TMI Tax Updates e-Newsletter
May 14,2025

The core legal questions considered by the Court include:

- Whether the Petitioner's belated filing of Goods and Services Tax (GST) returns beyond the prescribed deadline under Section 16(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) precludes the availment of Input Tax Credit (ITC) claimed by the Petitioner.

- The legal consequences of non-filing or delayed filing of GST returns on the entitlement to ITC and the validity of the demand raised by the tax authorities under Sections 16(4), 16(5), 16(6), 50, 73 of the CGST Act and corresponding provisions of the Integrated Goods and Services Tax Act, 2017 (IGST Act) and State GST Act (SGST Act).

- Whether the Petitioner's failure to respond to the Show Cause Notice (SCN) and participate in the personal hearings affects the validity of the impugned order.

- The scope of appellate remedy available under Section 107 of the CGST Act for challenging the impugned order and the procedural safeguards to be afforded to the Petitioner in the appeal process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Effect of Belated Filing of GST Returns on ITC Availment

The relevant legal framework comprises Sections 16(4), 16(5), and 16(6) of the CGST Act, 2017, which govern the conditions and timelines for availing ITC. Section 16(5) specifically mandates that ITC shall not be available if the return relating to the said credit is not filed within the prescribed period.

The Court noted that the Petitioner filed the returns on 14th December 2021, whereas the deadline was 30th November 2021. This delay of 14 days led the Assistant Commissioner to conclude that the ITC claimed by the Petitioner amounting to Rs. 70,45,630/- was not admissible, resulting in a demand under Section 73 of the CGST Act for recovery of the ITC along with interest under Section 50 and penalty under Section 73(9).

The Court observed that the question of whether the delay was excusable and whether the Petitioner had taken any steps to cure the deficiency (such as responding to the deficiency memo) are factual matters that fall within the jurisdiction of the Appellate Authority. The Court refrained from adjudicating on the merits of the delay, emphasizing that the factual matrix and evidence must be examined during the appeal.

Issue 2: Validity of the Impugned Order in Light of Non-Participation by the Petitioner

The Petitioner did not file any reply to the SCN nor appeared for personal hearings, which led to the passing of the impugned order. The Court acknowledged this lapse but did not treat it as a bar to the Petitioner's right to appeal. Instead, the Court highlighted that the impugned order is appealable under Section 107 of the CGST Act.

The Court permitted the Petitioner to avail the appellate remedy and to file all relevant documents and evidence in support of its case before the Appellate Authority. It recognized that the absence of a reply at the SCN stage had resulted in no documents being on record but emphasized that the appeal process would provide an opportunity for the Petitioner to present its case comprehensively.

Issue 3: Procedural Safeguards and Appellate Remedy

The Court underscored the procedural safeguards inherent in the CGST Act by directing that the appeal be entertained on merits and not be dismissed on the ground of limitation. It mandated that the appeal be filed within 45 days along with the pre-deposit as required under the statute.

This direction ensures that the Petitioner's substantive rights are protected and that the Appellate Authority undertakes a full-fledged consideration of the facts and law, including any mitigating circumstances for the delay in filing returns.

3. SIGNIFICANT HOLDINGS

The Court held that the issue of denial of ITC on account of delayed filing of returns is essentially a factual determination to be examined by the Appellate Authority. The Court stated:

"The question as to what is the effect of nonfiling of returns within the prescribed period and whether there was a lapse on the Petitioner in even curing the deficiencies which were pointed out by the deficiency memo etc., would be factual aspects, which would have to be appreciated by the Appellate Authority."

Further, the Court preserved the Petitioner's right to appeal and emphasized the importance of procedural fairness by directing:

"The Appellate Authority shall consider the matter on merits itself and not dismiss it on the ground of limitation."

Core principles established include:

• The statutory bar on ITC availment due to delayed filing of returns under Section 16(5) is subject to factual inquiry and is not to be mechanically applied without considering the circumstances and evidence.
• Non-participation in SCN proceedings does not preclude the Petitioner from seeking appellate remedy.
• The appellate process under Section 107 of the CGST Act provides an effective forum for adjudication of disputes arising from tax demands, with the requirement of pre-deposit and adherence to limitation periods, but with a mandate for merits-based consideration.

Final determinations on each issue are:

• The Court did not quash the impugned order but allowed the Petitioner to file an appeal within 45 days with pre-deposit.
• The Petitioner was granted an opportunity to submit documents and evidence in the appeal to support the case for condonation of delay and entitlement to ITC.
• The Appellate Authority was directed to consider the appeal on merits and not reject it on procedural grounds such as limitation.

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

• Whether the seizure of goods (cash, gold, and silver) by the Railway Protection Force (RPF) without issuance of seizure memos or show cause notices to the Petitioners was lawful and in accordance with statutory procedure.
• Whether the Petitioners are entitled to the release of the seized goods pending investigation and adjudication by the relevant authorities, namely the Directorate of GST Intelligence (GST Department) and the Income Tax Department.
• The procedural rights of the Petitioners under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Income Tax Act concerning the seized goods.
• The scope of the Court's intervention in ongoing investigations and proceedings by statutory authorities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of the seizure of goods without issuance of seizure memos or show cause notices

Relevant legal framework and precedents: The seizure of goods under the CGST Act and allied statutes is governed by procedural safeguards including issuance of seizure memos and show cause notices to the affected parties. Section 129 of the CGST Act provides for detention, seizure, and release of goods and conveyances in transit. The procedural fairness mandates that the person whose goods are seized be informed promptly through seizure memos and given an opportunity to respond through show cause notices.

Court's interpretation and reasoning: The Court noted that the Petitioners alleged that no seizure memos or show cause notices were issued at the time of seizure. However, the record indicated that summons were issued subsequently under Section 70 of the CGST Act and statements were recorded from the Petitioners' agent and the Petitioners themselves. The Court did not undertake a final determination on the legality of the initial seizure procedure but observed that the investigation was ongoing and procedural steps were being followed thereafter.

Key evidence and findings: The seizure occurred on 5th/6th September 2024 by the RPF at New Delhi Railway Station. The goods seized included cash amounting to Rs. 85,72,360/-, gold bars weighing 498 grams valued at approximately Rs. 36,70,260/-, and silver ornaments/bricks weighing 365.704 Kg valued at approximately Rs. 27,95,69,995/-. No seizure memos or show cause notices were initially issued to the Petitioners, but summons and statements were recorded later.

Application of law to facts: While the initial procedural lapse was noted, the Court emphasized the continuation of statutory investigation and the issuance of summons, which indicated procedural compliance at subsequent stages. The Court refrained from adjudicating on the merits of the seizure at this stage.

Treatment of competing arguments: The Petitioners argued for immediate release of goods citing illegal seizure without due process. The Respondents contended that investigation was ongoing and procedural steps post-seizure were being followed. The Court balanced these by allowing the investigation to continue while safeguarding the Petitioners' rights to notice and opportunity to seek release.

Conclusions: The Court did not quash the seizure but directed that the Petitioners be given notice of any proceedings and be allowed to seek release of goods in accordance with law.

Issue 2: Entitlement to release of seized goods pending investigation and adjudication

Relevant legal framework and precedents: Section 129 of the CGST Act allows for release of detained or seized goods on payment of applicable tax, interest, and penalty, subject to conditions. Section 67 of the CGST Act pertains to search and seizure proceedings. The Income Tax Act also provides for attachment and release of seized property in investigations. The principles of natural justice and statutory safeguards require that goods not be disposed of arbitrarily during pendency of proceedings.

Court's interpretation and reasoning: The Court recognized that the GST and Income Tax Departments were conducting investigations and had taken custody of different parts of the seized goods. The Court directed that the Petitioners be given notice of any proceedings by these Departments and be allowed to approach them for release of goods under the relevant statutory provisions.

Key evidence and findings: The goods were physically in possession of the GST Department (silver items) and the Income Tax Department (gold and cash). The investigation was ongoing with statements recorded and summons issued.

Application of law to facts: The Court applied the statutory provisions governing release of seized goods and emphasized that the Petitioners' right to seek release should be respected. The Departments were restrained from disposing of the goods until completion of investigation and adjudication.

Treatment of competing arguments: The Petitioners sought immediate release or interim custody of goods. The Departments requested continuation of investigation and retention of goods. The Court balanced these interests by allowing investigation to proceed while ensuring Petitioners' procedural rights and providing a mechanism for release applications.

Conclusions: The Court directed that any application for release be considered and disposed of within three months and that goods not be disposed of until proceedings are complete.

Issue 3: Scope of Court's intervention in ongoing investigations by statutory authorities

Relevant legal framework and precedents: Courts generally exercise caution in interfering with ongoing investigations by statutory authorities, respecting the autonomy and expertise of such agencies. Judicial intervention is limited to ensuring procedural fairness and protection of fundamental rights.

Court's interpretation and reasoning: The Court explicitly stated that it had not examined the merits of the matter and refrained from interfering with the ongoing investigations. The Court's role was limited to ensuring that the Petitioners receive due notice and opportunity to be heard and that statutory procedures are followed.

Key evidence and findings: The record showed active investigations by the GST and Income Tax Departments with summons and statements recorded.

Application of law to facts: The Court's directions ensured procedural safeguards without prejudging the outcome of investigations or adjudication.

Treatment of competing arguments: The Petitioners sought judicial intervention for release of goods; the Departments sought continuation of investigation. The Court struck a balance by protecting Petitioners' rights while allowing investigations to proceed.

Conclusions: The Court limited its intervention to procedural directions and declined to decide on substantive issues pending investigation.

3. SIGNIFICANT HOLDINGS

The Court held:

"The Petitioner is accordingly free to approach both the Departments for release of the goods either under Section 129 or under Section 67 of the CGST Act and also under the Income Tax Act. Needless to add, this Court has not examined the merits of the matter."

"Both the Departments shall not dispose of the goods until the proceedings qua the said goods including investigation and adjudication, is completed."

"If any application for release of the goods is made, the same shall be considered and disposed of within a period of three months from the date of filing."

These pronouncements establish the principle that while statutory authorities may retain seized goods during investigation, the affected parties must be given due notice and opportunity to seek release under applicable laws, and that judicial intervention will focus on ensuring procedural fairness rather than adjudicating merits prematurely.

In conclusion, the Court disposed of the petitions with directions safeguarding the procedural rights of the Petitioners and ensuring that investigations and adjudications proceed without undue interference, while also mandating timely consideration of any applications for release of seized goods.

The core legal questions considered by the Court were:

• Whether the bail granted to the respondent by the learned Chief Metropolitan Magistrate (CMM) was rightly granted and could be recalled under Section 439(2) CrPC on the grounds of alleged fraud and misrepresentation by the respondent.
• Whether the previous involvement of the respondent in multiple economic offenses and investigations, including by various departments such as DRI, Customs, and CBI, could be considered as a valid ground to cancel or recall the bail order.
• Whether the failure to disclose or misrepresent the respondent's prior involvement in several inquiries and cases amounted to playing fraud upon the Court, thereby justifying cancellation of bail.
• The extent to which pending inquiries, without formal complaints or prosecutions, can be treated as previous criminal involvement for the purpose of bail considerations.
• The applicability and interpretation of relevant precedents regarding cancellation or recall of bail in cases involving economic offenses and alleged fraud on the Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Bail Granted and Grounds for Recall under Section 439(2) CrPC

The legal framework governing bail and its recall under Section 439(2) CrPC requires that the Court exercise its discretion judiciously, considering the facts and circumstances of the case, including the nature of the offense, the antecedents of the accused, and the possibility of tampering with evidence or fleeing justice.

The Court noted that the learned CMM had granted bail after considering the totality of facts, and no ground was shown that the discretion was exercised arbitrarily or without proper application of mind. The subsequent application for recall of bail was premised on alleged fraud and misrepresentation by the respondent regarding his prior involvement in economic offenses.

The Court observed that the application for recall was dismissed by the learned Additional Sessions Judge (ASJ) on the ground that the prior cases cited by the Department were merely inquiries and not formal complaints or prosecutions. The ASJ further noted that some inquiries dated back to 1993 and 1996, and no complaints had been filed in these matters.

The Court emphasized that the learned ASJ's dismissal was based on the petitioner's own admission that no complaints had been filed in these cases, and thus they could not be treated as previous criminal involvement. This reasoning was crucial in upholding the bail order and rejecting the recall application.

Issue 2: Consideration of Previous Involvement in Multiple Economic Offenses

The Department contended that the respondent was involved in numerous cases of fraud and economic offenses, including investigations by the Directorate of Revenue Intelligence (DRI), Customs, and CBI, and that this fact should have been considered by the trial court while granting bail.

The Court reviewed the detailed list of ten prior inquiries and investigations involving the respondent, spanning from 1993 to 2019, across various departments and cases involving fraudulent claims, illegal telephone exchanges, and duty drawbacks.

However, the Court noted that many of these cases were still at the inquiry stage, with no formal complaints filed. The Court relied on the principle that mere inquiries or investigations without formal charges or complaints do not constitute previous convictions or criminal antecedents that would automatically disqualify a person from bail.

The Court further noted that some cases involved minor procedural offenses under Sections 174 and 175 IPC, relating to non-appearance after summons, and in some instances, the respondent had complied with investigations after protection was granted.

Therefore, the Court concluded that the previous involvement, as claimed by the Department, did not amount to sufficient ground to cancel the bail, especially in the absence of formal complaints or convictions in most cases.

Issue 3: Alleged Fraud or Misrepresentation by the Respondent to Obtain Bail

The Department alleged that the respondent succeeded in obtaining bail by making untrue statements and thereby playing fraud upon the Court, misleading it about his involvement in multiple conspiracies of tax evasion.

The Court examined this contention in light of the submissions and the record. It was noted that the counsel for the petitioner had conceded before the learned ASJ that no complaints had been filed in the prior cases, undermining the claim of fraud or misrepresentation.

Moreover, the Court found no evidence that the respondent had concealed material facts or misled the Court in the bail proceedings. The absence of formal complaints in the prior inquiries was a critical factor in rejecting the fraud allegation.

Thus, the Court held that no fraud or misstatement of facts had been established that would justify recalling the bail order.

Issue 4: Treatment of Pending Inquiries and Non-Filing of Complaints

The Court addressed the legal significance of pending inquiries and the non-filing of complaints in relation to the respondent's previous involvement.

It was held that inquiries and investigations, without formal complaints or charges, do not constitute criminal antecedents for the purpose of bail considerations. The Court underscored that the mere pendency of inquiries cannot be equated with criminal convictions or even formal charges.

This principle was pivotal in the Court's reasoning, as many of the cases cited by the Department were still at the inquiry stage, some dating back decades, with no complaints filed to date.

Issue 5: Reliance on Precedents Regarding Cancellation of Bail

The Department relied on several precedents to argue for cancellation of bail, including judgments that emphasize the seriousness of economic offenses and the need to prevent accused persons from misusing the bail process.

The Court considered these precedents but distinguished the present case on facts, noting that the learned CMM and ASJ had exercised their discretion judiciously and that the factual matrix, including the absence of formal complaints and the nature of prior involvement, did not warrant cancellation.

The Court also observed that the learned ASJ had duly considered the previous involvement and found the Department's claims insufficient to disturb the bail order.

3. SIGNIFICANT HOLDINGS

"There is no ground shown that the discretion has not been exercised judiciously."

"Some of the prosecutions claimed by the Department are under 174, 175 IPC for not appearing before pursuant to the service of summons. Furthermore, no Complaint has been filed till date and there is no ground made out for recall of the Bail order."

"Mere inquiries or investigations without formal complaints or prosecutions cannot be considered as previous involvement of the respondent for the purpose of bail."

"No fraud or misstatement of facts which warrants recall of bail Order has been established."

The Court affirmed the principle that bail is a rule and jail is an exception, and that the mere pendency of inquiries or investigations does not justify interference with bail unless there is clear evidence of abuse of process or risk of tampering with evidence or fleeing justice.

Accordingly, the Court dismissed the petition seeking recall of bail, upholding the orders of the learned CMM and ASJ.

The core legal questions considered by the Court are:

(i) Whether the auction sale of the "Fortis" trade mark conducted in enforcement of an arbitral award was valid and should be confirmed, particularly in light of objections raised by the Objector regarding the valuation of the asset;

(ii) Whether the absence of a reserve price and the limited publicity of the auction sale notice affected the fairness and market value discovery of the auction;

(iii) Whether the valuation report relied upon by the Decree Holder (DH) was reliable and independent, particularly concerning the royalty rate used, and whether the Objector's valuation reports are more credible;

(iv) Whether the auction purchaser, Fortis Healthcare Limited (FHL), had a conflict of interest or any disqualification to participate in the auction;

(v) Whether the outstanding license fee arrears claimed by the Objector from FHL should be factored into the auction price or affect confirmation of the sale;

(vi) Whether the auction procedure complied with the legal requirements under the Code of Civil Procedure (CPC), and whether any material irregularity or fraud vitiated the auction;

(vii) The liability for Goods and Services Tax (GST) on the sale of the trade mark and the procedure for transfer of ownership in the trade mark registry following confirmation of sale.

Issue-wise Detailed Analysis

1. Validity and Confirmation of Auction Sale

The Court examined the objections raised by the Objector, who did not oppose the sale per se but challenged the valuation and fairness of the auction. The auction was ordered by the Court in enforcement of an arbitral award, with the trade mark "Fortis" sold by public auction. The Objector contended that the auction price of Rs 200 Crores was substantially undervalued.

The Court noted that the Objector was permitted by the earlier order dated 29.10.2024 to raise objections limited to valuation. The Court emphasized that the auction was a mechanism chosen to resolve the wide disparity in valuation estimates between the parties, and price discovery through auction is a legally recognized method.

There was no direct challenge to FHL's competence to participate in the auction, and the Court held that the participation of FHL was not barred by any order. The Court declined to entertain insinuations about conflict of interest beyond the limited mandate of valuation objections.

The auction was conducted in a complex factual context involving interlocking transactions, charges on the brand, and ongoing litigation between the parties. The Court found no evidence of manipulation or fraud in the auction process and held that the price discovered through auction must be accepted as the fair value of the asset unless material irregularities are proven.

2. Absence of Reserve Price and Publicity of Auction

The Objector argued that no reserve price was fixed, which led to failure in real price discovery, and that the sale notice was published only in local newspapers, limiting participation.

The Court explained that under Order 21 Rule 77 of the CPC, there is no requirement to fix a reserve price for sale of movable property, unlike immovable property. The absence of a reserve price was intentional to allow price discovery given the divergent valuations.

Regarding publicity, the Court found the asset-a widely known healthcare brand-did not require national newspaper publication to attract bidders. The lack of other bidders was attributed to the encumbrances and ongoing disputes surrounding the brand, not to inadequate publicity. The Court rejected the assumption that wider publicity would have resulted in higher bids.

3. Reliability and Independence of Valuation Reports

The DH's valuation report valued the brand at Rs 191.5 Crores based on a royalty rate of 0.25% of net revenue, derived from a license agreement that had expired in 2021. The Objector challenged the use of this expired license and questioned the independence of the valuer, alleging the valuation was based on a restrictive mandate from the DH.

The Objector produced two other valuation reports, one by KPMG (2017) valuing the brand at Rs 650-750 Crores and another by Transique Valuation Advisers (2022) valuing it between Rs 854-1205 Crores. The Objector argued these reports reflected correct methodologies and better EBITDA performance of FHL, justifying higher valuation.

The Court found both Objector's reports unreliable because they assumed ideal scenarios without accounting for the ongoing disputes and encumbrances that adversely affected the brand's marketability. The 2017 KPMG report predated the disputes and loan encumbrances, and the 2022 report itself acknowledged the litigation impact as a caveat. The Court also noted that the Objector's valuers might lack independence, similar to the DH's valuer, as both parties commissioned their own reports.

The Court concluded that the DH's valuation, while not perfect, was pragmatic and reflective of the distressed circumstances, and the auction was the appropriate mechanism to resolve valuation disputes.

4. Conflict of Interest and Competence of Auction Purchaser

The Objector alleged that FHL had a conflict of interest as it was both the licensee and holder of a charge on the brand, and that it had defaulted on royalty payments. The Objector contended that FHL's acquisition of the brand in auction gave it an unfair advantage.

The Court held that issues of conflict of interest, loan recovery suits, and the impact of acquisition on liabilities are matters for the suit pending between the parties and not for adjudication in these auction confirmation proceedings. The Court emphasized that FHL's participation was not barred and no fraud or manipulation was shown.

5. License Fee Arrears and Their Impact on Auction Price

The Objector claimed outstanding license fees of Rs 622 Crores plus interest and GST from FHL and argued that these arrears should be factored into the valuation or affect confirmation of sale.

The Court observed that the liability was disputed and pending adjudication, making it premature to factor arrears into the auction price. The Court clarified that confirmation of sale does not preclude the Objector from pursuing recovery of arrears in appropriate proceedings.

6. Compliance with Legal Auction Procedure and Material Irregularities

The Court examined the auction procedure under Order 21 Rules 66, 77, 78, and 90 of the CPC. It found that the sale proclamation notice was issued in accordance with the rules, and no material irregularity or fraud was established to vitiate the auction.

The Court reviewed case law relied upon by the Objector and found them distinguishable or inapplicable to the facts. It reiterated the principle that mere inadequacy of price is not a ground to refuse confirmation unless there is evidence of fraud or manipulation. The Court quoted a precedent stating: "what is expected of the judge is not to be a prophet but a pragmatist and merely to make a realistic appraisal of the factors, and, if satisfied that in the given circumstances the bid is acceptable, conclude the sale."

7. GST Liability and Transfer of Trade Mark Ownership

FHL sought directions clarifying GST liability on the sale and transfer of trade mark registration. It contended that under Section 9 of the CGST Act, the Objector as supplier is liable to pay GST but expressed apprehension due to Objector's cancelled GST registration. FHL proposed that the Court appoint an agent to pay GST and facilitate transfer of ownership in the trade mark registry.

The Court disagreed with FHL's reliance on Section 92 of the CGST Act, holding that the trade mark was not in custody of a court-appointed receiver or manager as contemplated under that provision. The Court clarified that the auctioneer is not liable to pay GST and that GST liability remains with the seller or buyer under the GST Act and Rules.

The Court declined to issue directions on GST payment or input tax credit claims at this stage, deeming such directions premature. It directed the parties to comply with applicable GST laws.

Regarding transfer of ownership, the Court held that upon confirmation of sale, FHL becomes the owner with all attendant rights and liabilities, free to seek transfer in the trade mark registry as per law. The Court left open the possibility of future directions to facilitate transfer if required.

Significant Holdings

"Once public auction route was chosen for sale, the price discovered in the said auction, must be assumed to be the fair value of the brand at the time of auction, unless fraught with material irregularities."

"There is no direct and overt challenge to the FHL's competence to participate in the auction... FHL's competence to participate in the auction is no longer a question open to challenge."

"The auction conducted is in accordance with the notice of sale proclamation which was settled in terms of Order 21 Rule 66."

"Mere inadequacy of the price is no reason to not confirm the sale... what is expected of the judge is not to be a prophet but a pragmatist and merely to make a realistic appraisal of the factors, and, if satisfied that in the given circumstances the bid is acceptable, conclude the sale."

"Section 92 of the CGST Act has no applicability in the present case... the auctioneer can't be made liable under Section 92 to pay GST... liability remains that of the seller, or buyer, as the case may be."

"Upon the confirmation of the sale of trade mark Fortis in favor of FHL, it shall become the owner of the trade mark Fortis, with all the attendant rights and liabilities."

The Court concluded that the objections to the valuation and auction were without merit, the auction was conducted fairly and in accordance with law, and the sale of the trade mark Fortis in favour of FHL at Rs 200 Crores was confirmed. Directions regarding GST compliance and trade mark transfer were clarified, with the parties expected to comply with applicable laws and seek further directions if necessary.

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

(a) Whether the Income Tax Department was justified in issuing demand notices under Section 143(1) of the Income Tax Act, 1961, seeking payment of taxes allegedly due for the Financial Years 2008-2009, 2010-2011, 2011-2012, 2012-2013, and 2013-2014, despite the petitioner's claim that tax was deducted at source (TDS) and deposited by the employers for those yearsRs.

(b) Whether the Income Tax Department was correct in refusing to allow credit of TDS amounts deducted and deposited by the petitioner's employers due to the non-reflection of such TDS in Form 26AS (TDS/TRACES) while computing the petitioner's income tax liabilityRs.

(c) What is the legal obligation of the employer (deductor) regarding deduction and deposit of TDS, and the consequent entitlement of the deductee (assessee) to claim credit for such TDS in the computation of income taxRs.

(d) Whether the petitioner is liable to pay the tax demanded again when evidence of TDS deduction and deposit is produced, albeit not reflected in Form 26ASRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of demand notices and refusal to allow TDS credit due to non-reflection in Form 26AS

Relevant legal framework and precedents: Section 143(1) of the Income Tax Act empowers the Income Tax Department to issue demand notices for any shortfall in tax payments. Section 205 of the Act mandates that the person deducting tax at source must deposit the amount with the Central Government. The deductee is entitled to credit for TDS only if the tax has been properly deposited and reflected against the PAN in Form 26AS. The law is well settled that the responsibility to deposit TDS lies with the deductor, and the deductee cannot be compelled to pay tax already deducted and deposited.

Precedents relied upon include:

• Assistant Commissioner of Income Tax Circle, Jorhat & Ors. Vs. Om Prakash Gattani [2000(1) GLT 294]
• Pushkar Prabhat Chandra Jain Vs. Union of India & Anr. [(2019) 309 CurTR 2018 : (2019) 262 Taxman 118]
• Incredible Unique Buildcon Private Limited Vs. Office of the Income Tax Officer Ward (12)(1) New Delhi [CM Appl. No. 50728/2023 & Review Pet. No.26/2023 in WP(C) 7797/2023, decided on 03.10.2023 by the High Court of Delhi]

Court's interpretation and reasoning: The Court acknowledged that the Income Tax Department's issuance of demand notices was premised on the non-reflection of TDS in Form 26AS, which is the standard evidence of tax deposit for the deductee. However, the Court emphasized that the fundamental obligation to deposit TDS rests with the deductor (employer). The deductee's entitlement to credit arises once the tax is deducted and deposited by the employer, irrespective of the technical non-reflection in Form 26AS.

Key evidence and findings: The petitioner produced Form 16AS, certificates of deduction from the employers (Gauhati High Court and Lokayukta, Assam), and affidavits from the Registrar General of the Gauhati High Court and the Registrar-cum-Secretary of the Lokayukta, Assam. These affidavits confirmed that TDS was deducted from the petitioner's salary/pay and deposited with the Central Government through respective treasury offices for the relevant financial years.

Application of law to facts: The Court found that the tax was indeed deducted and deposited by the petitioner's employers, satisfying the conditions under Section 205 of the Income Tax Act. The failure of the employers to ensure reflection of such deposits in Form 26AS was a procedural lapse that should not prejudice the petitioner.

Treatment of competing arguments: The Income Tax Department contended that the onus was on the petitioner to produce evidence of deposit and that credit could only be given if the TDS was reflected in Form 26AS. The Court rejected this narrow approach, holding that the Department's refusal to allow credit solely on the ground of non-reflection in Form 26AS was unreasonable. The Court observed that the Department could coordinate with the employers to rectify the non-reflection issue.

Conclusions: The demand notices issued under Section 143(1) were not sustainable. The petitioner was entitled to credit for the TDS deducted and deposited by his employers, notwithstanding the non-reflection in Form 26AS. The Income Tax Department was directed to allow credit of the demanded amounts in computing the petitioner's income tax for the respective financial years.

Issue (c): Legal obligations of the employer and entitlement of the deductee

Relevant legal framework: Section 205 of the Income Tax Act mandates that the person responsible for deduction of tax at source must deposit the amount with the Central Government. The deductee's entitlement to TDS credit depends on the deductor's compliance with this obligation.

Court's interpretation and reasoning: The Court reiterated that the deductor's responsibility is not only to deduct TDS but also to deposit it timely and correctly against the deductee's PAN. The deductee cannot be compelled to pay tax twice where the TDS has been legitimately deducted and deposited. The Court emphasized that the failure of the deductor to ensure proper reflection in Form 26AS does not extinguish the deductee's right to credit.

Key evidence and findings: The affidavits and documentary evidence filed by the petitioner's employers established compliance with the deduction and deposit obligations. The Court relied on these to affirm the petitioner's entitlement.

Application of law to facts: The employers' compliance with deduction and deposit obligations discharged the petitioner's tax liability for the amounts deducted. The Income Tax Department's demand notices were therefore unjustified.

Treatment of competing arguments: The Department's argument that non-reflection in Form 26AS negated the petitioner's claim was rejected as it ignored the substantive compliance by the employers.

Conclusions: The Court held that the deductor's responsibility to deposit TDS is paramount, and the deductee's entitlement to credit arises from such deposit. The petitioner's tax liability was discharged by the employers' actions.

Issue (d): Liability to pay tax demanded again despite evidence of TDS deduction and deposit

Court's reasoning and conclusions: The Court held that the petitioner cannot be forced to pay the tax again where the TDS has already been deducted and deposited by the employers. The demand notices seeking payment of the same amounts were quashed. The Court directed the Income Tax Department to allow credit of the deducted and deposited amounts forthwith.

3. SIGNIFICANT HOLDINGS

The Court held:

"The action of the Income Tax Department of raising demand against the petitioner vide demand notices issued under Section 143 (1) of the Income Tax Act pertaining to the different Financial Years starting from 2008-2009, 2010-2011, 2011-2012, 2012-2013 and 2013-14 is not sustainable and the action of the respondent Income Tax Department of not allowing credit of the demanded amount in computing the income tax of the petitioner for the aforesaid Financial Years is also unreasonable and cannot be sustained."

"The responsibility to deposit the amount deducted at the source as tax is of the person who is responsible to deduct the tax at source. It is also the responsibility of the person who has deducted the tax at source to deposit the same with the Central Government. Where the tax is deducted and deposited, as per the provisions of the Income Tax Act, by the person who is responsible for deduction and deposition, the assessee cannot be forced to pay the tax which has already been deducted and deposited."

"Simply because the tax deducted at source by the Gauhati High Court and Lokayukta, Assam is not reflected in the Form 26AS, the respondent Income Tax Department cannot raise demand against the petitioner for the concerned Financial Years or cannot refuse to credit the tax already deducted in computing the income tax of the petitioner for the concerned Financial Years. The defect pointed out by the respondent Income Tax Department of non-reflection of tax deduction in Form 26AS by the employer can very well be cured by the Income Tax Department in consultation with the employers of the petitioner."

The Court set aside the demand notices and directed the Income Tax Department to allow credit of the TDS amounts deducted and deposited by the petitioner's employers for the relevant financial years.

The appeal raises four core legal questions regarding the treatment of unexplained cash credits and expenditures under the Income Tax Act, 1961, specifically Sections 68 and 69C:

A) Whether the Income Tax Appellate Tribunal (ITAT) erred in law by deleting additions totaling approximately Rs. 33.51 crores on account of unexplained cash credit under Section 68 and unexplained expenditure under Section 69C, amounting to Rs. 16,75,665/-;

B) Whether the ITAT was justified in law to delete the addition under Section 68 on the basis that the assessee discharged its onus to prove the identity and creditworthiness of the share subscribers, despite the principle that identity, creditworthiness, or genuineness cannot be established merely by showing transactions through banking channels or account payee instruments;

C) Whether the ITAT was justified in law to delete the addition under Section 68 by relying on the fact that the investing companies are body corporates registered with the Registrar of Companies and individually assessed to income tax, despite this not being the sole test for establishing creditworthiness and genuineness;

D) Whether the ITAT erred in not considering that closely held companies entail an additional onus to prove the source of money in the hands of shareholders or persons making payments towards share issues before accepting such sums as genuine credits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue A: Deletion of additions under Sections 68 and 69C

Legal Framework and Precedents: Section 68 of the Income Tax Act pertains to unexplained cash credits, requiring the assessee to prove the identity, creditworthiness, and genuineness of the transaction. Section 69C relates to unexplained expenditure. The burden lies on the assessee to satisfactorily explain the source and nature of such credits or expenditures. Jurisprudence, including the cited case of M/s BST Infratech Ltd., establishes that mere banking channel evidence is insufficient to discharge this burden.

Court's Interpretation and Reasoning: The Court noted that the revenue did not dispute the applicability of earlier decisions, particularly the judgment in the case of Principal Commissioner of Income Tax vs. Wise Investment Private Limited, which dealt with identical issues. The Court relied heavily on this precedent, which affirmed that the identity and creditworthiness of investors were established, and the genuineness of transactions was upheld after detailed scrutiny by the CIT(A) and the ITAT.

Key Evidence and Findings: The CIT(A) had called for two remand reports, which confirmed the identity and creditworthiness of the investing companies. The CIT(A) also examined the allegation of abnormally high share premium and found it justified based on the company's growth, turnover, inventory holdings, and profitability. The company showed a 39% growth in turnover and a threefold increase in profits between assessment years 2011-12 and 2012-13, with earnings per share increasing significantly.

Application of Law to Facts: The Court accepted the CIT(A)'s detailed findings that the share premium was paid in anticipation of future prospects and that the company was a growing entity with good returns. The assessing officer's doubts were addressed and found to be unsubstantiated. The ITAT's deletion of additions under Section 68 and 69C was thus upheld.

Treatment of Competing Arguments: The revenue's contention that the CIT(A) failed to consider the high share premium was rejected, as the CIT(A) had examined this aspect elaborately. The Court also distinguished the present facts from other decisions that require mere production of incorporation details and PAN numbers, emphasizing the detailed factual inquiry conducted here.

Conclusion: The deletion of additions under Sections 68 and 69C was justified on the facts and in law, as the assessee discharged its burden satisfactorily.

Issues B, C, and D: Onus of Proof Regarding Identity, Creditworthiness, and Genuineness of Transactions

Legal Framework and Precedents: The jurisprudence, including the decision in M/s BST Infratech Ltd., mandates that the assessee must establish the identity, creditworthiness, and genuineness of transactions, especially in cases involving closely held companies where an additional onus exists to prove the source of funds. Merely showing that transactions occurred through banking channels or that investing companies are registered entities assessed to tax is insufficient.

Court's Interpretation and Reasoning: The Court acknowledged these principles but found that the CIT(A) and ITAT had applied them correctly in the present case. The CIT(A) conducted an elaborate examination, including remand reports, to establish these factors. The investing companies' status as body corporates and their tax assessments were considered relevant but not conclusive; however, combined with other evidence, they sufficed to discharge the burden.

Key Evidence and Findings: The CIT(A)'s findings included the growth and profitability of the assessee company, the nature of investments, and the presence of supporting documents spanning over 1000 pages. The assessing officer's observations about personal contacts and persuasion for investments were noted but found insufficient to negate the genuineness of transactions.

Application of Law to Facts: The Court held that the ITAT did not err in law by relying on the totality of evidence to conclude that the assessee had discharged the onus. The additional onus in closely held companies was considered, and the evidence was found adequate to meet this requirement.

Treatment of Competing Arguments: The revenue's reliance on the BST Infratech precedent to argue that the ITAT ignored the additional onus was rejected. The Court found that the CIT(A) and ITAT had duly considered these legal principles and applied them to the facts.

Conclusion: The ITAT's deletion of additions under Section 68 was justified, and the principles regarding identity, creditworthiness, and genuineness were properly applied.

3. SIGNIFICANT HOLDINGS

The Court's key legal reasoning is encapsulated in the operative portion of the precedent judgment relied upon, which was adopted here:

"The short issue which falls for consideration in the instant case is whether three factors which are required to be established by the department at the first instance have been established namely identity of the investors, their creditworthiness and the genuineness of the transaction."

"It has been explained that this premium was paid on account of the anticipated future prospects of the appellant company... The appellant company was obvious showing good returns and was showing good prospects for its investors. It was also a fact growing company."

"The CIT(A) on facts held that the assessee company was showing good returns and were showing good profits for its investors and it is a growing company. Therefore, the submission of the revenue that the allegation that unduly high premium was charged was not examined by the CIT(A) is incorrect."

"The CIT(A) had made an elaborate exercise to examine the facts, called for two remand reports after which finding has been recorded in favour of the assessee."

"Thus, for the above reasons we find that there is no question of law much less substantial question of law arising for consideration in this appeal."

Core principles established include:

• The burden on the revenue to establish identity, creditworthiness, and genuineness of transactions under Section 68 must be met by cogent evidence.
• The identity and creditworthiness of investors cannot be presumed merely from registration or tax assessments; however, such facts form part of the overall evidence.
• High share premium can be justified by anticipated future prospects and demonstrated company growth and profitability.
• In closely held companies, an additional onus exists to prove the source of funds, but this can be discharged by detailed factual inquiry and supporting documentation.
• The ITAT and CIT(A) findings based on comprehensive evidence and remand reports carry significant weight and are not to be lightly disturbed.

Final determinations:

• The additions under Sections 68 and 69C were rightly deleted by the ITAT.
• The assessee discharged the onus of proving identity, creditworthiness, and genuineness of the share subscription transactions.
• No substantial question of law arises warranting interference with the ITAT's order.
• The appeal by the revenue is dismissed accordingly.

The core legal question considered by the Court was whether the Income Tax Appellate Tribunal (Tribunal) was justified in holding the assessment order passed under Section 147 read with Section 144B of the Income Tax Act, 1961 (the Act) as bad in law. Specifically, the question involved the correctness of the issuance of the notice under Section 148 by the Income Tax Officer (ITO), Ward 36(1), Kolkata, and the validity of the subsequent assessment passed by the Faceless Assessing Officer. The issue centered on the interpretation of Section 120 of the Act and the applicability of the CBDT's Instruction No.1/2011, which governs jurisdictional assignments and distribution of work among assessing officers. The revenue contended that the notice was validly issued by the ITO having PAN jurisdiction over the assessee and that the assessment was valid, while the Tribunal held otherwise.

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction and Validity of Notice under Section 148 and Assessment under Section 144B

The legal framework relevant to this issue includes Sections 120, 143(2), 147, 148, and 144B of the Income Tax Act, 1961, alongside CBDT Instruction No.1/2011 and judicial precedents interpreting the mandatory nature of notices under Section 143(2).

Section 120 defines the jurisdiction of assessing officers and the delegation of powers among them. CBDT Instruction No.1/2011 provides guidelines for equitable distribution of work among assessing officers but does not impose rigid jurisdictional constraints.

The Court relied heavily on precedents, particularly the decision in Asst. CIT vs. Hotel Blue Moon, where the Supreme Court held that issuance of notice under Section 143(2) is mandatory and not a mere procedural formality. Failure to issue such notice within the prescribed time renders the assessment invalid and is not curable. Further, the decision in Commissioner of Income Tax vs. Gitsons Engineering Company emphasized that the word "shall" in Section 143(2) imposes a mandatory duty on the assessing officer to issue the notice to ensure proper assessment.

The Court also referred to Section 2(7A) defining "assessing officer" as the officer vested with jurisdiction by virtue of directions under Section 120 or other provisions. The jurisdictional correctness of the officer issuing the notice was a pivotal point.

In the instant case, the Tribunal found that the notice under Section 143(2) was not issued by the assessing officer who had jurisdiction over the assessee within the prescribed time. The revenue could not controvert this factual position. The Tribunal further held that issuance of notice by an officer lacking jurisdiction could not validate the assessment. The Court endorsed this finding, considering the binding nature of the Supreme Court's ruling in Hotel Blue Moon.

The revenue's reliance on Section 292BB, which deems notice to be valid if the assessee has appeared or cooperated in proceedings, was examined. The Tribunal found that Section 292BB was not applicable since the assessee had objected to the validity of the notice under Section 143(2) by a letter dated November 16, 2009, and the assessment year was prior to the effective date of the amendment introducing Section 292BB. The Court agreed with this reasoning, holding that the proviso to Section 292BB did not apply and could not cure the jurisdictional defect.

Additionally, the Tribunal relied on the Allahabad High Court decision in CIT & Another vs. Mukesh Kumar Agarwal, which held that absence of jurisdiction due to non-issuance of valid notice under Section 143(2) invalidates the assessment. The Court found this precedent applicable.

The Court also considered the CBDT Instruction No.1/2011, which was argued by the revenue to support the validity of the notice issued by the ITO having PAN jurisdiction. The Court observed that the Instruction does not fix rigid jurisdiction but only facilitates equitable distribution of workload, and thus cannot override the statutory requirement of jurisdictional notice issuance under Section 143(2).

Application of Law to Facts and Treatment of Competing Arguments

The Court applied the legal principles to the facts, noting that the assessing officer who issued the notice under Section 148 did not have jurisdiction as per Section 120 and the mandatory requirement of Section 143(2) was not complied with. The revenue's contention that the notice was valid due to PAN jurisdiction and CBDT instructions was rejected. The Court found that jurisdictional defect could not be cured by subsequent faceless assessment or by Section 292BB.

The Court also noted that the Tribunal's reliance on the earlier Calcutta High Court decisions, including PCIT vs. Cosmat Traders (P) Ltd., was consistent with the Supreme Court's ruling in Hotel Blue Moon and reinforced the principle that jurisdictional notices must be issued by the proper officer within the prescribed time.

3. SIGNIFICANT HOLDINGS

The Court held that the assessment order passed under Section 147 read with Section 144B was bad in law due to the non-issuance of a valid notice under Section 143(2) by the assessing officer having jurisdiction over the assessee.

It was emphasized that:

"The service of notice under Section 143(2) of the Act within the time limit prescribed is mandatory and it is not a mere procedural requirement."

And further,

"Non-issuance of notice under Section 143(2) is not a procedural irregularity and, therefore, it is not curable."

The Court reaffirmed that jurisdiction under Section 120 and issuance of notice under Section 143(2) are foundational to the validity of any assessment proceeding. The CBDT Instruction No.1/2011 does not confer rigid jurisdiction but serves only for equitable work distribution and cannot override statutory provisions.

The reliance on Section 292BB by the revenue was rejected on the ground that the assessee had objected to the notice and the assessment year predated the amendment introducing Section 292BB. Hence, the proviso to Section 292BB was not attracted.

Consequently, the Court dismissed the appeal filed by the revenue, upholding the Tribunal's order and answering the substantial question of law against the revenue.

• Whether the notice issued under Section 148 of the Income Tax Act, 1961 (the Act) for reopening the assessment for Assessment Year (AY) 2015-16 is valid or barred by limitation.
• Whether the provisions of Section 153C of the Act, which regulate reassessment proceedings consequent to a search under Section 132, apply in the present case given the search was conducted after 31.03.2021.
• The correct method for computing the limitation period for reopening assessments under Section 148, especially in cases involving searches and seizure of documents, and the interplay between Sections 149, 153A, and 153C of the Act.

Issue-wise Detailed Analysis

Issue 1: Validity of the notice under Section 148 for AY 2015-16 - limitation period

Relevant legal framework and precedents: Section 148 of the Act allows reopening of assessments if the Assessing Officer (AO) has reason to believe that income has escaped assessment. However, such reopening is subject to strict limitation periods prescribed under Section 149. The limitation period for issuance of a notice under Section 148 is generally 4 years from the end of the relevant AY, extendable to 6 or 10 years in certain cases involving income escaping assessment exceeding specified amounts or searches/seizures.

Section 153C deals with reassessment proceedings in cases where a search under Section 132 has been conducted. Section 153A and 153C provide extended limitation periods for such cases. However, amendments introduced by the Finance Act, 2021, notably the sunset clause in Section 153C(3), restrict the applicability of Section 153C to searches conducted before 01 April 2021.

Key precedents include the decisions in Dinesh Jindal v. Assistant Commissioner of Income Tax and Principal Commissioner of Income Tax-Central-1 v. Ojjus Medicare Pvt. Ltd., which clarify the computation of limitation periods and the applicability of Sections 153A and 153C post-amendment.

Court's interpretation and reasoning: The Court noted that the impugned notice dated 28.03.2025 was issued to reopen AY 2015-16 assessments, following a search conducted on 02.03.2022. Since the search occurred after 31.03.2021, Section 153C no longer regulates reassessment for such searches. However, the first proviso to Section 149(1) requires examination of limitation periods as they stood before the Finance Act, 2021, to determine if the reopening is sustainable.

The Court relied on the Dinesh Jindal decision, which held that the limitation period for reopening must be computed from the date when the reassessment proceedings are initiated, considering the pre-amendment timeframes under Sections 149, 153A, and 153C. The initiation date is critical, as the limitation clock runs from that date, not the date of search or seizure.

Key evidence and findings: The petitioner filed the return for AY 2015-16 on 28.09.2015 declaring income of Rs. 29,74,570. The search was conducted on 02.03.2022, and the impugned notice was issued on 28.03.2025.

Applying the principles from the precedents, the Court found that the limitation period for reopening AY 2015-16 had expired by the time the notice was issued in 2025.

Application of law to facts: The Court applied the legal framework to the facts, concluding that the reopening notice issued in 2025 for AY 2015-16 was barred by limitation. The extended limitation periods under Sections 153A and 153C were not applicable due to the post-31.03.2021 search date and the statutory sunset clause.

Treatment of competing arguments: The Revenue agreed with the legal proposition that the limitation period had expired. The petitioner contended the notice was beyond limitation, which the Court upheld.

Conclusion: The notice under Section 148 for AY 2015-16 was invalid as it was issued beyond the prescribed limitation period.

Issue 2: Applicability of Section 153C and computation of limitation periods in search cases

Relevant legal framework and precedents: Section 153C allows reassessment of a non-searched person's income if incriminating material is found during a search of a related entity. The limitation period for such reassessment is governed by Section 149 read with Sections 153A and 153C. The Finance Act, 2021 introduced a sunset clause in Section 153C(3), ceasing its applicability for searches after 31.03.2021.

Precedents such as Principal Commissioner of Income Tax-Central-1 v. Ojjus Medicare Pvt. Ltd. and Supreme Court decisions like Jasjit Singh and Vikram Sujitkumar Bhatia clarify that for non-searched persons, the limitation period computation starts from the date of receipt of seized books of accounts by the jurisdictional AO, not the date of search.

Court's interpretation and reasoning: The Court reiterated that the first proviso to Section 149(1) requires consideration of limitation periods as they existed prior to the Finance Act, 2021. The Court emphasized that the limitation period for reassessment in search cases must be computed from the date of receipt of seized documents by the AO, not the date of search.

The Court reproduced a detailed explanation from Ojjus Medicare decision, explaining the computation of six-year and ten-year blocks for limitation purposes. The six-year block relates to the AYs immediately preceding the AY relevant to the previous year of search, while the ten-year block is reckoned from the end of the AY relevant to the year of search.

Key evidence and findings: The search in the present case was conducted on 02.03.2022, post the 31.03.2021 cut-off. The AO issued the notice on 28.03.2025, which relates to AY 2015-16. The Court tabulated the ten-year block ending with AY 2025-26 to demonstrate that AY 2015-16 falls outside the permissible limitation period.

Application of law to facts: Since Section 153C does not apply to searches after 31.03.2021, and the limitation period must be computed from the date of initiation of reassessment proceedings, the reopening for AY 2015-16 is barred by limitation.

Treatment of competing arguments: The Revenue did not dispute this legal position. The petitioner's argument that the notice was barred by limitation was accepted.

Conclusion: Section 153C's limitation period computation principles do not extend to searches after 31.03.2021, and the reopening notice for AY 2015-16 is time-barred.

Significant Holdings

"The First Proviso to Section 149 (1), however, bids us to go back in a point of time, and to examine whether a reopening would sustain bearing in mind the timeframes as they stood embodied in Section 149 (1) (b) or Section 153A and 153C, as the case may be. The First Proviso essentially requires us to undertake that consideration bearing in mind the timeframes which stood specified in Sections 149, 153A and 153C as they stood prior to the commencement of Finance Act, 2021."

"The reckoning of the six AYs' would require one to firstly identify the FY in which the search was undertaken and which would lead to the ascertainment of the AY relevant to the previous year of search. The block of six AYs' would consequently be those which immediately precede the AY relevant to the year of search. In the case of a search assessment undertaken in terms of Section 153C, the solitary distinction would be that the previous year of search would stand substituted by the date or the year in which the books of accounts or documents and assets seized are handed over to the jurisdictional AO as opposed to the year of search which constitutes the basis for an assessment under Section 153A."

"The submission of the respondents, therefore, that the block periods would have to be reckoned with reference to the date of search can neither be countenanced nor accepted."

The Court ultimately held that the impugned notice under Section 148 for AY 2015-16 was barred by limitation and set it aside accordingly.

- Whether the notice issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2014-15 was barred by limitationRs.

- Whether the initial notice issued on 30.06.2021, which was deemed to be a notice under Section 148A(b) of the Act pursuant to the Supreme Court's directions, complied with the procedural and limitation requirements as per the amended statutory regimeRs.

- Whether the subsequent notice under Section 148 issued on 04.11.2022 was valid and within the prescribed time limits set out under Section 149 of the Act, considering the extensions and provisos introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and judicial pronouncementsRs.

- The validity and effect of the exclusion of certain periods from the limitation calculation under the provisos to Section 149(1) of the Act, as interpreted by the Supreme Court in related cases.

2. ISSUE-WISE DETAILED ANALYSIS

Limitation for issuance of notice under Section 148 of the Income Tax Act

The legal framework governing the limitation for issuance of a notice under Section 148 is primarily contained in Section 149 of the Act. The limitation period is six years from the end of the relevant assessment year, subject to extensions and exclusions under various provisos. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended the limitation period for certain AYs, including 2014-15, to 30.06.2021.

In this case, the initial notice under Section 148 was issued on 30.06.2021, the last permissible day under the extended limitation period. However, this notice was issued under the pre-31.03.2021 regime and was thus unsustainable after the introduction of Section 148A, which prescribes a mandatory preliminary procedure before issuance of a notice under Section 148.

Effect of Supreme Court rulings on procedural compliance and limitation

The Court relied extensively on the Supreme Court's decision in Union of India & Ors. v. Ashish Agarwal, which held that notices issued post 31.03.2021 without following the Section 148A procedure should be treated as notices under Section 148A(b). The Supreme Court granted time to the Assessing Officer (AO) to supply the material on which the notice was based, and the period from issuance of the notice till the Supreme Court's decision was to be excluded from the limitation calculation under the fifth proviso to Section 149(1).

Further, the time taken to provide material and the time allowed to the assessee to respond were also to be excluded under the third proviso to Section 149(1). The Court also referred to the decision in Union of India v. Rajeev Bansal, which clarified the application of these provisos.

Application of limitation provisos to the facts

The initial notice dated 30.06.2021 was deemed to be a notice under Section 148A(b) as per the Supreme Court's direction. The AO provided the relevant material on 21.05.2022, and the assessee responded on 06.06.2022. The AO was then required, under the sixth proviso to Section 149(1), to issue the notice under Section 148 within seven days from the date of the assessee's response, i.e., by 13.06.2022.

However, the impugned notice under Section 148 was issued on 23.07.2022, well beyond the seven-day period. The Court found that this issuance was therefore beyond the prescribed limitation period and invalid.

Treatment of competing arguments and precedents

The respondents contended the validity of the impugned notice, presumably relying on the extended limitation period and procedural compliance. However, the Court relied on the binding precedents, including the decision in Ram Balram Buildhome Pvt. Ltd. v. Income Tax Officer, which held that issuance of notice beyond the stipulated period under the provisos to Section 149(1) is invalid.

The Court emphasized that the exclusion periods under the provisos must be strictly adhered to, and the AO's failure to issue the notice within the seven-day window after the assessee's response rendered the notice invalid.

3. SIGNIFICANT HOLDINGS

"Since the initial notice under Section 148 of the Act - subsequently construed as a notice under Section 148A (b) of the Act - was issued on the last date of the limitation; there was no time available for the AO to issue a notice under Section 148 of the Act after the petitioner had furnished its reply to the said notice. Thus in terms of sixth proviso to Section 149 (1) of the Act, the AO had seven days to issue the notice under Section 148 of the Act, which expired on 13.06.2022. The impugned notice was issued on 23.07.2022, which is after the period for issuing such a notice had expired."

The Court established the core principle that the procedural safeguards and limitation periods under the amended reassessment regime, including the exclusions under the provisos to Section 149(1), must be strictly complied with. Any notice issued beyond the prescribed limitation period, including the seven-day window post-assessment of the assessee's response, is invalid.

The final determination was that the impugned notice dated 04.11.2022 was barred by limitation and consequently all proceedings initiated pursuant thereto were set aside.

1. Whether the reassessment notice issued under Sections 147/148 of the Income Tax Act, 1961 for Assessment Year 2009-10 was validly issued within the prescribed limitation period under Section 149 of the Act.

2. Whether the issuance of the notice on 01 April 2016, after the limitation period expired on 31 March 2016, renders the reassessment barred by limitation.

3. Whether the reopening of assessment constituted a mere "change of opinion" by the Assessing Officer (AO), which is impermissible under the law, given that the petitioner had made full and true disclosures during the original assessment proceedings.

4. Whether the AO had independently applied mind in forming the opinion for reassessment or merely acted on the communication received from the Additional Commissioner of Income Tax (ACIT) and the assessment order for AY 2010-11.

5. Whether the four principal issues flagged in the reasons to believe-(a) Permanent Establishment (PE) of Suzuki Motor Corporation (SMC) and consequent TDS liability; (b) treatment of share transactions as business income; (c) disallowance of deductions under Section 35(2AB); and (d) disallowance of warranty provision as contingent liability-were adequately disclosed and examined in the original assessment.

6. Whether subsequent material or information that came to light during assessment of AY 2010-11 justified reopening of the assessment for AY 2009-10.

7. The legal interpretation of the term "issued" in the context of notices under Section 148 and its significance for limitation under Section 149, particularly when notices are generated digitally but dispatched after the limitation period.

Issue-wise Detailed Analysis

1. Validity and Limitation of Reassessment Notice

Legal Framework and Precedents: Sections 147, 148, and 149 of the Income Tax Act, 1961 govern reassessment proceedings and limitation for issuance of notices. The Supreme Court and various High Courts have held that the date of "issuance" of a notice is the date of its despatch and not merely the date of its generation or signing. Key precedents include Suman Jeet Agarwal v. ITO, R. K. Upadhyaya v. CIT, and decisions of the Madras, Gujarat, Madhya Pradesh, and Allahabad High Courts, which uniformly emphasize that mere generation or digital signing of a notice does not amount to issuance unless the notice is duly despatched within the prescribed limitation period.

Court's Interpretation and Reasoning: The Court examined the facts and found that the notice under Section 148 for AY 2009-10 was dispatched on 01 April 2016, after the limitation period expired on 31 March 2016. The Court relied heavily on the detailed exposition in Suman Jeet Agarwal, which clarified that generation or digital signing of a notice before the expiry of limitation is not sufficient; the notice must be despatched within the limitation period to be validly issued.

Key Evidence and Findings: The respondents did not controvert the petitioner's assertion that the notice was dispatched on 01 April 2016. The reasons to believe and the notice itself indicated that the digital signature was affixed on or after 01 April 2016, and the dispatch occurred thereafter.

Application of Law to Facts: Applying the settled legal position, the Court held that the notice was issued beyond the limitation period and was therefore barred by Section 149.

Treatment of Competing Arguments: The Department argued that generation and digital signing on the portal on the last day of limitation sufficed as issuance, but the Court rejected this, finding no legal basis for equating generation with issuance. The Court also distinguished the Department's reliance on a Supreme Court decision under a different statute (Central Excises and Salt Act) which used different language ("no order shall be made") and was thus inapplicable.

Conclusion: The reassessment notice was invalid as it was issued after the expiry of the limitation period prescribed under Section 149 of the Act.

2. Whether Reassessment Constituted a Change of Opinion

Legal Framework and Precedents: The principle that reassessment cannot be based on a mere change of opinion is well established. The Full Bench decision in CIT v. Usha International Ltd. provides a comprehensive framework distinguishing between cases where reassessment is barred due to change of opinion and cases where fresh or new material justifies reopening. Supreme Court decisions such as Indian and Eastern Newspaper Society v. CIT and A. L. A. Firm v. CIT further clarify that reassessment is impermissible if based solely on reappraisal of material already considered.

Court's Interpretation and Reasoning: The Court analyzed the original assessment record, including queries raised under Section 143(2) and 142(1), replies furnished by the petitioner, audit reports, tax audit reports, and transfer pricing documentation. It found that the petitioner had made full and true disclosures on all four issues flagged in the reasons to believe. The AO had examined these issues during the original assessment and had formed an opinion, albeit in favor of the petitioner.

Key Evidence and Findings: The petitioner responded comprehensively to queries about TDS on payments to SMC, share transactions, deductions under Section 35(2AB), and warranty provisions. The assessment order and office notes indicated that these issues were examined. The petitioner also relied on MAP proceedings confirming that SMC had no PE in India.

Application of Law to Facts: Since the AO had considered the relevant facts and formed an opinion during the original assessment, the reassessment based on the same material amounted to a change of opinion, which is impermissible. The Court emphasized that reassessment cannot be initiated merely because the AO or a successor officer disagrees with the earlier conclusion.

Treatment of Competing Arguments: The Department contended that new information came to light during assessment of AY 2010-11, which justified reopening AY 2009-10. However, the Court found no evidence that the new issues constituted fresh or previously undisclosed material facts. The Department failed to show that the disclosures made by the petitioner were false, misleading, or incomplete.

Conclusion: The reassessment was invalid as it was based on a mere change of opinion without any new material justifying reopening.

3. Whether AO Applied Independent Mind in Initiating Reassessment

Legal Framework and Precedents: The AO must independently form a reasoned opinion based on material facts before initiating reassessment. Reliance solely on communications from higher authorities or subsequent assessment orders without independent application of mind is insufficient.

Court's Interpretation and Reasoning: The Court noted that the reasons to believe were primarily based on a letter from the ACIT and the assessment order for AY 2010-11. The AO did not demonstrate any independent examination or evaluation of the material for AY 2009-10. The reasons lacked any analysis showing that the petitioner's disclosures were false or incomplete.

Key Evidence and Findings: The record showed that the AO acted on the ACIT's directive without independently assessing whether fresh material existed or whether the original assessment was flawed.

Application of Law to Facts: The Court held that the absence of independent application of mind by the AO rendered the reassessment invalid.

Conclusion: The reassessment was vitiated by lack of independent satisfaction on the part of the AO.

4. Treatment of the Four Principal Issues Raised in Reasons to Believe

Permanent Establishment and TDS Liability: The petitioner disclosed all related party transactions and TDS details in the original assessment and tax audit reports. MAP proceedings confirmed no PE of SMC in India. The AO was aware of these facts during original assessment.

Share Transactions as Business Income: The petitioner disclosed details of short-term and long-term capital gains, including scrip-wise details, and responded to queries in the original assessment.

Deductions under Section 35(2AB): The petitioner provided statutory auditor certificates, DSIR approvals, and detailed explanations in response to notices during original assessment.

Warranty Provision: The petitioner disclosed warranty provisions in financial statements and notes to accounts, and the issue had been conclusively decided in earlier assessment years.

Conclusion: All four issues were disclosed and examined in the original assessment, and thus could not form a valid basis for reassessment.

5. Principle of Consistency and Facts-Specific Nature of PE Determination

Legal Framework: The principle of res judicata does not apply to income tax assessments as each year is distinct. However, consistency in findings is desirable unless strong reasons exist to deviate. PE determinations are fact-specific and must be made for each assessment year based on prevailing facts.

Court's Reasoning: The Court noted that while previous findings of no PE in certain years are relevant, they do not preclude fresh determination if facts differ. However, no fresh facts were shown here to justify reopening.

Conclusion: The AO failed to show any change in fundamental facts justifying reassessment on the PE issue.

6. Interpretation of "Issued" in the Context of Digital Notices

Legal Framework and Precedents: The Court extensively reviewed judgments holding that "issuance" of a notice requires despatch to the assessee, whether in paper or electronic form, and mere generation or digital signing on the portal is insufficient. The date of despatch or when the electronic record leaves the control of the originator is the date of issuance.

Court's Reasoning: The Court rejected the Department's contention that generation on the portal or digital signing constituted issuance. It relied on authoritative pronouncements from various High Courts and the Supreme Court, as well as Income Tax Business Application instructions distinguishing generation from issuance.

Conclusion: The notice dispatched on 01 April 2016 was issued after the limitation period and thus invalid.

7. Application of Law on Limitation and Reopening Powers

Legal Framework: Section 149 prescribes the limitation for issuance of reassessment notices. The proviso to Section 147 requires failure to make full and true disclosure for reopening beyond four years. The principle of change of opinion bars reopening where the AO had formed an opinion in original assessment.

Court's Reasoning: The Court found that the notice was issued beyond limitation and that full and true disclosure had been made. The AO had formed an opinion in the original assessment. The reopening was therefore barred.

Conclusion: The reassessment notice was invalid on limitation and substantive grounds.

Significant Holdings

"The impugned notices dated March 31, 2021, which were despatched on April 1, 2021, or thereafter, would not meet the test of 'issued' under section 149 of the Act of 1961 and would be time barred."

"The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons."

"An erroneous decision, which is also prejudicial to the interests of the Revenue, can be made subject-matter of adjudication under section 263 of the Act, but resort to reassessment proceedings is not permissible."

"Mere generation of a notice on the Income Tax Business Application portal or digital signing thereof does not constitute issuance of notice unless it is duly despatched within the prescribed limitation period."

"The principle of 'change of opinion' bars reassessment where the AO had examined and formed an opinion on the material facts during original assessment and the assessee had made full and true disclosure."

"The AO must independently apply mind and form a reasoned opinion before initiating reassessment; mere reliance on communication from higher authorities or subsequent assessment orders is insufficient."

"Each assessment year is distinct, and the existence of a Permanent Establishment must be determined based on facts applicable to that year; however, no reassessment can be based on mere assumption that facts remain unchanged."

"The date of issuance of a notice under Section 148 is the date of its despatch or when the electronic record leaves the control of the originator, not the date of its generation or digital signing."

"The reassessment notice issued after the expiry of the limitation period under Section 149 is invalid and liable to be quashed."

Regarding the first issue, the transfer pricing authorities (TPO and DRP) reclassified the assessee from a licensed manufacturer to a contract manufacturer based on a functional and risk analysis. The TPO applied OECD guidelines to conclude that the assessee does not bear market risks or independently exploit technology to capture the market, as it supplies over 95% of its products to a related party (TKML) and follows its demand projections. The TPO found that royalty payments were unjustified for the assessee and should instead be borne by TKML, which benefits from the technology. The TPO also identified a cost reallocation within the Toyota group designed to shift royalty payments to Indian subsidiaries, distorting economic substance. Consequently, the TPO benchmarked the royalty payment at NIL, disallowing Rs. 45.83 crore in royalty payments as a transfer pricing adjustment.

The assessee contested this reclassification, arguing that it is a licensed manufacturer paying royalty under a valid agreement and bears market risks linked to TKML's demand fluctuations. The assessee contended that the TPO's functional analysis was flawed and inconsistent with judicial precedents, including a decision where similar contentions were rejected. The assessee also argued that payment of royalty for technical know-how is legitimate and consistent with business practice and prior years' assessments.

The Tribunal examined prior decisions involving the assessee's sister concerns, which had held the Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking royalty payments, rejecting the Profit Split Method (PSM) proposed by the TPO. The Tribunal referred extensively to OECD Transfer Pricing Guidelines, emphasizing that PSM is appropriate only when both parties contribute unique and valuable intangibles and share economically significant risks, which was not the case here. The assessee does not make unique contributions but uses technology licensed from the parent company. The Tribunal held that TNMM remains the most appropriate method and directed the AO/TPO to benchmark royalty payments accordingly, allowing the ground of appeal.

On the issue of outstanding receivables from associated enterprises, the TPO treated delayed payments as an international transaction under section 92B, requiring arm's length pricing of interest on delayed payments. The TPO rejected the assessee's argument that receivables are part of the primary transaction and do not constitute separate international transactions. The TPO benchmarked interest using the SBI PLR rate for domestic currency and LIBOR-based rates for foreign currency, resulting in a modest adjustment.

The assessee relied on judicial decisions to argue that outstanding receivables do not constitute separate international transactions and that credit terms are standard business practice. It contended that the delay in payments does not generate taxable income and that the transfer pricing provisions should not apply to hypothetical income. The DRP upheld the TPO's view, citing the Finance Act 2012 amendment to section 92B that explicitly includes deferred payments as international transactions. The DRP also referenced judicial decisions supporting the requirement to charge interest on extended credit periods.

The Tribunal referred to authoritative judicial pronouncements, including decisions of the Bombay High Court, which held that interest on delayed payments to associated enterprises is an international transaction requiring arm's length pricing. The Tribunal found that PLR rates are inappropriate for foreign currency transactions and directed the AO/TPO to recompute interest using LIBOR plus an appropriate margin, applying the agreed credit period. The ground was allowed for statistical purposes.

The disallowance of gratuity expenses under section 43B by the Central Processing Centre (CPC) and the DRP's refusal to adjudicate the issue was challenged. The assessee contended that payment was made before the due date for filing the return, making the expense allowable. It also argued that the AO did not issue a show cause notice, violating natural justice. The DRP held that it lacked jurisdiction over CPC adjustments and that the assessee's remedy lay before the Commissioner of Income Tax (Appeals).

The Tribunal disagreed with the DRP's jurisdictional view, relying on the principle of merger of intimation under section 143(1) with the regular assessment under section 143(3). The Tribunal cited judicial precedents holding that once a regular assessment is made, the intimation merges with it and the issues therein become appealable in the regular proceedings. The Tribunal further found the disallowance factually and legally unsustainable, as the assessee had paid gratuity within the prescribed time and submitted proof. The failure to consider evidence and absence of a show cause notice violated natural justice. The Tribunal allowed the ground and directed deletion of the disallowance.

On the foreign tax credit issue, the assessee claimed credit for taxes paid abroad, supported by Form 67. The CPC and AO disallowed the claim without examining the merits. The Tribunal found merit in the assessee's contention and directed the AO to verify the claim and grant credit as per law, allowing the ground for statistical purposes.

The denial of credit for Dividend Distribution Tax (DDT) paid and consequential interest under section 115P was also challenged. The assessee submitted proof of DDT payment and argued that failure to grant credit led to unjust interest charges. The Tribunal directed the AO to verify the payment and grant credit if found in order, recomputing interest accordingly, allowing the ground for statistical purposes.

Lastly, the Tribunal considered the levy of ad-hoc interest of Rs. 2,35,955/- without any explanation in the assessment order. The assessee argued the levy was arbitrary and unsubstantiated. The Tribunal found the contention justified, directing the AO to either provide detailed justification or delete the levy, allowing the ground for statistical purposes.

Significant holdings include the following verbatim excerpts and principles:

"A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (e.g. contribute unique intangibles) to the transaction... On the other hand, a transactional profit split method would ordinarily not be used in cases where one party to the transaction performs only simple functions and does not make any significant unique contribution (e.g. contract manufacturing or contract service activities in relevant circumstances)." (OECD Guidelines)

"Once a regular assessment under Section 143(3) is made, the intimation under section 143(1) ceases to be relevant and merges with the assessment order, unless expressly sustained or modified by the AO."

"Interest on outstanding receivables from associated enterprises is an international transaction requiring arm's length pricing. Extending credit beyond the normal period is in substance granting a loan to the AE and must be benchmarked accordingly."

"Section 43B allows deduction for gratuity expenses paid before the due date of filing return under section 139(1). Failure to consider proof of payment and absence of show cause notice violates principles of natural justice."

Final determinations include: (1) The assessee is not a contract manufacturer; royalty payments are allowable and should be benchmarked using TNMM; (2) Interest on delayed receivables is an international transaction and must be benchmarked using appropriate foreign currency rates; (3) Gratuity expenses paid within prescribed time are allowable; (4) Foreign tax credit claims supported by documentation must be allowed; (5) Credit for DDT paid must be granted with consequential interest recalculated; (6) Ad-hoc interest levied without basis is unsustainable.

1. Whether the addition of Rs. 5,00,00,000/- made by the Assessing Officer under section 69 of the Income-tax Act, 1961, treating the amount as unexplained investment advanced as a loan by the assessee during the relevant previous year, was justified.

2. Whether the assessee's explanation that the amount represented a repayment of a loan advanced in an earlier year, supported by documentary evidence, was acceptable.

3. Whether the Assessing Officer's failure to provide a remand report in response to the CIT(A)'s request and reminders vitiates the appellate order deleting the addition.

4. Whether the CIT(A) erred in admitting additional evidence without recording reasons and without providing the Assessing Officer sufficient opportunity to examine such evidence, in violation of Rule 46A of the Income Tax Rules.

5. Whether the Revenue's reliance on the absence of addition in the borrower's assessment to negate the addition in the assessee's hands is legally tenable.

Issue-wise Detailed Analysis

1. Legitimacy of Addition under Section 69 as Unexplained Investment

The legal framework under section 69 of the Income-tax Act provides that any sum found credited in the books of an assessee for which he offers no satisfactory explanation about the nature and source of such sum, can be treated as unexplained investment and added to the income of the assessee.

The Assessing Officer initiated reassessment proceedings under section 147 and made an addition of Rs. 5 crore under section 69, on the basis that the assessee had advanced a loan of that amount to M/s Shankar Growth Fund Pvt. Ltd. during the year under consideration. The AO found the assessee's claim that the loan was advanced from capital reserves and surplus to be factually incorrect, as the audited balance sheet showed grossly insufficient reserves to justify such an advance. The AO also noted discrepancies in the books of both parties and questioned the genuineness and creditworthiness of the assessee to make such a loan.

The AO's reasoning was that the financial profile of the assessee, with declared income as NIL and insignificant reserves, did not support the capability to advance Rs. 5 crore. The AO further observed that the bank statements and books of accounts did not clearly reflect the transaction as a loan repayment, and the mismatch in opening balances between the assessee and borrower's books raised doubts.

However, the AO did not conclusively disprove the repayment claim but relied on the insufficiency of the financial profile and documentary discrepancies to treat the amount as unexplained investment.

2. Assessee's Explanation and Documentary Evidence

The assessee's contention before the CIT(A) was that the Rs. 5 crore was not a fresh loan advanced during the year but a repayment of a loan originally advanced in the previous year (F.Y. 2016-17). This was supported by ledger accounts, bank statements showing receipt of funds through banking channels, Form 26AS and TDS certificates evidencing interest income and tax deducted at source, and a contra-confirmation from the borrower. The assessee also submitted the borrower's assessment order for A.Y. 2018-19, which accepted the returned income without making any addition corresponding to the Rs. 5 crore, and a certificate of registration with RBI confirming the assessee's status as an NBFC engaged in lending.

The CIT(A) carefully considered this evidence and found the explanation credible. The Tribunal noted that the assessee had disclosed all relevant facts and placed supporting evidence which remained uncontroverted at the appellate stage. The CIT(A) accepted that the amount was a genuine loan repayment and not unexplained investment.

The Tribunal emphasized the settled legal principle that when an assessee explains a transaction as a repayment of a past loan, duly evidenced by bank records, interest income with TDS, and corresponding disclosure in books of account, such explanation cannot be rejected without cogent reasons. The Revenue failed to bring any evidence disproving the repayment nature of the transaction or demonstrating that a fresh loan was advanced during the year.

Regarding the initial inconsistency in the assessee's stand-claiming initially that the loan was advanced from capital reserves and later clarifying it was a repayment-the Tribunal held that a change or clarification in stand, when backed by verifiable documentation, cannot be treated as misleading or contradictory. This did not warrant interference with the appellate order.

3. Failure of Assessing Officer to Submit Remand Report

The CIT(A) had issued a notice for remand report to the AO and sent multiple reminders over several months, but the AO failed to submit the report. The CIT(A) proceeded to decide the appeal based on the material on record and the documentary evidence submitted by the assessee.

The Tribunal held that the failure of the AO to respond, despite adequate opportunity, cannot be a ground to vitiate the order of the CIT(A). The CIT(A) had complied with procedural requirements by calling for remand comments and providing full opportunity. The absence of the AO's report left the CIT(A) with no option but to decide on the available evidence.

4. Admission of Additional Evidence and Compliance with Rule 46A

The Revenue contended that the CIT(A) erred in admitting additional evidence without recording reasons and without providing the AO sufficient opportunity to examine such evidence, violating Rule 46A(2) and (3) of the Income Tax Rules.

The Tribunal examined this objection and found that the CIT(A) had indeed called for remand comments and provided the AO with ample opportunity to respond. The AO's failure to submit the remand report despite repeated reminders meant that the CIT(A) could rely on the evidence before it. The evidence admitted was contemporaneous, relevant, and necessary for adjudication. Therefore, the Tribunal found no violation of Rule 46A, and no infirmity in the CIT(A)'s order on this ground.

5. Reliance on Absence of Addition in Borrower's Assessment

The Revenue argued that the CIT(A) erred in deleting the addition merely because no corresponding addition was made in the borrower's assessment. The Tribunal clarified that the absence of addition in the borrower's case is a relevant factor but not conclusive. However, in this case, the borrower's assessment order accepted the transaction as genuine, which supported the assessee's explanation.

Moreover, the Tribunal emphasized that the Revenue failed to produce any evidence contradicting the genuineness of the repayment or disproving the documentary evidence submitted by the assessee. Hence, the Revenue's contention did not merit interference.

Significant Holdings

"It is well-settled that when the assessee explains a transaction as a repayment of a past loan, duly evidenced by bank records, interest income with TDS, and corresponding disclosure in books, such explanation cannot be rejected without cogent reasons."

"The failure of the Assessing Officer to submit remand report despite multiple reminders cannot be a ground to vitiate the order of the CIT(A), particularly when the evidences were contemporaneous, relevant, and necessary for adjudication of the dispute."

"A change or clarification in stand by the assessee, when backed by verifiable documentation, cannot be treated as misleading or contradictory."

The Tribunal upheld the deletion of the addition under section 69 of the Act, concluding that the amount of Rs. 5 crore was a genuine repayment of a loan advanced in an earlier year in the ordinary course of the assessee's business as an NBFC. The addition made by the AO was not justified as the assessee satisfactorily explained the nature and source of the amount with adequate documentary evidence. The procedural objections raised by the Revenue regarding admission of evidence and opportunity to the AO were found to be without merit.

Accordingly, the appeal filed by the Revenue was dismissed, affirming the order of the CIT(A) deleting the addition of Rs. 5,00,00,000/- under section 69 of the Income-tax Act.

The core legal questions considered by the Tribunal include:

- Whether the notice issued under section 148 of the Income-tax Act, 1961 was valid, particularly in light of the reasons recorded by the Assessing Officer (AO) for reopening the assessment;

- Whether the reasons recorded for initiating reassessment proceedings were adequate, bona fide, and related to the additions ultimately made by the AO;

- Whether the reassessment proceedings were initiated mechanically without proper enquiry or application of mind, thereby rendering the proceedings invalid;

- Whether the approval under section 151 for issuance of notice under section 148 was valid and based on proper satisfaction;

- Whether the addition of Rs. 36,00,000/- on account of unexplained cash deposits was justified given the explanation and affidavits submitted by the assessee;

- Whether the Tribunal should quash the reassessment proceedings or the addition made thereunder.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Notice under Section 148 and Adequacy of Reasons Recorded

The legal framework governing reopening of assessments under section 148 requires that the AO must record valid reasons to form a belief that income has escaped assessment. The reasons must be specific, relevant, and must relate to the additions proposed. The law as per various precedents, including the decisions of the jurisdictional High Court, mandates that reopening should not be based on vague or mechanical reasons.

In the present case, the AO recorded reasons based on information received from the Annual Information Return (AIR) via the Director of Income Tax (Investigation), Kanpur, through the Principal Commissioner of Income Tax, Ghaziabad. The reason cited was the sale of a property by the assessee for Rs. 1.2 crores, allegedly not disclosed in the return, thus triggering reassessment proceedings under section 148.

However, during the reassessment, the AO made additions on a different transaction involving sale of agricultural land for Rs. 23,00,000/- and cash deposits totaling Rs. 47,50,000/-, which was not the basis of the reasons recorded for reopening. The AO treated the unexplained difference of Rs. 36,00,000/- as income and made additions accordingly.

The assessee challenged the validity of the notice on the ground that the additions made were not commensurate with the reasons recorded for reopening and that the AO's action amounted to conducting a roving enquiry beyond the scope of the reasons recorded.

The Tribunal examined the precedents cited, notably the decisions of the jurisdictional High Court in the case of Ranbaxy Laboratories Ltd. and the Bombay High Court in Jet Airways (I) Ltd., which hold that the AO cannot make additions on grounds different from those recorded as reasons for reopening. The Tribunal found that the AO did not make any addition based on the original reason (sale of property for Rs. 1.2 crores) but proceeded to add income based on a different transaction (sale of agricultural land and cash deposits).

The Tribunal noted that the lower appellate authority (CIT(A)) had attempted to distinguish these precedents by relying on a Karnataka High Court decision in N Govindaraju vs. ITO, but the Tribunal held that the jurisdictional High Court's decision in Ranbaxy Laboratories Ltd. was squarely applicable and binding.

Applying the law to facts, the Tribunal concluded that the reasons recorded for reopening did not survive scrutiny, as the AO's additions were unrelated to those reasons. Hence, the notice under section 148 was invalid.

Validity of Approval under Section 151

The assessee contended that the approval given under section 151 for issuance of notice under section 148 was mechanical and lacked the requisite satisfaction. This issue is closely linked to the validity of the notice itself.

The Tribunal did not expressly adjudicate this ground separately but implicitly treated it as subsumed within the invalidity of the notice under section 148, given that approval under section 151 must be based on valid reasons and proper satisfaction.

Addition of Rs. 36,00,000/- on Account of Cash Deposits

The assessee submitted affidavits and plausible explanations regarding the source of the cash deposits, which were not adequately considered by the AO or the CIT(A). The assessee argued that the addition was arbitrary and against settled law, as no proper enquiry was conducted on the explanation provided.

However, since the Tribunal allowed the ground relating to invalidity of the notice and reassessment proceedings, it did not adjudicate the merit of the addition or the treatment of the affidavits at this stage.

Competing Arguments and Court's Reasoning

The Revenue relied on the findings of the CIT(A) who had upheld the validity of the notice and the additions. The Tribunal, however, found the CIT(A)'s reliance on the Karnataka High Court decision insufficient to override the binding precedent of the jurisdictional High Court in Ranbaxy Laboratories Ltd.

The Tribunal emphasized the principle that reassessment proceedings must be confined to the reasons recorded and cannot be extended to unrelated transactions discovered during the course of reassessment. The Court underscored that reopening must not be used as a tool for roving enquiries.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The reasons recorded in the reassessment notice do not survive in this case, as held by the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Limited (supra)."

This establishes the core principle that the AO must make additions strictly in accordance with the reasons recorded for reopening the assessment under section 148. Any deviation renders the notice and subsequent proceedings invalid.

Further, the Tribunal concluded:

"Accordingly, ground no.2 raised by the assessee is allowed and all other grounds raised by the assessee are not adjudicated at this stage."

This signifies that the reassessment proceedings were quashed on the ground of invalid notice, without delving into the merits of the additions or other procedural issues.

In sum, the Tribunal partly allowed the appeal by quashing the reassessment proceedings initiated under section 148 due to invalid reasons recorded, thereby reinforcing the principle that reopening of assessments must be based on valid and relevant reasons strictly connected to the additions sought.

The core legal questions considered by the Tribunal include:

- Whether the Assessing Officer (AO) had jurisdiction and authority to make a reference to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Income Tax Act, 1961;

- Whether the TPO had jurisdiction to pass the Transfer Pricing (TP) order dated 28.10.2023;

- Whether the AO erred in not issuing the final assessment order in conformity with the directions of the Dispute Resolution Panel (DRP), thereby violating mandatory provisions under Sections 144C(10) and 144C(13) of the Act;

- Whether the adjustments made by the TPO to the Arm's Length Price (ALP) of international transactions, specifically the rejection of the Internal Transactional Net Margin Method (TNMM) and substitution with an external TNMM, were justified and legally sustainable;

- Whether the TPO's rejection of segmental accounts maintained by the assessee on the ground of non-audit and disregarding the auditor's certificate was justified;

- Whether the selection of comparable companies by the TPO for benchmarking was appropriate and in accordance with the law;

- Whether the AO erred in levying interest under Sections 234A and 234B;

- Whether penalty proceedings initiated under Section 270A were justified;

- Whether the assessment proceedings were barred by limitation under Sections 153 read with 144C of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction of AO and TPO to make and pass TP reference and orders

The assessee challenged the jurisdiction of the AO and TPO to make the reference under Section 92CA(1) and to pass the TP order dated 28.10.2023. The grounds raised were that the AO (Technical Unit) lacked power to make such a reference and the TPO lacked jurisdiction to pass the order.

The Tribunal observed these grounds were general in nature and did not require specific adjudication. The statutory framework under Section 92CA(1) empowers the AO to refer the international transactions for determination of ALP to the TPO. The Tribunal implicitly upheld the jurisdiction of both authorities by proceeding to examine the substantive TP issues.

Compliance with DRP directions and final assessment order

The assessee contended that the AO did not issue the final assessment order in conformity with the DRP directions, violating Sections 144C(10) and 144C(13). The Tribunal noted these grounds were general and did not require detailed adjudication in this appeal.

Adjustment to ALP and rejection of Internal TNMM

The principal dispute concerned the TPO's adjustment of Rs. 4.29 Crores (later revised to Rs. 1.64 Crores) to the assessee's income by rejecting the Internal TNMM applied by the assessee and substituting it with an external TNMM. The assessee argued:

• The TPO did not disturb the method (TNMM) or the profit level indicator (PLI) but only replaced internal with external TNMM;
• The TPO rejected the segmental analysis on the ground that segmental results were unaudited, ignoring the auditor's certificate validating the segmental accounts;
• The profit margins declared by the assessee with Associated Enterprises (AE) and non-AE were -2.68% and -1.99% respectively, whereas the TPO's median PLI was 1.39%, within the statutory tolerance limit of +/-1%, thus no adjustment was warranted;
• The TPO incorrectly classified certain items like foreign exchange gains, duty drawback, export incentives, bad debts, and bank charges as non-operating expenses when computing PLI;
• The TPO failed to appreciate the business realities and rejected the assessee's TP analysis without demonstrating any inadequacy or infirmity in the same.

The Revenue contended that the TPO's approach was justified and relied upon the orders of the authorities below.

The Tribunal analyzed the legal framework under Section 92C(3) and 92CA(4), which require determination of ALP by applying the most appropriate method. The Tribunal referred to judicial precedents upholding the applicability of internal TNMM over external TNMM when justified by facts.

The Tribunal found that the TPO's sole basis for rejecting the internal TNMM was the non-audit of segmental results, despite the assessee filing an auditor's certificate validating these segments. The TPO summarily discarded this certificate without adequate reasoning.

Moreover, the Tribunal observed that even according to the TPO's own calculations, the PLI was within the +/-1% tolerance limit, which under the law negates the need for any adjustment.

The Tribunal also noted the TPO's incorrect treatment of certain accounting items as non-operating, which distorted the profit margin computation.

Consequently, the Tribunal held that the TPO's rejection of internal TNMM and substitution by external TNMM was not justified and the adjustments were unwarranted.

Selection of comparable companies

The assessee challenged the TPO's selection of certain companies as comparables that failed the export filter and were not functionally comparable in terms of functions, assets, and risk profile. The TPO also rejected functionally comparable companies without valid reasons.

The Tribunal noted these contentions but did not delve into detailed adjudication on this point, as the primary issue of rejection of internal TNMM and segmental accounts was dispositive.

Rejection of segmental accounts and auditor's certificate

The Tribunal relied on a coordinate bench decision holding that filing of audited segmental results is not necessary if the overall accounts are audited and figures are not disturbed by the TPO. The Tribunal held that the TPO's insistence on audited segmental results and rejection of the auditor's certificate was incorrect.

Levy of interest under Sections 234A and 234B and penalty under Section 270A

The assessee challenged the levy of interest and penalty proceedings initiated. The Tribunal did not specifically adjudicate these grounds in the present appeal.

Limitation of assessment proceedings

The assessee contended that the assessment proceedings were barred by limitation under Sections 153 read with 144C. This ground was not specifically adjudicated.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The solitary ground on the basis of which the TPO has discarded the TP study of the assessee is that the segments filed by the assessee were not audited. The Ld. TPO has discarded the certificate of the auditor in a summary manner. Further, we observe that even if, we go by the conclusion of the TPO in arriving the PLI, then also the same is within the +-1% tolerance limit. Therefore, we are of the view that no adjustment is called for in this case and the adjustments made by the TPO are hereby deleted."

Respecting the coordinate bench decision, the Tribunal stated:

"Filing of audited segments is not necessary, if the accounts are audited and the figures mentioned therein are not disturbed by the TPO. Respectfully, following the decision of the Co-ordinate Bench, we are of the view that opinion of TPO with respect to filing of audited segments results is not correct."

Core principles established include:

• The internal TNMM method is acceptable and should not be rejected solely on the ground that segmental results are unaudited, especially when supported by auditor's certificate;
• Adjustments to ALP are unwarranted when the computed PLI is within the statutory tolerance limit of +/-1%;
• The TPO must provide reasoned and detailed findings before discarding the assessee's TP analysis;
• Audited segmental accounts are not mandatory if overall accounts are audited and segmental figures are not disturbed;
• The TPO's treatment of accounting items as non-operating must be correct and consistent with accounting principles;
• The AO and TPO must act within the scope of their jurisdiction and comply with DRP directions, but these were not specifically challenged in this appeal.

Final determinations:

• The reference made by the AO and the jurisdiction of the TPO were implicitly upheld;
• The adjustments made by the TPO to the ALP by rejecting internal TNMM and substituting external TNMM were quashed;
• The final assessment order incorporating these adjustments was set aside;
• The appeal was allowed in favour of the assessee.

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

(a) Whether the addition of commission income based solely on Form No. 26AS without verifying actual receipt of commission by the assessee is justified;

(b) Whether the assessee was denied proper opportunity of being heard, violating principles of natural justice;

(c) Whether the Assessing Officer (A.O.) and First Appellate Authority erred in relying on the TDS credit reflected in Form 26AS to make additions without examining the payer company's financial statements and actual payment records;

(d) Whether the TDS return filed by the payer company, which showed deduction of tax on commission not actually paid to the assessee, can be revised beyond limitation and whether the assessee can claim refund based on such TDS;

(e) Whether the addition of commission income without considering the assessee's submissions regarding reversal of commission and non-receipt of amounts is legally sustainable;

(f) Whether the Tribunal should follow the precedent set by the coordinate bench in a similar case where the matter was remanded for fresh examination of facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of addition of commission income based on Form 26AS without verifying actual receipt

The relevant legal framework involves the principle that income is taxable only when it is either received or accrued to the assessee. The Supreme Court ruling in State Bank of Travancore vs. Commissioner of Income Tax (Appeal) (1986) 158 ITR 102 (SC) was cited, which establishes that income must be shown as actually received or accrued to be taxable.

The Court noted that the Assessing Officer relied heavily on Form 26AS, which showed commission credited and TDS deducted by the payer company, but did not verify whether the commission was actually paid or accrued to the assessee. The assessee contended that the payer company had neither paid the commission nor revised the TDS returns due to limitation constraints.

Key evidence included the commission account of the payer company, which did not mention the assessee's name, and the financial statements showing a lower commission payment than indicated in Form 26AS. The Tribunal found these contradictions significant and emphasized that mere reflection of TDS in Form 26AS is not conclusive proof of income accrual or receipt.

The Tribunal applied the law to facts by holding that addition based solely on Form 26AS without verifying actual payment or accrual is unsustainable. It treated the assessee's argument that the payer company had erroneously deducted TDS on commission not paid as credible and requiring further investigation.

The competing argument from the Revenue was that the payer company had deducted and deposited TDS correctly and that the assessee had taken credit for the TDS amount, justifying the addition. However, the Tribunal found that this did not override the need to verify actual receipt or accrual of income.

Conclusion: The Tribunal held that the addition of commission income based solely on Form 26AS without verifying actual payment or accrual is not justified and requires fresh examination.

Issue (b): Denial of proper opportunity of hearing and violation of natural justice

The assessee contended that no show cause notice was issued for filing particular documents, and that the authorities did not provide adequate opportunity to explain the discrepancies.

The Tribunal recognized the principle of natural justice requiring that the assessee be given a proper opportunity to present and substantiate their case. It noted that the First Appellate Authority and Assessing Officer failed to consider the assessee's submissions adequately.

The Tribunal directed that on remand, the Assessing Officer must provide reasonable and adequate opportunity of hearing to the assessee before passing any order.

Conclusion: The Tribunal found that the principles of natural justice were not fully complied with and directed that opportunity of hearing be afforded on remand.

Issue (c): Reliance on TDS credit in Form 26AS without examining payer company's financials

The Tribunal noted that the payer company's financial statements showed commission payments significantly lower than the amounts reflected in Form 26AS. The assessee argued that the payer company had wrongly debited commission and deducted TDS on amounts not actually paid.

The Tribunal referred to the coordinate bench decision in a similar case where the Tribunal remanded the matter for fresh examination after directing the assessee to produce cogent evidence that the payer company had not paid the commission as reflected in Form 26AS.

The Tribunal emphasized the need to reconcile the contradictory facts arising from the payer company's financials and the TDS returns, and to verify the true position before making any addition.

Conclusion: The Tribunal held that reliance on Form 26AS alone without examining the payer company's financials and payment records is erroneous and requires detailed scrutiny.

Issue (d): Revisability of TDS returns and claim of refund by the assessee

The assessee submitted that the payer company could not revise the TDS returns due to limitation and that no refund can be claimed by the assessee on the basis of the original or revised TDS returns when the commission was not actually received.

The Tribunal observed that the issue of revisability of TDS returns and claims of refund involves procedural and substantive tax law principles. The assessee's contention that TDS returns cannot be revised to claim refunds or change the source of income was noted but was not finally adjudicated in this order.

The Tribunal directed that these aspects be examined afresh by the Assessing Officer on remand, after hearing the assessee.

Conclusion: The Tribunal did not decide this issue finally but required fresh examination of the facts and law relating to TDS return revisability and refund claims.

Issue (e): Consideration of assessee's submissions regarding reversal of commission and non-receipt

The assessee submitted that the commission was reversed and not accrued or received, and that the authorities below did not consider these submissions.

The Tribunal found that the authorities failed to appreciate the assessee's explanations and did not investigate the reasons for reversal or non-payment of commission.

The Tribunal directed that on remand, the Assessing Officer must consider these submissions and examine the factual matrix thoroughly before passing any order.

Conclusion: The Tribunal held that the assessee's submissions must be considered and verified before making any addition.

Issue (f): Application of coordinate bench precedent

The Tribunal relied on the coordinate bench decision in a similar case involving identical facts and legal questions. The coordinate bench had remanded the matter for fresh examination after directing the assessee to produce cogent evidence regarding non-payment of commission despite TDS deduction by the payer company.

The Tribunal held that it is appropriate to follow the precedent and remand the matter to the Assessing Officer for fresh adjudication in line with the directions given by the coordinate bench.

Conclusion: The Tribunal remanded the matter for fresh examination consistent with the coordinate bench ruling.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the coordinate bench decision it followed:

"The undisputed fact is that as per Form 26AS, the assessee has been shown as recipient of commission amounting to Rs. 48,56,061/-. It is also an undisputed fact that the assessee has shown only Rs. 20,12,260/-. It is also true that the assessee has taken full credit of TDS deducted by the payer on the commission shown in Form 26AS. Though the financial statement of the payer company shows that the company has paid total commission of Rs. 11 lakhs, then the statement of the counsel is that the payer company could not have debited Rs. 48.56 lakhs commission in the name of the assessee. If that being so, then how come the assessee has accounted for commission of Rs. 20.12 lakhs when the payer company has shown commission of Rs. 11.08 lakhs in his financial statement. These contradictory facts are emanating from the records. Therefore, it becomes necessary to ascertain true facts and, therefore, we deem it fit to restore the entire issue to the file of the Assessing Officer. The assessee is directed to demonstrate that the payer company never paid commission of Rs. 48,56,061/- by bringing cogent material evidence on record. The Assessing Officer is directed to examine the same and if satisfied with the claim of the assessee, then the Assessing Officer is directed to make addition of Rs. 4,85,606/- being TDS amount on which credit has been taken by the assessee in her return of income."

Core principles established include:

- Income must be shown as actually received or accrued to be taxable; mere reflection in Form 26AS and TDS credit is not conclusive evidence of income accrual.

- The Assessing Officer must verify contradictory financial records and consider the assessee's submissions before making additions.

- Principles of natural justice require that the assessee be given adequate opportunity to present evidence and arguments.

- TDS returns filed by the payer company that are barred by limitation for revision cannot be the sole basis for addition without examining the true facts.

Final determinations:

The Tribunal partly allowed the appeal for statistical purposes by remanding the matter to the Assessing Officer with directions to conduct a fresh examination of the facts, afford the assessee an opportunity of hearing, verify the payer company's financial statements, and consider all submissions before passing a fresh order.

The appeals by the Revenue for Assessment Years 2012-13 and 2013-14 raised the following core legal questions:

(i) Whether the loss declared in the Income Tax Return (ITR) or the loss determined by the auditor appointed by the Revenue should be taken as the base for computing income;

(ii) Whether employees' contributions to Provident Fund (PF) and Employees' Group Insurance (ECGI) should be disallowed under sections 36(1)(va), 2(24)(x), and 43B of the Income Tax Act due to delay in payment;

(iii) Whether interest on Government loans/advances debited to Profit & Loss account but not actually paid should be disallowed;

(iv) Whether shortage/shrinkage of petroleum stock at petrol pumps should be disallowed;

(v) Whether unutilized government funds lying idle for over a decade should be treated as income;

(vi) Whether accrued interest on earmarked government funds should be treated as taxable income;

(vii) Whether contract receipts received as mobilization advances should be taxed on accrual basis;

(viii) Whether disallowance under section 14A of the Act is justified in the absence of exempt income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Treatment of Loss Declared in ITR vs. Auditor's Loss

The Revenue challenged the acceptance of loss declared in the ITR (- Rs. 76,05,926/-) instead of the greater loss (- Rs. 96,68,009/-) determined by the auditor appointed by the Revenue. The appellant contended that the Assessing Officer (AO) selectively accepted adverse findings from the auditor's report while rejecting favorable findings, which is impermissible. The Revenue's reliance on the Supreme Court decision in Goetz India Ltd. was found distinguishable on facts.

The Tribunal emphasized that the Revenue must either accept the auditor's report in its entirety or reject it; partial acceptance is impermissible. The CIT(A)'s finding in favor of the assessee was upheld, rejecting the Revenue's ground.

Issue (ii): Disallowance of Employees' Contributions to PF and ECGI

The AO disallowed employees' contributions to PF and ECGI aggregating Rs. 76,22,211/- and Rs. 8,26,865/- respectively, on account of delay in payment, invoking sections 36(1)(va), 2(24)(x), and 43B. The Revenue relied on the Supreme Court ruling in Checkmate Services P. Ltd., which upheld disallowance for delayed payment.

The Tribunal agreed with the Revenue's submission, directing the AO to verify the delay and make disallowance accordingly, thereby partially allowing the Revenue's appeal on this issue.

Issue (iii): Disallowance of Interest on Government Loans/Advances

The AO disallowed interest of Rs. 50,50,442/- on government loans, reasoning that the interest was never paid though claimed as expense, and the loan was over 10 years old, predating the creation of Uttarakhand state.

The Tribunal referred to its prior decision in the assessee's own case, which held that under the mercantile system of accounting, interest payable on government loans must be recorded as expense regardless of payment. No evidence was produced to show waiver or conversion of interest-bearing loans to non-interest-bearing or grants. The principle of consistency in accounting was emphasized.

Accordingly, the Tribunal upheld the CIT(A)'s deletion of the disallowance, rejecting the Revenue's ground.

Issue (iv): Disallowance of Stock Shortage/Shrinkage of Petroleum Products

The AO disallowed Rs. 8,88,523/- on account of shortage exceeding the permitted limit by Indian Country Corporation, without considering the hilly terrain and adverse weather conditions. The disallowance was ad hoc, and similar claims were accepted in other years.

The Tribunal found no infirmity in the CIT(A)'s acceptance of the claim, rejecting the Revenue's disallowance.

Issue (v): Taxability of Unutilized Government Funds

The auditor noted unutilized government funds of Rs. 1,57,17,493/- shown as liability since 2006, and the AO taxed Rs. 82,40,612/- lying idle for a decade as income. The assessee explained part of the amount, which was accepted.

The Tribunal held that government loans do not become income merely due to passage of time, absent any change in nature or waiver by the government. The Revenue failed to produce contradictory evidence. The CIT(A)'s finding was upheld, rejecting the Revenue's ground.

Issue (vi): Taxability of Accrued Interest on Earmarked Funds

The assessee received specific government funds held as earmarked liabilities and earned accrued interest of Rs. 65,56,936/-, credited to earmarked fund accounts but not offered as income. The AO sought to tax this accrued interest.

The Tribunal held that under the mercantile system, accrued interest is revenue in nature and taxable even if not utilized, and the assessee's inability to use the funds does not exempt taxability. The CIT(A)'s contrary finding was set aside, and the accrued interest was held taxable.

Issue (vii): Taxability of Contract Receipts on Accrual Basis

The assessee received Rs. 1,32,8,610/- as mobilization advance for contract work, shown as liability until project commencement. The AO contended that under mercantile accounting, the amount should be taxed on accrual.

The Tribunal noted the consistent past practice of showing such receipts as liability and accepted the assessee's submission that only income embedded in the contract receipts can be taxed, not the gross amount. Disturbing this practice would cause cascading tax effects and violate consistency principles. The CIT(A)'s finding in favor of the assessee was upheld.

Issue (viii): Disallowance under Section 14A of the Act

The AO disallowed Rs. 25,16,884/- and Rs. 12,21,032/- under section 14A relating to expenses incurred to earn exempt income. The assessee had no exempt income during the relevant years.

The Tribunal, following judicial precedents, held that in absence of exempt income, such disallowance is not justified, upholding the CIT(A)'s findings.

3. SIGNIFICANT HOLDINGS

On the issue of loss determination, the Tribunal emphasized: "The Revenue has to believe the audit report in toto or not as the pick and choose cannot go together." This principle bars selective acceptance of audit findings.

Regarding delayed payment of employee contributions, the Tribunal upheld disallowance following the Supreme Court's ruling in Checkmate Services P. Ltd., affirming that such delays attract disallowance under sections 36(1)(va), 2(24)(x), and 43B.

On interest disallowance on government loans, the Tribunal held: "The appropriation of the loan here will not determine the allowability of interest expenditure as the AO has not commented on the fact that the appellant's balance-sheet has not have non-interest-bearing fund/surplus." It further stated that absence of waiver or conversion means interest expenses are allowable under mercantile accounting principles.

On taxability of accrued interest on earmarked funds, the Tribunal clarified: "Admittedly, the assessee is maintaining its books of accounts on mercantile system. There is no dispute on accrual of the interest... It is revenue in nature." This establishes that accrued income is taxable even if earmarked.

On contract receipts, the Tribunal recognized the principle of consistency and held that "Disturbing the consistent practice will affect the taxability in one year but will give cascading effect in other years which cannot be modified/rectified."

Finally, on section 14A disallowance, the Tribunal reiterated that in absence of exempt income, such disallowance is unwarranted.

In conclusion, the Tribunal partly allowed the Revenue's appeals, upholding disallowance of delayed employee contributions and accrued interest on earmarked funds, while rejecting other grounds including selective audit report reliance, interest on government loans, stock shortage disallowance, unutilized government funds taxability, contract receipt taxation, and section 14A disallowance.

1. Whether the assessee was disqualified from claiming exemption under section 54F due to ownership of more than one residential house as on the date of transfer of the original asset.

2. Whether the gift of a residential house property to the assessee's daughter, made orally in 2015 but registered later, is valid for the purpose of determining ownership on the date of transfer.

3. Whether the purchase of another residential house property within one year of transfer of the original asset violates the proviso to section 54F(1), thereby disqualifying the assessee from exemption.

4. Whether the assessee complied with the due date for investment or deposit of capital gains amount as prescribed under section 54F(4) and section 139(1) of the Act, particularly considering the due date applicable to a partner in a firm subject to audit.

5. Whether the investment in purchase of vacant land, with construction of residential house on only a portion of the land, qualifies for exemption under section 54F.

Issue-wise Detailed Analysis

1. Ownership of More Than One Residential House on Date of Transfer

Legal Framework and Precedents: Proviso to section 54F(1) disqualifies exemption if the assessee owns more than one residential house (other than the new asset) on the date of transfer of the original asset. The proviso is subject to the condition that income from such other house is chargeable under "Income from house property". Judicial precedents emphasize liberal interpretation of exemption provisions.

Court's Interpretation and Reasoning: The Assessing Officer relied on the assessee's earlier return showing ownership of two residential houses as on 31.03.2021 and rejected the claim of gift on the ground of absence of registered gift deed at the time of alleged gift in 2015. The CIT(A) and the Tribunal rejected this technical objection, accepting the oral gift based on customs and traditions, supported by subsequent registered gift deed and streedhan agreement, and the daughter's income tax returns evidencing her ownership.

Key Evidence and Findings: Registered gift deed dated 25.06.2022, streedhan agreement dated 30.11.2017, oral gift on marriage in 2015, and daughter's ITRs showing ownership. The Tribunal relied on the Supreme Court decision in Sanjeev Lal vs. CIT, which recognizes creation of right in personam even without registered deed, particularly in familial contexts.

Application of Law to Facts: The Tribunal held that the gift was valid despite late registration, and the assessee was not owner of the gifted house on the date of transfer (16.06.2021). Therefore, the assessee did not own more than one residential house at that time.

Treatment of Competing Arguments: The Revenue's reliance on section 123 of the Transfer of Property Act requiring registration for immovable property gift was held to be inapplicable in the context of oral gift recognized by custom and later formalized. The mortgage of the gifted property by the assessee with consent of the daughter did not negate the gift.

Conclusion: The assessee was not disqualified under proviso to section 54F(1)(a)(i) for owning more than one residential house on the date of transfer.

2. Purchase of Another Residential House Within One Year

Legal Framework: Proviso to section 54F(1)(a)(ii) disqualifies exemption if the assessee purchases any residential house other than the new asset within one year after the date of transfer.

Court's Reasoning: The assessee's purchase of Flat No.1605, My Homes Bhooja was registered on 07.07.2021, after the transfer date of 16.06.2021. However, substantial payment was made before the transfer date, and possession was taken only in June 2022, more than one year after transfer.

Findings and Application: The Tribunal accepted that booking and substantial payment prior to transfer date meant the purchase was not within one year after transfer for the purpose of proviso. Also, the property was self-occupied and under construction on the date of transfer, so income was not chargeable under "Income from house property".

Treatment of Arguments: The Revenue's argument that registration date alone determines purchase was rejected as contrary to facts and commercial realities of under-construction property purchase.

Conclusion: The assessee did not violate the proviso by purchasing another residential house within one year after transfer.

3. Compliance with Due Date for Investment/Deposit Under Section 54F(4)

Legal Framework: Section 54F(4) requires investment in new asset or deposit of unutilized sale consideration in Capital Gains Account Scheme on or before the due date for filing return under section 139(1). The due date depends on the category of assessee and whether accounts are required to be audited under section 44AB.

Court's Interpretation: The Assessing Officer contended the due date was 31.07.2022, since the partnership firm's turnover was below Rs. 10 crores and audit was not required under proviso to section 44AB. The assessee contended the due date was 31.10.2022, since the partnership firm's accounts were audited and audit report filed on 07.10.2022.

Key Evidence: Tax audit report of partnership firm in Form 3CB filed on 07.10.2022; statutory provisions and Explanation below section 139(1).

Application of Law to Facts: The Tribunal held that since the partnership firm obtained audit report, the due date for the partner's return was 31.10.2022. The Assessing Officer's reliance on the proviso to section 44AB was misplaced as it only relaxes audit requirement but does not negate the fact that audit was conducted.

Conclusion: The assessee complied with the due date requirement by investing in land on 18.10.2022 and depositing Rs. 10.67 crores in Capital Gains Account Scheme on 28.10.2022, both within the due date of 31.10.2022.

4. Investment in Vacant Land and Construction of Residential House

Legal Framework: Section 54F requires investment in a residential house. The question arises whether purchase of vacant land qualifies if construction of residential house is completed within prescribed period.

Court's Reasoning: The Assessing Officer denied exemption on ground that only 6% of purchased land was used for construction, rest remained vacant. The Tribunal relied on judicial precedents including Madras High Court decision in C. Aryama Sundaram vs. CIT, holding that cost of land forms part of cost of residential house and that construction may commence before or after transfer date.

Evidence: Sale deed for land purchase dated 18.10.2022, construction contracts, revised contracts, and occupancy certificate dated 18.06.2024.

Application: The Tribunal held that since the assessee purchased land for construction and completed residential house within three years, exemption under section 54F was admissible regardless of extent of land constructed upon.

Conclusion: Investment in land coupled with construction of residential house within prescribed time qualifies for exemption under section 54F.

5. Validity of Oral Gift and Registration Timing

Legal Framework: Section 123 of the Transfer of Property Act requires gift of immovable property to be by registered instrument. However, the Supreme Court in Sanjeev Lal vs. CIT recognized that a right in personam can arise even without registered deed in certain cases.

Court's Interpretation: The Tribunal accepted the oral gift made on marriage occasion in 2015 as valid, supported by customs and traditions, and later formalized by registered gift deed and streedhan agreement.

Application: The Tribunal held that the gift was effective to transfer ownership rights for the purpose of section 54F, notwithstanding late registration.

Conclusion: Oral gift recognized by custom and later registered is valid for exemption purposes.

Overall Treatment of Competing Arguments: The Revenue's reliance on technical and procedural grounds such as absence of registered gift deed at the time of gift, timing of purchase registration, due date for filing return, and extent of land constructed upon was rejected. The Tribunal emphasized the benevolent nature of section 54F, requiring liberal interpretation to effectuate legislative intent to encourage investment in residential houses.

Significant Holdings

"Section 54F is a beneficial provision allowing for exemption from chargeability of Capital Gains in certain cases, where the net sale consideration is invested in new residential house. In a plethora of judgements, Courts have firmly laid down the rule that a provision for deduction, exemption or relief should be interpreted liberally, reasonably in favour of the assessee; and it should be construed so as to effectuate the object of the legislature, and not to defeat it."

"The gift was given at the time of a social occasion (ie. marriage), in accordance with prevailing traditions; and it was made between two natural persons having bonds of natural love and affection. The gift has been later recognized in two registered documents also, namely the Streedhan Agreement and by way of Gift Deed. Therefore, the appellant cannot be regarded as owner of the said residential House Property at Gayatri Gardens, as on the sale of shares in June 2021."

"The due date for furnishing return of income under section 139(1), as applicable to the appellant being partner in a firm, whose accounts have indeed been audited under section 44AB of the Act, was 31st October 2022. The appellant has made the qualifying investment towards construction of new house, by way for purchase of land, on 18th October 2022. Further, the appellant has made the qualifying deposit of unutilized part of the sale consideration in the Capital Gains Accounts Scheme on 28th October 2022. In other words, the appellant has duly satisfied the technical requirements enjoined under sub-section (4) of section 54F."

"It is irrelevant whether the assessee has constructed building on entire portion of land and has only utilised portion of land for residential house and kept remaining land vacant. In our considered view, what is required to be seen is, whether the land purchased by the assessee for construction of residential house or notRs. Once the land is purchased for the purpose of construction of house property, then, there is no reason to disallow deduction only on the ground that the assessee has used part of land for construction of house property."

"The provisions of section 54F has been interpreted by various Courts and held that, once an assessee falls within the ambit of a beneficial provision, then, the said provision should be liberally interpreted."

The final determinations on each issue are:

- The assessee was not disqualified under proviso to section 54F(1) for owning more than one residential house on the date of transfer, as the gift to the daughter was valid despite late registration.

- The purchase of another residential house within one year after transfer did not violate proviso to section 54F(1), as substantial payment was made prior to transfer and possession was taken after one year.

- The assessee complied with the due date for investment/deposit under section 54F(4) and section 139(1), being 31.10.2022 applicable to partner in audited firm.

- Investment in purchase of vacant land coupled with construction of residential house within prescribed period qualifies for exemption under section 54F.

- The exemption claimed under section 54F amounting to Rs. 53,22,48,667/- was rightly allowed, and the addition disallowing exemption was deleted.

The core legal questions considered by the Tribunal are:

- Whether Foreign Tax Credit (FTC) of Rs. 76,51,818 can be denied solely on the ground that Form 67 was filed beyond the due date prescribed under Section 139(1) of the Income-tax Act, 1961Rs.

- Whether the filing of Form 67 on 23.7.2020, prior to the filing of the revised return on 30.7.2020, satisfies the procedural requirements under Rule 128 of the Income-tax Rules for claiming FTCRs.

- Whether the appellate authority erred in directing the assessee to seek condonation of delay in filing Form 67 from the Principal Commissioner of Income Tax (PCIT), instead of deciding the claim on merits under Section 246ARs.

- Whether the proceedings under Section 143(1) of the Act, denying FTC without prior communication to the assessee as mandated by the proviso to Section 143(1)(a), are valid in lawRs.

- Whether the appellate authorities failed to follow binding judicial precedents and principles established by higher courts regarding the directory nature of the time limit for filing Form 67 and the validity of Section 143(1) proceedingsRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Denial of Foreign Tax Credit for delay in filing Form 67

The relevant legal framework includes Section 90 and Section 91 of the Income-tax Act, 1961, which provide for relief in respect of foreign taxes paid, and Rule 128 of the Income-tax Rules, which prescribes the procedure for claiming FTC, including the requirement to file Form 67 on or before the due date specified under Section 139(1).

The Tribunal noted that for the assessment year 2019-20, Rule 128(8) mandated filing of Form 67 on or before the due date of filing the original return under Section 139(1). The assessee filed the original return on 31.8.2019 without Form 67 but filed Form 67 on 23.7.2020, prior to filing the revised return on 30.7.2020.

The Tribunal observed that the due date requirement under Rule 128 was amended retrospectively effective 1.4.2022 to allow filing Form 67 on or before the due date of filing the original or revised return under Section 139(1) or 139(4). However, this amendment does not apply to AY 2019-20.

Despite the apparent non-compliance with the original Rule 128(8), the Tribunal extensively relied on judicial precedents, including the decision of the Hon'ble Madras High Court in Duraiswamy Kumaraswamy v. PCIT and multiple ITAT orders, which held that the time limit prescribed under Rule 128 is directory and not mandatory. The Tribunal emphasized that the filing of Form 67 prior to processing of the return by the CPC and availability of Form 67 to the authorities should suffice for granting FTC.

In applying the law to facts, the Tribunal found that since Form 67 was filed before the revised return and was available to the CPC before processing, the denial of FTC was not justified. The Tribunal thus overruled the lower authorities' strict interpretation of the time limit as mandatory.

Competing arguments centered on the Revenue's insistence on strict compliance with Rule 128(8) and the absence of condonation powers with the CIT(A). The Tribunal rejected these arguments, holding that the procedural requirement is directory and that the assessee's substantive right to FTC should not be defeated by a technical delay.

Issue 2: Filing of Form 67 prior to revised return

The Tribunal confirmed that the assessee filed Form 67 electronically and verified it on 23.7.2020, prior to filing the revised return on 30.7.2020. This sequence was critical to the assessee's claim that the procedural requirement was met in substance, if not in strict timing.

The Tribunal found the lower authorities' assertion that Form 67 was not filed to be incorrect and noted that the appellate order itself acknowledged the filing of Form 67. This supported the conclusion that the assessee had complied with Rule 128 requirements in a substantive manner.

Issue 3: Whether the CIT(A) erred in directing the assessee to seek condonation of delay

The Tribunal examined the scope of the CIT(A)'s powers under Section 246A and the provisions of Section 119(2)(b) relating to condonation of delay in filing documents.

The CIT(A) had held that the delay in filing Form 67 could only be condoned by the PCIT and advised the assessee to approach that authority. The Tribunal held that the assessee had approached the CIT(A) in appeal under Section 246A, not for condonation of delay, and that the CIT(A) should have decided the claim on merits.

The Tribunal further observed that the procedural requirement of filing Form 67 is directory and that the CIT(A) erred in not entertaining the appeal on merits and in shifting the burden of condonation to the assessee.

Issue 4: Validity of Section 143(1) proceedings denying FTC without prior communication

The proviso to Section 143(1)(a) requires the Assessing Officer to communicate any adjustment proposed in the intimation to the assessee before making the adjustment.

The Tribunal noted that the assessee contended that no formal communication was sent before denial of FTC in the intimation under Section 143(1). The CIT(A) had incorrectly stated that such communication was made.

The Tribunal referred to judicial precedents including Arham Pumps v. DCIT and Ernst & Young Merchant Banking Services LLP v. ADIT, which held that denial of FTC without prior communication violates the proviso and renders the proceedings invalid.

The Tribunal found merit in the assessee's contention and held that the denial of FTC in Section 143(1) intimation without prior communication was not valid in law.

Issue 5: Non-adherence to judicial precedents by lower authorities

The Tribunal extensively referred to judicial pronouncements relied upon by the assessee, including decisions of the Hon'ble Supreme Court and High Courts, and various ITAT orders, which consistently held that:

• The time limit for filing Form 67 is directory and not mandatory;
• The assessee's substantive right to FTC cannot be defeated by procedural delays;
• Section 143(1) adjustments require prior communication to the assessee;
• Lower authorities must follow binding precedents and not adopt a hyper-technical approach.

The Tribunal held that the CIT(A) and Assessing Officer failed to follow these precedents and principles, resulting in erroneous denial of FTC.

3. SIGNIFICANT HOLDINGS

The Tribunal held, inter alia, that:

"The time limit prescribed u/r 128 is merely directory and not mandatory. Therefore, if such Form is available at the time of processing of the return, the assessee should be granted the credit for the same."

"When the assessee has filed Form 67 before the due date of filing of revised return of income and available to the CPC prior to the processing of the return, which is also in tune with the retrospective amendment made in sub-Rule (9) of Rule 128 of the I.T. Rules, the denial of tax credit to the assessee is not justified."

"No formal communication was sent to the Appellant as required by the proviso to Section 143(1)(a) of the Act. Hence, the denial of FTC in the intimation under Section 143(1) is invalid in law."

"The CIT(A) erred in stating that condonation of delay in filing Form 67 lies with the PCIT and should have entertained the appeal on merits under Section 246A."

Core principles established include:

• The procedural requirement to file Form 67 within the due date under Rule 128 is directory, not mandatory, and delay should not defeat substantive FTC claims.
• Section 143(1) proceedings denying FTC without prior communication violate statutory provisos and are invalid.
• Appellate authorities must decide appeals on merits and not redirect taxpayers to condonation proceedings unnecessarily.

Final determinations on each issue were in favour of the assessee, directing the Assessing Officer to grant the foreign tax credit of Rs. 76,51,818 after verifying the Form 67 filed on 23.7.2020. The appeal was allowed accordingly.

1. Whether the assessee, a charitable trust, has under-reported income within the meaning of section 270A(2) of the Act by claiming excess application of income/expenditure beyond permissible limits under section 11(1)(a).

2. Whether the penalty under section 270A is justified when the assessed income is not greater than the income determined in the return processed under section 143(1)(a).

3. The correct interpretation and applicability of the provisions of section 270A(2), including clause (g), in the context of a charitable trust where the concept of loss is not applicable.

4. The effect of the assessee filing a revised computation during assessment proceedings on the question of under-reporting and penalty liability.

5. Whether the excess claim of expenditure, falling within the statutory accumulation limit of 15% under section 11(1)(a), negates the applicability of penalty for under-reporting.

6. The relevance of the Revenue's contention that the initial erroneous claim was deliberate and that penalty should be imposed notwithstanding the revised computation.

7. The implications of the penalty provisions on the broader statutory scheme regulating charitable trusts, including compliance with filing forms and monitoring accumulated amounts.

Issue-wise Detailed Analysis:

Issue 1 & 2: Under-reporting of Income under Section 270A(2) and Assessed Income vis-`a-vis Processed Income

The legal framework for penalty under section 270A(2) requires that the income assessed must be greater than the income determined in the return processed under section 143(1)(a) or meet other conditions enumerated in clauses (a) to (g) of subsection (2). The Tribunal examined these clauses in detail as per the CIT(A)'s order, noting that in this case:

• The assessed income was NIL, equal to the income determined under section 143(1)(a).
• There was no reassessment proceeding invoked.
• Provisions relating to deemed income under sections 115JB or 115JC were not applicable to the trust.
• Clause (g), which deals with income assessed or reassessed having the effect of reducing loss or converting loss into income, was held inapplicable since trusts do not have the concept of loss or deficit carry-forward.

The Court reasoned that since none of the conditions under section 270A(2) were met, the penalty for under-reporting could not be sustained. The Revenue's argument that the income assessed could be treated as more than that determined on processing was rejected on the basis of a strict and purposive interpretation of the statutory language.

Issue 3 & 5: Excess Claim of Expenditure and Statutory Accumulation Limit under Section 11(1)(a)

The assessee had initially claimed revenue expenditure of Rs. 54.82 crores which was later revised to Rs. 48.77 crores during assessment proceedings. The excess claim of Rs. 6.04 crores was within the permissible accumulation limit of 15% of total receipts (Rs. 8.81 crores). The Tribunal accepted the CIT(A)'s finding that since the excess claim fell within this statutory limit, it did not amount to under-reporting of income.

The Revenue's contention that the CIT(A) failed to consider future expenditure requirements of the trust and that the excess claim was a deliberate attempt to under-report income was examined and rejected. The Tribunal emphasized that the revised computation was filed voluntarily during assessment and the income remained NIL, negating the Revenue's claim of deliberate misreporting.

Issue 4 & 6: Deliberate Attempt to Under-Report Income and Effect of Revised Computation

The Revenue argued that the initial erroneous claim was deliberate and that penalty should apply regardless of the revised computation, relying on judicial precedents advocating strict interpretation in favor of revenue. However, the Tribunal noted that the assessee had filed a revised computation correcting the error and that the income assessed was NIL. The AO's imposition of penalty was therefore not justified as there was no under-reporting as defined under section 270A(2).

The Tribunal also observed that the insertion of section 270A replaced the necessity of proving tax evasion with the concept of tax on under-reported income, but since no under-reporting was found, the penalty could not be levied.

Issue 7 & 8: Broader Statutory Compliance and Reporting Obligations

The Revenue contended that allowing erroneous claims without penalty would undermine other statutory provisions relating to filing of forms and monitoring accumulated amounts. The Tribunal held that this argument could not override the clear statutory requirements for levy of penalty under section 270A. The penalty provisions are specific and require conditions to be satisfied which were not met in this case.

Issue 9: Camouflage of Depreciation as Revenue Expenditure

The Revenue alleged that the assessee camouflaged depreciation as revenue expenditure, detected only due to scrutiny. The Tribunal found that the assessee had corrected the computation during assessment and that the AO had accepted the revised figures. The element of bona fide belief was found to be present, negating any deliberate attempt to misreport.

Conclusions on Issues:

• The penalty under section 270A requires assessed income to be greater than processed income or meet other specified conditions; none were met here.
• The excess claim of expenditure was within the statutory accumulation limit under section 11(1)(a), negating under-reporting.
• The revised computation filed by the assessee was accepted, and income was assessed at NIL, precluding penalty.
• The Revenue's contentions of deliberate misreporting and tax evasion were not supported by evidence.
• The statutory scheme for charitable trusts and penalty provisions must be harmoniously interpreted, respecting the specific conditions for penalty.

Significant Holdings:

The Tribunal upheld the CIT(A)'s order deleting the penalty under section 270A, stating:

"For levy of penalty u/s. 270A of the Act the assessed income should be greater than the processed income u/s. 143(1)(a) of the Act. But, in the instant case, the assessed income is not exceeding the income determined u/s. 143(1)(a)."

Further, the Tribunal emphasized the statutory conditions under section 270A(2):

"None of the conditions specified under clause (a) to (g) of the said section required for levy of penalty for under-reporting of income, are met in the case of the assessee."

And on the excess expenditure claim:

"The excess claim of Rs. 6,04,24,824/- is within the limit of statutory accumulation @15% on Rs. 58,75,26,422/- (declared as per Income & Expenditure A/c)."

The Tribunal concluded that the penalty imposed by the AO was not sustainable and dismissed the Revenue's appeal.

1. Whether section 68 of the Income Tax Act can be invoked in the absence of books of account maintained by the assessee, particularly when credits appear only in bank statements/passbooks.

2. Whether the additions made on account of unsecured loans received from family members and repayments of loans advanced by the assessee are justified under section 68 read with section 115BBE.

3. Whether the claim of exempt income by way of gifts in the form of loose diamonds from the assessee's sons can be disallowed on grounds of unexplained gifts and insufficient proof of source.

4. Whether the impugned orders were passed without affording the assessee an opportunity of being heard, thus violating principles of natural justice.

Issue-wise Detailed Analysis

1. Applicability of Section 68 in Absence of Books of Account

Legal Framework and Precedents: Section 68 deals with unexplained cash credits appearing in the books of account of the assessee. The term "books of account" is defined under section 2(12A) of the Act to include ledgers, daybooks, cash books, account-books, and other such records maintained by the assessee. Bank passbooks or statements maintained by banks do not qualify as "books of account" of the assessee. The Supreme Court in Baladin Ram v. CIT held that credits appearing in bank passbooks cannot be treated as credits in the books of the assessee. The jurisdictional High Court in CIT v. Ms. Mayawati also held that section 68 is not applicable where the assessee does not maintain books of account.

Court's Interpretation and Reasoning: The Tribunal emphasized that since the assessee was not engaged in any business activity and did not maintain any books of account, invocation of section 68 was legally impermissible. The bank statements/passbooks are maintained by the bank and do not constitute the assessee's books. Therefore, treating credits appearing only in bank statements as unexplained cash credits under section 68 is contrary to law and a jurisdictional error.

Application of Law to Facts: The assessee's admitted non-maintenance of books of account and lack of business activity precluded the applicability of section 68. The AO's reliance on bank statements to make additions under section 68 was found unsustainable.

Conclusions: The Tribunal held that the additions under section 68 were unsustainable in law in the absence of books of account and quashed the additions on this ground.

2. Additions on Account of Unsecured Loans and Repayment of Loans

Legal Framework and Precedents: Section 68 casts an onus on the assessee to satisfactorily explain the nature and source of credited amounts appearing in the books of account. The Supreme Court and various High Courts have held that genuine loans received from relatives/family members, supported by documentary evidence, confirmations, bank statements, and proof of repayment, cannot be treated as unexplained credits. The repayment of loans during the same financial year strongly indicates bonafides. Further, the creditworthiness of the lender cannot be judged solely on the basis of their income in the relevant year but must consider their overall financial position and capital resources.

Court's Interpretation and Reasoning: The Tribunal meticulously examined documentary evidence including loan confirmations, income tax returns, bank statements, computations of income, and statements of affairs of the lenders (family members). It noted that all loans were either fully or substantially repaid during the financial year through banking channels. The lenders' financial standing was demonstrated by large opening capital balances and other sources of funds such as sale of shares and gifts received by them. The Tribunal rejected the AO's approach of doubting creditworthiness based solely on current year income.

Key Evidence and Findings: Confirmations from lenders, bank statements showing receipt and repayment of loans, income tax returns and computations of income of lenders, and statements of affairs were relied upon to establish genuineness and source of funds. The Tribunal also noted that the loans received were from close family members, strengthening the natural presumption of bonafides.

Treatment of Competing Arguments: The AO and CIT(A) doubted the creditworthiness of lenders and did not accept the explanations. The Tribunal disagreed, holding that the AO failed to consider the entire financial position of the lenders and ignored repayment of loans, which is a critical factor. The Tribunal also relied on judicial precedents that additions under section 68 are not sustainable once loans are repaid.

Application of Law to Facts: The facts showed that the loans were genuine, supported by documentary evidence, and repaid during the year, thus discharging the onus under section 68. The repayments negated any suspicion of disguised income or unexplained credits.

Conclusions: The Tribunal deleted the additions of INR 5,90,73,007/- made under section 68 read with section 115BBE, holding that the assessee had satisfactorily explained the nature and source of loans and repayments.

3. Disallowance of Claim of Exempt Income on Account of Gifts of Loose Diamonds

Legal Framework and Precedents: Gifts received from specified relatives, including sons, are exempt from income tax. The burden lies on the assessee to establish the genuineness of the gift, source of funds used by the donor, and relationship. The Supreme Court and various High Courts have recognized that natural love and affection between close relatives need not be proved beyond establishing relationship. The genuineness of gifts can be supported by gift deeds, purchase invoices, bank statements, and evidence of source of funds.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee had placed on record purchase invoices of loose diamonds, gift deeds, bank statements of the donors showing withdrawal of funds without cash deposits, income tax returns, and computations of income of the donors. The relationship between the assessee and donors was established by ration card copies. The AO's and CIT(A)'s rejection based on meager income and absence of "occasion" for gift was held to be based on mere suspicion and surmises.

Key Evidence and Findings: Documentary evidence included purchase invoices, gift deeds, bank statements showing funds used for purchase, and income tax returns of donors. The Tribunal found no adverse evidence to discredit the gifts.

Treatment of Competing Arguments: The Revenue's argument of lack of occasion and insufficient capacity of donors was rejected as irrelevant and unsupported by evidence. The Tribunal emphasized that natural love and affection is a sufficient basis for gifts between close relatives.

Application of Law to Facts: The gifts were voluntary transfers from sons to mother, supported by credible evidence and consistent with natural familial relationships. The source of funds was explained satisfactorily.

Conclusions: The Tribunal allowed the claim of exempt income of INR 1,11,56,703/- on account of gifts and directed deletion of additions made on this ground.

4. Alleged Violation of Natural Justice

The assessee contended that the impugned orders were passed without providing an opportunity of being heard. However, the Tribunal did not find any merit in this contention as the record indicated that the assessee had ample opportunity to present evidence and submissions before the AO and CIT(A). No further elaboration was deemed necessary.

Significant Holdings

"It is a settled position of law that no addition can be made u/s 68 of the Act in absence of any credit entry in the books as defined u/s 2(12A) of the Act maintained by the assessee."

"The bank passbook/statement do not constitute books of account. The pass book of the bank cannot be treated as a book of account of the assessee because this is provided by the banker, to its customer and is only a copy of the customer's account in the books maintained by the bank."

"The factum of repayment quells the apprehension entertained by the Revenue. The overriding factum of repayment of loan itself repels any form of disguise on the part of the assessee and dispels the perception of any sordid or extraneous affairs."

"When the Department has accepted the factum of repayment, the additions under s. 68 is not sustainable in law."

"The word 'may' in section 68 indicates that the intention of Parliament was to confer a discretion on the Assessing Officer in the matter of treating the source of investment as unexplained. The AO is not necessarily obliged to invoke section 68 in every case where explanation is found unsatisfactory."

"Natural love and affection between sons and mother is a most sacrosanct relationship. Such gifts do occur in Indian societies for varied family reasons. No occasion is required per se for giving gift to mother."

"In the absence of any adverse evidence, the additions made on conjecture are totally uncalled for."

Final determinations on each issue were as follows:

- Additions under section 68 read with section 115BBE on account of unsecured loans and repayments were deleted, as the assessee discharged the onus of explanation with credible documentary evidence and repayment of loans.

- The invocation of section 68 was held to be legally impermissible in absence of books of account maintained by the assessee.

- The claim of exempt income on gifts of loose diamonds from sons was accepted and additions disallowed, as the assessee proved genuineness, source of funds, and relationship.

- No violation of natural justice was found in the impugned orders.

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

- Whether the enhancement of customs assessable value based on NIDB data without following the prescribed statutory procedure under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, is legally sustainable.

- Whether the assessing officer was justified in rejecting the declared transaction value of imported goods without valid reasons or a speaking order as mandated under Section 14 of the Customs Act and relevant valuation rules.

- Whether the Revenue's selective adoption of comparative data (NIDB data) to enhance the value constitutes a lawful and fair method of valuation.

- Whether the appellant (Revenue) discharged the burden of proving that the declared transaction value did not represent the full price actually paid or payable for the imported goods.

- The applicability and binding nature of precedents regarding valuation disputes, particularly the principle that transaction value should be the primary basis for customs valuation unless rebutted with cogent reasons.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Enhancement of Customs Value Based on NIDB Data Without Following Valuation Rules

Relevant Legal Framework and Precedents: The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, prescribe a detailed procedure under Section 14 of the Customs Act for determining the assessable value of imported goods. The transaction value declared by the importer is to be accepted unless there are valid reasons to reject it. Precedents from this Tribunal and the Hon'ble Supreme Court emphasize that the transaction value is the primary basis for valuation and cannot be lightly discarded without following statutory procedure.

Court's Interpretation and Reasoning: The Tribunal noted that the assessing officer did not follow the due procedure under Section 14 and the Valuation Rules before enhancing the value. Instead, the officer adopted NIDB data selectively to enhance the value. The Tribunal relied on earlier decisions where similar approaches were struck down for lack of valid reasons and procedural lapses.

Key Evidence and Findings: The Department relied on NIDB data showing higher values for similar goods but failed to provide complete data to the appellant, only furnishing data for 88 out of 1341 cases. This selective presentation was criticized as a "pick and choose" approach, which is not permissible.

Application of Law to Facts: The Tribunal applied the principle that the transaction value declared by the importer is to be accepted unless the Revenue can prove that it is not the price actually paid or payable. Since the Department failed to follow the statutory procedure and did not produce evidence to rebut the declared value, the enhancement was held to be illegal.

Treatment of Competing Arguments: The Revenue argued that the NIDB data justified enhancement. However, the Tribunal rejected this on the ground that the data was incomplete, selectively used, and the statutory procedure was not complied with. The Respondent's argument that the declared value was correct was accepted due to lack of contrary evidence.

Conclusion: Enhancement of value based solely on selective NIDB data without following statutory procedure is unsustainable.

Issue 2: Validity of Rejecting Transaction Value Without a Speaking Order or Valid Reasons

Relevant Legal Framework and Precedents: Section 14 of the Customs Act requires that if the transaction value is rejected, the assessing officer must record valid reasons and follow the valuation rules. The Tribunal cited precedents holding that rejection without valid reasons or a speaking order is illegal.

Court's Interpretation and Reasoning: The Tribunal found that the assessing officer rejected the declared transaction value without any valid reasons or a speaking order explaining the rationale behind the rejection. The Tribunal emphasized that such rejection is contrary to law.

Key Evidence and Findings: There was no evidence on record indicating that the buyer and seller were related or that the declared price was not the sole consideration for sale. No evidence was produced to show any additional payments beyond the invoice value.

Application of Law to Facts: The Tribunal applied the established legal principle that the transaction value is to be accepted unless valid reasons are recorded. The absence of such reasons or evidence led to the conclusion that the rejection was unlawful.

Treatment of Competing Arguments: The Revenue's failure to produce evidence or reasons was fatal to its case. The Respondent's reliance on the declared invoice value was upheld.

Conclusion: The rejection of transaction value without valid reasons or a speaking order is illegal and liable to be set aside.

Issue 3: Legitimacy of the "Pick and Choose" Approach by Revenue in Valuation

Relevant Legal Framework and Precedents: The Tribunal referred to a decision of the Principal Bench of CESTAT, New Delhi, which condemned the Revenue's approach of accepting higher prices and rejecting lower prices for the same goods as illegal and contrary to valuation rules. The Hon'ble Supreme Court has endorsed this view.

Court's Interpretation and Reasoning: The Tribunal observed that the Revenue's selective use of data to enhance value amounted to a "pick and choose" approach, which is impermissible. The valuation must be based on consistent and fair application of rules without bias.

Key Evidence and Findings: The Department failed to provide complete data and instead relied on selective cases to justify enhancement. This undermined the credibility of the valuation exercise.

Application of Law to Facts: The Tribunal held that such selective adoption of data violates the principle of fair valuation and the statutory scheme.

Treatment of Competing Arguments: The Revenue's argument that the NIDB data justified enhancement was rejected due to incomplete and selective use of data.

Conclusion: The "pick and choose" approach by the Revenue in valuation is illegal and cannot sustain enhancement of customs value.

3. SIGNIFICANT HOLDINGS

- "The assessing officer has rejected the transaction value without any valid reasons and without new procedure as per Section 14 and valuation rules especially, there is nothing on record that the appellant has imported the secondary items but the value was considered for the fresh items. No speaking order was passed for enhancement of value."

- "The enhancement of the value is likely to be struck down and rightly struck down by the Commissioner (Appeals)."

- "The lower authority has adopted a pick and choose approach in the present case which is not the right way to adjudication."

- "Rule 4 of Custom Valuation Rules specifically provides that transaction value should be the basis for the valuation of the consignment under assessment, unless the transaction value is not representing the full price for the reasons mentioned in the Rule itself. Law does not allow a pick and choose approach."

- "There is nothing on record to suggest that the buyer and seller of the goods were related persons or that the price was not for the sole consideration for sale. Therefore, in these circumstances, the enhancement of assessable value is liable to be struck down and set aside."

- "The enhancement of values done in this case is without having any sanction of law and is thus liable to be set aside outrightly."

- The Tribunal upheld the order of the Commissioner (Appeals) setting aside the enhancement of customs value and dismissed the Revenue's appeal.

The core legal questions considered by the Tribunal are:

1. Whether the appellant, who purchased the imported vehicle after customs clearance, can be treated as the actual importer liable for payment of differential customs duty under the Customs Act, 1962.

2. Whether the demand of differential customs duty and confiscation of the vehicle from the appellant, who is a subsequent purchaser and not the importer, is sustainable.

3. Whether the redemption fine imposed under Section 125 of the Customs Act, 1962 can be demanded from the appellant as a bona fide purchaser who did not exercise the option to redeem the confiscated goods.

4. Whether penalties under Sections 114A and 114AA of the Customs Act, 1962 can be imposed on the appellant who neither imported the vehicle nor made any false declarations or suppressed facts during import clearance.

5. The applicability and interpretation of relevant judicial precedents regarding liability for customs duty, confiscation, redemption fine, and penalties in cases involving subsequent purchasers of imported goods.

Issue-wise Detailed Analysis

1. Liability of the Appellant as Importer for Differential Customs Duty

The legal framework governing importation and customs duty liability is primarily the Customs Act, 1962, including Sections 2(26) (definition of importer), 28 (recovery of duty), 111(m) (confiscation), and 125 (option to pay fine in lieu of confiscation). The Import Licensing Notes under Chapter 87 of the ITC (HS) Classification also regulate import of vehicles under transfer of residence benefits.

The Tribunal examined whether the appellant, who purchased the vehicle after customs clearance, qualifies as the importer liable for differential duty. The vehicle was imported by Mr. Arshad Vayal Peedika, who filed the Bill of Entry and cleared the vehicle under transfer of residence provisions, supported by his passport and residence status abroad. The appellant purchased the vehicle post-clearance and paid the customs duty amount to the importer as part of the sale arrangement.

Precedents such as Gagandeep Singh Anand v. Commissioner of Customs (Bom. HC) and Commissioner of Customs v. Nalin Choksey (Kerala HC) were extensively relied upon. These cases establish that the liability to pay customs duty under Section 28 is on the importer who filed the Bill of Entry and cleared the goods. A subsequent purchaser, even if in possession of the goods, is not the importer and cannot be fastened with the duty liability unless he opts to redeem confiscated goods under Section 125.

The Tribunal noted that the appellant did not file the Bill of Entry, did not import or clear the vehicle, and was not the beneficial owner at the time of import. The Department failed to produce corroborative evidence to prove the appellant as the actual importer. Thus, the Tribunal held that the demand of differential duty from the appellant is unsustainable and set aside the demand.

2. Confiscation and Redemption Fine Imposed on the Appellant

Section 111(m) of the Customs Act permits confiscation of goods in cases of misdeclaration or undervaluation. Section 125 provides an option to the owner or person from whom goods were seized to pay a fine in lieu of confiscation and recover the goods.

The vehicle was confiscated, and a redemption fine imposed on the appellant. However, the appellant was a subsequent purchaser, not the importer or original owner at the time of import. The Tribunal referred to the principle that confiscation can only be enforced against the importer or owner from whom goods were seized, and redemption fine applies only if the person opts to redeem the goods.

Since the appellant did not exercise the option to redeem, and the vehicle was cleared in the name of the importer, the Tribunal held that confiscation and redemption fine imposed on the appellant are not sustainable. The vehicle was cleared for home consumption, and confiscation after clearance without revision or cancellation of clearance order is impermissible as per the Madras HC judgment in Nakoda Unique Gold Pvt Ltd.

3. Penalties under Sections 114A and 114AA of the Customs Act

Section 114A imposes penalty for short payment or non-payment of duty due to wilful misstatement or suppression. Section 114AA penalizes knowingly or intentionally making false or incorrect declarations in material particulars.

The appellant contended that he did not import the vehicle, did not file any documents for clearance, had no knowledge of misdeclaration, and was a bona fide purchaser. The Department alleged involvement in a fraudulent scheme but failed to produce evidence linking the appellant to any collusion or misdeclaration.

The Tribunal examined the legal requirements for imposing these penalties and found that since the appellant was not liable to pay duty and did not make any false declarations, penalties under Sections 114A and 114AA could not be imposed on him. The Tribunal also relied on the CESTAT Bangalore decision in Buhler India Pvt. Ltd., which held that penalty under Section 114AA cannot be imposed if penalty under Section 114A is already imposed for the same offence.

4. Treatment of Competing Arguments and Evidence

The Department argued that the appellant was the actual importer as he paid customs duty and used the vehicle for years, including registration and insurance in his name. However, the Tribunal emphasized that importation liability is determined by who filed the Bill of Entry and cleared the goods, not by subsequent use or registration.

The appellant highlighted the fraudulent modus operandi involving other parties, who were not adequately investigated or penalized, and argued that he was a victim of misrepresentation. The Tribunal noted the absence of investigation or statements recorded from key alleged conspirators and the lack of evidence implicating the appellant.

The Tribunal gave precedence to the statutory definitions and judicial precedents over the Department's contentions, finding the appellant's arguments more consistent with the law and facts.

Significant Holdings

"The person who purchased the vehicle from the importer, in whose possession the vehicle was seized cannot be considered as the actual 'importer' of the vehicle."

"The demand of differential Customs duty has not been raised against Mr. Arshad Vayal Peedika in the present case. Accordingly, we hold that the differential duty demanded from Mr. Sachin Joshi is not sustainable and thus the same is set aside."

"The confiscation of the vehicle from the appellant, who is not the importer of the car and who had only purchased the said vehicle, is not sustainable and accordingly, we set aside the order of confiscation made vide the impugned order."

"Penalty under section 114A cannot be imposed on him. Penalty under section 114AA cannot be imposed on him. Accordingly, we set aside the penalties imposed under sections 114A and 114AA of the Customs Act, 1962."

Core principles established include:

• The liability to pay customs duty and differential duty lies with the actual importer who files the Bill of Entry and clears the goods, not with subsequent purchasers.
• Confiscation and redemption fine under Section 125 apply only to the importer or person from whom goods were seized who opts to redeem the goods; bona fide purchasers who do not exercise this option cannot be held liable.
• Penalties for misdeclaration or suppression under Sections 114A and 114AA cannot be imposed on persons who did not participate in import clearance or make false declarations.
• Goods cleared for home consumption cease to be imported goods, and confiscation post-clearance requires proper revision or cancellation orders.

Final determinations:

• The demand of differential customs duty from the appellant is set aside.
• The order of confiscation and redemption fine imposed on the appellant is set aside.
• The penalties under Sections 114A and 114AA imposed on the appellant are set aside.

Regarding the first issue, the legal framework involves the Customs Act and the Foreign Trade Policy provisions governing duty drawbacks and the procedural safeguards related to alerts or suspensions on IECs. The Department placed an alert on the petitioner's IEC on 13th February 2020, leading to the withholding of duty drawbacks. This alert was subsequently removed by the Customs Department, indicating that the initial justification for withholding was no longer valid. The Court examined the sequence of events and noted that the alert was linked to ongoing appellate proceedings but was eventually lifted. The Court reasoned that since the alert was removed, the continued withholding of duty drawbacks lacked justification. The petitioner's grievance filed via CPGRAMS and the subsequent communications confirmed this factual matrix. The Court applied the law to the facts by directing the release of duty drawbacks, emphasizing that no valid alert or suspension should impede the petitioner's legitimate claims.

The second issue concerns the validity of the Show Cause Notice dated 24th August 2015, which invoked the extended period of limitation to recover duty drawbacks allegedly wrongly availed by the petitioner during 2006-07 to 2013-14. The relevant legal provisions include the Customs Act's limitation period rules and the principles governing extended limitation for recovery of duties. The CESTAT had earlier set aside the SCN on the ground that the extended period of limitation was not invokable because the petitioner had voluntarily deposited the duty drawback amount along with interest upon departmental objection in 2014. The Tribunal's order expressly stated that "under the facts and circumstances the extended period of limitation is not available to the Department" and allowed the appeal, entitling the petitioner to consequential benefits. The Court's interpretation affirmed that the Department could not rely on extended limitation after the petitioner's bona fide deposit and communication. This finding was critical in establishing the petitioner's right to duty drawbacks and negating the Department's demand.

Thirdly, the appellate and revision proceedings before Customs authorities and the High Court were analyzed. The Department challenged the CESTAT's order before the High Court in connected writ petitions and appeals. The High Court, in its December 2023 judgment, declined to adjudicate on the limitation issue, noting that it had been decided in favor of the Revenue by the Commissioner (Appeals) and was pending before the revision authority under Section 129DD of the Customs Act. The Court granted the petitioner an opportunity to file a revision petition and directed that it not be dismissed on limitation grounds, allowing all grounds including limitation to be raised and decided on merits. This approach balanced the rights of the Revenue and the petitioner, ensuring procedural fairness. The Court's reasoning recognized the peculiar facts where the Revenue had initially not objected and had sanctioned refunds post-CESTAT order, thereby preventing the petitioner from being left remediless.

The fourth issue relates to the Supreme Court's intervention. The petitioner challenged the High Court's December 2023 judgment before the Supreme Court, which admitted the appeal and granted a stay on the impugned judgment and related notices. The Supreme Court's order effectively suspended the operation of the High Court's directions, creating a legal impasse. The High Court, in the present proceedings, acknowledged this stay and concluded that since the judgment was stayed, there was no justification for continued withholding of duty drawbacks. The Court directed the release of the pending duty drawbacks within 30 days, subject to the outcome of the Supreme Court appeal. This demonstrates the principle that interim reliefs and stays at the apex court level have overriding effect and that administrative action inconsistent with such stays cannot be sustained.

Finally, the entitlement of the petitioner to the release of pending duty drawbacks was considered in light of the above issues. The petitioner had been engaged in export activities for nearly 30 years and had exited the Export Oriented Unit (EOU) scheme in 2014 with proper formalities. The duty drawbacks were being paid until June 2020 but were withheld following the alert and departmental actions. The Court found that the withholding was unjustified post removal of the alert and in view of the Supreme Court stay on the adverse judgment. The petitioner's claim for Rs. 9,13,596/- pending duty drawbacks was thus upheld. The Court directed release within 30 days, emphasizing that such release is subject to the final decision in the pending Supreme Court appeal, thereby preserving the rights of both parties pending final adjudication.

The Court addressed competing arguments by the Department that justified withholding based on alerts and limitation grounds, and the petitioner's contention of entitlement to duty drawbacks and procedural impropriety in withholding. The Court's treatment was balanced, respecting the appellate and revision processes, while ensuring that the petitioner was not unduly prejudiced by administrative delays or procedural technicalities. It upheld the principle that legitimate claims should not be withheld without valid cause and that procedural safeguards must be observed.

Significant holdings include the following verbatim excerpts and principles:

"Under the facts and circumstances the extended period of limitation is not available to the Department, as the appellant had deposited on being so pointed out, along with interest, which is an admitted fact."

"We do not consider it apposite to decide in the facts of the present case as to whether the SCN dated 24.08.2015 was issued belatedly or not since the said issue had been decided in favour of the Revenue by the order passed by the Commissioner (Appeals), and has not been adjudicated upon by the revision authority having jurisdiction under Section 129DD of the Customs Act."

"In view of the fact that the judgment dated 12th December 2023 has been stayed, there can be no justification for holding back of duty drawbacks."

Core principles established include:

- The extended period of limitation cannot be invoked where the duty drawback amount has been voluntarily deposited along with interest upon departmental objection.

- Alerts placed on Import Export Codes must be justified and removed promptly if found baseless, failing which legitimate duty drawback claims cannot be withheld.

- Appellate and revision remedies under Customs law must be allowed to be exercised on merits, including limitation issues, without procedural dismissal.

- Interim stays by the Supreme Court override lower court orders and administrative actions, mandating compliance with the stay.

- Pending final adjudication, legitimate claims for duty drawbacks should not be unduly withheld, and administrative delays must be remedied.

Final determinations on each issue are as follows:

1. The alert on the petitioner's IEC was unjustified after its removal, and thus withholding of duty drawbacks on this ground was improper.

2. The Show Cause Notice invoking extended limitation was invalid as per CESTAT's order, entitling the petitioner to benefits.

3. The petitioner was granted opportunity to file revision under Section 129DD, and limitation cannot be a ground for dismissal of such revision.

4. The Supreme Court's stay of the High Court's December 2023 judgment suspends adverse consequences, necessitating release of duty drawbacks.

5. The petitioner is entitled to release of pending duty drawbacks within 30 days subject to the outcome of the Supreme Court appeal.

The core legal questions considered in this appeal include:

1. Whether the appellant bank, which advanced housing loans to individual homebuyers for purchasing residential units in the corporate debtor's project, qualifies as a financial creditor under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 ("Code").

2. Whether the claims filed by the bank on behalf of homebuyers, without explicit authorization from them, have locus standi and can be admitted by the Resolution Professional.

3. The legal effect of the tripartite agreement among the bank, homebuyers, and corporate debtor, specifically whether the corporate debtor's obligation to refund the bank in case of default establishes the bank's status as a financial creditor.

4. The validity and enforceability of the bank's claimed security interest or lien over the residential units, including the implications of non-registration under Section 77 of the Companies Act, 2013.

5. The relevance and applicability of prior judicial precedents, especially the judgments in Pioneer Urban Land and Infrastructure Limited and Axis Bank Limited vs. Value Infracon India Private Limited, in determining the status of the bank as a financial creditor.

6. Whether the rejection of the bank's claims by the Resolution Professional and dismissal by the Adjudicating Authority was legally sustainable.

7. The effect of Debt Recovery Tribunal (DRT) orders and recovery certificates on the bank's claim and its classification as a financial creditor.

8. The impact of the moratorium under Section 14 of the Code on the bank's proceedings before the DRT.

9. The implications of the Supreme Court's remand order for fresh consideration of the appeal.

Issue-wise Detailed Analysis

1. Status of the Bank as Financial Creditor under Section 5(8) of the Code

The legal framework defines a financial creditor as a person to whom a financial debt is owed (Section 5(7)) and financial debt includes money borrowed against interest and other specified liabilities (Section 5(8)). Importantly, an explanation under Section 5(8)(f) includes amounts raised from allottees under a real estate project as financial debt.

The appellant bank contended that pursuant to the tripartite agreement, it lent money directly to the corporate debtor on behalf of homebuyers, with a clear contractual obligation on the corporate debtor to refund the bank in case of default by homebuyers or builder's failure to deliver flats. This, the bank argued, establishes a direct financial debt owed by the corporate debtor to the bank, qualifying it as a financial creditor.

The Respondent and Adjudicating Authority, relying on the Supreme Court judgment in Pioneer Urban Land and the Tribunal's judgment in Value Infracon India, held that the bank does not qualify as a financial creditor because the loan was disbursed to homebuyers, who bear the repayment liability, and not to the corporate debtor. The tripartite agreement was seen as insufficient to alter this relationship.

The Tribunal noted that the tripartite agreement in the present case differs from that in Value Infracon. Clause 16 of the agreement imposes a primary obligation on the corporate debtor to refund the bank upon default or failure of the builder, with the borrower's liability being secondary. This creates a direct financial debt relationship between the corporate debtor and the bank, satisfying Section 5(8) requirements.

The Tribunal emphasized that the presence of a contractual obligation by the corporate debtor to repay the bank distinguishes this case from prior precedents and supports the bank's claim as a financial creditor.

2. Locus Standi and Authorization to File Claims on Behalf of Homebuyers

The Resolution Professional rejected the bank's claims on the ground that only individual homebuyers are entitled to file claims directly and that the bank lacked formal authorization to represent them. The bank argued that authorization was implied through prior communications and that it acted in good faith to represent collective interests.

The Tribunal observed that while homebuyers are recognized as financial creditors, the bank's claim arises from a direct contractual relationship with the corporate debtor under the tripartite agreement. Therefore, the bank's locus to file claims is independent of homebuyers' authorization. The Tribunal remanded the matter for fresh consideration of this aspect.

3. Validity and Enforceability of Security Interest

The bank claimed a prior charge/lien on the residential units, registered under SARFAESI and CERSAI, as security for the loans. The Respondent challenged this, citing the absence of registration under Section 77 of the Companies Act, 2013, and the requirement of permission from the land-owning authority (GNIDA) under the lease deed for creating any charge.

The Tribunal referred to its earlier judgment holding that non-registration under Section 77 does not invalidate a security interest or the status of a secured creditor. The Tribunal also noted that the bank had consent from the corporate debtor and that the charge was registered under SARFAESI and CERSAI, supporting the bank's security claim. The issue of permission from GNIDA was noted but not conclusively decided, leaving it open for the Adjudicating Authority to consider afresh.

4. Effect of DRT Orders and Recovery Certificates

The bank relied on DRT orders directing that the corporate debtor bear primary liability for refund of outstanding dues, and recovery certificates issued jointly against homebuyers and the corporate debtor. The Respondent alleged that the bank concealed the moratorium imposed under Section 14 of the Code in DRT proceedings, rendering such orders invalid.

The Tribunal acknowledged that recovery certificates and DRT orders may fall within the definition of financial debt as per Section 5(8). However, the question of compliance with the moratorium and the validity of such proceedings was left open for the Adjudicating Authority to examine in detail.

5. Applicability of Prior Judicial Precedents

The Respondent heavily relied on the Value Infracon judgment, which held that banks lending to homebuyers cannot be considered financial creditors of the corporate debtor. The Tribunal distinguished the present case on the basis of the unique clause in the tripartite agreement imposing primary repayment obligation on the corporate debtor.

The Supreme Court's remand order emphasized that the earlier NCLAT decision did not consider the merits or the specific contractual clauses imposing liability on the developer. The Tribunal was directed to consider these aspects afresh.

6. Rejection of Claims by Resolution Professional and Adjudicating Authority

The initial rejection of the bank's claim was based on the absence of direct financing to the corporate debtor and lack of authorization from homebuyers. The Tribunal found that the Adjudicating Authority erred in not considering the contractual obligation of the corporate debtor to repay the bank and the implications under Section 5(8) of the Code.

The Tribunal set aside the impugned order and remanded the matter for reassessment, directing the Adjudicating Authority to consider all contentions, including the contractual provisions and security interests, without being influenced by previous observations.

7. Impact of Moratorium under Section 14 on DRT Proceedings

The Respondent contended that the bank's failure to disclose the moratorium in DRT proceedings constituted a violation of Section 14, rendering those proceedings invalid. The Tribunal did not make a conclusive finding but noted that this issue requires detailed examination by the Adjudicating Authority.

8. Effect of Supreme Court Remand Order

The Supreme Court remanded the appeal for fresh consideration, noting that the previous dismissal was cryptic and did not address the merits or the contractual obligations of the developer. The Tribunal accordingly restored the appeal and directed a fresh hearing, keeping all contentions open.

Significant Holdings

"The distinguishable aspect of the tripartite agreement of the present appeal vis-`a-vis the tripartite agreement of Value Infracon India Private Limited (Supra) is that in the present case, the primary responsibility of repayment of loan in case of any of the eventuality laid down in tripartite agreement falls on the builder/ Corporate Debtor. This indicates a relationship of the Appellant Bank and the Corporate Debtor to meet the stipulation of Section 5(8) of the Code regarding the financial debt."

"In terms of Clause 16 of the tripartite agreement, the entire amount advanced by the bank on account of the borrower shall be refunded by the Corporate Debtor/ Builder to the Appellant/ bank. Thus, in terms of Section 5(8) read with Section 3(33) of the Code, the same may become a financial debt advanced by the Appellant bank to the Corporate Debtor."

"Non-registration of the Mortgage as per Section 77 of the Companies Act, 2013 is not a sufficient ground to conclude that the claimant is not a secured creditor."

"The rejection of the claim by the Resolution Professional and subsequent dismissal by the Adjudicating Authority was based on an erroneous application of the law as it failed to consider the contractual obligations of the Corporate Debtor to the Bank under the tripartite agreement."

"The claims of the Appellant Bank are to be reconsidered in light of the specific contractual provisions and the legal framework under the Code."

"The matter is remanded to the Adjudicating Authority for fresh consideration without being influenced by previous observations, with all contentions kept open."

1. Whether the respondents contravened Section 8 of FEMA read with Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 by failing to realize export proceeds within the stipulated period without prior permission from the Reserve Bank of India (RBI).

2. Whether the penalty imposed by the Adjudicating Authority under Section 42(1) of FEMA was appropriate or requires enhancement, considering the quantum of contravention and the efforts made by the respondents to recover the outstanding export proceeds.

3. Whether the Adjudicating Authority exercised its discretion judiciously in imposing the penalty amount, and if the penalty is excessive or inadequate in light of the facts and circumstances of the case.

Issue-wise Detailed Analysis:

Issue 1: Contravention of Section 8 of FEMA and Regulation 3 of the Foreign Exchange Management Regulations

The legal framework mandates exporters to realize and repatriate export proceeds within the prescribed period under Section 8 of FEMA and corresponding regulations. Failure to do so without RBI permission constitutes contravention, attracting penalties under Section 42(1) of FEMA.

The Adjudicating Authority found the respondents liable for contravention as they failed to realize export proceeds amounting to USD 2,081,686.25 (equivalent to Rs. 10,07,24,207.38) from exports made between June 2009 and July 2016. The respondents admitted the delay but attributed it to the overseas buyers absconding and their ongoing efforts to trace them and obtain RBI permission.

The respondents provided documentary evidence of export invoices, correspondence with overseas buyers, and attempts to recover dues, including legal notices. They also highlighted that over 85% of export proceeds were realized timely, and only two transactions remained outstanding due to non-payment by foreign companies whose offices were abandoned.

The Adjudicating Authority concluded that despite these efforts, the failure to realize the full export proceeds within the stipulated time constituted a contravention under FEMA provisions.

Issue 2: Appropriateness and Quantum of Penalty Imposed

Section 13(1) of FEMA prescribes a penalty up to three times the amount involved in the contravention, without fixing a minimum or mandatory quantum. The Adjudicating Authority imposed a penalty of Rs. 8,00,000 on the company and Rs. 2,00,000 on its director, approximately 1% of the outstanding amount, reflecting a lenient approach.

The appellant (Enforcement Directorate) contended that the penalty was nominal given the magnitude of contravention and lack of serious recovery efforts, urging enhancement. They argued that no suit for recovery was filed against the defaulting overseas buyers, and the penalty did not reflect the gravity of the violation.

The respondents countered that the appeal only sought enhancement of penalty, not a re-examination of merits. They emphasized the discretionary nature of penalty imposition, highlighting mitigating factors such as substantial realization of export proceeds, absence of fraud or suppression, and genuine difficulties in recovery due to foreign buyers' absconding and abandoned offices. They also cited the global recession context and financial constraints that dissuaded costly litigation abroad.

The Tribunal examined the evidence, including export records, correspondence, and the respondents' business history, noting that the respondents had earned significant foreign exchange for the country and had made reasonable efforts to recover dues. It was observed that the respondents had no advance export incentives, the exports were genuine and accepted by buyers, and that the counterpart banks were responsible for releasing documents against payment.

Legal precedent cited included a Supreme Court ruling that penalty provisions prescribing maximum limits do not mandate fixed or minimum penalties, leaving discretion to adjudicating authorities to impose penalties judiciously.

The Tribunal found the Adjudicating Authority had duly considered mitigating circumstances and exercised discretion judiciously in imposing a lenient penalty. It rejected the appellant's argument for enhancement, holding that the penalty was neither excessive nor inadequate in the facts and circumstances.

Issue 3: Discretionary Power of the Adjudicating Authority and Scope of Appeal

The respondents argued that once a quasi-judicial authority exercises its discretion in penalty imposition, such orders should not be interfered with on appeal unless there is evidence of malafide or arbitrariness. The Tribunal concurred, emphasizing that the Adjudicating Authority's order was based on objective evaluation of evidence and facts, and there was no allegation of bias or improper exercise of discretion.

The Tribunal reiterated that the appeal did not challenge the finding of contravention but only sought enhancement of penalty, which is a discretionary matter. Given the Adjudicating Authority's balanced approach and consideration of mitigating factors, the Tribunal declined to interfere with the penalty quantum.

Significant Holdings:

"From the language of the Section 13(1) FEMA, it is clear that the Section has not prescribed either a fixed amount of penalty or minimum amount of penalty. It therefore, follows that the amount of the penalty which is to be imposed by the Adjudicating Authority is a matter of discretion which, of course, is necessarily required to be exercised judiciously after taking into account the facts of the case and the evidence placed before him."

"The reading of the Adjudication Order, therefore, reflects objectivity and judiciousness on the part of the Adjudicating Authority."

"In view of the mitigating circumstances... we are not inclined to enhance the quantum of penalty, as there is nothing on record to show that the Adjudicating Authority has not properly and judiciously exercised his discretion."

"The statute (FEMA) itself provides for a penalty up to thrice the sum involved in such contravention and thereby gives explicit scope to the Adjudicating Authority to exercise his discretion, albeit judiciously, for imposition of penalty."

The Tribunal established the principle that penalty imposition under FEMA is discretionary and must be exercised judiciously considering the facts, evidence, and mitigating circumstances. It affirmed that appellate interference with penalty quantum is unwarranted absent arbitrariness or malafide.

On the facts, the Tribunal upheld the Adjudicating Authority's finding of contravention but declined to enhance the penalty, recognizing the respondents' substantial realization of export proceeds, genuine efforts to recover outstanding dues, and adverse circumstances beyond their control.

1. Whether the appellant was providing taxable services under the category of 'Business Auxiliary Services' as defined under the Finance Act, 1994, and thus liable to pay service tax for the period from FY 2011-12 to FY 2014-15.

2. Whether the Department was justified in invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994, for demanding service tax from the appellant.

3. Whether the Department was justified in resorting to the Best Judgment Assessment method under Section 72 of the Finance Act, 1994, due to non-submission of accounts by the appellant for FY 2014-15.

4. Whether interest and penalty under Sections 75, 78, 78A, and 70 read with Rule 7C of the Finance Act, 1994, were rightly imposed on the appellant.

Issue 1: Taxability of Services Rendered by the Appellant

Legal Framework and Precedents: The Finance Act, 1994, particularly Section 65(105)(22b), defines 'Business Auxiliary Services' to include services related to promotion, marketing, or sale of goods or services on behalf of the client. The Finance Acts of 2003, 2004, 2005, and 2006 progressively expanded the scope of these services to include almost all services rendered on behalf of a client, including promotion and marketing activities. Section 66B (effective from 01.07.2012) imposes service tax at the rate of 12% on all taxable services not exempted or included in the negative list.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant entered into an agreement to provide promotional activities for marketing and sales of the Golden Palm Hotel & Spa, including advertisements in newspapers, magazines, television, hoardings, telephonic outreach, and public information dissemination about the hotel's amenities. These activities squarely fall within the ambit of 'Business Auxiliary Services' as per the statutory definition. The Tribunal rejected the appellant's contention that they were not providing taxable services because they did not procure inputs or act as an agent, emphasizing that the nature of services rendered-promotion and marketing-is taxable regardless of the appellant's role in fixing fees or acting as an agent.

Key Evidence and Findings: The contract between the appellant and the hotel explicitly involved promotional activities. The Department's show cause notice and subsequent orders identified these services as taxable under the relevant provisions.

Application of Law to Facts: Since the appellant's services fall under 'Business Auxiliary Services' and are not exempted under Section 66D or any notification, service tax is leviable under Section 66B of the Finance Act, 1994.

Treatment of Competing Arguments: The appellant argued that the consideration was negotiated between the parties and that their services were distinct from the hotel's services to customers, thus non-taxable. The Tribunal held that the taxable event is the provision of promotional services to the client, irrespective of the commercial arrangement or the appellant's inability to fix fees charged to hotel customers.

Conclusion: The appellant was providing taxable 'Business Auxiliary Services' and is liable to pay service tax for the relevant period.

Issue 2: Invocation of Extended Period of Limitation under Section 73(1)

Legal Framework: Section 73(1) of the Finance Act, 1994, allows the Department to demand service tax beyond the normal limitation period if the tax has been willfully evaded or suppressed.

Court's Reasoning: While the Tribunal's order does not explicitly dwell on the extended period invocation, it proceeds on the basis that the Department's demand for service tax for the period FY 2011-12 to FY 2014-15 is valid, implying acceptance of the extended period invocation in absence of any challenge or evidence from the appellant to the contrary.

Conclusion: The extended period invocation is implicitly upheld due to lack of contest and evidence from the appellant.

Issue 3: Validity of Best Judgment Assessment under Section 72

Legal Framework and Precedents: Section 72 of the Finance Act, 1994, empowers the assessing authority to make a 'best judgment assessment' when the assessee fails to submit returns or fails to assess tax correctly. The Delhi High Court clarified that Section 72 applies when the assessee fails to pay service tax as per the provisions and is not a substitute for the adjudicatory process under Section 73. It authorizes a fair and reasonable estimate based on available material.

The Tribunal also relied on its own precedent where best judgment assessment was upheld when the appellant failed to provide evidence of amounts collected for services rendered.

Court's Interpretation and Reasoning: The appellant did not submit the Balance Sheet for FY 2014-15, compelling the Department to invoke Section 72 for best judgment assessment. The Tribunal noted that the Supreme Court decision cited by the appellant requires reliance on submitted accounts, but here no accounts were submitted. The Department's resort to best judgment was thus justified and legally valid.

Key Evidence and Findings: Non-submission of financial accounts for FY 2014-15 by the appellant and absence of any evidence contesting the Department's estimation.

Application of Law to Facts: The Department's best judgment assessment was a reasonable and fair estimate given the lack of information from the appellant.

Treatment of Competing Arguments: The appellant argued that their accounts were wrongly rejected and that the Department failed to justify the estimation. The Tribunal held that the failure to submit accounts left no alternative but to estimate, and the Department's approach was consistent with legal provisions and precedents.

Conclusion: The best judgment assessment under Section 72 was validly invoked and upheld.

Issue 4: Imposition of Interest and Penalty

Legal Framework: Sections 75, 78, 78A, and 70 read with Rule 7C of the Finance Act, 1994, provide for charging interest on unpaid service tax and imposing penalties for failure to pay tax, suppression of facts, or other contraventions.

Court's Reasoning: The Tribunal noted that since the demand of service tax was confirmed and the appellant did not dispute the correctness of the tax liability, the imposition of interest and penalty was consequential and justified. The appellant did not demonstrate any suppression or mis-declaration to evade tax, but the failure to pay service tax and non-compliance with statutory obligations warranted interest and penalties under the relevant provisions.

Conclusion: Interest and penalty imposed under the cited provisions were rightly levied and sustained.

Significant Holdings:

"The services rendered by the appellant are fully covered under the taxable category of 'Business Auxiliary Services' as defined under Section 65(105)(22b) of Finance Act, 1994."

"Section 72 of the Finance Act, 1994, empowers the Central Excise Officer to make a best judgment assessment when the assessee fails to submit returns or assess tax correctly. This provision authorizes a fair estimate based on available material and is not a substitute for the adjudicatory process under Section 73."

"In the absence of any information coming forth from the appellant regarding the exact amount collected for the services rendered, the Department was justified in resorting to the best judgment method for assessment."

"The appellant's failure to submit the Balance Sheet for FY 2014-15 left no option but to invoke the best judgment assessment under Section 72 of the Finance Act, 1994."

"Since the demand of service tax was confirmed, the imposition of interest and penalty under Sections 75, 78, 78A, and 70 read with Rule 7C of the Finance Act, 1994, is justified."

The Tribunal dismissed the appeal, upholding the demand of service tax along with interest and penalties, confirming the validity of the Department's best judgment assessment and the taxability of the appellant's promotional services under the category of Business Auxiliary Services.

The issue hinges on the interpretation of the term "manufacture" under the excise law and whether fly ash qualifies as a manufactured excisable good subject to duty.

The Tribunal's analysis primarily revolves around the following issues:

• Whether fly ash is a product of a manufacturing process as defined under Section 2(f) of the Central Excise Act, 1944.
• Whether fly ash satisfies the twin conditions of mobility and marketability required for excise duty levy.
• The applicability of judicial precedents concerning excisability of by-products such as cinder and fly ash.
• The evidentiary burden on the Revenue to establish that fly ash is a manufactured good liable for excise duty.

Regarding the first issue, the Tribunal extensively relied on the Supreme Court's decision in the case of Moti Laminates Pvt. Ltd. vs. Collector of Central Excise, Ahmedabad, which clarified that excise duty is leviable only on goods that are "produced or manufactured" and that the goods must satisfy the test of marketability. The Court emphasized that the term "goods" in Entry 84 of List I of the VII Schedule must be understood in the context of goods produced or manufactured by the assessee, and that mere existence of goods in the Schedule does not automatically attract excise duty unless they are manufactured and marketable.

Next, the Tribunal examined the Supreme Court's ruling in Union of India v. Ahmedabad Electricity Co. Ltd., which dealt with the excisability of cinder produced by burning coal. The Court held that burning coal to produce steam does not constitute a manufacturing process and that cinder, being an unburnt part of coal, does not acquire a new identity or undergo transformation to qualify as a manufactured product. The Court rejected the Revenue's attempt to classify cinder as coal ash for excise purposes, noting the absence of any interpretative note or tariff entry specifically covering cinder or coal ash, and reiterated that coal ash is not subject to excise duty.

The Tribunal also referred to the Madras High Court's decision in Mettur Thermal Power Station v. C.B.E. & C., which directly addressed the excisability of fly ash and fly ash bricks. The Court held that fly ash, being a residue generated during coal combustion, does not undergo any manufacturing process and thus is not liable to excise duty. The Court explained the difference between cinder and fly ash, noting that fly ash results from complete combustion and is a residue rather than a manufactured good. It further reiterated that for excise duty to be leviable, the goods must be movable and marketable, and merely being listed in the Schedule does not suffice.

Applying these principles to the facts, the Tribunal noted that fly ash arises incidentally as a by-product in the process of generating electricity by burning coal. The Revenue failed to produce any evidence that fly ash was manufactured as a planned or deliberate product. Instead, it is a residual material resulting from combustion, lacking any transformation that would confer a new identity or marketability as a manufactured good.

The Tribunal also considered the Revenue's competing arguments but found them unpersuasive given the consistent judicial precedent that by-products like cinder and fly ash do not constitute manufactured goods within the meaning of excise law. The absence of any tariff entry or interpretative note specifically taxing fly ash further weakened the Revenue's position.

Consequently, the Tribunal concluded that fly ash does not satisfy the essential condition of manufacture required for excise duty levy under the Central Excise Act. Since there is no duty liability on fly ash, there can be no question of interest or penalty imposed on the assessee.

The Tribunal upheld the detailed findings of the Commissioner (Appeals) and dismissed the Revenue's appeal.

Significant holdings from the judgment include the following verbatim excerpts that encapsulate the core legal reasoning:

"The expression 'produced or manufactured' has further been explained by this Court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed."

"Burning of coal for purposes of producing steam cannot be said to be a manufacturing activity. Therefore, neither ash nor cinder can be said to be products of a manufacturing process. From burning coal when you get either cinder or ash, it cannot be said that a new product had emerged."

"The commodity 'fly ash' cannot be subjected to levy of excise duty because it is not an item of goods which has been subjected to process of manufacture."

"In order to demand the Excise Duty, manufacture of the goods in term of Section 2 (f) of the CEA 1944, is being consistently held as an essential element."

Core principles established by the Tribunal are:

• Excise duty is leviable only on goods that are manufactured or produced, satisfying the test of marketability.
• By-products or residues arising incidentally from a manufacturing process, such as fly ash or cinder, which do not undergo transformation to acquire a new identity, are not excisable goods.
• The burden lies on the Revenue to prove that the goods were manufactured as a planned activity and are marketable.
• Absence of specific tariff entries or interpretative notes taxing such by-products reinforces their non-excisability.

Final determinations are that fly ash generated from coal combustion in electricity generation is not a manufactured excisable good and hence not liable to excise duty, interest, or penalty under the Central Excise Act, 1944.

The core legal questions considered in this judgment are:

(a) Whether the appellant is entitled to refund of excess excise duty amounting to Rs. 2,37,28,797/- paid pursuant to finalization of provisional assessments for the period September 1998 to March 2005.

(b) Whether the doctrine of unjust enrichment applies to deny refund where the appellant has issued credit notes evidencing that discounts inclusive of duty have been passed on to buyers, thereby negating any incidence of duty being passed on.

(c) Whether the lower authority was justified in rejecting the refund claim without issuing a Show Cause Notice (SCN) or adducing cogent evidence to disprove the appellant's claim.

(d) Whether the appellant is entitled to interest on the refund amount under Section 11BB of the Central Excise Act, 1944, considering the delay caused by the department in sanctioning the refund.

(e) Whether the lower authorities' disregard of appellate orders and case law constitutes a violation of judicial discipline and causes undue harassment to the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Entitlement to Refund of Excess Excise Duty

Legal Framework and Precedents: The refund claim arises from finalization of provisional assessments under the Central Excise Act, 1944. Section 11B and Section 11BB provide for refund of excess duty paid and payment of interest thereon. The Hon'ble Tribunal and High Courts have held that if excess duty is paid, refund is admissible provided the incidence of duty has not been passed on to the buyer.

Court's Interpretation and Reasoning: The Commissioner (Appeals) and subsequently the Tribunal have held that the appellant paid excess excise duty which was not passed on to the buyers. The appellant issued credit notes to buyers reflecting discounts inclusive of duty, proving that the reduced price and duty were realized from buyers. No duty was pocketed unjustly by the appellant.

Key Evidence and Findings: Credit notes issued by the appellant were accepted as cogent and credible evidence that discounts inclusive of duty were passed on. The lower authority failed to produce any evidence to the contrary or to dispute the credit notes. The terms of sale were ordinary commercial transactions at arm's length.

Application of Law to Facts: Given the credit notes and absence of contrary evidence, the Tribunal applied the principle that refund is due where the incidence of duty has not been passed on. The lower authority's rejection of refund was found to be unreasonable and legally unsustainable.

Treatment of Competing Arguments: The lower authority argued unjust enrichment and non-passage of discounts to buyers by stockists/indentors. The Tribunal rejected this, noting failure to examine facts properly and absence of evidence to support such claims.

Conclusion: The appellant is entitled to refund of Rs. 2,37,28,797/- along with applicable interest.

(b) Applicability of Doctrine of Unjust Enrichment

Legal Framework and Precedents: The doctrine of unjust enrichment prevents refund where the taxpayer has passed on the incidence of duty to the buyer and has thus been unjustly enriched by the refund. However, the Hon'ble High Court of Punjab & Haryana in CCE vs Vardhman Industries Ltd. held that if it is proved that the incidence of tax has not been passed on to the consumer, refund must be granted to the assessee and diversion of such amount to Consumer Welfare Fund is unconstitutional under Article 265 of the Constitution.

Court's Interpretation and Reasoning: The Tribunal relied on this precedent and other case law to hold that since the appellant issued credit notes evidencing discounts inclusive of duty, the incidence of duty was not passed on. Therefore, the doctrine of unjust enrichment did not apply.

Key Evidence and Findings: Absence of any evidence from the department to disprove the credit notes or the appellant's claim that discounts were passed on. The lower authority's findings were described as egregious and unreasonable.

Application of Law to Facts: The Tribunal applied the principle that if no duty is collected from buyers on discounted amounts, refund cannot be denied on unjust enrichment grounds.

Treatment of Competing Arguments: The department's argument that discounts were not passed on to ultimate buyers was rejected due to lack of evidence and improper examination of facts.

Conclusion: The doctrine of unjust enrichment is not attracted; refund is admissible.

(c) Procedural and Evidentiary Lapses by Lower Authority

Legal Framework and Precedents: The principles of natural justice require issuance of SCN before rejecting refund claims. The burden of proof to disprove appellant's claim lies on the department. Judicial discipline mandates subordinate authorities to follow appellate orders unless stayed or set aside by competent courts.

Court's Interpretation and Reasoning: The Tribunal observed that no SCN was issued to the appellant before rejecting the refund claim. The lower authority failed to discharge the burden of proof. The lower authority's order was described as lacking diligence and application of mind, and violating judicial discipline.

Key Evidence and Findings: The Commissioner (Appeals) and Tribunal found the lower authority's order to be rash, impetuous and legally unsustainable. The lower authority ignored binding appellate decisions and case law.

Application of Law to Facts: The Tribunal emphasized that failure to follow appellate orders and ignoring legal precedents causes undue harassment and violates judicial discipline. The Supreme Court's ruling in U.O.I. vs Kamlakshi Finance Corporation Ltd. was cited to reinforce this principle.

Treatment of Competing Arguments: The department's refusal to follow appellate orders on grounds of non-acceptance was rejected as untenable.

Conclusion: The impugned order rejecting refund without proper procedure and evidence is quashed.

(d) Entitlement to Interest on Refund

Legal Framework and Precedents: Section 11BB of the Central Excise Act mandates payment of interest on delayed refunds. Delay caused by the department without reasonable cause entitles the appellant to interest.

Court's Interpretation and Reasoning: The Commissioner (Appeals) had held interest payable on refund amount due to delay by department. However, the Adjudicating Authority and Commissioner (Appeals) in a subsequent order disallowed interest on grounds of delay by appellant in filing documents. The Tribunal found this contradictory to the earlier final order and held that the lower authorities were precluded from taking a contrary stand once the appellate order reached finality.

Key Evidence and Findings: The final assessment was not challenged by Revenue; the refund order and appellate decision were accepted by the Committee of Commissioners; no appeal was preferred by Revenue thereafter.

Application of Law to Facts: The Tribunal held that the directions of the appellate order regarding interest payment are binding and must be implemented. The lower authorities' attempt to deny interest on new grounds was improper.

Treatment of Competing Arguments: The department's reliance on appellant's delay was rejected as it conflicted with binding appellate orders.

Conclusion: Interest on the refund amount is payable and the order denying it is set aside. The Adjudicating Authority is directed to verify and pay interest within three months.

(e) Violation of Judicial Discipline and Harassment of Appellant

Legal Framework and Precedents: The Supreme Court has emphasized the importance of judicial discipline requiring subordinate authorities to comply with appellate orders to avoid undue harassment and chaos in tax administration.

Court's Interpretation and Reasoning: The Tribunal severely criticized the lower authority for wantonly disregarding binding appellate decisions and case law. It observed that such conduct causes unnecessary hardship to honest taxpayers and undermines public confidence in the administration.

Key Evidence and Findings: The lower authority's repeated refusal to sanction refund and interest despite clear appellate directions is noted as a serious infraction of law and judicial discipline.

Application of Law to Facts: The Tribunal invoked the principle that revenue authorities must act in good faith and follow judicial pronouncements to maintain public trust and ensure justice.

Treatment of Competing Arguments: The department's attitude of denying legally due refunds and interest was condemned as unhealthy and detrimental to tax administration.

Conclusion: The lower authority is admonished and directed to comply strictly with appellate orders and legal principles.

3. SIGNIFICANT HOLDINGS

"Refund - Unjust enrichment - Application of - Finalization of provisional assessment resulting in refund being due to assessee. Once it is proved that incidence of tax has not been passed on to consumer, then refund by credit notes has to go back to assessee only - In such a case principle of unjust enrichment is not attracted because duty has not been collected and pocketed by assessee - diverting such an amount to Consumer Welfare Fund is unconstitutional under Article 265 of Constitution of India - Section 11B of Central Excise Act, 1944."

"The terms and conditions of sale applicable in this case are not exceptional, being ordinarily applicable in such commercial transactions, at arm's length. The onus of proof to prove otherwise falls squarely upon the Lower Authority which he has failed to discharge."

"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the department in itself an objectionable phrase and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court."

"The excise duty has been collected improperly and without authority of law - in violation of Article 265 of the Constitution. This sum, due to the Appellant, legally, cannot be retained and not returned to them, along with suitable recompense for the damages and grievous injury suffered by them in this manner."

The Tribunal conclusively held that the refund claim of Rs. 2,37,28,797/- is proper and admissible, and the appellant is entitled to receive the refund amount along with interest under Section 11BB of the Central Excise Act. The impugned order rejecting the refund and interest claims is quashed and set aside. The lower authorities are directed to comply with the appellate order and pay the refund and interest within three months.

(a) Whether the issuance and signing of a cheque by the accused gives rise to a statutory presumption that it was drawn for consideration and in discharge of a legally enforceable debt or liability;

(b) The nature and extent of the burden on the accused to rebut the presumption under Sections 118 and 139 of the NI Act;

(c) The mode and standard of proof required by the accused to rebut the statutory presumption;

(d) The evidentiary value of the complainant's failure to specify the date of advancement of loan and source of income in a complaint under Section 138 NI Act;

(e) The legal consequences of the accused issuing a cheque in the name of a firm but in his individual capacity;

(f) The treatment of competing arguments regarding the sufficiency of evidence to prove existence of debt and liability and the adequacy of defence evidence;

(g) The relevance of the complainant's financial capacity and production of income tax returns in establishing the existence of debt.

Issue-wise Detailed Analysis:

1. Statutory Presumption under Sections 118 and 139 of the NI Act

The Court reaffirmed the settled legal position that admission of issuance and signing of a cheque by the accused creates a statutory presumption that the cheque was drawn for consideration and that the holder received it in discharge of a legally enforceable debt or liability. Sections 118 and 139 of the NI Act codify these presumptions, which operate "until the contrary is proved." Section 118 presumes every negotiable instrument was made or drawn for consideration, while Section 139 presumes that the holder received the cheque for discharge of debt or liability.

The Court emphasized that these presumptions shift the initial burden of proof onto the accused, who must rebut them by adducing evidence or facts that render the existence of debt or consideration improbable.

2. Nature and Standard of Proof to Rebut Presumption

The Court examined authoritative precedents clarifying that the accused is not required to prove his defence beyond reasonable doubt, unlike the prosecution's burden. The accused's burden is one of "preponderance of probabilities," meaning he must bring forth something probable to rebut the presumption. The accused need not necessarily enter the witness box or lead direct evidence; reliance on circumstantial evidence, presumptions under Section 114 of the Evidence Act, or the complainant's own case and evidence may suffice.

Relevant Supreme Court rulings were cited, including that the accused may rely upon facts and circumstances to convince the Court that the cheque was not issued for discharge of a debt, and mere denial without supporting evidence is insufficient.

3. Mode of Rebuttal of Presumption

The Court outlined multiple permissible modes for rebuttal, including:

• Direct evidence disproving existence of debt or consideration;
• Circumstantial evidence;
• Probable facts or circumstances;
• Presumptions under Section 114 of the Evidence Act;
• Evidence or case set out by the complainant;
• Averments in the statutory demand notice;
• Evidence adduced by the complainant during trial.

The Court held that the accused in this case successfully raised a probable defence by asserting that the cheque was issued in connection with a land transaction that did not materialize, supported by defence witnesses. This created a preponderance of probabilities that the cheque was not issued for discharge of a legally enforceable debt.

4. Legal Effect of Issuance of Cheque in the Name of a Firm

The trial Court had observed that since the cheque was issued in the name of a firm and not the accused personally, the complaint was defective for non-joinder of the firm. This Court rejected that reasoning, holding that since the accused was a sole proprietor of the firm, the firm was not a separate legal entity and its joinder was immaterial. The admission of issuance and signing by the accused sufficed to maintain the complaint.

5. Failure of Complainant to Specify Date of Loan Advancement and Source of Income

The Court discussed the significance of the complainant's failure to disclose the date on which the loan amount was advanced and to produce evidence of his financial capacity, including income tax returns. The Court relied on precedents holding that such omissions create serious lacunae in the complainant's case and go to the root of the claim.

It was noted that the complainant initially claimed to have given Rs. 20 lacs in cash in the presence of witnesses but failed to examine any of them. Later, in re-examination, the complainant altered his story regarding the circumstances of the loan and claimed to have borrowed money from relatives, facts not disclosed earlier. The Court found these inconsistencies and lack of credible proof of source of funds significant.

The Court cited precedents where failure to establish financial capacity or date of loan advancement weakened the complainant's case and shifted evidentiary burden back to the complainant.

6. Treatment of Defence Evidence and Competing Arguments

The respondent accused consistently maintained that the cheque was issued in relation to a land deal, which did not materialize, and that the complainant refused to return the cheque or refund amounts paid. The accused examined four defence witnesses supporting this plea.

The Court found that this line of defence was sufficient to rebut the presumption under Sections 118 and 139 of the NI Act. The complainant failed to prove the existence of a legally enforceable debt beyond the initial presumption. The Court distinguished the present case from precedents where the accused merely denied liability without adducing evidence.

The Court also rejected the appellant's contention that the accused's failure to appear in the witness box amounted to failure to rebut the presumption, reiterating that the accused is not obliged to lead evidence personally.

7. Burden of Proof and Standard in Section 138 NI Act Proceedings

The Court reiterated that the standard of proof for the prosecution is proof beyond reasonable doubt, whereas the accused's burden to rebut statutory presumptions is by preponderance of probabilities. This distinction was emphasized to clarify the evidentiary dynamics in cheque dishonour cases.

Conclusions on the Issues:

The Court concluded that the trial Court correctly dismissed the complaint due to the complainant's failure to establish that the cheque was issued in discharge of a legally enforceable debt or liability. The accused successfully rebutted the statutory presumption by adducing probable defence evidence and raising a preponderance of probabilities against the existence of debt.

The Court held that the absence of joinder of the firm was immaterial, the complainant's failure to specify the date of loan and prove source of funds was a significant lacuna, and the accused's defence evidence was cogent enough to shift the evidentiary burden back to the complainant, who failed to discharge it.

Significant Holdings:

"Once a cheque is admitted to have been issued and signed by an accused, there is a presumption that said cheque was made and drawn for consideration and that the holder of the cheque had received it for discharge in whole or in part of a legally enforceable debt or liability, within the meaning of Sections 118 and 139 of the NI Act."

"The accused need not enter the witness box to discharge the burden of proof in terms of the aforementioned provision. It is furthermore not in doubt or dispute that whereas the standard of proof so far as the prosecution is concerned is proof of guilt beyond all reasonable doubt; the one on the accused is only mere preponderance of probability."

"The accused may rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant."

"Failure on the part of the complainant to specify the date of advancement of loan goes to the root of the complainant's case."

"It is incumbent upon the complainant to prove his financial capacity to advance the loan amount, particularly when questioned during cross-examination."

"The complaint is not bad for non-joinder of the firm when the accused is the sole proprietor and has admitted issuance and signing of the cheque."

The Court thus upheld the trial Court's acquittal of the accused, dismissing the appeal as devoid of merit.