Karnataka High Court

The Commissioner Of Income Tax vs M/S Kbd Sugars & Distilleries Ltd on 30 June, 2022

Bench: P.S.Dinesh Kumar, Anant Ramanath Hegde

                                    I.T.A No.169/2014

                          1


     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 30TH DAY OF JUNE, 2022

                      PRESENT

      THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR

                        AND
 THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE

                I.T.A No.169 OF 2014

BETWEEN :

1.     THE COMMISSIONER OF INCOME-TAX
       C.R. BUILDING
       QUEENS ROAD
       BANGALORE

2.     THE ASST. COMMISSIONER
       OF INCOME-TAX
       CIRCLE-11(5)
       RASHTROTHANA BHAVAN
       BRUPATHUNGA ROAD
       BANGALORE                        ... APPELLANTS

(BY SHRI. K.V. ARAVIND, ADVOCATE)

AND :

M/s. KBD SUGARS AND DISTILLERIES LTD
(FORMERLY KARNATAKA BREWERIES &
DISTILLERIES PVT. LTD)
NO.17, SANKEY ROAD
BANGALORE-560 020                       ... RESPONDENT

(BY SHRI. A. SHANKAR, SENIOR ADVOCATE FOR
    SHRI. V. CHANDRASHEKAR, ADVOCATE)

     THIS ITA IS FILED UNDER SECTION 260-A OF THE
INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED:
                                                  I.T.A No.169/2014

                                2


22.11.2013 PASSED IN ITA NO.1362/BANG/2011, FOR THE
ASSESSMENT YEAR 2006-2007 PRAYING TO FORMULATE
THE SUBSTANTIAL QUESTIONS OF LAW AND ALLOW THE
APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT,
BANGALORE IN ITA NO.1362/BANG/2011 DATED 22.11.2013
AND    CONFIRM   THE   ORDER    OF  THE   APPELLATE
COMMISSIONER CONFIRMING THE ORDER PASSED BY THE
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5),
BANGALORE.

     THIS ITA, HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT     ON    13.06.2022  COMING   ON    FOR
PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S.DINESH
KUMAR J, PRONOUNCED THE FOLLOWING:-

                         JUDGMENT

This appeal by the Revenue is filed for

consideration of three questions of law. However,

arguments were addressed on the following two

questions.

"1. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was eligible for depreciation on the WEGs for the year ending 31.03.2006 without appreciating the findings of the Commissioner of Income Tax (Appeals) that the contradictory statements made by the accountant and the project consultant goes to the root of the factual matrix and the documentary evidences in the form of the report of the Statutory Auditor, the letter from WIL,. the Asset Management Agreement, the meeting of the Board of Directors of WIL and IEL are in contradiction I.T.A No.169/2014

to the claim of the assessee which proves that the sale transaction would not have happened in March 2006?"

2. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the lower authorities were not justified in denying the benefit of set off of brought forward losses without appreciating that as the undertaking taken over, MOL was not a 'going concern' the condition specified under section 2(19AAA) (vi) has not been satisfied and therefore the assessee is not eligible for the claim of set off of brought forward losses under section 724(A)?."

Brief facts of the case are:

2. Revenue's case is, Respondent assessee,

involved in the business of IMFL1 Sugar and

generation of wind energy had claimed depreciation

of Rs.9,73,54,400/- for the assessment year

2006-07 on the ground that it had purchased

windmills worth Rs.24,33,86,000/- during March

2006 from M/s Indowind Energy Ltd. ('IEL' for

short). The Assessing Officer disallowed the claim

on the premise that there was no proof for having

Indian Made Foreign Liquor I.T.A No.169/2014

bought the windmills as no invoices were found

during the survey in assessee's premises and the

end users of the windmill energy had confirmed

that they had learnt about the transfer of the

windmills from IEL to the assessee in May 2006.

3. The Assessing Officer held that assessee

was ineligible for the benefit of 'brought forward

loss' under Section 72A (4) of the Income Tax Act2

1961; because the rectified spirit undertaking

belonging to M/s Maruthi Organics Ltd. ('MOL' for

short) was dysfunctional since 1999 and it was not

a going concern.

4. The CIT (Appeals)3 vide order dated

04.11.2011 has dismissed assessee's appeal.

Further, the ITAT4 vide order dated 22.11.2013 has

'Income-Tax Act' for short

Commissioner of Income Tax

'Income Tax Appellate Tribunal I.T.A No.169/2014

allowed assessee's appeal for the A.Y.5 2006-07 and

partly allowed assessee's appeal for A.Y. 2007-08.

Hence this appeal by the Revenue.

5. Shri. Aravind, learned standing counsel

for the revenue submitted that:

• Assessee has claimed that it has purchased 37

windmills from IEL on 15.03.2006 and

24.03.2006. Survey was conducted on

28.03.2006. No invoices were made available

by the executives of the assessee company.

In his statement, one of the executives has

stated that he was ignorant of any

transaction. Therefore the assessing officer

has rightly disallowed the claim. And the same

was confirmed by CIT6;

Assessment Year

Commissioner of Income-Tax I.T.A No.169/2014

• The ITAT has erred in allowing the appeals by

placing reliance on Union of India Vs. Azadi

Bachao Andolan7;

• The ITAT has failed to appreciate that the

assessee was ineligible for the benefit of

'brought forward loss' under Section 72A (4)

of the Act, because the unit belonging to MOL

was dysfunctional since 1999 and it was not a

'going concern' and does not satisfy the

demerger defined under the Act and violates

sub-clause (vi) of Section 2(19AA) of the Act.

6. In reply, Shri. Shankar, learned Senior

Advocate submitted that:

• The transaction of purchase of windmills was completed in March 2006;

• The department conducted the survey on 28.03.2006 to find out about the very transaction;

263 ITR 706 [SC] I.T.A No.169/2014

• The survey conducted by the revenue itself establishes that it had sufficient information with regard to the purchase of windmills by the assessee;

• The revenue has accepted assessee's income offered to tax from the sale of power generated from the windmills from 15.03.2006 ending on 31.03.2006;

• The IEL or Wescare (India) ('WIL' in short) have not offered the income during that period to tax because admittedly the windmills were purchased by the assessee.

7. With regard to the second question of

law, he submitted that the spirit unit was an

ongoing concern. He argued that if an unit were to

be fully functional and making profits, the same

would not be demerged. Only such units which

become non functional or suffer losses are

demerged. In substance, he argued that Revenue I.T.A No.169/2014

has misconstrued sub-clause (vi) of Section

2(19AA) to mean as a running unit.

8. We have carefully considered rival

contentions and perused the records.

9. The first question of law is whether

assessee was eligible for depreciation for the year

ending 31.03.2006. Revenue's case is that the

transaction has not taken place in March because

no documents such as bills or invoices were

produced during survey conducted on 28.03.2006.

10. ITAT has recorded a finding of fact in

para 7.4 of its order that WIL has sold 28 WEGs to

IEL under invoice dated 15.03.2006 and the same

has been admitted by WIL in its letter. It has also

recorded that WIL has given effect to the sale of 28

WEGs in its account books for the year ending

31.03.2006. Thus it has accounted for income I.T.A No.169/2014

which arose out of sale during the A.Y. 2006-07

subject to arbitration proceedings.

11. Shri. Shankar has also made available to

us copies of the invoices. It is settled that the

tribunal is the last fact finding authority and it has

recorded that the transactions has taken place on

15.06.2006. It is also relevant to note that

assessee has offered the income from 15.03.2006

ending on 31.03.2006 to tax. On this aspect,

Shri Aravind's argument is, mere offering some

income as income from the WEGs does not improve

assessee's case. If any assessee files its returns

and offers any income to tax, the same is accepted

by the department and that does not prove that the

windmill transaction has taken prior to 31.03.2006.

12. Shri. Aravind has also has produced the

original records. It is not in dispute that survey was I.T.A No.169/2014

conducted on 28.03.2006 and the Revenue has

recorded the statements of the assessee's

accountant. Shri. Shankar contended that merely

because the accountant had pleaded ignorance of

the transaction, it does not mean that the

transaction has not taken place. The ITAT has

recorded that the Managing Director of the

assessee company was not questioned during the

survey but enquires was made only with the

accountant. ITAT has also noted that assessing

officer had lost sight of this vital aspect.

13. It is not in dispute that WIL has admitted

the transaction. It has not claimed depreciation for

the year ending 31.03.2006. The Managing Director

of the assessee company has not been questioned.

14. Thus the ITAT, based on records, having

recorded a finding of fact that the transaction had

taken place in March 2006; and the assessee I.T.A No.169/2014

having offered the income generated from the

WEGs between 15.03.2006 ending on 31.03.2006

to tax, in our considered view, the first substantial

question raised by the revenue needs to be

answered in favour of the assessee.

15. The second question raised by the

revenue is with regard to the benefit of set off of

'brought forward losses'. Shri Aravind has mainly

urged that sub-clause (vi) of Section 2(19AA) refers

to a going concern and therefore provisions of

Section 72A cannot be applied. It is not in dispute

that the scheme of demerger has been approved by

this Court and the High Court of Andhra Pradesh.

The ITAT has recorded the relevant portion of the

approval of scheme as ordered by this Court and it

reads as follows:

I.T.A No.169/2014

"Part II

4. TRANSFER OF UNDER TAKING 4.1. On and with effect from the appointed date, the demerged undertaking shall, pursuant to the provisions contained in the section 394(2) of the Act and other applicable provisions of law for the time being in force and without any further act or deed, be demerged from MOL, and be transferred to and vest in or be deemed to have been transferred to and vested in KSDL on the appointed date, on a going concern basis, so as to become as and from the appointed date, the undertaking of KSDL."

16. Shri. Shankar is right in his submission

that if a unit were to be running and profitable one,

the same would not be available for demerger.

17. The Tribunal has relied upon its order

dated 28.09.2012 in the case of JCIT Vs Valdel

Engineers and Constructors Pvt. Ltd8. It was

submitted by Shri. Aravind that ITA No.80/2013

filed against ITAT's order in Valdel case was

withdrawn by the Revenue. In our considered view,

ITR No. 1370/B/2011 dated 28.09.2012 I.T.A No.169/2014

it would be incongruous to construe sub -clause (vi)

of section 2 (19AA) as to mean a running unit.