Commissioner Of Income Tax,Kolkata-3, Kolkata v. M/S. Purbanchal Power Companylimited

OD-8 ITAT/70/2015 IA No.GA/2/2015 (Old No.GA/1448/2015) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX,KOLKATA-3, KOLKATA -Versus- M/s. PURBANCHAL POWER COMPANYLIMITED Appearance:Mr. Prithu Dudheria, Adv....for the appellant. Mr. Rishi Raju, Adv.Mr. Soumyajyoti Nandi, Adv.Mr. Deepankar Thakur, Adv.Mr. Ashutosh Singh, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE BIVAS PATTANAYAK Date : 15[th] July, 2022.The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ for brevity)is directed against the order dated 17[th] July, 2014 passed by the Income Tax Appellate Tribunal, Kolkata, “B” Bench, Kolkata in ITANo.201/Kol/2010 for the assessment years 2006-07. The revenue has raised the following substantial questionof law for consideration: i) Whether on the facts and in the circumstances ofthe case the Learned Income Tax AppellateTribunal, “B” Bench, Kolkata erred in law inupholding the order of the CIT (Appeals)-VIII,Kolkata by deleting the addition ofRs.69,64,34,089/- made by the Assessing Officeron the ground that jurisdictional High Court hasapproved the scheme of Amalgamation withoutconsidering the ratio laid down by Hon’ble ApexCourt in the case of Marshall & Sons as theDepartment has initiated separate proceedingsconsidering the violation of section 2(1B) of theIncome Tax Act, 1961?ii) Whether on the facts and in the circumstances ofthe case the Learned Income Tax AppellateTribunal, “B” Bench, Kolkata erred in law inholding that the Department cannot examine thetaxability of income under section 68 of theIncome Tax Act only because the Hon’ble High Courthas approved a scheme of amalgamation ?” We have heard Mr. Prithu Dudheria, learned standingcounsel for the appellant/revenue and Mr. Rishu Raju, learnedCounsel assisted by Mr. Soumyajyoti Nandy, Mr. Deepankar Thakur and Mr. Ashutosh Singh, learned Advocates for the respondent/assessee. The issue involved in the instant case is whether thescheme of amalgamation which was approved by this Court could bestated to be a scheme which was floated by the assessee with thesole object of avoidance of income tax. The assessing officerheld so. Aggrieved by such order, the assessee preferred appealbefore the Commissioner of Income Tax (Appeals)-VIII, Kolkata. Byorder dated 19[th] November, 2009, the appeal was allowed. Thefinding rendered by the appellate authority is as follows: However, once the Hon’ble jurisdictional High Courtapproves the scheme of amalgamation, it is a naturalcorollary to presume that these issues were in theknowledge of the Hon’ble High Court and, also, that suchan order has been passed after due deliberations of allconcerned issues. The AO has relied on a few case laws insupport of his stand. These have been perused. I do notdiscern any latitude in these decisions which can empowerany AO to challenge the jurisdictional High Court’s orderin this regard. Moreover, once the jurisdictional HighCourt approves of a scheme of Amalgamation, the suspicionof a colourable device therein is preclude. The AO hasmentioned in his order that a ‘a huge amount of money hasbeen transferred to the serve by way of some transactionwhich is nothing but a colourable devise to put thereserve by way of some transaction which is nothing but acolourable devise to put into undisclosed and unaccountedincome of the assessee company through the transferor companies. . .’. The assessment order itself is silentabout the process of generation of such ‘undisclosed andunaccounted income’. There is no material therein toindicate that the appellant has earned any such income asmentioned by the AO. companies. . .’. The assessment order itself is silentabout the process of generation of such ‘undisclosed andunaccounted income’. There is no material therein toindicate that the appellant has earned any such income asmentioned by the AO. Furthermore, as has been repeatedly stressed in variousjudicial decisions, the tests for an addition under Sec.68 of the Income Tax Act to be sustained are those ofidentity of the creditor, its creditworthiness andgenuinity of the transactions. If the AO’s addition ismeasured against these, then it is seen that, there is nodispute as to the identity of these amalgamatingcompanies, their creditworthiness is attested by theirbalance-sheet which, have been accepted by the AO andthere is no imputation in the order that these monieshave been actually paid to the appellant, in whatevermanner. Thus the question of genuinity also becomesredundant. Accordingly, I direct that the addition madeunder Sec. 68 of the Income Tax Act, 1961 on account ofAmalgamation Reserve credit in the books be deleted.These grounds of appeal are allowed”. Aggrieved by such finding, the revenue filed appealbefore the tribunal. The tribunal re-examined the factualposition and, in particular, noted the order passed by this Courtapproving the scheme of amalgamation more particularly, inparagraph (iv) of the order which states that since all the sharesin the transferor companies are held inter se by the transferorcompanies, no shares shall be issued by the transferee company to the shareholders of the transferor companies. After consideringthe scope of such order, the tribunal discussed the facts andafter placing reliance on the decision in the case of VodafoneEssar Gujarat Ltd. vs. Department of Income Tax, reported in(2013) 35 taxmann.com 397 (Gujarat) rejected the appeal filed bythe revenue. With regard to whether the scheme of amalgamation is acolourable device, the tribunal elaborately considered the factsand also took note of various decisions and in particular, thisCourt approved the scheme of amalgamation and held the said issueagainst the revenue. Aggrieved by the same, the revenue is beforeus by way of this appeal. The Hon’ble Gujarat High Court in Vodafone Essar GujaratLtd. held as follows: “46. ... ... ... Keeping the said object in mind if the Scheme hasbeen framed and is approved by the shareholders in theirwisdom, in our view, it cannot be said that the Schemeitself is floated with the sole criteria of tax avoidancesimply because it may have effect and result intoavoidance tax. If the Scheme is evolved by way of anarrangement and with an object of converting the PI assetsfrom non-revenue generating assets; improved networkquality and greater coverage etc. ... ... ... It may be relevant to note that even the CentralGovernment has not raised any objection to the Scheme and even the Department has not contended that the aforesaidobjectives are imaginary. Therefore, it cannot be saidthat the Scheme has no purpose or object and that it is amere device/subterfuge with the sole intention to evadetaxes, particularly when even the incidence of taxpurportedly sought to be evaded is not established onfacts. Further, similar scheme of arrangement proposed byother telecommunication companies to achieve the aforesaidobjective have been sanctioned by different High Courts.In our considered view, this Court cannot refuse thesanction on the aforesaid ground by coming to theconclusion that the only object of the Scheme is to avoidtaxes. ... ... ... It may be relevant to note that even the CentralGovernment has not raised any objection to the Scheme and even the Department has not contended that the aforesaidobjectives are imaginary. Therefore, it cannot be saidthat the Scheme has no purpose or object and that it is amere device/subterfuge with the sole intention to evadetaxes, particularly when even the incidence of taxpurportedly sought to be evaded is not established onfacts. Further, similar scheme of arrangement proposed byother telecommunication companies to achieve the aforesaidobjective have been sanctioned by different High Courts.In our considered view, this Court cannot refuse thesanction on the aforesaid ground by coming to theconclusion that the only object of the Scheme is to avoidtaxes. 47. It is, no doubt, true as argued by Mr. Thakorthat in case the Scheme is sanctioned, it may result intotax avoidance on the part of the appellant, but it isrequired to be noted that even if the ultimate effect ofthe Scheme may result into some tax benefit or even if itis framed with an object of saving tax or it may resultinto tax avoidance, it cannot be said that the only objectof the Scheme is ‘tax avoidance’. Considering the variousclauses of the Scheme, it is not possible for us to cometo a conclusion that the Scheme is floated with the soleobject of tax avoidance.” The above decision was affirmed by the Hon’ble SupremeCourt as reported in the case of Department of Income Tax vs.Vodafone Essar Gujarat Ltd. reported in (2016) 66 taxmann.com 374(SC). In the light of the factual position arrived at by the tribunal, we find that no question of law much less substantialquestion of law arising for consideration. Accordingly, the appeal (ITAT/70/2015) fails and is dismissed. Consequently, the connected application for stay (IANo.GA/2/2015) also stands closed. (T.S. SIVAGNANAM, J.) (BIVAS PATTANAYAK, J.)