The ITO, Ward-2(1), Guntur, Guntur V. M/s New Sarika Cotton Traders, Guntur

ITA 132/VIZ/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2026 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: I SARISH KUMAR
• Assessee Lawyers: S RAMA RAO
• Section: 142(1)

Judgement Text

ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.132/VIZAG/2012 ( / ASSESSMENT YEAR: 2008-09) ITO , WARD - 2(1) , GUNTUR VS. NEW SARIKA COTTON TRADERS GUNTUR [PAN: AADFN 6099D ] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI I. SARISH KUMAR, DR / RESPONDENT BY : SHRI S. RAMA RAO, AR / DATE OF HEARING : 29.02.2016 / DATE OF PRONOUNCEMENT : 18.03.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), GUNTUR DATED 8.2.2012 AND IT PERTAINS TO TH E ASSESSMENT YEAR 2008-09. ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM, WHICH IS ENGAGED IN THE BUSINESS OF TRADING I N COTTON, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 8.9.2008 DECLARING TOTAL LOSS OF ` 5,11,538/-. THE CASE WAS SELECTED FOR SCRUTINY UN DER CASS AND ACCORDINGLY, NOTICES U/S 143(2) & 142(1) O F THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WERE IS SUED. IN RESPONSE TO NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSES SEE APPEARED AND FURNISHED THE INFORMATION CALLED FOR. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN SUNDRY DEBTORS OF ` 4,19,04,880/- IN THE NAME OF M/S. KUMAR KOTEX LTD . IT WAS FURTHER NOTICED THAT THE ASSESSEE HAS CHARGE D INTEREST ON THE OUTSTANDING DEBTOR BALANCE FOR THE FINANCIAL YEAR 2 006-07 RELEVANT TO ASSESSMENT YEAR 2007-08. HOWEVER, THE ASSESSEE HAS FAILED TO CHARGE ANY INTEREST FOR THE YEAR UNDER CONSIDERATION, THER EFORE, ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY INTEREST SHAL L NOT BE CHARGED FOR THE CURRENT FINANCIAL YEAR. IN RESPONSE TO SHOW CA USE NOTICE, THE ASSESSEE FILED ITS WRITTEN SUBMISSION AND STATED TH AT THE BALANCE SHOWN IN THE NAME OF M/S. KUMAR KOTEX LIMITED WAS ON ACCO UNT OF SUPPLY OF GOODS. THE DEBTOR OWED MONEY FOR THE PAST 6 YEARS AND HAS NOT PAID ANY AMOUNT DURING THE FINANCIAL YEAR UNDER CONSIDER ATION. WE DO NOT HAVE THE CUSTOM OF CALCULATING INTEREST FOR THE AMO UNTS DUE FROM THE ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 3 CUSTOMERS, HOWEVER FOR THE FINANCIAL YEAR 2006-07, WE CHARGED INTEREST ON THE OUTSTANDING BALANCE OF M/S. KUMAR KOTEX LTD. TO PUT PRESSURE ON THE PARTY TO PAY THE AMOUNT. HOWEVER, LATER WE REA LIZED THAT THE STEP TAKEN BY US PROVED TO BE FUTILE, WE, THEREFORE, STO PPED CHARGING INTEREST ON THE OUTSTANDING BALANCE. THE ASSESSEE FURTHER SU BMITTED THAT THE DEBTOR FINANCIAL POSITION WAS VERY WEAK AND IT IS N OT IN A POSITION TO PAY THE OUTSTANDING BALANCE. UNDER THESE CIRCUMSTANCES , CHARGING INTEREST ON THE OUTSTANDING AMOUNT IS NOT CORRECT. HOWEVER, THE ASSESSING OFFICER AFTER CONSIDERING THE EXPLANATIONS FURNISHE D BY THE ASSESSEE HELD THAT THE ASSESSEE HAS BEEN ACTIVELY IN THE TRADING ACTIVITY WITH M/S. KUMAR KOTEX LTD. BY SUPPLYING GOODS FOR THE LAST 6 YEARS. THOUGH THE ASSESSEE HAS NOT RECEIVED ANY AMOUNTS DUE FROM THE DEBTOR, THE ASSESSEE HAS NOT TAKEN ANY STEPS TO COLLECT THE AMO UNT DUE FROM THE DEBTOR. THE ASSESSING OFFICER FURTHER HELD THAT TH E ASSESSEE ITSELF HAS CHARGED INTEREST FOR THE PREVIOUS FINANCIAL YEAR, H OWEVER COULD NOT OFFERED ANY COGENT REASONS FOR NOT CHARGING THE INT EREST FOR THE YEAR UNDER CONSIDERATION. WITH THESE OBSERVATIONS, THE A SSESSING OFFICER CHARGED INTEREST @ 12% ON THE OUTSTANDING DEBTOR BA LANCE AND ADDED ` 50,28,585/- TO THE INCOME OF THE ASSESSEE. ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 4 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. THE ASSESSEE FURTHER SUBMITTED THAT THE DEBTOR COMPANYS FINANCI AL POSITION WAS VERY WEAK AND IT WENT TO BIFR FOR LIQUIDATION. THE BANKE RS HAVE TAKEN THE POSSESSION OF THE ASSETS OF THE COMPANY. THEREFORE , WE ARE NOT IN A POSITION TO RECOVER EVEN PRINCIPAL OUTSTANDING FROM THE DEBTOR AND HENCE, CHARGING INTEREST ON THE SAME DOES NOT SERVE ANY PURPOSE. THE ASSESSEE FURTHER SUBMITTED THAT THOUGH WE ARE FOLLO WING THE MERCANTILE SYSTEM OF ACCOUNTING, CHARGING INTEREST ON THE OUTS TANDING DEBTORS UNDER ACCRUAL CONCEPT IS SIMPLY CREATING AN ADDITIO NAL INCOME WITHOUT ANY POSSIBILITY OF RECOVERY. THE ASSESSEE FURTHER SUBMITTED THAT WE DO NOT HAVE ANY PRACTICE OF CHARGING INTEREST ON THE O UTSTANDING DEBTOR BALANCES, AS A MATTER OF FACT FOR THE FINANCIAL YEA R 2006-07, WE CHARGED INTEREST ON THE OUTSTANDING BALANCE TO CREATE PRESS ER ON THE DEBTOR FOR MAKING THE PAYMENT. HOWEVER, OUR EFFORT PROVED TO BE FUTILE, THEREFORE, WE STOPPED CHARGING INTEREST FROM THE CURRENT FINAN CIAL YEAR ONWARDS. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER. THE CI T(A) HELD THAT IT IS A FACT BORNE OUT OF RECORDS THAT DURING THE YEAR UNDE R CONSIDERATION, THE DEBTOR WAS UNDER BIFR. THE CIT(A) FURTHER HELD THAT AS SEEN FROM THE ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 5 RECORDS, THE FINANCIAL POSITION OF THE TRADE DEBTOR HAS GONE VERY BAD TO WORSE AND IN THE GIVEN CIRCUMSTANCES GETTING PRINCI PAL AMOUNT ITSELF IS DOUBTFUL. IN SUCH SITUATION, CHARGING INTEREST IS NOT A PRUDENT STEP BY THE ASSESSEE. WITH THESE OBSERVATIONS, CIT(A) DIREC TED THE ASSESSING OFFICER TO DELETE THE ADDITIONS MADE TOWARDS INTERE ST ON SUNDRY DEBTOR. AGGRIEVED BY THE CIT(A) ORDER, REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE CIT(A) WAS ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS INT EREST CHARGED ON OUTSTANDING DEBTOR BALANCE. THE LD. D.R. FURTHER S UBMITTED THAT THE ASSESSEE HAS NOT TAKEN ANY STEPS TO COLLECT THE AMO UNT DUE FROM THE DEBTOR AND MORE OVER CONTINUED ITS BUSINESS ACTIVIT Y WITH THE DEBTOR, THEREFORE, A.O. IS RIGHTLY CHARGED INTEREST ON THE OUTSTANDING BALANCE. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSEE IT SELF, FOR THE FINANCIAL YEAR 2006-07 HAS CHARGED INTEREST ON THE OUTSTANDIN G DEBTOR BALANCE, BUT FAILED TO OFFER ANY REASONS FOR NOT CHARGING TH E INTEREST FOR THE CURRENT FINANCIAL YEAR. UNDER THESE CIRCUMSTANCES, THE ORDER PASSED BY THE ASSESSING OFFICER SHOULD BE UPHELD. THE LD. A.R . OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 6 ASSESSING OFFICER CHARGED INTEREST @ 12% ON THE OUT STANDING DEBTORS BALANCE ON THE GROUND THAT THE ASSESSEE ITSELF HAS CHARGED THE INTEREST IN THE PREVIOUS FINANCIAL YEAR. THE ASSESSING OFFIC ER WAS OF THE OPINION THAT THE ASSESSEE HAS NOT OFFERED ANY REASONS FOR N OT CHARGING THE INTEREST ON THE OUTSTANDING DEBTOR BALANCE. THE A.O . FURTHER HELD THAT EVEN THOUGH, DEBTOR NOT PAID THE AMOUNT FOR THE PAS T 6 YEARS, THE ASSESSEE CONTINUED TO SUPPLY THE GOODS AND NOT MADE ANY EFFORTS TO RECOVER THE AMOUNT DUE FROM THE DEBTORS. THEREFORE, CHARGED INTEREST BASED ON THE ASSESSEE OWN ADMISSION FOR THE EARLIER YEAR. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE DEBTORS FINANC IAL POSITION IS VERY BAD AND THE DEBTOR IS NOT IN A POSITION TO PAY THE PRIN CIPAL AMOUNT, UNDER THESE CIRCUMSTANCES, CHARGING INTEREST ON THE OUTST ANDING BALANCE IS NOT CORRECT. THE ASSESSEE FURTHER STATED THAT THE COMP ANY FINANCIAL POSITION IS VERY BAD AND THE LENDERS HAVE TAKEN THE POSSESSI ON OF THE ASSETS OF THE COMPANY AND ALSO THE COMPANY WENT INTO LIQUIDAT ION AND THE MATTER IS PENDING BEFORE THE BIFR. DESPITE OUR REPEATED EF FORTS, WE ARE NOT ABLE TO RECOVER THE PRINCIPAL. THE ASSESSEE FURTHER CONTENDED THAT IT DOES NOT HAVE ANY PRACTICE OF CHARGING INTEREST ON THE OUTSTANDING DEBTOR BALANCE. AS A MATTER OF FACT, FOR THE PREVI OUS FINANCIAL YEAR, WE CHARGED INTEREST TO CREATE PRESSURE ON THE ASSESSEE TO MAKE THE ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 7 PAYMENT. HOWEVER, WE REALIZED THAT OUR EFFORTS PROV ED TO BE FUTILE, THEREFORE, WE STOPPED CHARGING INTEREST. 6. THE ASSESSEE CONTENDED THAT THE A.O. CANNOT CHAR GE INTEREST ON SUNDRY DEBTORS, AS THERE WAS NO SUCH CONDITION FOR CHARGING INTEREST. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IT IS NOT A CASE OF A.O. THAT THE ASSET IS FINANCIAL ASSET AND THERE WAS A CONDITION FOR CHARGING THE INTEREST. WHEN THERE IS NO CONDITIO N, THE A.O. CANNOT DIRECT THE ASSESSEE TO CHARGE INTEREST ON SUNDRY DE BTORS. THE A.O. CHARGED INTEREST MAINLY ON THE GROUND THAT ASSESEE HAS CHARGED INTEREST FOR THE PREVIOUS FINANCIAL YEAR AND NOT OFFERED ANY REASONS FOR NOT CHARGING INTEREST FOR THE CURRENT FINANCIAL YEAR. WE DO NOT SEE ANY MERITS IN THE FINDINGS OF THE A.O., AS CHARGING INT EREST ON SUNDRY DEBTORS IS PURELY A MUTUAL AGREEMENT BETWEEN THE ASSESSEE A ND DEBTORS. THE A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE, TO SHO W THAT SUCH AGREEMENT IS EXISTED BETWEEN THE PARTIES TO JUSTIFY HIS ACTION. 7. THE ASSESSEE CONTENDS THAT THE FINANCIAL POSITIO N OF DEBTOR IS WEAK AND ITS EFFORTS ARE NOT YIELDED ANY RESULTS OF RECO VERY. ON PERUSAL OF THE RECORDS, WE FIND THAT THE DEBTOR WENT INTO LIQUIDAT ION AND THE MATTER IS PENDING BEFORE THE BIFR. ON FURTHER VERIFICATION O F THE DETAILS SUBMITTED BY THE ASSESSEE, WE FIND THAT THE LENDERS HAVE TAKE N THE POSSESSION OF ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 8 THE ASSETS OF THE COMPANY AND GIVEN NOTICE FOR AUCT ION. UNDER THESE CIRCUMSTANCES, THE A.O. WAS INCORRECT IN CHARGING I NTEREST ON THE OUTSTANDING DEBTOR BALANCE, WHEN RECOVERY OF PRINCI PAL IS IN DOUBTFUL. THE ASSESSING OFFICER, SIMPLY ESTIMATED THE INTERES T ON THE OUTSTANDING DEBTOR BALANCE BASED ON THE ASSESSEE OWN ADMISSION FOR THE PREVIOUS FINANCIAL YEAR. WE DO NOT SEE ANY MERIT IN THE CONTE NTION OF THE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSING OFFICER CANNOT SIT IN THE CHAIR OF THE BUSINESSMAN AND DIRECT HIM TO DO B USINESS IN A PARTICULAR FASHION. THE OUTSTANDING AMOUNT DUE FROM THE DEBTOR IS ON ACCOUNT OF TRADING LIABILITY. IT IS NOT A CASE OF T HE ASSESSING OFFICER THAT THE OUTSTANDING LOAN AMOUNT IS A STOCK IN TRADE OF ASSESSEE AND ASSESSEE IS IN THE BUSINESS OF MONEY LENDING TO CHA RGE INTEREST ON THE OUTSTANDING BALANCE BY FOLLOWING THE MERCANTILE SYS TEM OF ACCOUNTING. THOUGH, ASSESSEE CHARGED INTEREST FOR THE LAST FINA NCIAL YEAR, HE EXPLAINED THE REASONS FOR NOT CHARGING THE INTEREST FOR THE CURRENT FINANCIAL YEAR UNDER CONSIDERATION. FROM THE PERUSA L OF THE FACTS, IT APPEARS THAT THE REASONS GIVEN BY THE ASSESSEE APPE ARS TO BE REASONABLE. THEREFORE, WE ARE OF THE OPINION THAT C HARGING INTEREST ON TRADE DEBTORS IS NOT CORRECT. THE CIT(A) AFTER CONS IDERING THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE, DELETED THE AD DITIONS MADE BY THE ASSESSING OFFICER. WE DO NOT SEE ANY ERROR OR INFIRM ITY IN THE ORDER ITA NO.132/VIZAG/2012 NEW SARIKA COTTON TRADERS, GUNTUR 9 PASSED BY THE CIT(A). HENCE, WE INCLINED TO UPHELD THE ORDER PASSED BY THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELE TE THE ADDITIONS. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 TH MAR16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 18.03.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO WARD-2(1), GUNTUR 2. / THE RESPONDENT M/S. NEW SARIKA COTTON TRADERS, D.NO.5-7-09, NH-5, NRT CENTRE, CHILAKALURIPET, GUNTUR DISTRICT. 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM