DCIT, CC-3(3), KOLKATA, KOLKATA V. SEVEN STAR STEELS LTD., KOLKATA

ITSSA 118/KOL/2023

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 2497 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 04-03-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-12-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 30-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: OBSERVING
• Keywords: Set aside; Revised return; Depreciation; Search and seizure
• Section: 147; 143(1); 132; 153A; 139(1); 139; 72; 119(2)(b); 139(5); 20

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ “बी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA ी राजेश क ु मार, लेखा सट य एवं ी संजय शमा या यक सद य के सम [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.(SS)A. No. 118/Kol/2023 Assessment Year: 2015-16 DCIT, CC-3(3), Kolkata Vs. Seven Star Steels Ltd. (PAN: AAICS 5549 M) Appellant / )अपीलाथ ( Respondent / )!"यथ ( C.O. No. 15/Kol/2023 (Arising out of I.T.(SS)A. No. 118/Kol/2023) Assessment Year : 2015-16 Seven Star Steels Ltd. (PAN: AAICS 5549 M) Vs. DCIT, CC-3(3), Kolkata Appellant / )अपीलाथ ( Respondent / )!"यथ ( Date of Hearing / स ु नवाई क% त'थ 14.12.2023 Date of Pronouncement/ आदेश उ*घोषणा क% त'थ 05.03.2024 For the Appellant/ नधा 0रती क% ओर से Shri S Jhajharia, A.R For the Respondent/ राज व क% ओर से Shri Abhijit Kundu, CITDR 2 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. ORDER / आदेश Per Rajesh Kumar, AM: This is the appeal preferred by the revenue and the cross objection by the assessee against the order of the Ld. Commissioner of Income Tax (Appeal)-21, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 06.03.2023 for the AY 2015-16. 2. The revenue has challenged the order of Ld. CIT(A) allowing the carry forward of losses in its appeal while the assessee has filed cross objection in support of the appellate order. 3. Grounds raised by the revenue are extracted below: 1. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing to carry forward loss instead of not filing of return of income u/s 139(1) of the act . 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the delay of seven months of filing of income tax return. 3. That the appellant craves the right to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing of the case. 4. Facts in brief are that the assessee M/s Seven Star Steels Ltd. was merged with M/S Penguin Trading & Agencies Ltd. along with five other concerns/entities w.e.f 1.4.2013 pursuant to the order of Hon’ble Calcutta High Court in Company petition no. 632 of 2014 connected with CA No. 413 of 2014 dated 1.4.2014. Thereafter the application for the merger/demerger was filed before the Hon’ble Calcutta High Court wherein the name of M/s Seven Star Steels Ltd. was proposed to be removed for the merger withM/S Penguin Trading & Agencies Ltd. Accordingly Hon’ble Calcutta High Court passed the another order dated 19.03.2016 wherein Seven Star Steels Ltd. was demerged w.e.f 1.4.2014. Since the first order of merger dated 24.12.2014, no financial statements were prepared for FY 2014-15 and hence no return of income was was filed for AY 2015-16. After the second order of merger/demerger dated 3 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. 19.03.2016, proper financial statements for FY 2014-15 were prepared and the assessee filed return of income for AY 2015-16 on 17.10.2016 which was processed u/s 143(1) of the Act. Thereafter a search and seizure operation was carried out on the assessee on 27.04.2017 at the business and residential premises key persons of Bathwal group of which the assessee i.e. Seven Star Steels Ltd. is a group concern. Notices u/s 153A for AY 2013-14 to 2017-18 were issued by the Central Circle with a direction to file return of income and in response to such notice the assessee duly filed return of income for AY 2015-16 on 2.12.2017. Thereafter statutory notices were duly issued and served on the assessee and search assessment was completed for AY 2015- 16 vide order dated 24.12.2019 assessing total loss at Rs. 23,12,73,876/- passed u/s 143(3)/153A of the Act however the said loss was not allowed to be carried forward to subsequent years for being set off by the AO. Thereafter a rectification application was also moved. However same was rejected in the order dated 23.03.2021 passed u/s 154/153A/143(3) of the Act but a mistake of disallowance of excess depreciation of Rs. 10,19,933/- was duly rectified in the said order. Pertinent to note that the settlement commission passed an order u/s 245D(4) in the case of M/S Penguin Trading & Agencies Ltd. on 27.06.2019 and the loss of Rs. 22,10,05,065/- which was already claimed in the books of M/S Penguin Trading & Agencies Ltd. was not allowed in their hands by the said commission and the ACIT was directed to set off this loss in the hands of Seven Star Steels Ltd. The said loss was correctly determined by the AO in the hands of assessee at Rs. 23,12,73,876/- however the same was not allowed to be carried forward for the reason that the return of income filed by the assessee for AY 2015-16 was beyond the date prescribed u/s 139(1) of the Act. 5. The assessee preferred an appeal before the Ld. CIT(A) and Ld. CIT(A) directed the AO to allow the carry forward of the losses to the assessee by observing and holding as under: “All the grounds raised by the appellant agitate against the single issue of not allowing carry forwards of assessed loss amounting to Rs. 23,22,93,809/- owing to the statutory delay in filing of return of income within the time allowed u/s 139(1). Hence all the grounds are being adjudicated as one. 4 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. Before adjudicating of the grounds raised by the appellant. It is imperative to have a look at the following chronological history of the appellant company. 6. After hearing the rival contentions and perusing the material on record, we find that the Ld. CIT(A) has correctly allowed the appeal of the assessee. We observe that in this case, the assessee has been merged with M/s Penguin Trading & Agency Ltd. along with five other concerns vide order of the Hon’ble Calcutta High Court dated 01.04.2013. Thereafter the assessee was demerged by the order of Hon’ble Calcutta High Court dated 19.03.2016 w.e.f 01.04.2014. We note that after receiving of demerger order, the financial statements were prepared and the return of income for AY 2015-16 was filed on 17.10.2016 which was processed u/s 143(1) vide order dated 27.04.2017. Following search on Bathwal Group to which the assessee also belonged to a notice u/s 153A of the Act was issued to the assessee to file the return of income for AY 2012-13 to A.Y.2017-18. Thereafter the assessment was framed vide order dated 24.12.2019 passed u/s 153A/143(3) of the Act assessing the loss at Rs. 23,12,876/- which was not allowed to be carry forward on the assessee on the ground that there was no return of income filed u/s 139(1) of the Act and therefore the loss resulting during the year cannot be allowed to carry forward. The assessee defended the order of Ld. CIT(A) on three grounds namely i) when the return of income was filed pursuant to notice u/s 153A of the Act ,such return of income has to be treated as filed within the time as provided u/s 139(1) of the Act and hence the requirement of filing u/s 139(1) of the Act was duly satisifed and therefore the loss has to be allowed to the carry forward to the assessee, ii) Since the assessee was non-est on the due date of filing the return of income u/s 139(1) of the Act on 30.09.2015 for AY 2015-16,the AO’s plea of not allowing the loss to be carried forward on the ground that no return was filed u/s 139(1) has to be rejected on the ground that impossibility of filing the return on that date. The case of the assessee finds support from the decision of Hon’ble Supreme Court in the case of Dalmia Power Ltd vs. ACIT in [2019] 112 taxmann.com 252 (SC) wherein the similar issue has been decided in favour of the assessee by observing and holding as under: 5 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. “7. In our view, this provision is not applicable to the facts and circumstances of the present case since the revised Returns were not filed on account of an omission or wrong statement or omission contained therein. The delay occurred on account of the time taken to obtain sanction of the Schemes of Arrangement and Amalgamation from the NCLT. 8. In the facts of the present case, it was an impossibility for the assessee companies to have filed the revised Returns of Income for the A.Y. 2016-2017 before the due date of 31.03.2018, since the NCLT had passed the last orders granting approval and sanction of the Schemes only on 22.04.2018 and 01.05.2018. 9. The counsel appearing for the Department submitted that the Appellants ought to have made a representation to the Board under section 119(2)(b) of the Income-tax Act for condonation of delay while filing the revised Returns. A perusal of section 119(2)(b) shows that it is applicable in cases of genuine hardship to admit an application, claim any exemption, deduction, refund or any other relief under this Act after the expiry of the stipulated period under the Income-tax Act. Section 119(2)(b) of the Income-tax Act is reproduced hereinunder for ready reference: "119. Instructions to subordinate authorities. (2) Without prejudice to the generality of the foregoing power,— ... (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law." On a plain reading of section 119(2)(b), we find that this provision would not be applicable where an assessee has restructured their business, and filed a revised Return of Income with the prior approval and sanction of the NCLT, without any objection from the Department. Rules of procedure have been construed to be the handmaiden of justice Kailash v. Nankhu [2005] 4 SCC 480; State of Punjab v. Shamlal Murari [1976] 1 SCC 719. The purpose of assessment proceedings is to assess the tax liability of an assessee correctly in accordance with law National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). 10. Section 170(1) of the Income-tax Act, provides that the successor of an assessee shall be assessed in respect of the income of the previous year after the date of succession. Section 170(1) of the Income-tax Act provides as under: "170. Succession to business otherwise than on death. (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,- (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession." 6 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. Sub-section (1) of section 170 makes it clear that it is incumbent upon the Department to assess the total income of the successor in respect of the previous assessment year after the date of succession. In the present case, the predecessor companies/transferor companies have been succeeded by the Appellants/transferee companies who have taken over their business along with all assets, liabilities, profits and losses etc. In view of the provisions of section 170(1) of the Income-tax Act, the Department is required to assess the income of the Appellants after taking into account the revised Returns filed after amalgamation of the companies. 11. In light of the aforesaid discussion, we find that the learned Single Judge had rightly allowed the Writ Petitions. We accordingly set aside the impugned Judgment and Order dated 04.07.0219 passed by the learned Division Bench in the case of Asstt. CIT v. Dalmia Power Ltd. [2019] 111 taxmann.com 331/418 ITR 242 (Mad.), and restore the judgment dated 30.04.2019 passed by the learned Single Judge. Accordingly, the Civil Appeals are allowed. The Department is directed to receive the revised Returns of Income for A.Y. 2016- 2017 filed by the Appellants, and complete the assessment for A.Y. 2016-2017 after taking into account the Schemes of Arrangement and Amalgamation as sanctioned by the NCLT. 12. Pending Applications, if any, are accordingly disposed of.” 7. Similarly the Hon’ble Calcutta High Court in the case of Shrikant Mohta vs. CIT in [2018] 95 taxmann.com 224(Cal) has held that in search cases time to file the return within the meaning of Section 139(3) has to be regarded as reasonable time afforded by consequent notice issued u/s 153A(1)(a) of the Act by holding that for the purpose of carrying forward loss in terms of Section 72 read with Section 80 in a case where such operations have been conducted u/s 132 of the Act , the time to file the return of income within the meaning of Section 139(3) of the Act has to be regarded as reasonable time afforded by consequent notice issued u/s 153A(1)(a) of the Act. In other words, the return filed within the time allowed u/s 153A(1)(a) would be deemed to have been filed within the time permitted u/s 139(1) of the Act for the purpose of benefit of Section 139(3) of the Act to the assessee by observing and holding as under: “The non obstante clause at the beginning of Section 153A (1) suspends, for the purpose and to the extent as indicated in such provision, the operation of several other provisions of the Act, including Section 139 and even Section 147 in course of any reassessment. In other words, when a search is initiated under Section 132, the assessee is not required to file the assessee's return till such time that the assessee receives a notice under Section 153A(1)(a) thereof. Once such notice is received the 7 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. liability fastens on the assessee to file the return within the reasonable time specified in the relevant notice. [Para 13] To boot, the second proviso to Section 153A(1) insofar as it is material for the present purpose, mandates that any "assessment or reassessment ... relating to ... the relevant assessment year or years ... pending on the date of initiation of the search under Section 132. ... shall abate". [Para 14] It goes without saying that since the search operations in this case were initiated on 2- 9-2004, it was no longer necessary for this assessee to file his regular return by 31- 10-2004 notwithstanding the mandate of Section 139(1) of the Act. The obligation to file the return remained suspended, in view of the clear opening words of Section 153A(1) till such time that a notice was issued to him under clause (a) of such sub- section. If such is the meaning of Section 153A(1), the operation of Section 139(3) qua the time available for filing a return in order to avail of the benefit of carrying forward any loss stands extended till a return is called for under Section 153A(1)(a) and such return is filed, provided the return is filed within the time indicated in the relevant notice under Section 153A(1)(a) of the Act. There can be no dispute to such being the effect of Section 153A(1)(a). [Para 15] Unfortunately, the notice issued under Section 153A(1)(a) is not available in the records relied upon by the parties nor is there any reference to the date of such notice in any of the orders appended to the papers. Indeed, the time permitted by the relevant notice under Section 153A(1)(a) for the assessee to file the return is also not available. As recorded above, it is the submission of the assessee that such notice was received by the assessee on 27-3-2006 and it afforded a month's time to the assessee to file the assessee's return and the assessee's return for the assessment year 2004-05 was filed on 26-4-2006. The date when the return was filed, however, is verifiable from the orders available. [Para 16] Thus, a definitive final order cannot be passed without being sure of the date of issuance of the notice under Section 153A(1)(a) and the time afforded by such notice for the assessee to file the return. For such purpose, the orders impugned passed by the Tribunal requires to be set aside and the matters remitted back to the Tribunal for the Tribunal to ascertain the details as to the date of the notice and the time afforded to file the return and pass an order in the light of the views expressed herein on the questions of law and it is ordered accordingly. [Para 17] For the purpose of carrying forward the loss in terms of Section 72 read with Section 80 in a case where search operations have been conducted under section 132 the time to file the return within the meaning of section 139(3) has to be regarded as the reasonable time afforded by the consequent notice under Section 153A(1)(a). [Para 18] When search operations are conducted under Section 132, the obligation of the assessee to file any return remains suspended till such time that a notice is issued for such purpose under Section 153A(1)(a). If the return is filed by assessee within reasonable time permitted by such notice under Section 153A(1)(a), such return would 8 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. then be deemed to have been filed within time permitted under section 139(1) for benefit under Section 139(3) to be availed of by assessee. [Para 19]” 8. The Hon’ble High Court of Madras in the case of Pentamedia Graphics Ltd. vs. ITO in [2012] 20 taxmann.com 755 (Mad) has held that once the scheme has been sanctioned with effect from particular date, it is binding on everyone including the statutory authorities and the Income tax Authority would be bound to take note of state of affairs of the applicant as on the date of sanction of scheme and return filed subsequent to modification of the scheme reflecting the same could not be ignored on the strength of Section 139(5) by holding that it was filed beyond the limitation prescribed u/s 139(5) of the Act. The Hon’ble Madras High Court also relied on the decision of Hon’ble Apex court in the case of CIT vs. Sun Engineering works (P) Ltd. in [1992] 107 CTR 209 (SC) . Considering the above position of law, we are of the considered view the Ld. CIT(A) has allowed the appeal of the assessee after taking into account all these legal aspects and accordingly we uphold the order of Ld. CIT(A) by dismissing the appeal of the revenue. 9. In the result appeal of the revenue is dismissed and the cross objection of the assessee is allowed. Order is pronounced in the open court on 5 th March, 2024 Sd/- Sd/- (Sonjoy Sarma /संजय शमा ) (Rajesh Kumar/राजेश क ु मार) Judicial Member/ या यक सद य Accountant Member/लेखा सद य Dated: 5 th March, 2024 SM, Sr. PS 9 I.T.(SS).A. Nos. 118 & 15/Kol/2023 Assessment Year: 2015-16 Seven Star Steels Ltd. Copy of the order forwarded to: 1. Appellant- DCIT, CC-3(3), Kolkata 2. Respondent – Seven Star Steels Ltd., 5 th Floor, Surabhi, 8/1/2/, Dr. U. N. Brahmachari Street, Kolkata-700017 3. Ld. CIT(A)- 21, Kolkata 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata