Principal Commissioner Of Income Tax, Central-2, Kolkata v. Axis Steels Ltd

ITAT/26/2018IA NO: GA/2/2018(Old No.GA/401/2018)IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-2, KOLKATAVERSUSAXIS STEELS LTD. BEFORE : THE HON’BLE JUSTICE T.S. SIVAGNANAMAnd THE HON’BLE JUSTICE HIRANMAY BHATTACHARYYA Date : 24[th] November, 2021 Appearance :- Mr. Tilak Mitra, Adv. … For AppellantMr. Ratnanko Banerji, Sr. Adv.Mr. Asim Chaudhury, Adv.Mr. Kinjal Buaria, Adv.… For Respondent The Court : This appeal by the revenue is filed under Section260A of the Income Tax, 1961 (the Act, for brevity) challenging theorder dated 22[nd] March, 2017 passed by the Income Tax AppellateTribunal, “A” Bench, Kolkata in ITA No. 1288/Kol/2014 for theassessment year 2010-11. The revenue has raised the followingsubstantial questions of law for consideration :- a)Whether on the facts and circumstances of the case, theLearned Tribunal erred in law in allowing short term capital lossof Rs. 3,80,00,000/- on forfeiture of shares warrant ? b)Whether on the facts and circumstances of the case, theLearned Tribunal erred in law in allowing carry forward of losson forfeiture of share warrants for adjustment with future yearsprofit ? We have heard Mr. Tilak Mitra, learned Standing Counselappearing for the appellant revenue and Mr. Ratnanko Banerji,learned Senior Counsel appearing for the respondent assessee. The short issue which falls for consideration is with regard tothe forfeiture of convertible warrant amounts to a transfer within themeaning of Section 2(47) of the Act as there is no extinguishment ofrights namely, loss of forfeiture is allowable as a capital loss. There areseveral decisions on this issue and the decision placed before us onthis issue, one such being in the case of Commissioner of Income Taxvs. Chand Ratan Bagri, reported in (2010)230 CTR 258 (Delhi). Theoperative portion of the judgment reads as follows :- “13. More importantly, the second issue as to whether theforfeiture of the convertible warrant amounted to a transfer withinthe meaning of s.2(47) of the said Act has now been made clear bythe Supreme Court in the case of Grace Collis (supra) as also bythe Karnataka High Court in BPL Sanyo Finance Ltd. (supra). Weagree with the interpretation given by the Karnataka High Court inBPL Sanyo Finance Ltd. (supra) and we see no reason to take adifferent view. The restrictive meaning given to the word “transfer”by the Supreme Court decision in Vania Silk Mills (P) Ltd. (supra)has been overruled by the Larger Bench of the Supreme Court inthe case of Grace Collis (supra). 14.In the present case we find that the forfeiture of theconvertible warrant has resulted in extinguishment of the right ofthe assessee to obtain a share in BLB Ltd. It is not a case wherethe asset itself has been extinguished or destroyed. A share in acompany is nothing but a share in the ownership of the company.While the right of the assessee to share in the ownership of thecompany (BLB Ltd.) stands extinguished on account of theforfeiture, the company, with all its assets, continues to exist. Theforfeiture only results in one less shareholder. It is not as if the‘asset’ in which a share was being claimed was also extinguished.Thus, the second point urged by the learned counsel for theRevenue is also not tenable.” We have heard Mr. Tilak Mitra, learned Standing Counselappearing for the appellant revenue and Mr. Ratnanko Banerji,learned Senior Counsel, assisted by Mr. Asim Chaudhury and Mr.Kinjal Buaria, learned Advocates. We have heard Mr. Tilak Mitra, learned Standing Counselappearing for the appellant revenue and Mr. Ratnanko Banerji,learned Senior Counsel, assisted by Mr. Asim Chaudhury and Mr.Kinjal Buaria, learned Advocates. Keeping in mind the above legal principle, we examine as towhether the appellant revenue has made out a case for entertainingthis appeal and whether any substantial question of law arises forconsideration. The law on the issue has been well settled as noticedabove. On facts we find that the Tribunal has done a thoroughexercise and granted relief to the assessee. The Tribunal hascommitted fault as to how the Commissioner of Income Tax (Appeals)[CIT(A)] had come to conclusion that the claim lodged by the assesseeis bogus and demonstrated as to how such finding is not correct. Therelevant portion of the order passed by the Tribunal is as follows :- “6. . . . . Admittedly, the loss incurred by assessee which wasadmitted by AO but the same was rejected on the ground that ECL has not offered to tax. Here, it is pertinent to note that whatwill be the tax treatment of the forfeited amount in the hands ofECL is not the concern of the AO whether it is taxable receipt orrevenue receipt. The AO has to see the transactions and its effectin the hands of the assessee. Therefore, in our considered view,the tax treatment in the hands of ECL cannot be a deciding factorfor the loss incurred and subsequently claimed by assessee.Therefore, the allegation framed by AO against the assessee isbaseless and it was also seen that a notice was issued by the AOu/s 133(6) of the Act to ECL for the verification of loss incurredand claimed by assessee. The ECL in response thereto as clearlysubmitted that the original allottee was MDCPL but subsequentlyit was transferred to assessee. The copy of the letter is placed onpage 6 and 7 of the paper book. Besides the above, ECL has dulyrecorded in its record the transfer of 50 lakh convertible warrantsfrom MDCPL to assessee and the confirmation of the same isplaced on pages 9 and 10 of the paper book. In view of the above,we are of the view that the impugned finding of Ld. CIT(A) thatthe letter has not been issued to the assessee but to MDCPL forthe balance payment is not a valid reason for the impugneddisallowance. Thus, after considering all the facts in totality, weare inclined to reverse the orders of authorities below. Theassessee gets the relief accordingly.” On a reading of the above finding recorded by the Tribunal, wefind that the entire exercise done by the Tribunal was factuallycorrect. That apart, we find that the substantial questions of lawwhich has been raised before us have not been raised before theTribunal either in the present form or in a different format. Thus, therevenue will be precluded to canvass this issue for the first time beforeus in this appeal. As pointed earlier, the law on the issue has been settled in the aforementioned decision which had followed thedecisions of the various other High Courts and the Tribunal afternoting the legal position has examined the facts and granted relief tothe assessee. Thus, we find that there is no question of law, much lesssubstantial questions of law arising for consideration in this appeal.Accordingly, the appeal fails and is dismissed. With the dismissal of the appeal, the connected application alsois dismissed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)