2014 (4) TMI 893 - HC - Income Tax

Court rejects addition of Rs.42 crores under Income Tax Act, 1961

Commissioner of Income Tax-2 Versus M/s. Kaizen Commercial Pvt. Ltd.

The court upheld the Income Tax Appellate Tribunal's decision to delete the addition of Rs.42 crores under section 28(iv) of the Income Tax Act, 1961 for ... Deletion made u/s 28(iv) of the Act – Benefit to the assessee by the allotment of shares – Held that:- The Tribunal has found that the allotment is made much prior to the performance of M/s. Reliance - when the assessee was not having any direct business relations or not having carried out any business with M/s. Reliance Communications either in the past or during the year, then the assessee cannot be said to be having any business or professional relationship with M/s.Reliance Communication Ltd. - Reliance Communication and Reliance Group of Companies are independent entities and even for taxation purposes, they are separate and independent - the finding of fact that section 28(iv) has no application, is based on all the materials produced and which have been noted by the Tribunal - once the Tribunal has come to a conclusion that section 28(iv) has no application, then, any further aspect of the matter need not be probed or investigated – thus, no substantial question of law arises for consideration – Decided against Revenue. Issues: Appeal against deletion of addition under section 28(iv) of the Income Tax Act, 1961 for Assessment Year 2002-03.Analysis:1. The appellant, Revenue, challenged the order of the Income Tax Appellate Tribunal regarding the deletion of an addition of Rs.42 crores under section 28(iv) of the Income Tax Act, 1961. The argument was that the Commissioner of Income Tax (Appeals) erred in deleting the addition and that the allotment of shares in question provided a benefit to the assessee. The appellant contended that the Assessing Officer had the authority to estimate the value of the shares based on the benefits derived, which was a continuing one. However, the court disagreed with this argument.2. The crux of the argument revolved around the applicability of section 28(iv) to the allotment of shares. It was contended that the assessee had indeed derived a benefit as per the provisions of the Act, especially considering the common directorship between the assessee and Reliance Group of Companies. Nevertheless, the Tribunal found that the allotment of shares was not exclusive to the assessee, as similar allotments were made to other entities as well. This fact, coupled with the lack of direct business relations between the assessee and Reliance Communications, led the Tribunal to conclude that section 28(iv) did not apply in this case.3. The Tribunal highlighted that the allotment of shares preceded any business transactions between the assessee and Reliance Communications, indicating the absence of a business or professional relationship between them. The independence of Reliance Communication and Reliance Group of Companies was underscored, emphasizing their separate entities even for taxation purposes. Based on the detailed examination of the materials presented, the Tribunal determined that section 28(iv) was not applicable to the assessee's case.4. Ultimately, the court upheld the Tribunal's decision, stating that once it was established that section 28(iv) did not apply, further investigation was unnecessary. The court dismissed the appeal, emphasizing that the findings did not give rise to any substantial question of law as argued by the appellant's counsel. Therefore, the appeal was rejected, and no costs were awarded in this matter.