Court Upholds Tax Planning as Lawful, Rejects Revenue’s Claim of Sham Transactions

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Case Name

Commissioner of Income Tax and Anr. vs. Vikram Reddy (Individual) (High Court of Karnataka)

ITA No. 291 of 2013

Date: 24th February 2021

Key Takeaways

• Tax Planning vs. Tax Evasion: The court reaffirmed that tax planning, if within the law, is permissible—even if it results in a lower tax burden.
• Genuineness of Transactions: The court found the business restructurings and share transfers to be genuine, not sham or colorable devices.
• Legal Loopholes: The court noted that any loophole in the law that allowed the taxpayer to reduce their tax liability was later addressed by legislative amendment, but could not be applied retrospectively.
• Burden of Proof: The revenue could not prove that the transactions were not genuine or that the real intention was to evade tax.
• Finality of Assessments: Once a transaction is accepted in earlier assessments, it cannot be reopened without proper procedure.

Issue

Was the series of share transfers and business restructurings by the assessee and his family a genuine tax planning exercise within the law, or a colorable device to evade capital gains tax?

Facts

• Parties: The main parties are the Commissioner of Income Tax (revenue) and Vikram Reddy (individual), along with his family and related entities.
• Timeline:
• 1952: Nutrine Confectionary Company Pvt. Ltd. (NCCPL) was incorporated.
• 1971: B.V. Reddy Enterprises (BVRE), a partnership firm, was formed.
• 2005: Neutrine Confectionary and Sweets Pvt. Ltd. (NCSPL) was incorporated.
• 2006: Partners of BVRE contributed their shares in NCCPL to the firm as capital. These shares were then transferred to one partner, Madhusudhan Reddy, as the registered shareholder, but beneficial ownership remained with the partners.
• 2006: A non-binding MoU was signed with Godrej Beverages and Foods Ltd. (GBFL) for the sale of shares.
• 2006: BVRE was succeeded by NCSPL, which took over all assets and liabilities.
• 2006: NCSPL sold the shares in NCCPL to GBFL for Rs. 265 crores.
• Assessment Year in Dispute: 2007-08.
• Revenue’s Action: The Assessing Officer treated the entire series of transactions as a sham, alleging they were designed to evade tax, and taxed the capital gains accordingly.

Arguments

Revenue (Commissioner of Income Tax)

• Sham Transactions: Claimed the transactions were a colorable device to evade tax, not genuine business restructuring.
• Direct Sale: Argued that the shares were effectively sold by the individuals directly to Godrej, not through the firm/company as claimed.
• Book Entries: Pointed out that there were no real financial transactions, only book entries.
• Legal Precedents Cited:
• McDowell & Co Ltd (158 ITR 148 SC): On colorable devices and tax evasion.
• Sunil Siddharthbhai vs. CIT (156 ITR 509 SC)
• Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd and Another (157 ITR 77 SC)
• Killick Nixon Ltd vs. DCIT (2012) 81 CCH 0066 Mum HC

Assessee (Vikram Reddy & Family)

• Genuine Transactions: Asserted that all transactions were genuine, within the law, and accepted in earlier assessments.
• Tax Planning is Lawful: Emphasized that choosing a tax-efficient structure is legal if it doesn’t contravene any statute.
• No Contravention: Pointed out that the law was later amended to close the loophole, but this could not be applied retrospectively.
• Legal Precedents Cited:
• Commissioner of Income-Tax vs. Walfort Share and Stock Brokers P. Ltd. (2010) 326 ITR 1 (SC)
• Union of India and Another vs. Azadi Bachao Andolan and Another, 263 ITR 706 (SC)
• State of Karnataka vs. Videocon International Ltd., STRP No.4/2000 dated 14.07.2010

Key Legal Precedents

• McDowell & Co Ltd (158 ITR 148 SC): Established that colorable devices to evade tax are not permissible.
• Sunil Siddharthbhai vs. CIT (156 ITR 509 SC): On capital gains in the context of partnership contributions.
• Commissioner of Income-Tax vs. Walfort Share and Stock Brokers P. Ltd. (2010) 326 ITR 1 (SC): Reaffirmed that tax planning within the law is permissible.
• Union of India and Another vs. Azadi Bachao Andolan and Another, 263 ITR 706 (SC): Held that a lawful act cannot be disregarded merely because it results in tax savings.
• State of Karnataka vs. Videocon International Ltd., STRP No.4/2000 dated 14.07.2010: Reiterated the principle that lawful tax planning is not to be faulted.

Statutory Provisions Referenced:

• Section 2(47), 45(3), 47(xiii), 48, 49(1)(e) of the Income Tax Act, 1961: These sections deal with the definition of transfer, capital gains on transfer to a firm, exemptions for certain transfers, computation of capital gains, and cost of acquisition in certain cases.

Judgement

• Decision: The High Court dismissed the revenue’s appeal, siding with the assessee.
• Reasoning:
• The transactions were genuine and within the framework of the law.
• The firm BVRE was a valid, existing entity, and its genuineness had been accepted in earlier years.
• The law at the relevant time allowed the structure used by the assessee; any loophole was closed only by a later amendment.
• There was no evidence that the real intention was to evade tax or that the transactions were a sham.
• The tribunal’s findings were based on facts and could not be termed perverse.
• Orders: The appeal was dismissed, and all substantial questions of law were answered in favor of the assessee.

FAQs

Q1: Was the taxpayer’s method of structuring the share sale legal?

A: Yes, the court held that the structure was within the law at the time and was not a sham.

Q2: Did the court find any evidence of tax evasion?

A: No, the court found no evidence that the transactions were a colorable device or sham for tax evasion.

Q3: What if the law changes after a transaction?

A: Changes in the law (like the amendment to Section 49(1)) cannot be applied retrospectively to completed transactions.

Q4: Can the revenue challenge the genuineness of a firm after accepting it in earlier years?

A: No, once the firm’s genuineness is accepted in earlier assessments, it cannot be challenged without proper procedure.

Q5: What is the significance of this judgment?

A: It reinforces that lawful tax planning is permissible, and only transactions that are sham or colorable devices can be disregarded for tax purposes.

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2007-08.

The appeal was admitted by a bench of this Court vide order dated 13.08.2013 on the following substantial questions of law:

"(i) Whether on the facts and circumstances of the case, the Tribunal is

correct in law in not recognizing the colourable device employed by the assessee as envisaged by the Hon'ble Apex Court in case of McDowell

& Co Ltd (reported in 158 ITR page 148) which resulted in massive tax evasion in the guise of tax planning laced with multi layered transactions?".

"(ii) Whether on the facts and circumstances of the case, the Tribunal is

correct in law in not considering the fact that the shares belonging to the assessee were ultimately transferred to Godrej Group as part of sale of business of the Nutrine Group to Godgrej Group, routed through a series of

transactions including the reconstitution of the defunt firm M/s. B.V. Reddy enterprises to accommodate the shareholders of M/s. Nutrine confectionery Co. P. Ltd and guising the numerous transactions as genuine in quick span

of time, with a sheer motive of avoidance of payment of actual capital gain?".

"(iii) Whether on the facts and circumstances of the case, the Tribunal is

correct in law in holding that the entire series of transactions by which the shares of NCCPL were ultimately transferred to GBFL were all valid

and such an arrangement to avoid payment of taxes on account of correct quantum of capital gain that would result on transfer of shares of

NCCPL to GBFL was permitted and within the framework of law?".

"(iv) Whether in the given facts and circumstances of the case, the Tribunal is correct in law in holding that the entire series of transactions by which the shares of Nutrine Confectionary Co. P Ltd were ultimately transferred to GBFL were all valid and such a course was permitted and within the frame work of law and that the transaction was not colourable or dubious device or subterfuge and were legal and valid without completely appreciating the complete though process and motive behind the series of transactions entered

in to by the assessee and family members?".

"(v) Whether in the given facts and circumstances of the case, the Tribunal is correct in law in allowing the appeal of the assessee with reference to addition on account of non existent liability amount to Rs.1,77,778/- without appreciating that the assessee had not been able to prove the same beyond doubt?".

2. Facts leading to filing of this appeal briefly stated are that M/s Neuprine Confectionary Company P. Ltd. (Hereinafter referred to as 'the NCCPL' for short) was incorporated on 14.02.1952. The said company was

engaged in the business of manufacture and sale of confectionary products under the brand name 'Neutrine'.

Thereafter on 14.07.1971, M/s B.V.Reddy Enerprises (Firm) was formed at Chittoor in the State of Andhra Pradesh (hereinafter referred to as 'the BVRE' for short). The aforesaid partnership firm comprised of Sri. Madhusudhan Reddy, Sri. Vikram Reddy, Smt.Shobha Reddy, Smt. Sandhya Reddy, Smt. Anitha Reddy and Sri. Dinesh Reddy. Out of the aforesaid three partners

viz., Smt.Sandhya Reddy, Smt.Anitha Reddy and Sri.Dinesh Reddy were minors. On 25.06.1979, Smt.Anitha Reddy and Smt.Sandhya Reddy attained the

date of majority and a fresh deed of partnership was executed with the same partners. Again on 30.12.1982 a new deed of partnership was drawn with same six partners, as Sri.Dinesh Reddy attained the age of majority. On 28.12.2005, a company M/s Neutrine Confectionary and Sweets Pvt. Ltd., (hereinafter referred to as 'the NCSPL' for short) was incorporated.

On 22.03.2013, 10 separate persons but 13 in number

as out of 10 partners 3 were shown to be in dual

capacity executed a Memorandum of Understanding

(MoU). Thereafter, on 24.03.2006 the partners brought

in the shares held by them in NCCPL as their share of

capital contribution to firm BVRE and their value

recorded at the agreed figure on which capital gains

have been returned and tax for Assessment Year 2006-

07 under Section45(3) of the Act and accepted in a

proceeding under Section 143(3) of the Act. The

resolution was forwarded on the same date i.e.,

24.03.2006 to the company secretary of NCCPL with

signature of the partners showing different status in

which they were partners including their dual capacity.

All the 13 partners delivered share transfer forms

transferring the shares so brought in as capital in favour

of Sri.Madhusudhan Reddy on 24.03.2006 and name of

Sri.Madhusudhan Reddy was entered as registered

shareholder of NCCPL in pursuance of the resolution

passed by the firm.

3. Sri.Madhusudhan Reddy filed a declaration

under Section 187C of the Companies Act, 1956 on

27.03.2006 stating that beneficial owners of the shares

NCCPL held by him were 13 partners of the firm viz.,

BVRE. Similar declaration under Section 187C of the

Companies Act was given by 13 partners. The NCCPL on

29.03.2006 entered in the books the name of

Sri.Madhusudhan Reddy as shareholder on behalf of

various partners of BVRE as per provision of the

Companies Act. On 29.03.2006, a non binding MoU

between the members of the Reddy family and Godrej

Beverages and Foods Ltd. was executed with reference

to the position prevailing on 01.03.2006 contemplating

transfer of shares to Godrej Beverages and Foods Ltd.

for a sum of Rs.270 Crores. NCCPL also filed a similar

declaration under Section 187C of the Companies Act,

1956 on 29.03.2006. With effect from 05.05.2006, the

firm viz., BVRE was succeeded by NCSPL taking over the

entire business lock stock and barrel including all its

assets and liabilities for a consideration of Rs.270 Crores

in accordance with provisions of Chapter IX of the

Companies Act, 1956. Thereafter, under a share

purchase agreement dated 10.06.2006, the shares in

NCCPL were transferred by NCSPL to Godrej Beverages

and Foods Ltd. for a consideration of Rs.265 Crores and

the transfer of shares was effective with effect from

29.06.2006. On 18.08.2006, M/s NCSPL changed its

name to M/s B.V.R.E.P.L.

4. The aforesaid NCSPL / B.V.R.E.P.L filed the

return of income for the Assessment Year 2007-08

declaring the capital loss on sale of shares of NCCPL of

Rs.33,22,70,041/-. The Assessing Officer by an order

dated 30.12.2009 inter alia held that entire exercise of

transfer of shares held by the assessee in NCCPL to firm

viz., BVRE as capital contribution and subsequent take

over of the firm by NCSPL and the final sale of shares by

NCSPL to Godrej Beverages and Foods Ltd. were

colorable devices adopted and were sham transactions

for evading tax liability. The short term capital gains of

Rs.222,26,14,953/- was taxed under Section 45 read

with Section 49(1) of the Act and Short Term Capital

Gains was computed taking the actual cost for

acquisition of sales at Rs.35.27 Crores instead of

Rs.270,07,53,000/- as claimed by the B.V.R.E.P.L.

5. The assessee thereupon filed an appeal

before the Commissioner of Income Tax (Appeals) who

by an order dated 28.01.2011 inter alia held that the

firm viz., BVRE is not a genuine firm and dismissed the

appeal. The assessee thereupon filed an appeal before

the Income Tax Appellate Tribunal (hereinafter referred

to as 'the tribunal' for short). The tribunal vide order

dated 08.02.2013 inter alia held that the firm BVRE was

genuine and was not defunct but was a legally existing

partnership firm. It was further held that a person

shown in the partnership deed as a partner representing

the HUF, does not become the partner and therefore,

HUF was not the partner of BVRE and therefore, the firm

BVRE cannot be said to be invalid. It was further held

that there was a valid transfer of shares by NCCPL held

by the assessee in favour of the firm BVRE during the

previous year relevant to Assessment Year 2006-07 and

declaration under Section 187C of the Companies Act,

1956 clearly shows that the beneficial owner of the

shares was Sri.Madhusudhan Reddy in the firm BVRE. It

was further held that the course adopted by the

assessee was within the framework of law and was

permissible. Accordingly, the appeal preferred by the

assessee was allowed. In the aforesaid factual

background, the revenue has filed this appeal.

6. Learned counsel for the revenue submitted

that in reality shares of NCCPL were sold by 13 partners

of firm viz., BVRE to Godrej Beverages and Foods Ltd.

during previous year relevant to Assessment Year 2007-

08 and therefore, the conclusion of the authorities that

capital gains is chargeable to tax in the hands of the

assessee proportionate of their share holding in NCCPL

is correct. It is pointed out that MoU dated 29.03.2006

reflects the real intention of the parties and MoU was

signed by Vikram Reddy representing 16 persons who

held the entire paid up capital of NCCPL. It is also

pointed out that from perusal of Annexure-1 to MoU, it

is evident that aforesaid 16 persons were shareholders

of NCCPL. The finding recorded by the tribunal that MoU

has been superseded with share purchase agreement is

perverse and in the MoU details have been given about

the consideration to be paid for transfer of shares and

the same is based on the details contained in Annexure-

2 to the agreement. It is also submitted that MoU

contains a non compete clause and provides time limit

for transfer of shares. Our attention has also been

invited to clause 8.1. of the MoU and it has beenurged

that the MoU is not binding until duly authorized by

definitive agreements to be executed by both the parties

and the fact that ultimately the transfer of shares took

place on the same terms which are contained in MoU. It

has also been pointed out that the deed of partnership

does not contain any clause by which 13 partners were

to bring in their shareholding in NCCPL as capital

contribution of the firm.

7. It is further submitted that Mr.V.Vikram

Reddy and Mr.V.Vikram Reddy (HUF) in the course of

assessment proceedings in answer to question No.5 has

submitted that there was transaction in respect of

shares in NCCPL prior to transaction with Godrej

Beverages and Foods Ltd. and has further stated that

whatever shares they were holding in NCCPL were

directly transferred to Godrej Beverages and Foods Ltd.

In the year 2006-07. Therefore, the individuals have

sold the shares held by them in NCCPL to Godrej

Beverages and Foods Ltd. It is further contended that

against the order passed by the Income Tax Appellate

Tribunal, Chennai dated 31.04.2004 the revenue has

preferred an appeal before High Court of Madras, which

is pending. It is contended that there were no

transactions in books of accounts of BVRE except book

entries with a view to give transaction the colour that

NCAPL has taken over BVRE. Even in NCSPL there were

no financial transactions except the book entries and the

assessee and his family members were allotted the

shares in NCSPL in proportion to their capital. It is also

urged that entire series of transaction is only a colorable

device to evade the tax, which is evident from the fact

that assessee and his family members had entered into

MoU with Godrej Beverages and Foods Ltd. on

29.03.2006 as mentioned in share purchase agreement

between NCCPL and Godrej Beverages and Foods Ltd.

Dated 10.06.2006. The family members signed the

share purchase agreement as confirming parties but

para 11.11 contains non compete clause. It is also urged

that the tribunal without appreciating the facts of the

case has deleted addition of a sum of Rs.1,77,778/- and

the Assessing Authority and the Commissioner of

Income Tax (Appeals) have rightly held that the

assessee had failed to appreciate the advance received

from Nestle was returned and as such, it was income of

the assessee. In support of aforesaid submissions,

reliance has been placed on decisions in SUNIL

SIDDHARTHBHAI VS. CIT, 156 ITR 509 (SC),

WORKMEN OF ASSOCIATED RUBBER INDSUTRY

LTD. VS. ASSOCIATED RUBBER INDSUTRY LTD

AND ANOTHER, 157 ITR 77 (SC) AND KILLICK

NIXON LTD VS. DCIT, (2012) 81 CCH 0066 MUM

HC.

8. On the other hand, learned counsel for the

assessee submitted that transfer of shares by the

assessee in favour of the firm viz., BVRE during the

previous year relevant to Assessment Year 2006-07 is

accepted by the revenue and is assessed to tax which is

not disputed by the revenue. It is also submitted that

revenue has brought to tax gains arising out of sale of

shares of NCCPL to Godrej Beverages and Foods Ltd.

Both in the hands of assessee (individual / HUF) as well

as in the hands of B.V.R.E.P.L. and the revenue has not

disputed the existence of B.V.R.E.P.L or its genuineness.

Therefore, the aforesaid issue has reached finality. It is

also submitted that it is open to the assessee to mitigate

its tax burden instead of adopting a particular mode of

carrying out a transaction, he adopts another mode

whereby transaction is carried out as desired but with a

lesser tax burden. It is also contended that the assessee

has not contravened any statutory provision and has

adopted tax planning which is within four corners of law

and the transaction is neither sham nor unreal. It is

pointed out that after noticing the loophole that by

Finance Act, 2012, Clause (xiii) in Sub Clause (3) of

Section 49(1) with effect from 01.04.1999 has been

inserted and as per the aforesaid clause, the cost of

acquisition of capital asset has to be reckoned from the

date of computing capital gains when a transfer of

capital gains take place in the manner referred to in

Clause (xiii) of Section 47 of the Act. It is also pointed

out that during the previous year relevant to

Assessment Year 2007-08, there is no transfer of shares

by the assessee (individual / HUF) in favour of Godrej

Beverages and Foods Ltd. It is also submitted that the

matter stands concluded against the revenue by finding

of fact and no substantial question of law arises for

consideration in this appeal. In support of aforesaid

submissions, reliance has been placed on decisions in

COMMISSIONER OF INCOME-TAX VS. WALFORT

SHARE AND STOCK BROKERS P. LTD., (2010) 326

ITR 1 (SC), UNION OF INDIA AND ANOTHER VS.

AZADI BACHAO ANDOLAN AND ANOTHER, 263 ITR

706 (SC), STATE OF KARNATAKA VS. VIDEOCON

INTERNATIONAL LTD., STRP NO.4/2000 DATED

14.07.2010.

9. We have considered the submissions made

by learned counsel for the parties and have perused the

record. Before proceeding further, it is apt to take note

of statutory provisions viz., relevant extract of Section

2(47), 45(3), and relevant extracts of 47(xiii) Section 48

and 49(1)(e) read as under:

(47) "transfer", in relation to a capital

asset, includes,—

(i) the sale, exchange or relinquishment

of the asset ; or

(ii) the extinguishment of any rights

therein ; or

45 Capital Gains.

(3) The profits or gains arising from the

transfer of a capital asset by a person to a firm

or other association of persons or body of

individuals (not being a company or a co-

operative society) in which he is or becomes a

partner or member, by way of capital

contribution or otherwise, shall be chargeable

to tax as his income of the previous year in

which such transfer takes place and, for the

purposes of section 48, the amount recorded in

the books of account of the firm, association or

body as the value of the capital asset shall be

deemed to be the full value of the

consideration received or accruing as a result

of the transfer of the capital asset.

47. Nothing contained in section 45 shall

apply to the following transfers :—

(xiii) any transfer of a capital asset or

intangible asset by a firm to a company as a

result of succession of the firm by a company

in the business carried on by the firm, or any

transfer of a capital asset to a company in the

course of demutualisation or corporatisation of

a recognised stock exchange in India as a

result of which an association of persons or

body of individuals is succeeded by such

company :

48. The income chargeable under the

head "Capital gains" shall be computed, by

deducting from the full value of the

consideration received or accruing as a result

of the transfer of the capital asset the following

amounts, namely :—

(i) expenditure incurred wholly and

exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset

and the cost of any improvement thereto:

49. (1) Where the capital asset became

the property of the assessee—

(e) under any such transfer as is

referred to in clause (iv) or clause (v) or clause

(vi) or clause (via) or clause (viaa) or clause

(viab) or clause (vib) or clause (vic) or clause

(vica) or clause (vicb) or clause (vicc) or clause

(xiii) or clause (xiiib) or clause (xiv) of section

47

.....

The cost of acquisition of the asset shall

be deemed to be the cost for which the

previous owner of the property acquired it, as

increased by the cost of any improvement of

the assets incurred or borne by the previous

owner or the assessee, as the case may be.

10. After having noticed relevant statutory

provisions, we may advert to the legal principles. The

Supreme Court in AZADI BACHAO ANDOLAN supra held

that an act which is otherwise valid in law cannot be

treated as non est merely on the basis of some

underlying motive supposedly resulting in some

economic detriment or prejudice to the national interest.

The aforesaid view has quoted with approval in

WALFORT SHARE AND STOCK BROKERS P. LTD

supra. Thereafter, a division bench of this court in M/s

Videocon Iternational Ltd. Supra by taking into account

the law laid down by the Supreme Court in AZADI

BACHAO ANDOLAN supra held that as long as

arrangement of the assessee to avoid payment of tax do

not contravene any statutory provision and the same is

within four corners of law it cannot be found fault with.

11. In the backdrop of aforesaid well settled legal

principles, we may advert to the facts of the case. From

the material on record and in particular para 50 of the

order passed by the tribunal, it is evident that the

existence of the firm viz., BVRE has been accepted to be

genuine by the revenue in the orders passed under

Section 185 of the Act for Assessment Years 1980-81

and 1984-85. It is also noteworthy that the firm BVRE

had filed the return for the Assessment Year 2006-07,

which has been accepted on 30.10.2006 and the

Assessing Officer while assessing the assessee for

Assessment Year 2007-08 has no jurisdiction to record a

finding that the firm was not in existence or the same

was defunct. It is pertinent to note that the aforesaid

finding cannot be sustained in the eye of law without

putting the firm BVRE to notice before recording such

conclusion against the firm. Thus, the existence of the

firm BVRE has been accepted as genuine, legal and

valid. From the material on record as well as para 81 of

the order passed by the tribunal, it is evident that there

was transfer of ownership in shares from 13 individuals

in favour of firm BVRE as on 24.03.2006 when the firm

made necessary book entries and when the partners

made their intentions clear that shares were to be

treated as property of the firm in the form of resolution.

There is nothing on record to suggest that real intention

of the parties was to treat the assessee as owner of the

shares even after transfer of the shares to the firm. The

course adopted by the assessee for transfer of shares

does not disclose any violation of the provision of law.

There were two ways in which the shares of NCCPL held

by 13 partners of BVRE to be transferred to Godrej

Beverages and Foods Ltd., firstly, that 13 partners in

their individual capacity could transfer the shares to

NCCPL held by them to Godrej Beverages and Foods Ltd.

at a price the shares were ultimately sold to Godrej

Beverages and Foods Ltd. through NCSPL and secondly,

the manner in which the assesses have transferred the

shares through medium of the firm BVRE. The later

course would definitely result in lesser tax burden to the

assessee but the aforesaid course is permissible in law.

It is pertinent to note that there was a lacuna in law

which has been addressed by Finance Act, 2012 by

introducing clause (xiii) to sub clause(e) of Section

49(1) with effect from 01.04.1999. Before the aforesaid

amendment, the assessment was complete. It is also

pertinent to mention that during the previous year

relevant to Assessment Year 2007-08, there is no

transfer of shares by the assessee (individual /HUF) in

favour of Godrej Beverages and Foods Ltd. The tribunal

on the basis of meticulous appreciation of evidence on

record has recorded a conclusion in favour of the

assessee in para 84 of the order. In our considered

view, the aforesaid finding which is a finding of fact can

be termed as perverse. It is the cardinal principle of law

that tribunal is fact finding authority and a decision on

facts on the tribunal can be gone into by the High Court

only if a question has been referred to it, which says the

finding of the tribunal is perverse.[SEE: ‘SUDARSHAN

SILKS & SAREES VS. CIT’, 300 ITR 205 SCC @

211 and ‘MANGALORE GANESH BEEDI WORKS

VS. CIT’, 378 ITR 640 (SC) @ 648]. Therefore,

the substantial questions of law 1 to 4 are answered

against the revenue and in favour of the assessee.

12. Now we may advert to the fifth substantial

question of law. The tribunal para 92 of its order has

held that the Assessing Officer has not invoked any

specific provision of law for making the addition of

Rs.1,77,778/-. The Commissioner of Income Tax

(Appeals) has sustained the addition by resorting tyo

Section 41(1) of the Act. It has been held by the

tribunal that for invoking the aforesaid provision there

should be benefit to the assessee by way of remission or

cessation of liability and there is no evidence on record

to show that assessee has received any benefit by way

of remission or cessation of liability and therefore,

addition under Section 41(1) of the Act cannot be made

on assumptions and presumptions. Therefore, in the fact

situation of the case the provision of Section 41(1) of

the Act are not attracted. Therefore, the addition of

Rs.1,77,778/- has been deleted. The aforesaid finding

is based on proper appreciation of the material available

on record. The aforesaid finding cannot be termed to be

perverse. In the result, the fifth substantial question of

law is also answered against the revenue and in favour

of the assessee.

In the result, we do not find any merit in this

appeal, the same fails and is hereby dismissed.