DCIT, Circle - 10, Kolkata, Kolkata V. Consolidated Fibres & Chemicals Ltd., Kolkata

ITA 1082/KOL/2011

• Counselvise Citation: 108223514 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 1997-1998
• Appeal Filed On: 11-08-2011
• Court: TRIBUNAL
• Department Lawyers: D NASKAR JCIT LD
• Keywords: Notional interest; Reassessment proceedings
• Section: 147; 154; 143(3)

Judgement Text

ITA NO 1082/KOL/2011-C-AM M/S. CONSOLIDATED FIBRES & CHEMICALS LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH,JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 1082/KOL/2011 A.Y : 1997-98 D.C.I.T, CIRCLE-10, KOLKATA VS. M/S. CONSOLIDA TED FIBRES & CHEMICALS LTD PAN:AABCC1790P (APPELLANT) (RESPONDENT) FOR THE APPELLANT/DEPARTMENT: SHRI D.NASKAR , JCIT, LD.DR FOR THE RESPONDENT/ASSESSEE: NONE APP EARED DATE OF HEARING: 18-11 -2015 DATE OF PRONOUNCEMENT: 27 -11 -2015 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT(A) IN APPEAL NO. 242/XXXII/08-09/CIR-10/R&T/KOL DATED 18. 2.2011 AGAINST THE ORDER PASSED BY THE LEARNED AO U/S 154/143(3) OF THE INCO ME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASST YEAR 1997-98. 2. THIS APPEAL WAS FIRST LISTED FOR HEARING AND ASSESSEE CHOSE NOT TO APPEAR EITHER IN PERSON OR THROUGH ITS AUTHORIZED REPRESENTATIVE FROM 28.12.2011 AND ON SUBSEQUENT OCCASIONS ON 27.9.2012 , 21.3.2013, 29.9 .2014, 9.1.2015, 16.6.2015 AND 17.9.2015. ON 17.9.2015, THE BENCH DIRECTED TH E REGISTRY TO SERVE THE NOTICE THROUGH LEARNED DR AND CASE WAS ADJOURNED TO 17.11. 2015. ON 17.11.2015, THE CASE WAS ADJOURNED TO 18.11.2015. WE FIND FROM THE FILES THAT THE INSPECTOR OF INCOME TAX HAD GIVEN HIS REPORT THAT THE ADDRESSEE IS NOT TO BE FOUND IN THE ADDRESS GIVEN IN THE ORDER AND HENCE COULD NOT BE S ERVED. WE FIND THAT THE ITA NO 1082/KOL/2011-C-AM M/S. CONSOLIDATED FIBRES & CHEMICALS LTD 2 ASSESSEE HAS BEEN GIVEN SUFFICIENT OPPORTUNITIES FO R PROSECUTING ITS APPEAL. IN THESE CIRCUMSTANCES, WE PROCEED TO HEAR THE LEARNED DR AND DISPOSE OFF THE APPEAL ACCORDINGLY. 3. THE FIRST ISSUE TO BE ADJUDICATED HEREIN IS AS TO WHETHER THE ORDER PASSED U/S 154 OF THE ACT BY THE LEARNED AO IN RESPECT OF RECTIFYI NG THE MISTAKES IN RESPECT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT AMOUNTING TO RS. 2,62,50,000/- AND CHARGEABILITY OF ACCRUED INTEREST IN THE SUM OF RS. 38,43,000/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE BRIEF FACTS OF THIS CASE IS THAT THE ASSESS EE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F ACRYLIC FIBRE. THE ORIGINAL ASSESSMENT FOR THE ASST YEAR 1997-98 WAS COMPLETED U/S 143(3) OF THE ACT ON 16.11.1999 DETERMINING NET LOSS OF RS. 4,56,41,219/ -. THE ASSESSMENT WAS SUBSEQUENTLY REOPENED AND THE REASSESSMENT WAS COMP LETED U/S 143(3) / 147 OF THE ACT ON 18.2.2003 DETERMINING NET LOSS AT RS. 4,25,1 4,480/-. BEFORE THE REASSESSMENT PROCEEDINGS, THE LEARNED AO ISSUED NOT ICE U/S 154 OF THE ACT DATED 20.12.2001 PROPOSING TO RECTIFY THE NON-INCLUSION O F INTEREST INCOME OF RS. 38,43,000/-. THE ASSESSEE DULY RESPONDED TO THE SA ID PROCEEDING BY GIVING A REPLY ON 31.12.2001 AND OBJECTING TO THE RECTIFICATION PR OCEEDINGS STATING THAT THE INTEREST INCOME IN THE SUM OF RS. 38,42,938/- HAS B EEN ALREADY OFFERED TO TAX BY THE ASSESSEE IN RESPECT OF ADVANCE MADE TO LARSEN & TOUBRO LTD OVER THE YEARS AND ALSO STATED THAT THIS FIGURE ADMITTEDLY INCLUDE S INTEREST INCOME OFFERED IN ASST YEAR 1997-98 TO THE TUNE OF RS. 11,59,283/-. HENC E THE ASSESSEE PLEADED THAT THERE IS NO MISTAKE APPARENT FROM RECORD IN THIS RE GARD. LATER THE LEARNED AO PASSED AN ORDER U/S 154/143(3)/147 OF THE ACT ON 23 .3.2004 WHICH IS AFTER THE ORDER PASSED IN THE REASSESSMENT PROCEEDINGS ON 18. 2.2003, WHEREIN AN ADDITION OF RS. 38,43,000/- WAS MADE TOWARDS NOTIONAL INTEREST INCOME AND RS. 2,62,50,000/- WAS DISALLOWED TOWARDS INTEREST EXPENDITURE U/S 36( 1)(III) OF THE ACT. ITA NO 1082/KOL/2011-C-AM M/S. CONSOLIDATED FIBRES & CHEMICALS LTD 3 4.1. THE BRIEF FACTS IN RESPECT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) ARE THAT THE ASSESSEE BORROWED A SUM OF RS. 15 CRORES FROM STAR PAPER MILLS LTD AND NRC LIMITED FOR THE PURPOSE OF ITS BUSINESS AND LIABLE TO INCUR INTEREST EXPENDITURE IN THE SUM OF RS. 2,62,50,000/- DURING THE ASST YEAR 1 997-98. THIS INTEREST EXPENDITURE WAS NOT PROVIDED FOR IN THE BOOKS OF AC COUNTS OF THE ASSESSEE FOR THE FINANCIAL YEAR ENDED 31.3.1997. A NOTE TO THIS EFF ECT HAS BEEN GIVEN IN SCHEDULE 17 FORMING PART OF THE AUDITED ANNUAL ACCOUNTS AS N OTE NO. 17(B)(V)(B). BASED ON THE SAID NOTE, THE ASSESSEE HOWEVER SOUGHT TO CL AIM THE SAME AS AN ALLOWABLE DEDUCTION U/S 36(1)(III) OF THE ACT IN LINE WITH TH E MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED CONSISTENTLY OVER THE YEARS AND IN VIEW OF THE FACT THAT THE BORROWINGS WERE MADE FOR BUSINESS PURPOSES ONLY . THIS FACT W AS ALSO MENTIONED IN THE COMPUTATION FILED ALONG WITH THE RETURN OF INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3), THE LEARNED AO H AD ENQUIRED ABOUT THIS MATTER AND ASSESSEE HAD DULY FURNISHED ITS REPLY VI DE LETTER DATED 5.11.1999. AFTER DUE VERIFICATION OF THE SAME, THE SAID CLAIM OF INT EREST EXPENDITURE WAS ALLOWED AS DEDUCTION U/S 36(1)(III) OF THE ACT TO THE TUNE OF RS. 2,62,50,000/- IN THE ORDER PASSED U/S 143(3) OF THE ACT ON 16.11.1999. THE L EARNED AO WHILE PASSING THE ORDER U/S 154 OF THE ACT TOTALLY IGNORED THIS FACT AND HAS WITHDRAWN THE CLAIM FOR INTEREST AMOUNTING TO RS. 2,62,50,000/- ALLOWED IN THE ORIGINAL ASSESSMENT U/S 143(3) ON THE PREMISE THAT THE LIABILITY ON ACCOUNT OF INTEREST CLAIMED BY THE ASSESSEE IS CONTINGENT IN NATURE. 5. THE ASSESSEE CHALLENGED THIS ORDER BEFORE THE L EARNED CITA WHO ALLOWED THE APPEAL BY STATING THAT THERE WAS NO MISTAKE APPAREN T FROM RECORD IN THE EARLIER ASSESSMENT AND REASSESSMENT ORDERS WARRANTING THE R ECTIFICATION PROCEEDINGS U/S 154 OF THE ACT. HE FURTHER STATED THAT THE LEARNE D AO SOUGHT TO REVIEW HIS OWN ORDER WHICH IS NOT PERMISSIBLE U/S 154 OF THE ACT. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- ITA NO 1082/KOL/2011-C-AM M/S. CONSOLIDATED FIBRES & CHEMICALS LTD 4 1) ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE LD.CIT(A) HAS ERRED IN HOLDING THAT THE ORDER U/S. 154 TO BE BAD IN LAW THOUGH THE MISTAKES ARE APPARENT FROM THE RECORDS. II) ON THE FACTS & IN THE CIRCUMSTANCES OF THE CAS E LD.CIT(A) HAS FAILED TO APPRECIATE THE CLAIM OF DEDUCTION OF RS.2 ,62,50,000/- U/S. 36(1)(III) WITHOUT MAKING PROVISION IN ACCOUNTS WAS NOT PERMISSIBLE. III) ON THE FACTS & IN THE CIRCUMSTANCES OF THE CA SE LD.CIT(A) HAS ALSO FAILED TO APPRECIATE THAT ACCRUED INTEREST OF RS.38,43,000/- WAS TAXABLE AS IT WAS FOLLOWING MERCANTILE SYSTEM OF AC COUNTING. 6. WE HAVE HEARD THE LEARNED DR. WE FIND FROM TH E FACTS STATED HEREINABOVE THAT THERE ARE NO MISTAKES APPARENT FROM RECORD WIT HIN THE MEANING OF SECTION 154 OF THE ACT AND MOREOVER, THE ISSUES INVOLVED THEREI N ARE HIGHLY DEBATABLE AND HENCE CANNOT BE THE SUBJECT MATTER OF SECTION 154 P ROCEEDINGS. IN OUR OPINION, WHAT COULD BE RECTIFIED U/S 154 OF THE ACT IS A MIS TAKE WHICH MUST BE OBVIOUS AND PATENT AND NOT SOMETHING WHICH CAN BE ESTABLISHED B Y A LONG DRAWN PROCESS OF REASONING AS HAS BEEN HELD BY THE HONBLE SUPREME C OURT IN THE CASE OF T.S.BALARAM, ITO VS VOLKART BROS REPORTED IN 82 ITR 50 (SC). HENCE WE FIND THAT THE LEARNED CITA HAD RIGHTLY ALLOWED THE APPEA L OF THE ASSESSEE BY STATING THAT THE LEARNED AO WAS ONLY TRYING TO REVIEW HIS O WN ORDER WHICH IS NOT PERMISSIBLE U/S 154 OF THE ACT AND ALSO STATING THA T THERE ARE NO MISTAKES APPARENT FROM RECORD WITHIN THE MEANING OF SECTION 154. HEN CE WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CITA. ACCORDINGLY, THE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27 / 11/ 2015 SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 27/ 11/2015 ITA NO 1082/KOL/2011-C-AM M/S. CONSOLIDATED FIBRES & CHEMICALS LTD 5 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT:DCIT,CIR-10 P-7 CHOWRINGHEE SQ, 3 RD FL, KOL-69. . 2 THE RESPONDENT-M/S CONSOLIDATED FIBRES & CHEMICA LS LTD 222 AJC BOSE RD, CIRCULAR MANSION BLDG.5 TH FL., KOL-17. . 3 4.. /THE CIT, / THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS