Income Tax Appellate Tribunal - Delhi
Religare Capital Markets Ltd., New ... vs Dcit, New Delhi on 14 August, 2020
1 S. A No. 249/Del/2020
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'I-2' NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
S. A NO. 249/Del/2020
In
(ITA No. 753/DEL/2016 ( A.Y 2011-12)
(THROUGH VIDEO CONFERENCING)
Religare Capital Markets Ltd. Vs DCIT
D-3, P3B, District Centre, Saket, Circle-21(1)
New Delhi New Delhi
AADCR5200R
(APPLICANT) (RESPONDENT)
Applicant by Sh. Ajay Vohra, Sr. Adv, Sh.
Neeraj Jain, Adv, Sh.
Abhishek Agarwal, CA, Ms.
Tejasvi Jain, CA, Ms. Somya
Jain, CA
Respondent by Sh. R. K. Gupta, Sr. DR
Date of Hearing 07.08.2020
Date of Pronouncement 14 .08.2020
ORDER
PER SUCHITRA KAMBLE, JM
01. This extension of Stay Application has been filed against outstanding demand of Rs. 93 crores [Rs. 108 crores(-) Rs. 15 Crores] for Assessment Year 2011-12. During the course of hearing of the above stay petition assessee further deposited ₹ 5 crores towards the outstanding demand.
02. The applicant company is a Category-I Merchant Banker with the Securities and Exchange Board of India, engaged in the business 2 S. A No. 249/Del/2020 of private equity syndication, securities brokerage and financial advisory services. For the relevant assessment year, the original return of income was filed on 29.11.2011 declaring loss of Rs.37,97,50,658. Subsequently, the applicant filed revised return of income declaring a revised loss of Rs.37,46,20,330. Draft assessment order was passed under section 143(3) read with section 144C of the Income Tax Act, 1961 ('the Act') proposing to assess the income of the applicant at Rs.226,56,10,452 after proposing various additions and disallowances to the returned income. Against the draft assessment order, the applicant filed objections before the Dispute Resolution Panel (DRP) - II, New Delhi, seeking directions for deletion of various proposed additions/ disallowances. DRP, vide its order dated 30.12.2015 passed under section 144C(5) of the Act, confirmed most of the additions/disallowances proposed in the draft assessment order without judiciously considering and appreciating the legal and factual objections of the applicant to the proposed draft order. Pursuant to the aforesaid directions of the DRP, assessment was completed vide order dated 29.01.2016 passed under section .143(3) r.w.s 144C of the Act, assessing the total income of the assessee at Rs.207,95,55,288, after making several additions/ disallowances. As a result of the aforesaid order passed under section 143(3), of the Act, income tax demand of Rs.108 crores has been raised on the applicant, which comprises of the following:
Income-tax Rs. 69,07,76,277
Interest Rs. 38.92,25.263
Total Rs.108,00,01,540
3 S. A No. 249/Del/2020
03. Against the aforesaid assessment order, the applicant has filed appeal before the Tribunal challenging various additions/ disallowances, which is currently pending for adjudication. As a result of the assessment order passed under section 143(3) r.w.s. 144C of the Act, income tax demand of Rs.108 crores has been raised on the applicant, comprising of the following:
Income-tax Rs.69,07,76,277
Interest Rs. 38.92,25,263
Total Rs.108,00,01,540
04. Only two issues are involved in the appeal.
a. First issue is a transfer pricing adjustment on account of corporate guarantee of Rs. 4.27 crores.
b. Second issue is addition of Rs. 186 crores on account of the preference shares subscribed by Cresswell investments Ltd added by the learned assessing officer as unexplained cash credit u/s 68 of the income tax act. Therefore the major and substantial addition relates to the addition u/s 68 of the income tax act on account of issue of 37200000 1% compulsorily convertible preference shares of the face value of ₹ 10 each at a premium of ₹ 40 allotted on 2 September 2010 to a Mauritius-based company. The addition has been made as assessee company did not furnish a direct confirmation but of photocopy of the letter. The AO held that photocopy furnished by the assessee is not an admissible evidence and does not prove the veracity of the transaction. AO further held that identity of the person signing the letter 4 S. A No. 249/Del/2020 is also not established. The AO also raised an issue about the genuineness that why a company would invest a substantial amount of money in 1 % preference shares at 400% premium. The assessee company has also not stated as to whom the shares were sold by the Cresswell investments Ltd and at what value when the shareholding changed in the books of the assessee company. The learned assessing officer has expressed his serious doubts about the identity of the investor, creditworthiness of the investor as well as the genuineness of the transaction. Therefore, AO held that the amount is required to be added as unexplained credit u/s 68 of the income tax act. The above addition was also approved by the dispute resolution panel by rejecting the objection of the assessee. As the major addition involved is addition u/s 68 of the income tax act on account of issue of share capital of ₹ 186 crores at a huge premium, naturally, the demand disputed in the appeal is majorly also related to that only.
05. Against the above disputed demand, the applicant made payment of Rs.15 crores as per direction given in original stay order dated 02.03.2016 and accordingly, balance demand of Rs.93 crores [Rs.108 crores (-) Rs.15 crores] is currently outstanding and disputed by the applicant in this extension of stay application. Appeal has been filed before the Tribunal on 11.02.2016 bearing ITA No.753/Del/2016 and was last listed for hearing on April 15, 2020 as part heard appeal before the Bench. However, due to the ongoing COVID-19 pandemic and the consequent nationwide lockdown, the matter could not be taken up for hearing on April 15, 2020. The next date of hearing is yet to be notified. The applicant filed application seeking stay of the outstanding demand 5 S. A No. 249/Del/2020 before the Deputy Commissioner of Income Tax- Circle-16(l), New Delhi. The Tribunal vide order dated 2.3.2016 (hereinafter referred to as "First Stay Order") in stay application No. 111/Del/2016, granted stay of outstanding demand for six months or disposal of appeal whichever is earlier, subject to payment of Rs. 15 crore. The applicant vide challans dated 21.3.2016, 30.3.2016, 13.4.2016 and 29.4.2016 complied with the terms of stay order dated 2.3.2016. Subsequently, the aforesaid stay was extended by the Tribunal from time to time as under:
a) For 6 months vide "Second Stay Order" dated 9.9.2016 (Stay Application No. 413/Del/2016)
b) For 6 months vide "Third Stay Order" dated 3/3/2017 (Stay Application No. 133/Del/2017)
c) For 6 months vide "Fourth Stay Order" dated 8/9/2017 (Stay Application No. 502/Del/2017)
d) For 6 months vide "Fifth Stay Order" dated 9/3/2018 (Stay Application No. 145/Del/2018)
e) For 6 months Vide "Sixth Stay Order" dated 14/9/2018 (Stay Ap0pliction NO. 638/Del/2018)
f) For 6 months vide "Seventh Stay Order" dated 25/3/2019 (Stay Application No. 429/Del/2019)
g) For 3 months vide "Eight Stay Order" dated 27/9/2019, a copy of which has, however, not been served on the applicant till date (Stay Application No. 929/Del/2019).
06. Considering that the extension of stay granted on 27.09.2019 for period of 3 months was expiring on 26.12.2019 applicant filed application for extension of stay in Application No. 1096/Del/2019. The Tribunal vide order dated 01.01.2020, 6 S. A No. 249/Del/2020 extended, the stay till 7/1/2020, with a condition that assessee will submit a security, and in absence of any security the stay would be vacated, on which date the appeal was fixed for hearing. The stay was thereafter extended from 07.01.2020 to 16.01.2020 and 21.01.2020 along with the appeal. Thereafter, on 21.01.2020, the stay was extended for a period of 3 months, i.e., till 21.04.2020 vide "Order sheet dated 21/1/2020" (Stay Application NO. 1096/Del/2019). In terms of the order sheet dated 21.01.2020 in Stay Application No.1096/Del/2019, stay was extended for a period of three months, i.e., upto 21.04.2020. In the meanwhile, due to the ongoing world-wide crisis viz., outbreak of COVID-2019 and consequent nationwide lock-down imposed by the Government w.e.f. 25.03.2020, the functioning of Courts and Tribunal was substantially curtailed in the State of Delhi. In light of the aforesaid, the Hon'ble Supreme Court in W.P (Civil) No.3/2020 vide order dated 23.3.2020, taking suo motu cognizance of the difficulties that may be faced by the litigants across the country in filing their petitions/ applications/ suits/ appeals/ all other proceedings held that "to obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective Courts/Tribunals across the country including this Court, it is hereby ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings". The Hon'ble Delhi High Court in W.P. Urgent 2/2020 vide order dated 25.03.2020, taking suo motu cognizance of the extraordinary circumstances, held that where any interim orders in the nature of stay, bail, paroles, etc., have been passed in favor of parties by the Hon'ble Court and courts subordinate to it, and such orders were 7 S. A No. 249/Del/2020 subsisting on 16.03.2020, the operation of such orders shall stand automatically extended to 15/5/2020 or till further orders. In the present case, considering that stay granted by the Tribunal vide order sheet dated 21.01.2020 was subsisting on 16.03.2020, in view of the aforesaid orders of the Hon'ble Supreme Court and the Hon'ble Delhi High Court, the operation of stay granted by the Tribunal, thus, automatically stood extended to 15.05.2020. Considering that the period of stay granted vide Order sheet dated 21.01.2020 as extended by the aforesaid orders of the Hon'ble Supreme Court and Hon'ble Delhi High Court was expiring on 15.05.2020, the present application is being filed for further extension/ grant of stay of demand till the disposal of appeal by the Tribunal or for such further period, as the Tribunal may deem fit. The applicant has been diligently pursuing the appeal and delay in disposal of the appeal, is not at all attributable to the applicant. For the sake of convenience, the dates on which appeal was fixed for hearing (after the grant of stay vide order dated 21.01.2020) and reasons for non-disposal of the appeal on the said dates, is explained hereunder:
- On 21.01.2020, appeals were adjourned to 24.02.2020 by the Bench for want of time.
- On 24.02.2020, the Bench adjourned the matter to 4/3/2020 with a direction to both the parties to file a date chart for reconciliation of order sheet entries.
- On 04.03.2020, the appeals were heard in part and were adjourned as part heard to 15.04.2020 for further hearing by Bench
- On 15/4/2020, the appeal was adjourned sine-die in view of 8 S. A No. 249/Del/2020 the nation-wide lockdown imposed by the Government w.e.f. 25/3/2020, thereby, curtailing the functioning of Courts and Tribunals.
07. The Ld. DR vehemently objected to the continuation of the stay. He reiterated the facts stated in the assessment order and the demand arising there from. According to him, the assessee does not have any case on merits and therefore it does not deserve stay of demand.
08. The Ld. AR in rejoinder has submitted that the order of the Hon'ble Delhi High Court has to be taken in cognizance with the Covid-19 situation in Delhi. The Ld. AR also produced board meeting minutes dated 24/1/2018 wherein the authorized signatory who has signed this stay petition has been given authority to sign legal documents before any forum/court of law. The Ld. AR also submitted the financial of the assessee from 2017 till 2020 of which some are unaudited. The Ld. AR further submitted that as of today there is no Managing Director in the company. The Ld. AR submitted that the assessee has a good case on merit and is always ready to argue the appeal/matter at any point of time and the delay is not on assessee side. It is the Revenue who has always taken adjournment from time to time. The Ld. AR further submitted that the assessee has paid Rs. 5 crore as on 7th August 2020 in addition to the originally paid Rs. 15 crore at the time of Stay granted initially in the year 2016. Thus, the Ld. AR submitted that the Stay may be extended till further period.
09. We have heard both the parties and perused the material available on record. We have perused the stay order passed by the 9 S. A No. 249/Del/2020 coordinate bench innocent number 1096/del/2019 on 1/1/2020.
The coordinate bench held in para number 4-6 as Under:-
"4. We have considered these contentions in detail. The submission of the revenue is to the financial status of the assessee is not controverted. On the other hand it could be seen from the record that the assessee is also covered by the proceedings u/s 19 of the recovery of the debts and bankruptcy act, 1993 initiated by the banker, namely excess bank Ltd before the debt recovery tribunal and the order passed by such a forum. Record further speaks that the balance sheet, the profit and loss account and its cash flow statement as at 31st of March 2018 were not even signed by the directors. Further there is a consent agreement dated 1/10/2019 and the amendment thereof on 19/11/2019 entered into between the excess bank and the renegade group, in terms of which a settlement was reached pricing the illegal group to pay the settlement amount of ₹ 1 70 crores in three instalments, with the last instalment of ₹ 85 crores payable on or before 30 June 2020. Pursuant to such consent agreement, the debt recovery tribunal passed order dated 1/10/2019 recording the fact of consent agreement. It is not the case of the assessee that the assessee is financially sound.
5. On careful consideration of these facts, we find considerable strength in the argument of the learned DR that in view of the change of circumstances which are prejudicial to the interest of the revenue, let their not be any automatic extension of stay order. Grant, extension or vacation of stay order shall not appeal to the balance of convenience to the disadvantage of any particular party, Actus Curiiae neminem gravabit is applicable to both the parties with equal strength. When the stay was granted, all the endeavour 10 S. A No. 249/Del/2020 was to preserve the status quo ante obtaining as on such day, and the very same considerations and riders at the time of considering the extension of stay also. If the financial condition of the assessee is deteriorating or at least it does not inspire confidence in the mind of the revenue that sooner or later there will be prospect of recovery of demand, subject to the result of the appeal, it occurs to our mind that continuation of stay without considering the prospect of revenue, would disturb the delicate balance shot to be achieved by the grant of stay order.
6. In these changed circumstances, we are of the considered opinion that the balance of convenience demands review of conditions imposed while granting the stay order of outstanding demand as on the date to see that pendency of proceedings shall not impacted adversely one of the parties. We, therefore, directed that the assessee shall furnish sufficient security for the amount covered by the demand to the satisfaction of the learned assessing officer, on or before 7/1/2020 by which date the appeal stands posted two, filing which the stay order that was granted onto/3/2016 cell stand vacated. Let the stay application before it to 7/1/2020 for compliance.
Pronounced in open court on first January 2 020."
10. On 7/1/2020, when the appeal along with the stay petitions were called for, the learned departmental representative for the revenue moved an application for adjournment of the case on the ground that one of the issues involved relates to corporate guarantee where revenue has moved an application before the honourable Pres for constituting a special bench which is still pending. The learned counsel for the assessee on the other hand vehemently oppose the adjournment request on the ground that there is no 11 S. A No. 249/Del/2020 such application pending before the honourable Pres. Learned authorised representative also brought on record the hardship of the assessee complying with the stay order dated 1/1/2020 in stay application number 1096/del/2019 as assessee has already been restrained by DRT from creating any lien over the assets. Since, regular CIT (DR) is not available therefore one more opportunities given to the learned CIT (DR) to find out the fact to whether of special bench for corporate guarantee is required to be constituted or not, by the next date of hearing failing which the case self be fixed for regulating hearing by the bench itself. Keeping in view of the hard ship faced by the assessee, on account of DIT order dated 1/10/2019 the revenue was restrained from making any coercive recovery from the assessee till the next date of hearing on 15/1/2020.
11. On 16/1/2020 as the learned CIT DR sought and adjournment the hearing was adjourned to 21/1/2020. The revenue was restrained for making any coercive recovery from the assessee till the next date of hearing on 21/1/2020.
12. On 21/01/2020, the bench further noted that the case of the JPMorgan Chase bank which is fixed for special bench Mumbai is now listed on 13 February 2020. In view of the same, the matter is adjourned to 24/2/2020. In the meantime considering the fact that the outcome/decision of special bench (supra) having direct effect on the present appeals, hence, the stay order dated 1/1/2020 which was further extended on 7/1/2020 and thereafter on 16/1/2020 stands further extended for the period of three months i.e. up to 21/4/2020.
13. During the course of hearing, it was asked by the bench about the provision of the security to the satisfaction of the assessing officer 12 S. A No. 249/Del/2020 to be furnished by the assessee in view of the order dated 01 - 01 - 2020, the learned authorised representative submitted that assessee did not have any assets available with it for furnishing of the security and therefore same cannot be given. Therefore, it was not at all possible to ascertain about the recoverability of the tax dues from the above company. So, the bench asked the learned authorised representative to submit the present financial condition of the appellant. The learned authorised representative submitted the annual accounts of the company up to 31 -03- 2020. The accounts of the company were last audited only up to 31st of March 2017. The audited accounts for that year shows that assessee has net worth of only ₹ 13.57 crores and for the same year it has written off the permanent diminution in the value of the investment in its subsidiaries of Rs. 717 crores. For that year assessee has shown a loss of Rs. 786 crores. The unaudited and unsigned account of 31st of March 2018 showed the net worth of only Rs. 17 crores with a loss of ₹ 11.85 crores. For 31st of March 2019 the net worth of ₹ 3.72 crore and a loss of ₹ 2 crores. The March 2020 shows that the assessee has net worth of only 3.9 crores and are very meagre profit. The net worth of the company is solely invested in the loans and advances which are mostly advance tax. Thus, the total net worth of the company is invested in government dues. The main reason of the negative net worth of the company is apparent from the balance sheet of 2017 wherein cumulatively assessee has written of the investment in subsidiaries of Rs. 1772 crores. Along with the audited accounts, the financial statement or audited financial statements of subsidiaries were not provided. But, according to the words of the assessee, total investment in the subsidiary of Rs. 1772 crores is worthless. Without having the financials of the subsidiary company and mainly the loss arising on account of writing of the permanent 13 S. A No. 249/Del/2020 diminution in the value of the investment in the subsidiaries of the company of ₹ 1772 crores, it cannot be measured whether the assessee has anything to pay to the government of India towards this tax dues. In this situation, as per the order of the coordinate bench dated first of January 2020, the interest of the revenue is grossly hampered if the assessee is granted further stay of demand, despite assessee paying further Rs. 5 crores towards the outstanding dues. In view of the above situation, it is not even worth mentioning state of affairs of the assessee and further litigations shown to us by the learned authorised representative for extension of the stay. Eeven assuming while denying, the assertions made by the learned authorised representative that assessee has a strong prima facie case, we are not inclined to grant further stay of the above demand advocate the stay already granted forthwith. It is further to note that subsequent to the order of the coordinate bench dated first of January 2020, of all these financial affairs were not brought to the notice of the coordinate bench either by the assessee or by the revenue.
14. It is also an eye-opener for the revenue that in any of the earlier proceedings before the coordinate benches in the stay matters, none of these financial conditions were brought before the coordinate bench except matter dealt with in the order dated 1 January 2020. Despite of the fact that the assessing officer was aware about the filing of the return by the assessee where the balance sheets of appellant company are available wherein the situation was quite evident that outstanding tax revenue and its recovery is grossly jeopardized. So far as we could see the first glaring evidence of the loss booked by the assessee, by writing of the investment in subsidiaries in March 2017 itself. It clearly shows that original stay granted to the assessee on 2 March 2016, 14 S. A No. 249/Del/2020 the revenue did not care to represent before the ITA T in any of the stay petition, wherein it was fully aware about the financial condition of the assessee. After every six months as if it is a mere ritual, when the stages were extended for six months consecutively, nothing was brought on record by revenue. The tax collector should have been more vigilant as they are responsible for safeguarding the revenue of the Union of India.
15. Therefore on looking at the overall compactus of the fact of the issue involved in the appeal, the financial status of the company appellant petitioner, the present status of the working of the company, known disclosure of the financial statements of the subsidiaries whose investments have been written of, known provision of the names of the present directors, we are not in a position to extend the stay. Further so far as the interest of the revenue is concerned it is our prime and foremost duty to safeguard it when the stay is granted. Subsequent statement of affairs presented before us do not show that we are in any way be keeping the interest of the revenue safeguarded. For the sake of further clarifying the things that even before us, despite repeatedly asking, no information about the present directors of the company was given. Therefore, keeping the interest of the revenue uppermost in mind, we decline to further extend the stay of demand and forthwith vacate stay granted to the assessee.
16. The Ld. DR relied upon the decision of L. Chandra Kumar (supra) and submitted that the Hon'ble Delhi High Court's direction is not applicable to the Tribunal in particular. We have gone through all the directions given by the Hon'ble Supreme Court as well as by the various Hon'ble High Courts including the Jurisdictional High Court i.e. Hon'ble Delhi High Court. In various Hon'ble High 15 S. A No. 249/Del/2020 Courts across India and the Hon'ble Supreme Court while direction in Covid-19 situation has categorically mentioned the word "Tribunal" as well but that is absent in the direction issued by the Hon'ble Jurisdictional High Court as well Hon'ble Delhi High Court. However, after seeing the scenario of Covid 19 situation and being given guidelines by the Jurisdictional High Court we are taking the interpretation of the said direction of the Hon'ble Delhi High Court that the said decision/direction is applicable to the Tribunal. Therefore, despite declining the stay on the merits of the issue but respectfully following the decision of the honourable Delhi High Court, we are extending the Stay till 31st August, 2020, only for Covid-19 reasons.
17. With above direction we dispose of the stay petition.
Order pronounced in the Open Court on 14th AUGUST, 2020
Sd/- Sd/-
(PRASHANT MAHARISHI) (SUCHITRA KAMBLE)
(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)
Dated: 14/08/2020
R. Naheed
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
16 S. A No. 249/Del/2020
Date of dictation
Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order