M/s NJP Surya Cold Storage PVT LTD, Hyderabad V. DCIT, Hyderabad

ITA 1225/HYD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53804 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 15-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Opportunity of being heard
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND CHANDRAPOOJARI, ACCOUNTANT MEMBER ITA NO.1225/HYD/2010 ASSESSMENT YEAR: 2007-08 M/S. NJP SURYA COLD STORAGE PVT LTD., R.R .DISTRICT, HYD. (PAN:AABCN 3603 Q) VS INCOME - TAX OFFICER, WARD-7(2), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.SRINIVAS RESPONDENT BY : SMT. T.H.VIJAYALAKSHMI DATE OF HEARING: 29-11-2011. DATE OF PRONOUNCEMENT: 08-12-2011. O R D E R PER BENCH: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE CIT (A)-V, HYDERABAD DATED 18-6-2010 AND IT PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND OF APPEAL IS WITH REGARD TO AD DITION OF AN AMOUNT OF RS.52,75,000/- UNDER SECTION 41 OF THE AC T. 3. BRIEF FACTS OF THIS ISSUE ARE THAT DURING THE YEAR, THE COMPANY HAS WRITTEN OFF UNSECURED LOANS TO THE TUNE OF RS.5 2.75 LAKHS AND IT IS ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 2 MENTIONED IN THE SCHEDULE-L I.E., NOTES FORMING PAR T OF ACCOUNTS THAT THERE WAS NO CLAIM FROM THE LOAN CREDITORS AND HENC E THEY WERE WRITTEN OFF. DURING THE PROCEEDINGS, IT WAS EXPLAINED THAT HE COMPANY HAS RAISED LOANS IN THE PERSONAL CAPACITY OF THE DIRECT ORS BY GIVING PERSONAL GUARANTEES TO THE TUNE OF RS.52.75 LAKHS AND THE CO MPANY HAD NOT EXECUTED ANY DOCUMENTS AND THERE WERE NO CLAIMS FRO M THE ABOVE SAID UNSECURED LOANS AND HENCE THE BOARD HAS TRANSFERRED THEM TO SUNDRY BALANCES WRITTEN OFF A/C. THE ASSESSEE IS NOT A PO SITION TO FURNISH THE NAMES OF THE CREDITORS AND REASONS FOR WHICH THE LI ABILITY HAS BEEN INCURRED IN THE ABSENCE OF SUCH DETAILS AND THE INF ERENCE IS THAT THE LIABILITY IS DURING THE COURSE OF BUSINESS AND THAT THE ASSESSEE HAS DERIVED THE BENEFIT OF EXPENDITURE ON THE BASIS OF WHICH THE LIABILITY HAS BEEN CREATED. SINCE THE UNILATERAL ACT OF WRITING BACK THE LOANS AMOUNTS TO CESSATION OF LIABILITY FOR THE COMPANY, IT IS TO BE TREATED AS INCOME UNDER SECTION 41 OF THE INCOME-TAX ACT. 4. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). 5. ON APPEAL, THE CIT (A) OBSERVED THAT THE ASSESSE E HAS NOT EVEN PROVIDED THE NAMES OF THE CREDITORS WHO HAVE ADVAN CED THE AMOUNTS TO THE ASSESSEE AND THERE IS ABSOLUTELY NO EVIDENCE TO SHOW THAT THE AMOUNTS WERE RAISED OTHER THAN THROUGH THE NORMAL C OURSE OF BUSINESS. ACCORDINGLY, HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LIMITED (222 ITR 344) AND HELD THAT THE AMOUNTS WERE RECEIVED BY THE ASSESSED DURING THE NORMAL COURSE OF BUSINESS AND IN ITS TRA DING ACTIVITY AND THE CESSATION OF THIS LIABILITY HAS BEEN RIGHTLY TREATE D AS INCOME BY THE ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 3 ASSESSING OFFICER AND ACCORDINGLY THE CIT (A) UPHEL D THE FINDING OF THE ASSESSING OFFICER. AGAINST THE ORDER OF THE FIRST A PPELLATE AUTHORITY, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED AUT HORIZED REPRESENTATIVE OF THE ASSESSEEE SUBMITTED THAT THE PROVISIONS OF S ECTION 41 OF THE ACT CANNOT BE INVOKED IN THIS CASE OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTIONS, THE LEARNED COUNSEL FOR THE ASSESSEE H AS RELIED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF MAHIN DRA AND MAHINDRA LIMITED VS. CIT (2003) 261 ITR 501 WHEREIN IT WAS H ELD AT PAGE 503 OF THE JUDGMENT AS FOLLOWS:- THAT IN ORDER TO APPLY SECTION 41(1), AN ASSESSEE S HOULD HAVE OBTAINED A DEDUCTION IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THE ASSESSEE HAD NOT OBTAINED SUCH ALLOWANCE OR DED UCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY. THE A SSESSEE HAD PAID INTEREST AT 6 PER CENT OVER A PERIOD OF TEN YE ARS ON RS.57,74,064. IN RESPECT OF THAT INTEREST, THE ASS ESSEE NEVER GOT DEDUCTION UNDER SECTION 36(1)(III) OR SECTION 3 7. IN THE CIRCUMSTANCES, SECTION 41(1) OF THE ACT WAS NOT APP LICABLE. SECONDLY, EVEN ASSUMING THAT THE ASSESSEE HAD GOT D EDUCTION ON ALLOWANCE SECTION 41(1) WAS NOT APPLICABLE BECAU SE SUCH DEDUCTION WAS NOT IN RESPECT OF LOSS, EXPENDITURE O R TRADING LIABILITY. LASTLY THE TOOLINGS CONSTITUTED CAPITAL ASSETS AND NOT STOCK-IN-TRADE. THEREFORE, TAKING INTO ACCOUNT ALL THE ABOVE FACTS, SECTION 41(1) OF THE ACT WAS NOT APPLICABLE. ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 4 FURTHER, HE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHETAN CHEMICALS PVT. LIMITED (2004) 267 ITR 770 AS PER HEAD NOTES, IT HELD AS FOLLOWS: HELD, THAT IT WAS AN ADMITTED POSITION THAT THERE H AD BEEN NO ALLOWANCE OR DEDUCTION IN ANY OF THE PRECEDING YEAR S AND, HENCE, THERE WAS NO QUESTION OF APPLYING THE PROVIS ION AS SUCH. SECTION 28 OF THE ACT DEALS WITH PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CLAUSE (IV) THEREOF SAYS THAT THE VA LUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MON EY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSI ON SHALL BE CHARGEABLE AS INCOME UNDER THE HEAD PROFITS AND GA INS OR BUSINESS OR PROFESSION. IN THE FACTS OF THE PRESE NT CASE, IT COULD NOT BE SAID THAT THE ASSESSEE COMPANY WAS CAR RYING ON BUSINESS OF OBTAINING LOANS AND THAT THE REMISSION OF SUCH LOANS BY THE CREDITORS OF THE COMPANY WAS A BENEFIT ARISING FROM SUCH BUSINESS. THE TRIBUNAL WAS RIGHT IN HOLD ING THAT THE AMOUNT OF RS.1,77,052/- ARISING AS A RESULT OF REMI SSION OF UNSECURED LOANS WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDERS OF THE CIT (A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, THE ASSESSEE HAS NOT FURNISHED THE NAMES AND ADDRESSES OF THE CREDIT ORS OR ANY OTHER DETAILS AND WHETHER THE FUNDS ARE BORROWED FOR THE PURPOSE OF ACQUIRING TRADING ASSETS OR FIXED ASSETS. IF THE MONEY HAS B EEN RECEIVED IN THE COURSE OF CARRYING ON ITS BUSINESS AND TREATED AS L OAN ADVANCES OR IN THAT EVENT, IT WAS WRITTEN OFF AND IT IS TO BE CONS IDERED AS TRADING RECEIPTS BY INVOKING THE PROVISIONS OF SECTION 41(1 ) OF THE ACT. ON THE ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 5 OTHER HAND, IT IS ON ACCOUNT OF PURCHASE CONSIDERAT ION RELATING TO CAPITAL GOODS AND IT CANNOT BE CONSIDERED AS TRADING RECEIP TS AND THE AMOUNT RECEIVED AS LOAN BY THE ASSESSEE FOR THE PURPOSE OF TRADING ACTIVITY AND IT IS ULTIMATELY RETAINED IN THE BUSINESS BY WRITIN G OFF IS TAXABLE IN VIEW OF SECTION 41(1) OR SECTION 28(IV) OF THE ACT. IN T HE INSTANT CASE, THE ASSESSEE HAD NOT BROUGHT ANY MATERIAL OR EVIDENCES ON RECORD TO SHOW THAT THE LOAN WAS TAKEN BY IT FROM THE PARTIES ON W HAT ACCOUNT. THE FACT WHETHER THE LOAN AMOUNT HAD BEEN UTILIZED EITHER FO R THE PURPOSE OF ACQUIRING OF CAPITAL ASSET OR FOR THE PURPOSE OF BU SINESS ACTIVITY OR TRADING ACTIVITY, HAD NEITHER BEEN LOOKED INTO NOR EXAMINED BY THE AUTHORITIES BELOW NOR HAD THE ASSESSEE ESTABLISHED THAT THE LOAN AMOUNT WAS UTILIZED FOR THE PURPOSE OF ACQUIRING CAPITAL A SSET. IN THE AFORESAID CIRCUMSTANCES, THE ISSUE WAS TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION WITH A DIRECTION TO THE ASSESSEE TO FURNISH ALL THE DETAILS AND PARTICULARS OF LOAN AND THE PUR POSE FOR WHICH THE LOAN WAS TAKEN FROM THE PARTIES WAS UTILIZED. ALL THESE INFORMATIONS WERE WITHIN THE CONTROL AND SPECIFIC KNOWLEDGE OF THE AS SESSEE AND, THEREFORE, IT WOULD BE THE DUTY OF THE ASSESSEE TO PROVE AND E STABLISH THAT THE AMOUNT OF LOAN TAKEN FROM VARIOUS PARTIES WAS UTILI ZED FOR THE PURPOSE OF EARNING CAPITAL ASSET. IF ON ENQUIRY AND ON VER IFICATION, IT TRANSPIRED THAT THE ASSESSEE HAD UTILIZED THE LOAN FOR THE PUR POSE OF BUSINESS ACTIVITY OR TRADING ACTIVITY, THE AMOUNT OF LOAN TO THE EXTENT IT HAD BEEN WAIVED BY THE PARTIES WOULD BE DEEMED TO BE THE ASS ESSEES INCOME CHARGEABLE TO TAX. THE ASSESSING OFFICER WOULD PRO VIDE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, BUT IT MENTIONED HEREIN THAT, IN CASE, THE ASSESSEE FAILED TO PRODUCE OR FU RNISH DETAILS ABOUT THE PURPOSE FOR WHICH THE LOAN AMOUNT WAS UTILIZED, TH E ASSESSING OFFICER WOULD DRAW ADVERSE INFERENCE AGAINST THE ASSESSEE A ND HENCE DECIDE ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 6 THE ISSUE IN THE LIGHT OF THE FACT THAT THE LOAN AM OUNT WAS OBTAINED FOR THE PURPOSE OF TRADING ACTIVITY. 8. THE NEXT GROUND IS WITH REGARD TO THE ADDITION O F RS.25,86,776/- UNDER SECTION 40(1)(IA) OF THE ACT. 9. BRIEFLY STATED FACTS OF THIS ISSUE ARE THAT DUR ING THE PROCEEDINGS BEFORE THE ASSESSING OFFICER, IT WAS EXPLAINED THAT THE ASSESSEE HAS AVAILED ONE TIME SETTLEMENT FROM APSFC AND AN ANALY SIS OF THE ACCOUNTS COPY WAS FURNISHED BEFORE THE ASSESSING OFFICER. A CCORDING TO THE ANALYSIS, THERE IS AN INTEREST WAIVER OF RS.25,86,7 76/- WHICH CONSISTS OF THREE ENTRIES OF RS.7,51,090/- ON 28-12-2006 AND RS .4,30,575/- ON 28- 12-2006 AND RS.14,05,111/- ON 28-12-2006. THOUGH T HE ASSESSEE HAS CLAIMED THAT THE INTEREST HAS NOT BEEN CLAIMED AS E XPENDITURE IN INCOME HAS BEEN FILED BELATEDLY FOR THE ASSESSING Y EARS 2003-04, 2004- 05 AND 2005-06 AND ARE NOT VALID RETURNS AS PER LAW AND THEREFORE THE SAME WAS BROUGHT TO THE TAX UNDER SECTION 40(1)(IA) OF THE ACT THE AO. 10. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). ON APPEAL, THE CIT (A) HELD THAT NO EVIDENCE HAS BEEN SHOWN TO SUBSTANTIATE THE CLAIM O F THE ASSESSEE THAT THE AMOUNTS IN QUESTION HAD NOT BEEN CLAIMED AS EXP ENDITURE AND ACCORDINGLY HE CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER ON THIS ISSUE. 11. THE LEARNED AUTHORIZED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 40(1)(IA) ARE NOT AP PLICABLE IF THE RETURNS OF THE ASSESSEE OF EARLIER YEARS WERE CONSIDERED AS NON EST, THEN IT ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 7 CANNOT BE CONSIDERED THAT THE ASSESSEE HAS CLAIMED INTEREST LIABILITY IN EARLIER YEARS AND IF THE INTEREST LIABILITY IS NOT CLAIMED IN THE EARLIER YEARS, THE WAIVER OF SUCH INTEREST CANNOT BE CONSI DERED AS INCOME OF THE ASSESSEE. FOR THIS PURPOSE, HE RELIED ON THE O RDER OF THE TRIBUNAL IN THE CASE OF RAYALA CORPORATION (P) LTD. VS. ACIT, I TAT, CHENNAI B BENCH (127 TTJ (CHENNAI) 369 WHEREIN HELD THAT:- BUSINESS INCOME- PROFITS CHARGEABLE TO TAX UNDER S. 41(1)- WAIVER OF INTEREST BY BANK- RETURNS FOR ASSESSMENT YEARS 1994- 95 TO 1998-99 WHEREIN THE ASSESSEE HAD CLAIMED DED UCTION OF INTEREST WERE FOUND DEFECTIVE BY THE AO AND WERE DE CLARED TO BE NON EST AS THE ASSESSEE HAD FAILED TO RECTIFY THE D EFECT IN SPITE OF NOTICES UNDER S. 139(8) HAVING BEEN ISSUED- AUTHORI TIES BELOW CONCLUDED THAT THE RETURNS HAVING BECOME INVALID, I T WOULD MEAN THAT THE CLAIM OF INTEREST HAS BEEN ALLOWED- NOT JU STIFIED- NONE OF THE PRESCRIBED MODES OF ASSESSMENT CONTEMPLATES ANY TYPE OF INFERENCE TO BE ATTACHED TO AN INVALID RETURN. THU S, THE INFERENCE DRAWN BY THE AUTHORITIES BELOW IS DEVOID OF COGENCY - A RETURN TREATED AS NON EST AND INVALID CAN BY NO STRETCH OF IMAGINATION BE TREATED AS ALLOWANCE OR DEDUCTION AS PER IT ACT AND RECORDS- THEREFORE, INTEREST WAIVED BY THE BANK CANNOT BE CH ARGED TO TAX UNDER S. 41(1). 12. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, IT IS ON RECORD THAT IN EARLIER YEARS, RETURNS WERE NON EST RETURNS AND THE INTEREST CLAIMED CANNOT BE CONSIDERED AS ALLOWED TO THE ASSE SSEE IN THE EARLIER ITA 1225/HYD/2010- M/S NJP SURYACOLD STORAGE PVT. LTD., HY D. L.L ========================== 8 YEARS. THIS BEING SO, INTEREST WAIVED IN THE PRESE NT ASSESSMENT YEAR CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. RE LIANCE PLACED BY THE ASSESSEE IN THE CASE OF RAYALA CORPORATION (P) LIMI TED VS. ACIT CITED SUPRA SUPPORTS OUR VIEW ON THIS ISSUE. IN VIEW OF THE ABOVE, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 8.12.2011 . SD/ - (CHANDRA POOJARI) SD/ - (H.S. SIDHU) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/- 8.12.2011. COPY FORWARDED TO: 1. M/S NJP SURYA COLD STORAGE PVT. LTD., RAGANNAGAR (GP), HAYATHNAGAR MANDAL, R.R. DISTRICT, HYDERABAD. 2. 3. DCIT,CIR - 16(1), HYDERABAD. CIT(A)-V, HYDERABAD. 4.. CIT, AP, HYDERABAD. 5. THE D.R., ITAT, HYDERABAD. JMR*