Rama Industries Ltd v. Deputy Commissioner Of Income Tax & …Respondentsors

Sharayu Khot. IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2065 OF 2017 Rama Industries Ltd. …Petitioner Versus Deputy Commissioner of Income Tax & …RespondentsOrs. ALONG WITH WRIT PETITION NO. 2068 OF 2017 Rama Phosphates Ltd.…Petitioner Versus Deputy Commissioner of Income Tax & Ors. …Respondents ALONG WITH WRIT PETITION NO. 2075 OF 2017 Rama Petrochemicals Ltd. …Petitioner Versus Deputy Commissioner of Income Tax & Ors. …Respondents ---------- Mr. Jehangir Mistri, Senior Advocate, a/w Mr. P.C. Tripathi i/byMr. Atul Jasani, for the Petitioner in all the Petitions. 31&32&926-WP-2065&2068&2075-17.doc Mr. A.R. Malhotra, a/w Ms. Padma Divakar, for the Respondentsin all the Petitions. ---------- CORAM :M.S. SANKLECHA &RIYAZ I. CHAGLA, JJ. DATE : 19 January 2018 P.C. : 1. At the request of learned Counsel for the parties, these three Petitions arising out of a common order of theIncome Tax Appellate Tribunal (“the Tribunal” for short), arebeing finally disposed of at the stage of admission. 2.These three Petitions under Article 226 of theConstitution of India, take exception to the common order dated28 March 2016 passed under Section 254(1) of the Income TaxAct, 1961 (“The Act” for short) and common order dated 19May 2017 passed under Section 254(2) of the Act relating toassessment year 2009-10. The impugned order dated 28 March2016 passed in a regular Appeals under Section 254(1) of the 31&32&926-WP-2065&2068&2075-17.docAct by the Tribunal while partly allowing the Appeals of theRevenue, restored the issue of the Assessing Officer to determinethe nature (capital or revenue) of the loan waiver. The commonimpugned order dated 19 May 2017 dismissed the rectificationapplication under Section 254(2) of the Act by the Petitionersseeking to rectify the common order dated 28 March 2016passed under Section 254(1) of the Act. 3.At the very outset, the Respondent raised anobjection to the Petition being entertained to the extent itchallenges the order dated 28 March 2016 passed under Section254(1) of the Act. This, on the ground of an efficacious alternateremedy of an Appeal under Section 260A of the Act beingavailable and also on account of delay. In response, Mr. Mistri,learned Senior Counsel for the Petitioner, states that thechallenge in this Petition is being restricted only to the orderdated 19 May 2017 passed by the Tribunal under Section254(2) of the Act, i.e. on the Petitioners' application forrectification. Thus, the Petitioners challenge to the order dated 31&32&926-WP-2065&2068&2075-17.doc 28 March 2016, stands withdrawn. 4.The grievance of the Petitioners before us is thattheir rectification application ought to have been allowed. Thisas the common order 28 March 2016 partly allowing theRevenue's Appeal, placed reliance upon a Delhi High Court'sdecision in Logitronics P.Ltd. Vs. Commissioner of IncomeTax[1] without any of the parties citing it nor the Tribunal makingreference to it during the hearing before it. This fact is evenaccepted by the Tribunal in its impugned order dated 19 May2017. Therefore, according to the Petitioner, on the aboveground, the rectification application be allowed, as the Tribunalwas duty bound to put the case law it seeks to rely upon, to theparties before it and consider their submission on it, beforetaking a view of the dispute. 5.On the other hand, Mr. Malhotra, learned Counselfor the Revenue, places reliance upon the impugned order dated19 May 2017 of the Tribunal, rejecting the rectification1 333 ITR 386 5.On the other hand, Mr. Malhotra, learned Counselfor the Revenue, places reliance upon the impugned order dated19 May 2017 of the Tribunal, rejecting the rectification1 333 ITR 386 31&32&926-WP-2065&2068&2075-17.docapplication. In the above impugned order, Tribunal accepted thefact that the decision of the Delhi High Court in LogitronicsP.Ltd. (supra) was not a decision which arose for considerationduring the course of hearing of the Appeal leading to orderdated 28 March 2016. However, it is submitted that theimpugned order correctly holds that this reference to the abovedecision of the Delhi High Court, would make no difference, asthe decision to restore the issue to the Assessing Officer todetermine the purpose/object of the loan to consider the natureof waiver, had already been taken in the earlier part of theimpugned order dated 28 March 2016. Thus, the reference tothe decision of the Delhi High Court would not in any manneraffect/impact the reasoning and the conclusion in the commonorder dated 28 March 2016. Therefore, it is submitted that theimpugned order dated 19 May 2017 dismissing the rectificationapplication, calls for no interfere. 6.In Rejoinder, Mr. Mistri, learned Senior Counsel forthe Petitioner, disputes the above position. According to him, 31&32&926-WP-2065&2068&2075-17.doc the decision of Delhi High Court in Logitronics P.Ltd. (supra),from a bare reading of the order dated 28 March 2016, it hasinfluenced the final decision. 7.In the above context, it would be appropriate toextract that portion of the order dated 28 March 2016 (which isalso reproduced in the common impugned order dated 19 May2017), as this is the bone of contention between the parties asunder :- “…..... Considering the peculiar facts andcircumstances of the case, we are of the opinion thatthe matter needs further verification. Therefore, inthe interest of justice, matter is being restored backto the file of the Assessing Officer to decide the issueafresh after considering the loan sanctioning andthe loan waiver documents. He is directed to afforda reasonable opportunity of hearing to the assessee. Here, we would like to refer to the case ofLogitronics P.Ltd. (333 ITR 386), delivered by theHigh Court of Delhi. The facts of the case were thatunder a one-time settlement with the bank, theassessee discharged Rs. 1,85,00,000/- against theprincipal amount of loan of Rs. 4,76,92,213/- andthe remaining sum of Rs. 1,90,42,295/- waswaived, that the Assessing Officer taxed the principal amount of loan waived as income, that theFAA deleted the addition holding that the provisionsof sections 2(24), 28(i), (iv) and 41(1) were notapplicable and that the Assessing Officer was notjustified in making the addition of Rs.2,91,42,213/- being the principal amount of loanwaived. The Tribunal reversed the order of the FAA.On further Appeal, the High Court held as under :- Here, we would like to refer to the case ofLogitronics P.Ltd. (333 ITR 386), delivered by theHigh Court of Delhi. The facts of the case were thatunder a one-time settlement with the bank, theassessee discharged Rs. 1,85,00,000/- against theprincipal amount of loan of Rs. 4,76,92,213/- andthe remaining sum of Rs. 1,90,42,295/- waswaived, that the Assessing Officer taxed the principal amount of loan waived as income, that theFAA deleted the addition holding that the provisionsof sections 2(24), 28(i), (iv) and 41(1) were notapplicable and that the Assessing Officer was notjustified in making the addition of Rs.2,91,42,213/- being the principal amount of loanwaived. The Tribunal reversed the order of the FAA.On further Appeal, the High Court held as under :- “The Tribunal had found that nothing wasbrought on record to show that the loan taken bythe assessee from the bank was utilised for thepurpose of acquiring capital assets. On thecontrary, the material on record indicated thatthe assessee had obtained the loan or creditfacility by way of hypothecation of finishedgoods, semi-finished goods, raw material, bookdebts, receivable claims, securities and rights byway of first charge which indicated that theassessee had obtained the loan facility for itsbusiness activity or trading operations. On thequestion whether the whole amount of the loanhad been utilised either for the purpose ofacquiring a capital asset or for the purpose ofbusiness activity or trading activity the Tribunalremitted the matter to the Assessing Officer forfresh adjudication. The Tribunal had rightlycalled out the principle laid down from thevarious judgments and had given an opportunityto the assessee to prove its case before theAssessing Officer. Therefore, there was no reasonor occasion for the assessee to feel aggrieved bythe order of the Tribunal.” Considering the above discussion, we decide the secondground of Appeal in favour of the Assessing Officer in”part. (emphasis supplied) 31&32&926-WP-2065&2068&2075-17.doc 8.Tribunal after recording the above in the impugned order dated 19 May 2017, given its reason for not entertaining the rectification application, as under:- “In short the Tribunal had taken a decision ofremanding back the matter to the file of theAssessing Officer on the basis of cases alreadyreferred to by FAA. As far as case of LogitronicsP.Ltd. (supra) is concerned it has been mentionedas supporting the decision already taken. It is notdeciding factor......” 9.Our Court in Inventure Growth And Securities Ltd. Vs. Income-Tax Appellate Tribunal & Ors[2]. had occasion todeal with the similar fact situation viz. Tribunal passing an orderby relying upon a decision, which was not a subject matter ofconsideration during the hearing of the Appeal and rectificationapplication, was also disallowed by the Tribunal. In a WritPetition filed, our Court has while allowing the Petition, held asunder :- “It is in these circumstances that we are inclined toallow the miscellaneous application and to restorethe appeal and the cross-objections for fresh 9.Our Court in Inventure Growth And Securities Ltd. Vs. Income-Tax Appellate Tribunal & Ors[2]. had occasion todeal with the similar fact situation viz. Tribunal passing an orderby relying upon a decision, which was not a subject matter ofconsideration during the hearing of the Appeal and rectificationapplication, was also disallowed by the Tribunal. In a WritPetition filed, our Court has while allowing the Petition, held asunder :- “It is in these circumstances that we are inclined toallow the miscellaneous application and to restorethe appeal and the cross-objections for fresh consideration before the Tribunal. We clarify that itcannot be laid down as an inflexible proposition oflaw that an order of remand on a miscellaneousapplication under Section 254(2) would bewarranted merely because the Tribunal has reliedupon a judgment which was not cited by either partybefore it. In each case, it is for the Court to consideras to whether a prima facie or arguable distinctionhas been made and which should have beenconsidered by the Tribunal. It is in this view of thematter that we had called upon counsel appearingon behalf of the assessee to at least prima facieindicate before this Court the grounds on which thedecision in Khandwala Finance Limited was soughtto be distinguished. If we were to be of the view thatthe decision in Khandwala Finance Limited wassquarely attracted to the facts of the present case, wemay not have been inclined to remand theproceedings. An order of remand cannot be anexercise in futility. However, for the reasons whichwere already indicated, we find prima facie thatprejudice would be sustained by the petitioner bydenying him an opportunity to deal with thedistinguishing features in the case of KhandwalaFinance Limited.” 31&32&926-WP-2065&2068&2075-17.doc10.We have considered rival submissions. Fromthe extract of the order dated 19 May 2017 reproduced hereinabove, we note that having directed the restoration of thematter to the Assessing Officer, it goes on to extract certainobservation of the Delhi High Court in Logitronics P.Ltd.(supra) and only thereafter i.e. considering the above decision,decides ground No. 2 in the Appeal, was in favour of theRevenue. In the aforesaid facts, we cannot with certainty statethat the decision in Logitronics P.Ltd. (supra) had not evenremotely influenced the decision taken. In this case, the mannerin which the order dated 28 March 2016 is structured and in thefinal view/direction given after considering the decision ofthe Delhi High Court in Logitronics P.Ltd. (supra), it doesprima facie appear to us, have been influenced by it.Therefore, in the present case, Tribunal while dealing with therectification application, must deal with the Petitioner'sgrievance that the Delhi High Court's decision in LogitronicsP.Ltd. (supra) does not apply to the present facts. We aresatisfied that the above aspect has to be considered while 31&32&926-WP-2065&2068&2075-17.doc disposing of the rectification application in the present facts. 11. In the above view, we set aside the common impugned order of the Tribunal dated 19 May 2017 and restoreeach of the Petitioner's rectification application dated 6September 2016 to the Tribunal for fresh consideration. Thisrestoration is only to reconsider the Petitioner's grievance inrespect of reference/reliance upon the Delhi High Court decisionin Logitronics P.Ltd. (supra) in the common impugned orderdated 28 March 2016 and pass appropriate order on therectification application. 12.All three Petitions disposed of in the aboveterms. No order as to costs. [RIYAZ I. CHAGLA J.] [M.S. SANKLECHA, J.]