East Coast Hospitals Limited, Pondicherry V. ACIT, Pondicherry

CO 125/CHNY/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6367 (ITAT-CHENNAI)
• Duration Of Justice: 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M RAJENDRAN
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 896/MDS/2011 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-I, PONDICHERRY. V. M/S. EAST COAST HOSPITALS LTD., PERAMBAI ROAD, MOOLAKULAM, PONDICHERRY. (PAN : AAACE1595F) (APPELLANT) (RESPONDENT) A N D C.O. NO. 125/MDS/2011 (IN ITA NO. 896/MDS/2011) ASSESSMEN T YEAR : 2005-06 M/S. EAST COAST HOSPITALS LTD., V. THE ASST. COMMISSIONER OF PERAMBAI ROAD, MOOLAKULAM, INCOME-TAX, CIRCLE-I, PONDICHERRY. PONDICHERRY. (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI SHAJI P. JACOB, SR. DR ASSESSEE BY : SHRI M. RAJENDRAN, CA O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO. 896/MDS/2011 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF TH E LEARNED CIT(APPEALS)-XII, I.T.A. NO.896/MDS/2011 & CO 125/MDS/2011 2 CHENNAI IN ITA NO. 220/2009-2010 DATED 28-2-2011 FO R THE ASSESSMENT YEAR 2005-06 AND CO NO. 125/MDS/2011 IS CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE REVENUES APPEAL. 2. SHRI SHAJI P. JACOB, LEARNED SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI M. RAJENDRAN, CA REPRESENTED ON BEHALF OF THE ASSESSEE. 3. IN THE REVENUES APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE CIT(A) IS ERRONEOUS AND CONTRAR Y TO THE FACTS OF THE CASE. 2. THE CIT(A) FAILED TO LOOK INTO THE FACT THAT DE SPITE THE ASSESSEE CLAIMED DEDUCTION U/S 43B FOR THE ACTUAL INTEREST P AYMENTS ON TERM LOANS AVAILED BY IT, THE ENTIRE INTEREST PAYABLE WA S SHOWN AS FINANCE COST IN THE P & L ACCOUNT AND TRANSFERRED THE SAME IN FULL TO THE BALANCE SHEET UNDER PREOPERATIVE EXPENSES ACCOUNT WHICH INCLUDES PAID/UNPAID INTEREST AS A WHOLE SINCE 1.4.1994 I.E. THE OPENING BALANCE TO THE IMPUGNED YEAR 1.4.2004 IN ORDER TO A VAIL ENDURING LIABILITY. 3. THE CIT(A) IGNORED THE FACT THAT WHEN THE ASSES SEE CLAIMED TO HAVE CORRECTLY DISALLOWED DEDUCTION U/S 43B AGAINST ITS UNPAID INTEREST IN THE STATEMENT OF TOTAL INCOME, IT OUGHT TO HAVE CREDITED THE WAIVER OF INTEREST FOR ` 14,69,22,897/- INTO THE P & L ONCE IT HAD OPTED FOR ONE TIME SETTLEMENT AND OFFERED THE SAME TO TAX U/S 41(1) OF THE ACT. 4. THE CIT(A) FAILED TO LOOK INTO THE FACT THAT ON CE SETTLING THE DUES TO THE BANKS BY AVAILING ONE TIME SETTLEMENT OPTIO N, THE BALANCE UNPAID WAIVED AMOUNT WAS DIRECTLY TAKEN INT O THE BALANCE SHEET BY THE ASSESSEE AS EXPENSES WRITTEN OFF IS N OT IN ORDER. I.T.A. NO.896/MDS/2011 & CO 125/MDS/2011 3 5. THE CIT(A) SHOULD HAVE EXAMINED THE ISSUE IN TH E LIGHT OF SECTION 41(1) WHICH SAYS THAT .SUCH TRADING LIABI LITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS/PROFESSION AND AC CORDINGLY CHARGEABLE TO TAX. 6. FOR THE ABOVE GROUNDS AND FOR ANY OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CI T(APPEALS) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 4. AT THE TIME OF HEARING, THE LEARNED DR SUBMITTED THAT IN THE COURSE OF ASSESSMENT IT WAS NOTICED THAT THE ASSESSEE HAD ENT ERED INTO A ONE TIME SETTLEMENT AGREEMENT WITH IDBI BANK AND HAD DERIVED BENEFIT OF WAIVER OF INTEREST. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER HAD TREATED THE WAIVER DERIVED BY THE ASSESSEE AS PROFITS CHARGEABLE TO TA X UNDER SECTION 41(1) OF THE INCOME TAX ACT, 1961. IT WAS THE SUBMISSION THAT T HE LEARNED CIT(A) HAD DELETED THE ADDITION. HE VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. THE LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ORDER OF THE LEARNED CIT(A) AT PAGE 9 CLEARLY SHOWS THAT THE LEA RNED CIT(A) HAS TAKEN INTO CONSIDERATION THE FACT THAT THE COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE STARTED FROM THE PROFIT AND LOSS AS PER THE P & L A CCOUNT AND THE ASSESSEE HAD BEEN CONTINUOUSLY DISALLOWING THE QUANTUM OF INTERE ST NOT PAID AS INADMISSIBLE I.T.A. NO.896/MDS/2011 & CO 125/MDS/2011 4 WHILE COMPUTING THE INCOME. AS PER THE PROVISIONS OF SEC. 41(1) ON ACCOUNT OF THE CESSATION OF THE LIABILITY DUE TO ONE TIME SETT LEMENT AND THE WAIVER OF THE INTEREST, NO SPECIFIED BENEFIT AROSE TO THE ASSESSE E INSOFAR AS THE ASSESSEE ITSELF HAD BEEN TREATING THE INTEREST LIABILITY AS INADMIS SIBLE ON ACCOUNT OF THE NON- PAYMENT. CONSEQUENTLY, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS RIGHT IN HOLDING THAT THERE WAS NO CESSATION OF LIABILITY SI NCE THE WAIVER DID NOT RESULT IN ANY ACTUAL INCOME TO THE ASSESSEE DURING THE IMPUGN ED YEAR. IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE FINDI NG OF THE LEARNED CIT(A) IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENC E. IN THE CIRCUMSTANCES, THE APPEAL OF THE REVENUE IS DISMISSED. 7. AS THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE LEARNED CIT(A), THE SAME IS ALSO DISMISSED. 8. IN THE RESULT, BOTH THE APPEAL FILED BY THE REVE NUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. 9. THE ORDER WAS PRONOUNCED IN THE COURT ON 02/08/2 011. SD/- SD/- (DR. O.K. NARAYANAN) (GEORGE MATHAN) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 2 ND AUGUST , 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE