PARASURAM KONDALA RAO THORAM, BHIMAVARAM V. THE INCOME TAX OFFICER, WARD-1, BHIMAVARAM

ITA 146/VIZ/2022

AI Insights

The case revolves around the Income Tax Officer's decision to treat a loan waiver of Rs. 2,53,56,147 as income for the assessment year 2012-13 under Section 41(1) of the Income Tax Act, 1961. The assessee, Mr. Parasuram Kondala Rao Thoram, had taken an overdraft facility from ICICI Bank, which was later classified as a Non-Performing Asset (NPA). The bank waived the loan amount after finding discrepancies in the collateral and KYC details. The assessee did not file a return for the relevant assessment year, nor did he respond to notices from the tax authorities. The Tribunal dismissed the appeal, agreeing with the lower authorities that the waived amount constituted income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135723 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-01-2023
• Assessment Year: misc
• Appeal Filed On: 28-07-2022
• Other Referred Cases: Commissioner vs. Mahindra and Mahindra Ltd [2018] 404 ITR 1 (SC), Principal Commissioner of Income Tax vs. Gujarat State Financial Corporation [2020] 122 tax mann.co m 101 (Gujarat), Coastal Corporation Ltd vs. Joint Commissioner of Income Tax [2008] 118 TTJ 563 (Visakhapatnam), Principal Commissioner of Income Tax vs. Gujarat State Coop. Bank Ltd [2017] 85 tax mann.co m 259 (Gujarat), Income Tax Officer vs. Sri Vasavi Polymers (P.) Ltd [2020] 117 tax mann.co m 236 (Visakhapatnam – Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 144; 250

Judgement Text

आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.146/Viz/2022 (Ǔनधा[रणवष[/ Assessment Year :2012-13) Mr. Parasuram Kondala Rao Thoram, 19-20-4A, Katari Nagar Bank Colony, Bhimavaram- 534202, Andhra Pradesh. PAN: AENPT 7980 H Vs. The Income Tax Officer, Ward-1, Bhimavaram, Andhra Pradesh. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸकȧओरसे/ Appellant by : Sri C. Subrahmanyam, AR Ĥ×याथȸकȧओरसे/ Respondent by : Sri Sankar Pandi, Sr. AR सुनवाईकȧतारȣख/ Date of Hearing : 02/01/2023 घोषणाकȧतारȣख/Date of Pronouncement : 03/02/2023 O R D E R PERS. BALAKRISHNAN, Accountant Member : This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1043470101(1), dated 17/6/2022 2 arising out of the order passed U/s. 144 r.w.s 147 of the Income Tax Act, 1961 [the Act], dated 27/12/2019 passed by the Income Tax Officer, Ward-1, Bhimavaram. 2. Brief facts of the case are that as per the information received from the ADIT (Inv.), Unit-III(4), Rajamahendravaram, Sri Toram Parasuram Kondala Rao, the assessee, Proprietor of M/s. Sri Chandra Kantha Marine Exports was sanctioned an overdraft facility vide A/c. No. 631305004664 for Rs. 2.04 Crs by ICICI Bank Ltd., Eluru under Agri Credit Line. This facility was sanctioned to the assessee after assessing collateral offer by Mr. Movva Venkata subba Rao and Mrs. Movva Vijaya Lakshmi as guarantors. The account was later classified as Non-Performing Asset (NPA). The bank could not realize the collaterals offered as security and found the property guaranteed was already sold even before the disbursement of the loan. The Bank also found that the KYC details and financial documents of the firm submitted by the assessee are forged. Considering the above, the bank waived an amount of Rs. 2,53,36,147/- during the FY 2011- 12 which comprises of Rs.1.03 Crs towards principal and Rs. 1.50 Crs towards interest. The assessee has not filed his return of income for the AY 2012-13. In view of the above, notice U/s. 3 148 dated 29/3/2019 was issued to the assessee and served on the assessee on 30/3/2019. Subsequently, letter dated 4/11/2019 was issued to the assessee. As there was no compliance from the assessee, a show cause notice dated 10/12/2019 was issued to the assessee stating that the loan amount waived by the bank during the FY 2011-12 for Rs. 2.53 Crs becomes income of the assessee as per the provisions of section 41(1) of the IT Act, 1961. The Ld. AO proposed to treat the above waiver amount as income of the assessee as per the provisions of section 41(1) of the Act and the assessee was provided with an opportunity to explain as to why it should not be assessed accordingly. The assessee never filed any information till 18/12/2019. The Ld. AO therefore presumed that the assessee does not have any explanation to offer in respect of the amount waived by the Bank for Rs. 2.53 Crs. The Ld. AO therefore treated the waiver amount of Rs. 2,53,56,147/-as income of the assessee U/s. 41(1) of the Act for the AY 2012-13. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A), NFAC, Delhi. 3. The Ld. CIT(A) issued notices U/s. 250 of the Act on 29/1/2021, 09/12/2021, 10/05/2022 asking the assessee to file 4 his submission. The assessee once again failed to respond to the same and has not filed any written submissions. The Ld. CIT(A) therefore relied on the statement of facts submitted in Form-35 to disposed off the appeal based on the material available on record. The Ld. CIT(A) relied on the decision of Rollatainer Ltd (2011) 339 ITR 54 (Del.) and dismissed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 4. In his Grounds of Appeal, the assessee has raised 5 Grounds however, the crux of the issue is with respect to addition of Rs. 2,53,56,147/- made by the Ld. AO u/s. 41(1) of the Act. 5. The Ld. Authorized Representative [AR] while placing his arguments stated that the loan waiver amount of Rs. 2.53 Crs comprises of principal amount of Rs. 1.03 Crs and interest of Rs. 1.50 Crs. The Ld. AR submitted that the loan was taken for the purpose of the assessee to start his own prawn culture business wherein it resulted in default of loan and thereby the loan become NPA. The Ld. AR also stated that it is not an income U/s. 41(1) of the Act as it is not a trading liability. The Ld. AR further submitted that the assessee has never filed its return of 5 income in the earlier years claiming the loan amount / interest as expenditure during the earlier assessment years and hence cannot be added back during the impugned assessment year on account of the waiver of the loan. The Ld.AR further submitted that the assessee was not provided an opportunity by the Ld. AO. The Ld. AO passed an exparte order u/s. 144 of the Act. The Ld. AR relied on the following decisions: (i) Commissioner vs. Mahindra and Mahindra Ltd [2018] 404 ITR 1 (SC) (ii) Principal Co mmissioner of Income Tax vs. Gujarat State Financial Corporation [2020] 122 tax mann.co m 101 (Gujarat) (iii) Coastal Corporation Ltd vs. Joint Co mmissioner of Income Tax [2008] 118 TTJ 563 (Visakhapatnam) (iv) Principal Co mmissioner of Income Tax vs. Gujarat State Coop. Bank Ltd [2017] 85 tax mann.co m 259 (Gujarat) (v) Income Tax Officer vs. Sri Vasav i Polymers (P.) Ltd [2020] 117 tax mann.co m 236 (Visakhapatnam – Trib.) Per contra, the Ld. DR submitted that the assessee has not filed his return of income and has not maintained any books of account. The Ld. DR further submitted that the assessee has taken a overdraft facility and not a term loan for the purchase of capital asset. The Ld. DR further submitted that the overdraft facility is in the nature of the cash credit account for the purpose of working capital requirements of the business and hence it 6 should be treated as trading liability and hence taxable U/s. 41(1) of the Act. The Ld. DR placed reliance on the orders of the Ld. Revenue Authorities. Countering the arguments of the Ld. DR, the Ld. AR submitted that the assessee has not carried any business during the impugned assessment year. 6. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. Admittedly from the record available before us, the assessee has not filed his return of income in any of the assessment years. It is also found that the assessee has taken overdraft facility which is in the nature of the working capital for the purpose of business. Merely because the assessee has not carried any business during the assessment year should not be a criteria for non-filing of return of income by the assessee. further it is noticed that the assessee has not responded to any of the notices of the Ld. Revenue Authorities nor filed any written submissions before them. The case laws relied on by the Ld. AR are distinguishable on the facts that in those cases, the assessee has filed the return of income and has not claimed the principal amount as expenditure in the respective assessment years and therefore the Hon’ble Supreme Court and Hon’ble High Court 7 have stated that since the assessee has not claimed expenditure in the earlier assessment years, it cannot be treated as an income U/s. 41(1) of the Act. Further, in the instant case, the Ld. DR has rightly pointed out that the overdraft facility is in the nature of working capital loan which is used for the day-to-day functioning of the business of the assessee. The Ld. DR therefore pointed out that these expenses are incurred by the assessee which is in the nature of revenue expenditure and not a capital expenditure. We find merit in the argument of the Ld. DR that merely because non-filing of return of income for the earlier assessment years should not be a criteria for not claiming the expenses by the assessee in the earlier assessment years. Section 41(1) of the Act clearly states that any trading liability incurred by the assessee and subsequently during in any previous year the assessee has derived some benefit in respect of any such trading liability by way of remission or cessation thereof or by way of writing off of such liability by a unilateral act shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax chargeable to tax as per the provisions of section 41(1) of the Act. In view of the above discussion, we find that there is no infirmity in the order of the 8 Ld. Revenue Authorities and hence no interference is required in the order of the Ld. CIT(A) on this issue. 7. In the result, appeal of the assessee is dismissed. Pronounced in the open Court on the 03 rd February, 2023. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 03.02.2023 OKK - SPS आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–Mr. Parasuram Kondala Rao Thoram, 19- 20-4A, Katari Nagar Bank Colony, Bhimavaram-534202, Andhra Pradesh. 2. राजèव/The Revenue – Income Tax Officer, Ward-1, J.P. Road, Sivaraopet, Bhimavaram, Andhra Pradesh – 534201. 3. The Principal Commissioner of Income Tax, 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi. 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam