ACIT, Circle - 4(1), , Kolkata V. M/s. Duncans Industries Ltd., , Kolkata

ITA 1450/KOL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3499 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-10-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 13-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHRUBAJYOTI ROY
• Keywords: Bad and doubtful debts; Assessment record; Notional interest
• Section: 260A; 28

Judgement Text

ITA NO. 1450/KOL/2019 M/S DUNCANS INDUSTRIES (P) LTD. A.Y. 2012-13 1 | P A GE , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI P. M. JAGTAP, VICE-PRESIDENT AND SHRI A. T. VARKEY, JM] I.T.A. NO. 1450/KOL/2019 ASSESSMENT YEAR: 2012-13 DCIT, CIRCLE-4(1), KOLKATA VS. M/S DUNCANS INDUSTRIES (P) LTD. (PAN: AAACD 9302 P ) APPELLANT RESPONDENT DATE OF HEARING (VIRTUAL) 19.10.2020 DATE OF PRONOUNCEMENT 13. 11.2020 FOR THE APPELLANT SHRI DHRUBAJYOTI ROY, JCIT FOR THE RESPONDENT SHRI SUBASH AGARWAL, ADVOCATE ORDER PER SHRI A.T. VARKEY, JM: THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAIN ST THE ORDER OF LD.CIT(A)-7, KOLKATA DATED 05.03.2019 FOR 2012-13. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ONLY TWO GROUNDS RAISED BY THE REVENUE AND BOTH THE ISSUES A RE COVERED IN ASSESSEES OWN CASE BY THE ORDER OF THIS TRIBUNAL AND THE LD. CIT(A) HA S ONLY FOLLOWED THE DECISIONS OF TRIBUNAL TO DECIDE IN FAVOUR OF THE ASSESSEE. PER C ONTRA, THE LD. D.R COULD NEITHER CONTROVERT THIS CONTENTION OF THE LD. A.R OF THE AS SESSEE NOR POINT OUT ANY DIFFERENCE IN FACTS OR LAW TO TAKE ANOTHER VIEW. 3. GROUND NO. 1 RAISED BY THE REVENUE AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION WAS RS. 1,07,83,489/- MADE AS NOTIONAL INTEREST ON THE LOANS GIVEN TO CERTAIN COMPANIES / PERSONS BY THE ASSESSE E. ITA NO. 1450/KOL/2019 M/S DUNCANS INDUSTRIES (P) LTD. A.Y. 2012-13 2 | P A GE 4. BRIEF FACTS OF THE CASE AS NOTED BY THE ASSESSI NG OFFICER IS THAT THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS HAS REFLECTED NOTIONAL INTEREST UNDER INCOME FROM OTHER SOURCES WHICH WERE IN RESPECT OF INTEREST FREE LOANS AND ADVANCES GIVEN BY THE ASSESSEE TO CERTAIN COMPANIES / PERSONS. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE HAD SUBMITTED BEFORE HIM AS ON 31.03.2012, THE FOLL OWING LOANS AS APPEARING IN BOOKS OF ACCOUNT OUT OF LOANS ON WHICH NOTIONAL INTEREST WAS BEING CHARGED IN THE EARLIER ASSESSMENT YEARS: M/S OXIDES & SPECIALITIES LTD. RS. 5,30,93,000/- M/S GUJARAT CARBON & INDUSTRIES LTD. RS. 1,84,96 ,925/- ACCORDING TO ASSESSING OFFICER, THE ASSESSEE SUBMIT TED THAT INTERESTS IN RESPECT OF LOAN GIVEN TO ABOVE COMPANIES WERE CHARGED UP TO THE FIN ANCIAL YEAR 2001-02. HOWEVER SINCE, THE AFORESAID TWO COMPANIES WERE INCURRING H UGE LOSSES AND WERE UNABLE TO PAY THE PRINCIPAL AMOUNT AS WELL AS INTEREST, THE ASSES SEE HAD STOPPED CHARGING INTEREST ON SUCH LOANS. HOWEVER, THIS CONTENTION OF THE ASSESSE E WAS NOT ACCEPTED BY THE ASSESSING OFFICER. ACCORDING TO HIM, THE ASSESSEE H AD NOT GIVEN UP ITS RIGHT TO RECEIVE THE INTEREST. THEREFORE, THE NOTIONAL INTEREST @ 15 % PER ANNUM ON THE LOANS WAS DETERMINED AT RS. 1,07,83,489/- AND TREATED AS INCO ME UNDER THE HEAD INCOME FROM OTHER SOURCES . 5. AGGRIEVED BY THE ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WAS PLEASED TO DELETE THE ADDITION BY HOLDING A S UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE A.R OF THE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER. AT THE OUTSET, I FIND THAT THE IS SUE RELATES TO CHARGING OF NOTIONAL INTEREST ON LOANS WHICH WERE NEVER RECEIVED BY THE APPELLANT. IN MY HUMBLE OPINION, I FIND THAT THERE IS NO PROVISION IN THE INCOME TA X ACT FOR CHARGING OF ANY INCOME ON A NOTIONAL BASIS. WHAT IS TO BE CHARGED TO TAX WOUL D ONLY BE ON INCOME ACTUALLY EARNED AND NOT OTHERWISE. IN ANY CASE, I FIND THAT THE SAME ISSUE HAD CROPPED UP FOR THE AY 2001-02 IN THE APPELLANTS OWN CASE SINCE TH E APPELLANT HAD STOPPED CHARGING INTEREST ON THE AMOUNT OF THE SAID LOANS FROM THE S AID ASSESSMENT YEAR. THE DIRECTION OF THE CIT(A) TO THE AO TO CHARGE NOTIONAL INTEREST FOR THAT ASSESSMENT YEAR WAS REVERSED BY THE JURISDICTIONAL ITAT, E BENCH VIDE ORDER DATED 21.07.2005 IN ITA NO. 980/KOL/05 KOLKATA WHEREIN IT WAS HELD THAT NO AMOUNT CAN BE TREATED AS NOTIONAL INTEREST IN A CASE WHERE INTEREST HAS NOT BEEN CHARGED BY THE ASSESSEE. FOR THE NEXT AY 2002-03, SIMILAR ACTION WAS AGAIN CARRI ED OUT BY THE AO IN CHARGING THE NOTIONAL INTEREST INCOME WHICH WAS DELETED BY THE J URISDICTIONAL CIT(A) FOLLOWING THE ABOVE RULING OF THE ITAT. NO FURTHER APPEAL WAS PRE FERRED BY THE DEPARTMENT ON THIS ITA NO. 1450/KOL/2019 M/S DUNCANS INDUSTRIES (P) LTD. A.Y. 2012-13 3 | P A GE GROUND. THE ISSUE OF NOTIONAL INCOME HAS BEEN DELIB ERATED ON A NUMBER OF OCCASIONS BY VARIOUS COURTS SUCH AS IN THE CASE OF CIT VS. GO YAL M.G. GASES (P) LTD., (163 TAXMAN 541) BY THE DELHI HIGH COURT WHEREIN RELIANC E WAS PLACED ON THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS. BIRLA GWALIOR REPORTED IN 89 ITR 266 TO THE EFFECT THAT WHEN THERE WAS NO REAL ACCRUAL OF INTER EST AND THE ASSESSEE HAS ALSO NOT RECORDED INTEREST IN ITS BOOKS OF ACCOUNT, NO NOTIO NAL INTEREST CAN BE LEVIED ON SUCH LOANS. IT IS ALSO EVIDENT FROM THE ACCOUNTS OF THE APPELLANT THAT NO INTEREST HAS BEEN CHARGED ON THE AMOUNTS FOR THE YEAR UNDER CONSIDERA TION. CONSIDERING THE ENTIRE GAMUT OF THE CASE, I FIND THAT THERE WAS NEVER AN O CCASION FOR THE AO TO CHARGE NOTIONAL INTEREST ON THE OUTSTANDING LOAN AMOUNTS C ONSIDERED TO BE BAD SINCE AY 2001-02 ON BOTH FACTS AND LAW. IN THE APPEAL ORDERS DATED 24.08,2017 AND 11.01.2018 PASSED BY THE CIT(A)-2 FOR THE AYS 2010-11 AND 2011 -12 IN APPEAL NOS. 1264/CIT(A)-2/2014-15 AND 1259/CIT(A)-2/2014-15 RES PECTIVELY, SIMILAR ADDITION MADE BY THE AO IN THE ASSESSMENT ORDER PASSED U/S 1 43(3) WAS DIRECTED TO BE DELETED FOLLOWING THE DECISION OF THE ITAT E BENCH IN ITA NO. 980/KOL/05 FOR THE ASSESSMENT YEAR 2001-02. IN VIEW OF THE FOREGOING D ISCUSSION AND ALSO TO MAINTAIN JUDICIAL CONSISTENCY, THE AO IS DIRECTED TO DELETE THE IMPUGNED ADDITION OF RS. 1,07,83,489/-. THIS GROUND IS ALLOWED. 6. AGGRIEVED THE REVENUE IS BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE NOTE THAT THE LD. CIT(A) HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAS NOT RECEIVED ANY INTEREST AND PRINCIPAL LOAN AMOUNT FROM TWO COMPANIES I.E. M/S O XIDES & SPECIALITIES LTD. AND M/S GUJARAT CARBON & INDUSTRIES LTD. WE ALSO TAKE N OTE THAT THESE COMPANIES ARE INCURRING HUGE LOSSES AND COULD NOT PAY PRINCIPAL A MOUNT AS WELL AS INTEREST. SO, THE ASSESSEE HAS STOPPED CHARGING INTEREST ON SUCH LOAN S AND HAS NOT REFLECTED IT IN ITS BOOKS. THEREAFTER, THE LD. CIT(A) HAS RELIED UPON T HE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2001-02, 2010-11 AND 2011-12 FOR GI VING DECISION IN FAVOUR OF THE ASSESSEE. WE NOTE THAT THE LD. CIT(A) HAS RIGHTLY T AKEN NOTE OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GOYAL MG GA SES P LTD. (163 TAXMAN 541) WHEREIN THE HONBLE HIGH COURT RELIED UPON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BIRLA GWALIOR (89 ITR 266) WHEREIN IT WAS HELD THAT WHAT HAS TO BE SEEN IS WHETHER INCOME CAN BE SAID TO HAV E REALLY ACCRUED TO THE ASSESSEE. WHEN THERE WAS NO REAL ACCRUAL OF INTEREST AND THE ASSESSEE HAS ALSO NOT RECORDED INTEREST IN ITS BOOKS OF ACCOUNT, NO NOTIONAL INTER EST CAN BE LEVIED ON SUCH LOANS. THE LD. CIT(A) HAS GIVEN FINDING OF FACT THAT THE ASSES SEE IN ITS BOOKS OF ACCOUNTS HAS NOT ITA NO. 1450/KOL/2019 M/S DUNCANS INDUSTRIES (P) LTD. A.Y. 2012-13 4 | P A GE CHARGED ANY INTEREST AGAINST THE LOANS OF THESE TWO COMPANIES. THIS FINDINGS OF FACT HAS NOT BEEN ASSAILED BEFORE US. THEREFORE, TAKING INTO CONSIDERATION OF THIS FACT THE LD. CIT(A) HAS RIGHTLY DELETED THE NOTIONAL INTERES T. THEREFORE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 8. COMING TO GROUND NO.2 RAISED BY THE REVENUE AGAI NST THE ACTION OF LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE TO WRITE OFF OF IRRECOVERABLE PRINCIPAL AMOUNT OF LOAN WHICH WAS CLAIMED U/S 36(1)(VII) READ WITH SEC TION 36(2) OF THE ACT. 9. BRIEF FACTS OF THE CASE AS NOTED BY THE ASSESSIN G OFFICER IS THAT WHILE VERIFYING THE ASSESSMENT RECORDS FOR EARLIER ASSESSMENT YEARS IT WAS SEEN BY THE ASSESSING OFFICER THAT AGAINST THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE ON THE SAME ISSUE FOR AY 2002-03, THE DEPARTMENT HAS FILED APPEAL U/S 260A OF THE ACT BEFORE THE HONBLE HIGH COURT AND IS AWAITING THE DECISION OF HONBLE HIGH COURT. THEREFORE, THE ASSESSEES CLAIM IN RESPECT OF PRINCIPAL LOAN A MOUNT WRITTEN OFF RS. 4,63,40,475/- WAS DISALLOWED. 10. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO DELETED THE ADDITION HELD AS UNDER: 5.2. I HAVE CONSIDERED THE SUBMISSION OF THE A.R O F THE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER. I FIND THAT THIS ISSUE IS ALR EADY A COVERED MATTER IN FAVOUR OF THE APPELLANT SUPRA. IN THE APPELLANTS OWN CASE FOR TH E ASSESSMENT YEAR 2002-03 SIMILAR ISSUE HAD COME UP BEFORE THE HONBLE ITAT, KOLKATA IN ITA NO. 706/KOL/2008 SUPRA. IN THIS ASSESSMENT YEAR THE APPELLANT IN ADDITION T O ITS BUSINESS OF GROWING AND MANUFACTURE OF TEA, FERTILIZER ETC. HAD ALSO CARRIE D ON THE BUSINESS OF GROWING LOANS AND ICDS. THE INTEREST ON LOANS WAS HELD ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THE ASSESSEE HAD WRITTEN OFF THE PRINC IPAL AMOUNT OF LOANS AS ALSO THE UNREALIZED AMOUNT OF INTEREST AS BAD DEBTS. THE ASS ESSING OFFICER HAD ALLOWED THE CLAIM IN RESPECT OF WRITE OFF OF PRINCIPAL; AMOUNT OF LOAN. THE DEPARTMENT HAD FILED APPEAL BEFORE THE ITAT. IN THE ORDER PASSED BY THE ITAT, THE ORDER OF THE LD. CIT(A) WAS UPHELD (SUPRA) IN FAVOUR OF THE ASSESSEE. IN VI EW OF THE FOREGOING, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION OF RS. 4,63, 40,475/- BY WAY OF BAD DEBTS U/S 36(1)(VII) OR ALTERNATIVELY AS BUSINESS LOSS U/S 28 OF THE ACT. THESE GROUNDS ARE ALLOWED. 11. AGGRIEVED THE REVENUE IS BEFORE US. ITA NO. 1450/KOL/2019 M/S DUNCANS INDUSTRIES (P) LTD. A.Y. 2012-13 5 | P A GE 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE NOTE THAT THE LD. CIT(A) HAS FOLLOWED THE ASSESSEES OWN CASE DECIDED BY THIS TRIBUNAL FOR AY 2002- 03 WHEREIN THE SIMILAR ISSUE HAD COME UP BEFORE US IN ITA NO. 706/KOL/2008 DATED 30.09.2008. THE LD. CIT(A) NOTED THAT IN THIS ASSES SMENT YEAR THE ASSESSEE IN ADDITION TO ITS BUSINESS OF MANUFACTURING OF TEA, FERTILIZER ETC, HAD ALSO CARRIED ON THE BUSINESS OF GRANTING OF LOANS AND ICDS. THE LD. CIT(A) NOTED THAT THE INTEREST ON LOANS WAS HELD ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND THE ASSESSEE HAD WRITTEN OFF THE PRINCIPAL AMOUNT OF LOANS AS ALSO T HE UNREALIZED AMOUNT OF INTEREST AS BAD DEBTS. THE ASSESSING OFFICER HAD ALLOWED THE CL AIM OF BAD DEBTS IN RESPECT OF THE UNREALIZED INTEREST BUT HAD DISALLOWED THE CLAIM IN RESPECT OF WRITE OFF OF PRINCIPAL AMOUNT OF LOAN ON THE REASON THAT THE DEPARTMENT H AS PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT AGAINST THE DECISION OF TRIBUNAL IN AY 2002-03. WE NOTE THAT FOR AY 2002-03 THIS TRIBUNAL HAS DECIDED THE ISSUE IN F AVOUR OF ASSESSEE. WE NOTE THAT FOR AY 2002-03 SIMILAR ISSUE CAME UP FOR ADJUDICATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE WHEN THE TRIBUNAL UPHELD THE ACTION OF LD. CIT(A) AND ALLOWED THE WRITE OFF OF BAD DEBTS. THEREFORE, ON SIMILAR FACTS AND ISSUE , THE LD. CIT(A) HAS FOLLOWED OUR RATIO IN ASSESSEES OWN CASE AND DECIDED IN FAVOUR OF ASSESSEE WHICH DECISION WE CONFIRM. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMI SSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.11.202 0. SD/- SD/- (J(( (P. M. JAGTAP) (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED: 13.11.2020 SB, SR. PS ITA NO. 1450/KOL/2019 M/S DUNCANS INDUSTRIES (P) LTD. A.Y. 2012-13 6 | P A GE COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- DCIT, CIRCLE-4(1), KOLKATA 2. RESPONDENT- M/S DUNCANS INDUSTRIES PVT. LTD. , 31, NETAJI SUBHASH ROAD, 2 ND FLOOR, KOLKATA-700001 3. THE CIT(A)- 7, KOLKATA (SENT THROUGH E-MAIL) 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES, KOLKATA