M/S DEEPAK NITRITE LTD. vs. ADDL. COMMISSIONER OF INCOME TAX

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TAXAP/1652/2007HC GujaratGJHC24055580200713 June 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA4 pages
AI SummaryRemanded

What did the High Court hold?

The Tribunal, in its subsequent order dated August 7, 2009, following the High Court's direction, held that the transaction of selling debentures to UTI was genuine and not a colourable device. The Tribunal reasoned that the assessee subscribed to the debentures through a public offering, and the option for early payment was available to all subscribers. The sale to UTI, a semi-government institution, was considered genuine, with the debenture transfer form signed by UTI's representative. The Tribunal noted that the assessee received 96% of the face value, whereas others only realized 70%, indicating the genuineness of the transaction. The Tribunal found no indication of a colourable device and concluded that the commercial rationale was not unjustified. The transactions were deemed real and true, not artificial or counterfeit. Consequently, the loss of Rs. 24,43,750/- on the sale of the capital asset was to be treated as a capital loss and set off against income chargeable to tax under other heads, as per Section 71 of the Income Tax Act applicable for AY 1989-90. The Tribunal dismissed the revenue's ground of appeal, thereby reversing the Assessing Officer's finding.

What were the facts?

This Tax Appeal was filed by M/s Deepak Nitrite Ltd. (the assessee) against the Income Tax Appellate Tribunal's order dated April 9, 2007. The dispute concerns the assessment year 1989-90 and involves the disallowance of a loss of Rs. 24,43,750/- on the sale of Part 'C' debentures of Deepak Fertilisers and Petrochemicals Ltd. The procedural history is complex, involving multiple assessment orders, appeals, remands by the Tribunal, and references to the High Court. Initially, the Assessing Officer disallowed the loss. After a remand, the Assessing Officer again disallowed the loss in 2001. The CIT(A) reversed this, but the Tribunal, by its impugned order, upheld the Assessing Officer's disallowance. Subsequently, the High Court, in a related matter, directed the Tribunal to decide the genuineness of the transaction afresh.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the decision of the Assessing Officer in disallowing a loss of Rs. 24,43,750/- on the sale of Part 'C' debentures of Deepak Fertilisers and Petrochemicals Ltd. (Question of law). Assessee's Contentions: The assessee argued that the transaction was genuine and should be given its legal effect under the Income Tax Act. The debentures were subscribed to pursuant to a public offering, and the option for early payment was available to all subscribers. The sale to UTI, a semi-government institution, was genuine, and the consideration received was in the normal course of business. The assessee relied on the commercial rationale of the transaction. The assessee's argument is implicitly supported by the subsequent Tribunal order which found the transaction genuine. Revenue's Contentions: The revenue's stance, as upheld by the Tribunal in the impugned order, was that the loss was not genuine or was a colourable device, leading to its disallowance. The revenue's arguments are not explicitly detailed in the provided text but are inferred from the Tribunal's decision to uphold the Assessing Officer's disallowance.

Which sections of the Income-tax Act were involved?

Section 71

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/1652/2007 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1652 of 2007 ========================================================== M/S DEEPAK NITRITE LTD. Versus ADDL. COMMISSIONER OF INCOME TAX ========================================================== Appearance: MR MANISH J SHAH(1320) for the PETITIONER(s) No. 1 MR KM PARIKH(575) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 13/06/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1.

This Tax Appeal is filed by the assessee challenging judgement of the Income Tax Appellate Tribunal dated 09.04.2007. Following question was framed at the time of admission of the appeal: “Whether on the facts and in the circumstances of the case the Tribunal was right in law in upholding the decision of the Assessing Officer in disallowing loss of Rs. 24,43,750/- on sale of Part 'C' of debentures of Deepak Fertilisers and Petrochemicals Ltd.?”

2.

Learned counsel for the appellant pointed out following history of the present litigation: The issue arose in the assessee's return for the assessment year 1989-90. The Assessing Officer passed the order of C/TAXAP/1652/2007 ORDER assessment initially on 28.02.1992. CIT(A) decided the appeal on 13.11.1992. The Tribunal, by its order dated 18.05.1998, remanded the proceedings before the Assessing Officer.

3.

Assessee and the department both sought references against the said order of the High Court. While these references were pending, the Assessing Officer, in the remanded proceedings as per the order of the Tribunal, passed a fresh order of assessment on 16.02.2001 and disallowed the claim of loss of Rs. 24.43 lacs (rounded off). The assessee carried the matter in appeal. CIT(A) disposed of appeal on 17.12.2002. Assessee's of Income Tax reported in [2008] 307 ITR 289 in the cross references filed by the assessee and the department against the Tribunal's judgement dated 06.05.2008. On the issue on hand the Court directed as under:- “8. In the aforesaid set of facts and circumstances of the case all the four questions raised on behalf of the assessee and question No.2 raised on behalf of the Revenue in Reference Application No. 657/Ahd/98 are required to be left unanswered leaving it open to the Tribunal to decide the C/TAXAP/1652/2007 ORDER ground of appeal raised by the Revenue and determine, in the first instance, whether the loss in question was a genuine transaction or not.”

5.

Pursuant to such judgement of the High Court, the Tribunal passed a fresh order holding as under:

“9. We have to apply the above principles to the facts of this case. In this case the assessee subscribed to the debentures pursuant to the public offering. This was not a case of private placement meant exclusively for the assessee. The option of payment of debenture subscription ahead of the due date was available to all the subscribers. The debentures were sold to UTI, a semi-government institution, whose representative signed the debenture transfer from and the assessee was able to get 96% of the face value of part C(NCD) of this debentures. Whereas incase of others only 70% of the face value could be realized as noted by the learned CIT(A). Therefore, the genuineness of the transaction with UTI cannot be doubted and, the amount paid for debenture subscription and the consideration received from UTI should be considered as genuine and in the normal course of business. We do not find any indication of a colourable device. The commercial viability of the transaction, in totality, as explained to the AO, has not been countered by him. Even otherwise, the commercial rationale of the transaction, when viewed in totality, cannot be adjudged to be unjustified. The transactions are real and true and do not violate any provisions of law. They cannot be said to be artificial, counterfeit, feigned or a contrivance. If this be so, the legal effect, as per the provisions of the Income Tax Act, will have to be given as prescribed by law. The assessee has sold a capital asset which has resulted in a capital loss of Rs. 24,43,750/-. As per the provisions of section 71 of the Income Tax Act as applicable in A.Y. 1989- 90 the loss suffered on the sale of capital asset has to be set off against the income chargeable to tax under other heads of C/TAXAP/1652/2007 ORDER income. There cannot be any escape from giving this effect to the transactions entered into by the assessee.

10.

We are therefore of the view that the CIT(A) was justified in reversing the finding of the AO so far as this issue is concerned. Thus, Revenue's ground of appeal No. 1(vi) in ITA No. 518/Ahd/1993 is dismissed.” A copy of the said order dated 07.08.2009 is placed on record by the counsel for the appellant.

6.

In view of the developments noted above, it can be gathered that the judgement of the Tribunal which is challenged by the assessee in this appeal no longer survives. On that issue at hand, the High Court had already requested the Tribunal to decide the issue afresh which the Tribunal has also done. This appeal is therefore has become infructuous and disposed of accordingly. (AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI

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