M/s. R.G. Scientific Enterprises Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1246/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7357 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUJA JAIN
• Section: 115JB; 28; 15

Judgement Text

1 ITA NO. 1246/DEL/13 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI INTURI RAMA RAO, ACCO UNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 1246/DEL/2013 (ASSESSMENT YEA R-2009-10) R.G. SCIENTIFIC ENTERPRISES PVT. LTD. F-12, EAST OF KAILASH NEW DELHI AAACR1316F (APPELLANT) VS DCIT CIRCLE-15(1) C.R. BUILDING NEW DELHI. (RESPONDENT) APPELLANT BY SH. VED JAIN, C.A RESPONDENT BY SMT. ANUJA JAIN, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 5/12/2012 PASSED BY LD. CIT(A) XVII, NEW DELHI. 2. DURING THE COURSE OF HEARING, CONCISE GROUNDS OF APPEAL ARE FILED BY THE AR WHICH ARE REPRODUCED HEREIN BELOW: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX [(CIT)] IS BAD, BOTH IN THE EYE OF LAW AND ON THE FACTS AND AGAINST THE PRINCIPLE OF NATUR AL JUSTICE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ADDITIO N OF DATE OF HEARING 26.10.2015 DATE OF PRONOUNCEMENT 15.01.2016 2 ITA NO. 1246/DEL/13 RS.3,41,25,895/- MADE BY THE LD. A.O REPRESENTING A MOUNT TRANSFERRED BY THE APPELLANT COMPANY IN ITS AUDITED ACCOUNTS FOR F.Y 2008-09 FROM CAPITAL RESERVE ACCOUNT TO PROFIT & LO SS ACCOUNT UNDER THE HEAD PRIOR PERIOD ADJUSTMENT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ADDITIO N OF RS.3,41,25,895/- MADE BY THE LD. A.O TO THE BOOK PR OFIT OF THE APPELLANT COMPANY U/S 115JB OF THE INCOME TAX ACT R EPRESENTING PRINCIPAL AMOUNT OF LOAN FOR PURCHASE OF PLANT AND MACHINERY WAIVED BY THE BANK TRANSFERRED DURING F.Y 2008-09 F ROM CAPITAL RESERVE ACCOUNT TO PROFIT & LOSS ACCOUNT. 3 . THE ASSESSEE COMPANY IS ENGAGED IN THE RUNNING OF NURSING HOME CUM LITHOTRIPSY AND LAPROSCOPIC CENTERS. THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 30/9/200 9 DECLARING A LOSS OF RS.5,85,83,476/- AND SUBSEQUENTLY FILED REVISED RET URNS ON 8/1/2010 DECLARING A LOSS OF RS.5,74,79,318/-. THE ASSESSEE COMPANY RECORDED PRIOR PERIOD ADJUSTMENT OF RS.3,41,25,895/-. THE ASSESSIN G OFFICER RELIED UPON THE PROVISIONS OF SECTION 41(1) OF THE ACT STATING THAT THE REMISSION OF THE SAID LIABILITY SHALL BE DEEMED TO THE PROFIT OF THE ASSE SSEE. THE ASSESSING OFFICER HELD THAT THE SAID AMOUNT DOES NOT QUALIFY TO BE RE DUCED FROM THE BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115JB OF THE INCOM E TAX ACT AS THE ASSESSEE HIMSELF SHOWN THE AMOUNT CREDITED TO THE P&L A/C AS PROFIT BEFORE TAX AND ADDED RS. 3,41,25,895/- TO THE INCOME OF THE ASSESS EE. THE ASSESSING OFFICER FURTHER HELD AS UNDER: 3.4.2 IT IS SEEN THAT THE ASSESSEE HAS CREDITED T HE ABOVE INCOME AS PRIOR PERIOD INCOME AND HAS NOT OFFERED THE SAME U/ S 115JB OF THE I.T. ACT, 1961 AS WELL. THE CLAUSE (I) ONLY ALLOWS FOR THE A BOVE AMOUNT TO BE REDUCED FROM BOOK PROFIT IF THE SAID AMOUNT HAS BEE N OFFERED FOR TAX IN THE EARLIER YEAR. THE ASSESSEE HAS NOT EXPLAINED AS TO WHETHER THE ABOVE WAS OFFERED TO TAX IN THE EARLIER YEAR. THEREFORE, THE ABOVE AMOUNT CANNOT BE REDUCED FROM THE P & L ACCOUNT, AS DETERMINED U/S 1 15 JB (2) OF THE I.T. ACT, 1961. IN VIEW OF THE SAME, THE AMOUNT IS ADDE D BACK TO THE INCOME OF THE ASSESSEE AS THE ASSESSEE HAS FAILED TO PROVE TH AT ABOVE AMOUNT HAS 3 ITA NO. 1246/DEL/13 BEEN OFFERED TO TAX IN THE EARLIER YEARS WHEN THE S AME WAS ACCRUED TO THE ASSESSEE U/S 115J OR 115JB OF THE I. T. ACT, 1961. THE ASSESSEE IN HIS OWN SUBMISSION HAS MENTIONED THAT THE PRINCIPLE LOA N AMOUNT OF RS.3,41,25,895/-, BEING THE WAIVER AMOUNT HAS BEEN TRANSFERRED TO CAPITAL RESERVE IN THE YEAR 1998. THEREFORE, THIS AMOUNT HAS BEEN DIRECTLY TAKEN TO RESERVES AND HAS NEVER BEEN AN IT EM OF THE P & L ACCOUNT FOR THE EARLIER YEARS UNDER CONSIDERATION. THEREFO RE, IT IS VERY CLEAR THAT THE SAME HAS NEVER BEEN OFFERED FOR TAX. IN VIEW O F THE SAME, AS PER CLAUSE (I) FOR THE SUMS TO BE REDUCED FROM BOOK PRO FIT, THE ABOVE AMOUNT DOES NOT QUALIFY AT ALL. THEREFORE, THE DEDUCTION OF THE SAME FROM BOOK PROFIT CANNOT BE ALLOWED. 4. THE LD. CIT(A) UPHELD THE ADDITION MADE BY THE A SSESSING OFFICER HOLDING THAT LIABILITY ACTUALLY CEASED TO EXIST IN THE RELEVANT YEAR BY THE UNILATERAL ACT OF THE ASSESSEE. THE CIT(A) FURTHER HELD THAT THE INCOME HAS BEEN RECOGNIZED DURING THE CURRENT YEAR AS PRIOR PERIOD INCOME AND HAS BEEN SHOWN AS PROFIT BEFORE TAX BY THE ASSESSEE. THE CIT(A) H ELD THAT THERE IS NO CLAUSE UNDER THE ACT UNDER WHICH THE SAID INCOME REFLECTED IN THE PROFIT & LOSS ACCOUNT CAN BE CLAIMED AS EXEMPT. THUS THE ADDITIO N MADE BY THE ASSESSING OFFICER WAS UPHELD BY THE CIT(A). 5. THE AR SUBMITTED THAT THE ASSESSEE COMPANY IS RA VI HOSPITALS AND NURSING HOMES. DURING THE YEAR 1987-88, THE ASSESS EE ACQUIRED LITHOTRIPSY MACHINE THROUGH LOANS OBTAINED FROM M/S BARCLAYS BA NK. THERE WAS A STEEP INCREASE IN THE CURRENCY RATES AND, THEREFORE, THE PAYMENTS WERE MADE BY THE BANK OF INDIA UNDER DPJ. SINCE, THE PAYMENTS MADE BY THE BANK OF INDIA UNDER DPJ COULD NOT BE MADE. THE BANK OF INDIA FIL ED A SUIT FOR RECOVERY. THE AR FURTHER SUBMITTED THAT DURING THE FINANCIAL YEAR 1997-98 A SUM OF RS.3,41,25,895/- WAS WAIVED BY THE BANK PURSUANT TO THE COMPROMISE AND THE SAME WAS TRANSFERRED TO CAPITAL RESERVE ACCOUNT. T HE FINANCIAL STATEMENTS FOR 4 ITA NO. 1246/DEL/13 THE YEAR ENDED 31/3/1998 WAS ENCLOSED AT PAGE 70 TO 94 OF THE PAPER BOOK. THE LEDGER ACCOUNT OF THE LOANS WITH BANK OF INDIA IS ALSO ENCLOSED AT PAGES 95 TO 97 OF THE PAPER BOOK. NOTES TO BALANCE-SHEET FO R THE YEAR ENDED ON 31/3/1998 (PAGE 92 OF THE PAPER BOOK) AND FOR THE Y EAR ENDED ON 31/3/1997 PAGE 102, 103 OF THE PAPER BOOK ALSO MAKES IT ABSOL UTELY CLEAR. THE ASSESSEE, THEREFORE, SUBMITTED THAT THE SAID REMISSION OF PRI NCIPAL AMOUNT HAS BEEN SHOWN AS CAPITAL RESERVE SINCE THE YEAR 1997-98 TO 2007-08 I.E. FOR ALMOST 11 YEARS. THE ASSESSING OFFICER AS WELL AS THE LD. CI T(A) FAILED TO APPRECIATE THAT THE REMISSION OF LIABILITY TOOK PLACE IN FINANCIAL YEAR 1997-98 AND NOT IN F.Y 2008-09 AND HENCE THERE WAS NO JUSTIFICATION FOR MA KING THIS ADDITION IN THIS YEAR. MERE TRANSFER FROM ONE ACCOUNT TO ANOTHER AC COUNT WILL NOT MAKE THESE AMOUNTS CHARGEABLE TO TAX. DURING THE YEAR UNDER CO NSIDERATION THE ASSESSING OFFICER AND LD. CIT(A) BOTH HAVE FAILED TO POINT OU T THE EVENT WHICH MAKES THESE AMOUNTS CHARGEABLE TO TAX IN THE YEAR UNDER C ONSIDERATION. OBSERVATION OF THE LD. CIT(A) THAT LIABILITY CEASED TO EXIST IN THE RELEVANT YEAR IS FACTUALLY INCORRECT AS THE BANK HAVING WAIVED THE LIABILITY F OR THE YEAR 1997-98 AND THE ASSESSEE HAVING WRITTEN OFF THE AMOUNT IN BOOKS OF ACCOUNTS AS IS EVIDENT FROM THE LEDGER ACCOUNT AND CREDITED THE AMOUNT TO CAPIT AL RESERVE THE LIABILITY CEASED TO EXIST IN F. Y. 1997-98. THE OBSERVATIONS OF LD. CIT(A) THAT THIS INCOME CANNOT BE CLAIMED EXEMPT UNDER ANY CLAUSE IS ALSO WRONG. THERE IS NO INCOME DURING THE YEAR UNDER CONSIDERATION. THE IS SUE IS NOT OF CLAIMING EXEMPTION OF INCOME, THE ISSUE IS THAT THERE IS NO INCOME DURING THE YEAR UNDER CONSIDERATION. ON THE CONTRARY, LAW HOLDS TH AT TRANSFER FROM CAPITAL RESERVE TO PROFIT AND LOSS ACCOUNT WILL BE CONSIDER ED AS INCOME. EVEN OTHERWISE, THIS ADDITION IS NOT SUSTAINABLE. EVIDE NTLY, IN THE PRESENT CASE, THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESPECT O F IN LAWS OR EXPENDITURE FOR THESE LAWS IT IS A SETTLED LAW THAT WHERE THERE IS A WAIVER OF PRINCIPLE OF LAWS WHICH WAS A WELL FOR THE PURPOSE OF PLANT AND MACHI NERY THEN SUCH AMOUNT OF WAIVER CANNOT BE TAXABLE AS INCOME AS PER THE PROVI SIONS OF SECTION 41(1) OF THE ACT. A SIMILAR ISSUE HAS COME UP IN THE CASE OF CI T VS. TUSHAR INTERNATIONAL LTD 116 TTJ 941 WHERE THE DELHI HIGH COURT HAS HELD THAT WAIVER OF THE 5 ITA NO. 1246/DEL/13 PRINCIPAL AMOUNT OF THE LOAN WHICH THE ASSESSEE HAD DEDUCTED TO THE CAPITAL ACCOUNT IS NOT CHARGEABLE TO TAX IN THE HANDS OF TH E ASSESSEE U/S 41(1) NOR U/S 28 (IV) NOR U/S 2(XXIV) OF THE ACT. SPECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THE SAID JUDGMENT OF THE DELHI HIGH COURT W AS DISMISSED BY THE SUPREME COURT. VIDE ORDER DATED 24 TH JULY 2009. RELIANCE IS ALSO PLACED ON THE FOLLOWING JUDGMENTS:- MUMBAI HIGH COURT IN THE CASE OF MAHINDRA AND MAHIN DRA LTD. 261 ITR 501 (BOM) COCHIN ITAT IN THE CASE OF ACCELERATED FREEZE & DRY ING CO. LTD. VS. DCIT 31 SOT 442 DELHI ITAT IN THE CASE OF CIT VS. ROLLATAINERS LTD. IN ITA NO. 3800/DEL/2009 MUMBAI ITAT IN THE CASE OF CIPLA INVESTMENTS LTD. V S. ITO IN ITA NO. 1996/MUM/2008 33 SOT 317 6. THE DR RELIED UPON THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ORDERS PASSED BY THE AUTHORITIES ARE JUST AND PROPER. 7. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH T HE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE HAD ALREADY CLAIM DEPREC IATION ALLOWANCES OVER THE PERIOD AND HAS CLAIMED INTEREST EXPENSES EITHER IN A CAPITALIZED FORM OR IN REVENUE FORM ON THE ASSET AGAINST THE LIABILITY EXI STENT. THE SAID LIABILITY NO LONGER REMAINS DURING THE YEAR UNDER CONSIDERATION. IN FACT THE EXPENSES WAS ALSO CLAIMED DURING THE PAST YEARS. THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE SAME SHOULD HAVE BEEN TREATED PRIOR PERIOD ADJUSTMENTS OF RS.3,41,25,895/- AND THE SAME HAS BEEN TREATED AS 6 ITA NO. 1246/DEL/13 REVENUE RECEIPT FOR THE TAX PURPOSES. IN LIGHT OF THIS, THE MATTER IS REMITTED BACK ON THE SHORT ISSUE TO THE ASSESSING OFFICER. 8. IN RESULT, THE APPEAL IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH OF JANUARY, 2016. SD/- SD/- (INTURI RAMA RAO) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/01/2016 R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 27.10.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 27.10.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .10..2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE PS/PS 7 ITA NO. 1246/DEL/13 SR.PS/PS 15.01 .201 6 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 15.01 .201 6 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.