Appeal details
Counselvise Citation
[2019] 111 COUNSELVISE.COM (IT) 3989 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 8 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-11-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
I
Assessment Year
2013-2014
Appeal Filed On
14-03-2018
Judgement Text
IN THE INC OME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI S . RIFAUR RAHMAN , AM & SHRI RAM LAL NEGI, JM ./ I.T.A. NO . 1637 / MUM/ 2018 ( / ASSESSMENT YEAR: 2013 - 14 ) M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. (FORMERLY KNOWN AS BOXTRANS LOGISTICS (I) SERVICES PVT. LTD.) GODREJ COLISEUM, OFFICE NO. 801, C - WING, BEHIND EVERARD NAGAR, OFF SOMAIYA HOSPITAL ROAD, SION (EAST), MUMBAI 400 022 / VS . D CIT - 1(1)(1 ), ROOM NO. 533, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 ./ ./ PAN NO. AA CCB 8054 G ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHR I NITESH JOSHI , AR / RESPONDENTBY : SHRI AWANGSHI GIMSON , DR / DATE OF HEARING : 19.09 .201 9 / DATE OF PRONOUNCEMENT : 27.11.2019 / O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. PR. COMMIS S IONER OF INCOME TAX - 1 IN SHORT 2 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. REFERRED AS LD. P CIT , MUMBAI, DATED 10.01.18 FOR A SSESSMENT YEAR (IN SHORT A Y ) 2013 - 14 . 2 . T HE BRIEF FACTS OF THE C ASE ARE THAT ASSESSEE FILED ITS RETURN FOR A.Y. 2013 - 14 WAS FILED ON 27/09/2013 DECLARING TOTAL LOSS OF RS.( - ) 49,20,02,495/ - . THE SAME WAS PROCESSED U/S 143(1) OF THE ACT. THIS CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT U/ S. 143(3) OF THE ACT WAS COMPLETED ON 16/03/2016 ACCEPTING THE RETURN OF INCOME SUBMITTED BY THE ASSESSEE. DURING T HE ASSESSMENT PROCEEDINGS, AO VERIFIED THE WRITE BACK OF LOAN FROM ERSTWHILE DIRECTOR OF THE COMPANY FOR THE LOAN AMOUNT OF RS. 18.5 CRORES. 3. ON VERIFICATION OF ASSESSMENT RECORDS , PR.CIT OBSERVED THAT ASSESSEE HAS WRITTEN BACK AN AMOUNT OF RS. 18.5 CRO RES AS EXCEPTIONAL ITEM IN THE P & L ACCOUNT , WHICH IS DUE ERSTWHILE DIRECTOR OF THE ASSESSEE COMPANY. HE FURTHER OBSERVED THAT A O ASKED ASSESSEE TO JUSTIFY ALLOWABILITY OF THE SAID WRITE BACK VIDE ORDER SHEET NOTING DATED 01/03/2016 AND AFTER CONSIDERING THE REPLY FROM ASSESSEE AS THIS WRITE BACK WAS PURSUANT TO A FAMILY 3 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. SETTLEMENT AGREEMENT AND THE ABOVE SAID EXPLANATION WAS ACCEPTED BY THE AO AND COMPLETED THE ASSESSMENT. 4. ACCORDING TO PR.CIT, THIS ACTION OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE REVENUE , ACCORDINGLY A SHOW CAUSE NOTICE U/S 263 OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE, ASSESSEE MADE THE FOLLOWING SUBMISSIONS BEFORE LD. PCIT, WHICH IS AT SUB PARA 1 TO 1.6 OF THE ORDER OF PCIT AND THE SAME IS REPRODUCED BELOW: - 1. IT IS S TATED IN YOUR HONOUR'S NOTICE THAT PURSUANT TO THE RESTRUCTURING IN THE COMPANY'S GROUP, AN AMOUNT OF RS.18,50,00,000/ - DUE TO ERSTWHILE DIRECTOR OF THE ASSESSEE COMPANY WAS WRITTEN BACK AS EXCEPTIONAL ITEM IN THE PROFIT & LOSS ACCOUNT AND THE ACTION OF TH E AO IN ACCEPTING THE CLAIM OF THE ASSESSEE COMPANY IN ALLOWING THE SAID WRITE BACK DURING THE ASSESSMENT PROCEEDINGS IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 1.1 WE ARE ENGAGED IN THE BUSINESS OF CONTAI NERIZED RAIL FREIGHT SERVICES AND REL ATED LOGISTICS SERVICES. WE SUBMIT THAT OFF LATE WE WERE A PART OF THE FA MILY - RUN BUSINESS GROUP, WELL - KNOWN IN THE NAME OF 'JMB GROUP', OWNED AND MANAGED BY MR. NARESH 4 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. KOTAK(NK), MR.KRISHNA KOTAK(KK), MR.DHRUV KOTAK (DK) AND MR. VIR KOTAK(VK). NK IS THE U NCLE OF KK AND GRAND UNCLE OF DK AND VK. NK AND KK BROADLY HAD EQUAL OWNERSHIP INTEREST IN THE JMB GROUP. HOWEVER, IN RECENT PAST, SERIOUS DIFFERENCES HAD ARISEN BETWEEN THE ABOVE FAMILY MEMBERS. THUS, NK AND KK ( KK COMPRISING OF SELF AND HIS SONS, DK AND VK) EXECUTED A DEED OF FAMILY SETTLEMENT WHICH RESULTED IN FORMATION OF TWO BUSINESS GROUPS. WE HAVE BEEN A PART OF THIS FAMILY SETTLEMENT AND POST - SETTLEMENT FORM PART OF THE GROUP HEADED BY KK. 1.2. PURSUANT TO THE FAMILY SETTLEMENT, BOTH GROUPS HAVE ARR IVED AT AN UNDERSTANDING AND CONSIDERING THE SAID UNDERSTANDING, THE AFORESAID AMOUNT PAYABLE TO NK HAD BEEN WRITTEN BACK AS EXCEPTIONAL ITEM IN THE PROFIT & LOSS ACCOUNT FOR THE F.Y. 2012 - 13 I.E. A.Y.2013 - 14. THE PROFIT & LOSS ACCOUNT OF OUR COMPANY AT PARA 4.08 CONTAINED THE FOLLOWING NOTE: ' DURING THE YEAR, CONSEQUENT TO A FAMILY SETTLEMENT BETWEEN THE SHAREHOLDER - DIRECTORS OF PRINCIPAL SHAREHOLDERS OF THE COMPANY (EFFECTIVE 18 TH JULY 2012), THE BOARD OF DIRECTORS WERE RECONSTITUTED. IN TERMS OF THE A FORESAID FAMILY SETTLEMENT, AN AMOUNT OF RS. 18,50,00,000/ - DUE TO ERSTWHILE DIRECTOR WAS WRITTEN 5 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. BACK AS AN EXCEPTIONAL ITEM IN THE STATEMENT OF P& L FOR THE YEAR. ' 1.3 SINCE THE ENTIRE SCHEME OF FAMILY SETTLEMENT IS BASED ON THE ANTECEDENT TITLES O F BOTH THE FAMILY GROUPS IN THE GROUPS ASSETS, AND INCOME ARISING OUT OF THE TRANSACTION FORMING PART OF SUCH SETTLEMENT IS NOT EXIGIBLE TO TAX. ACCORDINGLY, RS 18,50,00,000/ - CREDITED TO THE P & L ACCOUNT WAS REDUCED FROM BUSINESS INCOME WHILE COMPUTING TH E TAXABLE INCOME FOR THE ASSESSMENT YEAR .20 13 - 14. 1.4 IN RESPONSE TO THE NOTICE U/S. 142(1 ) OF THE I.T.ACT DATED 22/01/2016, VIDE OUR LETTER DATED 22/02/2016 AT PARA 10(A), THE FACT ABOUT THE WRITE BACK OF THE AFORESAID AMOUNT WAS BROUGHT TO THE NOTICE OF THE AO. VIDE ORDER SHEET NOTING DATED 01/03/2016, THE AO CALLED FOR THE JUSTIFICATION FOR CLAIM FOR WRITE BACK OF THE AFORESAID AMOUNT. VIDE OUR LETTER DATED 10/03/2016 [ PARA 1 THEREOF] WE FILED OUR DETAILED REPLY AS TO WHY THE AFORESAID AMOUNT SHOULD NOT BE REGARDED AS OUR INCOME. THE AO, AFTER DUE CONSIDERATION, ACCEPTED OUR AFORESAID CLAIM. 6 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. 1.5 WE SUBMIT THAT THE AO HAS COMPLETED THE ASSESSMENT ACCEPTING OUR CLAIM THAT THE AFORESAID SUM OF RS. 18,50,00,000 / - IS NOT TAXABLE AS OUR INCOME AFTER MAKING APPROPRIATE I NQUIRIES AND VERIFICATION OF OUR CLAIM AND EXERCISING QUASI JUDICIAL AUTHORITY VESTED IN HIM AND ARRIVING AT THE CONCLUSION REACHED AND THE SAME CANNOT BE TERMED TO BE ERRONEO US. 1.6 WE SUBMIT THAT IN SEVERAL JUDICIAL PRECEDENTS IT HAS BEEN HELD THAT WHEN THE AO HAVING CALLED FOR DETAILS AND EXPLANATIONS WITH REGARD TO THE CLAIM MADE BY AN ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND ALLOWED THE SAME AFTER VERIFYING THE DETAILS, HIS ORDER CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO TH E INTEREST OF REVENUE. SOME OF THE JURISDICTIONAL JUDICIAL PRECEDENTS WHICH HAVE UPHELD THE AFORESAID VIEW ARE AS UNDER: CHARAK PHARMACEUTICAL V. JCIT((2006) 99 TTJ1217 (MUM)] MRS. KHATIZA S OOMERBHOY V. TTO, WARD 17(3)(3) [(2006) 100TTD173 (MUM)] SANJAY K SARAWAGI V. CIT[(2004) 1 SOT 364 (MUM) (SMC)] 7 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. ZYMA LABORATORIES LTD. V. ADDL. CIT, RG 10(1) ((2006) 7 SOT 164 (MUM)] NEELAM MERCANTILE (P) LTD. V. /TO, 2(2)(3), MUMBAI 1(2009) 31 SOT 278 (MUM)] DHRUV N SHAN V.DY.CIT[(2004) 88ITD 118 (MUM)] CROWN FROZEN FOODS V. ADDL. CIT [(2005) 093 TTJ 0485 (MUM)] ANIL SHAH V. ACI T, RG, 24(1), MUMBAI [(2007) 162 TAXMAN 39 (MUM)] 1.7 WE SUBMIT THAT OUR CLAIM THAT THE AMOUNT OF WRITE BACK PURSUANT TO FAMILY SETTLEMENT OUGHT NOT TO BE TAXABLE IS BACKED BY JUDICIAL PRE CEDENTS AS WELL. IT IS SUBMITTED THAT JUST BECAUSE THERE CAN BE A DIFFERENT VIEW OF THE MATTER, THE ORDER CANNOT BE SAID TO BE ERRONEOUS. WE RELY ON THE FOLLOWING DECISIONS OF THE COURTS (INCLUDING DECISIONS OF THE JURISDICTIONAL AUTHORITIES / COURTS) IN T HE MATTER: - CIT V. GABRIEL INDIA LTD. [(1993) 71 TAXMAN 585 (BOM) THE AO AFTER MAKING ENQUIRIES IN REGARD TO NATURE OF EXPENDITURE AND CONSIDERING EXPLANATION FURNISHED BY ASSESSEE IN THAT REGARD, ALLOWED ASSESSEE'S CLAIM. 8 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. SUBSEQUENTLY, COMMISSIONER, EXERC ISED POWERS U/S.263, CANCELLED ORDER OF THE AO OBSERVING THAT ORDER OF AO DID NOT CONTAIN DISCUSSION IN REGARD TO ALLOWABILITY OF CLAIM FOR DEDUCTION WHICH INDICATED NON - APPLICATION OF MIND. THE HIGH COURT HELD THAT AO'S CONCLUSION CANNOT BE TERMED AS ERRO NEOUS SIMPLY BECAUSE COMMISSIONER DOES NOT AGREE WITH HIS CONCLUSION. * P.M. WRITER & CO. LTD. V. ADDL.CIT SPL. RG, 50[(2006) 7 SOT 346 (MUM)] NEELAM MERCANTILE (P) LTD. V. JTO, 2(2)(3), MUMBAI [(2009) 31 SOT 278 (MUM)] CIT, CITY VI, MUMBAI V. DESIGN & AUT OMATION ENGINEERS (BOMBAY) (P.) [(2009) 177 TAXMAN 9 (BOM)] CIT V. MEHSANA DISTT. CO - OP MILK PRODUERS UNION LTD. [(2003) 130 TAXMAN 235 (GUJ)] THE HONBLE GUJRA T HIGH COURT HELD THAT WHERE TWO VIEWS ARE POSSIBLE AND THE AO AS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE SO AS TO EXERCISE THE POWERS U/S. 263 UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. 9 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. WE ALSO SUBMIT THAT SINCE THE AMOUNT OF RS. 18,5 0,00,000/ - IS A LOAN LIABILITY FOR WHICH NO DEDUCTION WAS CLAIMED IN THE PAST, THE WRITE BACK THEREOF DOES NOT RESULT INTO ANY TAXABLE INCIDENCE AND ACCORDINGLY THE SAME IS NOT ELIGIBLE TO TAX AND HAS CORRECTLY BEEN ACCEPTE D BY THE AO WHILE COMPLETING OUR ASSESSMENT. IT IS THEREFORE SUBMITTED THAT THE ORDER PASSED U/S 143(3) OF THE I.T. ACT BY THE AO ON 16/03/2016 HAS BEEN PASSED AFTER MAKING INQUIRIES AND DUE VERIFICATION ABOUT THE CLAIM AND ACCEPTING ONE POSSIBLE VIEW OF THE MATTER THAT THE SAID AMOUNT IS NOT EXIGIBLE TO TAX AND IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF TH E REVENUE AND IN FACT IS IN FULL COMPLIANCE WITH THE PROVISION OF LAW & THEREFORE NEEDS NO REVISION AT ALL. 5. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, PR. CIT REJECTED THE CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT ASSESSEE ITSELF STATED THAT IT WAS ONE - TIME RECEIPT AND IN THE NATURE OR SUNDRY BALANCE (AS SEEN FROM C ASH FLOW STATEMENT AND COMPUTATION OF INCOME) I.E WRITTEN BACK OF LOAN , WHICH WAS IN THE FORM OF TRADING LIABILITY. ASSESSEE ALSO IN ITS SUBMISSION STATED THAT LOAN FROM ONE OF THE DIRECTOR MR. N. J. KOTAK (FAMILY 10 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. MEMBER) HAS BEEN TAKEN FOR RUNNING ITS BUSINESS AND PURSUANT TO FAMILY SETTLEMENT, ASSESSEE COMPANY WRITTEN BACK OF SUNDRY BALANCES IS REQUIRED TO BE TAXED U/S. 41(1) IN LIGHT OF THE SUPREME COURT DECISION IN THE CASE OF CIT VS. T V SUNDARAMLYENGAR & SONS LTD. [88 TAXRNAN 429 (SC). WITH THE ABOVE OBSERVATIONS, PR. CIT PASSED ORDER U/S 263 OF THE ACT AND TREATED THE ORDER PASSED U/S 143(3) AS ERRONEOUS AS FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, HE DIRECTED THE AO TO RE - DO THE ASSESSMENT AFRESH DE NOVO. 6. AGGRIEVED BY THE ABOVE ORDER OF LD. PCIT, ASSESSEE PREFERRED THE APPEAL BE FORE US ON THE GROUND MENTIONED HEREIN BELOW: - 1. THE ORDER OF THE LD. PRINCIPAL COMMISSIONER OF INCOME - TAX UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 IS WITHOUT JURISDICTION, OPPOSED TO THE PRINCIPLES OF LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE OF APPELLANT. 2. THE LD. PRINCIPAL COMMISSIONER OF INCOME - TAX ERRED IN FORMING AN OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 11 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. 3. THE LD. PRINCIPAL COMMISSIONER OF INCOME - TAX FAILE D TO APPRECIATE THAT THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT ACCEPTING THE APPELLANT'S CLAIM THAT THE AFORESAID SUM OF RS. 18,50,00,000 - IS NOT TAXABLE AS APPELLANT'S INCOME AFTER MAKING APPROPRIATE ENQUIRIES AND VERIFICATION OF THE APPELLANT'S CLAIM AND EXERCISING QUASI JUDICIAL AUTHORITY VESTED IN HIM AND ARRIVING AT THE CONCLUSION REACHED AND THE SAME CAN NOT BE TERMED TO BE ERRONEOUS. 4. THE LD. PRINCIPAL COMMISSIONER OF INCOME - TAX ERRED IN NOT ACCEPTING THE APPELLANT'S CLAIM THAT THE AMOUNT OF WRITE BACK PURSUANT TO FAMILY SETTLEMENT OUGHT NOT TO BE TAXABLE IS BACKED BY JUDICIAL PRECEDENTS AS WELL AND JUST BECAUSE THERE COULD BE A DIFFERENT VIEW OF THE MATTER, THE ORDER CANNOT BE SAID TO BE ERRONEOUS. 5. THE LD. PRINCIPAL COMMISSIONER OF I NCOME TAX FAILED TO APPRECIATE THAT THE AFORESAID SUM OF RS. 18,50,00,000/ - WAS A LOAN LIABILITY FOR WHICH NO DEDUCTION WAS CLAIMED IN THE PAST AND THE WRITE BACK THEREOF DOES NOT RESULT INTO ANY TAXABLE INCIDENCE. 6. THE LD. PRINCIPAL COMMISSIONER OF IN COME - TAX ERRED IN APPLYING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. T.V. SUNDARAM LYENGAR & SONS LTD. 12 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. [88 TAXMAN 429 (SC)], THE APPELLANT SUBMITS THAT THE SAID DECISION HAS NO APPLICATION TO THE FACTS OF THE APPELLANT. 7. THE APPELLANT, THE REFORE, SUBMITS THAT THE LD. COMMISSIONER OF INCOME - TAX FAILED TO APPRECIATE THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE AND ACCORDINGLY, THE ORDER PASSED UNDER SECTION 263 OF THE ACT BY THE LD COMMISSIONER OF INCOME - TAX DESERVES TO BE CANCELLED AND SET ASIDE. 8. THE APPELLANT PRAYS THAT THE APPEAL PRAYED FOR BE ADMITTED AND ALLOWED. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HERE IN AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE TIME OF HEARING OF THE APPEAL. 7 . BEFORE US, LD. AR BROUGHT TO OUR NOTICE BRIEF FACTS ABOUT THE FA MILY SETTLEMENT REACHED IN THE J. M. BAKSHI GROUP AND BROUGHT TO OUR NOTICE THE COPY OF THE FAMILY ARRANGEMENT. HE SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS ITSELF, AO ENQUIRED ABOUT THE WRITE BACK OF LOAN RECEIVED FROM THE ERSTWHILE 13 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. DIRECTOR AND AS SESSEE HAS SUBMITTED BEFORE AO THAT DUE TO FAMILY ARRANGEMENT AND RE - ARRANGEMENT OF THE BUSINESS CARRIED ON BY THE FAMILY MEMBERS AND CERTAIN BUSINESS WERE HANDED OVER TO NARESH KOTAK AND KRISHNA KOTAK AND OTHER FAMILY MEMBERS. DUE TO RE - ARRANGEMENT OF THE BUSINESS OWNED AND MANAGED BY THE FAMILY MEMBERS, THE LOAN GIVEN BY NARESH KOTAK (ERSTWHILE DIRECTOR) IS NOT A LIABILITY ANYMORE AND THE SAME WAS WRITTEN BACK AS A EXCEPTIONAL ITEM IN THE BALANCE SHEET AND THE SAME WAS DISCLOSED PROPERLY IN THE BALANCE SH EET. THIS EXPLANATION WAS ACCEPTED BY THE AO AND COMPLETED THE ASSESSMENT. HOWEVER, HE SUBMITTED THAT AO EVEN THOUGH VERIFIED, MADE THE ENQUIRY, BUT CHOOSE NOT TO MAKE ANY DISCUSSION IN THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT AO HAS TAKEN A PARTICU LAR VIEW AND PR. CIT HAS NO JURISDICTION TO INVOKE THE PROVISION OF SECTION 263 OF THE ACT. FURTHER HE SUBMITTED THAT BEFORE COMPLETING THE PROCEEDINGS U/S 263 OF THE ACT, COMMISSIONER SHOULD HAVE GIVEN AN OPPORTUNITY TO THE ASSESSEE, BUT THE PROCEEDINGS W ERE COMPLETED BASED ON THE RECORD AVAILABLE ON THE FILE, THIS IS AGAINST THE NATURAL JUSTICE. FURTHER, HE SUBMITTED THAT IN THE CONCLUSION, PR. CIT MADE OBSERVATION THAT ASSESSEE ITSELF STATED THAT LOAN FROM ONE OF THE 14 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. DIRECTOR HAS BEEN TAKEN FOR RUNNING I TS BUSINESS AND THEREFORE THIS LOAN IS TRADING LIABILITY. HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT ACCEPTED NOR MADE ANY SUBMISSION BEFORE PR.CIT, THIS IS FACTUALLY INCORRECT. THIS ASPECT OF THE ACCEPTANCE MADE BY THE ASSESSEE WAS ENQUIRED WITH LD. DR BY THE BENCH AND LD. DR VERIFIED THE SAME AND GET BACK TO THE BENCH AND ACCORDINGLY TAKEN 2 DAYS TIME. IN THE SUBSEQUENT HEARING, LD. DR SUBMITTED THAT NO SUCH ACCEPTANCE MADE BY THE ASSESSEE , BUT RECALLED THE CONCLUSION MADE BY PCIT BASED ON MATERIAL AVAI LABLE ON RECORD AND IT IS ONLY PROPOSITION OF PR. CIT. 8. WITH THE PERMISSION OF THE BENCH, LD. AR SOUGHT TO FILE SYNOPSIS AND ACCORDINGLY HE SUBMITTED THE SAME TODAY, WHICH IS REPRODUCED BELOW: - 2. THE BRIEF FACTS, IN SO FAR AS RELEVANT, FOR CONSIDERATION OF THE AFORESAID ISSUES ARE AS STATED HEREAFTER: SR. NO . DATE EVENTS A. PRIOR TO THE FAMILY SETTLEMENT, THE J. M. BAXI GROUP COMPRISED OF MR. NARESH 15 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. KOTAK, MR. KRISHNA KOTAK AND HIS TWO SONS MR. DHRUV KOTAK AND MR. VIR KOTAK. NARESH KOTAK IS THE UNCLE OF KRISHNA KOTAK AND GRAND UNCLE OF DHRUV KOTAK AND VIR KOTAK. THE NARESH KOTAK AND THE KRISHNA KOTAK SUB - GROUPS BROADLY HAD EQUAL INTEREST IN THE J.M. BAXI GROUP. B. THE APPELLANT (EARLIER KNOWN AS BOXTRANS LOGISTICS (INDIA) SERVICES PVT. LTD.) HAS BEEN ENGAGED IN THE BUSINESS OF CONTAINERISED RAIL FREIGHT AND RELATED LOGISTICS SERVICES. THIS IS A CAPITAL INTENSIVE INDUSTRY. MR. NARESH KOTAK HAD LENT MONEY TO THE APPELLANT ON AN INTEREST FREE BASIS WHICH AS ON 01.04.2012 STOOD AT RS.18 .50 CRORE. THIS COMPRISED OF LENDING UPTO 31.03.2008 OF RS.5 CRORE AND FURTHER LENDING OF RS.10.50 CRORE IN THE FINANCIAL YEAR 2009 - 10 AND RS.3 CRORE IN THE FINANCIAL YEAR 2010 - 11. AS ON 31.03.2008, THE APPELLANT'S FIXED ASSETS AND CAPITAL WORK IN PROGRESS STOOD AT RS. 15.65 CRORE. SUCH ADDITION DURING FINANCIAL YEAR 2009 - 10 WAS 10.23 CRORE AND DURING 16 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. FINANCIAL YEAR 2010 - 11 WAS RS.5.59 CRORE. THEREFORE, THE AMOUNT BORROWED BY THE APPELLANT FROM MR. NARESH KOTAK HAD BEEN UTILISED FOR THE PURPOSES OF ACQUIRIN G FIXED ASSETS. C. 17.05.2012 WITH A VIEW TO RESOLVE THE SERIOUS DIFFERENCES THAT HAD ARISEN BETWEEN THE NARESH KOTAK AND THE KRISHNA KOTAK GROUPS CONCERNING THE MANAGEMENT OF THE J. M. BAXI GROUP AND THE BUSINESS PLANS AND OBJECTIVES, WHICH WOULD HAVE OTHERWISE DISTURBED THE PEACE AND HARMONY OF THE FAMILY, A FAMILY SETTLEMENT WAS EXECUTED BETWEEN THE PARTIES (COPY HANDED OVER AT THE TIME OF HEARING). IN ACCORDANCE WITH THE CLAUSES 4(I)&(II) READ WITH SCHEDULE 2A AND 2B THERETO, THE APPELLANT FORMED THE PART OF THE ENTITIES TO REMAIN W ITH THE KRISHNA KOTAK GROUP AS IT DID NOT FORM PART OF THE ENTITIES WHOSE SHARES WERE TO BE TRANSFERRED BY THE KRISHNA KOTAK GROUP TO THE NARESH KOTAK GROUP. AS PER CLAUSES 3B, 6(A)(III) AND 6(A)(VII) READ WITH SCHEDULE 5 OF THE FAMILY 17 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. SETTLEMENT, IT WAS A GREED THAT ONLY THE SPECIFIED UNSECURED LOANS TAKEN BY THE ENTITIES COMING TO THE KRISHNA KOTAK GROUP (BEING J. M. BAXI & CO., CHUNILAL 85 CO. AND ARYA FINANCIAL 85 INVESTMENT CONSULTANCY SERVICES PVT. LTD.) SHALL BE REPAID. THEREFORE, THE UNDERSTANDING WA S THAT THE LOAN TAKEN BY THE APPELLANT FROM MR. NARESH KOTAK IS NO LONGER REQUIRED TO BE RETURNED IN VIEW OF THE FAMILY SETTLEMENT. PURSUANT THERETO, IN ITS BOOKS OF ACCOUNT, THE APPELLANT HAS WRITTEN BACK THE LIABILITY OF UNSECURED LOAN OF RS. 18.50 CRORE PAYABLE TO MR. NARESH KOTAK. D. YEAR ENDING 31.03.2013 THE AMOUNT OF RS.18.50 CRORE BEING WRITE BACK OF LOAN WAS REFLECTED AS AN EXCEPTIONAL ITEM TO THE CREDIT OF THE APPELLANT'S PROFIT AND LOSS ACCOUNT (SEE THE PROFIT AND LOSS ACCOUNT AT PAGE 14 AND SCHEDULE 3.09 AT PAGE 26 OF THE PAPER BOOK). TILL 31.03.2012, THE AMOUNT BORROWED FROM MR. NARESH KOTAK WAS REFLECTED AS LONG - TERM BORROWINGS - LOANS AND ADVANCES FROM 18 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. RELATED PARTIES [SEE SCHEDULE 2.03 (FOR THE YEA R 2012) AT PAGE 21 OF THE PAPER BOOK]. THE FACT RELATING TO THE FAMILY SETTLEMENT AND THE WRITE BACK OF THE LOAN WAS REFLECTED AS A NOTE IN SCHEDULE 4.08 AT PAGE 31 OF THE PAPER BOOK. THE SAID NOTE READ AS UNDER: - 'DURING THE YEAR, CONSEQUENT TO A FAMILY S ETTLEMENT BETWEEN THE SHAREHOLDER - DIRECTORS OF PRINCIPAL SHAREHOLDERS OF THE COMPANY (EFFECTIVE 18TH JULY, 2012), THE BOARD OF DIRECTORS WERE RECONSTITUTED. IN TERMS OF THE AFORESAID FAMILY SETTLEMENT, AN AMOUNT OF RS. 18,50,00,000/ - DUE TO ERSTWHILE DIREC TOR WAS WRITTEN BACK AS AN EXCEPTIONAL ITEM IN THE STATEMENT OF PROFIT AND LOSS FOR THE YEAR'. E. 27.09.2013 THE APPELLANT FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF A LOSS OF RS.49,20,02,495. IN THE SAID COMPUTATION, AS A SEPARATE LINE ITEM, IT INCREASED ITS LOSS BY THE AMOUNT OF SUNDRY BALANCES WRITTEN BACK OF 19 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. RS.18.50 CRORE (SEE PAGE 32 OF THE PAPER BOOK) F. 22.01.2016 THE AO ISSUED A NOTICE UNDER SECTION 142(1) OF THE ACT INTER - ALIA SEEKING INFORMATION WITH RESPECT TO WRITE BACK OF THE LOAN REFLECTED AS AN EXCEPTIONAL ITEM IN THE PROFIT AND LOSS ACCOUNT (COPY OF THE NOTICE HAS BEEN SEPARATELY HAND ED OVER AT THE TIME OF HEARING) G. 24.02.2016 THE APPELLANT FILED LETTER DATED 22.02.2016 WITH THE AO, EXPLAINING THAT CONSEQUENT TO THE RESTRUCTURING IN THE GROUP ITS BOARD OF DIRECTORS HAD BEEN RE - CONSTITUTED. AS A RESULT, AN AMOUNT OF RS.18.50 CRORE DUE TO AN ERSTWHILE DIRECTOR MR. NARESH KOTAK HAD BEEN WRITTEN BACK AS AN EXCEPTIONAL ITEM IN THE STATEMENT OF PROFIT AND LOSS ACCOUNT OF THE YEAR (SEE PAGE 34 OF THE PAPER BOOK). H. 11.03.2016 IN RESPONSE TO A FURTHER QUERY RAISED BY THE AO, IN THE COURSE OF ASSESSMENT 20 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. PROCEEDINGS VIDE ORDER SHEET EN TRY NOTING DATED 01.03.2016, THE APPELLANT FILED LETTER DATED 10.03.2016 EXPLAINING THE FACT RELATING TO FAMILY SETTLEMENT AND ITS SUBMISSION TO THE EFFECT THAT THE AMOUNT OF RS. 18.50 CRORE WAS NOT OFFERED FOR TAX IN VIEW OF THE FAMILY SETTLEMENT, COPY WH EREOF WAS ALSO PRODUCED BEFORE HIM (SEE PAGES 36 AND 37 OF THE PAPER BOOK). I 16.03.2016 THE AO PASSED HIS ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT, ACCEPTING THE APPELLANT'S TOTAL INCOME FOR ASSESSMENT YEAR 2013 - 14 AS LOSS OF RS.49,20,02,495. IN THE SAID ORDER, HE REFERRED TO THE FACT RELATING TO ISSUE OF NOTICE DATED 22.01.2016 UNDER SECTION 142(1) OF THE ACT AND THAT THE APPELLANT HAD SUBMITTED THE DETAILS AS CALLED FOR. HE HAS ALSO NOTED IN PARAGRAPH 4 OF THE ORDER THAT HE HAD OBTAINED EXPLANATION/CLARIFICATIONS ON THE ISSUES ARISING IN THE EXAMINATION OF DETAILS WHICH WERE PLACED O N RECORD. THOUGH, THERE IS NO DISCUSSION IN THE ASSESSMENT 21 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. ORDER ACCEPTING THE APPELLANT'S CLAIM RELATING TO NON - TAXABILITY OF THE AMOUNT OF RS.18.50 CRORE, THE AO HAD APPLIED HIS MIND TO THIS ISSUE AS THE FACT RELATING TO FAMILY SETTLEMENT HAD BEEN DULY D ISCLOSED IN THE ANNUAL ACCOUNTS AS WELL AS FORMED A SEPARATE LINE ITEM IN THE COMPUTATION OF INCOME. FURTHER, ON MULTIPLE OCCASIONS, THE AO HAD RAISED THIS ISSUE AND THE APPELLANT HAD MADE ITS SUBMISSIONS ON THIS ISSUE EXPLAINING THE FACTUAL POSITION AS WE LL AS THE REASON WHY IT CLAIMED THE SAME TO BE NOT TAXABLE. J. 24.07.2017 THE PCIT, ISSUED SHOW - CAUSE NOTICE UNDER SECTION 263 OF THE ACT, ALLEGING THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS, ACCORDING TO HIM , THE AO HAD FAILED TO CARRY OUT RELEVANT AND MEANINGFUL ENQUIRES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE (SEE PAGES 38 AND 39 OF THE PAPER BOOK). K. 07.08.2017 THE APPELLANT FILED ITS RESPONSE TO THE 22 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. SAID SHOW - CAUSE NOTICE WITH THE PCIT. THEREIN, IT EXPLAINED THE FACT RELATING TO RESTRUCTURING OF THE GROUP PURSUANT TO THE FAMILY SETTLEMENT AND FACTS RELATING TO THE ASSESSMENT PROCEEDINGS WHERE THE AO HAD CONSIDERED THE ISSUE RELATING TO TAXABILITY OF T HE AMOUNT OF RS.18.50 CRORE WRITTEN BACK AS AN EXCEPTIONAL ITEM TO THE PROFIT AND LOSS ACCOUNT. IT WAS INTER - ALIA URGED THAT THE AO HAD TAKEN A POSSIBLE VIEW ON THIS ISSUE, AND THE MERE FACT THAT THE PCIT WAS OF A DIFFERENT VIEW WOULD NOT RENDER THE ASSESS MENT ORDER TO BE ERRONEOUS (SEE PAGES 40 TO 43 OF THE PAPER BOOK). L. 10.01.2018 THE PCIT PASSED THE IMPUGNED ORDER, OBSERVING THAT THE RECORD DISCLOSED THAT THE APPELLANT HAD ITSELF STATED THAT THE NATURE OF THE UNSECURED LOAN WHICH HAD BEEN WRITTEN BA CK DURING THE YEAR WAS IN THE FORM OF A TRADING LIABILITY, WHICH HAD BEEN TAKEN FOR RUNNING ITS BUSINESS. THE APPELLANT SUBMITS THAT THE SAID ASSERTION REFERRING TO ITS ACCEPTANCE IS FACTUALLY INCORRECT. IN FACT THE RECORD SHOWS THAT 23 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. AS PER ITS ACCOUNTS AT SCHEDULE 2.03 (FOR THE YEAR 2012) (SEE PAGE 21 OF THE PAPER BOOK), THE AFORESAID LIABILITY FOR UNSECURED LOAN WAS PART OF LONG - TERM BORROWINGS - LOANS AND ADVANCES FROM RELATED PARTIES. ON 16.09.2019 THE HEARING OF THE APPEAL HAD BEEN SPECIFICALLY ADJOURN ED FOR THE LD. DR TO ASCERTAIN THE CORRECT FACTUAL POSITION AND PLACE BEFORE THE TRIBUNAL THE RECORD WHICH SHOWED SUCH ACCEPTANCE BY THE APPELLANT. ON 19.09.2019, AFTER OBTAINING NECESSARY CLARIFICATIONS FROM THE OFFICES OF THE AO AND THE PCIT, THE LD. DR HAS CONFIRMED THAT THERE IS NOTHING ON RECORD TO SUBSTANTIATE THE ASSERTION MADE BY THE PCIT AS ACCEPTANCE BY THE APPELLANT. THE PCIT ALSO RELIED UPON THE JUDGEMENT OF THE HON'BLE APEX COURT IN CIT VS. T. V. SUNDARAM LYENGAR & SONS LTD. 88 TAXMAN 429 TO HO LD THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT WILL APPLY TO THE PRESENT CASE. 24 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. 3. ON THE AFORESAID FACTS, THE APPELLANT'S SUBMISSIONS ON EACH OF THE ISSUES ARE AS UNDER: NATURAL JUSTICE (A) SECTION 263(1) OF THE ACT REQUIRES THE COMMISSIONER TO GIVE AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE PASSING AN ORDER UNDER THE SAID SECTION. IT IS A JURISDICTIONAL PRE - CONDITION THAT THE PRINCIPLES OF NATURAL JUSTICE SHOULD BE FOLLOWED BEFORE AN ORDER IS PASSED UNDER THE SAID SECTION. IN THE PRESENT C ASE, A BARE PERUSAL OF ORDER DATED 10.01.2018 PASSED BY THE PCIT SHOWS THAT HE HAS PROCEEDED ON THE BASIS THAT THE RECORD SHOWED THAT THE APPELLANT HAS ACCEPTED THAT THE LOAN FROM MR. NARESH KOTAK HAD BEEN TAKEN FOR RUNNING ITS BUSINESS AND WAS IN THE FORM OF A TRADING LIABILITY. THEREAFTER, REL YING ON THE JUDGMENT OF THE HON BLE APEX COURT IN THE CASE OF CIT VS. T. V. SUNDARAM LYENGAR & SONS LTD. 88 TAXMAN 429 (SUPRA), HE HAS HELD THE AMOUNT OF RS. 18.50 CRORE IS TAXABLE UNDER SECTION 41(1) OF THE ACT. THE APPELLANT SUBMITS THAT NEITHER ITS ALLEGED ACCEPTANCE OF THE FACTUAL POSITION ASSUMED BY THE PCIT, NOR REFERENCE TO THE SAID JUDGMENT OF THE APEX COURT OR APPLICATION OF SECTION 41(1) OF THE ACT HAVE BEEN REFERRED TO IN THE SHOW - CAUSE NOTICE DATED 24.07.2 017 ISSUED BY THE PCIT. THE SHOW - CAUSE NOTICE PROCEEDED ON THE BASIS 25 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. THAT THE AO HAD FAILED TO MAKE RELEVANT AND MEANINGFUL ENQUIRES WITH RESPECT TO THE AMOUNT OF WRITE BACK OF LOAN OF RS. 18.50 CRORE. DURING THE REVISION PROCEEDINGS ALSO THIS WAS NOT BROU GHT TO THE APPELLANT'S NOTICE. SINCE THE PCIT HAS HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BASED ON A REASONING DIFFERENT FROM THE REASONS GIVEN IN THE SHOW - CAUSE NOTICE, THE PRINCIPLES OF NATURAL JUSTICE HAV E BEEN VIOLATED RENDERING THE IMPUGNED REVISION ORDER DATED 10.01.2018 TO BE ILLEGAL AND BAD IN LAW. (B) IN SUPPORT OF THE PROPOSITION THAT VIOLATION OF PRINCIPLES OF NATURAL JUSTICE WOULD RENDER THE REVISION ORDER PASSED UNDER SECTION 263 OF THE ACT TO BE ILLEGAL AND BAD IN LAW, THE APPELLANT RELIES ON THE FOLLOWING CASES: (I) CIT VS. AMITABH BACHCHAN (2016) 384 ITR 200 (SC) (SEE PARAS 10 AND 11 AT PAGES 210 TO 212 OF THE REPORT); (II) AMBUJA CEMENTS LTD. VS CIT - ORDER DATED 10.11.2017 IN ITA NO. 3563/MUM/2016 - COPY HANDED OVER AT THE TIME OF HEARING - WHERE PROVISION FOR SLOW MOVING INVENTORY WAS SOUGHT TO BE DENIED AS CAPITAL IN NATURE AS PER THE SHOW - 26 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. CAUSE NOTICE (SEE PARA 2 AT PAGE 2) AND THE MANNER OF QUANTIFYING THE PROVISION WAS FOUND TO BE NON SCIENTIFIC IN THE REVISION ORDER (SEE PARA 8 & 9 PAGES 5, 6 & 7). THE TRIBUNAL'S CONCLUSION ON THIS ISSUE IS IN PARA 10 AT PAGES 8 & 9. (II) CIT VS. CONTIMETERS ELECTRICALS (P.) LTD. 317 ITR 249 (DEL). IN THIS CASE, THE COMMISSIONER HAD SOUGHT TO DENY THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 80 - IA OF THE ACT, IN THE SHOW - CAUSE NOTICE, AS THE AUDIT REPORT HAD NOT BEEN OBTAINED. HOWEVER, THE REVISION ORDER ALSO JUSTIFI ED SUCH DENIAL ON THE GROUND THAT THE ASSESSEE THEREIN, WAS SUPPLYING METERS TO ELECTRICITY BOARDS / COMPANIES WHICH COULD NOT BE REGARDED AS POWER GENERATION OR TRANSMISSION. THE HIGH COURT AFTER HOLDING THAT THE REQUIREMENT RELATING TO OBTAINING AUDIT RE PORT WAS CLARIFICATORY IN NATURE AND HAD BEEN FILED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS HELD THAT THE REVENUE CANNOT SUPPORT THE REVISION ORDER ON A BASIS FOR WHICH NO OPPORTUNITY FOR HEARING WAS GIVEN TO THE ASSESSEE. IN THIS REGARD, IN PARA 1 0, THE COURT HAS ALSO REFERRED TO JUDGEMENT OF THE HON'BLE APEX COURT IN THE CASE 27 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. COMMISSIONER OF CUSTOMS VS TOYO ENGINEERING (INDIA) LTD. (2006) 7 SCC 592. BASED ON THE ABOVE, THE APPELLANT SUBMITS THAT, IN THE PRESENT CASE, THE FINDINGS GIVEN BY THE PCIT AND THE BASIS THEREOF WAS NEVER PUT TO THE APPELLANT IN THE REVISION PROCEEDINGS. IN VIEW THEREOF, REVISION ORDER DATED 10.01.2018 PASSED UNDER SECTION 263 OF THE ACT VIOLATES THE REQUIREMENT OF PROVIDING AN OPPORTUNITY OF HEARING IN SUB - SECTION(L) THEREO F, RENDERING THE SAID ORDER TO BE ILLEGAL AND BAD IN LAW. AO HAD APPLIED HIS MIND (C) A BARE PERUSAL OF THE CHRONOLOGY OF THE EVENTS REFERRED TO ABOVE, SHOWS THAT THE AO HAD APPLIED HIS MIND TO THE ISSUE RELATING TO THE TAXABILITY OF THE AMOUNT OF RS. 18.50 CRORE BEING WRITE BACK OF LOAN FROM MR. NARESH KOTAK IN VIEW OF THE FAMILY SETTLEMENT. THIS IS BECAUSE: (I) THE FACT RELATING TO WRITE BACK OF LOAN WAS REFLECTED AS AN EXCEPTIONAL ITEM IN THE PROFIT AND LOSS ACCOUNT (SEE PAGE 14 OF THE PAPER B OOK), DETAILS WHEREOF WERE AVAILABLE IN SCHEDULE 3.09 AT PAGE 26. NOTE 4.08 TO THE FINANCIAL STATEMENT AT PAGE 31 EXPLAINED THE FACT RELATING TO THE 28 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. FAMILY SETTLEMENT AND WRITE BACK OF THE LOAN AS AN EXCEPTIONAL ITEM. (II) IN THE COMPUTATION OF INCOME , THE LOSS STOOD INCREASED BY THE AMOUNT OF RS.18.50 CRORE BEING SUNDRY BALANCES WRITTEN BACK WHICH WAS REFLECTED AS A SEPARATE LINE ITEM (SEE PAGE 32 OF THE PAPER BOOK). (III) BY HIS NOTICE DATED 22.01.2016, ISSUED UNDER SECTION 142(1) OF THE ACT, TH E AO HAD ASKED AN EXPLANATION IN RESPECT OF THE AFORESAID WRITE BACK (COPY SEPARATELY HANDED OVER AT THE TIME OF HEARING) (IV) APPELLANT BY ITS LETTERS DATED 22.02.2016 (SEE PAGE 34 OF THE PAPER BOOK) AND DATED 10.03.2016 (SEE PAGES 36 AND 37 OF THE PAPER BOOK) HAD DULY EXPLAINED THE FACT THAT THE WRITE BACK OF LOAN OF RS. 18.50 CRORE WAS CONSEQUENT TO RESTRUCTURING OF THE GROUP IN VIEW OF THE FAMILY SETTLEMENT. FINALLY, THE SAID AMOUNT WAS NOT CHARGEABLE TO TAX AS THE WRITE BAC K WAS IN VIEW OF A FAMILY SETTLEMENT. THEREFORE, THE AO HAD ACCEPTED THE APPELLANT'S CLAIM IN THE ASSESSMENT ORDER DATED 16.03.2016 PASSED UNDER SECTION 143(3) OF THE ACT, AFTER DUE APPLICATION OF MIND. 29 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. THIS SHOULD BE SO, THOUGH THERE IS NO DISCUSSION IN T HE ASSESSMENT ORDER IN THIS BEHALF. (D) IN THE COURSE OF HEARING BEFORE THE TRIBUNAL, THE LD. DR INTER - ALIA URGED THAT THE AO HAD NOT APPLIED HIS MIND TO THIS ISSUE AS THERE WAS NO DISCUSSION WITH RESPECT TO THE SAME IN THE ASSESSMENT ORDER. THE APPELLANT PLACES RELIANCE ON THE JUDGEMEN TS OF THE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. FINE JEWELLERY (INDIA) LTD. (2015) 372 ITR 303, CIT VS. NIRAV MODI (2017) 390 ITR 292 AND MOIL LTD. VS. CIT (2017) 396 ITR 244 WHEREIN THE COURT HAS BEEN CONSISTENTLY TAKING A VIEW THAT WHEN THE A O HAD ASKED FOR EXPLANATION /CLARIFICATION IN THE ASSESSMENT PROCEEDINGS, AND THE ASSESSEE HAS RESPONDED TO THE SAME, THE REQUIREMENT OF APPLICATION OF MIND BY THE AO STANDS FULFILLED, EVEN THOUGH THERE IS NO DISCUSSION WITH RESPECT TO THE SAID ISSUE IN TH E ASSESSMENT ORDER. PCIT'S BASIS WAS FACTUALLY INCORRECT (E) A BARE PERUSAL OF PARA 4 OF THE IMPUGNED REVISION ORDER SHOWS THAT, THE PCIT HAS HELD THE WRITE BACK OF LOAN TO BE TAXABLE UNDER SECTION 41(1) OF THE ACT AS, ACCORDING TO HIM, THE APPELLANT HAD TAKEN THAT LOAN FOR RUNNING ITS BUSINESS AND WAS IN THE FORM OF A TRADING LIABILITY. THE APPELLANT SUBMITS THAT THIS IS 30 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. CONTRARY TO THE FACTS AS THE LOAN HAD BEEN UTILISED FOR ACQUIRING CAPITAL ASSETS. NO SUCH ASSERTION HAD BEEN MADE BY THE APPELLANT E ITHER BEFORE THE AO OR THE PCIT. WITH A VIEW TO CONFIRM THIS POSITION, THE HON'BLE BENCH DIRECTED THE LD. DR ON 16.09.2019 TO PRODUCE THE RECORD IN SUPPORT OF THE ASSERTION MADE BY THE PCIT. AFTER OBTAINING NECESSARY CLARIFICATIONS/EXPLANATIONS FROM THE AO AND THE PCIT, THE LD. DR HAS CONFIRMED THAT THE SAID ASSERTION OF THE PCIT CANNOT BE SUBSTANTIATED. IN VIEW THEREOF, HIS FINDING THAT THE WRITE BACK OF LOAN SHALL BE CHARGED TO TAX UNDER SECTION 41(1) OF THE ACT HAS NO BASIS IN FACTS OR IN LAW. HENCE, THE ASSESSMENT ORDER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AO HAD TAKEN A POSSIBLE VIEW (F) A BARE PERUSAL OF SECTION 41(1) OF THE ACT, IN SO FAR AS RELEVANT SHOWS THAT THE FOLLOWING THREE CONDITIONS HAVE TO BE FULFILLED BEFORE BRINGING ANY AMOUNT TO TAX UNDER THE SAID SECTION: (I) T HE ASSESSEE SHOULD HAVE INCURRED A LOSS, EXPENDITURE OR TRADING LIABILITY; 31 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. (II) AN ALLOWANCE OR DEDUCTION HAD BEEN ALLOWED IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY; A ND (III) THE ASSESSEE HAD OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. IN THE PRESENT CASE, FOR REASONS STATED IN GREATER DETAIL HEREAFTER, NONE OF THE AFORESAID CONDITIONS HAVE BEEN FULFILLED AS THE PCIT HAS NOT BEEN ABLE TO SHOW THAT THE AMOUNT BORROWED FROM MR. NARESH KOTAK WAS IN THE NATURE OF TRADING LIABILITY. HIS ASSERTION IN THE ORDER UNDER SECTION 2 63 OF THE ACT THAT THE SAID FACT STOOD ACCEPTED BY THE APPELLANT IS FACTUALLY INCORRECT AS ACCEPTED BY THE LD. DR ON 19.09.2019. FURTHER, THE PCIT HAS ALSO NOT SHOWN THAT AN ALLOWANCE OR DEDUCTION HAD BEEN ALLOWED IN THE APPELLANT'S ASSESSMENT IN RESPECT O F THE AMOUNT OF RS. 18.50 CRORE. LASTLY, THOUGH THERE IS A CESSATION OF LIABILITY AS THE AMOUNT BORROWED FROM MR. NARESH KOTAK IS NO LONGER PAYABLE TO HIM, BUT THERE IS NO BENEFIT BECAUSE THE SAID CESSATION IS IN TERMS OF THE FAMILY SETTLEMENT. THE APPELLA NT THEREFORE SUBMITS THAT, NONE OF THE CONDITIONS RELATING TO INVOCATION OF PROVISIONS OF 32 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. SECTION 41(1) OF THE ACT HAVE BEEN FULFILLED IN THE PRESENT CASE. IN THESE CIRCUMSTANCES, THE VIEW TAKEN BY THE AO, IN THE ASSESSMENT ORDER DATED 16.03.2016 PASSED BY HIM UNDER SECTION 143(3) OF THE ACT WAS THE CORRECT VIEW. IN THE LEAST, THIS REPRESENTED A POSSIBLE VIEW, WHICH COULD NOT HAVE BEEN HELD TO BE ERRONEOUS, IN VIEW OF JUDGEMENT OF THE HON BLE APEX COURT IN CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 SECTION 4 1(1) HAS NO APPLICATION TO THE PRESENT CASE (G) AS STATED ABOVE, BEFORE INVOKING THE PROVISION OF SECTION 41(1) OF THE ACT, IT WAS INCUMBENT ON THE REVENUE TO SHOW THAT THE AMOUNT OF RS. 18.50 CRORE REPRESENTED A TRADING LIABILITY AND THE APPELLANT HAD BEEN ALLOWED AN ALLOWANCE OR DEDUCTION IN R ESPECT OF THE SAME IN COMPUTATION OF ITS TOTAL INCOME FOR AN EARLIER YEAR. THE APPELLANT SUBMITS THAT, BOTH THE AFORESAID CONDITIONS ARE CUMULATIVE AND THE BURDEN LIES ON THE REVENUE TO SHOW THE FULFILMENT OF THESE CONDITIONS. FOR THIS PURPOSE, ATTENTION I S INVITED TO JUDGMENT DATED 15.01.2019 OF THE HIGH COURT AT BOMBAY IN CIT VS. RELIANCE INDUSTRIES LTD. IN INCOME - TAX APPEAL NO.993 OF 2016 (SEE PARA 6 AT PAGES 6 & 7 - SEPARATELY HANDED OVER AT THE TIME OF HEARING. AS CLARIFIED ABOVE, THE FINDINGS OF THE P CIT, IN THE REVISION ORDER DATED 10.01.2018 BASED ON 33 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. ACCEPTANCE BY THE APPELLANT THAT THE AMOUNT WAS BORROWED FOR THE PURPOSES OF ITS BUSINESS AND REPRESENTS A TRADING LIABILITY IS FACTUALLY INCORRECT AS NO SUCH ASSERTIONS HAVE EVER BEEN MADE BY THE APPELL ANT. THIS FACT, HAS ALSO BEEN ACCEPTED BY THE LD. DR IN THE COURSE OF HEARING ON 19.09.2019 AFTER OBTAINING THE NECESSARY CLARIFICATION/EXPLANATION FROM THE OFFICES OF THE AO AND THE PCIT. IN VIEW THEREOF, THE AMOUNT BORROWED FROM MR. NARESH KOTAK COULD NO T BE REGARDED AS A TRADING LIABILITY. (H) AS STATED ABOVE, THE AMOUNTS BORROWED BY THE APPELLANT FROM MR. NARESH KOTAK HAD BEEN UTILISED FOR THE PURPOSES OF ACQUIRING FIXED ASSETS. IN VIEW OF THE JUDGMENT OF THE HIGH COURT AT MUMBAI IN MAHINDRA & MAHIN DRA LTD. VS. CIT (2003) 261 ITR 501, WHICH HAS BEEN APPROVED BY THE HON'BLE APEX COURT IN CIVIL APPEAL NO.5320, 5319 OF 2012 AND 4435 OF 2018 (PARAS 15 AND 16), THE PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE APPLIED TO BORROWINGS WHICH HAVE BEEN UTIL ISED FOR CAPITAL PURPOSES. (I) RELIANCE PLACED BY THE LD. DR ON JUDGMENT OF THE HIGH COURT AT BOMBAY IN SOLID CONTAINERS LTD. VS. DCIT 308 ITR 417, WHICH HAD BEEN FOLLOWED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GOLDEN TOBBACO LTD. (COPIES HANDED OVER BY THE LD. DR AT 34 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. THE TIME OF HEARING), HAVE NO APPLICATION TO THE FACTS OF THE PRESENT CASE. IN THOSE CASES, IT WAS AN ADMITTED POSITION THAT THE AMOUNT HAD BEEN RECEIVED AS A PART OF BUSINESS ACTIVITY AND REPRESENTED A TRADING LIABILITY. PARA 3 OF THE JUDGMENT IN THE CASE OF SOLID CONTAINERS LTD. DISTINGUISHES THE EARLIER JUDGEMENT IN THE CASE OF MAHINDRA AND MAHINDRA LTD. ON THE GROUND THAT IN THE SAID CASE, THE BORROWING WAS IN RESPECT OF CAPITAL ASSETS. THIS DISTINCTION HAS BEEN EXPLAINED BY THE HIGH COURT AT BOMBAY IN THE CASE OF XYLON HOLDINGS P. LTD. [ITA NO.3704 OF 2010] (COPY ATTACHED AS ANNEXURE - A TO THIS SUBMISSION). THE APPELLANT, THEREFORE SUBMITS THAT, THE JUDGMENT APPLICABLE TO ITS FACTS IS THAT OF MAHINDRA & MAHINDRA LTD. AND NOT OF SOLID CONTAINERS LTD. (J) THOUGH THE AMOUNT OF RS. 18.50 CRORE BORROWED FROM MR. NARESH KOTAK CEASED TO BE LIABILITY AND IS NO LONGER TO BE PAYABLE, NO BENEFIT AROSE THEREFROM TO THE APPELLANT, AS IT WAS PURSUANT TO A FAMILY SETTLEMENT. IN THIS REG ARD, ATTENTION IS INVITED TO: (I) ITAT ORDER IN THE CASE OF ITO VS. TINNA FINEX LTD. VIDE ORDER DATED 26.06.2015 IN ITA NO. 3584/DEL/2012 (COPY HANDED OVER AT THE TIME OF HEARING) WHICH WAS ALSO CONCERNED WITH APPLICATION OF SECTION 41(1) TO CESSATIO N OF LIABILITY, PURSUANT TO A FAMILY SETTLEMENT; 35 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. (II) IT HAD BEEN HELD IN CIT VS. KAY ARR ENTERPRISES & ORS. (2008) 299 ITR 348 (MAD) THAT A FAMILY ARRANGEMENT DOES NOT GIVE RISE TO ANY INCOME. THE PRINCIPLE IS THAT A FAMILY ARRANGEMENT REPRESENTS WOR KING OUT OF RIGHTS BECAUSE EARLIER WHAT BELONGED TO THE FAMILY AS A WHOLE IS BEING DIVIDED BETWEEN ITS MEMBERS. IN THE SAID CASE, THE HIGH COURT HAD ALSO REFERRED TO THE JUDGMENT OF THE APEX COURT IN MATURI PULLAIAH VS. MATURI NARASIMHAM (1966) (AIR) 1836( SC) AND KALE VS. DY. DIRECTOR OF CONSOLIDATION (1976) AIR 807 (SC) WHEREIN THE CONCEPT OF FAMILY SETTLEMENT HAS BEEN EXPLAINED. (K) THE PCIT, IN HIS IMPUGNED ORDER, HAS RELIED UPON THE JUDGMENT OF THE HON'BLE APEX COURT IN CIT VS. T. V. SUNDARAM LYENGA R AND SONS LTD. 88 TAXMAN 429 TO HOLD THE APPLICATION OF SECTION 41(1) OF THE ACT. THE APPELLANT SUBMITS THAT, IN THAT CASE, THE AMOUNTS WHICH HAD BEEN WRITTEN OFF REPRESENTED ADVANCES RECEIVED FROM CUSTOMERS IN THE COURSE OF TRADING TRANSACTIONS WHICH WER E NO LONGER PAYABLE BY THE ASSESSEE IN VIEW OF PASSAGE OF TIME. IN THE PRESENT CASE, NEITHER HAS THE APPELLANT RECEIVED THE AMOUNT FROM ITS CUSTOMERS NOR IS IT IN THE COURSE OF ANY TRADING TRANSACTIONS. IN THE CASE OF RELIANCE INDUSTRIES LTD. BEING ORDER D ATED 16.09.2015 IN ITA NO.5769/M/2013, 36 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. THE TRIBUNAL HAS IN PARA 16 AT PAGES 10 AND 11 HAS HELD THAT THE JUDGMENT IN THE CASE OF T. V. T. V. SUNDARAM LYENGAR AND SONS LTD, IS NOT APPLICABLE WHICH HAS BEEN UPHELD BY THE HIGH COURT IN ITS ORDER DATED 15.01.20 19 IN INCOME - TAX APPEAL NO.993 OF 2016 IN PARA 5 AT PAGES 4 TO 6. 9 . ON THE OTHER HAND, LD. D R RELIED UPON THE ORDERS PASSED BY LD. PCIT. 10 . CONSIDERING THE RIVAL SUBMISSION AND MATERIAL PLACED ON RECORD, WE NOTICE FROM THE RECORDS THAT DUE TO FAMILY ARRANGEMENT IN THE J. M. BAKSHI GROUP, THE ASSESSEE COMPANY IS ALLOTTED TO KRISHNA KOTEK FAMILY AND THE LOAN GIVEN BY NARESH KOTEK (ERSTW HILE DIRECTOR) BECOMES NOT PAYABLE IS THE LIABILITY SEIZES. THE LIABILITY SEIZES BECAUSE OF FAMILY ARRANGEMENT AND RE - A RRANGEMENT OF BUSINESS AMONG THE FAMILIES. WHEN THESE TYPE OF RE - ARRANGEMENT HAPPENS, THE LIABILITY IN ONE COMPANY MAY BE COMPENSATED WITH THE ASSETS IN THE OTHER COMPANY OR ASSETS HOLDING BY THE FAMILIES. THEREFORE, IT CANNOT BE CONSIDERED AS AN INCOME FO R THE 37 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. ASSESSEE AS IT IS ONLY IN THE NATURE OF CAPITAL WRITE OFF AND COMPENSATED BY THE FAMILY BY WAY OF SETTLEMENT IN THE OTHER ASSETS HOLDING. AS FAR AS THIS GROUP IS CONCERNED, IT HAS SURRENDERED THE ASSETS IN THE OTHER FAMILY HOLDINGS. IN SHORT, THE LIA BILITY HAS SEIZED IN THIS COMPANY, THE CAPITAL BASE OF THIS COMPANY (ASSESSEE) INCREASED NOT BECAUSE OF WRITE OFF OF COMMERCIAL TRANSACTION WHICH CAN BE CLASSIFIED U/S 41(1) OF THE ACT. 11. THE ABOVE FACTS WERE CONSIDERED BY AO WHILE PASSING THE ASSESSMENT ORDER AND TAKEN A POSSIBLE VIEW WHILE ALLOWING THE CONTENTION OF THE ASSESSEE, BUT NOW PCIT IS TAKING A CERTAIN VIEW THAT IT FALLS U/S 41(1) OF THE ACT. IN OUR CONSIDERED VIEW, THE ACTION O F THE PCIT IS TREATING THE ABOVE U/S 41(1) OF THE ACT IS ANOTHER VIEW AND THE ORDER PASSED BY AO MAY BE PREJUDICIAL TO THE REVENUE, BUT NOT ERRONEOUS. THE COURTS HAVE HELD THAT BOTH LIMB OF SECTION 263 SHOULD BE SATISFIED, NOT MERELY BECAUSE ONE OF THE LIM B IS SATISFIED, THE PCIT CANNOT INVOKE SECTION 263 OF THE ACT. FURTHER, WE 38 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. NOTICED THAT PCIT HAS PASSED THE ORDER SUO MOTO BASED ON THE INFORMA TION AVAILABLE ON RECORD WITHOUT GIVING PROPER OPPORTUNITY TO THE ASSESSEE. IT IS CLEARLY AGAINST THE NATURAL JUS TICE. THEREFORE, THE ORDER U/S 263 PASSED BY PCIT IS NOT JUSTIFIED AND AGAINST THE NATURAL JUSTICE. ACCORDINGLY, WE SET ASIDE. 12 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 2 7 TH NOV. 20 19 . SD/ - SD/ - ( RAM LAL NEGI ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 27 . 11 .201 9 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, 39 I.T.A. NO. 1637 /MUM/201 8 M/S INTERNATIONAL CARGO TERMINALS & RAIL INFRASTRUCTURE PVT. LTD. MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI
