Surat Textile Mills Ltd., Surat V. The Income Tax Officer, Ward-4(2), Surat

ITA 1469/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9385 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALL
• Assessee Lawyers: J P SHAH
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 143(3); 153A; 14A; 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER) ITA. NO: 1469/AHD/2015 (ASSESSMENT YEAR: 2010-11) SURAT TEXTILE MILLS LTD., REGD. OFFICE: TULSI KRUPA ARCADE, PUNA KUMBHARIA ROAD, DUMBHAL, SURAT- 395010 V/S INCOME TAX OFFICER, WARD- 4 (2), SURAT (APPELLANT) (RESPONDENT) PAN: AADCS4562M APPELLANT BY : SHRI J.P. SHAH, AR RESPONDENT BY : SMT. VIBHA BHALL, CIT/ D.R. ( )/ ORDER DATE OF HEARING : 26 -02-201 6 DATE OF PRONOUNCEMENT : 29 -02-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF LD. CIT-2, SURAT DATED 23.03.2015 MADE U/S. 263 OF THE ACT. ITA NO. 1469 /AHD/2015 . A.Y. 2010-20 11 2 2. THE ASSESSEE HAS CHALLENGED THE JURISDICTION OF THE LD. CIT ALLEGING THAT THE ASSESSMENT ORDER MADE U/S. 143(3) OF THE ACT DA TED 20.03.2013 IS NEITHER ERRONEOUS NOR PRE-JUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. COUNSEL TOOK US TO THE RELEVANT DOCUMENTARY EVI DENCES WHICH ARE PLACED IN THE PAPER BOOK STATING THAT THE ISSUES RA ISED BY THE LD. CIT IN HIS ORDER CONSIDERING THEM AS ERRONEOUS IN AS MUCH AS PRE-JUDICIAL TO THE INTEREST OF THE REVENUE ARE BASELESS, SINCE THE A.O HAS EXAMINED ALL THE ISSUES IN THE ASSESSMENT ORDER MADE U/S. 14 3(3) OF THE ACT. 3. THE D.R. STRONGLY RELIED UPON THE ORDER OF THE LD. CIT. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHO RITIES BELOW AND WITH THE ASSISTANCE OF THE LD. COUNSEL, WE HAVE GON E THROUGH ALL THE RELEVANT EXHIBITS BROUGHT TO OUR NOTICE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 4. A PERUSAL OF THE NOTICE ISSUED BY THE COMMISSIONER U/S. 263 OF THE ACT SHOWS THAT THE COMMISSIONER WAS OF THE FIRM BELIEF THAT ON THE FOLLOWING ISSUES THE ORDER OF THE ASSESSMENT IS ERR ONEOUS AS MUCH AS IT IS PRE-JUDICIAL TO THE INTEREST OF THE REVENUE (I) THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS. 8,84,920/- FOR WHICH I T HAS ADDED RS. 18,151/- U/S. 14A OF THE ACT, HOWEVER, THE DISALLOW ANCE U/S. 14A OF THE ACT WAS NOT COMPUTED AS PER RULE 8D, THEREFORE, THE ORDER U/S. 143(3) OF THE ACT PASSED BY THE A.O IS ERRONEOUS IN SO FAR AS IT IS PRE- JUDICIAL TO THE INTEREST OF THE REVENUE. (II) FROM THE STATEMENT SHOWING THE COMPUTATION OF INCOME THE WORKING OF THE BOOK P ROFIT HAS BEEN SHOWN AS NIL . THE ASSESSEE HAS REDUCED THE BOOK PROFIT BY BROUG HT FORWARD BUSINESS LOSS/UNABSORBED DEPRECIATION AMOUN TING TO RS. 8,58,05,906/- WHEREAS THE PROFIT AND LOSS ACCOUNT S HOW THAT THERE WAS NO BROUGHT FORWARD BUSINESS LOSS. THEREFORE, TH E AMOUNT REDUCED ITA NO. 1469 /AHD/2015 . A.Y. 2010-20 11 3 TOWARDS BROUGHT FORWARD BUSINESS LOSS/UNABSORBED DE PRECIATION AND SINCE MAT WAS REQUIRED TO BE PAID THEREFORE, THE AS SESSMENT ORDER IS ERRONEOUS IN AS MUCH AS IT IS PRE-JUDICIAL TO THE I NTEREST OF THE REVENUE. THE FIRST THING WHICH HAS TO BE CONSIDERED IS WHETHER THE LD. COMMISSIONER HAS RIGHTLY ASSUMED THE POWER U/S. 263 OF THE ACT. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD . 243 ITR 83 HAS LAID DOWN THE FOLLOWING RATIO:- 'A BARE READING OF SECTION. 263 OF THE INCOME-TAX A CT, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY TH E COMMISSIONER SUO MOTU UNDER II, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO B E SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUG HT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDIC IAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS HUT IS PREJUDICIAL TO THE REVENUE RECOUR SE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS' 5. NOW, LET US SEE IN THE LIGHT OF THE ABOVE RATIO, WH ETHER THE ASSESSMENT HAS BEEN MADE ON AN INCORRECT ASSUMPTION OF FACTS O R AN INCORRECT APPLICATION OF LAW. 6. THE FIRST OBSERVATION OF THE COMMISSIONER RELATES T O THE DISALLOWANCE MADE BY THE ASSESSEE U/S. 14A OF THE ACT. A PERUSAL OF THE COMPUTATION OF INCOME AT PAGE 2 OF THE PAPER BOOK S HOWS THAT UNDER THE HEAD INCOME FROM BUSINESS, THE ASSESSEE HAS ADD ED RS. 18,151/- AS DISALLOWANCE U/S. 14A OF THE ACT. ON PAGE 184 OF THE PAPER BOOK, WE FIND THAT IN ASSESSMENT ORDER 2008-09, THE ASSES SEE HAS DISALLOWED ITA NO. 1469 /AHD/2015 . A.Y. 2010-20 11 4 RS. 32,725/- U/S. 14A OF THE ACT. AGAIN AT PAGE 191 , WE FIND THAT FOR ASSESSMENT YEAR 2009-2010, THE ASSESSEE HAS DISALLO WED RS. 23,164/- U/S. 14A OF THE ACT. IN BOTH THESE OCCASIONS, THE D ISALLOWANCE MADE BY THE ASSESSEE HAS BEEN ACCEPTED. WE FAIL TO UNDERSTA ND HOW A SIMILAR DISALLOWANCE MADE DURING THE YEAR UNDER CONSIDERATI ON ON SAME SET OF FACTS WOULD MAKE THE ASSESSMENT ERRONEOUS AND PRE-J UDICIAL TO THE INTEREST OF THE REVENUE. FURTHER, IN OUR CONSIDERED OPINION RULE 8D CANNOT BE INVOKED MECHANICALLY. IT CAN BE INVOKED O NLY WHEN THE A.O IS NOT SATISFIED WITH THE COMPUTATION OF DISALLOWAN CE MADE BY THE ASSESSEE. IN THE CASE IN HAND, WE FIND THAT THE A.O WAS SATISFIED AS SIMILAR DISALLOWANCES WERE ACCEPTED IN EARLIER YEAR S. CONSIDERING THESE FACTS IN TOTALITY, THE ACTION OF THE LD. CIT ON THI S ISSUE IS NOT JUSTIFIED. 7. COMING TO THE SECOND CONTENTION OF THE COMMISSIONER WHICH RELATES TO THE CLAIM OF SET OFF OF BROUGHT FORWARD BUSINESS LO SS/UNABSORBED DEPRECIATION OF EARLIER YEARS WHEN THERE WAS NO LOS S AVAILABLE. 8. IN ASSESSMENT YEAR 2007-08, THE ASSESSEE BECAME A S ICK COMPANY AND WENT TO THE BIFR AND AS PER THE SCHEME OF ARRAN GEMENT, THE BIFR DIRECTED THE ASSESSEE TO WRITE OFF OF DEPRECIATION, BUSINESS LOSS FROM ITS CAPITAL. ASSESSEE CARRIED OUT THE DIRECTIONS OF THE BIFR AND WROTE OFF THE DEPRECIATION/LOSSES ACCORDINGLY WHICH CAN B E FOUND CLEARLY FROM THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.0 3.2008 WHICH IS AT PAGE 97 OF THE PAPER BOOK. UNDER THE HEAD EFFECT O F REHABILITATION SCHEME . FOLLOWING ITEMS ARE FOUND (A) SECURITIES PREMIUM A/C. ADJUSTMENT OF LOSS (B) CAPITAL RESERVE A/C. ADJUSTMENT OF LOSS (C) CAPITAL REDEMPTION RESERVE A/C. ADJUSTMENT OF LOSS . ITA NO. 1469 /AHD/2015 . A.Y. 2010-20 11 5 9. THESE WRITE OFFS HAVE BEEN EXPLAINED IN THE NOTES O N ACCOUNTS AT CLAUSE NO.9 WHICH IS AT PAGE 104 OF THE PAPER BOOK AND WHICH READS AS UNDER:- 9. THE COMPANY IS REGISTERED AS A SICK COMPANY WI TH THE BOARD FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION (BIFR) UNDER THE SICK INDU STRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985. THE HON'BLE BOARD HAS SANCTI ONED A REHABILITATION SCHEME RESTING WITH ITS ORDER DATED 22ND JANUARY, 2008 ENVISAGING VARIOUS RELIEF AND CONCESSIONS. ('REHABILITATION SCHEME') FURTHER, THE SANCTIONED REHABILITATION SCHEME INTER ALIA PROVIDES FOR RESTRUCTURING OF DEBTS THROUGH ONE TIME SETTLEMENT '(OTS) WITH THE S ECURED LENDERS, WRITE DOWN (REDUCTION) OF THE EXISTING EQUITY CAPITAL U/S 18(2 )(F) OF SICA BY 90%, ISSUE OF FRESH EQUITY SHARE CAPITAL ON A PREFERENTIAL BASIS IN FAVOUR OF THE PROMOTERS AND FRESH INFUSION OF FUNDS BY THE PROMOTERS AS ADDITIONAL WORKING CAPITA L AND SOFT LOAN FOR REVIVAL OF THE COMPANY IN ACCORDANCE WITH THE ONE TIME SETTLEMENT (OTS) TE RMS, THE COMPANY HAS PAID OFF RS.40.83 CRORES TO THE SECURED LENDERS TOWARDS THE AGGREGATE LIABILITY (PRINCIPAL AND INTEREST) AMOUNTING TO RS.81.77 CRORES. AS PER THE APPROVED REHABILITATION SCHEME THE DUES OF THE SECURED CREDITORS HAVE BEEN COMPLETELY SETTLED AND THE SECURED CREDITORS HAVE WAIVED OFF THE AGGREGATE BALANCE RS.40.94 CRORES OF PRINCIPAL, INTEREST, PENAL INTEREST AND OTHER CHARGES UPON REPAYMENT OF OTS AMOUNT. THE PROMOTERS HAVE CONTRIBUTED RS.3.67 CRORES TOWARDS ADDITIONAL WORKING CAPITAL. IN ACCORDANCE WITH THE REHABILITATION SCHEME THE CO MPANY HAS ISSUED 155000000 FRESH EQUITY SHARES OF RS.1/- EACH FULLY PAID UP ON A PRE FERENTIAL BASIS IN FAVOUR OF THE PROMOTERS / PROMOTER GROUPS FOR AN AMOUNT AGGREGATI NG TO RS.15.50 CRORES. IN ADDITION, THE PROMOTERS OF THE COMPANY HAVE BROUGHT IN RS.29. 00 CRORES BY WAY OF A SOFT LOAN TO THE COMPANY. THE SOFT LOAN FROM THE PROMOTERS IS IN TEREST FREE AND SUBORDINATED TO BANKS/ FINANCIAL INSTITUTIONAL LOANS AND SHALL NOT BE WITHDRAWN TILL THE END OF THE SCHEME PERIOD. THE EFFECTS OF REHABILITATION .SCHEME, IN TERMS OF WRITE-DOWN IN SHARE CAPITAL, UTILIZATION OF RESERVES AND WAIVER OF DUES BY SECURE CREDITORS ARE AS DISCLOSED IN THE PROFIT & LOSS ACCOUNT UNDER 'EFFECT OF REHABILITATION SCHEME'. ITA NO. 1469 /AHD/2015 . A.Y. 2010-20 11 6 10. HOWEVER, WHILE FILING THE RETURN OF INCOME FOR A.Y. 2008-09, THE ASSESSEE HAS REDUCED THE BOOK PROFIT BY RS. 21,77,7 33/- BEING ADJUSTMENTS AS PER CLAUSE- VII OF THE EXPLANATION T O SECTION 115JB(2) OF THE ACT WHICH CAN BE FOUND AT PAGE 185 OF THE PA PER BOOK. 11. WE FURTHER FIND THAT IN THE ASSESSMENT ORDER FOR A. Y. 2008-09 MADE U/S. 143(3) R.W.S. 153A OF THE ACT WHILE COMPU TING THE TAX ON BOOK PROFIT U/S. 115JB OF THE ACT. THE A.O HAS DEDU CTED THE ADJUSTMENTS AS MENTIONED ABOVE OF RS. 21,77,733/- A ND THE BOOK PROFIT WAS COMPUTED AT NIL FIGURE, THIS CAN BE SEEN AT PAGE 188 OF THE PAPER BOOK. 12. SIMILARLY, IN THE COMPUTATION OF INCOME FOR A.Y. 2 009-2010, THE ASSESSEE HAS REDUCED THE BOOK PROFIT BY MAKING ADJU STMENTS U/S. 115JB OF THE ACT AT RS. 6,92,38,861/-, THE SAME ADJ USTMENTS HAVE BEEN ACCEPTED BY THE A.O IN THE ASSESSMENT ORDER MA DE U/S. 143(3) OF THE ACT WHICH CAN BE FOUND AT PAGE 200 OF THE PA PER BOOK. 13. WE FAIL TO UNDERSTAND HOW A SIMILAR ADJUSTMENT MADE DURING THE YEAR UNDER CONSIDERATION CAN BE CONSIDERED AS ERRON EOUS AND PRE- JUDICIAL TO THE INTEREST OF REVENUE. IN OUR CONSIDE RED OPINION, THE ACTION OF THE COMMISSIONER IS WITHOUT JURISDICTION. AS DISCUSSED HEREINABOVE, WE DO NOT FIND ANY ERROR IN THE ASSESS MENT ORDER WHICH COULD MAKE IT ERRONEOUS AND PRE-JUDICIAL TO THE INT EREST OF THE REVENUE. 14. THE AO HAS TAKEN A VIEW WHICH MAY BE DIFFERENT FROM THE VIEW OF THE LD. COMMISSIONER AND ASSUMING THAT THE VIEW TAKEN BY THE AO ITA NO. 1469 /AHD/2015 . A.Y. 2010-20 11 7 IS A LOSS TO THE REVENUE BUT THE HON'BLE SUPREME CO URT IN MALABAR INDUSTRIAL CO. LTD. (SUPRA) HAS HELD THAT ' EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE,' FOR E.G. WHEN AN INCOME TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE LD. COMMI SSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ORDER WHICH IS ER RONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE V IEW TAKEN BY THE INCOME TAX OFFICER IS UNSUSTAINABLE IN LAW. 15. THE BOMBAY HIGH COURT IN CIT VS GABRIAL INDIA LTD., (1993) 203 ITR 108 HAS HELD THAT 'THE DECISION OF THE INCOME TAX OFFICER COULD NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER , HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD'. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HE REINABOVE, IN OUR UNDERSTANDING OF LAW, THE ASSESSMENT ORDER IS NEITH ER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE, THE REFORE, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. COMMISSIONER U/S. 263 AND RESTORE THAT OF THE ASSESSING OFFICER PASSED U/S. 143(3) OF THE ACT. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 02 - 2016. SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH