ALISHAN STEELS (P)LTD,KOLKATA vs. DCIT, CIRCLE-1(1), KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH KOLKATA BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA Nos.999 & 1001/Kol/2023 Assessment Years: 2011-12 & 2015-16

Alishan Steels Pvt. Ltd. DCIT, Circle -1(1), Kolkata. Room No. 210, Martin Burn Building, 1, R. N. Mukherjee Vs. Road, Lal Bazar, Kolkata- 700001. (PAN: AAACG9883E) (Appellant) (Respondent)

Present for: Appellant by : Shri K. M. Roy, FCA & Shri B. K. Agarwal, FCA Respondent by : Shri Kapil Mondal, Addl. CIT, DR Date of Hearing : 20.11.2023 Date of Pronouncement : 01.01.2024 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Both these appeals filed by the assessee are against the separate orders of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order nos. ITBA/NFAC/S/250/2023-24/1055048289(1) & ITBA/NFAC/S/250/2023-24/1055266671(1) dated 10.08.2023 and 21.08.2023 passed against the separate assessment orders by DCIT, Circle-3(1), Kolkata u/s. 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.11.2018 and 23.12.2017, for AYs 2011-12 & 2015-16 respectively.

2 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 999/Kol/2023 ground nos. 1, 2 and 3 are not pressed. Accordingly, these three grounds are dismissed as not pressed. 3. In appeal for AY 2015-16 in ITA No. 1001/Kol/2023 ground nos. 1, 2, 3 and 4 are not pressed. Accordingly, these four grounds are dismissed as not pressed. There are three other issues which have been raised in this year vide ground nos. 6, 7 and 8 which are reproduced as under: “6. Ld. CIT(A)(NFAC) has erred in confirming addition of Rs.66,61,440/- as excess payment to related party u/s. 40A(2)(b). 7. Ld. CIT(A)(NFAC) has erred in confirming of a sum of Rs.1,39,218/- under section 14A. 8. Ld. CIT(A)(NFAC) has erred in confirming addition of Rs.2,58,64,275/- of advances outstanding during previous financial year.”

3 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 4.1. Aggrieved, assessee went in appeal before the Ld. CIT(A) wherein it was submitted that the decision of Hon’ble Gujarat High Court relied on by the Ld. AO is distinguishable since in that case no adjustment of loss was adjudicated upon. Assessee had submitted that section 115BBE was introduced by Finance Bill 2012 mainly to tax income referred in section 68, 69A to 69D to be taxed at flat rate of 30%. Further, amendment was brought by Finance Bill, 2016 for set off of loss w.e.f. 01.04.2017. Assessee thus contended that after the introduction of section 115BBE w.e.f. AY 2013-14 and CBDT Circular No. 11/2019 which clarified that an assessee is entitled to claim set off of loss u/s. 115BBE of the Act upto AY 2016-17. Assessee can claim the set off in the present year under consideration for the addition made by the Ld. AO u/s. 68 of the Act. Ld. CIT(A), however, arrived at the conclusion based on the amendment brought in section effective from 01.04.2017 which did not permit the claim of set off of loss for the income referred in section 68, 69, 69A to 69D and thus, dismissed the appeal. Aggrieved, assessee is in appeal before the Tribunal. 5. Before us, the assessee reiterated the submissions as made before the Ld. CIT(A). According to him, amendment brought in section 115BBE(2) by Finance Act, 2016 whereby set off of loss against income referred to in section 68 was denied, would be effective from 01.04.2017. To buttress his contention, he placed reliance on the decision of Hon’ble High court of Kerala in the case of Vijaya Hospitality & Resorts Ltd. Vs. CIT [2020] 114 taxmann.com 91 (Ker). In this decision Hon’ble High court has dealt with the issue extensively on the amendment brought in section 115BBE, relevant extract of the same are reproduced for ease of reference. “14. Based on the rival contentions, on analyzing the factual situation, it is evident that the assessment pertains to the period from 1st April 2013 to 31st March 2014. It is not in dispute that the addition of Rs.56,24,264/- made in

4 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 the assessment is undisclosed income coming within the purview of section 68, it being a sum found credited in the books of the assessee with respect to which the explanation offered was not found to be satisfactory by the Assessing Officer. Since section 115BBE was introduced with effect from 0l.04.2013, it cannot be disputed that no deduction in respect of any expenditure or allowance can be allowed with respect to the said amount. But question is whether set off of any loss shall be allowed against the said undisclosed income. In order to decide the question it is crucial to decide the nature of such income. Contention for the revenue is that, it will not fall within any of the category of income under the classifications contained in section 14. In other words, such income cannot be treated as "profits and gains of business" or it cannot be considered as "income from other sources". As the provisions of law which stood applicable for the relevant year of assessment, there is a specific bar with respect to allowing any deductions from such income, by virtue of section 115BBE, as it stood unamended. The amendment declining set off was introduced only with effect from 1.4.2017. Therefore, question whether set off permissible under section 72(2) read with section 32(2) of the Act would apply with respect to the said income, assumes importance. There again, the crucial aspect relevant for consideration is the nature of the said income. In one of the oldest cases decided by the Honourable Supreme Court, A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 it is held that, "there is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income Tax Officer is entitled to draw an inference that the receipts are of an assessable nature". Following the said observations in Lakhmichand Baijnath (supra) the Honourable Supreme Court observes that, "when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business". Even though Standing Counsel contended that the said observations of the apex court cannot be treated as a precedent of binding nature, mainly because it is made with respect to the provisions contained in the erstwhile Income Tax Act of 1922, we are not persuaded to accept the same. It is basically on an identical circumstance that the apex court had found that the income credited in the business book with respect to which the assessee fails to prove satisfactorily the source and the nature of receipt of the amount, it shall be deemed to be of receipt from business. The decisions of the High Court of Madras in Chensing Ventures (supra) as well as the decision of the High Court of Gujarat in Shilpa Dyeing & Printing Mills (supra) are to the effect that income of such nature from undisclosed source need to be treated as income from other sources. Therefore, we are of the opinion that the undisclosed income assessed under section 68 need not be treated as an income falling totally outside the ambit of the classifications contained in section 14 of the Act. Even assuming for the sake of argument that, it will not fall within the classifications contained in section 14, it is evident that, as on the date of the assessment such income was included under a special classification by virtue of section 115BBE. It is pertinent to note that, 115BBE had prohibited allowance of deductions alone, as it stood unamended as on the relevant date of the assessment. The explanatory notes to the provisions of the Finance Act, 2016 enumerates the reasons for introduction of the further amendment barring the set off, with effect from 1.4.2017. It is stated that,- "Currently, there is uncertainty on the issue of set-off oflosses against income referred to in section 115BBE of the Income Tax Act. The matter has been carried to judicial forums and courts in some cases has taken

5 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Income-Tax Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, the provision of the sub-section (2) of section 115BBE of the Income Tax Act has been amended as to expressly provide that no set off any loss shall be allowable in respect of income under the section 68 or section 69 or section 69A or section 69C or section 69D." The intention of the legislature in introducing the amendment, as stated in the explanatory note, is to avoid unnecessary litigation and to expressly provide that no set off of any loss shall be allowable in respect of income under section 68. Therefore, it has to be held that, as on the relevant date of the assessment, there was no bar existed with respect to allowing set off against the carried forward unabsorbed depreciation on fixed assets, with respect to income under section 68. Therefore, we are of the view that, Tribunal had committed an illegality in coming to the conclusion that the deemed income will not fall even under the head of income from other sources and therefore the deductions and set off applicable to income under other heads will not be attracted in the case of deemed income covered under the provisions of section 68. Accordingly we answer the question of law under clause (F) in favour of the Assessee and as against the Revenue. In view of the decision of the said question oflaw, other questions framed are not of consequence and become irrelevant. 15. Hence, the above appeal is hereby allowed and the impugned order of the tribunal is set aside. The original order of assessment passed by the Assessing Officer on 30.03.2016 will stand sustained. Needless to observe that, any coercive steps for recovery initiated based on the revised assessment cannot be allowed to continue.” 5.1. Ld. Counsel for the assessee also referred to para 4 of CBDT circular No. 11/2019 dated 19.06.2019 wherein it is categorically stated that assessee is entitled to claim set off of loss against income determined u/s. 115BBE till the AY 2016-17. The same is reproduced hereunder for ease of reference: “4. Thus keeping the legislative intent behind amendment in section 115BBE(2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term 'or set off of any loss' was specifically inserted only vide the Finance Act 2016, w.e.f. 1-4-2017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17.” 6. Per contra, Ld. CIT, DR placed reliance on the orders of the authorities below. 7. We have heard rival contentions and perused the material available on record. Before us Ld. Counsel has claimed the set off of addition made u/s. 68 from its business loss reported in the return

6 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 which has been denied by the Ld. AO as well as Ld. CIT(A). We find that in the present case, the issue is already held to be in favour of the assessee by the Hon’ble High Court of Kerala in the case of Vijaya Hospitality & Resorts Ltd. (supra) wherein the amendment brought in section 115BBE(2) are effective from 01.04.2017. We also note that CBDT in its circular referred above has categorically allowed to claim the set off of loss against the income determined u/s. 115BBE after AY 2016-17. In the present case before us, the year under consideration is AY 2011-12 and 2015-16 in which the claim of set off of loss is permissible. Accordingly, in terms of the CBDT Circular and respectfully following the decision of Hon’ble High Court of Kerala (supra) we allow ground taken by the assessee in this respect for both the appeals before us. 8. Now, we take up appeal for AY 2015-16 in ITA No. 1001/Kol/2023 to deal with the other issues. Ground no. 6 is in respect of addition made u/s. 40A(2)(b) for excess payment made to related party amounting to Rs.66,61,440/-. On this issue, Ld. AO observed that assessee holds 32.63% of shares in H. P. Ispat Pvt. Ltd. and is, therefore, covered within the meaning of related party u/s. 40A(2) of the Act. Ld. AO observed that fact of assessee being a related party has not been disclosed in the tax audit report as well as in the audited balance sheet. Further, from the details of purchase and sales along with quantity and items, furnished by the assessee, Ld. AO noted that assessee has made excess payment to the related party for purchase of scrap when compared to purchase of scrap made from unrelated party. Ld. AO compared the purchase made by assessee from one unrelated party Jai Balaji Industries to compare its purchase made from H. P. Ispat Pvt. Ltd. who is the related party. He arrived at a conclusion that the rate per MT paid by the assessee to the related party is on a higher side and thus, applied the difference in

7 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 rate on the quantity of MT of scrap purchased by the assessee from the related party to make a disallowance of Rs.66,61,440/- u/s. 40A(2)(b) of the Act. 8.1. On this issue, assessee contended before the Ld. CIT(A) that there is no shifting of profit by the assessee from it to the related party since both assessee and the related party had business loss scenario. To corroborate the same, copy of ITR of H. P. Ispat Pvt. Ltd. for AY 2015-16 was placed on record to demonstrate that it had the current year loss of Rs.1,46,29,467/-. Assessee also contended that Ld. AO chose the highest and the lowest rate of purchase to work out the excess payment for taking into consideration purchases made by the assessee from other unrelated parties which have been at higher rate than the one made from the related party. To substantiate the contention, he furnished the details which is tabulated as under: Seller Purchased Rate per (MT) Shakambhari Ispat Scrap 40.90 Rs.1150285.50 25000.00 and Power Ltd Ankit Metaliks Ltd. Scrap 7.56 Rs.189000.00 25000.00 ASP Private Ltd. Scrap 14.16 Rs.28320.00 20000.00 SRMB Srijar Scrap 20.13 Rs.402600.00 20000.00 Ferrotech Ltd. Gagan Ferrotech Ltd. Scrap 13.88 Rs.333120.00 24000.00 Alishan Steels Pvt. Miss roll 15.570 Rs.4,69,680.00 24000.00 Ltd.

8.2 It was further stated that rates of purchase varies on quality of scrap and there cannot be a fixed standard rate of all the purchases. According to the assessee, Ld. AO cannot sit in the arm chair of the businessman and decide what a business man is supposed to do. Assessee had incurred loss during the year and there was no incentive for it to inflate its purchase bills. Thus, the disallowance made by the Ld. AO are merely on the basis of surmises and conjectures. On this issue from the perusal of the order of Ld. CIT(A), we find that no finding has been given by him while disposing the appeal.

8 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 9. Per contra, Ld. CIT, DR placed reliance on the orders of the authorities below. 10. From the perusal of the order of Ld. AO, we note that he has considered the purchase transaction of only one unrelated party to compare it with the purchases made by the assessee from the related party and arrived at the conclusion to make the disallowance. Contrary to this, assessee has furnished details of purchase transactions from several other unrelated parties which demonstrates that purchases have been made at higher rates from them as compared to the one from the related party. Also, it is undisputed that there is a loss scenario both, in the hands of the assessee and the one from whom purchases have been made which is a related party. Thus, from a tax advantage objective, there seems to be no incentive to inflate the purchase. Considering these facts on record, we delete the addition made by the Ld. AO towards disallowance u/s. 40A(2)(b) and allow the claim of the assessee. Thus, ground no. 6 is allowed. 11. Ground no. 7 is in respect of disallowance made u/s. 14A of Rs.1,39,218/-. In this respect Ld. AO has observed that assessee has held investment in shares of bodies corporate which were capable of yielding exempt income. Before the Ld. AO, assessee claimed that it had not derived any exempt income from the investments and, therefore, there was no question of disallowance u/s. 14A of the Act. However, Ld. AO proceeded to make a disallowance for the same. Again we note that ld. CIT(A) has given no finding on this issue raised before him. Assessee had made submission before him to delete the addition made u/s. 14A, since assessee has not earned any exempt income during the year. 11.1. Before us, Ld. Counsel reiterated the same submission as made before the Ld. CIT(A). We find that this issue is settled as no addition can be made u/s. 14A where assessee has not earned any exempt

9 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 income in the year. Decision of Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd. in ITA No. 204/2022 & C. M. Application No. 31445/2022 has been followed by the coordinate bench of ITAT, Kolkata in the case of Babul Fiscal Services (P) Ltd v. ACIT in ITA No. 318/Kol/2022 dated 02.08.2022 holding that no disallowance is required to be made in the case of the assessee because it has not earned any tax-free income and allowed the appeal of the assessee by deleting the addition so made. Considering this, the disallowance made in this respect is deleted. Accordingly, ground taken by the assessee in this respect is allowed.

12.1. Before the Ld. CIT(A), assessee contended that the amount received were returned back and out of the three parties, accounts of two parties were squared off during the year itself. To corroborate this

10 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 fact, copies of ledger accounts were furnished. The details of this advance and movement of their account is tabulated as under:

12.2. Assessee claimed that all the transactions with the parties are through banking channel and duly accounted in the books of account as depicted in their respective ledgers, placed on record. Thus, the assumption drawn by Ld. AO are devoid of any merit and factually incorrect. Ld. CIT(A) confirmed the addition by merely observing that there is absence of comprehensive supporting evidence by the assessee. Aggrieved, assessee is in appeal before the tribunal. 13. Ld. Counsel for the assessee reiterated the submissions made before the authorities below. He demonstrated the contentions made, by referring to the corroborative material placed on record in the paper book. 14. Per contra, Ld. CIT, DR relied on the orders of the authorities below. 15. We have gone through the documents placed on record and find that the presumption made by the Ld. AO that advances have been

11 ITA Nos.999/Kol/2023 & 1001/Kol/2023 Alishan Steels Pvt. Ltd., AYs 2011-12 & 2015-16 booked for purchase of material and production thereof is not justified when the money received has been returned back within a year for two parties out of the three parties and even for the 3rd party the details are on record which show that only Rs.32,89,807/- is outstanding out of total of Rs.81,63,076/-, balance has been received through banking channel. Considering all these facts, we delete the addition made by the Ld. AO and allow this ground raised by the assessee. 16. In the result, both the appeals of the assessee are partly allowed. Order is pronounced in the open court on 01.01.2024.

Sd/- Sd/- (Sanjay Garg) (Girish Agrawal) Judicial Member Accountant Member

Dated: 01.01.2024 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent. 3. CIT(A), NFAC, Delhi 4. CIT 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata