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TMI Blog2024 (7) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... is determined in negative against the revenue. Addition on account of section 14A - A Careful reading of the assessment order shows that learned AO found that the assessee company was in receipt of dividend which was claimed exempt u/s. 10(34) of the Act, however assessee did not apportion any expenditure attributable to the exempt income. AO thus computed interest expenditure by resorting to the computation as provided under rule 8D(2)(ii) of the Rules and worked out such interest expenditure. CIT(A), on examination of assessee s balance sheet found that as on 31.03.2012, appellant assessee had paid up share capital of Rs. 14.48 Crores and reserve and surplus of Rs. 151.97 Crores. The investment, yielding exempt income, were shown at Rs. 48.70 Crores as on 31.03.2012 as against 1.13 Crores as on 31.03.2011. It was noted that assessee s own fund aggregating to Rs. 166.45 Crores were much higher than the investments of Rs. 48.70 Crores that yield exempt income. Relying on HDFC Bank Limited [ 2014 (8) TMI 119 - BOMBAY HIGH COURT ] CIT(A) deleted the aforesaid addition on the principle that if there are funds available, both interest free and interest bearing loans, than a presumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 16 by the Ld. Commissioner of Income tax(Appeals) [hereinafter referred to as the CIT(A) ] u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as Act ] for the Assessment year [A.Y. ] 2012-13, wherein learned CIT(A) has partly allowed assessee s appeal by deleting additions of Rs. 47,44,00,000/- u/s. 68 of the Act and Rs. 78,12,014/- u/s. 14A of the Act r/w rule 8D(2)(ii) of the Income Tax rules 1962 [hereinafter referred to as Rules ], which were made vide assessment order dated 31.03.2015. 2. The brief facts state that the assessee company is engaged in the business of manufacturing of water treatment plant and Ion exchange resins and dealers in water treatment components-spares. The assessee has filed return of income electronically on 30.11.2012, declaring total income at Rs. 16,07,76,886/-. The assessee has shown income from book profit u/s. 115JB at Rs. 20,60,30,773/-. The return was processed u/s. 143(1) of the Act. The case was selected under scrutiny under CASS. Statutory notices u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. Assessee s representative Shri S V Parikh filed details in response there to. Assessing officer noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he future they prefer to pursue these appeals, the correct form No. 36 was required to be filed with appropriate prayers. The appellant revenue, accordingly filed miscellaneous applications no. 553/MUM/2023 and 557/MUM/2023 respectively. The then co-ordinate bench, again passed common order dated 11.03.2024 on the basis of revised form no. 36 indicating Shri Vikash Gautamchand Jain as appointed official liquidator for the respondent/corporate debtor. The Tribunal, accordingly recalled (set aside) its earlier common order dated 03.02.2023 and these appeals were directed to be listed before the regular bench, hence these appeals. 5. After restoration of both these appeals, learned DR participated in the hearing for the appellant revenue, however none participated for the official liquidator of the respondent/corporate debtor. Keeping the pendency of the appeals pertaining to the year 2018 and the fact in view that the respondent corporate debtor is under liquidation process, we deem it just and reasonable to expedite and conclude the hearing of these appeals to their logical ends. Heard learned DR and perused the material available on record. 6. The appellant revenue has filed both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Department will be paid in the same manner as the debt of other creditors of the same class) It may also be open to the Department to seek to enforce its right of recovery of the debt in accordance with the provisions of the Income-tax Act. But the right to enforce recovery by taking recourse to recovery proceeding against the assets of the company in liquidation is and cannot be an unfettered right. This right to recover in enforcement of the recovery proceedings under the Income-tax Act is controlled by Section 446(1) of the Companies Act, 1956 and is subject to necessary leave of Court, .. 9. It is true that the IBC is more recent statute. Section 238 of IBC reads as under: 238. Provision of this Code to override other laws.- The Provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 10. The non obstante clause in the above referred Section 238 clarifies that the IBC Code shall have the effect of overriding the provisions of other laws. Section 178 of the Act makes provision in respect of the company in liquidation‟. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicating authority as above. We take further guidance from the judgment dated 26.08.2022 passed by another three judges bench of Hon ble Supreme Court in Civil Appeal No. 7667 of 2021, Sundaresh Bhatt, Liquidator of ABC Shipyard V. Central Board of Indirect Taxes and Customs, wherein Hon ble Apex Court, vide paras 43,44,45 54, has held as under: 43. In the above context, the judgment of this Court in S.V. Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is extremely relevant. In that case, this Court, while expounding the interplay of Section 446 of the Companies Act 1956 (bankruptcy provision) with the Income Tax Act, 1961, held as follows: 7 .....Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of Section 446, read as a whole, it appears to us that the expression other legal proceeding in sub-section (1) and the expression legal proceeding in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court. The Income Tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re-assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the amount of tax payable by the company which is being wound up. The liquidation court would have full power to scrutinise the claim of the revenue after income tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court then to decide how far under the law the amount of income tax determined by the Department should be accepted as a lawful liability on the funds of the company in liquidation. At that stage the winding up court can fully safeguard the interests of the company and its creditors under the Act. Incidentally, it may be pointed out that at the Bar no English decision was brought to our notice under which the assessment proceedings were held to be controlled by the winding up court. On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd., (In Liquidation) (1962) 46 ITR 193 (Punj) (Supra) and the Mysore Spun Silk Mills Ltd., (In Liquidation) (1968) 68 ITR 295 (Mys) (supra) do not seem to lay down the correct rule of law that the Income Tax Officers must obtain leave of the winding up court for commencing or continuing assessment or re-assessment proceedings. 44. Therefore, this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the Income Tax Act. However, Income Tax authorities have limited jurisdiction to assess/determine the quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC as the case may be. The Income Tax Authorities are like any other creditor, may stake their claim before liquidator in the statutory limitation period provided under the IBC. Such claims can be considered in accordance with the waterfall mechanism provided u/s. 53 of IBC. As in the case of civil litigation, an appeal is treated as the continuation of a suit, the outcome of these appeals would also result in the determination of revenue s tax dues only. There is thus no legal impediment in deciding these appeals, which would amount to determination of tax dues only. In the light of what has been held by us hereinabove, we now proceed to decide the instant matter on merit. 16. As regard the merits of the case, the following points under appeal are to be determined. i. Whether learned CIT(A) erred in deleting the addition of Rs. 47,44,00,000/- as unexplained cash credit contrary to the provisions of law? ii. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant paras 17 to 19 and 21 to 24 of impugned order passed by learned CIT(A), read as under: 17. As per the details furnished by the appellant during the course of assessment proceedings vide letter dated 03.03.2015, the appellant issued 94,88,000 preference shares of Rs. 10/- each at a premium of Rs. 40 each to Doshion Pvt. Ltd. (formerly known as Doshion Ltd.) during the year. The appellant therefore raised share capital of Rs. 9,48,80,000/- and share premium of Rs. 37,95,20,000/- aggregating to Rs. 47,44,00,000/- during the year by issue of preference shares to Doshion Pvt. Ltd. (DPL). The said company is the holding company of the appellant and it held 70% of the equity share holding of the appellant during the previous year. The appellant furnished the financial statements of DPL for FY 2011-12 by way of additional evidence under Rule 46A. During the remand proceedings, the A.O. called for further details such as the shareholding pattern of the appellant company as on 31.03.2012, the copies of the documents submitted to ROC for issue of preference shares, the details regarding utilization of the funds raised by issue of preference shares to DPL and the current status of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. After examining the details furnished by the appellant, the AO reported that the bank statement of the appellant furnished for the period from 02.05.2011 to 13.05.2011 reflected receipt of an amount of Rs. 4,74,40,000/- only from DPL. The AO remarked that the contract note between the appellant and DPL has not been furnished. The AO also stated that the details of the application of the loan funds of Rs. 37.69 crores obtained from NBFC by DPL has not been furnished. 20. 21. In the rejoinder, the appellant stated that there was no contract note/agreement between the appellant and DPL for the subscription by DPL to the preference shares issued by the appellant at a premium. The appellant stated that two amounts of Rs. 4,74,40,000/- each aggregating to Rs. 9,48,80,000/- were received from DPL towards preference share capital and were credited in the appellant's bank account on 13.05.2011 as per the bank account extract furnished to the AO. The appellant explained that amount to the extent of Rs. 37,95,20,000/- representing preference share premium was paid by DPL to Kirloskar Brothers Ltd on behalf of the appellant towards the purchase consideration payable by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 Crores from a NBFC during the year. On perusal of the information and clocuments filed by the appellant before the AO during the remand proceedings, it is seen that the said loan was obtained by DPL from L T Infrastructure Finance Co. Ltd during the year and the loan amount was utilized for the purpose of investing in the preference shares issued by the appellant to DPL. It is seen that the said loan amount was paid by DPL to Kirloskar Brothers Ltd on behalf of the appellant towards the purchase consideration payable by the appellant to Kirloskar Brothers Ltd towards acquisition of 100% shares of Gondwana Engineers Ltd (GEL) by the appellant during the year. It is seen that the investment of Rs. 47.55 crores so made by the appellant in the shares of GEL during the year is reflected in the balance sheet of the appellant as on 31.03.2012 under Non-current Investments. This investment in the shares of GEL comprised of consideration pald for the shares of Rs. 47.44 crores and stamp duty expenses incurred on the sald transaction of Rs. 11.86 lakhs. 24. Apart from the amount of Rs. 37.95 Crores paid by DPL to Kirloskar Brothers Ltd. on behalf of the appellant, DPL paid two identical a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, however assessee did not apportion any expenditure attributable to the exempt income. AO thus computed interest expenditure by resorting to the computation as provided under rule 8D(2)(ii) of the Rules and worked out such interest expenditure as Rs. 78,12,014/-. 22. Learned CIT(A), on examination of assessee s balance sheet found that as on 31.03.2012, appellant assessee had paid up share capital of Rs. 14.48 Crores and reserve and surplus of Rs. 151.97 Crores. The investment, yielding exempt income, were shown at Rs. 48.70 Crores as on 31.03.2012 as against 1.13 Crores as on 31.03.2011. It was noted that assessee s own fund aggregating to Rs. 166.45 Crores were much higher than the investments of Rs. 48.70 Crores that yield exempt income. Relying on HDFC Bank Limited (2014) 366 ITR 505 (Bom) learned CIT(A) deleted the aforesaid addition on the principle that if there are funds available, both interest free and interest bearing loans, than a presumption would arise that investments would be out of interest free funds, generated or available with company provided that said funds are sufficient to meet investments. On the basis of assessee s balance sheet, the reserves and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons that it was made without any tangible material and further that the AO had not made any addition in respect of the share premium on the grounds on which the re assessment was opened. As this fact of non addition is not disputed, hence, this ground remains more of academic in nature. We do not find any error or any infirmity in the well discussed and speaking impugned order, based on cogent and clinching evidence. All the grounds taken by the revenue in this appeal, thus stand dismissed. 27. This Tribunal has the trappings of a Court. Before parting with the matter, the Tribunal, in the role of parens patriae of public money, deems it just and proper to make an observation that a tax is a common burden and the only return the tax payer gets, is the participation in the common benefit of a state. Any possibility of dilution or extinction of such tax, directly and substantially affect the welfare of the people at large. In view of law laid down by Hon ble Apex Court in Sundaresh Bhatt (Supra), there is no shadow of any doubt that when the defaulter/corporate debtor goes either into corporate insolvency resolution process or under liquidation, the taxing authorities can stake ..... X X X X Extracts X X X X X X X X Extracts X X X X
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