SWAROOP MANNAVA, IRS, Joint Commissioner of Income Tax (OSD), Circle -5(1), Hyderabad V. Navabharath Enterprises Limited, Hyderabad

ITA 1265/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4398 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2005-2006
• Appeal Filed On: 13-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAMESH CHAND JAIN
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 1265/HYD/2019 ASSESSMENT YEAR: 2005-06 JT.COMMISSIONER OF INCOME TAX (OSD), CIRCLE-5(1), HYDERABAD VS M/S.NAVABHARATH ENTERPRISES LIMITED, HYDERABAD [PAN: AAACN6936D] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI ROHIT MUJUMDAR, DR FOR ASSESSEE : SHRI RAMESH CHAND JAIN, AR DATE OF HEARING : 07-04-2021 DATE OF PRONOUNCEMENT : 21-05-2021 O R D E R PER S.S.GODARA, J.M. : THIS REVENUES APPEAL FOR AY.2005-06 ARISES FROM THE CIT(A)-4, HYDERABADS ORDER DATED 28-05-2019 PASSED IN APPEAL NO.10380 / DCIT, CIR.16(1) / 18-19 / CIT(A)- 4 / HYD / 19-20 IN PROCEEDINGS U/S.143(3) R.W.S.147OF THE INCO ME TAX ACT, 1961 [IN SHORT, THE ACT]. HEARD BOTH PARTIES. CASE FILE PERUSED. 2. WE NOTICE AT THE OUTSET THAT THE REVENUES INSTANT APPEAL SUFFERS FROM 01 DAYS DELAY STATED TO BE ATTRIBUTABLE TO TH E REASON(S) BEYOND THE CONTROL AS PER CONDONATION ITA NO. 1265/HYD/2019 :- 2 -: PETITION/AFFIDAVIT DT.18-02-2021. THE IMPUGNED DELAY I S CONDONED THEREFORE. 3. THE REVENUE HAS PROPOSED THE FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL: 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS. 1,75,91,121/- TOWARDS REMISSION OF LIABILITY U/S.41(1) OF THE ACT NEITHER PROVIDING OPPORTUNITY FOR AO FOR VERIFICATION OF FACTS OF CAS E U/S.250(2)(B) OF THE ACT NOR FORWARDING THE ADDITIONAL INFORMATION TO AO FOR VERIFICATION WHICH ARE CONTRARY TO THE PROVISIONS OF RULE 46A OF IT RULES? 2. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS. 1,75,91,121 TOWARDS REMISSION OF LIABILITY U/S.41(1) OF THE ACT MERELY ON THE GROUNDS THAT THE INTEREST WAS NOT CLAIMED AS DEDUCT ION IN EARLIER YEARS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS RIGHT IN HOLDING THAT THE AMOUNT REPR ESENTING THE PRINCIPAL LOAN AMOUNT WAIVED BY THE BANK UNDER THE ONE TIME SETTLEMENT SCHEME WHICH THE ASSESSEE RECEIVED DURIN G THE COURSE OF ITS BUSINESS IS NOT EXIGIBLE TO TAX? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE SEEN THAT THE WAIVER OF PRI NCIPAL AMOUNT WOULD CONSTITUTE INCOME FALLING U/S.28(IV) OF THE I T ACT BEING THE BENEFIT ARISING FOR THE BUSINESS? 4. BOTH THE PARTIES NEXT TOOK US TO THE CIT(A)S DETAILED DISCUSSION DELETING THE IMPUGNED SECTION 41(1) ADDITIO N TOWARDS REMISSION OF LIABILITY AS FOLLOWS: 5. GROUND NO.1 IS WITH REGARD TO ADDITION OF RS.1, 75,91,121/- TOWARDS REMISSION OF LIABILITY U/S 41(1) OF THE ACT . WHILE DOING THIS, THE AO HAS OBSERVED AS UNDER: DURING THE PREVIOUS YEAR, THE ASSESSEE BENEFITED BY WAIVER OF INTEREST FOR AN AMOUNT OF RS.1,75,91,121/- AS PART OF ONE TI ME SETTLEMENT WITH FINANCIAL INSTITUTIONS. WHEN THE ASSESSEE WAS ASKED WHY THE AMOUNT WAS NOT OFFERED TO TAX U/S 41(1) OF THE ACT, THE AS SESSEE REPLIED THAT THE INTEREST WAS NOT CLAIMED AS DEDUCTION IN THE EA RLIER YEARS. IN THIS REGARD, IT MUST BE HELD THAT THE ASSESSEE IS UNDER OBLIGATION TO SHOW THAT THE AMOUNT HAS NOT BEEN CLAIMED AS DEDUCTION. SINCE THE ITA NO. 1265/HYD/2019 :- 3 -: ASSESSEE FAILED TO DO SO, THE INTEREST OF RS.1,75,9 1,121/ - IS BROUGHT TO TAX. 5.1 WITH REGARD TO THE ABOVE ISSUE, THE APPELLANT S UBMITTED AS UNDER: THE AO WITHOUT VERIFYING THE INFORMATION FURNISHED BY US BEFORE HIM PASSED ASSESSMENT ORDER BY DISALLOWED THE GAIN ON O NE TIME SETTLEMENT OF LOAN WITH UNION BANK OF INDIA AND VIJ AYA BANK AS REMISSION OF INTEREST AND BROUGHT TO TAX U/S. 41(1) OF THE ACT. IF WE GO INTO THE FINANCIAL STATEMENTS OF PREVIOUS YEARS, WE CAN FIND THAT THE ASSESSEE HAS NOT PROVIDED INTEREST ON LOAN S IN THE PREVIOUS YEARS AND CLAIMED AS EXPENDITURE. THE SAME HAS BEEN EXPLAINED TO THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEED INGS VIDE LETTER DATED 23.12.2010. THE GAIN RAISED IS OF A CAPITAL L IABILITY TO THE ASSESSEE. HENCE THE WAIVER OF CAPITAL LIABILITY WOU LD NOT BE INCOME U/S.41(1) ON THE GROUND OF REMISSION OR CESSATION T HEREOF. WE ARE HEREWITH FURNISHING THE ANNUAL REPORTS OF TH E ASSESSEE SINCE THE FINANCIAL YEAR 1998-99 TO 2004-2005 FOR YOUR VE RIFICATION. WE APPEAL YOUR GOOD SELVES TO HAVE A LOOK INTO 'SCH EDULE ANNEXED TO AND FORMING PART OF BALANCE SHEET - SCHEDULE C-SECU RED LOANS' WHERE YOU CAN OBSERVE THAT, THERE IS NO DIFFERENCE BETWEE N OPENING & CLOSING BALANCE OF LOANS. IT CLEARLY INDICATES THAT THE ASSESSEE HAS NOT PROVIDED ANY INTEREST ON SETTLED LOANS AND CLAI MED AS EXPENDITURE IN THE PREVIOUS YEARS. WE ALSO APPEAL YOUR HON'BLE SELVES TO HAVE A LOOK I NTO PROFIT & LOSS ACCOUNT 'INTEREST COLUMN' WHICH IS SHOWING 'NIL'. I T IS CLEAR CUT EVIDENCE THAT THE ASSESSEE HAS NOT PROVIDED INTERES T IN THE PREVIOUS YEARS. WHEN THE COMPANY HAS NOT CLAIMED THE INTERES T EXPENDITURE IN THE PREVIOUS YEARS IT CANNOT BE TREATED AS TRADING LIABILITY. HENCE SECTION 41 (1) OF INCOME TAX ACT 1961 CANNOT BE APP LICABLE. WE WOULD LIKE TO QUOTE CIRCULAR 636 AND SOME OF THE TRIBUNAL DECISIONS FOR YOUR REFERENCE: A.THE CIRCULAR NO. 636 DATED 31.08.1992 IS HEREWITH ENCLOSED FOR YOUR REFERENCE. B.DEFINITION OF TRADING LIABILITY. C.COASTAL CORPORATION LIMITED VS JCIT (ITA NO. 407/ VIZAG/2006) D.ACCELERATED FREEZE AND DRYING COMPANY LTD VS DCIT (ITA NO.971/COCH/2008). E.FORM NO: 3CEA. F.THEREFORE WE HUMBLY PRAY YOUR HON'BLE SELF TO ALL OW OUR APPEAL BY CONSIDERATION THE RS.1,75,91,121/ - AS CAPITAL LIAB ILITY. ITA NO. 1265/HYD/2019 :- 4 -: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, ASSESSMENT ORDER AND THE SUBMISSIONS OF THE AR IN THIS REGARD. IN THIS CASE, THE MAIN ISSUE IS WITH REGARD TO ADDITION OF RS.1,75,91 ,121/- TOWARDS REMISSION OF LIABILITY U/S 41(1) OF THE ACT. HOWEVE R, THE APPELLANT CONTENDED THAT THE INTEREST WAS NOT CLAIMED AS DEDU CTION IN THE EARLIER YEARS ALSO. IN THIS REGARD, THE AR FURNISHE D THE ANNUAL REPORTS OF THE APPELLANT FOR THE LAST 07 (SEVEN) YE ARS FOR VERIFICATION AND WAS VERIFIED AND FOUND CORRECT. SINCE THE INTER EST WAS NOT CLAIMED AS DEDUCTION BY THE APPELLANT THE AO'S ACTI ON OF ADDITION OF RS.1,75,91,121/- U/S 41(1) OF THE ACT IS NOT CORREC T AND HENCE, DIRECTED TO BE DELETED AND THE GROUND RAISED IN THI S REGARD IS ALLOWED. 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL SUBMISSIONS AGAINST AND IN SUPPORT OF CORRECTNESS OF TH E CIT(A)S CONCLUSION DELETING THE IMPUGNED SECTION 41( 1) REMISSION OF LIABILITY ADDITION. IT EMERGES THAT THE CI T(A)S SOLE REASON FOR DELETING THE SAME IS THAT THE ASSESSEES ANNU AL REPORTS OF THE PRECEDING SEVEN ASSESSMENT YEARS HAD M ADE IT CLEAR THAT THE IMPUGNED SUM OF RS.1,75,91,121/- HAD N EVER BEEN CLAIMED AS BUSINESS EXPENDITURE SO AS TO BE EXIGIBLE TO SECTION 41(1)S REMISSION (SUPRA). THERE IS NO REBU TTAL FROM THE REVENUES SIDE QUA THIS CLINCHING ASPECT. WE THUS UPHOLD THE CIT(A)S CONCLUSION DELETING THE IMPUGNED ADDITION. 6. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MAY, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 21-05-2021 TNMM ITA NO. 1265/HYD/2019 :- 5 -: COPY TO : 1.JT.COMMISSIONER OF INCOME TAX(OSD), CIRCLE-5(1), HYDERABAD. 2.M/S.NAVABHARATH ENTERPRISES LIMITED, ROAD NO.3, BANJARA HILLS, HYDERABAD. 3.CIT(APPEALS)-4, HYDERABAD. 4.PR.CIT-4, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.