral Royalties as per the instructions and terms laid down by the Geology and Mining Department of the State Government, and whether such payments fall within the scope of service under the GST regime.

(b) Whether the definitions and explanations of "Royalty" as provided in the Government Relations of Mineral Royalties by the Indian Bureau of Mines, Ministry of Mines, Government of India, are legally valid and enforceable.

(c) Whether the Order dated 17th January 2025, passed by the Respondent No. 5 under Section 74 of the CGST/SGST Act, 2017, is arbitrary and illegal and liable to be quashed.

(d) Whether the invocation of Section 74 of the CGST/SGST Act, which deals with tax recovery in cases of fraud, is appropriate in the absence of fraudulent intention on the part of the Petitioner.

(e) Whether the High Court can entertain a writ petition under Article 227 of the Constitution of India challenging the Order-in-Original directly, or whether the Petitioner must first exhaust the statutory remedy of appeal under Section 107 of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of Payment of Mineral Royalties and Definitions of Royalty

The Petitioner contended that the payment towards mineral royalties was made strictly in accordance with the terms and conditions prescribed by the State Government's Geology and Mining Department. Further, the Petitioner challenged the definitions and explanations of "Royalty" as provided by the Indian Bureau of Mines, arguing that these definitions were not legally binding and should be struck down.

The Court, however, did not delve into the substantive merits of these contentions at this stage, as the primary challenge was procedural and jurisdictional. The Court's reasoning focused on the procedural propriety of approaching the High Court directly via a writ petition rather than through the statutory appellate mechanism.

Issue (c) and (d): Legality of the Order dated 17th January 2025 and Invocation of Section 74 of the CGST/SGST Act

The impugned Order was passed under Section 74 of the CGST/SGST Act, which pertains to situations where tax has not been paid due to fraud or willful misstatement or suppression of facts. The Petitioner argued that there was no fraudulent intention in non-payment of tax on the royalty amount, and hence Section 74 could not be invoked.

The Court did not address the merits of this argument directly but observed that such factual and legal disputes are to be adjudicated by the appellate authority designated under the GST statute. The Court emphasized that the assessment of facts, including the presence or absence of fraudulent intent, falls within the purview of the appellate process and not the writ jurisdiction.

Issue (e): Maintainability of the Writ Petition under Article 227 vis-`a-vis Statutory Remedy under Section 107 of the GST Act

The Court extensively relied on the precedent set by the Supreme Court in a similar case, which clarified the scope of writ petitions under Articles 226 and 227 of the Constitution when alternate statutory remedies exist. The Supreme Court held that the existence of an alternate remedy is not an absolute bar to writ jurisdiction but writ petitions should be entertained only in exceptional circumstances such as:

• Breach of fundamental rights;
• Violation of principles of natural justice;
• Excess of jurisdiction; or
• Challenge to the vires of the statute or delegated legislation.

In the present matter, none of these exceptions were established. There was no breach of fundamental rights or violation of natural justice, and the Petitioner had a statutory right of appeal under Section 107 of the GST Act. The Court noted that the Petitioner had not availed this remedy and instead sought to bypass it by filing a writ petition.

The Court further observed that the High Court's entertaining of the writ petition was inappropriate and that the assessment of facts should be carried out by the appellate authority. The Court also noted that the High Court's approach was based on surmises rather than concrete findings.

Consequently, the Court held that the writ petition was not maintainable and the Petitioner must resort to the statutory appeal mechanism. The Court granted the Petitioner a period of four weeks to file the appeal and directed that any delay caused by the pendency of the writ petition would be considered bona fide.

3. SIGNIFICANT HOLDINGS

The Court's key legal reasoning and principles established include the following verbatim excerpt from the Supreme Court's precedent relied upon:

"11. The respondent had a statutory remedy under section 107. Instead of availing of the remedy, the respondent instituted a petition under Article 226. The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation.

12. In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority. As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises."

Final determinations on each issue are as follows:

• The Petitioner's challenge to the payment of Mineral Royalties and the definitions of Royalty was not entertained on merits at this stage.
• The Order dated 17th January 2025 passed under Section 74 of the CGST/SGST Act was not quashed or stayed by the Court.
• The invocation of Section 74 for recovery of tax was not adjudicated upon substantively, as the Court held that such issues fall within the appellate jurisdiction.
• The writ petition under Article 227 was held not maintainable in the absence of exceptional circumstances and in presence of an alternate statutory remedy under Section 107 of the GST Act.
• The Petitioner was directed to file an appeal before the Appellate Authority within four weeks, with the time spent before the High Court being considered bona fide for any delay.

1. Whether the issuance of the notice under Section 148A(b) of the Income Tax Act, 1961 was valid and maintainable, given the pendency of a statutory appeal before the Commissioner of Income Tax (Appeals) and a pending rectification application under Section 154 of the Act.

2. Whether the reopening of assessment under Section 148A(d) was permissible on the grounds stated, particularly when the issues raised in the reopening notice differed from those in the pending appeal.

3. Whether the assessing officer committed any procedural irregularity in issuing the notice under Section 148A(b) and passing the order under Section 148A(d).

4. Whether the assessment order passed during the pendency of the writ petition could be considered or entertained by the court.

5. The scope and applicability of judicial precedents concerning reopening of assessments, especially in cases where rectification applications are pending or appeals are filed.

Issue-wise detailed analysis:

Validity of notice under Section 148A(b) amid pending appeal and rectification application

The legal framework involves the provisions of the Income Tax Act, 1961, specifically Sections 148A(b), 148A(d), 154, 143(3), and 147/148. The relevant precedents include the Supreme Court's ruling in M/s. S.M. Overseas Pvt. Ltd. and decisions by various High Courts such as Principal Commissioner of Income-tax v. Coal India Ltd., Indian Tubes Co. Ltd., and others.

The appellant contended that since a statutory appeal was pending before the CIT(A) against the original assessment order dated 30.12.2018, and a rectification application under Section 154 filed by the assessee was pending disposal, the issuance of the notice under Section 148A(b) was impermissible. Reliance was placed on the principle that reopening proceedings cannot be initiated while rectification proceedings are pending, as held in M/s. S.M. Overseas Pvt. Ltd.

The Court examined the facts and noted that the rectification application filed by the assessee on 13.04.2020 was essentially a merit-based contention and its maintainability under Section 154 was doubtful. More importantly, the notice under Section 148A(b) dated 25.03.2023 was issued based on new information received from a search and seizure operation under Section 132 against a third party, Kailash Kumar Pattowari, and his controlled entities. The notice alleged that the assessee was a beneficiary of transactions accommodated by the said person, which was a ground distinct from the earlier appeal and rectification proceedings.

The Court held that since the reasons for reopening were different and based on new information, the issuance of the notice under Section 148A(b) was within jurisdiction and valid. The prior pendency of appeal or rectification application did not bar the initiation of reopening proceedings on new grounds.

Permissibility of reopening under Section 148A(d) on new grounds

Section 148A(d) empowers the assessing officer to pass an order after considering the assessee's submissions following issuance of notice under Section 148A(b). The Court analyzed whether the reopening was justified on the grounds stated.

The Court observed that the grounds for reopening related to the assessee being a beneficiary of transactions linked to a search and seizure operation, which was not the subject matter of the earlier appeal or assessment. This distinction was critical to uphold the reopening.

Precedents such as CIT v. S. Raman Chettiar and Indian Tubes Co. Ltd. were reviewed, which clarify that once a notice under Section 148 is issued, the original assessment is reopened and the finality of the first order ceases to exist. However, these precedents do not preclude reopening on new grounds discovered later.

The Court found no jurisdictional error or procedural irregularity in the reopening process and held that the reopening was valid and did not warrant interference under Article 226 of the Constitution.

Procedural regularity in issuance of notices and orders

The appellant challenged the procedural propriety of the notice under Section 148A(b) and order under Section 148A(d), contending that replies and representations filed by the assessee were not properly considered.

The Court reviewed the sequence of notices and replies, including the submission of returns and legal arguments by the assessee, and found that the assessing officer had complied with the procedural requirements. The Court noted that the assessing officer had granted opportunities and considered the submissions before passing the order under Section 148A(d).

Therefore, the Court concluded that there was no procedural irregularity that would vitiate the reopening order.

Consideration of assessment order passed during pendency of writ petition

The appellant sought to bring on record the assessment order dated 13.03.2025 passed during the pendency of the writ petition by way of a supplementary affidavit.

The Court declined to entertain any challenge to this assessment order in the present proceedings, emphasizing that the assessee was free to pursue available remedies under the law, including filing an appeal within the prescribed time.

Scope of judicial precedents on reopening and rectification

The Court examined several precedents cited by both parties. The appellant relied on rulings that emphasize the bar on reopening during pendency of rectification proceedings and the necessity of disposing of returns filed in response to earlier notices before issuing subsequent reopening notices.

The Court distinguished the present facts from those precedents, noting the new information obtained from search and seizure operations and the distinct grounds for reopening. The Court also relied on the Division Bench decision in Sardari Lal & Co., which recognized the jurisdiction of the assessing officer to reopen assessments on new sources of income under Sections 147/148.

Thus, the Court clarified that the principles established in the cited precedents do not apply to the facts at hand where the reopening was based on fresh material and distinct grounds.

Significant holdings include the following verbatim excerpt:

"Therefore, we are of the view that the reopening proceedings would not suffer from any jurisdictional error for the writ court to interfere in exercise of its powers under Article 226 of the Constitution of India."

Core principles established:

- The pendency of a statutory appeal or rectification application under Section 154 does not bar the issuance of a notice under Section 148A(b) if the reopening is based on new and distinct grounds arising from fresh information.

- Once a notice under Section 148 is issued, the original assessment proceedings are reopened, and the finality of the earlier order ceases to exist.

- The assessing officer must comply with procedural requirements, including considering the assessee's submissions before passing an order under Section 148A(d), but mere pendency of other proceedings does not invalidate reopening on new grounds.

- The writ court should exercise caution in interfering with reopening proceedings where jurisdictional and procedural requirements are met, especially when new information justifies reopening.

- Challenges to assessment orders passed during the pendency of writ petitions should be pursued through appropriate statutory remedies rather than in writ proceedings.

Final determinations on each issue:

1. The notice under Section 148A(b) dated 25.03.2023 was validly issued based on new information unrelated to the pending appeal or rectification application.

2. The order under Section 148A(d) dated 19.04.2023 reopening the assessment was legally sustainable and not vitiated by procedural irregularity.

3. The pendency of the appeal before the CIT(A) and the rectification application under Section 154 did not bar the reopening proceedings.

4. The assessment order passed during the pendency of the writ petition cannot be challenged in the present proceedings; the assessee may pursue statutory remedies.

5. The intra-court appeal challenging the order dated 14.08.2023 dismissing the writ petition was dismissed, with liberty granted to the assessee to file a statutory appeal against the assessment order within thirty days without being barred by limitation.

The core legal questions considered by the Appellate Tribunal in this appeal pertain to the validity and justification of various disallowances made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) (CIT(A)) under the Income Tax Act, 1961 (the Act) for the Assessment Year 2014-15. The issues are:

• Whether the disallowance of Rs. 2,96,150/- under section 37(1) of the Act relating to vehicle expenses is justified.
• Whether the disallowance of Rs. 15,77,164/- under section 40(a)(ia) of the Act for payments made to a third party on behalf of labourers without deduction of tax at source (TDS) is valid.
• Whether the disallowance of Rs. 11,74,499/- under section 40A(3) of the Act on account of cash payments exceeding prescribed limits is appropriate, including sub-issues concerning payments to packers and freight payments.
• Whether the AO and CIT(A) failed to appropriately appreciate the evidence produced and hence wrongly disallowed expenses aggregating Rs. 30,47,813/-.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance under Section 37(1) of the Act - Vehicle Expenses of Rs. 2,96,150/-

Relevant Legal Framework and Precedents: Section 37(1) permits deduction of any expenditure incurred wholly and exclusively for the purposes of business or profession unless specifically disallowed. The appellant relied on the precedent set by the Hon'ble Madras High Court in CIT vs. Coimbatore Salem Transport Company Pvt. Ltd. (1966) 61 ITR 480 (Mad), which held that vehicle expenses incurred in the course of business transportation are allowable.

Court's Interpretation and Reasoning: The Tribunal noted that the expenditure was incurred on drivers, cleaners, and employees involved in transporting perishable goods, which is essential for the business. The expenses included repairs, maintenance, gate fees, and weighment charges, all of which are legitimate business expenses. The Tribunal found no evidence that these payments were illegal or prohibited by law.

Key Evidence and Findings: The appellant demonstrated that these expenses were necessary for smooth transportation to avoid damage to perishable goods. The AO and CIT(A) had disallowed the full amount without adequately considering the nature and necessity of these expenses.

Application of Law to Facts: Applying section 37(1), the Tribunal held that the expenses were incurred wholly and exclusively for business purposes and thus allowable. However, considering the facts and the record, the Tribunal restricted the disallowance to Rs. 1,50,000/- instead of the full amount, implying partial disallowance on some unspecified grounds.

Treatment of Competing Arguments: The AO and CIT(A) had upheld the disallowance, but the Tribunal found the appellant's arguments and precedent more persuasive, leading to a reduction in disallowance.

Conclusion: The disallowance under section 37(1) was partly justified; the Tribunal restricted the disallowance to Rs. 1,50,000/- and allowed the balance.

Issue 2: Disallowance under Section 40(a)(ia) of the Act - Rs. 15,77,164/- Paid to Labourers via a Third Party

Relevant Legal Framework and Precedents: Section 40(a)(ia) mandates disallowance of expenses if tax is not deducted at source on certain payments to residents. The question was whether payments made to Mr. Rehmat Ali on behalf of various labourers attracted TDS provisions. The appellant cited decisions including Bhagyanagar Gas Ltd., Gujarat Narmada Valley Fertilisers Co. Ltd., and Dhaanya Seeds Pvt. Ltd., which clarified that TDS provisions apply only where there is a contract or agreement with the payee.

Court's Interpretation and Reasoning: The Tribunal observed that Mr. Rehmat Ali acted as a conduit for payments to labourers without any contract or agreement with the appellant. The payments were partly in cash and partly by cheque, and the muster roll for labourers was maintained. The Tribunal held that since there was no contract with Mr. Rehmat Ali for supply of labour, the TDS provisions under section 194C or section 40(a)(ia) did not apply.

Key Evidence and Findings: The appellant produced muster rolls and payment records demonstrating that labourers were independent and paid accordingly. The genuineness of the expenditure was undisputed.

Application of Law to Facts: The Tribunal applied the principle that TDS obligations arise only when payments are made to contractors or service providers under contract. Here, the arrangement was for business convenience, not a contract with Mr. Rehmat Ali.

Treatment of Competing Arguments: The AO and CIT(A) had disallowed the entire amount for non-deduction of TDS. The Tribunal rejected this, accepting the appellant's submissions and precedent authorities.

Conclusion: The disallowance of Rs. 15,77,164/- under section 40(a)(ia) was deleted, and consequential relief was granted to the appellant.

Issue 3: Disallowance under Section 40A(3) of the Act - Rs. 11,74,499/- on Account of Cash Payments

Relevant Legal Framework and Precedents: Section 40A(3) disallows expenditure where payments exceeding prescribed limits are made in cash. The limit was Rs. 20,000/- per payment, later amended to Rs. 35,000/- for freight payments under section 40A(3A).

Court's Interpretation and Reasoning: The Tribunal analyzed two parts of this disallowance:

• Payments of Rs. 5,03,580/- to Mr. Chetan Kumar Solanki (packer), where Rs. 3,38,580/- was paid by cheque and Rs. 1,65,000/- in cash. The cash payments were made in tranches below the prescribed limit, except Rs. 60,000/- which was supported by muster roll evidence.
• Payments of Rs. 6,70,919/- comprising freight payments (all below Rs. 35,000/- per payment), packing expenses based on muster rolls, and procurement expenses.

The Tribunal held that payments made through banking channels are not liable for disallowance under section 40A(3). The cash payments were either below the prescribed limits or supported by muster rolls, indicating compliance.

Key Evidence and Findings: The appellant produced muster rolls and payment records showing that no single payment exceeded the prescribed limit. The Tribunal noted the legal amendment increasing the cash payment limit for freight to Rs. 35,000/-.

Application of Law to Facts: The Tribunal applied the amended limits and the nature of payments to conclude that the disallowance under section 40A(3) was not justified.

Treatment of Competing Arguments: The AO and CIT(A) upheld the disallowance. The Tribunal disagreed, finding the appellant's evidence and legal submissions more compelling.

Conclusion: The disallowance of Rs. 11,74,499/- under section 40A(3) was deleted, with consequential relief granted.

Issue 4: Failure to Appreciate Evidence Leading to Disallowance of Rs. 30,47,813/-

The appellant contended that the AO and CIT(A) failed to appreciate the evidence produced, resulting in disallowance of expenses without cognate reasons. The Tribunal, after detailed examination of the evidence and submissions, found merit in this contention for the disallowances under sections 40(a)(ia) and 40A(3), as discussed above. For the vehicle expenses under section 37(1), the Tribunal partially accepted the contention.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is preserved in the following excerpts:

"Keeping in view the facts in entirety and legitimacy of part expenses, we restrict this disallowance to Rs. 1,50,000/-." (Para 8)

"Making payment to one person on behalf of others, in the present case, will not attract TDS as the said person has not supplied manpower/labour... The genuineness of expenditure is not in dispute here. Hence, it is held that the disallowance of Rs. 15,77,164/- under section 40(a)(ia) of the Act is not justified." (Para 9)

"It is held that the sum paid through banking channel is not liable for the disallowance under section 40A(3) of the Act and the limit for freight is Rs. 35,000/- under section 40A(3A) of the Act... Hence, it is held that the disallowance of Rs. 11,74,499/- under section 40A(3) of the Act is not justified." (Para 10)

Core principles established include:

• Expenditure incurred wholly and exclusively for business purposes, including vehicle expenses related to transportation of perishable goods, is allowable under section 37(1), subject to verification and reasonableness.
• Payments made to a third party on behalf of labourers do not attract TDS provisions under section 40(a)(ia) if there is no contract or agreement with the payee for supply of labour or services.
• Disallowance under section 40A(3) is not warranted where cash payments do not exceed prescribed limits or are supported by muster rolls; payments made through banking channels are not subject to disallowance under this provision.

Final determinations:

• Disallowance of Rs. 2,96,150/- under section 37(1) restricted to Rs. 1,50,000/-.
• Disallowance of Rs. 15,77,164/- under section 40(a)(ia) deleted.
• Disallowance of Rs. 11,74,499/- under section 40A(3) deleted.
• Overall, the appeal was partly allowed, granting consequential relief to the appellant.

The core legal questions considered by the Tribunal in this appeal are:

• Whether the deduction claimed under Section 80G of the Income Tax Act, 1961, in respect of donation made towards Corporate Social Responsibility (CSR) activities, specifically to Mukhyamantri Shree Swachchta Nidhi Gujarat, is allowable, given the Assessing Officer's disallowance on the ground that such CSR expenditure is not eligible for deduction under Section 80G;
• Whether the disallowance made under Section 14A of the Income Tax Act, 1961, relating to expenditure incurred in relation to exempt income, specifically dividend income exempt under Section 10(34), is justified, particularly when the assessee had made a suo moto disallowance and subsequently sought to reduce the disallowance amount during assessment proceedings;
• Whether the claim for reduction in disallowance under Section 14A can be entertained at the assessment stage based on judicial precedents, especially the Supreme Court decision in Goetze (India) Limited vs. CIT;
• Whether the disallowance under Section 14A can exceed the total expenditure incurred and whether the disallowance computation complies with the proviso to Rule 8D(2) of the Income Tax Rules;
• Whether the Assessing Officer's and CIT(A)'s rejection of the reduced disallowance amount claimed by the assessee under Section 14A is sustainable in absence of a revised audit certificate.

2. ISSUE-WISE DETAILED ANALYSIS

Deduction under Section 80G of the Income Tax Act, 1961

Legal framework and precedents: Section 80G of the Act allows deduction for donations made to certain funds and charitable institutions. However, Section 80G(2)(a)(iiihk) and (iiihl) specifically restrict deductions for donations made pursuant to CSR obligations to the Swachh Bharat Kosh and Clean Ganga Fund, both established by the Central Government. The interplay between CSR expenditure under the Companies Act and deduction under Section 80G has been subject to judicial scrutiny, with several Tribunal decisions clarifying that CSR expenditure per se is not barred from deduction under Section 80G unless specifically excluded.

Court's interpretation and reasoning: The Tribunal examined the statutory provisions and noted that the only explicit bar to deduction under Section 80G in respect of CSR donations is limited to the two specified funds. The donation to Mukhyamantri Shree Swachchta Nidhi Gujarat, a state-level fund for sanitation, is not expressly disallowed under the statute. The Tribunal relied on coordinate Bench decisions, including PCIT vs. Gujarat State Fertilizers & Chemicals Limited and others, which held that CSR expenditure and Section 80G deductions operate in different legal domains and that donations to eligible funds under Section 80G are deductible even if they form part of CSR activities.

Key evidence and findings: The assessee had contributed Rs. 3.57 crores to the Mukhyamantri Shree Swachchta Nidhi Gujarat and claimed 50% deduction under Section 80G. The Assessing Officer disallowed this on the ground that CSR expenditure is not eligible for deduction under Section 80G, except for donations to the two specified funds. The assessee's counsel cited multiple Tribunal decisions supporting the claim.

Application of law to facts: Since the donation was not to the Swachh Bharat Kosh or Clean Ganga Fund, the statutory bar did not apply. The Tribunal held that the disallowance was erroneous and allowed the deduction under Section 80G.

Treatment of competing arguments: The Revenue contended that CSR expenditure should not be allowed as deduction under Section 80G to avoid defeating the purpose of CSR provisions. The Tribunal rejected this, emphasizing the specific statutory exclusions and consistent judicial precedents allowing such deductions.

Conclusion: The assessee's claim for deduction under Section 80G in respect of donation to Mukhyamantri Shree Swachchta Nidhi Gujarat was held to be valid and allowable.

Disallowance under Section 14A of the Income Tax Act, 1961

Legal framework and precedents: Section 14A mandates disallowance of expenditure incurred in relation to income that does not form part of total income, such as exempt dividend income under Section 10(34). Rule 8D prescribes the method for computing such disallowance. The Supreme Court decision in Goetze (India) Limited vs. CIT clarified that claims for reduction in disallowance under Section 14A should be made by filing a revised return and cannot be entertained at the assessment stage.

Court's interpretation and reasoning: The Tribunal noted that the assessee had suo moto disallowed Rs. 14.31 crores under Section 14A in its return. During assessment, the Assessing Officer proposed a much larger disallowance but ultimately accepted the assessee's suo moto disallowance after considering explanations. The assessee sought to reduce the disallowance drastically to Rs. 98,872/- based on a reworked computation applying arbitrary percentages to various expenses and alternatively to Rs. 1,09,000/- by applying the ratio of equity investment to total assets on administrative expenses.

The Tribunal observed that the Assessing Officer did not make any fresh disallowance but accepted the assessee's original disallowance. The Tribunal further noted that the revised claim for reduction was unsupported by any revised audit certificate in Form No.3CA, which is mandatory for such claims. The assessee failed to explain the basis for the low percentage allocations or why significant expenses such as finance costs and employee benefits were excluded from the disallowance calculation.

Key evidence and findings: The auditor's certificate initially certified disallowance at Rs. 14.31 crores. The assessee's revised claim lacked any revised audit certificate. The Tribunal found that the investment in shares was strategic and involved top management, implying significant expenses should be allocated to exempt income earning activities.

Application of law to facts: The Tribunal applied the statutory provisions and judicial precedents to hold that the Assessing Officer's acceptance of the suo moto disallowance was valid. The reduction claimed by the assessee without revised audit evidence was not permissible. The Tribunal also held that the disallowance cannot be arbitrarily reduced without proper justification and compliance with procedural requirements.

Treatment of competing arguments: The assessee argued that the Supreme Court decision in Goetze was binding only on the Assessing Officer and not on appellate authorities, and that the disallowance should be restricted based on the ratio of investments to assets. The Revenue contended that the Assessing Officer's acceptance of the original disallowance was correct and that the revised claim was not supported by evidence. The Tribunal sided with the Revenue, emphasizing procedural compliance and the need for audit certification.

Conclusion: The Tribunal upheld the disallowance of Rs. 14.31 crores under Section 14A as made suo moto by the assessee and rejected the claim for reduction to Rs. 98,872/- or Rs. 1,09,000/- in absence of a revised audit certificate and proper rationale.

3. SIGNIFICANT HOLDINGS

"It is evident that the restriction on deductibility of donation made pursuant to CSR obligation is expressly provided under Section 80G(2)(a)(iiihk)/(iiihl) of the Act in respect of donation made to Swachh Bharat Kosh and Clean Ganga Fund, set up by the Central Government. Apart from the donation to these two funds, there is no restriction in respect of donation made to any other fund."

"The donation under Section 80G, the CSR expenses and the business expenses under Section 37 of the Act operate under different arena and that there was no bar in claiming deduction under Section 80G of the Act in respect of CSR contribution, if the fund to which donation made was eligible for deduction under Section 80G of the Act."

"The Assessing Officer has categorically recorded in the assessment order that the working of disallowance under Section 14A read with Rule 8D suo moto made by the assessee was acceptable and no further disallowance was warranted on this issue."

"The revised claim for disallowance under Section 14A of the Act as made by the assessee in the course of assessment is found to be neither based on any rationale nor supported by a revised audit report from the Auditor. Therefore, the action of the Assessing Officer in rejecting the revised claim for deduction u/s 14A of the Act and the decision of the Ld. CIT(A) on this issue, is upheld."

Core principles established include:

• Deduction under Section 80G is allowable for donations made towards CSR activities unless specifically excluded by statute;
• Disallowance under Section 14A must be computed in accordance with Rule 8D and supported by auditor certification;
• Revised claims for reduction in disallowance under Section 14A cannot be entertained at assessment stage without filing a revised return and producing revised audit evidence;
• The Assessing Officer's acceptance of suo moto disallowance made by the assessee is valid if supported by audit certificate;
• Allocation of expenses to exempt income earning activities must be rational and adequately explained.

Final determinations:

• The deduction under Section 80G of Rs. 1,78,71,274/- claimed in respect of donation to Mukhyamantri Shree Swachchta Nidhi Gujarat was allowed;
• The disallowance under Section 14A of Rs. 14,31,36,774/- as claimed suo moto by the assessee was upheld;
• The claim for reduction of disallowance under Section 14A to Rs. 98,872/- or Rs. 1,09,000/- was rejected for lack of revised auditor certificate and rationale;
• The general ground challenging the order was dismissed as not pressed.

The core legal questions considered by the Tribunal in this appeal include:

- Whether the Assessing Officer (AO) erred in making an upward adjustment of INR 83,30,174 to the total income of the appellant on account of deemed international transactions related to sale of goods and in re-determining the Arm's Length Price (ALP).

- Whether the AO, Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) erred in disregarding the ALP determined by the appellant and rejecting the benchmarking analysis based on the Resale Price Method (RPM) without cogent reasons.

- Whether the goods sold under the arrangement of deemed international transaction attract the status of associated enterprise under section 92A and whether RPM is an appropriate method when transactions involve both purchase and sale from related parties.

- Whether the AO, TPO, and DRP erred in rejecting the appellant's contention that no further allocation of expenses (depreciation, advertisement, travelling, etc.) is warranted for a mere trading activity where no significant value-added functions are undertaken.

- Whether the AO, TPO, and DRP erred in disregarding corroborative analysis showing that gross margin earned from sales to parties covered under deemed international transactions is higher than margin earned from third parties.

- Whether the AO erred in not following DRP directions under section 144(5) to restrict the adjustment to the value of deemed international transactions, thereby acting contrary to section 144C.

- Whether the AO and TPO erred in computing the adjustment amount by incorrectly computing the operating margin of the tested party.

- Whether the AO erred in levying interest under sections 234B and 234D consequential to the aforementioned grounds.

- Whether the AO erred in initiating penalty proceedings under section 270A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Legality and correctness of upward adjustment and rejection of RPM benchmarking

The relevant legal framework comprises sections 92, 92A, 92B, 92C of the Income Tax Act, 1961, and Rules 10B, 10C, and 10D of the Income Tax Rules, 1962, which govern transfer pricing and determination of ALP for international transactions. The RPM is recognized as one of the prescribed methods for benchmarking under section 92C.

The appellant submitted that the TPO and AO erred in rejecting the RPM-based benchmarking analysis without providing cogent reasons, and that the ALP determined by the appellant should have been accepted. The appellant contended that the RPM was methodically applied in its Transfer Pricing Study Report and that no significant value addition warranted further expense allocation.

The DRP and TPO took the view that since the transactions involved both purchase and sale from related parties, the RPM was not appropriate. They also noted that the appellant incurred various expenses adding significant value, thereby invalidating the simple resale price margin analysis.

The Tribunal observed that the DRP's reasoning was general and did not adequately consider the appellant's demonstration that the transactions are inter-linked and that RPM is the most appropriate method for such trading transactions. The Tribunal found that the appellant's benchmarking analysis was methodical and that the RPM method was rightly selected for the transactions under consideration.

Consequently, the Tribunal directed the TPO to reconsider the RPM method and make adjustments accordingly, partly allowing grounds related to rejection of RPM and expense allocation (grounds 2, 4, and 5).

Issue 3: Status of goods sold under deemed international transactions and applicability of RPM

The appellant argued that goods sold under the arrangement of deemed international transactions do not make the transacting party an associated enterprise under section 92A, thus RPM should be accepted. The AO, TPO, and DRP rejected this contention.

The Tribunal did not explicitly rule on the status of associated enterprise under section 92A but implicitly accepted that the transactions fall within the ambit of transfer pricing provisions requiring ALP determination. The Tribunal emphasized that the transactions are interlinked and thus must be aggregated for benchmarking, supporting the use of RPM.

Issue 6: Compliance with DRP directions and rectification under section 154

The appellant contended that the AO failed to follow DRP directions under section 144(5) and section 144C(10) by initially making an addition of Rs. 4,59,51,095 instead of Rs. 83,30,174 as per DRP directions, and that the rectification order passed was suo moto and thus invalid.

The AO submitted that the rectification was made pursuant to the appellant's rectification application dated 19-07-2024, and hence was not suo moto.

The Tribunal held that since the rectification was made following the appellant's application, it could not be considered suo moto. Therefore, the appellant's reliance on precedents regarding suo moto rectification was misplaced. The Tribunal dismissed ground 6 relating to non-compliance with DRP directions.

Issue 7: Computation of operating margin

The appellant argued that the AO and TPO erred in computing the adjustment by incorrectly calculating the operating margin of the tested party. The Tribunal did not elaborate extensively on this ground but by implication, the direction to reconsider RPM benchmarking would involve recalculation of margins consistent with the method.

Issue 8 & 9: Levy of interest and penalty proceedings

The appellant challenged the levy of interest under sections 234B and 234D and initiation of penalty proceedings under section 270A as consequential to the disputed adjustments.

The Tribunal did not specifically address these grounds in detail, implying that these issues are dependent on the resolution of the primary transfer pricing adjustments and hence were not separately adjudicated.

3. SIGNIFICANT HOLDINGS

- "The DRP has considered the benchmarking adopted by the assessee as well as by the TPO as transactions conducted by the assessee i.e. purchase as well as sales are contended and hence it does not fit into the ambit of RPM and consequently because various expenses were incurred by the assessee in India which adds significant value to the sales and hence gross margin analysis cannot be at all as it is not a case simple re-sale."

- The Tribunal found this observation of the DRP to be general and held that "for the transactions related to purchase as well as sales the RPM method is the most appropriate method as demonstrated by the assessee."

- The Tribunal emphasized that "the deemed international transaction of sale of goods have to be aggregated for the purpose of benchmarking and thus the RPM is rightly selected method related to the transactions which are in the nature of trading for benchmarking international transactions."

- On rectification under section 154, the Tribunal held that "the assessee has filed the rectification application which cannot be held as suo moto rectification on the part of the revenue and therefore the decisions referred by the Ld. A.R. will not at all be applicable in the present case."

- The appeal was partly allowed, directing the TPO to reconsider the RPM method and make adjustments accordingly, while dismissing the ground related to non-compliance with DRP directions on rectification.

1. Whether the initiation of reassessment proceedings under sections 147/148 of the Income-tax Act, 1961 was justified and in accordance with law, given the facts and circumstances of the case.

2. Whether the addition of Rs. 2,73,09,676/- under section 57 on account of interest expenses was justified.

3. Whether the alternate plea of allowing deduction of interest paid of Rs. 2,73,09,676/- under section 36(1)(iii) as a business expense should have been accepted.

4. Ancillary issues relating to the correctness of the Assessing Officer's and CIT(A)'s treatment of interest income and interest expenses, including the netting off of interest income and interest paid.

Issue 1: Legality and Validity of Reassessment Proceedings under Sections 147/148

Relevant Legal Framework and Precedents: The reassessment provisions under sections 147/148 require that the Assessing Officer must have "reason to believe" that income chargeable to tax has escaped assessment. The reopening beyond four years must be supported by valid reasons recorded in writing. The principle of legality and jurisdictional correctness governs the initiation of such proceedings.

Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based on the allegation that the assessee did not offer certain interest income amounting to Rs. 2,74,22,331/-. However, the assessee contended that the said interest income was declared, albeit after adjusting interest paid on bank borrowings.

Key Evidence and Findings: The Assessing Officer recorded reasons on 03/03/2017 and issued notice on 31/03/2017. The assessee's return disclosed interest income and interest paid, with net interest income offered for tax. The AO's reopening was premised on the difference between interest income on which TDS was deducted and the income offered.

Application of Law to Facts: The Tribunal observed that the reassessment was initiated on the basis of an alleged concealment of income which was in fact disclosed, though after adjustment. The reopening was therefore not justified as no income had escaped assessment.

Treatment of Competing Arguments: The assessee argued that the reopening was without jurisdiction and contrary to law, as the income was declared and the adjustment was merely an accounting exercise. The Revenue relied on the difference in declared income and TDS records.

Conclusions: The Tribunal kept this ground open for academic purposes since the appeal was allowed on factual grounds. Hence, no definitive conclusion was rendered on the validity of reassessment, but the factual findings undermined the basis for reopening.

Issue 2: Disallowance of Interest Expenses under Section 57

Relevant Legal Framework and Precedents: Section 57 permits deduction of expenditure incurred wholly and exclusively to earn income under the head "Income from Other Sources". The Supreme Court in CIT vs Dr. V.P. Gopinathan held that interest on a loan taken against a fixed deposit cannot be set off against interest earned on that fixed deposit, as no provision permits such netting.

Court's Interpretation and Reasoning: The AO disallowed interest expenses of Rs. 2,73,09,676/- under section 57, reasoning that the interest paid was not incurred to earn the interest income, but rather related to credit facilities secured by the fixed deposits. The AO concluded that the interest expense was not necessary for earning the interest income and hence disallowed the deduction.

Key Evidence and Findings: The assessee submitted detailed ledger accounts, audit reports, and computations showing that interest income from fixed deposits amounted to Rs. 4,90,47,172/- and interest paid on bank borrowings was Rs. 2,73,09,676/-. The net interest income of Rs. 2,17,37,496/- was offered as income from other sources. The interest paid was related to business borrowings and was claimed as business expenditure under section 36(1)(iii).

Application of Law to Facts: The Tribunal found that the interest expense disallowed under section 57 was in fact a business expenditure related to bank borrowings and not a deduction claimed under section 57. The AO's disallowance was based on an incorrect premise that the deduction was claimed under section 57, whereas the assessee had claimed it under section 36(1)(iii).

Treatment of Competing Arguments: The Revenue relied on the Supreme Court's decision in Dr. V.P. Gopinathan to argue that netting of interest income and interest expense was impermissible. The assessee distinguished the case on facts, contending that interest paid related to business borrowings and was rightly claimed as business expenditure, and the netting was a tax-neutral accounting adjustment.

Conclusions: The Tribunal held the disallowance under section 57 to be unjustified and liable to be deleted, as the interest expense was a legitimate business expenditure and the netting off was tax neutral.

Issue 3: Allowance of Interest Deduction under Section 36(1)(iii)

Relevant Legal Framework and Precedents: Section 36(1)(iii) allows deduction of interest on capital borrowed for the purpose of business or profession. The principle is that interest paid on business borrowings is an allowable expense.

Court's Interpretation and Reasoning: The assessee claimed the interest paid to banks as a business expense under section 36(1)(iii). The AO did not allow this deduction, instead disallowing the amount under section 57.

Key Evidence and Findings: The Tribunal noted that the interest paid was related to credit facilities availed for business purposes and was supported by bank statements and audit reports. The AO admitted in the assessment order that the interest was related to business activity.

Application of Law to Facts: The Tribunal found that the interest expense was genuinely incurred wholly and exclusively for the purpose of business and hence deductible under section 36(1)(iii). The disallowance was therefore erroneous.

Treatment of Competing Arguments: The Revenue did not dispute the genuineness of the interest expense but contended that the adjustment with interest income was impermissible. The Tribunal held that the adjustment was tax neutral and the interest expense should be allowed as business expenditure.

Conclusions: The Tribunal allowed the alternate plea of the assessee and held that the interest paid should be allowed as a deduction under section 36(1)(iii).

Significant Holdings and Core Principles Established

"The entire adjustment has no tax effect on the assessee, i.e. it is tax neutral."

"The disallowance of interest expenditure u/s 57 made by the Ld. AO is wrong and uncalled for and ought to be deleted."

"The interest incurred by the appellant in respect of bank borrowings is undisputedly a business expenditure and was so claimed and also rightly allowed as an expenditure in the regular assessment proceedings."

"The said expenditure ought to have been allowed as deduction suo-moto by the AO."

"The additions made by the Ld. AO amount to Rs. 2,73,09,676/- is unjustified and liable to be deleted."

On the issue of reassessment initiation, the Tribunal refrained from deciding the legal question conclusively but noted that the factual basis for reopening was weak.

The Tribunal's final determination was to allow the appeal of the assessee by deleting the addition of Rs. 2,73,09,676/- and allowing the interest expense deduction under section 36(1)(iii). The appeal was allowed on factual grounds, leaving the legal ground regarding reopening open for academic consideration.

1. Whether the addition made under section 50C of the Income Tax Act, 1961 (the Act), based on the difference between the sale consideration and the stamp duty value of the immovable properties sold, was justified in the assessment year 2012-13.

2. Whether the reopening of the assessment under section 147 of the Act was valid and justified.

3. Whether the transfer of the properties took place in the financial year 2010-11 (relevant to assessment year 2011-12) or in the financial year 2011-12 (relevant to assessment year 2012-13), given that the deeds of conveyance were executed on 30.12.2010 but registered on 27.04.2011.

4. Whether the valuation for the purpose of section 50C should be based on the rates prevailing on the date of the first account payee cheques made for the purchase or on the date of registration of the sale deeds.

Issue-wise Detailed Analysis:

Issue 1: Validity of Addition under Section 50C of the Income Tax Act

Relevant Legal Framework and Precedents: Section 50C of the Act mandates that in case of sale of immovable property, if the consideration declared is less than the stamp duty value, the stamp duty value shall be deemed to be the full value of consideration for computing capital gains. The Assessing Officer (AO) made an addition of Rs. 1,39,38,875/- being the difference between sale consideration and stamp duty value.

Court's Interpretation and Reasoning: The Tribunal examined whether the addition under section 50C was rightly made in the assessment year 2012-13, considering the timing of the transfer. The Tribunal noted that the sale deed was executed and possession handed over on 30.12.2010, with full consideration received and stamp duty paid on the same date, but the registration of the deed occurred on 27.04.2011.

Key Evidence and Findings: The conveyance deeds, payment of stamp duty, possession delivery, and receipt of full consideration all occurred on 30.12.2010, which falls in the financial year 2010-11, relevant to assessment year 2011-12. The registration was a formal act completed in the subsequent financial year.

Application of Law to Facts: The Tribunal relied heavily on the Supreme Court's interpretation of Section 47 of the Registration Act, 1908, which provides that a registered document operates from the date it would have operated if no registration was required, i.e., the date of execution. The Supreme Court in Kanwar Raj Singh (D) Th. LRS. vs. Gejo (D) Th. LRS. & Ors. clarified that the registration relates back to the date of execution where the entire consideration is paid and possession delivered.

Treatment of Competing Arguments: The Revenue argued that since the deeds were registered in the year under consideration, the addition under section 50C was rightly made in that year. The assessee contended that the transaction was complete in the previous year based on execution, possession, and consideration receipt. The Tribunal found the assessee's argument persuasive, supported by judicial precedent.

Conclusions: The addition under section 50C should have been made in the assessment year 2011-12 and not in 2012-13. Therefore, the addition made in the impugned assessment year was deleted.

Issue 2: Validity of Reopening of Assessment under Section 147

Relevant Legal Framework and Precedents: Section 147 allows reopening of assessments if the AO has reason to believe that income has escaped assessment. The assessee challenged the reopening notice as bad in law.

Court's Interpretation and Reasoning: Since the Tribunal granted relief on merits by holding that the addition under section 50C was not justified in the assessment year 2012-13, the issue of validity of reopening became academic.

Conclusions: The Tribunal left the question of reopening open and did not adjudicate on it further.

Issue 3: Date of Transfer of Property for Capital Gains Assessment

Relevant Legal Framework and Precedents: Section 54 of the Transfer of Property Act, 1882 defines sale as transfer of ownership in exchange for price, which for immovable property above Rs. 100 requires registration. The Supreme Court in Kanwar Raj Singh (supra) held that the registered document operates from the date it would have operated if no registration was required, i.e., date of execution.

Court's Interpretation and Reasoning: The Tribunal noted that the sale deed was executed, possession delivered, and consideration paid on 30.12.2010, though registration was done later on 27.04.2011. The Tribunal referred to the Supreme Court's ruling that the sale deed operates from the date of execution, not registration.

Key Evidence and Findings: The documents showed all sale formalities completed on 30.12.2010, including payment of stamp duty and possession delivery.

Application of Law to Facts: The Tribunal applied the principle that the sale is complete on execution and possession with consideration paid, and registration is a formality that relates back to the execution date.

Treatment of Competing Arguments: The Revenue's argument that registration date governs the transfer date was rejected based on binding Supreme Court precedent and Tribunal decisions.

Conclusions: The transfer of property is deemed to have taken place in the financial year 2010-11, relevant to assessment year 2011-12.

Issue 4: Valuation Date for Section 50C Purposes

Relevant Legal Framework and Precedents: Section 50C requires valuation based on stamp duty value prevailing on the date of transfer. The assessee argued valuation should be based on rates prevailing on the date of first account payee cheque.

Court's Interpretation and Reasoning: The Tribunal did not explicitly decide this issue separately but implicitly held that since transfer took place on the date of execution, valuation should correspond to that date.

Application of Law to Facts: The date of execution and possession delivery being 30.12.2010, valuation should be considered as of that date, not later.

Conclusions: Valuation for section 50C purposes must be based on the date of execution/transfer, not the date of registration or payment.

Significant Holdings:

"When a compulsory registerable document is registered according to the Registration Act, it shall operate from a date before the date of registration, i.e., the date on which it is executed."

"Section 47 of the Registration Act does not deal with the issue when the sale is complete. It only permits a document when registered, to operate from a certain date which may be earlier than the date when it was registered."

"If in a given case, a sale deed is executed and the entire agreed consideration is paid on or before execution of the sale deed, after it is registered, it will operate from the date of its execution."

"The addition under section 50C of the Act can only be made in the assessment year relevant to the financial year in which the sale deed was executed and possession handed over, and not in the year of registration if registration happens later."

The Tribunal concluded that the impugned addition under section 50C made in assessment year 2012-13 was not justified as the transfer of property was completed in the financial year 2010-11 (assessment year 2011-12). Consequently, the addition was deleted and the appeal was allowed. Other grounds including challenge to reopening under section 147 were left open as academic.

- Whether the income received by the assessee as license fees from shopkeepers in a commercial complex should be assessed under the head "Income from House Property" with standard deduction of 30% allowed under section 24(1) of the Income Tax Act, or under the head "Income from Business or Profession" as contended by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

- Whether the Assessing Officer's issuance of notice under section 143(2) of the Income Tax Act for the assessment year 2017-18 was valid, considering the notice did not specify the type of scrutiny (limited, complete, or compulsory manual) as mandated by the Central Board of Direct Taxes (CBDT) Instruction No. F. No. 225/157/2017/ITA-II dated 23-06-2017.

- Whether the interest charged under section 234B of the Income Tax Act is maintainable (though this issue was not adjudicated at this stage).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of License Fees Income and Allowance of Standard Deduction

Relevant Legal Framework and Precedents: The primary legal provision involved is section 24(1) of the Income Tax Act, which allows a standard deduction of 30% on income from house property. The issue of classification of income as house property income or business income has been judicially examined in various precedents. The principle of consistency in classification across assessment years was emphasized in Radha Soami Satsang Vs CIT (1992) 193 ITR 321 (SC), where the Supreme Court held that while res judicata does not strictly apply to income tax proceedings, it is inappropriate to alter a fundamental factual position accepted in earlier years without challenge.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had consistently declared the license fees received from shopkeepers in the mall/warehouse as income from house property and claimed the statutory standard deduction of 30%. This treatment was accepted by the tax authorities in preceding years, including the assessment year 2014-15. The AO and CIT(A) had reclassified the income as business income on the ground that the activity amounted to tenancy or logistics business, thereby denying the standard deduction.

Key Evidence and Findings: The Tribunal examined the assessment orders from earlier years, which consistently accepted the income under the head house property and allowed the 30% deduction. The Tribunal also considered the nature of income as license fees from commercial premises, which prima facie falls under income from house property.

Application of Law to Facts: Applying the principle from Radha Soami Satsang, the Tribunal held that the fundamental factual position of the income being house property income should not be disturbed in subsequent years without any challenge in earlier years. The AO's and CIT(A)'s orders to reclassify the income as business income were therefore contrary to settled legal principles.

Treatment of Competing Arguments: The AO's argument that the activity constituted business was rejected on the ground that the income was license fees from letting out premises, a classic example of income from house property, and that the assessee's consistent treatment and acceptance by authorities in earlier years negated the AO's contention.

Conclusions: The Tribunal set aside the orders of the AO and CIT(A) on this issue and directed that the income be assessed under the head house property with allowance of the 30% standard deduction. Grounds 2, 3, and 4 were allowed accordingly.

Issue 2: Validity of Notice Issued under Section 143(2) for AY 2017-18

Relevant Legal Framework and Precedents: Section 143(2) of the Income Tax Act authorizes the AO to issue a notice for scrutiny assessment. The CBDT Instruction No. F. No. 225/157/2017/ITA-II dated 23-06-2017 mandates that such notices must specify the nature of scrutiny-limited scrutiny, complete scrutiny, or compulsory manual scrutiny-in one of three prescribed formats. The binding nature of CBDT circulars and instructions on tax authorities has been upheld by the Supreme Court, including in UCO Bank (supra), and the right of an assessee to raise legal issues at any appellate stage is supported by decisions in Jute Corporation of India Ltd. Vs CIT, National Thermal Power Co. Ltd v. CIT, and PCIT vs. Britannia Industries Ltd.

Court's Interpretation and Reasoning: The Tribunal found that the notice issued to the assessee on 09.08.2018 did not specify the type of scrutiny and was issued in a format inconsistent with the CBDT Instruction. The notice merely stated "Scrutiny (Computer Aided Scrutiny Selection)" without indicating whether it was limited, complete, or compulsory manual scrutiny, thus violating the prescribed formats.

Key Evidence and Findings: The Tribunal examined the notice and compared it with the formats prescribed by the CBDT. The notice was computer-generated and lacked the mandatory specification of scrutiny type. The Tribunal also relied on a coordinate Bench decision in Tapas Kumar Das Vs. ITO and Shib Nath Ghosh Vs. ITO, which held similar notices invalid for non-compliance with the CBDT instruction.

Application of Law to Facts: The Tribunal applied the principle that CBDT instructions issued under section 119 of the Income Tax Act are binding on the tax authorities and failure to comply renders the notice invalid. Consequently, all proceedings consequential to such invalid notice are void ab initio.

Treatment of Competing Arguments: The Revenue's contention that the notice's non-mention of scrutiny type would not invalidate it was rejected. The Tribunal emphasized the mandatory nature of the CBDT instruction and the binding effect of such circulars. The assessee's right to raise the issue at the appellate stage, even if not raised earlier, was upheld.

Conclusions: The Tribunal admitted the additional ground challenging the notice's validity and quashed the assessment order passed pursuant to the invalid notice. Other grounds on merit were left open for future adjudication if necessary. The additional ground was allowed.

Issue 3: Charging of Interest under Section 234B

This issue was raised but not adjudicated at this stage as it was consequential to the main issues decided.

3. SIGNIFICANT HOLDINGS

- "Though the doctrine of res judicata does not apply to Income Tax proceedings, it would not be appropriate to allow the position to be changed in a subsequent year, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order for the said years." (Radha Soami Satsang principle applied)

- "The notice issued u/s 143(2) of the Act which is not in the prescribed format as provided under the Act is an invalid notice and accordingly, all the subsequent proceedings thereto would be invalid and void ab initio."

- "The instruction issued by the CBDT are mandatory and binding on the Income tax authorities failing which the proceedings would be rendered as invalid."

- "The assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities."

- The Tribunal set aside the orders of the AO and CIT(A) on the classification of income issue and directed assessment under house property income head with 30% standard deduction allowed.

- The Tribunal quashed the assessment order for AY 2017-18 on the ground of invalid notice under section 143(2) and allowed the additional ground raised by the assessee.

The core legal questions considered in this appeal are:

• Whether the final assessment order dated 18 June 2024 is barred by limitation under sections 144C and 153 of the Income-tax Act, 1961 (the Act).
• Whether the Assessing Officer (AO) acted in contravention of section 144C(13) of the Act by not giving effect to the binding directions of the Dispute Resolution Panel (DRP) in the final assessment order.
• Whether the transfer pricing (TP) adjustments made by the AO/TPO, including:
• Partial disallowance of depreciation on business rights purchased from an Associated Enterprise (AE).
• Computation and imputation of notional interest on deemed loans arising from share purchase transactions.
• Recharacterization of excess share purchase consideration as deemed loan and charging of interest thereon.
• Disputing the commercial rationale of the share purchase transactions and inflating share price for adjustment.
• Whether the disallowance of depreciation on intangible assets (other than business rights) acquired by the assessee is justified.
• Whether the disallowance of deduction under section 80G of the Act, relating to donations made by the assessee, is valid.
• Whether interest levied under section 234D and penalty proceedings initiated under section 270A of the Act are sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Limitation and Validity of Final Assessment Order (Grounds 2 and 3)

Relevant legal framework and precedents: Sections 144C(10) and 144C(13) of the Act mandate that the AO must pass the final assessment order in conformity with the binding directions of the DRP. The final order must be passed within the limitation period prescribed under section 153 of the Act. The binding nature of DRP directions is well settled, and failure to comply renders the order void ab initio. The Tribunal relied on the coordinate bench decisions including AZZ WSI B.V. v DCIT and the Hon'ble Karnataka High Court ruling in PCIT v. Flextronics Technologies (India) Ltd., which held that non-compliance with DRP directions violates section 144C(13) and invalidates the assessment order.

Court's interpretation and reasoning: The Tribunal observed that the AO passed the final assessment order without fully complying with the DRP's directions, particularly on two issues: depreciation on business rights and interest on deemed loans. The AO's refusal to accept DRP directions was premised on pending appeals before the High Court, which does not justify non-compliance with binding DRP directions under the Act. The Tribunal held that the final assessment order was therefore not in conformity with section 144C(13) and was bad in law.

Key findings and application: The Tribunal held that since the AO did not frame the final assessment order in complete conformity with the DRP directions, the order is void. The Tribunal quashed the final assessment order on these grounds without adjudicating merits of other issues.

Transfer Pricing Adjustments (Grounds 4 to 8)

Partial disallowance of depreciation on business rights (Ground 5):

The assessee claimed depreciation on business rights acquired from an AE. The DRP, relying on earlier ITAT rulings in the assessee's own case, directed the AO to allow depreciation as per the Act. The AO, however, disallowed depreciation on the ground that the ITAT's order was under appeal before the High Court. The Tribunal noted that the DRP's directions were binding and the AO was required to comply notwithstanding pending appeals. Therefore, the disallowance was held to be unjustified.

Notional interest on deemed loans arising from share purchase transactions (Grounds 6 to 8):

The AO/TPO recharacterized excess share purchase consideration paid in AYs 2016-17 and 2017-18 as deemed loans and imputed notional interest thereon. However, these adjustments were deleted by the ITAT in the assessee's own case for those years. The DRP accordingly directed that the AO give consequential effect to these ITAT orders. The AO again refused to comply, citing pending High Court appeals. The Tribunal held that non-compliance with DRP directions on this issue was contrary to section 144C(13) and invalidated the addition.

Disputing commercial rationale and inflating share price: The AO/TPO's approach to disregard the actual transaction and allege inflated share price was not accepted as it contradicted binding rulings and DRP directions.

Conclusion: The Tribunal quashed the TP adjustment of Rs. 11,26,24,233/- made on account of depreciation disallowance and notional interest as these were contrary to binding DRP directions and ITAT rulings.

Depreciation on Intangible Assets (Ground 9)

Legal framework and precedents: Section 32(1)(ii) of the Act allows depreciation on intangible assets such as know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature acquired on or after 1 April 1998. The Tribunal referred to multiple coordinate bench decisions of ITAT Mumbai in the assessee's own cases, which held that customer contracts, customer relationships, and non-compete fees qualify as intangible assets eligible for depreciation.

Court's reasoning: The Tribunal noted that the assessee claimed depreciation on intangible assets including customer contracts and non-compete fees. The DRP allowed depreciation on a small portion relating to WNS UK based on binding ITAT decisions but upheld disallowance on the balance. The Tribunal, however, relied on subsequent favorable ITAT rulings which were not available to the DRP at the time, holding that the entire depreciation claimed on such intangible assets is allowable.

Key findings: The Tribunal held that non-compete fees represent a vested right that is intangible and subject to wear and tear over time, thus qualifying for depreciation. The disallowance was therefore deleted.

Deduction under Section 80G of the Act (Ground 10)

Legal framework: Section 80G permits deduction for donations made to specified relief funds and charitable institutions. The Companies Act, 2013 mandates CSR expenditure under section 135, which is disallowed as business expenditure under section 37(1) Explanation 2. However, this restriction does not extend to deductions under section 80G unless explicitly provided.

Court's interpretation and reasoning: The assessee made donations aggregating Rs. 4.11 crore to charitable institutions and claimed 50% deduction under section 80G, while disallowing the same as CSR expenditure under section 37(1). The AO disallowed the section 80G deduction. The Tribunal relied on a recent coordinate bench decision in Mahyco Monsanto Biotech (India) Pvt. Ltd., which held that CSR expenses are not deductible under section 37(1) but donations eligible under section 80G are allowable subject to conditions. The Tribunal observed that the assessee complied with all formalities including audit and proper banking channels.

Conclusion: The Tribunal remanded the matter to the AO to allow deduction under section 80G subject to fulfillment of conditions.

Interest under Section 234D and Penalty under Section 270A (Grounds 11 and 12)

These grounds were raised but not specifically adjudicated by the Tribunal in the impugned order, likely due to the quashing of the assessment order on substantive grounds and remand on other issues.

3. SIGNIFICANT HOLDINGS

"The AO, as per law, was required to pass the final order of assessment ... in conformity with the directions issued by the DRP ... which are binding on him as per section 144C(10) thereof and u/s 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the AO passed the impugned final order of assessment ... against the direction of the DRP ... We hold that the final assessment order passed by the AO, which is in appeal before us, is bad in law and accordingly the final assessment order framed is hereby quashed."

"The addition made on the TP issue by the AO by ignoring the direction of the DRP is in contravention of the provisions of section 144C(13) of the Act ... Therefore, impugned additions on both the issues amount to Rs. 11,26,24,233/- are quashed."

"The payment made towards non-compete fee is an intangible depreciable asset ... The right acquired by payment of non-compete fee is definitely intangible asset ... and ... this asset must be held to be subject to depreciation."

"CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) ... However, this Explanation cannot be extended to donations eligible under section 80G ... It can be safely inferred that when the Legislature in particular has provided for only the above referred two specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G."

Final determinations:

• The final assessment order passed without compliance with binding DRP directions under section 144C(13) is void and quashed.
• Transfer pricing adjustments relating to depreciation on business rights and notional interest on deemed loans are quashed as they contravene DRP directions and binding ITAT rulings.
• Depreciation on intangible assets including customer contracts, customer relationships, and non-compete fees is allowable under section 32(1)(ii) of the Act.
• Deduction under section 80G for eligible donations made by the assessee is allowable subject to conditions, notwithstanding CSR expenditure disallowance under section 37(1).

Regarding the first issue, the legal framework involves the interpretation and application of sections 50C, 56(2)(vii), and 69B of the Income Tax Act, 1961, alongside provisions of the MRTP Act, 1961. The Assessing Officer (AO) invoked section 69B to make an addition of Rs. 45,66,250/-, representing the difference between the consideration shown in the allotment letter dated 10.01.2008 and the stamp duty value determined by the stamp duty authority and the valuation officer (DVO) as on the date of registration (28.03.2013). The AO relied on the fact that the allotment letter preceded the builder's commencement certificate dated 20.05.2008 under the MRTP Act, which empowers builders to commence construction only after obtaining such certificate. The AO contended that since the Assessee received the allotment letter before the builder had the right to commence construction, the allotment letter value could not be considered the actual purchase price, and therefore the higher stamp duty value should be adopted under section 69B.

The Assessee challenged this addition, arguing that the entire consideration of Rs. 44,46,750/- was duly paid in installments as per the allotment letter, culminating in the formal purchase agreement executed on 28.03.2013 after completion of the building. The Assessee relied on the exceptions carved out under sections 50C and 56(2)(vii) which provide that where the date of agreement and date of registration differ, the value assessed by the stamp duty authority on the date of agreement may be taken for computing full value of consideration. The Assessee submitted the payment schedule and allotment letter as evidence of the actual consideration paid.

The Court noted that the AO erred in invoking section 69B, which applies when the amount expended on investments or acquisition of valuable articles exceeds the amount recorded in books and the explanation is unsatisfactory. Here, the Assessee had satisfactorily explained the transaction with documentary evidence. The Court observed that the AO and the Commissioner failed to apply the relevant exceptions under sections 50C and 56(2)(vii) and instead relied on the MRTP Act's commencement certificate and the DVO's valuation, which adopted the stamp duty value as on the date of registration, not the date of agreement. The Court emphasized that even if the builder's commencement certificate date is considered the relevant date, the payment schedule shows substantial payments were made thereafter, supporting the Assessee's stance.

The Court concluded that the Assessee discharged the onus under section 69B and that the addition was unsustainable. It held that the valuation report of the DVO and reliance on section 142A and section 69B without considering the exceptions under sections 50C and 56(2)(vii) was incorrect. Consequently, the addition of Rs. 45,66,250/- was deleted.

On the second issue concerning the disallowance of Rs. 4,00,000/- claimed as deduction under section 35AC for donations, the AO disallowed the claim due to the Assessee's failure to produce proof of donation and bank statements. The Assessee contended that relevant documents, including the notification dated 30.12.2010 and donation receipts, were submitted. The Court found that the authorities below did not adequately verify the documents submitted by the Assessee. Given the circumstances, the Court remanded the issue to the AO for verification of the notification and donation receipts dated 25.07.2012, 13.08.2012, 03.09.2012, and 04.10.2012. The AO was directed to allow the deduction if the documents are found to be in order.

The significant holdings include the Court's explicit rejection of the AO's invocation of section 69B in this context and the affirmation of the applicability of sections 50C and 56(2)(vii) exceptions. The Court stated: "The explanation given by the Assessee goes to show that the Assessee has been able to discharge its onus cast u/s 69(B) of the Act... Even otherwise, it is not the case of the Revenue Department that the Assessee had ever paid any amount over and above the consideration fixed vide agreement dated 10.01.2008 but the authorities below simply relied on the DVO report and the provisions of section 142A and 69B of the Act by sidelining the relevant provisions of the Act, as applicable."

Core principles established include the proper application of valuation provisions under the Income Tax Act in property transactions, emphasizing the primacy of the date of agreement and payment schedule over the date of registration for valuation purposes, and the necessity of considering statutory exceptions before invoking deeming provisions like section 69B. The judgment also underscores the procedural requirement for the Revenue to verify documentary evidence before disallowing deductions under section 35AC.

In conclusion, the Court allowed the appeal by deleting the addition under section 69B and remanding the donation deduction issue for verification, thereby providing clarity on the interplay between valuation provisions and deeming provisions in the Act and reinforcing procedural fairness in claims of deduction.

(a) The validity and jurisdictional competence of the reassessment proceedings initiated under section 147 of the Income Tax Act, including whether the notices under sections 148A(b), 148A(d), and 148 were properly issued by the faceless assessing officer or the jurisdictional assessing officer, and whether the reopening was legally sustainable.

(b) Alleged violation of principles of natural justice by the Assessing Officer and the National Faceless Appeal Centre / Commissioner of Income Tax (Appeals) in not granting adequate opportunity to the assessee to present its case.

(c) The correctness of the addition of Rs. 5,59,022/- under section 56(2)(x) of the Act, arising from the difference between the fair market value of the property as determined by the District Valuation Officer (DVO) and the purchase consideration declared by the assessee.

(d) The applicability and justification of interest levied under sections 234A, 234B, and 234C of the Act.

2. Issue-wise detailed analysis:

(a) Validity of Reassessment Proceedings

The legal framework governing reassessment proceedings under section 147 and related provisions requires that reopening is permissible only if the Assessing Officer has "reason to believe" that income chargeable to tax has escaped assessment. Notices under sections 148A(b) and 148A(d) must be issued by the proper authority, and procedural safeguards including sharing of information and opportunity to the assessee are mandated.

The assessee contended that the notices were issued by the jurisdictional Assessing Officer rather than the faceless assessing officer, rendering the proceedings void ab initio. Additionally, it was argued that the notice under section 148A(b) was issued without sharing the underlying information, violating procedural fairness. The assessee also asserted that the reopening was based on incorrect information-specifically, that the assessee had sold a property, whereas in fact it had purchased the property.

The Court noted that the reopening was triggered by information received through the department's insight portal indicating a property transaction involving the assessee. Although the initial information incorrectly stated a sale, later facts revealed a purchase. The Assessing Officer issued the requisite notices under sections 148A(b), 148A(d), and 148 after recording reasons and obtaining necessary approvals. The assessee failed to respond to the notices within the stipulated time and did not file a return in response to the reopening notice.

The Court observed that the Assessing Officer had definite information about the transaction and that the reopening was in accordance with law. The failure of the assessee to object to the reopening at the earliest opportunity and to file returns or clarifications was noted. The Court held that the reassessment proceedings were valid and dismissed the ground challenging their jurisdiction and validity.

(b) Alleged Violation of Natural Justice

The assessee claimed that sufficient opportunity to present its case was not granted, amounting to violation of natural justice. However, no specific instances or evidence of denial of hearing were presented before the Court. The record indicated that the assessee was given multiple opportunities to furnish clarifications and objections, including the referral of the matter to the DVO at the assessee's request.

The Court found no merit in the claim of violation of natural justice and dismissed this ground.

(c) Addition under Section 56(2)(x) - Valuation of Property

The crux of the dispute related to the addition of Rs. 5,59,022/- under section 56(2)(x), which applies when the stamp duty value of an asset exceeds the consideration paid, treating the difference as income from other sources.

The assessee purchased an office premises on 16.05.2017 for Rs. 19,50,000/-. The stamp valuation authority assessed the property value at Rs. 44,61,622/-. On the assessee's request, the matter was referred to the DVO, who valued the property at Rs. 25,09,022/- as of 01.06.2019. The Assessing Officer made the addition based on the DVO's report.

The assessee challenged the valuation on two key grounds: (i) the DVO's valuation date was not contemporaneous with the date of purchase, leading to an inflated value; (ii) the DVO failed to consider comparable sales submitted by the assessee, including a report by a Government Registered Valuer who valued the property at Rs. 20,07,729/- as of the purchase date, supported by six comparable sales from 2017, 2019, and 2020.

The Court examined both valuation reports. It noted that both reports considered comparable sales in the same locality but arrived at different values. Recognizing the merit in the assessee's contention regarding the valuation date and comparable sales, the Court directed the Assessing Officer to take an average of the values determined by the DVO and the Government Registered Valuer and recompute the addition under section 56(2)(x) accordingly.

This approach balanced the competing valuations and ensured a fair assessment aligned with market realities.

(d) Interest under Sections 234A, 234B, and 234C

The assessee denied liability for interest under these sections, which pertain to defaults in advance tax payments and delayed payment of tax. However, the Court noted that this ground was not elaborated upon in detail and was consequential to the primary findings. No specific adjudication was made on this ground, implying that the interest levy stands subject to the outcome of the reassessment and additions.

3. Significant holdings and core principles:

"The reopening of assessment was based on definite information received through the insight portal and was carried out in accordance with the procedural requirements under the Income Tax Act, including issuance of notices and recording of reasons. The assessee's failure to respond or object at the appropriate stage does not vitiate the reassessment."

"No violation of principles of natural justice is established where the assessee was afforded adequate opportunity to present its case, including referral to the District Valuation Officer at the assessee's request."

"In cases of valuation disputes under section 56(2)(x), where the valuation reports differ but are based on comparable sales in the same locality, the Assessing Officer is directed to consider an average of the valuations to arrive at a fair market value."

"The difference between the fair market value and the purchase consideration, as determined after considering all relevant factors and comparable sales, is to be added to the income of the assessee under section 56(2)(x)."

Final determinations:

(i) The reassessment proceedings under section 147 and related notices were valid and not liable to be quashed.

(ii) No violation of natural justice was established.

(iii) The addition under section 56(2)(x) is to be recomputed by averaging the valuation figures of the DVO and the Government Registered Valuer.

(iv) Other grounds, including interest, are consequential and were not separately adjudicated.

1. Whether the search and seizure action conducted under section 132 of the Income-tax Act, 1961 was valid and lawful, particularly with respect to the requirement of prior information or material inducing belief necessary for such search.

2. Whether the Assessing Officer (AO) had jurisdiction to make an assessment under section 153A of the Act in the absence of incriminating material found during the search for the relevant assessment year (AY 2013-14).

3. Whether additions made by the AO to the income of the appellant on account of undisclosed closing stock of sub-grade iron ore were justified, including valuation and quantum of such stock.

4. Whether the retraction of a statement recorded under section 132(4) admitting undisclosed stock affects the validity of additions based on that statement.

5. Whether the AO was justified in not granting credit for opening stock while making additions for closing stock.

6. Whether interest under sections 234A, 234B, and 234C of the Act was correctly levied.

Issue-wise Detailed Analysis:

Validity of Search and Jurisdiction under Section 153A (Issues 1 and 2):

The appellant challenged the legality of the search under section 132(1)(a), (b), and (c), contending that it was conducted without any prior information or material inducing belief, rendering the search and consequent assessment under section 153A null and void. Reliance was placed on Supreme Court precedents emphasizing the necessity of valid grounds for search and satisfaction recorded by the AO before issuing notice under section 153A.

The Tribunal noted that these grounds were not pressed before it and dismissed them accordingly. However, the pivotal issue was whether the AO could disturb a concluded assessment (AY 2013-14) under section 153A in the absence of incriminating material found during the search relating to that year.

It was undisputed that the original assessment for AY 2013-14 was completed in 2016, prior to the search conducted in November 2018. The material seized during the search pertained primarily to the financial year 2017-18, including stock statements of sub-grade iron ore. Subsequent to the search, the AO issued notices under section 133(6) to the Deputy Director of Mines & Geology (DMG) to collect data on stock quantities for earlier years, including AY 2013-14.

The Tribunal relied on the Supreme Court decision in Abhisar Buildwell Pvt. Ltd., which held that in the absence of incriminating material found during the search for a particular assessment year, the AO cannot make additions or reassess income for that year under section 153A. The power to reopen assessments without such material lies under sections 147/148, which were not invoked here.

The AO's reliance on information obtained during assessment proceedings under section 133(6) for AY 2013-14 was held not to constitute incriminating material found during the search. The Tribunal rejected the Revenue's argument that material pertaining to AY 2017-18 could be extended to earlier years, stating that such an interpretation would render all material collected during assessment proceedings as incriminating, contrary to law.

Consequently, the Tribunal held that the addition for AY 2013-14 was made without valid jurisdiction under section 153A and was therefore unsustainable.

Additions on Account of Undisclosed Closing Stock of Sub-grade Iron Ore (Issues 3, 9-14):

The AO made an addition of Rs. 68.66 crores representing undisclosed closing stock of 11,03,983 metric tons of sub-grade iron ore valued at Rs. 622 per metric ton (cost of production), based on data obtained from the DMG and statements recorded during search proceedings.

The appellant contended that:

• The sub-grade iron ore was a waste product, not mined or produced during the year, and thus had nil net realizable value as per Accounting Standard 2 (AS 2).
• The stock was part of opening stock (16,92,672 MT) which was higher than closing stock, and sales during the year (5,68,000 MT) were disclosed in the profit and loss account.
• Therefore, addition of closing stock without granting credit for opening stock was incorrect and amounted to double taxation.
• The valuation adopted by the AO was excessive and contrary to accounting principles.

The AO and CIT(A) rejected these contentions primarily on the ground that the appellant did not maintain a stock register, nor disclosed quantitative details in the tax audit report or annual accounts. The CIT(A) also relied on the statement of the Managing Director recorded under section 132(4), where the stock was initially admitted and valued at Rs. 622 per MT, and dismissed the retraction as a mere afterthought unsupported by evidence.

The Revenue supported the addition by referring to the IBM Circular and judicial precedents emphasizing the evidentiary value of statements recorded during search and the applicability of AS 2.

The Tribunal, however, noted that the quantitative details of opening and closing stock were obtained from an independent government agency (DMG) and that there was no production during the year due to the mining ban. The opening stock was higher than the closing stock, and sales were accounted for in the profit and loss account.

Accordingly, the Tribunal held that the addition of closing stock without credit for opening stock was incorrect, as it resulted in a negative addition. The Tribunal further observed that provisions relating to unexplained investments (sections 69 and 69B) were not applicable since no fresh investments were made during the year and the stock was carried forward from earlier years.

The Tribunal thus allowed the grounds challenging the quantum of addition and directed deletion of the addition on account of undisclosed closing stock.

Retraction of Statement Recorded under Section 132(4) (Issue 4):

The appellant retracted the statement admitting undisclosed stock, contending that the stock was waste with nil realizable value and thus should not be valued as income. The CIT(A) rejected the retraction relying on judicial precedents that self-serving retractions without corroborative evidence are inadmissible. The Tribunal concurred with the CIT(A) that the retraction was without merit and did not affect the validity of the initial admission.

Non-grant of Credit for Opening Stock (Issue 5):

The appellant argued that the AO erred in not granting credit for opening stock while making additions for closing stock, especially since the opening stock was higher than the closing stock and sales were disclosed. The CIT(A) dismissed this on the basis that the appellant failed to maintain stock registers and did not disclose quantitative details in statutory reports.

The Tribunal, however, emphasized that the quantitative details were obtained from the DMG, an independent government agency, and that the absence of such disclosure in the appellant's records could not justify ignoring the opening stock. Since the opening stock exceeded the closing stock, the addition was unwarranted. This ground was allowed accordingly.

Levy of Interest under Sections 234A, 234B, and 234C (Issue 6):The appellant challenged the levy of interest on grounds of incorrect calculation and non-applicability. The Tribunal dismissed this ground as consequential in nature following the decision on additions.

Significant Holdings:

"It is now a settled issue that a concluded assessment can be disturbed pursuant to search, only if incriminating material is found during search pertaining to that assessment year."

"In the absence of incriminating material found during the course of search for the impugned assessment year, the addition made by the learned Assessing Officer is contrary to the provisions of Section 153A as well as the decision of the Honourable Supreme Court."

"The addition of closing stock of 11,03,983 metric tons of the raw material without considering that there is an opening stock already higher than that closing stock of 16,92,673 metric tons, the addition in the hands of the assessee, even in case of an undisclosed stock of the raw material would be Negative."

"The fact that neither the provisions of section 69 with respect to unexplained investment nor section 69B relating to the amount of investments not fully disclosed in the books of accounts apply for the reason that Assessee has not made any investments during the year and further has provided an explanation about source of such investment being opening stock of the same year."

The Tribunal concluded that the addition under section 153A for AY 2013-14 was not sustainable in the absence of incriminating material found during search for that year, and that the addition on account of undisclosed closing stock was incorrect due to failure to consider opening stock and the nature of the stock as carried forward waste material. The retraction of the statement was held inadmissible as a ground to negate the addition. Interest charges were dismissed as consequential. The appeal was partly allowed accordingly.

The core legal questions considered by the Tribunal in the appeal preferred by the Revenue against the order of the National Faceless Appeal Centre (CIT(A)) under Section 250 of the Income Tax Act, 1961, for the Assessment Year 2014-2015, are as follows:

(a) Whether the CIT(A) was justified in deleting the addition made on account of gross profit, particularly when the Assessing Officer (AO) passed the assessment order ex-parte under Section 144 of the Act, without any plausible reason for the low gross profit declared by the Assessee.

(b) Whether the CIT(A) was justified in deleting the addition made on account of unexplained credits under the head securities premium amounting to Rs. 56,09,248/- under Section 68 of the Act.

(c) Whether the CIT(A) was justified in admitting additional evidence produced by the Assessee during the appellate proceedings without giving opportunity to the Revenue, allegedly in violation of Rule 46A of the Income Tax Rules, 1962.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (c): Admission of Additional Evidence in Violation of Rule 46A of the IT Rules

Relevant Legal Framework and Precedents: Rule 46A of the Income Tax Rules, 1962, governs the procedure for admission of additional evidence during appellate proceedings. It requires that when additional evidence is sought to be admitted, the opposing party must be given an opportunity to comment or object.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessee furnished additional evidence during the appellate proceedings, which was not available during the assessment stage due to unavoidable circumstances. The Assessee explained in a letter dated 31/08/2017 that medical issues faced by the auditors between August 2016 and January 2017 caused communication gaps, preventing timely submission of evidence.

The CIT(A) admitted the additional evidence after calling for a remand report from the AO, who opposed the admission. However, the Tribunal found that the CIT(A) complied with Rule 46A by allowing the AO to submit the remand report and considering it before passing the appellate order.

Key Evidence and Findings: The letter explaining the delay and the remand report submitted by the AO were crucial. The AO acknowledged receipt of additional documents during remand but opposed their admission on procedural grounds.

Application of Law to Facts: The Tribunal held that the Assessee was prevented by reasonable cause from filing evidence during assessment proceedings. The CIT(A)'s approach in admitting the evidence and giving the AO an opportunity through the remand report was consistent with the procedural safeguards under Rule 46A.

Treatment of Competing Arguments: The Revenue's contention that admission violated Rule 46A was rejected due to the procedural compliance and reasonable cause demonstrated by the Assessee.

Conclusion: Ground No. 3 raised by the Revenue was dismissed as the CIT(A) did not violate Rule 46A in admitting additional evidence.

Issue (a): Deletion of Addition on Account of Gross Profit

Relevant Legal Framework and Precedents: The AO made an addition under Section 143(3) read with Section 144 by estimating profits based on the average gross profit rates of two preceding years (25.73%) as the Assessee declared a lower gross profit (11%) without plausible explanation. The legal principle is that the AO can estimate income if the declared income is not believable or is not supported by evidence.

Court's Interpretation and Reasoning: The CIT(A) rejected the AO's method of estimating gross profit by averaging prior years' rates, holding that such comparison was not feasible due to a change in the Assessee's business composition. The Assessee demonstrated that during the relevant year, sales of services increased substantially while sales of products decreased, altering the gross profit margin.

The Tribunal examined the audited financial statements showing revenue from sale of products and services for the relevant and preceding years, confirming the Assessee's explanation.

Key Evidence and Findings: The Assessee's letter dated 09/02/2018 explained the change in business mix and the resulting variation in gross profit margins. Audited financial statements corroborated this explanation, showing increased service revenue and decreased product sales.

Application of Law to Facts: The Tribunal found the AO's approach of applying an average gross profit rate from prior years to be incorrect due to non-comparability. The CIT(A) rightly accepted the gross profit as declared by the Assessee supported by audited accounts.

Treatment of Competing Arguments: The Revenue's argument that the AO was justified in estimating profits ex-parte was rejected because the Assessee had provided a reasonable explanation and supporting evidence for the lower gross profit.

Conclusion: The addition of Rs. 2,03,15,923/- made by the AO on account of gross profit was rightly deleted by the CIT(A). Ground No. 1 was dismissed.

Issue (b): Deletion of Addition on Account of Unexplained Share Premium under Section 68

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. When a share premium is received, the Assessee must explain the nature and source of such credits. The Revenue can make additions if the source is not satisfactorily explained.

Court's Interpretation and Reasoning: The CIT(A) found that the share premium amounting to Rs. 56,09,248/- was received from the Assessee's holding company, a Japanese resident entity holding 99.9% shares. The transaction was supported by compliance with Reserve Bank of India (RBI) regulations, including approval and filing of Foreign Currency-Gross Provisional Return (FCGPR).

The valuation of shares was based on the Discounted Cash Flow (DCF) method, a recognized valuation technique. The AO did not dispute the valuation or genuineness of the transaction in the remand report but made the addition solely because the documents were not furnished during assessment proceedings.

Key Evidence and Findings: The Assessee furnished various documents during appellate proceedings, including:

• Form No. 20-B filed with the Registrar of Companies;
• FCGPR with RBI;
• Valuation report using DCF method;
• Certificate from Practicing Company Secretary regarding government approvals;
• Foreign Inward Remittance Certificate (FIRC) and KYC certificate from authorized dealer bank.

Application of Law to Facts: The Tribunal held that the Assessee discharged the onus under Section 68 by satisfactorily explaining the identity, creditworthiness, and genuineness of the share premium transaction. The CIT(A) correctly deleted the addition as the source was fully explained and supported by documentation.

Treatment of Competing Arguments: The Revenue's contention that the addition was justified due to non-furnishing of documents during assessment was rejected since the documents were produced during appellate proceedings and the AO did not dispute their authenticity or adequacy.

Conclusion: The addition of Rs. 56,09,248/- under Section 68 was rightly deleted by the CIT(A). Ground No. 2 was dismissed.

3. SIGNIFICANT HOLDINGS

The Tribunal upheld the CIT(A)'s order in all respects, dismissing the Revenue's appeal. The significant legal principles and determinations include:

On admission of additional evidence: "The Assessee was prevented by reasonable cause from filing evidence during the assessment proceedings... the CIT(A) has also complied with the provisions contained in Rule 46A of the IT Rules by calling for a remand report from the Assessing Officer."

On estimation of gross profit: "Estimating the gross profit based on previous years' ratios is not feasible to arrive at the correct income... the gross profit should be taken as declared by the appellant and has been brought out in its audited accounts."

On unexplained share premium under Section 68: "The identity of the remitter is disclosed, its creditworthiness and therefore the genuineness of the transaction cannot be doubted... the share premium was received by the Assessee from its holding company which holds 99.9% of the shares... the addition under Section 68 could not be made."

Accordingly, the Tribunal concluded that the additions made by the AO on account of gross profit and unexplained share premium were not sustainable and the CIT(A)'s order deleting these additions was affirmed. The procedural compliance in admitting additional evidence was also upheld.

The core legal questions considered by the Tribunal in this appeal are:

• Whether the provisions of section 69 or section 69A of the Income Tax Act, 1961, apply to the valuation and addition of nine wrist watches seized during search and seizure proceedingsRs.
• Whether the addition of unexplained jewellery found during the search and seizure operation amounting to Rs. 2,37,01,947/- is justified under section 69 of the ActRs.
• Whether jewellery previously accounted for and added to income in an earlier assessment year can be considered explained for the current assessment year, including appreciation in valueRs.
• Whether jewellery claimed to belong to family members, supported by affidavits but not examined by the Assessing Officer, can be excluded from addition as unexplained assetsRs.
• Whether the Assessing Officer should have restored the matter to his file for further inquiry into ownership of jewellery claimed by family members or whether the deletion of additions by the CIT(A) was justifiedRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of section 69 versus section 69A to nine wrist watches seized during search

Relevant legal framework and precedents: Section 69 deals with unexplained investments, deeming unexplained investments not recorded in books and not satisfactorily explained to be income. Section 69A deals with unexplained money, bullion, jewellery or other valuable articles found and seized during search, deeming their value to be income unless satisfactorily explained.

Court's interpretation and reasoning: The Tribunal noted that section 69 applies to unexplained investments made by the assessee, which presupposes an investment made by the assessee that is not recorded or satisfactorily explained. In contrast, section 69A applies specifically to unexplained money or valuable articles found during search and seizure operations, provided the assessee claims ownership.

The wrist watches were found and seized from the assessee's residence during search under section 132. The assessee admitted ownership in her statement recorded under section 132(4) and claimed purchase from accounted cash. The AO applied section 69 treating the watches as unexplained investments, valuing them at Rs. 58.70 lakhs as undisclosed income. The CIT(A) deleted this addition, holding that since these were valuable articles found during search, section 69A was the applicable provision, not section 69.

Key evidence and findings: The assessee's statement under section 132(4) admitting ownership and purchase from accounted sources; valuation report of Government Approved Valuer; lack of documentary evidence supporting purchase cost of Rs. 11.60 lakhs claimed by a third party (Shri Ram Dass).

Application of law to facts: Since the watches were seized during search and the assessee admitted ownership, the Tribunal found section 69A applicable rather than section 69. The AO's invocation of section 69 was held to be without basis.

Treatment of competing arguments: Revenue argued that both sections are similar and section 69 should apply. The Tribunal rejected this, emphasizing the distinct nature and applicability of the two provisions.

Conclusions: The Tribunal confirmed the CIT(A)'s deletion of the addition under section 69 and held that section 69A applies to the seized wrist watches, not section 69.

Issue 2: Addition of unexplained jewellery found during search amounting to Rs. 2,37,01,947/-

Relevant legal framework and precedents: Section 69 applies to unexplained investments, while section 69A applies to unexplained money, jewellery or valuable articles found during search. CBDT Instruction No.1916 dated 11.05.1994 allows prescribed jewellery holdings to family members without addition.

Court's interpretation and reasoning: The jewellery found was partly accounted for in an earlier search and assessment year (AY 2013-14) where jewellery worth Rs. 96,15,563/- was added to income. The assessee claimed that the same jewellery, revalued at current rates (Rs. 1,07,22,844/-), should be treated as explained. The CIT(A) accepted this contention, allowing deduction on the appreciated value.

Key evidence and findings: Earlier search and assessment order for AY 2013-14; reconciliation statement filed by assessee; valuation of jewellery at current market rates; affidavits filed by family members claiming ownership of some jewellery.

Application of law to facts: The Tribunal upheld the CIT(A)'s acceptance of the jewellery value previously accounted for, including appreciation, as explained and not liable to addition. For the balance jewellery (approx. 6200 grams), the assessee claimed ownership by family members as per CBDT instructions, supported by affidavits.

Treatment of competing arguments: Revenue challenged the acceptance of affidavits without examination and argued that the matter should have been remanded to the AO for verification. The assessee argued that acceptance of affidavits without cross-examination established ownership.

Conclusions: The Tribunal held that since the assessee admitted ownership during search, the onus was on the assessee to prove ownership of jewellery claimed by family members. As affidavits alone without examination were insufficient, the Tribunal restored the issue of the balance jewellery to the AO for fresh adjudication, directing the AO to verify ownership claims before deciding on addition.

3. SIGNIFICANT HOLDINGS

On the applicability of section 69 versus section 69A, the Tribunal held:

"Going by the first principle of the provisions of section 69, in the present case and in the given facts and circumstances of the case, this provision could not be applied to nine wrist watches seized by the Income Tax Department from the house of the assessee during the course of search under section 132 of the Act, because it falls under section 69A of the Act. Hence, we are of the considered view that applying section 69 is without any basis and hence, the CIT(A) has rightly deleted the addition and we confirm the same."

This establishes the core principle that section 69 applies to unexplained investments, while section 69A applies to unexplained money or valuable articles found during search, provided ownership is established.

Regarding jewellery previously accounted for in an earlier assessment year, the Tribunal affirmed the principle that such jewellery, including appreciation in value, stands explained and is not liable to addition again:

"The gross weight of jewellery found during the course of earlier search needs to be treated as explained and the appellant is eligible for deduction to the extent of the jewellery found in earlier search. The present value as on the date of last search of the jewellery needs to be taken."

On the issue of jewellery claimed by family members, the Tribunal emphasized the need for proper verification and evidence beyond affidavits:

"Since the assessee has given statement u/s 132(4) of the Act, although this is a rebuttable presumption, the assessee has to prove substantially by evidence that the jewellery belongs to family members, which she fails. The assessee simplicitor files the affidavits of the family members and the AO has not examined these parties, whether the jewellery belongs to them or not, the matter needs reconsideration at the level of the AO for this jewellery of 6200 grams only."

Accordingly, the Tribunal restored the issue to the AO for fresh adjudication with directions to verify ownership claims before making any addition.

Final determinations:

• The addition of Rs. 58.70 lakhs on account of nine wrist watches under section 69 was deleted; section 69A applies instead.
• The addition of jewellery worth Rs. 1,07,22,844/- previously accounted for and valued at current rates was deleted.
• The addition of balance jewellery of approx. 6200 grams claimed by family members was set aside and remanded to the AO for verification and fresh decision.
• The appeal of the Revenue was partly allowed for statistical purposes.

The core legal questions considered by the Court were:

• Whether the impugned assessment order dated 6 March 2025 was validly passed in accordance with the principles of natural justice and fair play, particularly whether the Petitioner was afforded an opportunity of personal hearing before the order was issued.
• Whether the Petitioner's failure to obtain a personal hearing due to technical glitches in the video conferencing system constituted a breach of the principles of natural justice, thereby justifying interference with the assessment order despite the availability of alternate remedies.
• Whether the consequential penalty and demand notices issued on the same date as the assessment order could be sustained where the assessment order itself was passed without affording the Petitioner a hearing.
• Whether the Court should exercise its discretion to quash the impugned orders and remit the matter for fresh consideration, or require the Petitioner to exhaust alternate remedies.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Assessment Order in Light of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that a person affected by an adverse order must be given a fair opportunity to be heard before such an order is passed. This includes the right to a personal hearing where requested. The Court recognized that these principles are fundamental and breach thereof vitiates the impugned order.

Court's Interpretation and Reasoning: The Court noted that the Petitioner was issued a show cause notice and filed a timely reply, expressly seeking a personal hearing. The Petitioner was informed that the hearing would be conducted via video conferencing, and detailed efforts were made by the Petitioner to access this facility.

Key Evidence and Findings: The record showed multiple emails by the Petitioner reporting technical glitches in accessing the video conferencing facility. The Petitioner was directed to the Central Processing Centre (CPC) and help desk, who acknowledged the technical issues and promised resolution and rescheduling of the hearing. Despite this, the assessment order was passed without rescheduling the hearing or providing any opportunity to the Petitioner.

Application of Law to Facts: The Court found that the failure to provide a personal hearing, especially after the Petitioner's repeated attempts and notifications of technical difficulties, amounted to a patent breach of natural justice. The impugned assessment order was therefore invalid.

Treatment of Competing Arguments: Although the Respondent had alternate remedies available to challenge the order, the Court held that the breach of natural justice was so fundamental that it warranted direct interference. The Respondent's inability to provide clear instructions or justification for the failure to grant hearing was noted.

Conclusions: The Court concluded that the impugned assessment order violated the principles of natural justice and could not stand.

Issue 2: Validity of Consequential Penalty and Demand Notices

Relevant Legal Framework and Precedents: Penalty and demand notices issued consequential to an invalid assessment order cannot be sustained as they are derivative of the original order.

Court's Interpretation and Reasoning: Since the assessment order was quashed for breach of natural justice, the penalty and demand notices issued on the same date were also quashed as they were consequential to the invalid order.

Application of Law to Facts: The Court set aside the penalty and demand notices along with the assessment order.

Conclusions: The consequential notices could not survive independently of the assessment order and were quashed accordingly.

Issue 3: Whether to Remit the Matter for Fresh Consideration or Require Alternate Remedy

Relevant Legal Framework and Precedents: Courts generally require litigants to exhaust alternate remedies unless there is a fundamental breach of natural justice or other exceptional circumstances.

Court's Interpretation and Reasoning: The Court acknowledged that ordinarily, alternate efficacious remedies would preclude interference at this stage. However, the fundamental breach of natural justice justified direct intervention. The Court therefore exercised discretion to entertain the Petition and quash the impugned orders without relegating the Petitioner to alternate remedies.

Application of Law to Facts: The Court remitted the matter to the first Respondent for fresh assessment after granting the Petitioner a personal hearing.

Treatment of Competing Arguments: The Respondent's request for postponement and inability to provide clear instructions was considered but ultimately rejected to avoid further delay and injustice.

Conclusions: The Court set aside the impugned orders and directed a fresh assessment within three months, leaving all merits open for consideration.

3. SIGNIFICANT HOLDINGS

The Court held:

"From the pleadings, sequence of events, and the emails produced on record, we are satisfied that no opportunity for a personal hearing was granted to the Petitioner. Thus, the impugned assessment order violated the principles of natural justice and fair play."

"In such circumstances, it would be appropriate for this Court to entertain this Petition and set aside the impugned assessment order along with the consequential show cause notices or demand notices based on the impugned assessment order, without relegating the Petitioner to avail of the alternate remedy."

"The impugned assessment order dated 6 March 2025, the consequential show cause notice and the demand notices of the same date are hereby quashed and set aside and the matter remitted to the 1st respondent for fresh consideration after granting the petitioner opportunity for a personal hearing."

Core principles established include the inviolability of the right to a fair hearing as a component of natural justice, especially in administrative and quasi-judicial proceedings. The Court emphasized that technical glitches causing denial of hearing must be remedied before passing adverse orders.

The final determinations were:

• The impugned assessment order, penalty notice, and demand notice were quashed for violation of natural justice.
• The matter was remitted for fresh consideration after affording the Petitioner a personal hearing.
• The fresh assessment was to be completed within three months, with the limitation issue waived if done timely.
• All merits and contentions were left open for fresh adjudication.

The core legal questions considered by the Court in this appeal under Section 260A of the Income Tax Act, 1961, arising from the assessment year 2013-14, are as follows:

(a) Whether the Income Tax Appellate Tribunal (Tribunal) erred in upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)] confirming an estimated addition equal to 0.77% of the appellant's total turnover, despite both the CIT(A) and the Tribunal rejecting the Assessing Officer's (AO) action of rejecting the appellant's books of accounts based on non-response from certain sundry creditors to notices issued under Section 133(6) of the Act;

(b) Whether the estimated addition of 0.77% of the total turnover can be sustained on the basis that it was offered by the appellant during assessment proceedings, even though the offer was made under protest and in the context of the erroneous rejection of the books of accounts, which was held to be legally untenable by the CIT(A) and the Tribunal;

(c) Whether non-compliance with notices under Section 133(6) of the Act by some sundry creditors can constitute valid grounds for making an estimated addition equal to 0.77% of the appellant's total turnover for the assessment year 2013-14.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of confirming an estimated addition of 0.77% of turnover despite rejection of AO's action of rejecting books of accounts

The legal framework involves the provisions of the Income Tax Act, 1961, particularly Section 133(6) which empowers the AO to issue notices to third parties (such as sundry creditors) to verify the correctness of the assessee's books of accounts. The AO had rejected the appellant's books of accounts on the ground that some sundry creditors did not respond to such notices, leading to an estimation of income at 2% of contracted work. The CIT(A) and subsequently the Tribunal found this rejection of books of accounts to be untenable in law.

The Court noted that the appellate authorities rightly held that the AO's rejection of the books of accounts solely on the basis of non-response from some creditors was not sustainable. The assessing officer's estimation at 2% was therefore set aside. However, the appellate authorities accepted an alternative method of estimation, i.e., the average net profit percentage of 0.77% based on the appellant's net profits for the preceding three financial years (2009-10, 2010-11, and 2011-12).

The Court emphasized that the rejection of books of accounts requires substantial justification and cannot be based merely on non-compliance by third parties without further corroboration. The appellate authorities' approach in rejecting the AO's action but accepting a reasonable estimation based on historical data was consistent with the principles of fairness and reasonableness under the Act.

Issue (b): Sustainment of the estimated addition based on the appellant's offer made under protest

The appellant contended that the 0.77% net profit figure was offered under protest during assessment proceedings and hence should not have been accepted as a basis for fixing the income. The appellant argued that since the offer was made under protest and in the context of erroneous rejection of books of accounts, it could not be treated as a conclusive admission.

The Court rejected this contention, reasoning that an offer made during assessment proceedings, even if stated to be under protest, constitutes a relevant admission unless withdrawn or challenged by appropriate legal means. The Court observed that the appellant's reply to the AO's notice on March 1, 2016, explicitly computed the average net profit over three years at 0.77%, thereby making a clear offer of income estimation.

The Court found no legal basis to treat this offer as non-binding or irrelevant, especially since the appellate authorities accepted the offer as a reasonable basis for estimation in the absence of reliable books of accounts. The Court held that the appellate authorities were justified in relying on the appellant's own computation to fix the net profit for the assessment year under consideration.

Issue (c): Legitimacy of making estimated addition due to non-compliance of Section 133(6) notices by sundry creditors

The AO had initially rejected the appellant's books of accounts on the ground that some sundry creditors did not respond to notices under Section 133(6), which was challenged before the CIT(A) and the Tribunal. Both appellate authorities held that non-compliance by some creditors alone cannot justify rejection of books of accounts or arbitrary estimation of income.

The Court agreed with this view, underscoring that non-response to third-party notices is a factor to be considered but cannot be the sole basis for rejecting accounts or making estimated additions. The Court observed that the AO's approach was legally untenable and that the appellate authorities rightly deleted the addition based on the 2% estimation initially made by the AO.

However, the Court also noted that in the absence of reliable books of accounts, estimation of income is permissible under the Act, and such estimation can be based on reasonable grounds, including historical profit percentages. Thus, while non-compliance with Section 133(6) notices cannot by itself justify an addition, it may contribute to the overall assessment process when combined with other evidence.

3. SIGNIFICANT HOLDINGS

"The rejection of the books of accounts by the assessing officer on account of non-compliance of notices issued under Section 133(6) on some of the sundry creditors and subsequent determination of the income of the assessee at 2% of the contracted work is not tenable."

"An offer made by the assessee during the assessment proceedings, even if stated to be under protest, constitutes a relevant admission and can be accepted as a reasonable basis for estimation of income."

"Non-compliance with notices under Section 133(6) by some of the sundry creditors cannot be the sole ground for rejection of books of accounts or making estimated additions; such non-compliance must be considered in conjunction with other evidences."

"The appellate authorities were justified in accepting the average net profit percentage of 0.77% based on the assessee's net profits for three preceding years as a reasonable basis for fixing income for the assessment year under consideration."

Final determinations:

• The AO's rejection of books of accounts based solely on non-response to Section 133(6) notices was set aside.
• The estimated addition at 2% of contracted work made by the AO was deleted.
• The net profit for the assessment year was fixed at 0.77% of total turnover based on the appellant's own offer during assessment proceedings, accepted by the appellate authorities.
• The appeal filed by the assessee challenging the appellate authorities' orders was dismissed for lack of substantial questions of law.

A. Whether the Learned Tribunal erred in law by allowing carry forward of assessed loss when the return of income was filed under Section 139(4) of the Act, and not under Section 139(1)Rs.

B. Whether the carry forward of assessed loss was permissible when the assessee filed its return for the assessment year 2015-16 under Section 139(4) on 17.10.2016 declaring business incomeRs.

C. Whether the Tribunal erred in allowing the appeal of the assessee despite the assessee not claiming the loss to be carried forward in its return of income, contrary to the Supreme Court's ratio in Goetze (India) Vs. CITRs.

D. Whether the loss could be allowed to be carried forward only if the return of income (ROI) was filed within the date specified under Section 139(1), and whether the assessee's failure to avail the remedy under Section 119(2)(b) for condonation of delay disentitled it from carrying forward the lossRs.

Issue-wise Detailed Analysis:

Issues A & B: Filing of Return under Section 139(4) vs. Section 139(1) and Carry Forward of Loss

The legal framework centers on the provisions of Sections 139(1) and 139(4) of the Income Tax Act, which prescribe timelines and conditions for filing returns of income, and the conditions under which losses can be carried forward. Section 139(1) mandates filing of returns by the due date, while Section 139(4) allows filing of returns after the due date but before completion of assessment. The revenue contended that since the return was filed under Section 139(4), the carry forward of loss was impermissible.

The Court examined the factual matrix, noting the complex corporate restructuring involving merger and subsequent demerger of the assessee with M/s. Penguin Trading & Agencies Ltd. (PTAL), effective from 1.4.2013. The assessee filed its return for AY 2015-16 on 17.10.2016 after the demerger. The Tribunal and CIT(A) found that the losses pertained to a period when the assessee did not exist independently and the losses were claimed by PTAL, the amalgamated company, which had filed returns within time. The Court relied on precedents such as Pentamedia Graphics Ltd. and Supreme Court decisions in C.I.T. vs. Sun Engineering Works Pvt. Ltd. and Marshall Sons & Co. (India) Ltd., which recognize that in cases of amalgamation/demerger, the effective date governs the tax consequences and the returns filed by the amalgamated entity are relevant for the merged period.

The Court held that it was legally impossible for the assessee to file a return under Section 139(1) for the period when it did not exist independently, and the returns filed by PTAL within time were valid. The revenue's insistence on filing under Section 139(1) was therefore untenable.

Issue C: Claiming Loss in Return of Income and Supreme Court Precedent in Goetze (India) Vs. CIT

The revenue argued that since the assessee did not claim the loss in its return, the loss could not be carried forward, citing the Supreme Court's ruling in Goetze (India) Vs. CIT, which mandates that losses must be claimed in the return to be eligible for carry forward.

The Court analyzed that the losses were claimed by PTAL during the amalgamated period and not by the assessee, which did not exist independently. The CIT(A) and Tribunal found that the assessee could not claim losses that pertained to a period prior to its independent existence. The revenue's argument was countered by the factual reality of corporate restructuring and the legal principle that losses and incomes during the amalgamation period are to be dealt with in the hands of the amalgamated entity. The Court thus held that the assessee's failure to claim losses in its own return was not a bar to carry forward, given the scheme of amalgamation and subsequent demerger.

Issue D: Filing Return within Date Specified under Section 139(1) and Remedy under Section 119(2)(b)

The revenue contended that since the return was not filed within the due date under Section 139(1), and the assessee did not avail the remedy of condonation of delay under Section 119(2)(b), the loss could not be carried forward.

The Court examined the interplay between Sections 139(3), 139(5), 153A(1), and 119(2)(b), and relevant Circulars. It was noted that Section 139(5) allows filing of revised returns for omission or wrong statements within prescribed timelines, but this provision was inapplicable as the delay was due to the time taken to obtain NCLT sanction for the scheme of arrangement and amalgamation. The Court relied on the Supreme Court's decision in Dalmia Power Ltd. which held that returns could not be filed before the scheme's approval by NCLT, and hence delay beyond the due date was excusable.

Further, the Court referred to a Division Bench ruling of this Court in Shrikant Mohta vs. CIT, which held that the obligation to file returns under Section 139(1) is suspended when search operations are initiated and returns are to be filed only upon notice under Section 153A(1)(a). This effectively extends the time for filing returns for the purpose of carrying forward losses.

The Court concluded that the assessee was justified in filing the return when it did, and the remedy under Section 119(2)(b) was not mandatory in the circumstances. The Tribunal's acceptance of the return and carry forward of loss was therefore legally sound.

Treatment of Competing Arguments

The revenue's arguments were primarily procedural and technical, focusing on the timing and manner of filing returns and claiming losses. The Court systematically addressed these by contextualizing the facts within the corporate restructuring and statutory framework. It emphasized the practical impossibility of strict compliance with timelines given the merger/demerger and NCLT approval process. The Court also gave weight to the principle that tax consequences must align with the effective date of amalgamation/demerger as sanctioned by the Court and NCLT.

Conclusions

The Court upheld the Tribunal's order allowing carry forward of losses despite the return being filed under Section 139(4) and not Section 139(1), and despite the assessee not claiming losses in its return, given the merger/demerger facts. The Court held that the revenue's appeal was without merit and dismissed it.

Significant Holdings

"The Assessing Officer was asking the assessee to do something that was legally impossible and therefore the same cannot be approved."

"The only course open to the revenue would be to act as per the scheme of amalgamation approved by the High Court effective from the appointed date and the Taxing authorities are bound to take note of the state of affairs of the assessee as on the appointed date."

"Section 139(5) of the Income-tax Act is not applicable to the facts and circumstances of the present case since the revised returns were not filed on account of any omission or wrong statement or omission contained therein. The delay occurred on account of the time taken to obtain sanction of the schemes of arrangement and amalgamation from the NCLT."

"The obligation to file the return remained suspended, in view of the clear opening words of section 153A(1) of the Act, till such time that a notice was issued to him under clause (a) of such sub-section."

"The operation of section 139(3) of the Act qua the time available for filing a return in order to avail of the benefit of carrying forward any loss stands extended till a return is called for under section 153A(1)(a) of the Act and such return is filed."

Core principles established include that in cases of corporate amalgamation and demerger, the effective date governs the tax consequences including loss carry forward; returns filed by the amalgamated entity within prescribed timelines are valid for the merged period; and delays in filing returns caused by awaiting NCLT approval are excusable and do not disentitle the assessee from carrying forward losses.

Accordingly, the Court dismissed the revenue's appeal and answered the substantial questions of law against the revenue.

The core legal questions considered by the Court in this matter are:

(a) Whether the penalty order under Section 271(1)(c) of the Income Tax Act, 1961 (the Act) was validly issued and communicated to the Petitioner in accordance with the procedural requirements, particularly the faceless assessment mechanism and Section 144B of the Act.

(b) Whether the adjustment of the refund for Assessment Year (AY) 2021-22 against the penalty demand under Section 271(1)(c) without issuance and communication of a valid penalty order and demand notice under Section 156 of the Act was lawful.

(c) Whether the Petitioner was entitled to a refund for AY 2021-22 which was erroneously adjusted against a penalty demand that was never formally communicated.

(d) Whether the penalty proceedings should have been kept in abeyance pending disposal of the appeal before the Income Tax Appellate Tribunal (Tribunal).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity and Communication of Penalty Order under Section 271(1)(c) and Compliance with Section 144B of the Act

Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act empowers the Assessing Officer to levy penalty for concealment of income or furnishing inaccurate particulars. Section 144B prescribes the procedure for issuance of penalty orders under the faceless assessment scheme, mandating that a draft penalty order be communicated to the assessee and an opportunity be provided to file objections before the final order is passed.

Court's Interpretation and Reasoning: The Court examined the procedural history and the order sheet entries related to penalty proceedings. It was noted that although the penalty proceedings were initiated and a show cause notice was issued, the draft penalty order was never generated or communicated to the Petitioner as mandated under Section 144B. The order sheet indicated that the final penalty order was approved on 21.03.2022, but no draft order or final order was communicated to the Petitioner. The Respondents admitted a technical failure in the ITBA system which prevented generation and communication of the penalty order and demand notice.

Key Evidence and Findings: The Respondents filed affidavits confirming the absence of any draft penalty order in the ITBA system and acknowledged the technical glitch that prevented issuance of the penalty order and demand notice. The Petitioner's repeated requests to keep the penalty proceedings in abeyance and to be given an opportunity to file legal submissions were not responded to with any formal communication of penalty orders.

Application of Law to Facts: The Court held that the failure to generate and communicate the draft penalty order and final penalty order with demand notice violated the procedural safeguards under Section 144B. Without communication of the draft order, the Petitioner was deprived of the opportunity to file objections, rendering any subsequent penalty demand invalid.

Treatment of Competing Arguments: The Respondents argued that the penalty order was approved and demand notice generated, but the Court found no evidence of communication to the Petitioner. The Respondents' reliance on order sheet entries was insufficient to substitute for formal communication. The Court accepted the Petitioner's contention that no penalty order or demand notice was received.

Conclusion: The Court concluded that the penalty order under Section 271(1)(c) was not validly issued or communicated in compliance with Section 144B, and therefore, the penalty proceedings were not legally effective.

Issue (b): Legality of Adjustment of Refund for AY 2021-22 Against Penalty Demand Without Valid Demand Notice

Relevant Legal Framework and Precedents: Section 245 of the Income Tax Act permits adjustment of refunds against any outstanding demand. However, such adjustment presupposes the existence of a valid demand, which must be communicated to the assessee under Section 156.

Court's Interpretation and Reasoning: The Court scrutinized the adjustment made by the Central Processing Centre (CPC) of the refund for AY 2021-22 against the penalty demand for AY 2014-15. It was highlighted that the Petitioner had not received any demand notice under Section 156, which is a prerequisite for such adjustment. The CPC's action was based on automated system updates without verification of the validity of the demand or communication to the Petitioner.

Key Evidence and Findings: The Petitioner's attempts to respond to the intimation under Section 245 were frustrated by technical glitches, and communications to the CPC were met with directions to contact the jurisdictional Assessing Officer. The Respondents admitted that the demand notice was generated due to a technical issue, and no formal communication was made to the Petitioner.

Application of Law to Facts: The Court found that the adjustment of refund without a valid, communicated demand notice was illegal. The automated adjustment violated principles of natural justice and statutory requirements, as the Petitioner was denied the opportunity to challenge or respond to the demand.

Treatment of Competing Arguments: The Respondents contended that the demand notice and penalty order were approved and generated, justifying the adjustment. The Court rejected this argument due to lack of evidence of communication and the admitted technical failure.

Conclusion: The adjustment of the refund against the penalty demand was quashed and set aside as it was done without a valid demand notice and without adherence to due process.

Issue (c): Entitlement to Refund for AY 2021-22

Relevant Legal Framework and Precedents: The Petitioner is entitled to refund of excess tax paid or balance in their favor, subject to adjustment against valid demands under the Act.

Court's Interpretation and Reasoning: Since the penalty demand was not validly communicated and the adjustment was illegal, the Petitioner's entitlement to refund stands unaffected by the invalid demand. The Court directed the Respondents to release the refund forthwith along with applicable statutory interest.

Application of Law to Facts: The refund was adjusted without lawful basis; hence, the Petitioner must be restored the amount adjusted.

Conclusion: The Petitioner is entitled to immediate release of the refund for AY 2021-22 along with interest.

Issue (d): Keeping Penalty Proceedings in Abeyance Pending Disposal of Appeal

Relevant Legal Framework and Precedents: It is a recognized practice that penalty proceedings may be kept in abeyance pending disposal of the substantive appeal to avoid multiplicity of proceedings and ensure fairness.

Court's Interpretation and Reasoning: The Petitioner had repeatedly requested the Respondents to keep penalty proceedings in abeyance pending disposal of appeals before the Tribunal. There was no formal communication from the Respondents acceding to this request. The Court observed that the Respondents proceeded with penalty proceedings without providing the Petitioner an opportunity to be heard or to file submissions, contrary to principles of natural justice.

Conclusion: The Court directed the Respondents to complete penalty proceedings afresh in accordance with law, allowing the Petitioner to file replies and be heard, thus effectively reinstating the principle of abeyance pending appeal disposal.

3. SIGNIFICANT HOLDINGS

The Court held:

"No draft penalty order was ever generated by the Respondents under the faceless mechanism for levy of the penalty under Section 271(1)(c) of the Act, which ought to have been generated and communicated to the petitioner to file reply for as required under Section 144B of the Act."

"No final order for levy of penalty was ever generated or communicated alongwith demand notice under Section 156 of the Act."

"The adjustment of refund by the CPC through the Communication issued under Section 245 of the Act for AY 2021-22 is hereby quashed and set aside."

"The Respondents shall permit the Petitioner to file a reply to the Show Cause Notice dated 24.02.2021 for levy of the penalty under Section 271(1)(c) of the Act and thereafter, issue a draft order for levy of penalty, if required, after considering the objections to be filed by the petitioner and after providing due opportunity of hearing to the Petitioner."

"The Respondents are directed to release the refund for AY 2021-22 forthwith, along with statutory interest as applicable."

Core principles established include the mandatory compliance with procedural safeguards under Section 144B for faceless penalty proceedings, the necessity of communication of penalty orders and demand notices before enforcement actions such as refund adjustment, and the protection of assessee's rights to be heard and to respond to penalty proceedings.

Final determinations on each issue are that the penalty order and demand notice were invalid due to non-communication, the refund adjustment was unlawful and quashed, the Petitioner is entitled to refund release with interest, and the penalty proceedings must be redone in accordance with statutory procedure, allowing the Petitioner due opportunity to respond.

1. Whether the notices issued under Section 148 of the Income Tax Act, 1961 (the Act), after 31.03.2021, but without following the amended procedure under Section 148A, are sustainable.

2. Whether the order passed under Section 148A(d) of the Act and the subsequent notice under Section 148 were issued within the prescribed limitation period.

3. Whether the approval for issuance of the notice under Section 148 was obtained from the correct specified authority as mandated by Section 151 of the Act, especially in light of amendments effective from 01.04.2021.

4. The impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on limitation and sanction requirements under the Income Tax Act.

5. The applicability and interpretation of the amended provisions of Sections 147, 148, 148A, 149, and 151 of the Act, particularly regarding the hierarchy of authorities for sanction and the timelines for issuance of notices and orders.

6. The consequences of non-compliance with the procedural and approval requirements under the amended Income Tax Act provisions on the validity of reassessment proceedings and demand notices.

Issue-wise detailed analysis:

1. Validity of notices issued under Section 148 after 31.03.2021 without following Section 148A procedure:

The court referred to prior decisions, including the judgment in Mon Mohan Kohli, where notices issued post 31.03.2021 under the pre-amendment regime were struck down for non-compliance with the amended Section 148A procedure. The Supreme Court in Union of India v. Ashish Agarwal upheld the applicability of the amended provisions for notices issued after 01.04.2021 and directed that notices issued in the interim period be treated as show cause notices under Section 148A(b). The Assessing Officer was directed to furnish information relied upon for issuance of such notices to enable the assessee to respond.

In the present case, the initial notice under Section 148 was issued on 28.06.2021, after the amendment date, but without following the amended procedure. The AO provided the information on 30.05.2022 as per Supreme Court directions, and the petitioner responded on 08.06.2022, explaining inadvertent non-disclosure of a bank account but asserting that income was accounted for. The AO was not convinced and passed an order under Section 148A(d) on 29.07.2022 to reopen the assessment.

The court held that the initial notice was unsustainable as it did not comply with the amended Section 148A requirements. The Supreme Court's directions mandated that such notices be treated as show cause notices, and proper procedure must be followed before reopening assessment.

2. Limitation period for issuance of the order under Section 148A(d) and notice under Section 148:

The original notice was issued on 28.06.2021, two days before the limitation period expired as extended by TOLA. The petitioner responded on 08.06.2022. The AO had less than seven days after receiving the reply to pass the order under Section 148A(d) and issue a notice under Section 148, but the order was passed on 29.07.2022, beyond the prescribed period.

The court analyzed the fourth proviso to Section 149(1), which provides a seven-day window to pass the order under Section 148A(d) after receiving the reply. Since this period expired on 16.06.2022, the order dated 29.07.2022 was held to be beyond limitation and thus invalid.

3. Requirement and correctness of approval by specified authority under Section 151:

Section 151, as amended by the Finance Act, 2021, specifies two categories of authorities empowered to grant sanction for issuance of notices under Sections 148 and 148A:

(i) Principal Commissioner or Principal Director or Commissioner or Director, if the notice is issued within three years from the end of the relevant assessment year;

(ii) Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed.

Since the notice in question was issued beyond three years from the end of the relevant AY, approval was required from the authorities under clause (ii). However, the AO obtained approval from the Commissioner of Income Tax (Exemption), which falls under clause (i), and thus was not the correct specified authority.

The court extensively referred to precedents, including Twylight Infrastructure Pvt. Ltd. and Abhinav Jindal HUF, which held that the TOLA extension does not affect the categorization of specified authorities under Section 151. The approval must be obtained from the authority specified for the relevant time period, regardless of any extension in limitation period.

Further reliance was placed on decisions from Bombay High Court (J M Financial & Investments Consultancy Services and Siemens Financial Services) and Madras High Court (Ramachandran Shivan), which consistently held that the amended Section 151 applies and the approval must be from the correct specified authority. The Orissa High Court's similar stance in Ambika Iron and Steel Pvt. Ltd. was also noted.

The court concluded that the approval obtained from the Commissioner instead of the Principal Chief Commissioner or equivalent was invalid, rendering the notices and subsequent proceedings unlawful.

4. Impact of TOLA on limitation and sanction requirements:

The court clarified that TOLA, which extended time limits for issuance of notices and completion of proceedings, does not amend or override the provisions of Section 151 relating to the hierarchy of authorities for sanction. The extended limitation period under TOLA is separate from the statutory requirement of approval by the specified authority.

Thus, while TOLA extends the time within which notices may be issued, it does not alter the distribution of power or the categorization of authorities under Section 151. The sanction must be obtained from the correct authority as per the amended Section 151, irrespective of TOLA extensions.

5. Application of law to facts and treatment of competing arguments:

The petitioner argued that the notices and orders were barred by limitation and lacked valid approval. The Revenue contended that the TOLA extension allowed issuance of notices beyond the usual limitation and that the approval obtained was valid under the pre-amended regime.

The court rejected the Revenue's arguments, emphasizing that the amended provisions post 31.03.2021 govern the proceedings and that TOLA cannot be read as amending Section 151. The court held that the approval must be obtained from the specified authority as per the amended Section 151, and failure to do so invalidates the notices and orders.

The court also noted that the order under Section 148A(d) was passed beyond the prescribed time limit, further invalidating the reassessment proceedings.

6. Consequences and conclusions:

Since the order under Section 148A(d), the notice under Section 148, and the assessment order dated 23.05.2023 were all found to be invalid due to procedural and limitation defects, the court set aside all these orders and the demand raised pursuant thereto.

The court granted liberty to the Revenue to initiate reassessment proceedings afresh in accordance with law, ensuring compliance with the amended provisions and correct sanctioning authority.

Significant holdings and core principles established:

"The issue of approval would still be liable to be answered based on whether the reassessment was commenced after or within a period of four years from the end of the relevant AY or as per the amended regime dependent upon whether action was being proposed within three years of the end of the relevant AY or thereafter. The bifurcation of those powers would continue unaltered and unaffected by TOLA."

"The sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained and, therefore, the sanction is required to be obtained by applying the amended section 151(ii) of the Act and since the sanction has been obtained in terms of section 151(i) of the Act, the impugned order and impugned notice are bad in law and should be quashed and set aside."

"The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act only seeks to extend the period of limitation and does not affect the scope of section 151."

"The order passed under Section 148A(d) of the Act beyond the prescribed time limit is not sustainable."

"The impugned notices and orders are quashed on the ground that there is no approval of the specified authority as indicated in section 151(ii) of the Act."

Final determinations:

- Notices issued under Section 148 after 31.03.2021 without following amended Section 148A procedure are invalid.

- Orders under Section 148A(d) must be passed within the prescribed time limit; delay renders them invalid.

- Approval for issuance of notices beyond three years from the end of the relevant AY must be obtained from the authorities specified under Section 151(ii); failure to do so invalidates the proceedings.

- TOLA extensions do not alter the hierarchy of sanctioning authorities under Section 151.

- The impugned reassessment proceedings and demand notices are set aside, but the Revenue is granted liberty to initiate proceedings afresh in compliance with the law.

1. Whether the addition of Rs. 99,02,100/- on account of deemed sales consideration under section 43CA was justified.

2. Whether the provisions of sub-sections (3) and (4) of section 43CA apply to the facts of the case, thereby entitling the assessee to relief from the addition made.

3. The extent to which the variation between the stamp duty value and the actual sale consideration can be allowed without triggering the addition under section 43CA.

Regarding the first issue, the legal framework centers on section 43CA(1) of the Income Tax Act, which mandates that where the consideration received or accruing from the transfer of an asset (land or building) is less than the value adopted or assessed by any State Government authority for stamp duty purposes, the latter value shall be deemed to be the full value of consideration for computing profits and gains. This provision aims to curb undervaluation of property transactions for tax evasion.

The Court examined the facts that the Assessing Officer (AO) had made an addition of Rs. 99,02,100/- by applying section 43CA, as the sale consideration declared by the assessee was less than the stamp duty value adopted by the State Government authority. The AO found the assessee's submissions inadequate due to lack of supporting evidence such as payment details and registration of transfer. The AO also noted that the curative amendment introduced by the Finance Act, 2018, effective from 01.04.2019, was not applicable to the assessment year in question.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition but allowed relief where the variation between sale consideration and stamp duty value was within 10%, following an analysis of the memorandum explaining the Finance Bill, 2018, and relevant case laws. The CIT(A) rejected the assessee's claim under section 43CA(3) and (4) due to insufficient evidence that the conditions for applying the stamp duty value as on the agreement date were met.

On the second issue, the Court focused on the provisions of sub-sections (3) and (4) of section 43CA, which provide that where the date of agreement fixing the value and the date of registration differ, the stamp duty value on the date of the agreement may be taken if part or whole of the consideration has been received by non-cash modes (account payee cheque, bank draft, electronic clearing system, or prescribed electronic modes) on or before the date of the agreement. This provision is intended to prevent manipulation of sale consideration by delaying registration or payment.

The assessee produced extensive documentary evidence including agreements, payment schedules, ledger accounts, and bank statements demonstrating that payments were received by cheque before the date of agreement for various flats. The Court examined these evidences, noting that the conditions of sub-section (4) were fulfilled for these transactions.

Applying the law to facts, the Court held that where the conditions of sub-section (4) are satisfied, the stamp duty value as on the date of agreement, rather than the date of registration, should be considered for the purpose of section 43CA. This interpretation aligns with the legislative intent to tax the true consideration received or accruing, avoiding penal consequences where payment is made timely but registration is delayed.

Regarding the third issue, the Court considered the permissible variation between the stamp duty value and the actual sale consideration. The CIT(A) had allowed relief up to a 10% variation, based on the Finance Bill memorandum and judicial precedents. The Court concurred with this approach, directing the AO to delete additions where the difference was less than 10% and confirm additions only where the difference exceeded this threshold.

The Court also emphasized that the AO should verify registration deeds and payment details to ensure compliance with sub-section (4) conditions before making any addition. This approach balances the need to prevent undervaluation with fairness to taxpayers who have complied with payment norms.

In addressing competing arguments, the Court rejected the AO's rigid application of section 43CA without considering the timing and mode of payment, which are crucial under sub-sections (3) and (4). The Court also noted that the curative amendment cited by the AO was inapplicable to the assessment year under consideration, confirming the principle that retrospective application of amendments is not permissible unless expressly provided.

Consequently, the Court allowed the appeal on grounds 1 and 2, subject to the AO verifying the evidence of payment and registration and applying the 10% variation relief. Ground 3, being general, was not adjudicated separately.

Significant holdings include the following verbatim excerpt from the judgment:

"...the Ld. AO is directed to consider the registration deeds and delete the addition in respect of all the flats which has been upheld by the Ld. CIT(A) wherever the difference between the valuation for the purpose of stamp duty on the date of registration and the actual sale consideration received is less than 10% as the conditions of sub-section (4) of section 43CA of the Act are found to be fulfilled as part of the consideration has been received by way of account payee cheque or through such other mode as specified in sub-section (4) of section 43CA of the Act on or before the date of transfer of the asset and, therefore, the value referred to in sub-section (1) of section 43CA of the Act may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement and the addition may be made only where the difference is more than 10% of such value."

This establishes the core principle that the stamp duty value as on the agreement date is relevant for section 43CA valuation if payment conditions are met, and that a tolerance of 10% variation is permissible before additions are made.

In conclusion, the Court determined that the addition under section 43CA should be restricted to cases where the difference between stamp duty value and actual sale consideration exceeds 10%, provided the payment was made by prescribed non-cash modes on or before the date of agreement, thereby entitling the assessee to relief on the facts presented.

1. Whether the Designated Authority was justified in including the specialty grades of PVC Suspension Resins (SPVC) imported by the petitioners for manufacturing Chlorinated Polyvinyl Chloride Resin (CPVC) within the scope of the Product Under Consideration (PUC) in the anti-dumping investigation.

2. Whether the specialty grades of SPVC imported by the petitioners qualify as "like articles" under Rule 2(d) of the Anti-Dumping Rules vis-`a-vis the SPVC produced by the domestic industry.

3. Whether the writ petition challenging the preliminary findings and the Addendum Notification of the Designated Authority is maintainable at this stage or whether the petitioners have an alternative remedy under section 9C of the Customs Tariff Act, 1975 ("the Act").

4. Whether the Designated Authority followed the proper procedure and legal framework, including the Manual of Operating Practices for Trade Remedy Investigations, in defining and describing the PUC and in considering the exclusion requests made by the petitioners.

5. Whether the Designated Authority erred in shifting the burden of proof to the petitioners to demonstrate that the specialty grades of SPVC are not substitutable or produced domestically.

Issue-wise Detailed Analysis

1. Inclusion of Specialty Grades of SPVC within PUC

Legal framework and precedents: The Anti-Dumping Rules, framed under the Act, empower the Designated Authority to identify the article liable for anti-dumping duty (Rule 4(b)) and to define the PUC accurately at the initiation stage (Manual of Operating Practices, paras 3.4, 3.13). The concept of "like article" under Rule 2(d) is central to this determination. The definition requires the article to be identical or, in absence thereof, to have closely resembling characteristics.

Court's interpretation and reasoning: The Court noted that the Designated Authority issued an Addendum Notification dated 16.12.2024 rejecting the petitioners' request to exclude specialty grades S65C and S66J of SPVC imported for manufacture of CPVC. The Authority reasoned that these specialty grades are not uniquely used for CPVC manufacture but are also used for general purposes, and that the domestic industry produces like articles substitutable with the imported specialty grades.

Key evidence and findings: The Designated Authority relied on test reports comparing bulk density and porosity parameters, submissions by domestic producers, and import data showing that 92% of the specialty grade imports were by traders not producing CPVC. The Authority also considered claims by Hanwha Solutions Corporation that it manufactures CPVC using its own SPVC resins without specialty grades.

Application of law to facts: The Court found that the Designated Authority did not conduct a thorough classificatory investigation at the initiation stage and improperly expanded the scope of PUC after initiation. The Authority accepted domestic industry data without independent verification and failed to consider that the petitioners' specialty grades were not produced domestically during the period of investigation.

Treatment of competing arguments: The petitioners argued that their specialty grades are technically and commercially distinct and not substitutable by domestic grades. The respondents contended that the Authority's approach was consistent with the Rules and that the petitioners' claim was unsupported. The Court agreed with the petitioners that the Authority failed to properly examine the technical and commercial substitutability and improperly shifted the burden of proof to the petitioners.

Conclusions: The Court held that the specialty grades of SPVC imported by the petitioners should be excluded from the PUC for the purpose of ongoing investigation, as they were neither produced domestically nor substitutable with domestic products.

2. Definition of "Like Article" and Determination of Domestic Industry

Legal framework and precedents: Rule 2(d) defines "like article" as identical or closely resembling products. Article VI of GATT 1994 and the Agreement on Implementation of Article VI emphasize the need for objective examination of injury and like products. The Manual of Operating Practices elaborates on technical, commercial, functional, and production substitutability.

Court's interpretation and reasoning: The Court emphasized that the identification of the PUC and like articles is foundational to the investigation. The Designated Authority must determine the PUC at initiation and cannot expand it later. The Authority's reliance on domestic industry data without verifying whether the specialty grades were produced domestically or substitutable was flawed.

Key evidence and findings: The Court noted that the domestic producer DCW Limited did not produce the specialty grades during the investigation period and imported such grades itself. The Authority's conclusion that domestic and imported products are substitutable was based on limited parameters and unverified lab reports.

Application of law to facts: The Court held that the Authority failed to apply the objective tests for like articles properly and did not consider the absence of domestic production of the specialty grades. The burden to prove domestic production and substitutability rests with the domestic industry and the Authority, not the petitioners.

Treatment of competing arguments: The respondents argued that different grades are subsets of one product and thus like articles. The petitioners highlighted technical differences and lack of domestic production. The Court sided with the petitioners, finding the Authority's approach inconsistent with the Rules and Manual.

Conclusions: The specialty grades imported by the petitioners are not like articles produced domestically and should be excluded from the PUC.

3. Maintainability of Writ Petition Challenging Preliminary Findings

Legal framework and precedents: Section 9C of the Act provides for appeal only after final determination by the Designated Authority under Rule 17 of the Anti-Dumping Rules. Preliminary findings under Rule 12 are recommendatory. The Court referred to decisions holding that writ petitions against preliminary findings are maintainable when no alternative remedy is available, especially to prevent irreparable harm.

Court's interpretation and reasoning: The Court observed that the petitioners had no alternative remedy against preliminary findings and provisional duties. The appeal under section 9C lies only after final findings and imposition of duty by the Central Government.

Key evidence and findings: The Court noted prior case law supporting writ petitions against preliminary findings and the absence of any provisional duty imposed during pendency.

Application of law to facts: The Court entertained the writ petition challenging preliminary findings and the Addendum Notification.

Treatment of competing arguments: Respondents contended the petition was premature and alternative remedies existed. The Court rejected this, emphasizing the lack of alternative remedy at the preliminary stage.

Conclusions: The writ petition challenging preliminary findings is maintainable and properly entertained.

4. Compliance with Procedural Requirements and Manual of Operating Practices

Legal framework and precedents: The Manual of Operating Practices mandates accurate and timely definition of PUC, freezing scope at initiation, and consideration of exclusion requests within three months. The Authority must ensure transparency and opportunity to all parties.

Court's interpretation and reasoning: The Court found that the Designated Authority failed to define the PUC precisely at initiation, unilaterally expanded the scope, and brushed aside the petitioners' exclusion requests initially on confidentiality grounds. The Court directed the Authority to share confidential information and allow submissions before finalizing the scope.

Key evidence and findings: The Court referred to the chronology of communications, representations, and the Addendum Notification. It noted procedural lapses in handling exclusion requests and failure to conduct thorough investigation.

Application of law to facts: The Court held that procedural lapses rendered the preliminary findings unsustainable and directed exclusion of specialty grades from PUC in further investigation.

Treatment of competing arguments: Respondents argued due process was followed and that the Authority's findings were reasoned. The Court disagreed, emphasizing procedural fairness and adherence to the Manual.

Conclusions: The Designated Authority must comply with procedural requirements and conduct proper investigation regarding specialty grades before finalizing the PUC.

5. Burden of Proof Regarding Technical and Commercial Substitutability

Legal framework and precedents: The burden to establish like articles and injury lies with the domestic industry and Designated Authority. The petitioners are not required to prove non-substitutability or absence of domestic production.

Court's interpretation and reasoning: The Court rejected the Designated Authority's approach of requiring the petitioners to prove that specialty grades are not produced domestically or are not substitutable. The Court held this to be a novel and misconceived proposition.

Key evidence and findings: The Court noted the data showing domestic industry's failure to produce specialty grades and reliance on imports. The Authority's shifting of burden was contrary to legal principles.

Application of law to facts: The Court concluded that the Authority erred in burden allocation and must independently verify domestic production and substitutability.

Treatment of competing arguments: Respondents argued the "acid test" requires petitioners to approach domestic industry first. The Court rejected this as lacking legal basis.

Conclusions: The Designated Authority must bear the burden of proof for like article determination and cannot shift it to petitioners.

Significant Holdings

"The determination of the Product Under Consideration (PUC) and the 'like article' in an anti-dumping investigation holds the key to establishing dumping and injury, and any fallacies in the same could make the entire investigation void."

"The Designated Authority was required to consider the submissions and objections raised by the petitioners during investigation only. The scope of product under consideration can be restricted during the course of investigation but cannot be enhanced after such initiation."

"The specialty grades of SPVC imported by the petitioners for manufacturing CPVC are neither produced by the domestic industry nor are they technically or commercially substitutable and interchangeable with the grades commercially produced in the domestic industry."

"The burden to prove that specialty grades are produced domestically and substitutable rests on the domestic industry and the Designated Authority, and cannot be shifted to the petitioners."

"The writ petition challenging preliminary findings is maintainable as no alternative remedy under section 9C of the Act is available at this stage."

"The Designated Authority failed to conduct a thorough investigation and improperly relied on domestic industry data without independent verification, thereby committing procedural lapses."

"The specialty grades of SPVC imported by the petitioners are to be excluded from the product under consideration for the purpose of further investigation."

"The petition is partly allowed to the extent indicated and the Designated Authority is directed to exclude the specialty grades from PUC in further proceedings."

The core legal questions considered by the Tribunal are:

(a) Whether the appeal against the rejection of the special warehouse license application under Section 58A of the Customs Act, 1962 is maintainable before the Tribunal under Section 129A of the Customs ActRs.

(b) If maintainable, whether the rejection of the appellant's application for a special bonded warehouse license on the ground of a prior penalty imposed under Section 112(a) of the Customs Act is legally sustainable or liable to be set asideRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of the Appeal

Relevant legal framework and precedents: Section 129A(1)(a) of the Customs Act permits appeal to the Tribunal against "any decision or order passed by the Principal Commissioner of Customs or Commissioner of Customs as an adjudicating authority." Section 2(1) defines "adjudicating authority" as any authority competent to pass any order under the Act, excluding certain appellate bodies. The Special Warehousing Licensing Regulations, 2016, framed under Sections 58A and 157 of the Customs Act, govern the grant of licenses but do not provide any statutory appeal mechanism against rejection of license applications.

Judicial precedents relied upon include:

• The Tribunal's decision in Samrat Houseware Pvt. Ltd. v. Commissioner of Customs (Sea), Chennai-V, which held that a letter communicating a final decision of the Commissioner refusing amendment of shipping bills is an appealable order.
• CCE v. Maharashtra State Bureau of Text Books Production & Curriculum Research, where the Tribunal entertained appeal against departmental denial of centralized service tax registration by letter.
• Commissioner of Central Excise v. Girish B. Mishra (Gujarat High Court), which affirmed that decisions by Commissioners rejecting applications under Central Excise Act are appealable before the Tribunal and the Customs Act provisions are analogous.

Court's interpretation and reasoning: The Tribunal held that the Principal Commissioner's rejection of the license application, although communicated by a subordinate officer's letter, is a final decision affecting the appellant's legal rights under the Customs Act and hence qualifies as an order passed by an adjudicating authority. The absence of a formal show-cause or adjudicatory process does not negate the character of the decision as an adjudication under the Act. The Tribunal rejected the Revenue's contention that the decision was purely administrative and non-appealable.

Key evidence and findings: The rejection letter dated 08.07.2024 conveyed a final decision denying the appellant the right to operate a special bonded warehouse, with no further departmental remedy available. The Tribunal had already ruled on maintainability at the preliminary stage and declined the Revenue's attempt to re-agitate the issue.

Application of law to facts: The Tribunal applied statutory definitions and consistent judicial precedents to conclude that the impugned order is appealable. It emphasized the practical necessity of allowing appeals against denial of licenses to avoid anomalous situations where cancellation of granted licenses is appealable but initial refusals are not.

Treatment of competing arguments: The Revenue's reliance on administrative character of the decision and absence of formal adjudication was rejected. Decisions cited by the Revenue involving mere procedural communications or executive letters were distinguished on facts and found inapplicable.

Conclusion: The appeal against the rejection of the special warehouse license application is maintainable before the Tribunal under Section 129A of the Customs Act.

Issue 2: Merits of the Rejection of License Application on Ground of Prior Penalty under Section 112(a)

Relevant legal framework and precedents: Section 58A of the Customs Act empowers the Principal Commissioner to grant special warehouse licenses subject to prescribed conditions. The Special Warehousing Licensing Regulations, 2016, specifically Regulation 3(2)(c), disqualifies applicants who have been "penalized for an offence under the Customs Act, 1962, the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994." The Customs Act distinguishes between penalties for contraventions (Chapter XIV) and offences attracting criminal prosecution (Chapter XVI). Section 112(a) penalty falls under Chapter XIV and is a civil penalty for contraventions such as incorrect claims of exemption, not a criminal offence.

Judicial precedents include:

• Principal Bench CESTAT New Delhi decision in M/s. Kundan Care Products Ltd. vs. Commissioner of Customs, which held that a penalty under Section 112 does not amount to penalization for an "offence" under the Customs Act for the purpose of Regulation 3(2)(c), and cancellation of license on that ground was unsustainable.
• Supreme Court decision in Northern Plastics Ltd. v. CCE, which held that an incorrect claim for exemption, even if disallowed, does not amount to misdeclaration or wrongdoing if goods are truthfully described.

Court's interpretation and reasoning: The Tribunal interpreted the phrase "penalized for an offence" in Regulation 3(2)(c) restrictively, confining it to serious criminal offences under Chapter XVI of the Customs Act, not every penalty under Chapter XIV. The penalty under Section 112(a) imposed on the appellant was for a bona fide interpretational dispute over exemption eligibility, without any element of fraud or criminal wrongdoing. The Tribunal held that applying Regulation 3(2)(c) mechanically to disqualify applicants penalized under any provision of the Customs Act would be draconian and inconsistent with the statutory scheme.

Key evidence and findings: The appellant had not been prosecuted or convicted for any offence under Chapter XVI. The penalty was for claiming exemption incorrectly on imported sample goods, which was a civil contravention. No suppression or misdeclaration was alleged in the license application. The Principal Commissioner did not point to any other disqualifying factors such as insolvency, technical deficiencies, or pending investigations.

Application of law to facts: The Tribunal applied the distinction between contraventions and offences, and relied on the binding precedent of Kundan Care to hold that the prior penalty under Section 112(a) did not render the appellant ineligible for the special warehouse license. The rejection order was therefore based on a misinterpretation of the Regulations and the Act.

Treatment of competing arguments: The Revenue's argument that the rejection was a discretionary administrative decision and that no appeal lay was rejected as discussed under Issue 1. The Tribunal also rejected the notion that the Regulation should be applied as an absolute bar without discretion, emphasizing the need for a nuanced and judicious approach.

Conclusion: The rejection of the appellant's special warehouse license application solely on the ground of a prior penalty under Section 112(a) of the Customs Act is legally unsustainable and is set aside. The appellant is entitled to the consequential benefit of grant of license subject to fulfillment of other conditions.

3. SIGNIFICANT HOLDINGS

"The language of Section 129A(1)(a) allows an appeal to the Tribunal by any person aggrieved by 'any decision or order passed by the Principal Commissioner of Customs or Commissioner of Customs as an adjudicating authority.' The crucial question is whether the impugned order (rejecting the license) can be considered a 'decision or order' of the Principal Commissioner passed as an adjudicating authority. The Principal Commissioner of Customs is certainly an authority competent to pass orders under the Act... Thus, on a plain reading, when the Principal Commissioner considers a license application and either grants or refuses it, he is acting as an adjudicating authority." (Paragraphs 18-19)

"A letter which informs by deciding the rights of an assessee finally is an appealable order." (As cited from Samrat Houseware Pvt. Ltd. case in Paragraph 20)

"The phrase 'penalized for an offence under the Customs Act' in Regulation 3(2)(c) must be understood as referring to offences under Chapter XVI of the Customs Act, which entail criminal prosecution, and not every penalty under Chapter XIV such as Section 112(a). The mere fact of a monetary penalty under Section 112 does not automatically trigger disqualification under Regulation 3(2)(c)." (Paragraphs 32-33)

"The impugned order is not sustainable, since it is based on an erroneous interpretation of Regulation 3(2)(c) and Section 58A of the Customs Act." (Paragraph 38)

"The appeal is allowed." (Paragraph 39)

(a) Whether the stamp duty under Article 25 (da) of the Maharashtra Stamp Act, 1958, should be computed on the enterprise value or net worth of the demerged undertaking, or on the market value of shares issued and allotted in exchange plus any consideration paid;

(b) Whether the gross debt of the transferor company (TTML), particularly liabilities related to spectrum license fees, should be deducted from the enterprise value in determining the market value for stamp duty purposes;

(c) Whether the Collector of Stamps and the Chief Controlling Revenue Authority (CCRA) had jurisdiction and authority to re-interpret the Scheme of Arrangement sanctioned by the National Company Law Tribunal (NCLT) and to disregard the valuation and share entitlement ratio approved by shareholders and NCLT;

(d) The validity of the orders passed by the Collector of Stamps and CCRA in confirming a high stamp duty demand based on net worth rather than market value of shares issued.

On the first issue concerning the applicable legal framework, Article 25 (da) of the Maharashtra Stamp Act, 1958, prescribes the stamp duty payable on amalgamation, merger, demerger, arrangement, or reconstruction of companies sanctioned by the NCLT or other competent authorities. The provision stipulates a normal duty of 10% on the aggregate market value of shares issued or allotted in exchange plus any consideration paid, subject to a cap. The cap is the higher of:

(i) 5% of the true market value of immovable property located in Maharashtra of the transferor company; or

(ii) 0.7% of the aggregate market value of shares issued or allotted in exchange plus consideration paid.

In the case of reconstruction or demerger, the duty chargeable shall not exceed these amounts.

The Court emphasized that the statute mandates computation of stamp duty on the market value of shares issued/allotted plus consideration paid, and does not contemplate levy on enterprise value or net worth of the demerged undertaking.

Regarding the Collector of Stamps' and CCRA's interpretation, the authorities had computed stamp duty at Rs. 7,38,99,000/- by applying 0.7% to the enterprise value or net worth of the consumer mobile business unit of TTML at Rs. 1055.70 crores. They rejected the petitioner's contention that gross debt of Rs. 950 crores should be deducted, thus reducing the market value of shares to Rs. 105.70 crores. The Collector reasoned that the enterprise value already accounted for liabilities, including debts, and thus no separate deduction was warranted. The CCRA confirmed this view on appeal.

The petitioner challenged this approach, submitting that the Collector and CCRA erred in equating enterprise value with market value of shares issued/allotted for stamp duty purposes. The petitioner argued that the valuation report clearly showed that the enterprise value included gross debt, which must be deducted to arrive at the true equity value. Consequently, the market value of shares issued was substantially lower, and stamp duty should have been calculated on that basis. The petitioner further contended that the Scheme of Arrangement sanctioned by the NCLT, including the share entitlement ratio and valuation principles, must be respected and cannot be reinterpreted by the revenue authorities.

In analyzing these contentions, the Court examined the valuation reports prepared by two independent chartered accountancy firms appointed by the respective companies. Both valuers used the Comparable Companies' Market/Transaction Multiple method and agreed on the enterprise value range and gross debt amount. The equity value per share of TTML was computed after deducting gross debt, resulting in a much lower valuation than the enterprise value.

The Court noted that the Scheme of Arrangement, approved and sanctioned by the NCLT, explicitly provided for issuance of shares by the petitioner company to TTML shareholders at a ratio reflecting the equity value after accounting for liabilities. The share allotment ratio and valuation were commercial decisions accepted by the shareholders and the NCLT.

The Court held that the Collector of Stamps erred in ignoring the market value of shares issued and allotted in exchange and instead basing the stamp duty on the net worth or enterprise value of the demerged undertaking. The statutory provision under Article 25 (da) does not support such an approach. The stamp duty must be computed on the market value of shares issued/allotted plus consideration paid, not on enterprise value or net worth.

The Court rejected the Respondents' argument that the Collector had jurisdiction to discover hidden consideration or recharacterize the transaction beyond the valuation and share entitlement ratio approved by the NCLT. The Court observed that no finding was recorded by the Collector or CCRA regarding any hidden consideration, nor was any such plea made in the affidavits. The Court emphasized that the adjudicating authority cannot disregard the valuation principles adopted by the companies and sanctioned by the NCLT or apply a different basis for levy of stamp duty than prescribed by the statute.

Regarding the contention about spectrum license fees being erroneously treated as debt, the Court found that this argument was neither pleaded nor recorded in the impugned orders and thus could not be entertained. The Court held that the license fees payable to the Government, which formed part of liabilities in the valuation report and Scheme, were rightly considered in the valuation process. It was a commercial decision of the shareholders and NCLT, which the Collector could not override.

The Court also reiterated the settled legal principle that orders of administrative and quasi-judicial authorities must be tested on the basis of reasons recorded in the order itself and cannot be supplemented by affidavits or oral submissions. The absence of findings or pleadings on hidden consideration or erroneous debt treatment was fatal to the Respondents' arguments.

Applying the law to the facts, the Court concluded that the correct basis for stamp duty computation was the market value of shares issued and allotted by the petitioner to TTML shareholders, which amounted to approximately Rs. 33.92 crores. The 0.7% stamp duty on this amount was Rs. 23,75,088. The 5% stamp duty on true market value of immovable property of TTML located in Maharashtra was Rs. 1,86,70,450, which was higher. Therefore, the stamp duty payable under Article 25 (da) was Rs. 1,86,70,450, which the petitioner had already paid.

Accordingly, the Court set aside the orders of the Collector of Stamps and the CCRA that demanded stamp duty based on enterprise value/net worth and held that the stamp duty payable on the Scheme of Arrangement was Rs. 1,86,70,450.

Significant holdings include the following verbatim excerpts and core principles:

"Article 25 (da) (ii) does not contemplate levy of stamp duty on net worth of the demerged undertaking. The computation needs to be done on the basis of market value of shares issued and allotted in exchange plus the actual consideration paid under the Scheme."

"The adjudicating authority cannot travel beyond the contours of the methodology prescribed in Article-25 (da) (ii). It cannot employ different basis for determining stamp duty leviable on a particular instrument."

"The Collector of Stamps cannot sit in appeal over this commercial wisdom of shareholders of both the companies and which is accepted by the NCLT and assume that TTML was actually worth more than what is accepted by the shareholders and NCLT."

"Validity of orders passed by the administrative and quasi-judicial authorities must be tested on the touchstone of reasons recorded in the order. It is not permissible to supplement reasons by filing Affidavits before the Court."

In sum, the Court established the principle that for stamp duty on Schemes of Arrangement involving demerger, the statutory formula prescribed in Article 25 (da) must be strictly followed. The market value of shares issued and allotted plus any consideration paid is the proper basis, and enterprise value or net worth of the demerged undertaking cannot be substituted. The Court reaffirmed the binding effect of NCLT-sanctioned valuation and share entitlement ratios and curtailed the revenue authorities' power to recharacterize or reassess the transaction beyond the statutory framework.

The core legal questions considered by the Court include:

• Whether the Civil Court has jurisdiction to entertain suits or proceedings challenging orders passed by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly when Section 63 of the IBC bars such jurisdiction.
• The applicability and enforceability of the MSME Notification dated 29.05.2015, which mandates banks to identify incipient stress in MSME accounts, constitute a Committee, and follow a revival and rehabilitation framework before initiating recovery proceedings.
• Whether the classification of the appellant's loan account as Non-Performing Asset (NPA) by ICICI Bank was lawful, especially in light of the COVID-19 moratorium and the MSME Notification.
• The legality and propriety of the recovery actions taken by ICICI Bank under the SARFAESI Act, 2002, including symbolic possession and initiation of proceedings under Sections 13(2) and 13(4) of the Act.
• The correctness of the NCLT's order admitting the Company Petition filed by the Technology Development Board (TDB) under Section 7 of the IBC against the appellant-corporate debtor.
• The availability and scope of remedies for the appellant, an MSME promoter, in the face of overlapping legislations (IBC, SARFAESI Act, MSME Act) and alleged breaches by financial institutions.
• The propriety of the appellant's plea for recusal of NCLT members and the Court's stance on such applications.

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction of Civil Courts versus NCLT under IBC (Section 63 of IBC)

The legal framework under Section 63 of the IBC explicitly bars Civil Courts from entertaining any suit or proceeding in respect of any matter on which the NCLT or National Company Law Appellate Tribunal (NCLAT) has jurisdiction under the Code. The Court emphasized that the proceedings initiated by TDB under Section 7 of the IBC fall squarely within the NCLT's jurisdiction. The Single Judge's order rejecting interim relief was based on this statutory bar, which the Court upheld.

The appellant's contention that no forum is available to MSMEs to enforce their rights was considered but rejected. The Court reiterated that remedies exist within the IBC framework, including appeals to the NCLAT and review petitions, as evidenced by the appellant's multiple recourse to these forums. The Court declined to entertain the argument that the Civil Court should assume jurisdiction, holding that the legislative intent to exclude Civil Courts must be respected.

The Court referred to precedents and statutory provisions to affirm that the IBC regime is a complete code for insolvency resolution and that the High Court or Civil Courts cannot interfere with or circumvent the process.

Applicability and Enforcement of MSME Notification dated 29.05.2015

The appellant argued that as an MSME, she was entitled to the protection of the Notification, which requires banks to identify stress in accounts, constitute a Committee, and explore revival options before classifying accounts as NPA or initiating recovery. The appellant contended that ICICI Bank failed to comply with these obligations, rendering the classification as NPA and subsequent SARFAESI proceedings illegal.

The Court, however, noted that the NCLT had already addressed this issue in the Company Petition, holding that the MSME Notification and the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) do not override the provisions of the SARFAESI Act or the IBC. The Tribunal found the appellant's argument that the MSMED Act is a special law prevailing over SARFAESI and IBC to be "completely misplaced."

Further, the Court observed that the appellant's challenge to the Notification and related recovery proceedings had been considered and rejected by the Supreme Court, which refused to interfere with the dismissal of writ petitions. The Court underscored that the statutory framework under the IBC and SARFAESI Act governs the recovery process and that the MSME Notification does not create a separate judicial forum or override these laws.

Legality of ICICI Bank's Actions under SARFAESI Act

The appellant alleged that ICICI Bank charged exorbitant interest rates, improperly classified the loan account as NPA with retrospective effect, and took symbolic possession of company properties without following the MSME Notification's revival mechanism. The appellant also claimed harassment and malafide conduct by the Bank.

The Court did not find merit in these allegations. It noted that the Banking Ombudsman had directed reversal of excess interest, but the classification of the account as NPA and initiation of SARFAESI proceedings were within the Bank's rights under the law. The Court emphasized that the SARFAESI Act provides a statutory mechanism for secured creditors to enforce security interests and that the Bank's actions were not shown to be illegal or mala fide.

The Court rejected the appellant's argument that the Bank's conduct was vengeful or malicious, stating that such allegations were unsubstantiated and amounted to bald statements without cogent evidence.

Admission of Company Petition by NCLT under Section 7 of IBC

The NCLT admitted the Company Petition filed by TDB on the ground that the appellant was in default of the loan agreement. The Tribunal found no dispute regarding the loan agreement or the fact of default. The appellant's plea that the financial creditor failed to disburse the entire loan amount within a reasonable time was rejected.

The Tribunal also dismissed the appellant's plea for recusal of the Bench, holding that recusal applications based on frivolous or baseless allegations are impermissible and amount to forum shopping or bench hunting. The Court endorsed this view, citing NCLAT's ruling that recusal is a matter for the judge to decide and cannot be forced by litigants.

The Tribunal further held that the MSME Notification did not prevent the classification of the loan account as NPA or the initiation of insolvency proceedings, reaffirming the primacy of the IBC and SARFAESI Act in such matters.

Availability of Remedies and Principle of "Ubi jus, ibi remedium"

The appellant's counsel invoked the fundamental principle that for every wrong there must be a remedy, questioning the availability of effective redressal mechanisms for MSMEs facing alleged breaches by financial institutions.

The Court acknowledged this principle but clarified that the remedy lies within the legislative framework. The IBC provides a comprehensive insolvency resolution mechanism, and the appellant has access to statutory remedies including appeals and review petitions. The Court pointed to the appellant's multiple approaches to the NCLT, NCLAT, High Courts, and the Supreme Court as evidence of available remedies.

The Court declined to create or recognize an alternative forum outside the statutory scheme, emphasizing the duty to implement legislation as enacted by Parliament.

Challenge to the Single Judge's Order and Interim Reliefs

The appellant sought interim reliefs including stay of the NCLT order admitting the Company Petition and directions for disbursement of remaining loan tranches. The Single Judge rejected these applications, relying on Section 63 of the IBC to hold that the Civil Court lacked jurisdiction to entertain such challenges.

The Court upheld this decision, noting that the appellant's challenge to the NCLT order must be pursued through the prescribed statutory channels. The Court declined to interfere with the refusal of interim relief, emphasizing the statutory bar on Civil Court jurisdiction and the need to avoid parallel proceedings.

Allegations of Mala Fides against NCLT Members

The appellant made allegations of mala fides against members of the NCLT. The Court refused to entertain these allegations, finding them unsubstantiated and unsupported by any cogent evidence. The Court noted that such allegations, if accepted without proof, would undermine judicial integrity and are impermissible.

3. SIGNIFICANT HOLDINGS

"If the IBC 2016 bar the jurisdiction of the Civil suit, in that case we are not in the position to pronounce upon the same and as far as the proceedings before National Company Law Tribunal are concerned, they are instituted by the corporate creditors against the corporate debtor and necessarily follow the process of law."

"No person can maintain application for recusal of the Member. Recusal is not to be forced by any litigant to choose a Bench. It is for the judge to decide to recuse. The picture emerging from the conspectus of the detailed facts summarized hereinabove amounts to choosing Bench of one's liking. If allowed to happen, this would open the flood gates of forum shopping."

"The argument that MSMED Act, 2006 is special law which will prevail over SARFAESI Act and IBC was a completely misplaced argument."

"The statutory remedy is available to the Appellant to approach NCLT under Section 21, and the Civil Court lacks jurisdiction to entertain any suit or proceedings in respect of any matter on which the NCLT or NCLAT has jurisdiction."

Core principles established include:

• The exclusivity of the IBC framework for insolvency and bankruptcy matters, barring parallel Civil Court proceedings.
• The non-override of SARFAESI Act and IBC by the MSME Notification or MSMED Act in matters of loan classification and recovery.
• The procedural safeguards against forum shopping and bench hunting in recusal applications.
• The availability of statutory remedies within the insolvency resolution process to address grievances of MSMEs and corporate debtors.

Final determinations on each issue affirm the dismissal of the appellant's interim relief applications, uphold the NCLT's admission of the Company Petition, and reject challenges to the jurisdictional and procedural framework established under the IBC and related statutes. The Commercial Appeal was accordingly dismissed.

The core legal questions considered by the Tribunal in this appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("IBC") were:

• Whether the Section 8(1) Demand Notice under the IBC was validly served on the Corporate Debtor by the Operational Creditor, as mandated by the statutory framework, and if failure to validly serve the notice vitiates the admission of the Section 9 petition.
• Whether the principles of natural justice were violated by admitting the Section 9 petition ex-parte without providing a meaningful opportunity of hearing to the Corporate Debtor.
• Whether there existed a pre-existing dispute between the parties that barred the admission of the Section 9 petition under the IBC, particularly in light of alleged defective goods supplied and payments made to a third-party subcontractor.
• Whether the admission of the Section 9 petition was a misuse of the insolvency process, raised with malafide intent for recovery rather than genuine insolvency resolution.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Service of Section 8 Demand Notice

Relevant Legal Framework and Precedents: The IBC mandates under Section 8(1) that an Operational Creditor must deliver a demand notice to the Corporate Debtor upon default before initiating proceedings under Section 9. The Tribunal relied on precedents including the judgments in Shailendra Sharma vs Ercon Composite and Sunil Sanghavi vs Cytech Coatings Pvt. Ltd. which emphasize that valid service of the Section 8 notice is a mandatory precondition and not a mere formality. The Tribunal also considered the ruling in Rajnish Gupta v. Union Bank of India and Naresh Kumar Aggarwal v. CFM Asset Reconstruction Pvt. Ltd. which held that service by email on the registered email ID with the Ministry of Corporate Affairs (MCA) suffices for valid notice.

Court's Interpretation and Reasoning: The Operational Creditor initially sent the demand notice by speed post, which was returned undelivered. Subsequently, the notice was served by email to the Corporate Debtor's registered email address as per MCA records. The Corporate Debtor contended that this email was non-operational since July 2021 and managed by a former employee, thus invalidating service. The Tribunal rejected this contention, noting that the email address remained the official registered email on public documents, including MCA Company Master Data and Annual Returns, even after the employee's exit. The Tribunal distinguished the present facts from the precedent in Sharad Kesarwani vs Planetcast Media Services Ltd. where notice was sent to a wrong address despite knowledge of the correct address. Here, the Operational Creditor sent the notice to the correct registered email address.

Key Evidence and Findings: The Tribunal relied on documentary evidence including the Company Master Data as on 20.07.2024, Board Resolutions dated 30.11.2021, and Annual Returns for FY 2020-21, all showing the same registered email address. The Tribunal found no credible basis for the Corporate Debtor's assertion that the email ID was non-operational.

Application of Law to Facts: Since the demand notice was sent to the registered email address publicly disclosed by the Corporate Debtor, the statutory requirement under Section 8(1) was fulfilled. The Tribunal held that the Corporate Debtor was bound by their own representation of the email address and could not claim non-receipt on the ground of non-operation.

Treatment of Competing Arguments: The Corporate Debtor's argument that the email was non-operational and that substituted service should have been ordered was dismissed as lacking foundation. The Operational Creditor's reliance on multiple precedents supporting service by email on registered addresses was accepted.

Conclusion: The Section 8 Demand Notice was validly served on the Corporate Debtor, satisfying the mandatory precondition for filing the Section 9 petition.

Issue 2: Alleged Violation of Natural Justice by Ex-Parte Admission

Relevant Legal Framework: Principles of natural justice require that a party be given a meaningful opportunity to be heard before adverse orders are passed. The IBC proceedings also mandate fair hearing before admission of insolvency applications.

Court's Interpretation and Reasoning: The Tribunal noted that the Corporate Debtor was duly informed of hearing dates by email sent by the Operational Creditor to the registered email address. Despite multiple opportunities and adjournments (hearings on 12.09.2023, 16.10.2023, and 22.11.2023), the Corporate Debtor failed to appear or file any reply. The Tribunal held that the Corporate Debtor could not claim prejudice from non-hearing when they themselves chose not to participate.

Key Evidence and Findings: Emails evidencing service of hearing notices and the Corporate Debtor's non-appearance were relied upon.

Application of Law to Facts: The Tribunal applied the principle that a party cannot take advantage of its own default or non-participation to claim violation of natural justice.

Treatment of Competing Arguments: The Corporate Debtor's claim of denial of opportunity was rejected in light of their consistent non-appearance despite notice.

Conclusion: No violation of natural justice occurred; the ex-parte admission was justified.

Issue 3: Existence of Pre-Existing Disputes

Relevant Legal Framework and Precedents: The Supreme Court in Mobilox Innovations Pvt Ltd. vs Kirusa Software Pvt Ltd. clarified that the Adjudicating Authority must reject a Section 9 petition if a bona fide pre-existing dispute exists, either by notice of dispute or record in the information utility. However, the dispute must be real and not a feeble or spurious legal argument unsupported by evidence.

Court's Interpretation and Reasoning: The Corporate Debtor contended a dispute existed regarding defective goods supplied (letter dated 05.07.2018) and payments made to a subcontractor (Clever Knit) which allegedly extinguished the debt claimed by the Operational Creditor. The Tribunal examined the evidence and found no credible material substantiating the alleged defective goods dispute as no debit note was issued, no sustained correspondence existed, and payments continued after the alleged dispute. The Tribunal also found no communication authorizing payments to Clever Knit by the Operational Creditor or any dispute raised by the Corporate Debtor prior to the demand notice or petition filing. The ledger showed outstanding dues matching the Operational Creditor's claim.

Key Evidence and Findings: The letter dated 05.07.2018, ledger accounts, absence of debit notes or correspondence, payments made post-dispute, and lack of documentary evidence of authorization for payments to Clever Knit were critical.

Application of Law to Facts: The Tribunal applied the Mobilox test, concluding that the purported dispute was a "moonshine defence," lacking credible foundation and not sufficient to bar admission of the Section 9 petition.

Treatment of Competing Arguments: The Tribunal rejected the Corporate Debtor's argument that the dispute was genuine and that the debt was not crystallized due to pending MSME claims by Clever Knit, holding such claims irrelevant to the present petition.

Conclusion: No real or bona fide pre-existing dispute existed; the Section 9 petition was rightly admitted.

Issue 4: Allegation of Malafide Intent and Misuse of Insolvency Process

Relevant Legal Framework: The IBC aims at insolvency resolution and not recovery proceedings; misuse of the process can vitiate admission.

Court's Interpretation and Reasoning: The Tribunal found no evidence that the Operational Creditor filed the Section 9 petition with malafide intent. The debt was due and payable, and the petition was filed following statutory procedure. The absence of any credible dispute and the Corporate Debtor's failure to respond supported the genuineness of the petition.

Conclusion: The petition was not filed with malafide intent; the insolvency process was rightly invoked.

3. SIGNIFICANT HOLDINGS

"The Operational Creditor had met with the requirements prescribed by the statutory construct of IBC by having served the demand notice on the registered email address of the Corporate Debtor after the earlier delivery of the said notice by post had been unsuccessful."

"The Corporate Debtor was therefore clearly bound by the representation made by them to the world at large about their registered email address having placed the same on the public domain."

"The Appellant cannot be seen to take advantage of their own misdoing of not presenting themselves before the Adjudicating Authority on the dates fixed for hearing."

"So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."

"We are of the considered view that the defence taken by the Corporate Debtor of having been supplied with defective goods as the basis of pre-existing disputes is a moonshine defence."

"The Corporate Debtor has defaulted in the payment of operational debt which amount had clearly become due and payable, and further in the absence of any credible and real pre-existing dispute, we find that no error has been committed by the Adjudicating Authority in admitting the application under Section 9 of IBC and putting the Corporate Debtor into CIRP."

These holdings establish the core principles that valid service of the Section 8 notice via registered email suffices, non-appearance cannot be excused to claim violation of natural justice, and only bona fide disputes bar admission of Section 9 petitions. The Tribunal upheld the admission of the Section 9 petition and initiation of CIRP, dismissing the appeal as devoid of merit.

1. Whether the appellant was liable to pay service tax under the Rent-a-cab scheme operator services and Manpower Recruitment or Supply Agency Service (MRSAS) despite their contention of exemption.

2. Whether the appellant was obligated to include the Rent-a-cab scheme operator service in their ST-2 registration form and the implications of non-inclusion.

3. The applicability and correctness of abatements under Notification Nos. 1/2006-ST, 26/2012-ST, and 30/2012-ST to the appellant's service tax liability.

4. The correctness of the demand of service tax on the entire value of services versus the appellant's contention that only 25% of the service tax was payable by them, with the balance 75% to be discharged by the service recipient.

5. The appellant's claim of exemption from service tax on services provided to Educational Institutions run as Charitable Trusts, and the effect of the introduction of negative list services effective 01.07.2012.

6. The applicability of the cum-duty basis for calculating service tax liability when the appellant had collected service tax from clients but allegedly did not deposit the same with the exchequer.

7. Whether the adjudicating and appellate authorities properly considered the appellant's defenses and statutory benefits such as abatements and cum-duty benefits during adjudication.

Issue-wise Detailed Analysis

Issue 1 & 2: Liability under Rent-a-cab Scheme Operator Services and MRSAS and Registration Requirements

The Revenue initiated investigation on suspicion that the appellant was providing Rent-a-cab scheme operator services without declaring the same in their ST-2 registration form and was collecting service tax but not remitting it. The summons issued to the appellant were initially not complied with, prompting further inquiry including cross-verification with Income Tax returns and Profit & Loss accounts. The Revenue concluded that the appellant was engaged in providing Rent-a-cab services in specific regions and manpower supply services to factories and educational institutions.

The legal framework governing service tax liability includes the Finance Act, 1994, and relevant notifications granting abatements or exemptions. The appellant's failure to include the Rent-a-cab service in the registration form was a procedural lapse but the primary question was whether the service tax was due on such services.

The Court observed that the appellant's statements and documents confirmed the provision of taxable services under Rent-a-cab and MRSAS categories. Thus, the appellant was liable to pay service tax on these services unless exempted or abated under law.

Issue 3 & 4: Applicability of Abatements and Split Liability under Notification 30/2012-ST

The appellant contended that they were entitled to avail abatements under Notifications 1/2006-ST, 26/2012-ST, and 30/2012-ST, which provide for reduced taxable value for Rent-a-cab services and other specified services. Specifically, Notification 30/2012-ST granted an abatement allowing service tax to be paid only on 10% of the value of Rent-a-cab services, exempting the balance 90%. For Manpower Supply Services, the appellant argued that only 25% of the service tax liability was payable by the service provider, with the balance 75% payable by the service recipient, as per statutory provisions.

The appellant relied on Supreme Court precedents, including the decision in State of Uttar Pradesh Vs Singha Singh & Ors., to support the contention that the demand should be proportionate and in accordance with statutory apportionment.

The adjudicating authority and first appellate authority, however, confirmed the demand on the entire value without proper consideration of these abatements and split liability provisions. The Tribunal found that these statutory benefits are mandatory and must be extended to the appellant if eligible, irrespective of whether a separate claim is made.

Issue 5: Exemption Claim for Services to Educational Institutions and Effect of Negative List

The appellant asserted a bona fide belief that services provided to Educational Institutions run as Charitable Trusts without profit motive were exempt from service tax, based on information from the institutions and the negative list introduced effective 01.07.2012. They relied on the Supreme Court decision in Uniworth Textiles Limited Vs CCE, which dealt with exemption claims in the context of charitable institutions.

The Tribunal noted that the adjudicating and appellate authorities did not address this exemption claim or the impact of the negative list on the appellant's liability. This omission was a significant procedural lapse, as the appellant's contention directly challenged the fundamental basis of the tax demand.

Issue 6: Cum-duty Basis for Service Tax Calculation

The appellant contended that since they had collected service tax from their customers but allegedly did not deposit the same with the exchequer, the demand should be calculated on a cum-duty basis under Section 67 of the Finance Act, 1994. This provision requires that when service tax is collected but not paid, the liability must be computed on the gross amount inclusive of the tax component.

Neither the adjudicating authority nor the first appellate authority discussed or applied this principle in their orders. The Tribunal emphasized that such statutory provisions must be considered during adjudication to ensure correct computation of tax liability.

Issue 7: Procedural Fairness and Consideration of Defenses

The Tribunal found that the adjudicating authority and the first appellate authority failed to consider the appellant's detailed replies and defenses raised in response to the Show Cause Notice, including the applicability of abatements, exemption claims, split liability, and cum-duty basis. The first appellate authority assumed that the appellant did not dispute the service tax liability except for abatement issues and thus did not examine other grounds.

This approach was found to be legally unsustainable as it denied the appellant a fair opportunity to have all their contentions adjudicated upon. The Tribunal held that the statutory authorities have a duty to extend all applicable statutory benefits to the assessee and to pass speaking orders addressing all relevant issues.

Conclusions and Directions

Given the procedural lapses and incomplete adjudication of the appellant's defenses and statutory benefits, the Tribunal set aside the orders of the adjudicating and first appellate authorities and remanded the matter for de novo adjudication. The Adjudicating Authority was directed to afford the appellant reasonable opportunity of hearing, consider all contentions including abatements, exemption claims, split liability, and cum-duty basis, and pass a speaking order within 60 days.

All contentions of both parties were left open for fresh consideration. The appellant was also directed to cooperate with the adjudication process.

Significant Holdings

"The question of abatements and cum-duty benefits are the statutory benefits which should be made available to an assessee when the assessee is otherwise eligible for the same and for this, there may not be any separate claims by assessee since it is the duty of the statutory authorities to extend all such statutory benefits to the assesses."

"The Commissioner (Appeals) has assumed that the Appellant did not dispute the service tax liability and that the only dispute was the split--up demand in terms of Notification No.30/2012 with regard to abatement. Apart from this, unfortunately, the First Appellate Authority has not discussed anything about the merits since, according to him, no other grounds was urged before him. Reply filed by the appellant to the SCN before the Original Authority has been conveniently ignored by both the authorities."

"The matter is remanded to the file of Adjudicating Authority who shall afford reasonable opportunities of being heard to the appellant and then pass speaking order as per law."

• Whether service tax is payable on advances received for booking of flats and commercial property under "Construction of Residential Complex" service, particularly concerning projects completed or partially completed before the taxability date of 01.07.2010.
• Whether service tax is payable on "Job Receipts" for construction services provided to a cooperative housing society, considering the timing of completion of the underlying work and the applicability of Works Contract Service classification.
• Whether there was short payment of service tax on rent received under the "Renting of Immovable Property" service head.
• Whether service tax is payable on forfeited guest house booking amounts, and if so, under which service category-"Business Auxiliary Service" or "Mandap keeper service"-and the permissibility of changing the category post issuance of show cause notice (SCN).
• Whether commission received for mutual fund transactions qualifies for exemption under the relevant Exemption Notification as services rendered in the capacity of a mutual fund agent, and the relevance of AMFI/ARN registration numbers.
• Whether service tax is payable on legal expenses under the reverse charge mechanism, particularly when payments are made to non-advocate professionals such as architects and company secretaries.
• The burden of proof regarding taxability and the evidentiary requirements for confirming service tax demands.

Issue 1: Service Tax on Advances for Construction of Residential Complex

The legal framework involves the Finance Act, 1994, specifically Section 65(105)(zzq) and (zzzh) as amended w.e.f. 01.07.2010, which introduced the taxable service of "Construction of Residential Complex" to prospective buyers. Prior to this date, such construction services were not taxable. The Tribunal analyzed whether tax is payable on the entire amount received from buyers or only on the portion attributable to construction completed after 01.07.2010.

The Court interpreted the Explanation to Section 65(105) to mean that only ongoing construction services after the effective date attract service tax. Completed projects before 01.07.2010 are not subject to service tax, as the transaction in such cases amounts to sale of immovable property, which is outside the service tax net. The Tribunal found the Revenue's argument-that tax is payable on the entire receipt regardless of completion status-lacking in cogent reasoning.

The Appellant's reconciliation statement, supported by "Completion Certificates" for various projects, was accepted as sufficient proof of the degree of project completion. The Tribunal noted that even if the reconciliation was somewhat complex, the Adjudicating Authority should have sought clarification rather than dismissing it outright. Consequently, the demand of Rs.92,74,325/- on this issue was set aside.

Issue 2: Service Tax on Construction Services Provided to Cooperative Housing Society

This issue involved demands on amounts received from M/s Jaypee Cooperative Group Housing Society Ltd. The Appellant contended these receipts were for Works Contract Services, supported by agreements and WCT deduction certificates, and that service tax had been paid on amounts received in 2013-14. The Tribunal relied on CBIC Circular No. B1/16/2007/TRU to classify the activity as Works Contract Service, which includes supply of materials.

The Tribunal accepted the Appellant's evidence of service tax payments by Challans and rejected the Adjudicating Authority's contention that non-reporting in ST-3 Returns invalidated such payments. Regarding the large sum received in 2011-12, the Appellant demonstrated through correspondence, certificates from the Delhi Development Authority, and accounting standards (AS-9) that the work was completed in 2004-05, a period when Works Contract Services were not taxable. The Tribunal found the Revenue's reliance on the Adjudicating Authority's skepticism misplaced, holding that the amount related to pre-taxable period work and was not liable to service tax. Thus, the demand of Rs.1,15,04,184/- was set aside.

Issue 3: Short Payment of Service Tax on Rent Received

The Adjudicating Authority confirmed a demand of Rs.2,19,092/- based on discrepancies between rent shown in the Balance Sheet and ST-3 Returns. The Appellant did not contest this issue or provide any explanation. The Tribunal upheld the demand due to lack of submissions or evidence to the contrary.

Issue 4: Service Tax on Forfeited Guest House Booking Amounts

The Revenue initially proposed demand under "Business Auxiliary Service" (BAS) but confirmed it under "Mandap keeper service" in the impugned order. The Appellant argued that confirming demand under a different service category than that mentioned in the SCN violates principles of natural justice and is impermissible, relying on Tribunal precedents.

The Tribunal agreed, holding that a demand cannot be shifted to a different service category post issuance of SCN. This procedural impropriety rendered the demand unsustainable, and the demand of Rs.2,25,000/- was set aside.

Issue 5: Service Tax on Commission from Mutual Fund Transactions

The Appellant claimed exemption under Clause 29(c) of Exemption Notification No.25/2012-ST, which exempts services by mutual fund agents to mutual funds or asset management companies. The Adjudicating Authority denied exemption on the ground that the payer was not a mutual fund or asset management company and the Appellant had not provided AMFI/ARN registration numbers.

The Tribunal emphasized the principle of strict interpretation of taxing statutes and exemption notifications, citing the Supreme Court's ruling that courts cannot read additional conditions into exemption notifications. Since the notification did not require AMFI/ARN numbers, the Department's denial on this basis was unsustainable.

The Tribunal found that the Appellant acted in the capacity of a mutual fund agent to an asset management company and was entitled to exemption. The demand of Rs.49,99,430/- under BAS was set aside accordingly.

Issue 6: Service Tax on Legal Expenses under Reverse Charge Mechanism (RCM)

The Adjudicating Authority confirmed a demand of Rs.17,31,752/- on the premise that legal expenses recorded in the ledger referred to payments to advocates or law firms, attracting RCM. The Appellant contended these expenses related to water tax, architects, company secretaries, and chartered accountants, none of whom fall under taxable legal services under RCM as per Notification No.30/2012.

The Tribunal examined ledger accounts submitted by the Appellant and found them consistent with the Appellant's claim. The absence of payments to advocates or law firms meant the RCM did not apply. The demand was therefore set aside.

Issue 7: Burden of Proof Regarding Taxability

The Tribunal highlighted a significant legal principle concerning the burden of proof. It noted that the Finance Act, 1994 does not shift the burden of proving taxability onto the taxpayer. Instead, the Revenue must establish that a transaction falls within taxable services, especially before the Negative List regime when only specifically enumerated services were taxable.

The Tribunal invoked Sections 101 and 103 of the Evidence Act, 1872 (and corresponding provisions of the Bhartiya Sakhshya Adhiniyam, 2024) to affirm that the burden of proof lies with the Revenue. The impugned order's reliance on the Appellant's alleged failure to produce evidence to disprove taxability was therefore erroneous.

Since the Revenue failed to discharge this burden with documentary evidence, all demands based solely on unsubstantiated allegations and lack of evidence were set aside.

Significant Holdings:

"Since the service of construction to prospective buyers only becomes taxable after 01.07.2010, then it stands to reason that only the portion of construction completed after such date would become taxable under service tax regime."

"Mere depositing of service tax by Challan and not reporting in ST-3 Returns is not sufficient" is rejected; actual payment by Challan is valid evidence of discharge of tax liability.

"When an allegation of taxability has been made in the SCN under one head, the same cannot be classified under a different head in the impugned Order."

"A taxing statute and corresponding notification is to be interpreted literally and strictly. To do so we have to read into the section many more words than it contains at present which is wholly impermissible in construing any provision much less a taxing provision."

"The burden of proving that a particular transaction falls under the taxable service is on the Revenue."

The Tribunal ultimately concluded that demands confirmed on the basis of incomplete or misconstrued evidence, incorrect interpretation of the taxability period, procedural improprieties in changing service categories post SCN, and misapplication of reverse charge provisions were unsustainable. Consequently, all such demands and penalties were set aside, while the uncontested demand on rent short payment was upheld.