ADDL CIT 8(2), MUMBAI V. SUMMIT SECURITIES LTD ( FORMERLY KNOWN AS KEC INFRASTRUCTURE LTD), MUMBAI

ITA 4967/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8368 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 10-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RUNA JHA TRIPATHI
• Keywords: Set aside
• Section: 2(22)(e); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI. D.K. AGARWAL (J.M.) AND SHRI T.R. SOOD (A.M.) ITA NO.4967/MUM/2009 ASSESSMENT YEAR : 2006-2007 THE DEPUTY COMMISSIONER OF INCOME-TAX, 8(2), R.NO.216-A, AAYAKAR BHAVAN, MUMBAI. VS. M/S. SUMMIT SECURITIES LTD. (FORMERLY KNOWN AS KEC INFRASTRUCTURE LIMITED) TRANSASIA HOUSE, 3 RD FLR., CHANDIVALI STUDIO RD., ANDHERI (E), MUMBAI 400 072. PAN : AAACK4279J (APPELLANT) (RESPONDENT) APPELLANT BY : SMT RUNA JHA TRIPATHI RESPONDENT BY : SHRI YOGESH THAR O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 9.6.09 PASSED BY THE LD. CIT(A) FOR A.Y. 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 D ECLARING LOSS OF ` 6,21,76,231/-. THE ASSESSING OFFICER HAS MADE ASSESSMENT U/S.143(3) ON AN INCOME OF ` 348,13,95,960/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS SOLD ITS POWER TRANSM ISSION BUSINESS (PTB) TO ANOTHER GROUP COMPANY KEC INFRASTRUCTUR E LTD. PRESENTLY KNOWN AS KEC INTERNATIONAL LTD. FOR A TOTAL CONSIDERATION OF ` 143 CRORES. UNDER A SCHEME APPROVED BY THE HONBLE BOM BAY HIGH COURT, THE WHOLE UNDERTAKING AND PROPERTIES WERE TRA NSFERRED TO KEC ITA NO.4967/MUM/2009 M/S SUMMIT SECURITIES LTD. 2 INTERNATIONAL LTD. THE ASSESSEE COMPANY HAS CLAIMED THE TRANSACTION AS SLUMP SALE AND FILED AUDIT REPORT IN ACCORDANCE WITH SE CTION 50B(3) OF THE INCOME TAX ACT, 1961. THE ASSESSEE COMPANY HAS SHO WN THE ENTIRE CONSIDERATION OF ` 143 CRORES AS LONG TERM CAPITAL GAINS. THE PROFIT FROM THE SALE PROCEEDS OF PTB WAS INVESTED BY THE ASSESSEE COMPANY IN THE SHARES OF KEC INTERNATIONAL LTD., THE BUYER COMPANY. THE CONSIDERATION RECEIVED IN KIND BY WAY OF EQUITY SH ARES AND PREFERENCE SHARES WERE DISTRIBUTED BY THE ASSESSEE COMPANY IN THE RATIO 1:1 TO THE REGISTERED SHAREHOLDERS. THE VALUE O F SHARES SO DISTRIBUTED AMONG THE SHAREHOLDERS WAS ADJUSTED AGAINST HE REVALUATION RESERVE, CAPITAL REDEMPTION RESERVE AND BA LANCE AGAINST THE SECURITIES PREMIUM ACCOUNT. FROM THESE FACTS OF THE CA SE, THE ASSESSING OFFICER HAS GIVEN A SHOW CAUSE NOTICE TO THE ASSESSEE COMPANY TO EXPLAIN AS TO WHY THE DISTRIBUTION OF SHARES AMONGST ITS SHAREHOLDERS MAY NOT BE TREATED AS DISTRIBUTION OF DIVI DEND AND MAY NOT BE CHARGED TO DIVIDEND DISTRIBUTION TAX U/S.115-O OF THE I.T. ACT, 1961. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE COMPANY HAS SUBMITTED ITS REPLY WHICH IS REPRODUCED BY THE ASSESSING OFFICER ON PAGE 2 & 3 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER H AS ALSO CALLED FOR STATEMENT OF THE ASSETS AND LIABILITIES TRANSFE RRED/SOLD AS PER SCHEME FROM THE COMPANY WHICH IS ALSO REPRODUCED AT PAGE 3 OF THE ASSESSMENT ORDER. FROM THE ABOVE, THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE COMPANY HAD RESERVE AND SURPLUS OF ` 27,420.70 LAKHS PRIOR TO TRANSFER AND ` 22,412.47 LAKHS SUBSEQUENT TO THE TRANSFER OF ASSETS AND LIABILITIES OF PTB ON SLUMP SALE. THUS, THE CL AIM OF THE ASSESSEE THAT IT DID NOT HAVE ACCUMULATED PROFITS WAS REJECT ED BY THE ASSESSING OFFICER. ACCORDING TO ASSESSING OFFICER AS PER EXPLANA TION 2 TO SUB-SECTION (22) OF SECTION 2 OF THE I.T. ACT, 1961 W HEREIN THE EXPRESSION ACCUMULATED PROFITS IN SUB-CLAUSE (A), (B), (C) & (E) SHALL ITA NO.4967/MUM/2009 M/S SUMMIT SECURITIES LTD. 3 INCLUDE ALL PROFITS OF THE COMPANY UPTO THE DATE OF DI STRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB-CLAUSES AND IN SUB-CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UPTO THE DATE OF LI QUIDATION. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE SHARES OF KEC INTERNATIONAL LTD. OF ` 143 CRORES ALLOTTED TO THE ASSESSEE COMPANY IN LIEU OF SALE OF PTB DIVISION WERE ASSETS OF THE COMPANY AND DISTRIBUTION OF SUCH ASSETS TO ITS SHAREHOLDERS IS AMOUNTING TO RELEASE OF ASSETS TO ITS SHAREHOLDERS WHICH IS DIVIDEND IN ACCORDANCE WITH THE D EFINITION AS PER SECTION 2(22)(A) OF THE I.T. ACT, 1961. THE ASSESSIN G OFFICER HAS ALSO STATED THAT THE COMPANY HAS SURPLUS OF ` 22,412.47 LAKHS EVEN AFTER THE TRANSFER OF PTB ON SLUMP SALE. THE DISTRIB UTION OF EQUITY SHARES AND PREFERENCE SHARES OF KEC INTERNATIONAL LTD. T O EXISTING SHAREHOLDER OF THE KEC INFRASTRUCTURE LTD. HE HELD AS DIVIDEND AS PER SECTION 2(22)(A) OF INCOME TAX ACT, 1961 AND HENCE THE A SSESSEE COMPANY IS LIABLE FOR TAX ON THE SAME U/S.115-O OF THE INCOME TAX ACT, 1961. ACCORDINGLY, THE AMOUNT OF LIABILITY U/S. 115-O HE DETERMINED AT ` 17,87,50,000/- BY TREATING THE ASSESSEE IN DEFAULT WITHIN THE MEANING OF SECTION 115-Q OF THE INCOME TAX ACT, 1961. 3. ON APPEAL, THE LEARNED CIT(A) BY RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TEA ESTATE INDIA P . LTD. VS CIT 103 ITR 785 (SC) WHEREIN IT HAS BEEN OBSERVED THAT T HE ASSESSEES INCOME CANNOT BE TAKEN AS ACCUMULATED PROFITS HELD THAT THE CASE OF THE ASSESSEE IS NOT COVERED U/S.115-O HENCE THE ASSESSING OFFI CER HAS ERRED IN INITIATING PROVISIONS OF SECTION 115-Q OF THE I.T. ACT AND HENCE, HE DELETED THE ADDITION MADE BY THE ASSESSING OF FICER. 4. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT( A), THE REVENUE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS O F APPEAL : ITA NO.4967/MUM/2009 M/S SUMMIT SECURITIES LTD. 4 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT DISTR IBUTION OF SHARES BY THE ASSESSEE AMONGST ITS SHAREHOLDERS OUT OF THE PROFIT EARNED FROM THE SALE OF POWER TRANSMISSION BUSINESS IS NOT COVERED U/S.115-O WITHOUT APPRECIATING THE PROVISIONS OF SE CTION 115-O READ WITH EXPLANATION 2 TO SECTION 2(22) AND THE FACT THAT THE ASSESSEE WAS HAVING SURPLUSES AND RESERVES AS HELD BY THE ASSESSING OFFICER PRIOR TO THE DATE OF DISTRIBUTION WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. THE ASSESSEE PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND TO BE SET ASIDE AND THAT OF THE ITO/AC /DCIT BE RESTORED. 5. AT THE TIME OF HEARING THE LEARNED DR SUPPORTS ORD ER OF THE ASSESSING OFFICER. 6. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ORDER OF THE LEARNED CIT(A) ALSO PLACE D ON RECORD THE COPY OF THE BALANCE-SHEET OF THE ASSESSEE COMPANY AS ON 28. 02.2006 TO SHOW THAT THE RESERVES AND SURPLUS WERE WORKED OUT TO ` 9188.08 LAKHS. THUS THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CON SIDERING THE PROFIT AS ON 31.03.2005. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LEARNED CIT(A) BE UPHELD. IN ALTERNATIVE, HE SUBMITS THAT IN THE ABSENCE OF BALANCE-SHEET FOR THE YEAR 31.03.2005 HE HAS NO OBJECTION IF THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSE SSING OFFICER. 7. IN REJOINDER LEARNED DR ALSO AGREED FOR THE SETTIN G ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE COMPLETE FACTS ARE NOT ON RECORD INASMUCH AS THERE IS NO BA LANCE- ITA NO.4967/MUM/2009 M/S SUMMIT SECURITIES LTD. 5 SHEET AS ON 31.03.2005 AND 15.02.2006 BEING THE RECORD DATE. UNDER THE EXPLANATION 2 TO SECTION 2(22)(E) THE EXPRESSION ACCUMULATED PROFITS IN SUB-CLAUSES (A)(B)(D) AND (E), SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT RE FERRED TO IN THOSE SUB-CLAUSES, AND IN SUB-CLAUSE (C) SHALL INCLUDE ALL PROF ITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION. SINCE THE ISS UE HAS NOT BEEN EXAMINED IN LIGHT OF THE EXPLANATION 2 ABOVE AND PA RTIES HAVE FAILED TO FILE THE RELEVANT MATERIAL EVEN AT THIS STAGE, THER EFORE, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECI DE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEAR-IN-ABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITIES OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE REVENUE ARE, THERE FORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE REVENUES APPEAL STANDS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 18 TH DAY OF FEBRUARY, 2011. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 18 TH FEBRUARY, 2011. JANHAVI ITA NO.4967/MUM/2009 M/S SUMMIT SECURITIES LTD. 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.4967/MUM/2009 M/S SUMMIT SECURITIES LTD. 7 1 DRAFT DICTATED ON 11 . 2 .11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 11 . 2 .11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS