Saipem Triune Engineeringpvt. Ltd And Anr v. Assistant Commissionerof Income-Tax

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 01.03.2013 +W.P.(C) 1037/2013 & CM 1960/2013 SAIPEM TRIUNE ENGINEERINGPVT. LTD AND ANR ... Petitioner versus ASSISTANT COMMISSIONEROF INCOME-TAX ... Respondent Advocates who appeared in this case:For the Petitioner: Mr Ajay Vohra with Ms Kavita Jha and Mr Amit SachdevaFor the Respondent: Mr Sanjeev Rajpal CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE R.V.EASWAR JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This writ petition is directed against the order dated 30.01.2013 passed by the Income Tax Appellate Tribunal, Delhi Bench, whereby the petitioner’s application for stay being Stay No. 309/Del/2012 in ITA 5239/Del/2012 relating to the assessment year 2007-08 was disposed of by the Tribunal, inter alia, directing that:- (a)The assessee shall pay an amount of ` 50 lacs on orbefore 5[th]February, 2013.before 5[th]February, 2013. (b)The assessee shall continue to pay an instalment of ` 1crore per month till this case is disposed of.crore per month till this case is disposed of. (c)The order shall be in force for a period of six months ortill disposal of appeal, whichever is earlier.till disposal of appeal, whichever is earlier. 2.The demand raised against the assessee by virtue of the demand notice dated 02.11.2012 is ` 16,42,55,970/-, which includes the demand payable pursuant to the order passed by the Commissioner of Income Tax(Appeals) to the extent of ` 15,81,63,498/-, the balance being interestunder Section 220(2) of the Income Tax Act, 1961 (hereinafter referred toas ‘the said Act’). 3.The petitioner is aggrieved by the order passed by the Tribunalinasmuch as according to the petitioner it was a case where the Tribunalought to have granted complete stay of the recovery of the said amountdemanded by the respondents during the pendency of the appeal before it. The Tribunal has merely granted instalments and that, according to thepetitioner, would cause great hardship to the petitioner particularly as thepetitioner has an excellent prima facie case. 4.Initially, the petitioner filed a loss return in respect of theassessment year 2007-08 disclosing a loss of ` 5,80,21,210/-. In the year in question, the petitioner had acquired the running business of designand consultancy in the oil and gas sector from Triune Projects PrivateLimited. The said acquisition was by way of a slump sale and the totalamount paid therefor was approximately ` 45.68 crores. The said price of` 45.68 crores was divisible into two categories:- (i)tangible assets to the extent of approximately ` 5.10 crores;andand (ii)intangible assets to the extent of approximately ` 40.58crores.crores. 5.It is also relevant to note that the assessee (Saipem TriuneEngineering Private Limited) is a joint venture of Saipem SPA (Italy) andone Mr Binoy Jacob. Both the joint venture partners have a 50% share inthe assessee company. It is also pertinent to note that Mr Binoy Jacobwas the major shareholder in Triune Projects Private Limited. It has alsobeen contended by the learned counsel for the petitioner that in respect ofthe said slump sale, Triune Projects Private Limited had paid capital gaintax to the extent of ` 12 crores. 6.In the loss return filed by the petitioner, the petitioner had made aclaim of depreciation at the rate of 25% on the intangible assets whichwas embedded in the slump sale. A claim of depreciation was also made 5.It is also relevant to note that the assessee (Saipem TriuneEngineering Private Limited) is a joint venture of Saipem SPA (Italy) andone Mr Binoy Jacob. Both the joint venture partners have a 50% share inthe assessee company. It is also pertinent to note that Mr Binoy Jacobwas the major shareholder in Triune Projects Private Limited. It has alsobeen contended by the learned counsel for the petitioner that in respect ofthe said slump sale, Triune Projects Private Limited had paid capital gaintax to the extent of ` 12 crores. 6.In the loss return filed by the petitioner, the petitioner had made aclaim of depreciation at the rate of 25% on the intangible assets whichwas embedded in the slump sale. A claim of depreciation was also made at the rate of 15% with regard to the tangibles. The Assessing Officerdisallowed the depreciation claimed of ` 10,14,68,882/- in respect of theintangibles.He, however, allowed the depreciation claimed by thepetitioner with regard to the tangible assets. By doing so, the AssessingOfficer assessed the income of the petitioner at ` 4,34,47,670/- andcomputed the total tax liability of the petitioner at ` 1,61,29,322/-. Asagainst this, the revenue adjusted an amount of ` 1,62,40,170/- being therefunds due to the petitioner for the assessment year 2008-09.Thus,according to the computation given by the learned counsel for thepetitioner, the entire demand sought to be raised pursuant to theassessment under Section 143(3) by the Assessing Officer, stood clearedby way of adjustment of the refunds due and, in fact, an amount of` 1,10,848/- was shown to be refundable to the assessee in respect of theassessment year 2007-08. 7.The petitioner, being aggrieved by the disallowance of depreciationon intangibles to the extent of ` 10,14,68,882/-, went up in appeal beforethe Commissioner of Income Tax (Appeals). The latter maintained thedisallowance and not only that, he added an amount of ` 30,44,06,647/-under Section 40A(2) of the said Act.This sum of approximately `. 30.44 crores is the difference between the amount allocated forintangibles (i.e. ` 40.58 crores) less the amount disallowed by way ofdepreciation thereon (= approximately ` 10.15 crores). 8.The learned counsel for the petitioner submitted that this sum ofapproximately ` 30.44 crores could not, in any event, be added back tothe income of the assessee. This is so because the petitioner had neverclaimed this amount as an expenditure and, therefore, there was noquestion of Section 40A(2) being applied for adding this amount. Primafacie, we agree with the submission made by the learned counsel for thepetitioner. This amount had not been claimed by way of expenditure bythe petitioner. It was an amount which was embedded in the price paid inthe slump sale.Even if we construe the said sale to be a sham or not tobe slump sale at all, this amount of ` 30.44 crores (approximately) couldnot be added to the income of the assessee under Section 40A(2) of thesaid Act or any other provision. Of course, disallowance for depreciationcould be made if the law permitted. That disallowance had already beenmade by the Assessing Officer and, therefore, there was no occasion forany further disallowance insofar as the depreciation amount wasconcerned. 9.Apart from the said addition of ` 30.44 crores (approximately), theCommissioner of Income Tax (Appeals) also made a disallowance of `16,86,487/- with regard to the depreciation claimed by the petitioner asagainst the tangible assets. In other words, he disallowed the depreciationon the intangible assets and allowed the major portion of depreciation on tangible assets. Thus, according to the learned counsel for the petitioner,this stand of the Commissioner of Income Tax (Appeals) was inconsistentwith the view taken by him that the transaction was a sham transaction.If on the one hand, he disallowed depreciation on intangibles, he couldnot have, on the other, allowed depreciation on tangibles. Prima facie, wealso agree with this submission made by the learned counsel for thepetitioner. 9.Apart from the said addition of ` 30.44 crores (approximately), theCommissioner of Income Tax (Appeals) also made a disallowance of `16,86,487/- with regard to the depreciation claimed by the petitioner asagainst the tangible assets. In other words, he disallowed the depreciationon the intangible assets and allowed the major portion of depreciation on tangible assets. Thus, according to the learned counsel for the petitioner,this stand of the Commissioner of Income Tax (Appeals) was inconsistentwith the view taken by him that the transaction was a sham transaction.If on the one hand, he disallowed depreciation on intangibles, he couldnot have, on the other, allowed depreciation on tangibles. Prima facie, wealso agree with this submission made by the learned counsel for thepetitioner. 10.Apart from the aforesaid disallowances, the Commissioner ofIncome Tax (Appeals) also made certain other disallowances. The resultbeing that the total disallowance made by the Commissioner of IncomeTax (Appeals) came to` 31,68,20,064/-.This was by way ofenhancement.The total demand which was payable by the petitionerpursuant to the order passed by the Commissioner of Income Tax (Appeals) came to ` 15,81,63,498/- which, along with interest underSection 220(2) of the said Act, came to ` 16,42,55,970/-, which has beendemanded by virtue of the demand notice dated 02.11.2012. Out of thefigure of ` 15,81,63,498/-, an amount of ` 13,36,32,605/- is the result oftax of ` 10,24,63,277/- and interest thereon of ` 3,11,69,328/- in respectof the enhancement of ` 30.44 crores (approximately) made by theCommissioner of Income Tax (Appeals) with regard to the purporteddisallowance under Section 40A(2) relating to the intangible assetspurchased in the said slump sale. It is necessary to note that out of thetotal tax demand of ` 15,81,63,498/-, an amount of ` 1,62,40,170/-already stands paid as it was adjusted against the refunds due for theassessment year 2008-09.The balance tax payable would then be` 14,19,23,328/-, out of which, pursuant to the order passed by theTribunal, a sum of ` 50 lacs has already been paid by 5[th]February, 2013,which leaves a balance of ` 13,69,23,328/- and as against this, an amountof ` 13,36,32,605/- is only on account of enhancement made of ` 30.44crores which, prima facie, does not appear to be backed by law. 11.In these circumstances, we feel that the petitioner has an excellentprima facie case and the Tribunal ought to have granted stay of the demand raised by the revenue. We set aside the impugned order passedby the Tribunal to the extent of balance payments other than the paymentof ` 50 lacs already made by the petitioner. The rest of the demand isstayed till the Tribunal disposes of the appeal. The writ petition standsdisposed of. Any observations made in this order are only prima facieobservations and will not be taken into account by the Tribunal whileconsidering and deciding the appeal. We expect that the Tribunal shalldecide the appeal expeditiously. The parties have assured that they shallnot take any adjournments. Dasti under the signature of the Court Master. BADAR DURREZ AHMED, J R.V.EASWAR, J MARCH 01, 2013SR