2024 (4) TMI 97 - HC - Income Tax

Validity of Income Tax Settlement order - additions made with respect to the infusion of share capital and the denial of benefit of deductions u/s 80IC - second round of litigation - HELD THAT - While holding in favour of the petitioner-assessee insofar as the claim for deductions under Section 80IC of the Act and the investments made towards substantial expansion of an existing unit, it took into consideration the fact that in the reports which were submitted to it, no tangible material or evidence had been gathered and which may have cast a doubt on the claim as raised. It further significantly found that the assessments for AYs 2006-07 to 2008-09 in the case of the petitioner- assessee had been completed u/s 143(3) of the Act. ITSC holds that a perusal of those orders would establish that its claim for Section 80IC benefits had been elaborately examined and allowed by the AO in each of those AYs . It also took into consideration the certificate issued by the Director of Industries. On an overall conspectus of the aforesaid, it came to conclude that the petitioner-assessee would be entitled and eligible to claim deductions u/s 80 IC of the Act albeit up to AY 2013-14. Additions pertaining to the share capital investment made by M/s Amit Goods and Supplier Private Ltd. is concerned, we find that the petitioner-assessee had duly drawn the attention of the respondents to the fact that an addition of INR 37.60 crores had been made in the income of that entity in the course of assessments undertaken for AYs 2007-08, 2008-09 and 2009-10. In those assessments, an amount of INR 37.60 crores was added in the hands of M/s Amit Goods and Suppliers Private Ltd. on the allegation that it had invested its own funds by re-routing the same as share capital. Additions made in the course of assessment proceedings initiated in respect of M/s Amit Goods and Suppliers Private Ltd having been subjected to tax and the source of the funds having been duly identified by the respondents themselves. In our considered opinion, therefore, the ITSC clearly erred in making the addition of INR 11.26 crores while settling the income upon the application preferred by the petitioner-assessee. Of equal significance is sub-section (2) which commences with a non obstante clause and provides that no deduction in respect of any expenditure, allowance, or set off of any loss shall be allowed to the assessee while computing its income referred to in sub-clauses (a) and (b) of Section 115 BBE(1) of the Act. The aforesaid provision thus for the first time appears to have introduced a disqualifying criterion with respect to income added by virtue of Section 68 of the Act. We are therefore of the considered opinion that the surrendered income would not fall within the ambit of Section 115 BBE since the said provision did not even exist for the AYs in question. Section 115 BBE came to be inserted by virtue of Finance Act, 2012 with effect from 01 April 2013. As Mr. Ganesh rightly points out, since the aforesaid provision did not even exist at the relevant point in time, the same could not have been invoked by the ITSC. We are of the considered opinion that the issues which stand raised at the behest of the Department would have to be answered against them. Consequently, we refuse to grant the reliefs as sought by the respondents-Department to set aside the ITSC s impugned order insofar as it granted immunity from penalty and prosecution to the petitioner-assessee or for that matter its decision to allow the claim of the petitioner-assessee relating to infusion in share capital from M/s Balaji Enterprises, M/s Sai Enterprises and M/s Molu Ram Pramanand and allowing the claim of deductions under Section 80IC of the Act. We set aside the order of the ITSC in part and insofar as it relates to additions made with respect to infusion of share capital by M/s Amit Goods and Supplier Private Limited. We also set aside ITSC s order, which held that addition of unsubstantiated share capital into the account of the assessee under Section 68 of the Act would not qualify for the benefits of deduction under Section 80IC of the Act. The petitioner-assessee shall be entitled to consequential reliefs.

Summary

Issues Involved:

1. Genuineness of share capital infusion by M/s Amit Goods and Supplier Private Ltd.
2. Claim of deduction u/s 80IC of the Income Tax Act, 1961.

Summary:

1. Genuineness of Share Capital Infusion by M/s Amit Goods and Supplier Private Ltd.:

The petitioner-assessee challenged the ITSC's order dated 28 February 2017, particularly the addition of INR 11,26,60,000/- as unexplained share capital infusion by M/s Amit Goods and Supplier Private Ltd. The ITSC had previously considered the share capital infusion from various entities, verifying some and rejecting others. It concluded that the share capital infusion by M/s Amit Goods and Supplier Pvt. Ltd. was unsubstantiated due to non-compliance with enquiry letters u/s 133(6) and lack of bank statement verification. The ITSC relied on Supreme Court decisions in Jamuna Prasad Kanaihaya Lal (130 ITR 244) and Radhey Shyam Tibrewal Vs CIT (145 ITR 186) to support its decision. However, the High Court found merit in the petitioner-assessee's argument that the amount had already been taxed in the hands of M/s Amit Goods and Supplier Pvt. Ltd. and thus could not be added again in the assessee's hands. Consequently, the High Court set aside the ITSC's addition of INR 11,26,60,000/-.

2. Claim of Deduction u/s 80IC of the Income Tax Act, 1961:

The ITSC had denied the benefit of deductions u/s 80IC on the income of INR 24.99 crores, citing unverified purchases and substantial expansion issues. The petitioner-assessee argued that there was an arithmetical error in the report, which inflated unverified purchases. The ITSC acknowledged this error and noted that the correct figure of unverified purchases was significantly lower, allowing the petitioner to meet the substantial expansion requirement. The ITSC also considered the Director of Industries' certificate and previous assessments u/s 143(3) that had allowed the 80IC claim. The High Court upheld the ITSC's decision to allow the deduction u/s 80IC, finding no material evidence to contradict the claim and noting the Department's acceptance of the claim in prior assessments.

Conclusion:

The High Court dismissed the Department's WP(C) 7834/2017 and allowed the petitioner-assessee's WP(C) 5081/2017. It set aside the ITSC's order regarding the addition of INR 11,26,60,000/- from M/s Amit Goods and Supplier Pvt. Ltd. and para 11.1, which disqualified the addition from 80IC benefits. The petitioner-assessee was granted consequential reliefs.