Valley Iron & Steel Co. Ltd. Vs PCIT (Delhi High Court)
Delhi High Court held that benefit of deduction under section 80IC of the Income Tax Act available even in case of addition of unsubstantiated share capital into the account of the assessee under Section 68 of the Act.
Facts- The petitioner-assessee impugns the order dated 28 February 2017 passed by the Income Tax Settlement Commission with the challenge being restricted to the additions made with respect to the infusion of share capital by M/s Amit Goods and Supplier Private Ltd. and the denial of benefit of deductions u/s. 80IC of the Income Tax Act, 1961 on the income of INR 24.99 crores. The Principal Commissioner of Income Tax has also assailed the aforesaid order of the ITSC and to the extent that relief was accorded to the assessee, including grant of immunity from prosecution.
The present writ petitions constitute the second round of litigation since the application for settlement had initially come to be disposed of by the ITSC in terms of an order dated 31 July 2013. The aforesaid order was assailed before this Court by way of W.P.(C) 929/2015 which came to be allowed by way of an order dated 06 May 2016, whereby the Court quashed and set aside the order passed by the ITSC and required it to examine the issues emanating from the infusion of unexplained share capital and deductions liable to be accorded in terms of Section 80IC of the Act.
Conclusion- Held that we allow WP(C) 5081/2017 and set aside the order of the ITSC in part and insofar as it relates to additions made with respect to infusion of share capital by M/s Amit Goods and Supplier Private Limited to the tune of INR 11,26,60,000. We also set aside the ITSC’s order, which held that addition of unsubstantiated share capital into the account of the assessee under Section 68 of the Act would not qualify for the benefits of deduction under Section 80IC of the Act. The petitioner-assessee shall be entitled to consequential reliefs.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner-assessee impugns the order dated 28 February 2017 passed by the Income Tax Settlement Commission1 with the challenge being restricted to the additions made with respect to the infusion of share capital by M/s Amit Goods and Supplier Private Ltd. and the denial of benefit of deductions under Section 80IC of the Income Tax Act, 19612 on the income of INR 24.99 crores. The Principal Commissioner of Income Tax3 has also assailed the aforesaid order of the ITSC and to the extent that relief was accorded to the assessee, including grant of immunity from prosecution.
2. The present writ petitions constitute the second round of litigation since the application for settlement had initially come to be disposed of by the ITSC in terms of an order dated 31 July 2013. The aforesaid order was assailed before this Court by way of W.P.(C) 929/2015 which came to be allowed by way of an order dated 06 May 2016, whereby the Court quashed and set aside the order passed by the ITSC and required it to examine the issues emanating from the infusion of unexplained share capital and the deductions liable to be accorded in terms of Section 80 IC of the Act.
3. We deem it apposite to extract the order dated 06 May 2016 which is reproduced hereinbelow:-
“1. The challenge in this petition is to an order dated 31st July, 2013 passed by the Income Tax Settlement Commission (“ITSC”) where the in-come of the Petitioner for the Block Period 2004-05 to 2010-11 has been computed under Section 245D(4) of the Income Tax Act, 1961 (‘Act’). Inter alia, in determining the taxable in-come for the aforementioned block period the ITSC concluded that the Petitioner cannot claim de-duction under Section 80IC of the Act. The ITSC also declined to interfere with the addition pro-posed in the original assessment on account of introduction on unaccounted income by way of share capital.
2. It is stated by the Petitioner that subsequent to the impugned order of the ITSC, when the assessment proceedings for the subsequent assessment year (‘AY’) was in progress, the Petitioner came across a copy of the letter dated 18th July, 2013 written by the Commissioner of Income Tax DR Additional Bench ITSC, to the Commissioner of Income Tax Central-I. The said letter was written on the day that the last hearing of the settlement application took place before the ITSC. The ITSC proceeded to pass the impugned final order on 31st July, 2013.
3. The contents of the above letter are reveal-ing inasmuch as it is stated therein that as far as the share capital for the introduction of money on account of share capital application amounting to 34,66,l9,000, it came from “busy books” which are real books and that the said sum was found in the ledger accounts of the share applicants in the regular books .
4. The other aspect which is referred to in the said letter concerns the Section 80IC deduction. The verification undertaken revealed an arithmetical error in the report dated l0th July, 2013 submitted to the ITSC where instead the figure of Rs.28,71,908/- the figure Rs. 2,87,19,008 was written.
5. In the impugned order there is no reference to the above communication at all. Neither fact mentioned in the said letter was brought to the notice of the ITSC.
6. Despite opportunities, no counter affidavit has been filed in the present petition. Therefore, there is no rebuttal of the fact that the above letter was in fact written by CIT DR, Additional Bench, ITSC to the CIT Central-I.
7. Learned counsel for the Respondent draws attention to the paragraph 15 of the order where ITSC has recorded the concession by the Petitioner during the course of hearing on 18th July, 2013 regarding treating Rs.24,91,54,640/ as additional income attributable to infusion of unexplained share capital.
8. Mr Sanjeev Sabharwal, learned Senior Advocate appearing for the Petitioner, on instructions, however, states that the above concession was given an anticipation of the deduction under Section 80IC as in that event no tax liability would be outstanding. Although the impugned order does not record the above submission, the Court is of the view that the letter dated 18thMarch, 2013 referred to above was a critical document which ought to have been taken note of by the ITSC while deciding the two issues referred to therein.
9. Consequently, the impugned order dated 31stJuly, 2013 of the ITSC as regards the above two issues is hereby set aside and the said two issues viz., introduction of unaccounted money as chare capital and claiming of deduction under Section 80IC are remanded to the ITSC for a fresh adjudication in accordance with law. In particular the ITSC shall take into account the letter dated 13thJuly, 2013 written by the Principal Commissioner Additional Bench ITSC to the Commissioner of In-come Tax Central .
10. The matter shall be listed before the ITSC on 12thJuly, 2016 for further proceedings in light of the above directions.
11. The writ petition is disposed of in the above terms with no order as to costs.
12. Order dasti to the parties.”
4. Upon the matter being taken up afresh, the ITSC took note of the judgment rendered in the writ petition including the reliance which had been placed on a letter dated 18 July 2013 addressed by the Commissioner of Income Tax (DR)4 asserting therein that the introduction of share capital amounting to INR 34,66,19,000/- had been found duly recorded and thus verifiable from the ledger account of the share applicants. That communication had also alluded to an arithmetical error appearing in the report dated 10 July 2013 submitted to the ITSC where the figure of INR 28,71,90,800/- came to be erroneously mentioned instead of the correct figure of INR 28,71,908/-. The PCIT also appears to have submitted a letter dated 22 July 2013 and which took a stand at variance with the earlier communication of 18 July 2013. The PCIT took the position that the entire amount of INR 34,66,56,950/- should be treated as unexplained credit and taxed in accordance with Section 68 of the Act.
5. As would be evident from our order passed in the earlier round of litigation, one of the principal grounds which weighed upon the Court in interfering with the order of the ITSC was a failure on its part to confront the petitioner-assessee with the letters dated 18 and 22 July 2013. However, and notwithstanding the aforesaid developments, the ITSC framed the fol-lowing two principal issues for consideration: –
a. Genuineness of claim of share capital amounting to INR 34,66,56,950/-.
b. Claim of deduction under Section 80IC of the Act.
6. In the report which was submitted pursuant to the provisions contained in Section 245D(3), the PCIT took the stand that the introduction of share capital amounting to INR 34,66,56,950/- could not be verified and that there were grave doubts with respect to the genuinity of the aforesaid transactions. The report also doubted the claim for deductions under Section 80 IC of the Act.
7. However, upon crystallization of the aforenoted two issues, the ITSC while dealing with the issue pertaining to share capital took note of the following particulars.
