DCIT, Cuddalore V. M/s. The Kallakurichi Co-op Sugar Mills Ltd., Villupuram

ITA 1079/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64641 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA IRS
• Assessee Lawyers: S VENUGOPALAN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1079/MDS/2012 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-II, CUDDALORE. VS. M/S. THE KALLAKURICHI CO-OP. SUGAR MILLS LTD., UNIT-II, CS 11, KACHIRAPALAYAM, KALLAKURICHI TK., VILLUPURAM DIST. 606 207. PAN AAAAK0655Q (APPELLANT) (RESPONDENT) AND I.T.A. NO. 1081/MDS/2012 ASSESSMENT YEAR : 2006-07 M/S. THE KALLAKURICHI CO-OP. SUGAR MILLS LTD., KALLAKURICHI TK., VILLUPURAM DIST. 606 207. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-II, CUDDALORE. (APPELLANT) (RESPONDENT) DEPARTMENT BY : DR. S. MOH ARANA, IRS, CIT ASSESSEE BY : SHRI S. V ENUGOPALAN, CA DATE OF HEARING : 11 TH DECEMBER, 2012 DATE OF PRONOUNCEMENT : 14 TH DECEMBER, 2012 2 ITA 1079 & 1081/12 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THESE TWO APPEALS ARE CROSS APPEALS, FILED BY THE REVENUE AND THE ASSESSEE, RESPECTIVELY. THE RELEVA NT ASSESSMENT YEAR IS 2006-07. THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- XII AT CHENNAI, PASSED ON 16.02.2012, AND ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3), READ WITH SE C.154 OF THE INCOME-TAX ACT, 1961. 2. IN THE APPEAL FILED BY THE REVENUE, THE ISSUE IS WHETHER THE AMOUNT OF INTEREST PAYABLE BY THE ASSESSEE ON N CDC LOAN IS HIT BY SEC.43B OF THE ACT OR NOT. 3. IN THE ACCOUNTS FURNISHED BY THE ASSESSEE, INTER EST ON NCDC LOAN HAS BEEN SHOWN AS PAYABLE. THE CORRESPON DING EXPENDITURE HAS BEEN CLAIMED AS DEDUCTION. THE ASS ESSING OFFICER, WHILE COMPUTING THE ASSESSEES INCOME, HEL D THAT NCDC IS A FINANCIAL INSTITUTION AS PROVIDED UNDER SEC.43 B AND INTEREST AMOUNT NOT ACTUALLY PAID BEFORE DUE DATE OF FILING OF RETURN SHALL NOT BE ALLOWED AS DEDUCTION IN TERMS OF SEC.43B. A CCORDINGLY, 3 ITA 1079 & 1081/12 HE DISALLOWED THE SAID AMOUNT. IN FIRST APPEAL, TH E COMMISSIONER OF INCOME-TAX(APPEALS) FOUND THAT THE LOAN WAS IN FACT TAKEN BY THE ASSESSEE FROM THE GOVERNMENT OF T AMILNADU AND NOT FROM NCDC. THE COMMISSIONER OF INCOME-TAX( APPEALS) FURTHER HELD THAT AMOUNT PAYABLE TO GOVERNMENT IS N OT HIT BY SEC.43B. HE ACCORDINGLY DELETED THE DISALLOWANCE M ADE BY THE ASSESSING AUTHORITY. 4. THE GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FAILED TO C ONSIDER THAT THE ASSESSEE ITSELF ADMITTED AT THE TIME OF ASSESSM ENT PROCEEDINGS THAT CERTAIN PAYMENTS ARE REMAINING UNP AID WITHIN THE STIPULATED TIME. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE IN THE BALANCE SHEET HAS CATEGORIZED THE L OAN RECEIVED FROM NCDC UNDER THE NOMENCLATURE FINANCIAL INSTITU TION, WHICH FALLS UNDER THE PURVIEW OF SEC.43B. IT IS ALSO THE CASE OF THE REVENUE THAT THE CHARTERED ACCOUNTANT IN THE REPORT IN FORM 3CA AND 3CD HAS MENTIONED THAT THE LOANS ARE ONLY F ROM FINANCIAL INSTITUTIONS. 5. WE HEARD BOTH SIDES IN DETAIL AND ALSO PERUSED T HE PROCEEDINGS OF THE DIRECTOR OF SUGARS DATED 31.7.20 04, IN WHICH 4 ITA 1079 & 1081/12 HE HAS REFERRED TO CERTAIN GOVERNMENT ORDERS PARTIC ULARLY, G.O.MS.NO.45, INDUSTRIES (MIC.1) DEPARTMENT, DATED 27.7.2001. ON GOING THROUGH THE PROCEEDINGS, WE UNDERSTAND THA T THE ASSESSEE HAS TAKEN A LOAN FROM GOVERNMENT OF TAMILN ADU AND NOT DIRECTLY FROM NCDC. OF COURSE, NCDC IS A FINAN CIAL INSTITUTION AS PROCLAIMED BY THE GOVERNMENT OF INDI A IN TERMS OF SEC.4A OF THE COMPANIES ACT, 1956. IF THE ASSESSEE HAS TAKEN THE LOAN DIRECTLY FROM NCDC, THE CASE WOULD HAVE BE EN COVERED BY SEC.43B. NOW, IN THE PRESENT CASE, CENTRAL GOVE RNMENT HAD ALLOWED THE GOVERNMENT OF TAMILNADU TO GO FOR OPEN MARKET LENDING FOR RAISING FUNDS TO HELP THE SUGAR MILLS I N TAMILNADU. THE GOVERNMENT OF TAMILNADU HAS IN FACT AVAILED THE LOAN IN THE LIGHT OF APPROVAL GRANTED BY THE GOVERNMENT OF INDI A. AFTER AVAILING SUCH OPEN MARKET LOAN FROM NCDC, GOVERNMEN T OF TAMILNADU DISTRIBUTED THE AMOUNT AMONG VARIOUS SUGA R MILLS IN TAMILNADU. AS PER THE DIRECTIONS ISSUED BY THE GOV ERNMENT OF TAMILNADU, THE LOANS HAVE TO BE UTILIZED FOR CERTAI N SPECIFIC PURPOSES. THE GOVERNMENT OF TAMILNADU ALSO ALLOWED THE ASSESSEE TO ENJOY A MORATORIUM ON REPAYMENT FOR A P ERIOD OF 5 YEARS. THE MILLS ARE SUPPOSED TO MAKE REPAYMENT AS AND WHEN 5 ITA 1079 & 1081/12 DIRECTED BY THE STATE GOVERNMENT. AT THE SAME TIME , THE ASSESSEE PROVIDED FOR SUCH INTEREST, AS IT IS FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING. THE PRIVITY OF CONTRACT IS B ETWEEN THE ASSESSEE AND THE GOVERNMENT OF TAMILNADU. IN FACT , THE AUDITORS MIGHT HAVE SHOWN THE LOAN AS AVAILED FROM NCDC LOOKING INTO THE SOURCE OF SOURCE OF THE LOAN. EVE N IF IT IS AN OVERSTATEMENT, SUCH OBSERVATION ALONE SHOULD NOT DE CIDE THE EXACT NATURE OF THE ISSUE. AS FAR AS THE PRESENT C ASE IS CONCERNED, GOVERNMENT OF TAMILNADU IS THE LENDER AN D THE ASSESSEE IS THE BORROWER. ANY AMOUNT PAYABLE TO A GOVERNMENT, BUT NOT ACTUALLY PAID, IS NOT HIT BY SE C.43B. THEREFORE, THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUSTIFIED IN CANCELLING THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER UNDER SEC.43B. 6. THE APPEAL FILED BY THE REVENUE FAILS. 7. IN THE APPEAL FILED BY THE ASSESSEE, THE GROUND IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN NO T ACCEPTING THE CONTENTION OF THE ASSESSEE THAT SET OFF OF BROU GHT FORWARD LOSSES OF EARLIER YEARS SHOULD BE AGAINST THE PROFI TS AND GAINS OF BUSINESS AS PER THE PROVISIONS OF SEC.72 AND NOT AG AINST THE 6 ITA 1079 & 1081/12 GROSS TOTAL INCOME OF THE ASSESSEE. IN THE PRESEN T CASE, THE ASSESSEE HAD BUSINESS INCOME AS WELL AS INCOME FROM OTHER SOURCES BY WAY OF INTEREST ETC. THE ASSESSING AUT HORITY ADDED THE INCOME FROM OTHER SOURCES TO THE BUSINESS INCOM E OF THE ASSESSEE AND ALLOWED SET OFF OF BROUGHT FORWARD LOS SES FROM THAT GROSS AMOUNT. BECAUSE OF THIS GROSSING UP, THE ASS ESSEE LOST ITS CLAIM OF DEDUCTION AVAILABLE UNDER SEC.80P. THE AS SESSEE IS OTHERWISE ENTITLED FOR DEDUCTION UNDER SEC.80P AS F AR AS THE INCOME FROM OTHER SOURCES IS CONCERNED. 8. WE DO NOT APPROVE THE METHOD FOLLOWED BY THE ASS ESSING OFFICER AS WELL AS THE COMMISSIONER OF INCOME-TAX(A PPEALS). THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SEC.80 P. WHEN SEC.80P IS APPLIED, INCOME FROM OTHER SOURCES IS RE DUCED. FIRST SEC.80P HAS TO BE APPLIED AND THEREAFTER ALONE THE ASSESSING OFFICER HAS TO LOOK INTO THE QUESTION OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS WHICH COULD BE SET OFF AGAINST THE CU RRENT YEARS BUSINESS PROFIT. THEREFORE, THE CURRENT YEARS BUSI NESS PROFIT ALONE COULD BE SET OFF OF AGAINST BROUGHT FORWARD B USINESS LOSSES. THE ASSESSEE MUST BE GIVEN DEDUCTION UNDER SEC.80P INDEPENDENTLY AGAINST THE INCOME FROM OTHER SOURCES . IF THE 7 ITA 1079 & 1081/12 ABOVE CORRECT METHOD IS FOLLOWED, THE AMOUNT AVAILA BLE FOR SET OFF GETS REDUCED; THE AMOUNT OF LOSSES TO BE CARRIE D FORWARD FOR SUCCEEDING ASSESSMENT YEARS WILL BE INCREASED AND T HE ASSESSEE WILL GET THE BENEFIT OF DEDUCTION UNDER SE C.80P. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE ASSE SSMENT AS STATED ABOVE. 9. THE APPEAL FILED BY THE ASSESSEE SUCCEEDS. 10. IN RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDERS PRONOUNCED ON FRIDAY, THE 14 TH OF DECEMBER, 2012 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 14 TH DECEMBER, 2012. MPO* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.