Peass Industrial Enginners Ltd., Navsari V. The Dy.CIT.,Navsari Circle, Navsari

ITA 1241/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6861 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 31-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: M K PATEL
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.1241/AHD/2009 A. Y.: 2005-06 PEASS INDUSTRIAL ENGINEERS LTD., P. B. NO.128, MANEKLAL ROAD, NAVSARI 396 445, GUJARAT VS THE D. C. I. T., NAVSARI CIRCLE, RANGPURA, SWAPNLOK COMPLEX, KALIAWADI JUNATHANA, NAVSARI 396 445 , GUJARAT PA NO. AABCP 3786 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. K. PATEL, AR RESPONDENT BY SHRI R. K. DHANISTA, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I, SURAT DATED 13 TH MARCH, 200 FOR ASSESSMENT YEAR 2005-06, CHALLENGING THE ORDER OF THE LEARNED CIT(A) IN UPHOLDING THE ADDITION ON ACC OUNT OF NOTIONAL INTEREST OF RS.5 LACS ON LOAN OF RS. 20 LACS. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT IN THE A SSESSMENT ORDER, THE AO HAS STATED THAT AS PER SCHEDULE I OF THE A NNUAL REPORT, IT IS SEEN THAT THE ASSESSEE HAS ADVANCED RS.1.78 CRORES WHICH INCLUDED ADVANCE GIVEN TO M/S. HEMCO MINING & SMELTING LTD. OF RS.15 LACS AND M/S. MANISH ORGANICS LTD. OF RS. 5 LACS. AS PER THE NOTES ON ACCOUNT IN THE ANNUAL REPORT THE AUDITORS HAVE COMM UNICATED THAT NO PROVISION HAS BEEN MADE IN RESPECT OF INTEREST RECE IVABLE ON LOANS OF RS.20 LACS GIVEN TO THESE TWO COMPANIES CONSIDERED DOUBTFUL BY THE ITA NO.1241/AHD/2009 PEASS INDUSTRIAL ENGINEERS LTD. VS DCIT, NAVSARI CI RCLE 2 BOARD. THE ASSESSEE EXPLAINED TO THE AO THAT MANISH ORGANICS LTD. HAS GONE IN BIFR AND THE ASSESSEE COMPANY HAS FILED SUIT AGAINST M/S. HEMCO MINING & SMELTING CO. IN INITIAL PERIOD INTEREST WAS GIVEN BY PARTLY BUT NOW EVEN PRINCIPLE AMOUNT IS DOUBTFUL AND THE ASSESSEE COMPANY HAS STOPPED TO PROVIDING INTEREST. THE ASSE SSEE STATED THAT FOR ASSESSMENT YEARS 1996-97 AND 1997-98 SIMILAR AD DITION WAS DELETED BY THE LEARNED CIT(A). THE AO DID NOT ACCEP T THIS EXPLANATION AND STATED THAT ON ACCRUAL BASIS THE INTEREST SHOUL D HAVE BEEN OFFERED FOR TAXATION. HE ARGUED THAT THE ASSESSEE S TILL HAS RIGHT TO RECEIVE AND, THEREFORE, ADDED THE INTEREST ACCRUED. THE AO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF D. E. SASSOON & CO. LTD. 26 ITR 27 WHEREIN THE HONBLE SU PREME COURT STATED THAT ACCRUAL TAKE PLACE WITHOUT THE ACTUAL R ECEIPT OF THE SAME. THE HONBLE SUPREME COURT STATED THAT BASIC CONCEPT IS THAT HE MUST HAVE A CLAIM, A RIGHT TO RECEIVE THE INCOME. THE AO ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MORVI INDUSTRIES LTD. 82 ITR TO SAY THAT POSTPONE OF DATE OF PAYMENT DOES NOT AFFECT ACCRUAL OF THE INCOME. THE AO ALSO RELIED ON THE DE CISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF S. M. S . INVESTMENT CORPORATION PVT. LTD. 203 ITR 1001 WHEREIN THE HON BLE HIGH COURT STATED THAT THE ASSESSEE HAS ACQUIRED THE RIGHT TO RECEIVE THE INTEREST AND, THEREFORE, THE INCOME ACCRUED AND WAS ASSESSAB LE. THE AO ALSO RELIED ON THE DECISION OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF WESTERN INDIA OIL DISTRIBUTION CO. LTD. 20 6 ITR 359 WHEREIN THE HONBLE HIGH COURT STATED THAT WAIVER OF INTERE ST IN SUBSEQUENT YEAR DID NOT ALTER THE CHARACTER OF THE INCOME WHI CH HAD ALREADY ACCRUED TO THE ASSESSEE DURING THE ACCOUNTING YEAR UNDER ITA NO.1241/AHD/2009 PEASS INDUSTRIAL ENGINEERS LTD. VS DCIT, NAVSARI CI RCLE 3 CONSIDERATION. THE AO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SHIV PRAKASH JANAKRAJ & CO. PV T. LTD. 222 ITR 589 WHEREIN THE HONBLE SUPREME COURT STATED THAT W AIVER AFTER THE END OF THE ACCOUNTING YEAR WOULD NOT AFFECT THE ACC RUAL OF INCOME. IN VIEW OF THE ABOVE, THE AO COMPUTED THE INTEREST INC OME @ 20% PER ANNUM ON THE ADVANCE OF RS.20 LACS AMOUNTING TO RS. 5 LACS. 3. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE THAT THE PRINCIPL E IS DOUBTFUL, THEREFORE, NO NOTIONAL INTEREST WILL ACCRUE AND SIM ILAR ADDITIONS HAVE BEEN DELETED IN ASSESSMENT YEARS 1996-97, 1997-98 A ND 2002-03. THE LEARNED CIT(A) HOWEVER, DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET SUBMITTED THAT IN ASSESSMENT YEAR 2002-03, ITAT AHMEDABAD A BENCH IN THE CASE OF THE SAME ASSESSEE IN ITA NO. 297/AHD/2007 V IDE ORDER DATED 31-12-2009 DISMISSED THE DEPARTMENTAL APPEAL ON THE IDENTICAL GROUNDS. PARA 7 AND 8 OF THE ORDER OF THE TRIBUNAL READ AS UNDER: 7. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). REASO NS ARE THAT ACCRUAL OF INCOME TAKES PLACE WHEN PRINCIP LE IS INTACT AND IS IN A ZONE OF RECOVERY. WHERE PRINCIPL E IS NOT IN A ZONE OF RECOVERY, WHERE THE DEBTOR HAS BECOME BANKRUPT OR THERE ARE OTHER CONDITIONS PREVAILING W HICH MAKES RECOVERY VERY DIFFICULT THEN IT CANNOT BE SAI D THAT INTEREST INCOME WOULD ACCRUE. IN SUCH CIRCUMSTANCES ACCRUAL OF INTEREST TAKES PLACE ONLY WHEN SETTLEMEN T WITH ITA NO.1241/AHD/2009 PEASS INDUSTRIAL ENGINEERS LTD. VS DCIT, NAVSARI CI RCLE 4 THE PARTIES TAKES PLACE AND OTHER PARTY AGREES TO P AY PRINCIPLE PLUS FULL INTEREST OR PART OF INTEREST. 8. UNDER THE FACTS AND CIRCUMSTANCES, ACCRUED INTER EST INCOME WILL NOT BE REAL INCOME. THE CONCEPT OF ACCR UAL OF INCOME IS NOT UNFETTERED PRINCIPLE. IT IS SUBJECTED TO CONCEPT OF REAL INCOME. IT IS AN INCOME WHICH REALL Y ACCRUES OR ARISES TO THE ASSESSEE WHICH IS TAXABLE. WHETHER INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MAY BE JUDGED IN THE LIGHT OF REALITY OF T HE SITUATION. THERE IS NO REAL INCOME IN THE SENSE THA T INCOME MAY HAVE ACCRUED THEORETICALLY, BUT IN THE R EALITY NO INCOME HAS RESULTED BECAUSE PRINCIPLE HAS BECOME IRRECOVERABLE. FURTHER WHEN THE DEPARTMENT HAS IN T HE EARLIER YEARS ACCEPTED THAT NO INCOME REALLY ACCRUE D TO THE ASSESSEE, THEN IT CANNOT BE SAID THAT IN A SUBS EQUENT YEAR WHEN CIRCUMSTANCES HAVE NOT CHANGED INCOME HAS ACCRUED AND THEREFORE IS TAXABLE. EVEN IF WE APPLY THE CONCEPT OF CONSISTENCY OF APPROACH, THE INTEREST IN COME AS PROPOSED BY THE ASSESSING OFFICER CANNOT BE TAXE D. CIRCUMSTANCES HAVE NOT CHANGED AND THERE IS NO MATE RIAL ON RECORD TO SHOW THAT THIS YEAR THE PRINCIPLE HAD BECOME RECOVERABLE AND THEREFORE INTEREST INCOME SHOULD BE TAXED. AS A RESULT, WE UPHOLD THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E ADDITION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL IN ASSESSMENT YEAR 2002-03. THE LEARNED DR CONCEDED TH AT THE ISSUE IS COVERED BY THE ABOVE ORDER OF THE TRIBUNAL IN FA VOUR OF THE ASSESSEE. 6. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF T HE VIEW THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE A BOVE ORDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE IN ASSESS MENT YEAR 2002- ITA NO.1241/AHD/2009 PEASS INDUSTRIAL ENGINEERS LTD. VS DCIT, NAVSARI CI RCLE 5 03 (SUPRA). IT WAS PLEADED BEFORE THE LEARNED CIT( A) THAT THE LEARNED CIT(A) IN THE PRECEDING ASSESSMENT YEARS DELETED TH E SIMILAR ADDITION. THE AO ALSO NOTED THAT THOUGH THE ADDITIO N IS DELETED IN ASSESSMENT YEAR 2002-03 BUT THE DEPARTMENT HAS PREF ERRED APPEAL BEFORE THE TRIBUNAL IN THAT ASSESSMENT YEAR. IT WOU LD, THEREFORE, SHOW THAT THE ADDITION HAS BEEN REPEATED WHICH WAS MADE IN THE EARLIER YEARS ON THE SAME FACTS ON WHICH THE TRIBUNAL HAS C ONFIRMED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE SIMILAR ADDITION. ONCE ADDITION IS CONFIRMED TO BE DELETED BY THE TRIBUNAL , NO BASIS IS LEFT FOR MAKING SIMILAR ADDITION IN THE ASSESSMENT YEAR UNDE R APPEAL. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND DELETE THE ADDITION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01-04-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 01-04-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD