Brahamputra Capital & Financial Services Ltd., New Delhi V. ITO, New Delhi

ITA 1083/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52890 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GEETMALA MOHNANI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 1083/DEL/11 ASSTT. YR: 2007-08 BRAHAMPUTRA CAPITAL & VS. ITO WARD 3(1), FINANCIAL SERVICES LTD., NEW DELHI. 28 NAJAF GARH ROAD, NEW DELHI. PAN NO. AABCB8626K (APPELLANT ) (RESPONDENT) APPELLANT BY: SH. K. SAMPATH ADV. RESPONDENT BY: SMT. GEETMALA MOHNANI CIT DR O R D E R PER R.P. TOLANI, J.M: THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 30-12-2010 RELATING TO A.Y. 2007-08. 2. FOLLOWING GROUNDS ARE RAISED: 1. THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL S) CIT(A) IS BAD AND WRONG IN LAW. 2. THE CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 2,15,53,466/- ALLEGED TO BE INTEREST INCOME OF THE APPELLANT. 3. THE LD. CIT(A) FAILED TO APPRECIATE THAT THERE W AS NO ACCRUAL OF INTEREST INCOME HAVING REGARD TO THE FAC TS THAT THE BOARD OF DIRECTORS IN THEIR MEETING HELD ON 3.4.200 4 DECIDED THAT NO INTEREST BE RECOGNIZED IN RESPECT OF THE LO ANS ADVANCED AND INTEREST WHEN ACTUALLY RECEIVED SHOULD BE ACCOU NTED FOR IN THE BOOKS. 4. ON THE FACTS OF THE CASE AND IN LAW, WITHOUT PRE JUDICE TO THE ABOVE GROUNDS, NO INTEREST INCOME ACCRUED TO TH E APPELLANT 2 ALSO IN VIEW OF NBFC PRUDENTIAL NORMS (RESERVE BANK ) DIRECTIONS, 1998. 5. THE CHARGE OF INTEREST INVOKING SECTION 234-B IS WRONG AND BAD IN LAW. THE APPELLANT PRAYS THAT HE MAY BE PERMITTED TO ADD , ALTER, AMEND OR DELETE ANY GROUNDS BEFORE OR AT THE TIME O F HEARING. 3. GROUND NOS. 1 AND 6 ARE GENERAL IN NATURE AND N EED NO ADJUDICATION. GROUND NOS. 2,3 & 4 ARE IN RESPECT OF ADDITION OF R S. 2,53,15,466/- ON ACCOUNT OF INTEREST. GROUND NO. 5 IS IN RESPECT OF CHARGING OF INTEREST U/S 234B. 4. BRIEF FACTS ARE THAT ASSESSEE, A NON-BANKING FI NANCE COMPANY (NBFC), HAD GIVEN INTEREST BEARING LOANS TO THREE CONCERNS I.E. M/S JINDAL EQUIPMENT LEASING & CONSULTANCY SERVICES LTD.; M/S MANSAROVAR INVESTMENTS LTD.; AND M/S GOSWAMIS CREDITS & INVEST MENTS LTD. SINCE PAST YEARS. THE BOARD OF DIRECTORS OF ASSESSEE COMPANY V IDE RESOLUTION DATED 3- 4-2004 RESOLVED NOT TO RECOGNIZE INTEREST INCOME O N ACCRUAL BASIS FROM THE ABOVE THREE COMPANIES. FROM A.Y. 2004-05 ONWARDS T HE AO HELD THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING ON THAT BASIS INTEREST INCOME WAS WORKED OUT AND ADDED TO THE INC OME OF THE ASSESSEE. 4.1. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE ADDITIONS WERE CONFIRMED BY CIT(A) WITH REFERENCE TO THE PAST HIST ORY BY FOLLOWING OBSERVATIONS: THE ASSESSEE COMPANY IS A NON-BANKING FINANCE COMP ANY BUT HAS NOT DECLARED ANY INTEREST INCOME ON ANY OF THE ABOVE LOANS. THE ASSESSING OFFICER NOTED THAT DURING THE COURSE OF ASESSMEWNT PROCEEDINGS FOR THE ASSESSMENT EYAR 2003 -04, 2004-05, 2005-06 AND 2006-07 IT WAS FOUND THA THE L OANS GIVEN TO THE FIRST THREE PARTIES MENTIONED ABOVE WRE ON I NTEREST @ 3 16% FOR THE FIRST TWO PARTIES AND @ 14.5% FOR THE T HIRD PARTY MENTIONED ABOVE. THE ASSESSEE HAD FAILED TO DECLARE INTEREST INCOME FROM ALL THESE PARTIES IN ITS INCOME FOR ALL THESE ASSESSMENT EYARS AND THE SAME WAS ADDED TO ITS INCO ME IN THE ASSESSMENT ORDERS U/S 143(3) FOR THESE YEARS. HOWEV ER, THE SAID ADDITIONS WERE DELETED BY THE CIT(A) OR THE HONBLE ITAT FOR ALL THESE YEARS AND THE DEPARTMENTS APPEAL AE PEND ING IN THE HONBLE DELHI HIGH COURT FOR THESE YEARS. AGGRIEVED, ASSESSEE IS BEFORE US. 5. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTSET C ONTENDS THAT ITAT IN EARLIER YEARS ALLOWED THE ISSUE IN FAVOUR OF THE AS SESSEE. REVENUE APPEALED AGAINST THESE ORDERS BEFORE THE HONBLE DELHI HIGH COURT. THE HONBLE DELHI HIGH COURT VIDE ITS CONSOLIDATED JUDGMENT DA TED 18-5-2011 IN ITA NOS. 2 OF 2009 DIRECTOR OF INCOME TAX VS. BRAHAMPUT RA CAPITAL FINANCIAL SERVICES LTD. & OTHERS, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING OBSERVATIONS: IT IS CLEAR FROM THE ABOVE THAT THE SUBMISSION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW THAT SINCE THE RECOVER ABILITY OF PRINCIPLE AMOUNT OF LOAN ITSELF WAS DOUBTFUL, DECIS ION WAS TAKEN AS A PRUDENT BUSINESSMAN AND INTEREST INCOME WAS NO T ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. AS PER THE A SSESSEE, UNDER THESE CIRCUMSTANCES, THERE WAS NO REAL ACCRUA L OF INTEREST AND INTEREST WAS NOT TAXABLE IN THE HANDS OF THE AS SESSEE HAVING REGARD TO THE PRINCIPLES OF REAL INCOME, IT WAS ALS O SUBMITTED BEFORE THE LOWER AUTHORITIES THAT EVEN IN ACCORDANC E WITH THE ACCOUNTING STANDARD AS-9, ISSUED BY THE INSTITUTE O F CHARTERED ACCOUNTANTS OF INDIA DEALING WITH THE EFFECT OF UNC ERTAINTY ON REVENUE RECOGNITION, THE GUIDANCE NOTE ON ACCRUAL B ASIS OF ACCOUNTING ISSUED BY ICAI ACCORDING TO WHICH WHERE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING, TH E REVENUE RECOGNITION IS TO BE POSTPONED TO EXTENT OF UNCERTA INTY INVOLVED. FOR THIS PURPOSE, RELIANCE WAS PLACED UPON THE RBI DIRECTIVE; ACCOUNTING STANDARD ISSUED BY ICAI (AS-9) AND THE G UIDELINES OF THE RBI INCLUDING NBFC PRUDENTIAL LOAN (RBI)DIRE CTIONS, 4 1998. THE TRIBUNAL HAS ACCEPTED THE AFORESAID CONTE NTIONS OF THE ASSESSEE HOLDING THAT THERE WAS NO ACCRUAL OF R EAL INCOME AND, THEREFORE, IT DID NOT BECOME INCOME IN THE HAN DS OF THE ASSESSEE UNDER SECTION 5 OF THE ACT. THE TRIBUNAL H AS ALSO HELD THAT MERELY BECAUSE THE ASSESSEE AND THE BORROWER W ERE KNOWN TO EACH OTHER WOULD NOT BE SUFFICIENT TO RENDER THE FINANCIAL POSITION OF BORROWER COMPANY BETTER SO AS TO INCRE ASE E THE LIKELIHOOD OF INTEREST PAYMENT TO THE ASSESSEE COMP ANY. 5.1. LEARNED COUNSEL CONTENDS THAT SINCE THE ISSUE STANDS DECIDED IN FAVOUR OF ASSESSEE BY HONBLE HIGH COURT, HOLDING THAT NO N-RECOGNITION OF INTEREST FROM ASSOCIATE GROUP CONCERNS WAS JUSTIFED AND MERE LY BECAUSE THE LENDER AND BORROWERS WERE KNOWN TO EACH OTHER, WILL NOT LE AD INTO ADDITIONS. 6. LEARNED DR CONTENDS THAT FACTS IN THIS YEAR ARE DISTINGUISHABLE. IN VIEW OF THE CIT(A)S FINDING BASED ON HONBLE SUPRE ME COURT JUDGMENT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT 187 TAXMAN 346, BY FOLLOWING OBSERVATIONS: THUS IN THE CASE OF SOUTHERN TECHNOLOGIES ALSO, AS FAR AS INTEREST ACCRUALS OF RS. 20,34,605/- WAS CONCERNED, THE HONBLE APEX COURT HAS HELD THAT THE ASSESSEE HAS TO PROVE THAT INTEREST IS NOT RECOGNIZED OR TAKEN INTO ACCOUNT DUE TO UNCE RTAINTY IN COLLECTION OF INCOME. IN THE PRESENT CASE THE APPEL LANT HAS FAILED TO ESTABLISH THAT THE INTEREST INCOME IS NOT TO BE TAKEN ON ACCRUAL BASIS DUE TO UNCERTAINTY IN COLLECTION. RATHER, FAC TS OF THE CASE UNDOUBTEDLY SHOW THAT THERE IS A REASONABLE CERTAIN TY FOR COLLECTION OF INTEREST ACCRUALS ON THE ADVANCES GIV EN TO GROUP COMPANIES. IN SUCH CIRCUMSTANCES, I FIND THAT THE A SSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDITION ON ACC OUNT OF ACCRUAL INTEREST AND THE SAME IS UPHELD. 7. LEARNED DR CONTENDS THAT ASSESSEE HAS NOT ADVAN CED ANY ARGUMENT ABOUT THE TAXABILITY OF INTEREST ON ACCRUA L. 5 8. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE MAT ERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR AND EARLIER YEARS ARE SAME. IN VIEW TH EREOF, WE ARE UNABLE TO ACCEPT THE PLEA OF THE LEARNED DR THAT FACTS ARE DI STINGUISHABLE IN THIS YEAR AND A VIEW DIFFERENT FROM THE ONE TAKEN BY THE HON BLE DELHI HIGH COURT SHOULD BE ADOPTED. THE FACTS AND CIRCUMSTANCES BEIN G SIMILAR, HONBLE DELHI HIGH COURT HAVING CLEARLY HELD THAT THE IMPUGNED IN TEREST INCOME IN THIS CASE CANNOT BE RECOGNIZED FOR THESE YEARS, RESPECTF ULLY FOLLOWING THE SAME, WE HOLD THAT THERE WAS NO ACCRUAL OF IMPUGNED INTER EST AND THE ADDITION MADE ON THIS ACCOUNT IS DELETED. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30-09-2011. MP COPY FORWARDED TO: (1) ASSESSEE (2) AO (3) CIT (4) CIT(A) (5) DR 6