The Commissioner of Income Tax vs Essar Steel Ltd.

The Appeal of the Revenue challenges the order passed on 16th May, 2012 by the Income Tax Appellate Tribunal, Mumbai Bench in Income Tax Appeal No. 4962/Mum/2005. The assessment year is 200102.

On the attention of Mr. Suresh Kumar, appearing for the Revenue in support of the Appeal, being invited to page 4 of the Appeal paper book, wherein the substantial questions are set out, Mr. Suresh Kumar fairly states that only question No. 1 can be termed as substantial question of law.

The Revenue could not have raised question No. 2 as it had not filed any Appeal, cross objections before the Tribunal, nor did it point out to the Tribunal that in the absence of an Appeal by it possibly it could not have impugned the Commissioner''s order in its entirety on this dis-allowance or deduction. Therefore, he does not press this Appeal insofar as question No. 2.

Insofar as question No. 1 is concerned, that pertains to a sustainance by the Commissioner of Income Tax (Appeals) to the extent of Rs.9,01,98,977/-. That disallowance arose from the interest expenses. The grievance of the Assessee was that the proposed addition of Rs.27,54,66,028/- made by the Assessing Officer should be deleted. That was because the Assessing Officer made his own calculations for dis-allowance of interest not charged on advances to M/s. Hy Grade Pellets Ltd.(HGPL). The Assessee pointed out that M/s. HGPL is a company. The Assessee is in the business of manufacturing and sale of Hot Rolled Coils, Sheets, Plates, Hot Briquetted Iron etc. A return of income declaring total loss of Rs.108,61,53,400/- was filed on 30th October, 2001. The case was selected for scrutiny and the Assessing Officer found that the Assessee had significant investment in equity and preference share of HGPL, in which, management of company has active participation. The Assessee did not charge any interest aggregating to Rs.46.64 crores on advances given to M/s. HPGL. A query was raised why the interest was not charged on the interest free loan/advances given to M/s. HGPL.

Once the Assessing Officer made such a query, then, inherent and implicit in it was the understanding that the loan was interest free. The advances/loan did not carry any interest. In these circumstances, the dis-allowance for interest to the tune of Rs.27,54,66,028/- was nothing but foisting the claim on the Assessee.

The Assessee, being aggrieved by this dis-allowance, carried the matter in Appeal before the first Appellate Authority. The first Appellate Authority allowed the Appeal partially and instead of the entire dis-allowance of Rs.27,54,66,028/ - being deleted, upheld disallowance to the extent of Rs.9,01,98,977/-. In other words, from the sum of Rs.27,54,66,018/-, the dis-allowance to this extent was upheld. Thus, the Appeal of the Assessee was partly allowed by the Commissioner of Income Tax (Appeals).

Upon perusal of the entire material, the Tribunal arrived at the conclusion that M/s. HGPL was going through huge loss and was not in a position to repay the principal amount, leave alone interest. In these circumstances and when the Assessing Officer made an estimation of his own and the grievance of the Assessee with regard thereto was partially upheld, then, there was no justification for allowing the Assessee''s Appeal only in part. The Appeal should have been allowed in its entirety. The sustainance of Rs.9,01,98,977/- was deleted on the Assessee''s Appeal. We find that para 15 of the order of the Tribunal contains reasons and referable to factual materials. The view taken by the Tribunal is in the facts and circumstances peculiar to the Assessee''s case. The view taken cannot be termed as perverse as it is in consonance with the documents and materials produced. Thus, if the findings of facts are not perverse or vitiated by any error of law apparent on the face of the record, then, the Appeal does not raise any substantial question of law. We do not find any merit therein. It is dismissed.