M/S hARIYANA METAL LTD., Nagpur V. C.I.T-3, Nagpur

ITA 106/NAG/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1557 (ITAT-NAGPUR)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R MEENA
• Keywords: Difference of opinion; Change of opinion
• Section: 143(3); 263

Judgement Text

1 ITA NO. 106/NAG/2015 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.106/NAG/2015 ASSESSMENT YEAR : 2010 - 11. HARIYANA METALS LTD., COMMISSIONER OF INCOME - TAX - 3, NAGPUR. VS. NAGPUR. PAN AAACH4175J APPELLANT. RESPONDENT. APPELLANT BY : SHRI RAJESH LOYA. RESPONDENT BY : SHRI A.R. MEENA. DATE OF HEARING : 07 - 1 2 - 2015 DATE OF PRONOUNCEMENT : 18 TH DEC., 2015 O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF LEARNED C.I.T. - 3, NAGPUR PASSED U/S 263 OF THE I.T. ACT DATED 09 - 03 - 2015. THE GROUNDS RAISED ARE REPRODUCED BELOW: 1) THAT THE ORDER OF THE LEARNED CIT - 3, NAGPUR IS BAD IN LAW AND WRONG ON FACTS. ON THE FACTS AND CIRCUMSTANCES THE ASSESSMENT ORDER PASSED BY THE A O U/S 143(3) WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE NOTICE IS] S.263 AND THE PROCEEDINGS THEREAFTER ARE BAD IN LAW AND WRONG ON FACTS. 2) THAT THE LEARNED CIT ERRED IN LAW AND ON FACTS IN DISREGARDING THE FACT THAT IN ASSTT YEAR 2006 - 07, THE AMOUNT OF LOAN OUTSTANDING OF RS. 7,74,426/ - WAS CREDITED TO THE PROFIT & LO SS ACCOUNT AS ACCORDING TO THE ASSESSEE, IT WAS NO LONGER PAYABLE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE WAS RIGHTLY ENTITLED TO THE DEDUCTION OF THE AMOUNT OF RS. 7,00,000/ - PAID IN THE YEAR UNDER CONSIDERATION ON ACCEPTING THE LIABILIT Y. 2 ITA NO. 106/NAG/2015 3) THAT THE LEARNED CIT ERRED IN LAW AND ON FACTS III HOLDING THAT THE A O ERRONEOUSLY ALLOWED THE CLAIM IN THE PROFIT AND LOSS ACCOUNT WITHOUT MAKING ANY ENQUIRY. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE A O ALLOWED THE CLAIM AFTER VERIFICATION OF THE BOOKS OF ACCOUNTS AND THE RECORDS OF EARLIER YEARS AND THE DIRECTION BY THE CIT FOR MAKING FRESH ASSESSMENT IS IMPROPER AND UNJUSTIFIED. 2. WHILE INVOKING THE JURISDICTION U/S 263 OF I.T. ACT, LEARNED COMMISSIONER HAS MADE AN OBSERVATION THAT A R ETURN AT RS. NIL WAS FILED ON 14 - 10 - 2010 WHICH WAS ASSESSED U/S 143(3) VIDE ORDER DATED 29 - 11 - 2010 AS SUCH. ACCORDING TO LEARNED CIT, ON VERIFICATION OF RECORDS IT WAS FOUND THAT UNDER THE SCHEDULE OPERATING EXPENSES A SUM OF RS.7,74,426/ - WERE DEBITED T OWARDS LOANS OF DIRECTORS WRITTEN OFF EARLIER PAID DURING T HE YEAR. BY MENTIONING THE DECISION OF MALABAR INDUSTRIAL CO. 243 ITR 83, AND A DECISION OF TARADEVI AGRAWAL 88 ITR 323, LEARNED CIT HAS HELD THAT THE AO HAD FAILED TO MAKE CERTAIN ENQUIRY, HEN CE THE ORDER PASSED BY THE AO WAS AN ERRONEOUS ORDER. THE EXPLANATION OF THE ASSESSEE WAS THAT THERE WAS A LOAN LIABILITY TOWARDS SHRI K.C. AGRAWAL, ONE OF THE DIRECTOR, AMOUNTING TO RS.7,74,426/ - . THE DIRECTOR WAS NOT INTENDING TO PAY THE AFORESAID AMOUNT . THEREFORE, THE SAID AMOUNT WAS WRITTEN OFF WHILE FINALISING THE A CCOUNTS FOR THE ACCOUNTING PERIOD ENDING. AS A CONSEQUENCE , THE SAID SUM OF RS.7,74,426/ - WAS ASSESSED IN THE HANDS OF THE ASSESSEE IN THE ASSESSMENT YEAR 2006 - 07. HOWEVER, DURING THE YEAR UNDER CONSIDERATION THE SAID DIRECTOR HAD PAID A SUM OF RS.7 LAKHS BY CHEQUE TOWARDS SETTLEMENT OF THE LOAN LIABILITY. SINCE THAT LIABILITY WAS TAXED IN THE EARLIER YEARS, THEREFORE, THE AMOUNT WAS TREATED AS AN EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. LEARNED COMMISSIONER HAS VERIFIED THE FAC T S AND CAME TO KNOW THAT ON PERUSAL OF THE RECORDS IT WAS FOUND THAT THE ASSESSEE COMPANY HAS TAKEN INTEREST FREE LOAN FROM A DIRECTOR SHRI K.C. AGRAWAL AMOUNTING TO RS.7,74,426/ - DURING THE ASSESSMENT YEAR 2005 - 06. IN ASSESSMENT YEAR 2006 - 07 IT WAS HELD AS LIABILITY NO LONGER PAYABLE. THE SAID AMOUNT WAS WRITTEN OFF AND TREATED AS I NCOME. IN THE LIGHT OF THE ABOVE FACTUAL BACKGROUND, LEARNED COMMISSIONER HAS HELD AS UNDER : 3 ITA NO. 106/NAG/2015 5.3 IN THE INSTANT CASE, THE AO FAILED TO EXPRESS HIS VIEW REGARDING UNSECURED LOAN (WHICH WAS TAKEN FROM THE DIRECTOR WHO HAS VESTED INTEREST IN THE COMPANY) IS A LIABILITY AND THE SUM OF RS.7,74,426/ - WAS DEBITED TOWARDS LOANS OF DIRECTORS WRITTEN OFF EARLIER PAID DURING THE YEAR. THEREFORE THERE IS NO POSSIBILITY OF TWO VIEWS/OPINION OR CHANGE OF OPINION AS THE AO FAILED TO EXPRESS ANY VIEW ABOUT THE REPAYMENT OF INTEREST FREE LOAN WOULD BE DEBITED TO P & L A/C. AND ALLOWABILITY OF EXPENDITURE WHILE FRAMING THE ASSESSMENT ORDER. THEREFORE, THE AO HAS ERRONEOUSLY ALLOWED THE EXPENDITURE I.E. OPERATING EXPENSES HAS UNDER ASSESSED THE INCOME BY RS.7,74,426/ - WHIC H IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM COMPLETELY SATISFIED THAT THE ORDER OF THE ERSTWHILE ACIT, CIRCLE - 6, NOW ACIT, CIRCLE - 4, NAGPUR PASSED U/S 143(3) ON 11/12/2012, ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE TO THE EXTENT OF ALLOWABILITY OF THE ASSESSEES CLAIM AS DEDUCTION OF RS. 7 LACS IN THE P&L A/C BEING LOAN OF DIRECTORS WRITTEN OFF IN EARLIER YEAR DETAILED IN ABOVE PARAS. 7. THEREFORE THE SAID ASSESSMENT ORDER IS SET ASIDE U/S 263 OF THE I.T. ACT WITH A DIRECTION THAT AN ASSESSMENT BE MADE AFRESH ON THE GROUND THAT THE ASSESSEE HAD IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT AND APPLICABLE CIRCULARS/JUDICIAL DECISIONS AFTER MAKING APPROPRIATE ENQUIRIES IN THIS RESPE CT. 3. FROM THE SIDE OF THE APPELLANT, LEARNED A.R. MR. RAJESH LOYA APPEARED AND PLEADED THAT THE QUESTION NAIRE WAS ISSUED FOR THE YEAR UNDER CONSIDERATION BY THE AO AND ONE OF THE REQUIREMENT WAS TO FURNISH THE DETAILS OF LOAN OF DIRECTOR WRITTEN OFF. I N COMPLIANCE THE ASSESSEE FURNISHED THE DETAILS AS WELL AS THE EXPLANATION AS UNDER : THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS. 7 LACS IN THE PROFIT AND LOSS ACCOUNT BEING LOAN OF DIRECTORS WRITTEN OFF IN EARLIER YEAR. IT IS INFORMED THAT THERE WAS A L OAN LIABILITY OF THE COMPANY TOWARDS SHRI K.C. AGRAWAL TO THE TUNE OF RS.7,74,426/ - .46 TILL 31 - 3 - 2006. AT THAT POINT OF TIME, THE DIRECTORS WERE NOT INTENDING TO PAY THE AFORESAID AMOUNT TO THE PARTY AND THEREFORE HAD WRITTEN OFF THE CREDIT OF MR. K.C. AGR AWAL TO THE INCOME ACCOUNT IN THE PROFIT AND LOSS ACCOUNT. AS A CONSEQUENCE THE INCOME OF RS.7,74,426.46 WAS ASSESSED IN THE ASSTT. YEAR 2006 - 07. HOWEVER, SUBSEQUENTLY IN THE YEAR UNDER CONSIDERATION AN AMOUNT OF RS. 7 LACS WAS PAID BY CHEQUE IN SETTLEMENT OF THE LOAN LIABILITY WRITTEN OFF EARLIER. IN SUCH CIRCUMSTANCES, SINCE THE AMOUNT OF LIABILITY WRITTEN WAS 4 ITA NO. 106/NAG/2015 TREATED AS INCOME IN EARLIER YEARS THEREFORE THE AMOUNT PAID DURING THE YEAR UNDER CONSIDERATION WAS CLAIMED AS EXPENDITURE BY WRITING OFF THE SAME TO PROFIT AND LOSS ACCOUNT. THE LEARNED A.R. HAS ALSO PLACED ON RECORD THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006 - 07 PASSED U/S 143(3) DATED 31 - 12 - 2007. HE, THEREFORE, DEMONSTRATED THAT THERE WAS NO PREJUDICE CAUSED TO THE REVENUE DEPARTMENT BECAUSE I N THE PAST THE SAME AMOUNT WAS ALREADY TAXED IN THE HANDS OF THE ASESSEE. HOWEVER, UNDER THE CIRCUMSTANCES, WHEN AFTER SETTLEMENT AN AMOUNT OF RS. 7 LA KHS WAS PAID THEN IT WAS CLAIMED AS AN EXPENDITURE. HE HAS PLACED RELIANCE ON VODAFONE ESSAR SOUGH LTD. VS. CIT 141 TTJ 84 (ITAT DELHI) AND ANOTHER DECISION OF GUPTA INTERNATIONAL 2 ITR 428 (ITAT DELHI) . 4. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LEA RNED D.R. MR. A.R. MEENA APPEARED AND SUPPORTED THE ACTION OF THE LEARNED COMMISSIONER ON THE GROUND THAT THERE WAS NO DISCUSSION IN THE ASSESSMENT ORDER THAT HOW THE IMPUGNED EXPENDITURE WAS ALLOWED SPECIALLY WHEN IT WAS IN THE NATURE OF CAPITAL EXPENDITU RE. LEARNED D.R. HAS, THEREFORE, PLEADED TO CONFIRM THE VIEW TAKEN BY THE LEARNED COMMISSIONER. 5. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED THE DETAILS FURNISHED B EFORE US. AS FAR AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS CONCERNED, WE HAVE NOTED THAT A QUESTIONNAIRE WAS ISSUED BY THE AO AND IN COMPLIANCE , ON TWO OCCASIONS THE ASSESSEE HAS FURNISHED THE DETAILS IN RESPECT OF THE CLAIM OF EXPENDITURE OF RS.7 LAKHS. BECAUSE OF THE SUBMISSION OF THE ACCOUNTS ALONG WITH THE EXPLANATION, IT WAS THEREFORE, EVIDENT THAT THE AO HAD EXAMINED THE ISSUE OF CLAIM OF LIABILITY OF RS. 7 LAKHS FOR THE YEAR UNDER CONSIDERATION BY DEBITING THE SAME UNDER THE HEAD OPERATING EXPENSE S AS LOAN OF DIRECTORS WRITTEN OFF EARLIER YEAR. THEREFORE, IT IS NOT A CASE THAT NO ENQUIRY WAS MADE BY THE AO. ONCE THE AO HAD MADE THE ENQUIRIES, THEN IT IS NOT JUSTIFIABLE TO HOLD THAT HE HAS PASSED THE ASSESSMENT ORDER WITHOUT PROPER APPLICATION OF M IND. THERE IS ONE MORE IMPORTANT ASPECT OF THIS ISSUE THAT WHETHER AT ALL THE EXPENDITURE COULD BE 5 ITA NO. 106/NAG/2015 DISALLOWED OR NOT? TO ANSWER THIS QUESTION WE HAVE EXAMINED ONE OF THE UNDISPUTED FACT THAT IN THE PAST I.E. FOR ASSESSMENT YEAR 2006 - 07 AN AMOUNT OF RS.7,7 4,426 WAS TAXED IN THE HANDS OF THE ASSESSEE. ONCE THE IMPUGNED AMOUNT WAS TAXED AS INCOME IN THE PAST THEN IN SUCH A SITUATION WHEN THE AMOUNT WAS WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION AND CLAIMED AS AN EXPENDITURE , THEN NATURALLY THE APPLICABLE LAW DO NOT PERMIT TO DISALLOW SUCH AN EXPENDITURE. HENCE THE ARGUMENT BEFORE US IS THAT OTHERWISE ON MERITS NO ADDITION WAS CALLED FOR UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. WE ARE, THEREFORE, IN AGREEMENT WITH THE ARGUMENTS OF LEARNED A.R. THAT THIS IS NOT A CASE WHERE NO ENQUIRY WAS MADE OR THERE WAS NO APPLICATION OF MIND BY THE AO. HENCE THE ORDER IN QUESTION CANNOT BE SAID TO BE AN ERRONEOUS ORDER. MOREOVER WE ARE ALSO IN AGREEMENT WITH THE OTHER PLANK OF ARGUMENT THAT EVEN ON MERITS NO SUCH DISALLOWANCE WAS POSSIBLE AS PER LAW. THUS UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HEREBY HOLD THAT THE JURISDICTION INVOKED U/S 263 BY THE LEARNED COMMISSIONER WAS BAD IN LAW. THE ORDER PASSED U/S 263 IS HEREBY QUASHED. GROUNDS A LLOWED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF DEC., 2015. SD/ - SD/ - ( SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER. JUDICIAL MEMBER NAGPUR, DATED: 18 TH DEC., 2015. 6 ITA NO. 106/NAG/2015 COPY FORWARDED TO : 1. HARYANA METALS LTD., C/O M/S LOYA BAGRI & CO., C.AS. GANDHIBAGH, NAGPUR. 2. A.C.I.T., CIRCLE - 6 , NAGPUR. 3. C.I.T. - 3, NAGPUR. 4. D.R., ITAT, NAGPUR. 5. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTR AR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR.