N. Pavan Kumar, Hyderabad, Hyderabad V. ITO, Ward-4(1), Hyderabad, Hyderabad

ITA 1563/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6104 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 21-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 22-11-2016
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Bad and doubtful debts; Assessment record; Prejudicial to interest
• Section: 131

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ITA NO. 1563/HYD/2016 ASSESSMENT YEAR: 2009-10 SHRI N. PAVAN KUMAR, HYDERABAD PAN ABJPN2833L VS. THE ITO, WARD 4(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.V. RAGHU RAM REVENUE BY : SHRI A. SITARAMA RAO DATE OF HEARING : 21-02-2017 DATE OF PRONOUNCEMENT : 24-02-2017 ORDER PER G. PAVAN KUMAR, J.M.: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE CIT(A ) -1, HYDERABAD IN NO. 0665/CIT(A)-5/HYD/2014-15/16-17, D ATED 23-08-2016, THE ASSESSEE HAS RAISED FOLLOWING GROUN DS OF APPEAL. 1. THE ORDER OF THE LD. CIT(A) CONFIRMING THE ORDE RS OF THE ASSESSING OFFICER MAKING ADDITION OF RS. 8,04,942/- IS NOT ONLY ERRONEOUS BOTH ON FACTS AND IN LAW BUT IS WITHOUT A PPLICATION OF MIND TO THE SUBMISSIONS THAT ARE MADE AND THE DECIS IONS THAT ARE REFERRED TO. 2. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF INTEREST OF RS. 8,04,942 MERELY ON THE GROUND THAT THE SYSTEM O F ACCOUNTING IS MERCANTILE WITHOUT APPRECIATING THE STAND THAT REVE NUE RECOGNITION IS DIFFERENT AND SYSTEM OF ACCOUNTING IS DIFFERENT AND NOT EVEN APPRECIATING THE DECISIONS THAT ARE CITED IN SUPPOR T OF THE SAME. 3. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 2 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF GRAPHICS AND HAVING INCO ME FROM BUSINESS, PROPERTY INCOME AND OTHER SOURCES AND FIL ED THE RETURN OF INCOME FOR THE A.Y 2009-10 ON 29-03-2010 WITH TOTAL INCOME OF RS. 3,86,605/-. THE CASE WAS SELECT ED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143( 3) OF THE IT ACT ON THE 20-12-2011 WITH ASSESSED INCOME OF RS . 4,36,990/-. SUBSEQUENTLY, IT WAS FOUND THAT THE AS SESSEE HAS ADVANCED LOAN TO M/S GURU RAGHAVENDRA CONSTRUCTIONS AND OUTSTANDING LOAN AS ON 31-03-2009 IS RS. 75,60,672/ -. THE ASSESSEE HAS ADMITTED INTEREST INCOME OF RS. 3,11,0 82/- IN THE ASSESSMENT YEAR 2009-10, WHEREAS FOR THE EARLIE R ASSESSMENT YEAR 2008-09 THE INTEREST WAS ADMITTED RS. 14,79,649/-. AS THESE FACTS WERE NOT CONSIDERED BY THE A.O, THE CIT-6 HAS PASSED THE REVISION ORDER ON 28-01-20 14 OBSERVING THAT THE ASSESSMENT ORDER PASSED BY THE A.O ON 20-12-2011 IS ERRONEOUS AND PREJUDICIAL INTEREST OF THE REVENUE AND SET ASIDE THE ASSESSMENT WITH THE DIREC TION TO RE- DO THE ASSESSMENT. ACCORDINGLY, THE LD. A.O ISSUED NOTICE UNDER 143(2) OF THE IT ACT. IN COMPLIANCE TO THE N OTICE, THE LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME A ND FURNISHED THE INFORMATION. IN THE ASSESSMENT PROCE EDINGS THE LD. AR FILED A LETTER RECEIVED FROM M/S GURU RAGHAV ENDRA CONSTRUCTIONS DATED 31-03-2009 EXPLAINING THAT THE LOAN WAS OBTAINED BY THE FIRM BUT DUE TO HEAVY LOSSES UNABLE TO PAY INTEREST ON LOAN AND WILL REPAY THE LOAN AMOUNT PER IODICALLY AND CLEAR THE OUTSTANDING AMOUNT. THE ASSESSEE OFF ERED ACTUAL INTEREST INCOME OF RS. 3,11,082/- AND FILED THE LEDGER ACCOUNT COPY OF THE ASSESSEE IN THE BOOKS OF ACCOUN T OF THE FIRM. THE A.O ON PERUSAL OF THE LEDGER ACCOUNTS FO UND IN THE 3 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. F.Y 2008-09 THE ASSESSEE HAS ADVANCED ANOTHER RS. 1 0 LAKHS ON 30-03-2009 IN SPITE OF HAVING KNOWLEDGE OF THE FINANCIAL HARDSHIP OF THE M/S GURU RAGHAVENDRA CONSTRUCTIONS. THE LD. A.O HAS OVER LOOKED THE ASSESSEES VERSION THA T THE TRANSACTIONS ARE DONE IN GOOD FAITH AND IN THE COUR SE OF BUSINESS AND THE LETTER DATED 31-3-2009 ISSUED BY F IRM EXPRESSING DIFFICULTY OF FINANCIAL TRANSACTIONS WER E THE ASSESSEE HAS NOT MADE ANY EFFORTS TO STOP CLEARING OF THE CHEQUE WHICH WAS ISSUED ON 30-03-2009 AND SUCH FURT HER PAYMENT IS NOT A GOOD PRACTICE AND DOUBTED. 2.1 THE LD. A.O FOUND THAT THE ASSESSEE IS HAVING INCOME FROM BUSINESS AND FOLLOWING THE MERCANTILE ACCOUNTI NG SYSTEM AND AS PER THE SYSTEM OF ACCOUNTING INTEREST INCOME IS ACCRUED YEARLY AND SUCH INCOME IS RECOGNIZED ON ACC RUAL BASIS AND IF NOT RECEIVED SUBSEQUENTLY IT SHALL BE ALLOWE D AS BAD DEBT. THE LD. A.O RECORDED STATEMENT OF MANAGING P ARTNER OF THE FIRM M/S GURU RAGHAVENDRA CONSTRUCTIONS ON 04-0 9-2014 WHERE THE PARTNER HAS DEPOSED THAT AN AGREEMENT WAS ENTERED WITH THE ASSESSEE WHERE THE FIRM SHALL PAY ONLY PRI NCIPAL AMOUNT OUTSTANDING AND THE ASSESSEE HAS ACCEPTED TH E WAIVER OF INTEREST. BUT NO AGREEMENT WAS FILED TILL COMPL ETION OF ASSESSMENT. THE ASSESSEE FILED A LETTER STATING T HAT THE INCOME WILL BE OFFERED TO TAX IN THE YEAR IN WHICH IT IS ACTUALLY RECEIVED. WHEREAS THE A.O PERUSED THE LEDGER ACCOU NT FOR THE PERIOD 01-04-2008 TO 31-03-2009 PROVIDED BY THE M/S GURU RAGHAVENDRA CONSTRUCTIONS AND FOUND THE OPENING BAL ANCE AS ON 01-04-2008 IS RS. 62,21,632/- AND THE ASSESSEE H AS FURTHER PROVIDED RS. 10 LAKHS ON 30-03-2009, AND TH E OUTSTANDING BALANCES AS ON 31-03- 2009 IS RS. 75,00 ,672/-. 4 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. THE A.O APPLIED INTEREST RATE ON THE OPENING BALANC E AS ON 01- 04-2008, AND ALSO THE ASSESSEE HAS OFFERED INTERES T INCOME FOR THE EARLIER ASSESSMENT YEAR 2008-09 RS. 14,17,6 49/-. THE LD. A.O WORKED OUT INTEREST CALCULATION AT PAGE 5 B ASED ON THE OPENING BALANCE AND MADE ADDITION OF DIFFERENTIAL I NTEREST TO THE RETURNED INCOME OF RS. 8,04,942/- AND ASSESSED TOTAL INCOME OF RS. 12,49,920/- AND PASSED ORDER U/S 143( 3) R.W.S. 263 OF THE IT ACT ON 24-10-2014. 3. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN AP PEAL BEFORE THE CIT(A). IN THE APPELLATE PROCEEDINGS TH E LD. AR EXPLAINED THAT THE A.O HAS ERRED IN ESTIMATING THE INTEREST ON ADVANCES MADE TO M/S GURU RAGHAVENDRA CONSTRUCTIONS FOR THE PERIOD 01-08-2008 TO 31-03-2009 ON THE GROUND O F MERCANTILE SYSTEM OF ACCOUNTING. THE ACTION OF THE A.O IS NOT IN ACCORDANCE WITH ACCOUNTING PRINCIPLES. THE LD. CIT(A) CONSIDERED THE GROUNDS AND THE FINDINGS OF THE A.O AND IS OF THE OPINION THAT THE ASSESSEE IS HAVING KNOWLEDGE O F FINANCIAL POSITION OF FIRM AND HAS ISSUED CHEQUE ON 30/03/2 009 FOR RS. 10 LAKHS. THE ASSESSEE IS HAVING BUSINESS INCOM E AND FOLLOWING THE MERCANTILE ACCOUNTING SYSTEM, THEREFO RE THE INCOME HAS TO BE RECOGNIZED INITIALLY ON ACCRUAL BA SIS AND IN CASE OF BAD DEBTS THE SAME SHALL BE ALLOWED DEDUCTI ON AS PER THE PROVISIONS OF LAW. WITH THESE OBSERVATIONS, TH E LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO AND DISMISSED TH E APPEAL OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. THE LD. AR SU BMITTED THAT THE ASSESSEE HAS NOT RECEIVED THE INTEREST INC OME. BUT THE LD. A.O CONSIDERING THE MERCANTILE ACCOUNTING S YSTEM HAS 5 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. MADE AN ADDITION BASED ON THE OPENING BALANCE, AND THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 HAS OFFERE D THE INCOME. AND THE INTEREST INCOME FOR THE PART OF TH E YEAR ON WHICH TDS WAS DEDUCTED WAS OFFERED FOR THE INCOME T AX PURPOSE. THE LD. A.O HAS OVER LOOKED THE FACT THAT THE STATEMENT U/S 131 OF THE IT ACT WAS RECORDED FROM T HE PARTNER OF THE FIRM M/S GURU RAGHAVENDRA CONSTRUCTIONS MENT IONING THAT THEY SHALL PAY THE AMOUNT IN FUTURE AND THEY ARE NOT IN A POSITION TO PAY THE INTEREST. THE LD. A.O HOWEVER B ASED ON THE COPY OF THE LEDGER ACCOUNT HAS CALCULATED THE INTER EST AND MADE THE ADDITION TOWARDS THE INTEREST INCOME. THE LD. AR SUBMITTED THE PAPER BOOK WITH THE DETAILS OF THE LE DGER ACCOUNTS AND THE INFORMATION AND PRAYED FOR ALLOWIN G THE APPEAL. 5. PER CONTRA, THE LD. DR RELIED ON THE ORDERS OF T HE LOWER AUTHORITIES AND SUBMITTED THAT THE A.O OBSERVED AT PAGE 4 OF THE ORDER WHERE THE ASSESSEE HAVING KNOWLEDGE OF TH E FINANCIAL POSITION OF THE FIRM HAS ISSUED CHEQUE ON 30-03-200 9 AND NOT MADE ANY ATTEMPTS TO STOP PAYMENTS AND FURTHER NO P RUDENT BUSINESS MAN SHALL INVOLVE IN SUCH TRANSACTIONS AND TILL TODAY THE ASSESSEE WAS NOT IN A POSITION TO RECOVER THE M ONEY AND PRAYED FOR CONFIRMING THE ORDER OF ASSESSING AUTHOR ITY. 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD AND JUDICIAL DECISIONS CITED BY THE ASSES SEE. THE SOLE CRUX OF THE ISSUE ARGUED BY THE LD. AR THAT TH E LD. A.O ESTIMATED THE INTEREST INCOME ON MERCANTILE ACCOUNT ING SYSTEM IRRESPECTIVE OF THE FACT THAT THE AMOUNT WAS ADVANCED TO THE FIRM M/S GURU RAGHAVENDRA CONSTRUCTIONS AND STATEMENT WAS RECORD AND CONFIRMED THAT THEY WERE N OT IN A 6 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. POSITION TO PAY INTEREST. THE FACT REMAINS THAT THE ASSESSEE HAS AN OPENING BALANCE AS ON 01-04-2008 REFERRED B Y THE A.O AT PAGE 4 OF RS. 62,21,632/-. THE ASSESSEE HAS TRA NSACTION WITH THE CONSTRUCTION FIRM AND ON 30-03-2009 ADVANC ED FURTHER 10 LAKHS AND THE FIRM HAS FILED A LETTER CO NFIRMING THE LOAN OF 10 LAKHS AND WHEN THE ASSESSEE CAME TO KNOW AS ON 31-03-2009 THERE ARE NO EFFORTS WERE MADE TO STOP T HE CLEARANCE. AND THE ASSESSEE MENTIONED THAT THE CH EQUE WAS ISSUED CONSIDERING THE TRANSACTION DONE IN GOOD FAI TH IN THE COURSE OF BUSINESS. 6.1 THE LD. AR RELIED ON THE JUDICIAL DECISIONS AND REFERRED TO THE CONFIRMATION FILED BY THE FIRM AT PAGE 11 OF THE PAPER BOOK EXPRESSING THEIR INABILITY TO PAY THE INTEREST ON LOAN AND THE FIRM SHALL PAY THE INTEREST PERIODICALLY AND PR ODUCED THE LEDGER COPY OF THE ASSESSEE ACCOUNT IN THE BOOKS OF ACCOUNT DISCLOSING THE OPENING BALANCE. ON PERUSAL OF THE C OMPUTATION OF INCOME FILED BY THE ASSESSEE AT PAGE 5 OF THE PA PER BOOK, WE FOUND THAT THE ASSESSEE IS HAVING BUSINESS INCOME F ROM THE DIFFERENT FIRMS. ON THE QUERY FROM THE BENCH, THE L D. AR SUBMITTED THAT THE ASSESSEE IS NOT CONNECTED TO THE PARTNERSHIP FIRM AND THEY ARE NOT RELATED. FURTHER THE ASSESSEE HAS BEEN PURSING TO RECOVER THE INTEREST A ND PRINCIPAL ADVANCED TO THE FIRM. THE LD. AR RELIED ON THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN 19 ITA NO. 468/HYD/2009 MARUTHI SECURITIES VS. ACIT. WHERE THE TRIBUNAL HAS CONSIDERED THE ACCRUAL OF INCOME BASED ON THE ACCOUNTING STANDARDS. THE LD. AR FILED MEMO IN THE HEARING PROCEEDINGS WITH THE LOAN ACCOUNT OF THE ASSESSEE I N THE BOOKS OF THE FIRM FROM 01-04-2007 TO 31-03-2014 AND 7 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. SUBMITTED THAT THE ASSESSEE HAS CONTINUED NEGOTIATI ONS AND AFTER VARIOUS DELIBERATIONS, THE FIRM HAS AGREED TO TRANSFER THE PROPERTY TO THE ASSESSEE TOWARDS PRINCIPAL AMOUNT. WE PERUSED THE LEDGER ACCOUNT AND FOUND THAT THERE ARE NO INTEREST ENTRIES PASSED BY THE FIRM FROM 01-04-2009 TO 31-03- 2014. 6.2 WE ARE OF THE OPINION THAT THE ASSESSEE BEING A BUSINESS MAN HAVING ADVANCED AMOUNT IN GOOD FAITH HAS OFFERE D INTEREST IN SAID FINANCIAL YEAR AS PER THE TDS CERT IFICATE ISSUED AND PRODUCED LEDGER ACCOUNT COPY. THE CONTENTION O F THE LD. AR THAT THE ASSESSEE HAS NOT RECEIVED ANY INTEREST INCOME HENCE WAS NOT RECOGNIZED. THE ASSESSEE FILED LEDGER ACCOUNTS STATING THAT NO INTEREST HAS BEEN RECEIVED BY THE A SSESSEE FOR A PERIOD OF 6 YEARS. WE FOUND THERE IS A REALISTIC APPROACH ENVISAGED BY THE LD. AR WHERE THE ASSESSEE MADE AT TEMPT TO GET THE PROPERTY TRANSFER TO THE EXTENT OF THE LOAN AMOUNT AND WHICH IS STILL PENDING TILL TODAY. AS THE ASSESSEE IS MAKING AN EFFORT TO REALIZE THE AMOUNT, AND BEING INDIVIDUAL THE INCOME IS RECOGNISED BASED ON SYSTEM OF ACCOUNTING FOLLOWE D AND GENERALLY THE ASSESSEE HAS OPTION TO OPT THE METHOD OF ACCOUNTING ON ACCRUAL OR RECEIPT BASIS. WE ARE OF THE OPINION THAT THE A.O SHALL EXAMINE THE FINANCIAL TRANSACTIO N AND THE INFORMATION FILED BEFORE US IN RESPECT OF BROUGHT F ORWARDED BALANCES AND FURTHER VERIFY THE ASSESSMENT RECORD O F THE FIRM TO CHECK WHETHER INTEREST HAS BEEN CHARGED ON LOAN AND CLAIMED IN THE BOOKS OF ACCOUNT FOR THE SUBSEQUENT YEARS. CONSIDERING THE MATERIAL FACTS AND HARDSHIP OF THE ASSESSEE WE ARE INCLINED TO GRANT AN OPPORTUNITY TO THE ASSE SSEE TO PRESENT THE CASE BEFORE THE A.O WITH INFORMATION SU BMITTED 8 ITA NO. 1563/HYD/2016 SHRI N PAVAN KUAMR, HYDERABAD. BEFORE US. ACCORDINGLY WE REMIT THE DISPUTED ISSUE FOR THE LIMITED PURPOSE TO THE FILE OF THE A.O. AND THE A. O SHALL PROVIDE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSE SSEE BEFORE PASSING THE ORDER. 7. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2017. SD/- SD/- (B. RAMAKOTAIAH) (G. PAVAN KUMAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 24 TH FEBRUARY, 2017 KRK 1) SHRI N. PAVAN KUMAR C/O K. VASANTKUMAR, A.V. RAGHUR AM, P VINOD & M. NEELIMA DEVI, ADVS, 610, BABUKHAN ESTA TE BASHEERBAGH, HYDERABAD. 2) ITO, WARD 4(1) HYDERABAD 3) CIT(A)-1, HYDERABD 4) PCIT-1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 6) GUARD FILE