Principal Commissioner Of Income Tax, Kolkata-4 v. Eveready Industries India Limited

OD-33 ITAT/233/2018IA NO: GA/2/2018(Old No.GA/2095/2018)IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOME TAX, KOLKATA-4VERSUSEVEREADY INDUSTRIES INDIA LIMITED BEFORE : THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 30[th] November, 2021 Appearance :- Mr. Smarajit Roychowdhury,Mr. Ashok Bhowmick, Advs.… For Appellant Mr. Asim Choudhuri, Advs.… For Respondent The Court : This appeal by the revenue filed under Section 260Aof the Income Tax Act, 1961 (the Act, for brevity) is directed againstthe order dated 18[th] October, 2017 passed by the Income TaxAppellate Tribunal, “A” Bench, Kolkata in ITA No.159/Kol/2016 forassessment year 2006-07. The revenue has framed the followingquestions of law for consideration :- “(a) Whether on the facts and in the circumstances of the casethe Learned Income Tax Appellate Tribunal, “A” Bench, Kolkataerred in law in upholding the order of CIT(A) in allowingfluctuation loss of Rs.534.58 lacs without having ascertained thepurpose for loan ? (b)Whether on the facts and in the circumstances of the casethe Learned Income Tax Appellate Tribunal, “A” Bench, Kolkataerred in law in not considering the deeming provisions of Section50 of the Income Tax Act, 1961, which starts with non obstanteclause “Notwithstanding anything contained in Clause (42A) ofSection 2” and, therefore, definition of capital asset under Section50 of the Income Tax Act, 1961 itself contained ? (c)Whether on the facts and in the circumstances of the casethe Learned Income Tax Appellate Tribunal, “A” Bench,Kolkata erred in law in allowing spared over of upfront feesin absence of any enabling legal sanction under IncomeTax Act, 1961?the Learned Income Tax Appellate Tribunal, “A” Bench,Kolkata erred in law in allowing spared over of upfront feesin absence of any enabling legal sanction under IncomeTax Act, 1961? We have heard Mr. Smarajit Roychowdhury, learned standingcounsel appearing for the appellant and Mr. Asim Choudhuri, learnedcounsel appearing for the respondent assessee. It is not in dispute that the substantial questions of law (a) and(c) have been answered against the appellant revenue in therespondent assessee’s own case being ITAT No. 96 of 2017 dated 29[th]November, 2021, which reads as follows : “On going through the order passed by the tribunal, we find thatthe tribunal was considering six issues in all. The revenue hasraised three substantial questions of law before us which arecovered in the six issues which were before the tribunal. The firstof the issues was whether the Commissioner of Income Tax(Appeals) (in short CIT(A)) was correct in deleting thedisallowance made by the assessing officer under Section 43B ofthe Act on account of provisions for leave encashment writtenback. The tribunal had re-appreciated the factual position andexamined the consistent practice followed by the assessee inobtaining valuation report for ascertaining the incremental leaveencashment liability and after taking note of the entire facts,came to the conclusion that the final statements drawn by theassessee are in compliance with the statutory requirements, suchas, the Companies Act and the computation of the total incomehas been done in accordance with the Act. Furthermore, thetribunal rightly noted that the liability was contingent in natureand has not crystallised into actual liability and will not beallowed as deduction while computing the total income. Thus thetribunal after re-examining the facts upheld the finding of theCIT(A). Thus, we find that no substantial question of law arisingtherefrom. The second issue was with regard to whether the CIT(A) wascorrect in deleting the disallowance on account of foreignexchange fluctuation. On this issue, the tribunal perused thefacts, the profit and loss accounts of the assessee and upheld thefinding rendered by the tribunal by taking note of the decision ofthe Hon’ble Supreme Court in Commissioner of Income Tax, Delhivs. WoodwardGovernor India (P). Ltd. reported in [2009]179 Taxman 326 (SC). Thus, there is no error in the finding renderedby the tribunal. The tribunal was considering three other issues together andrecorded its finding in paragraph 15 of the impugned order. Thethree issues being whether the CIT(A) was correct in deletingdisallowance of obsolete stock written offby the assessee;whether the CIT(A) was right in deleting the disallowance ofexpenses for shifting of Chennai plant; and, whether CIT(A) wascorrect in deleting the disallowance on account of upfront fees,paid to ICICI Bank. We have perused the finding recorded by thetribunal and we find that the tribunal has elaborately discussedthe facts before affirming the view taking by CIT(A). We find thatno question of law much less substantial question of law arisingfor consideration. The last ground was with regard to whether CIT(A) was correct inholding that the sale of factory land at Guindy, Chennai gave riseto capital gain and not to business profit. On this issue, thetribunal after noting the finding rendered by the assessing officer,as to how the CIT(A) reversed the same, on its part, re-examinedthe factual position and elaborately considered the matter, tooknote of the decision of the Hon’ble Supreme Court in CIT vs. G.Venkataswami Naidu reported in 35 ITR 594(SC) wherein theHon’ble Supreme Court held that the question whethergain madeout of purchase and sale of the land, is an accretionor capitalprofit which may depend on particular facts and circumstances.After noting the said decision, the tribunal on facts, held that theview taken by the CIT(A) was fully justified. Thus, we find thatthere is no error in the manner in which the tribunal hasapproached the matter on all the aforementioned issues and wefind that there is no question of law much less substantialquestions of law arising for consideration in this appeal. In the result, the appeal (ITAT/96/2017) fails and standsdismissed. Consequently, the stay petition (IA No.GA/2/2017(Old No.GA/830/2017) is also dismissed.” Following the above decision in the assessee’s own casesubstantial question nos.(a) and (c) are answered against theappellant/revenue. With regard to substantial question no.(b) the Tribunalanswered the said issue in favour of the respondent/assessee byfollowing the decision of the Hon’ble High Court of Bombay inCommissioner of Income Tax versus ACE Builders (P) Ltd. reported in[2005]144 Taxman 855(Bombay). The said decision was noted withapproval by the Hon’ble Supreme Court in the case of Commissioner ofIncome Tax, Panji versus V.S. Dempo Company Limited reported in[2016]74 taxmann.com 15(SC). The operative portion of the judgmentreads as follows:- “1. In the return filed by the respondent/assessee for theAssessment Year 1989-90 the assessee had disclosed that it hadsold its loading platform M.V. Priyadarshni for a sum of Rs.1,37,25,000/- on which it had earned some capital gains. On thesaid capital gains the assessee had also claimed that it wasentitled for exemption under Section 54E of the Income Tax Act.Admittedly, the asset was purchased in the year 1972 and soldsometime in the year 1989. Thus, the asset is almost 17 yearsold. Going by the definition of long term capital asset contained inSection 2(29B) of the Income Tax Act, 1995 (hereinafter referred to “1. In the return filed by the respondent/assessee for theAssessment Year 1989-90 the assessee had disclosed that it hadsold its loading platform M.V. Priyadarshni for a sum of Rs.1,37,25,000/- on which it had earned some capital gains. On thesaid capital gains the assessee had also claimed that it wasentitled for exemption under Section 54E of the Income Tax Act.Admittedly, the asset was purchased in the year 1972 and soldsometime in the year 1989. Thus, the asset is almost 17 yearsold. Going by the definition of long term capital asset contained inSection 2(29B) of the Income Tax Act, 1995 (hereinafter referred to as 'the Act'), it was admittedly a long-term capital asset. Furtherthe Assessing Officer rejected the claim for exemption underSection 54E of the Act on the ground that the assessee hadclaimed depreciation on this asset and, therefore, provisions ofSection 50 were applicable. Though this was upheld by theCommissioner of Income Tax(Appeals), the Income Tax AppellateTribunal allowed the appeal of the assessee herein holding thatthe assessee shall be entitled for exemption under Section 54E ofthe Act. The High Court has confirmed the view of theCommissioner of Income Tax (Appeals) and dismissed the appealof the Revenue. While doing so the High Court has relied upon itsown judgment in the case of CIT v. ACE Builders (P.) Ltd. [2006]281 ITR 210/[2005] 144 Taxman 855 (Bom.). The High Court hasobserved that Section 50 of the Act which is a special provisionfor computing the capital gains in the case of depreciable assetsis not only restricted for the purposes of Section 48 or Section 49of the Act as specifically stated therein and the said fictioncreated in sub-section (1) & (2) of Section 50 has limitedapplication only in the context of mode of computation of capitalgains contained in Sections 48 and 49 and would have nothing todo with the exemption that is provided in a totally differentprovision i.e. Section 54E of the Act. Section 48 deals with themode of computation and Section 49 relates to cost with referenceto certain mode of acquisition. This aspect is analysed in thejudgment of the Bombay High Court in the case of ACE Builders(P.) Ltd. (supra) in the following manner: "In our opinion, the assessee cannot be denied exemption underSection 54E, because, firstly, there is nothing in Section 50 tosuggest that the fiction created in Section 50 is not only restrictedto Sections 48 and 49 but also applies to other provisions. On thecontrary, Section 50 makes it explicitly clear that the deemed "In our opinion, the assessee cannot be denied exemption underSection 54E, because, firstly, there is nothing in Section 50 tosuggest that the fiction created in Section 50 is not only restrictedto Sections 48 and 49 but also applies to other provisions. On thecontrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) & (2) of Section 50 is restrictedonly to the mode of computation of capital gains contained inSection 48 and 49. Secondly, it is well established in law that afiction created by the legislature has to be confined to the purposefor which it is created. In this connection, we may refer to thedecision of the Apex Court in the case of State Bank of India v.D.Hanumantha Rao 1998 (6) SCC 183. In that case, the ServiceRules framed by the bank provided for granting extension ofservice to those appointed prior to 19.07.1969. The respondenttherein who had joined the bank on 1.7.1972 claimed extensionof service because he was deemed to be appointed in the bankwith effect from 26.10.1965 for the purpose of seniority, pay andpension on account of his past service in the army as ShortService Commissioned Officer. In that context, the Apex Court hasheld that the legal fiction created for the limited purpose ofseniority, pay and pension cannot be extended for otherpurposes. Applying the ratio of the said judgment, we are of theopinion, that the fiction created under Section 50 is confined tothe computation of capital gains only and cannot be extendedbeyond that. Thirdly, Section 54E does not make any distinctionbetween depreciable asset and non-depreciable asset and,therefore, the exemption available to the depreciable asset underSection 54E cannot be denied by referring to the fiction createdunder Section 50. Section 54E specifically provides that wherecapital gain arising on transfer of a long term capital asset isinvested or deposited (whole or any part of the net consideration)in the specified assets, the assessee shall not be charged tocapital gains. Therefore, the exemption under Section 54E of theI.T. Act cannot be denied to the assessee on account of the fictioncreated in Section 50." 2. We are in agreement with the aforesaid view taken by theHigh Court.” Following the above decision which squarely applies in the casein hand, substantial question no.(b) is also answered against therevenue. In the result, the appeal (ITAT/233/2018) is dismissed and thesubstantial questions of law are answered against the revenue for thereasons assigned in the preceding paragraphs. Consequently, the connected application for stay (GA/2/2018)is also dismissed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)