2022 (7) TMI 1159 - HC - Income Tax

Tribunal upholds deletion based on approved amalgamation scheme; High Court affirms decision.

COMMISSIONER OF INCOME TAX, KOLKATA-3, KOLKATA Versus M/s. PURBANCHAL POWER COMPANY LIMITED

The Income Tax Appellate Tribunal upheld the deletion of an addition made by the Assessing Officer based on the approval of a scheme of amalgamation by ... Addition u/s 68 - approved scheme of Amalgamation - whether the scheme of amalgamation which was approved by this Court could be stated to be a scheme which was floated by the assessee with the sole object of avoidance of income tax - HELD THAT:- As confirmed in Vodafone Essar Gujarat Ltd. [2012 (9) TMI 100 - GUJARAT HIGH COURT] in case the Scheme is sanctioned, it may result into tax avoidance on the part of the appellant, but it is required to be noted that even if the ultimate effect of the Scheme may result into some tax benefit or even if it is framed with an object of saving tax or it may result into tax avoidance, it cannot be said that the only object of the Scheme is ‘tax avoidance’. Considering the various clauses of the Scheme, it is not possible for us to come to a conclusion that the Scheme is floated with the sole object of tax avoidance. - Decided against revenue. Issues involved:1. Whether the Income Tax Appellate Tribunal erred in upholding the deletion of an addition made by the Assessing Officer based on the approval of a scheme of amalgamation by the High CourtRs.2. Whether the Department can examine the taxability of income under section 68 of the Income Tax Act after the approval of a scheme of amalgamation by the High CourtRs.Issue 1:The primary issue in this case was whether the scheme of amalgamation, which had been approved by the High Court, could be considered a device for tax avoidance. The assessing officer contended that the scheme was designed to avoid income tax, leading to an addition of Rs. 69,64,34,089 by the Assessing Officer. However, the Commissioner of Income Tax (Appeals)-VIII, Kolkata, allowed the appeal, emphasizing that once the High Court approves a scheme of amalgamation, it is presumed that all relevant issues were considered. The appellate authority highlighted that the assessing officer's suspicions lacked substance as there was no evidence of undisclosed income earned by the appellant. Additionally, the tribunal, after re-examining the facts and the High Court's order approving the scheme of amalgamation, rejected the revenue's appeal, citing precedents and the decision in Vodafone Essar Gujarat Ltd. v. Department of Income Tax.Issue 2:The second issue revolved around whether the Department could assess the taxability of income under section 68 of the Income Tax Act post the High Court's approval of the amalgamation scheme. The tribunal extensively analyzed the facts, including the High Court's approval of the scheme, and referenced the decision in Vodafone Essar Gujarat Ltd. The tribunal concluded that the scheme of amalgamation was not a colorable device for tax avoidance, and the Department's contentions were unfounded. The tribunal's decision aligned with the principles established in various judicial decisions and upheld the approval of the scheme of amalgamation by the High Court. The tribunal's findings were supported by the Hon'ble Supreme Court's decision in the case of Department of Income Tax v. Vodafone Essar Gujarat Ltd., affirming that the scheme was not solely aimed at tax avoidance.In conclusion, the High Court dismissed the revenue's appeal, emphasizing that no substantial question of law arose from the tribunal's factual findings. The Court's decision was in line with established legal principles and precedents, underscoring the validity of the scheme of amalgamation approved by the High Court and rejecting the revenue's contentions regarding tax avoidance.