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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SHRI P.K. BANSAL & SHRI K.N. CHARRY
order dated 28.02.2013 in appeal no. 283/2011-12/CIT (A)-XV, New Delhi.
Briefly stated relevant facts are that the assessee is a company engaged in providing business auxiliary services to ICICI Bank Ltd. During the F.Y. 2008-09 they ventured to provide such similar services to ICICI Home Finance Company Ltd. by entering into a contract dated 01.05.2008 with them. However, by letter dated 20.04.2009 the assessee was informed by the ICICI Home Finance Co. Ltd. that the agreement dated 01.05.2008 was declared void ab initio by the Board of Directors in their meeting held on 20.04.2009 as a result of which the transaction of income was reversed by the assessee as there was no legally enforceable right to such income under a void contract. However, the AO added back a sum of Rs. 2,05,39,063/- and Rs. 21,73,292/- to the income of the assessee. The assessee contended that the amount of Rs. 2,17,13,292/- includes Rs. 2,05,39,063/- also. By way of order passed u/s 154 of the Act the AO rectified the mistake and determined the amount of disallowance at Rs. 2,17,13,292/- only.
The appeal preferred by the assessee against the assessment order challenging the addition of Rs. 2,17,13,292/- was dismissed by the Ld. CIT (A) holding that since the assessee had performed their part of contract as agreed between the parties, there was no justification to hold that no lawful income had arisen to the assessee on the ground of non-est contract.
Aggrieved by the impugned order dismissing the appeal, the assessee is before us in this appeal on the ground that the Ld. CIT (A) erred in law and on facts in confirming the addition.
It is argued by the ld. AR that the provisions of Section 297 of the Companies Act are mandatory in nature and any violation thereof renders the contract void ab initio but not voidable at the option of the Board and since no real income arises under a void contract, the income transactions were reversed by the assessee as such no tax could be assessed merely on the book entries.
According to him it is neither the entries in the books of account nor consent of the parties that would give rise to the determination of tax liability, but it is the real income that alone has to be brought to tax. Per contra, Ld. DR vehemently relied upon the orders of the authorities below.
We have carefully gone through the record. Vide paragraph no. 7.3 the Ld. CIT (A) observed as follows:
“7.3 On careful examination of the above provisions, it is evident that in case of a contract covered in section 297 (1) read with sub-section (2), prior consent of the Board of Directors of the company is more than Rs. 1 crore, the said company, ostensibly upon obtaining the consent from the BOD, is also required to obtain prior approval from the Central Government. In circumstances of urgent necessity, these provisions also allow obtaining the consent of the Board within three months of signing of the agreement, where agreement has been entered into without the consent of the Board. In the absence of the consent of the Board, or if consent is not accorded to any contract under this section, anything done in pursuance of the contract shall be voidable at the option of the Board. The provisions relating the approval of Central Government in respect of companies with share capital over Rs. 1 crore were introduced later. However, these provisions are silent whether the approval of the Central Government can be obtained with retrospective effect within 3 months. Further, unlike the case of companies having share capital below Rs. 1 crore, where contracts entered without obtaining the consent of the Board are liable to be held as ‘voidable at the option of the Board’ by virtue of the provisions of sub-section (5), in respect of default in obtaining approval of Central Government in case of companies having share capital above Rs. 1 crore, there is no corresponding provision in respect of similar default.” He was therefore, clear in his observation that the contracts entered without obtaining the consent of the Board are to be termed as “voidable at the option of the Board” in the case of the Companies having share capital below 1 crore, but there is no corresponding or analogous provision in the Companies Act for a similar situation in case of Companies having share capital above Rs. 1 crore. Ld. AR produced before us by way of Paper Book vide page no. 35 to 41 a copy of extract of Section 297 of the Companies Act, 1956 from A. Ramaya Guide to the Companies Act, 2006 Edition and Relevant extracts of Indian Contracts Act, 1972 and at page no. 36 it is clearly stated that in the absence of approval of Central Government, where necessary, the contract shall be void. Nothing contrary to this is produced before us and this statement supplements the observations of the Ld. CIT (A) to the effect that want of consent in respect of the Companies with share capital below Rs. 1 crore is voidable at the option of the Board, whereas it would render the contract void ab initio in case of Companies share capital more than Rs. 1 crore.
Further, in this case, the assessee alleges that on the contract becoming void ab initio, the transaction of income from ICICI Home Financing Co. Ltd. was reversed by the assessee since there was no legally enforceable right to such income on the contract being declared as void ab initio. On this aspect there is no denial of fact by the Revenue. In the circumstances, we are of the considered opinion that no real income had accrued to the assessee under a void contract as such the addition made on the basis of the income under a void contract and that too which was reversed subsequently, is unsustainable. Hence, the grounds of appeal are allowed.
7. In the result, the appeal of the assessee is allowed and the AO is directed to delete the impugned addition.
Order pronounced in the open court on 21.04.2017