Principal Comm Of Income Tax 1, Kol v. M/S Surya Alloys Industries Ltd

OD-38 ORDER SHEETIA NO. GA/2/2017(Old No: GA/1695/2017)In ITAT/192/2017IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMM OF INCOME TAX 1, KOLVsM/S SURYA ALLOYS INDUSTRIES LTD BEFORE: The Hon'ble JUSTICE T. S. SIVAGNANAM And The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 7 February, 2022 Appearance:Mr. Debasish Chowdhury, Adv.…For the Appellant Mr. J. P. Khitan, Sr. Adv.Ms. Rajshree Kajaria, Adv.Mr. Pratyush Jhunjhunwala, Adv.Mr. Uttam Sharma, Adv.…For the Respondent The Court : This appeal of revenue filed under Section 260A of theIncome Tax Act, 1961 (the ‘Act’ in brevity) is directed against the order dated 10[th]August, 2016 passed by the Income Tax Appellate Tribunal, Kolkata “B” Bench(the ‘Tribunal’ in short) in ITA No.2253/Kol/2013 for the assessment year 2010-11. The revenue has raised the following substantial questions of law forconsideration: “(i) Whether on the facts and in the circumstances of the case the Ld.Tribunal has erred in law as well as in fact in confirming the order of the 2 CIT (Appeals) deleting the addition of Rs.12.05 Crore made under Section68 of the I.T. Act, 1961, by disregarding and ignoring that on 31.3.10 theshare applicants did not have the required money to subscribe the sharesof the assessee company and the transactions in question were merepaper transaction and creditworthiness of the parties did not exist ? (ii) Whether on the facts and in the circumstances of the case the LD.Tribunal has erred in law as well as in fact in confirming the order of theCIT (Appeals) deleting the addition of Rs.25.36 lakhs made Under Section14A of the I.T. Act, 1961, read with Rule 8D of the Income Tax Rule 1962,by disregarding that the assessee failed to discharge the burden of proofthat no amount of interest bearing funds were utilized for making theinvestments fetching exempt income ? (iii) Whether on the facts and in the circumstances of the case the Ld.Tribunal has erred in law as well as in fact in confirming the order of theCIT (Appeals) deleting the addition of Rs.44.29 lakhs made Under Section36(1) (III) of the I.T. Act, 1961, by disregarding that the assessee failed toadduce any material on records to prove that no loan funds were deployedfor meeting the cost of capital work in progress ?” We have heard Mr. Debasish Chowdhury, learned standing Counsel appearing for the appellant/revenue and Mr. J. P. Khaitan, learned SeniorCounsel instructed by Ms. Rajshree Kajaria, learned Counsel and Mr. PratyushJhunjhunwala, learned Counsel appearing for the respondent /assessee. The first question of law which has been suggested by the revenue iswith regard to the deletion made under Section 68 of the Act by the 3 We have heard Mr. Debasish Chowdhury, learned standing Counsel appearing for the appellant/revenue and Mr. J. P. Khaitan, learned SeniorCounsel instructed by Ms. Rajshree Kajaria, learned Counsel and Mr. PratyushJhunjhunwala, learned Counsel appearing for the respondent /assessee. The first question of law which has been suggested by the revenue iswith regard to the deletion made under Section 68 of the Act by the 3 Commissioner of Income Tax (Appeals) (I) [CIT(A)] vide order dated 1[st] May, 2013.We have perused the findings recorded by the CIT(A) more particularly paragraph3.3 of the said order and we find that the CIT(A) has examined the entire factsand pointed out that the share application monies were received by way ofaccount payee cheques through proper banking channel and these wereevidenced from the banks statement of the appellant and the share applicantand both the share holders are regular income tax assessees. Further, withregard to the explanation offered regarding the source of tax, the CIT(A) foundthat the explanation to be satisfactory as they were duly supported by documentswhich were discredited by the Assessing Officer though addition was madeunder Section 68 of the Act. Furthermore, the conclusion arrived at by theAssessing Officer to treat the transaction solely based on the fact that there wasactually two other companies functioning out of the same address, the CIT(A)rightly observed that mere fact that three separate legal entities share thecommon address did not make them as sham companies or paper companiesespecially when there were records produced to show the entire worth of thesecompanies and the transaction done by them. Furthermore, the Tribunalconsidered as to what was the material brought on record by the assessee duringthe course of assessment proceeding. It noted that the Assessing Officer on onehand stated that the share application cheques were actually encashed by theassessee for a subsequent financial year. The Tribunal found that there isnothing wrong about the same and merely because there was a time gapbetween the receipt of cheques and its encashment and in the interregnum therewas change of financial year cannot make a transaction as a sham transaction. Furthermore, the CIT(A) noted that the Assessing Officer had admitted that theshare application money was obtained, maintained or improved the applicantdebt equity ratio so as to lower the interest burden. Thus, we find that the entirematter is factual and the facts having been analysed by the CIT(A), relief wasgranted to the assessee. When the revenue carried out the matter in appeal, asimilar case was shown by the Tribunal to examine as to whether the finding ofthe CIT(A) on facts was justified. After satisfying itself about the same, theTribunal dismissed the revenue’s appeal. Thus, we find that there is nosubstantial question of law arising for consideration on the said issue.The second application which has been suggested to us is with regardto the disallowance under Section 14A of the Act. This aspect of the matter hasbeen dealt with by the CIT(A) in paragraphs 4.3 and 4.4 of its order. The CIT(A)noted that for the investments made in the earlier year their department hasaccepted the assessee’s explanation that the investments were made out of ownfunds and there is no question of taking a contrary stand for the year underconsideration. This factual position was verified and affirmed by the Tribunal.Therefore, we do not find any substantial question of law arising forconsideration on the said issue.The third question suggested in this appeal is with regard to deletingthe addition made under Section 36(1)(III). This has been considered by theCIT(A) in paragraphs 5.4 and 5.5 of its order. After analysing the factual position,the CIT(A) held that the Assessing Officer has not pointed out any inaccuracy orinfirmity in the unit-wise accounts maintained by the assessee or the allocationof interest made by the assessee inter se among the units. Further, the assessee 5 5 had identified the specific sources of funds used for meeting in the cost of capital.Furthermore, the CIT(A) held that in the absence of any material brought onrecord by the Assessing Officer that borrowed funds have been additionalinvestment to meet the capital, the Assessing Officer was not justified inallocating interest costs. This finding of the CIT(A) was examined by the Tribunaland it concurred with the CIT(A) on facts. Therefore, we are convinced that thereis no substantial question of law arising for consideration in this appeal on thisissue.In the result, the appeal (ITAT No.192 of 2017) filed by the revenuestands dismissed on the ground that no substantial question of law much lessthe question of law arises for consideration.With the dismissal of this appeal, the stay application (GA No.2 of 2017)stands closed. (T. S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.De/S.Das