LEARNING FROM REPORTED JUDGMENTS– learning from case of SREI Infra 2012 -TMI - 212606 - DELHI HIGH COURT .

[C.A. DEV KUMAR KOTHARI]

Relevant links:

M/s SREI Infrastructure Finance Ltd. Versus The Income Tax Settlement Commission & Ors. 2012 -TMI - 212606 - DELHI HIGH COURT

Section 115JB.

Section 139 – for limitations to file return and revised return.

Learning from judgments:

While reading any judgment we read the facts of the case, the applicable provisions, various contentions raised by parties, various judgments cited and considered by the court , applicability or non applicability of judgments cited, and decision of the court.

On reading of judgments many times we can observe what was going in the mind of concerned parties and person acting on their behalf. We can also observe how he was trying to make out his case by removing weaknesses and introducing strength.

By reading arguments of one party and counter arguments of opposite parties we can learn how to make a distinction and put a counter argument.

In some cases we find considerable strength but due to wrong approach one loose the case. Whereas even in a weak case one can win by using strategic placement of relevant facts and arguments.

The case of SREI Infrastructure:

In case   SREI Infrastructure Finance Ltd.  Versus  The Income Tax Settlement Commission & Ors. 2012 -TMI - 212606  judgment has been rendered by the  DELHI HIGH COURT in a Writ Petition against  an order of the settlement commission. The issue before the High Court was on S. 50B relating to Slump Sale. However, in the preamble of the judgments we find some information about returned loss, and then petition for settlement filed by assessee  at very preliminary stage of assessment proceedings for one year.

Scope of this write-up:

This write-up is concerned only with preliminary facts of the case and not on the issue of Slump Sale which was  decided by the Court against the assessee by approving order of the settlement Commission. On the issue of slump sale the author may write another article.

Learning from the case:

The first four  paragraphs of the judgment reads as follows (with highlights added by author)

The petitioner, SREI Infrastructure Finance Ltd. is a public limited company engaged in project financing through term loans and leasing in specified sectors. For the assessment year 2009-10, the petitioner had disclosed loss of more than Rs.76 crores in their return. The book loss computed under Section 115JB of the Income Tax Act, 1961 (Act, for short) was more than Rs.72 crores. No return was filed for the assessment year 2010-11.

2. On 19th July, 2010, the petitioner filed an application under Section 245C(1) of the Act, before the Settlement Commission, for the assessment years 2009-10 and 2010-11, disclosing additional income, under MAT of Rs.111,08,00,000/- for the assessment year 2009-10, which was earlier not disclosed in the return which was pending scrutiny before the Assessing Officer and an income of Rs.126,35,41,333/- under MAT for the assessment year 2010-11.

3. On 23rd July, 2010, the Settlement Commission passed an order under Section 245D(1) admitting the application. During the course of the proceedings, the Commissioner  filed report under Section 245D(2B) of the Act and Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997. Reply and clarifications by both the petitioner and the Commissioner were examined and considered by the Settlement Commission.

4. On 16th December, 2011, the Settlement Commission passed the final order determining and deciding various aspects and questions which were raised. In the present writ petition, we are only concerned with one aspect i.e. taxability of Rs. 375 lacs under Section 50B of the Act as capital gains on ‘slump sale’ paid under the Scheme of Arrangement to the petitioner by its subsidiary SREI Infrastructure Development Finance Ltd (“SIDFL”, for short).

Observations of author:

For assessment year 2009-10 assessee had filed a return of loss  as per normal computation and had also computed  book loss  for the purpose of S. 115JB.  As the return was for loss, it is presumed that the return was filed timely and assessee could have revised the return. Even if the return was filed late, assessee could have filed a revised computation to reduce loss or to offer income for taxation. For assessment year 2009-10 usual limitation for completion of assessment u/s 143(3) would be 31.12.2011.

For assessment year 2010-11 any return was not filed.

Petition u/s 245C(1) for settlement was filed on 19.07.2010.

On 19.07.2010 assessee could have filed a revised return/ computation for assessment year 2009-10 and for assessment year 2010-11 assessee could have filed return of income. This could be instead of filing petition before the Settlement Commission.

Instead of filing revised return or return as stated above, assessee choose to file a petition for settlement before the Settlement Commission.

Learning from the case:

  Prima facie this appears to be a  case which suggest to learn more and be more careful. When a big company like the assessee SREI Infrastructure Finance Ltd.  breaks down just at preliminary stage of   notice or hearing for scrutiny assessment for assessment year 2009-10 , so as to go for settlement to substitute returned loss of Rs.72 crore with profit of Rs.111 crore - the gap -big 183 crore in AY 2009-10. And when no return was filed for AY 2010-11 and in  settlement proposal to settle MAT income of Rs.126 crore.

This is inspite of scope of filing a revised return of income and return of income in which assessee could have offered income  (by way of MAT) for taxation. The intriguing question which arises ( one need to learn) is why assessee choose to go for settlement?

   Is it not a case of either carelessness or being over confident when overconfidence breaks down very quickly?.  

This  definitely  seems a serious  lesson to learn from apparently  mistakes of assessee in its return and in not  taking alternative remedies to offer income for taxation when assessee could have availed opportunity by filing  a revised return/ computation and a return within the permissible time.

Another point was to explore and examine aspect as to whether S.115JB was applicable at all. when assessee was a loss making company having carried forward losses , not having Gross Total Income (GTI), not having total income (TI) and  not having tax payable on normally computed income since  there was  loss which was kept apart for carry forward and computation of  GTI, computation of deductions under chapter VIA  could not be made and deductions could not be allowed and total income and tax payable could not be computed. Therefore,  charging provisions and computation provisions of S. 115JB could not be applied, therefore, there was clear case that S. 115JB was not attracted.

However, it seems that assessee had taken decision to approach the Settlement Commission in undue hate.

Author hopes that  he has  not misunderstood the things due to paucity of information found I the judgment because who knows there could be some hidden or secret  reasons for undue haste of the assessee to adopt settlement route.