ACIT, CHENNAI V. M/s. S&S Power Switchgear Ltd., CHENNAI

ITA 1641/CHNY/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96508 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 07-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-10-2010
• Court: TRIBUNAL
• Department Lawyers: JOE SEBASTIAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Depreciation; Capital receipt; Condonation of delay; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NOS. 1641/MDS/2010 & 2071/MDS/2011 / ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-VI(1), CHENNAI- 34. (/ APPELLANT) V. M/S. S & S POWER SWITCHGEAR LTD., II FLOOR, NEW NO.67, OLD NO.19, DR. RANGA ROAD, MYLAPORE, CHENNAI 600 004. PAN AABCS0581J (/ RESPONDENT) AND ./ ITA NO. 287/MDS/2011 / ASSESSMENT YEAR : 2007-08 M/S. S & S POWER SWITCHGEAR LTD., CHENNAI 34. (/ APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CHENNAI 34. (/ RESPONDENT) DEPARTMENT BY : SHRI JOE SEBASTIAN, CIT ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE ! '#$ / DATE OF HEARING : 07.10.2015 %& ! '#$ / DATE OF PRONOUNCEMENT : 11.12.2015 - - ITA 1641/10, 2071 & 287/MDS/11 2 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY THE REVENUE IN ITA NOS.6041/MDS/2010 & 2071/MDS/2011 AND BY THE ASSES SEE IN ITA NO.287/MDS/2011 FOR THE ASSESSMENT YEAR 2007-08 ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSION ER OF INCOME- TAX(APPEALS). 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN ITA NO.2071/MDS/2011. THE REVENUE HAS RAISED THE FOLL OWING GROUNDS IN THIS APPEAL: 2 1 THE LD. CIT(A) ERRED IN HOLDING THAT BROUGHT FORWARD BUSINESS LOSS CAN BE SET OFF AGAINST LONG TERM CAPITAL GAIN/ SHORT TERM CAPITAL GAIN. 2 2 THE LD. CIT(A) FAILED TO APPRECIATE THAT AS PE R THE PROVISIONS OF SEC. 72 OF THE IT ACT. BROUGHT FORWARD BUSINESS LOSS CAN BE SET OFF ONLY AGAINST INCOME ASSESSABLE UNDER THE HEAD ' PROFITS AND GAIN S OF BUSINESS OR PROFESSION OR 'PROFESSION AND NOT AGAINST INCOME FALLING UNDER ANY OTHER HEAD OF INCO ME. 2 3 IT IS SUBMITTED THAT WHEN THE LEGISLATURE HAS NOT SPECIFICALLY PROVIDED FOR BROUGHT FORWARD BUSI NESS LOSS BEING SET OFF AGAINST CAPITAL GAINS, THE DECIS ION OF THE LEARNED CIT(A) CLEARLY ENVISAGES CASSUS OMISSUS, WHICH CANNOT BE SUPPLIED BY [HE LEARNED CIT(A) 2 4 IT IS ALSO SUBMITTED THAT CAPITAL GAINS CANNOT - - ITA 1641/10, 2071 & 287/MDS/11 3 BE CONSIDERED AS FORMING PART OF BUSINESS PROFITS/ LOSS AND IT IS FAIRLY SETTLED LAW THAT EACH HEAD OF INCOME UNDER SEC. 14 IS CLEARLY AND MUTUALLY EXCLUSIVE. 3. THE REVENUE HAS FAILED ADDITIONAL GROUNDS WHICH ARE AS FOLLOWS: 3.1 THE LD. CIT(A) ERRED IN ADJUDICATING THE ISSUE ABOUT SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAI NST LONG TERM CAPITAL GAIN WHEN SUCH ISSUE IS NOT EMANATING FROM THE IMPUGNED ORDER U/S.154 DATED 27.12.2010. 3.2 THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THAT T HIS ISSUE REACHED FINALITY VIDE ORDER DATED 01-0702010 OF HIS PREDECESSOR AND THE CIT(A) DOES NOT HAVE POWER TO REVIEW THE EARLIER ORDER PASSED BY HIS PREDECESS OR IN THE CASE OF THE VERY SAME ASSESSEE FOR THE VERY SAME ASST. YEAR. 4. THERE IS A DELAY OF 193 DAYS IN FILING THIS APPE AL BEFORE THE TRIBUNAL. THE REVENUE HAS FILED AN AFFIDAVIT FOR CONDONATION OF DELAY STATING THAT THE ORDER OF THE CIT(APPEALS) WAS RECEIVED ON 7.4.2011 AND IT SHOULD HAVE BEEN FILED THE APPEA L ON OR BEFORE 5.6.2011, WHICH IS BEING A HOLIDAY (SUNDAY), THE APPEAL SHOULD HAVE BEEN FILED ON 6.6.2011. HOWEVER, THE A PPEAL WAS FILED ON 16.12.2011 BY DELAY OF 193 DAYS ON THE REA SON THAT IT WAS MIXED UP WITH OTHER RECORDS IN THE JUDICIAL SEC TION AND IT WAS NOT TRACEABLE IN DUE TIME. WE HAVE GONE THROUGH T HE REASONS - - ITA 1641/10, 2071 & 287/MDS/11 4 ADVANCED BY THE DEPARTMENT IN THE AFFIDAVIT FILED B EFORE US. IN OUR OPINION, THERE ARE CHANCES TO MIX UP THE ORDER OF THE CIT(APPEALS) WITH VARIOUS DOCUMENTS AS THERE ARE HU GE RECORDS AND THE REASONS ADVANCED BY THE DEPARTMENT ARE GOOD AND SUFFICIENT TO CONDONE THE DELAY OF 193 DAYS IN FIL ING THIS APPEAL. ACCORDINGLY, THE DELAY IS CONDONED AND THE APPEAL I S ADMITTED FOR ADJUDICATION. 5. THE FACTS OF THE CASE ARE THAT THE ASSESSMENT U/ S 143(3) WAS COMPLETED AND AN ADDITION OF ` 64,04,16,474/- WAS MADE. AFTER SETTING OFF THE ENTIRE BUSINESS LOSS AND DEPR ECIATION LOSS THE INCOME WAS ASSESSED AT ` 9,92,31,444/- BY THE ASSESSING OFFICER AND A TAX DEMAND OF ` 2,58,31,487/- WAS MADE. 5.1 AGAINST THE ORDER U/S. 143(3) OF THE ACT, AN APPEAL WAS FILED BEFORE THE CIT (A) - V BEARING ITA NO.470 /09 -10. THE CIT (A) - V PASSED AN ORDER ON 02.07.2010 PARTIALLY ALL OWING THE CLAIM OF THE ASSESSEE. 5.2 THE ASSESSING AUTHORITY WHILE GIVING EFFECT TO THE ORDER OF THE CIT (A) - V HAD PASSED AN ORDER DATED 29.07. 2010 ASSESSING NIL INCOME. THE ASSESSEE MADE A REPRESENTATION - - ITA 1641/10, 2071 & 287/MDS/11 5 VIDE LETTER DATED 27.08.2010 ON THE FOLLOWING GROUN DS : A. INCOME TO BE ASSESSED UNDER CAPITAL GAINS WAS OM ITTED TO BE COMPUTED. B. CONSEQUENT TO THE ORDER OF THE CIT (A) - V THE B USINESS LOSSES OF PRIOR YEARS WHICH WAS EARLIER ENTIRELY ADJUSTED IN THE 143(3) ORDER WAS RESTORED. C. THE CAPITAL GAINS HAVE ARISEN OUT OF SALE OF BUS INESS ASSETS AND SHOULD BE ALLOWED TO BE SET OFF AGAINST THE UNABSORBED BUSINESS LOSSES. 5.3 THE AO BASED ON THE REPRESENTATION HAS REVISED THE ORDER DATED 29.07.2010 ASSESSING THE CAPITAL GAINS DETERMINING A TOTAL INCOME TO ` 5,58,76,080/- AND MADE A DEMAND OF ` 92,98,960/- VIDE HIS ORDER DATED 27.12.2010. AGAINST THIS, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). 5.4 ACCORDING TO THE CIT(APPEALS), THE ONLY GROUND OF APPEAL ARISING OUT OF THE ORDER OF THE AO IS THE DENIAL OF THE BENEFIT OF SET OFF OF THE ACCUMULATED BUSINESS LOSS OF THE ASS ESSEE AGAINST CAPITAL GAINS ACCRUING TO THE ASSESSEE IN THE PREVI OUS YEAR 2008-09. 5.5 THE AO HAD DENIED THE BENEFIT OF SET OFF OF UNA BSORBED BUSINESS LOSS STATING THAT SET OFF OF UNABSORBED BU SINESS LOSS - - ITA 1641/10, 2071 & 287/MDS/11 6 AGAINST THE CAPITAL GAINS IS NOT ALLOWABLE. 5.6 BEFORE THE CIT(APPEALS), THE ASSESSEE CONTENDED THAT BUSINESS LOSS AND UNABSORBED DEPRECIATION FOR THE P RIOR ASSESSMENT YEARS SHOULD BE ALLOWED TO BE SET OFF AG AINST CAPITAL GAINS THAT HAD ARISEN IN A.Y. 2008-09 SINCE THE GAINS HAD ARISEN FROM THE SALE OF BUSINESS ASSETS. THE ASSES SEE, HAS ALSO REFERRED TO THE DECISION OF THE SUPREME COURT IN TH E CASE OF COCONADA RADHASWAMY BANK (57 ITR 306) AND UNITED COMMERCIAL BANK (32 ITR 688) IN SUPPORT OF ITS STAN D. THE PRINCIPLE ENUNCIATED IN THE DECISIONS IS THAT THE A CCUMULATED BUSINESS LOSSES CAN BE SET OFF AGAINST THE PROFIT O F ANY BUSINESS CARRIED ON BY THE ASSESSEE ALTHOUGH IT MAY BE ASSES SABLE UNDER ANY OTHER HEAD OF INCOME. RELIANCE WAS PLACED ON TH E APPELLANT'S OWN CASE DECIDED BY THIS TRIBUNAL IN I TA 1964 (MDS) 2003 AND WHICH HAS BEEN UPHELD BY THE MADRAS HIGH C OURT IN TAX CASE (APPEAL) NO.135 OF 2008 AND REPORTED AS 31 8 ITR 187. 6. THE CIT(APPEALS) OBSERVED THAT THE FACTS OF TH E ABOVE CITED DECISIONS ARE SQUARELY APPLICABLE TO THE ASSE SSEE'S CASE. ACCORDING TO HIM, A PLAIN READING OF SUB-SECTION (1 ) OF SECTION 72 - - ITA 1641/10, 2071 & 287/MDS/11 7 LEADS TO THE CONCLUSION THAT ACCUMULATED LOSS UNDER THE HEAD BUSINESS OR PROFESSION' CAN BE SET OFF AGAINST PROF ITS OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE A ND IT DOES NOT NECESSARILY HAVE TO BE ASSESSABLE UNDER THE HEA D BUSINESS OR PROFESSION'. THE CIT(APPEALS) FURTHER OBSERVED THAT THE INTENTION OF THE LAW WAS TO GIVE RELIEF TO THE ASSE SSEE IN THIS RESPECT SINCE THE PHRASE USED IS 'PROFITS OF ANY BU SINESS OR PROFESSION' AND NOT 'PROFITS ASSESSABLE UNDER THE H EAD - BUSINESS OR PROFESSION'. ACCORDING TO THE CIT(APPE ALS), THE CATEGORISATION OF INCOME INTO DIFFERENT HEADS UNDER SECTION 14 IS FOR THE PURPOSE OF COMPUTATION ALONE AND IT IS NOT POSSIBLE TO DENY A BENEFIT WHICH THE STATUTE EXPRESSLY PROVIDES TO THE ASSESSEE AND HE ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD. AR HAS RELIED ON THE FOLLOWING DECISIONS : 1) CIT V. S&S POWER SWITCHGEAR LTD., 318 ITR 187 (M AD.) 2) S&S POWER SWITCHGEAR LTD., ITA NO.1020/MDS/2011 AY 2008-09 DT. 4.4.2013 3) S&S POWER SWITCHGEAR LTD., MP NO.27/MDS/2007 IN ITA NO.1964/2003 FOR AY 2000-01 - - ITA 1641/10, 2071 & 287/MDS/11 8 4) CIT V. RAMNATH GOENKA, 259 ITR 26 (MAD) 5) CIT V. RPIL SIGNALLING SYSTEMS LTD., 328 ITR 283 (MAD.) 6) LAVISH APARTMENT (P.) LTD. V. ACIT, 2012-TIOL-58 7-HC-DEL- IT 7) DIGITAL ELECTRONICS LTD., 49 DTR 484 MUM TRIB. 8) PADMAVATHY SRINIVAS COTTON GINNING FACTORY, 29 D TR 1 VISAKH TRIB. 9) ORIENT HOSPITAL, 315 ITR 422 (MAD.) THE LD. AR HAS ALSO RELIED ON THE JUDGMENT OF THE M ADRAS HIGH COURT IN THE CASE OF CIT V. S&S POWER SWITCHGEAR LT D., 318 ITR 187, IN ASSESSEES OWN CASE. HOWEVER, THE APPLICAT ION OF SEC.72 OF THE ACT WAS CONSIDERED BY THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. V. ACIT ( 134 ITD 73), WHEREIN THE TRIBUNAL FOLLOWED THE JUDGMENT OF THE S UPREME COURT IN THE CASE OF CIT V. EXPRESS NEWSPAPERS LTD. (53 ITR 250), AND OBSERVED AS UNDER : 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL O N RECORD, WE FIND THAT THE ONLY QUESTION BEFORE US FO R CONSIDERATION IS WHETHER THE BROUGHT FORWARD LOSS F ROM THE EARLIER YEARS CAN BE SET OFF AGAINST THE INCOME FROM 'CAPITAL GAINS' U/S 72 OF THE IT ACT. FOR THE PURPOSE OF READY REFERENCE, THE RELEVANT PORTION OF SEC.72 IS REPRODUCED HERE UNDER : - - ITA 1641/10, 2071 & 287/MDS/11 9 '72 (1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RESU LT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAIN S OF BUSINESS OR PROFESSION' IS LOSS TO THE ASSESSEE, NOT BEING LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINS T INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SEC.71, SO MUCH OF THE LOSS AS HA S NOT BEEN SO SET OFF OR .. WHERE HE HAS NO INCOME UN DER ANY OTHER HEAD, THE WHOLE LOSS SHALL, SUBJECT TO TH E OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWAR D TO THE FOLLOWING ASSESSMENT YEAR, AND (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HI M AND ASSESSABLE FOR THAT ASSESSMENT YEAR; MUCH STRESS HAS BEEN LAID BY BOTH THE PARTIES ON TH E TERM 'PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION' MENTIONED IN SUB-CLAUSE (I) OF SUB-SEC. (1) OF SEC.72 OF THE IT ACT. WHAT ARE THE PROFITS AND G AINS OF BUSINESS OR PROFESSION ?. WHETHER IT SHOULD BE T HE INCOME EARNED OUT OF THE BUSINESS CARRIED ON BY THE ASSESSEE OR IT MAY BE THE INCOME IN ANY WAY CONNECTED TO THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE ?. THE ANSWER TO THIS QUESTION ENTIREL Y DEPENDS ON THE INTERPRETATION TO BE GIVEN TO THE TE RM 'OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR' FOR DETERMINATION OF THE ISSUE. IT IS NOT IN DISPUT E THAT THE LAND, BUILDING AND BORE WELL SOLD BY THE ASSESS EE WERE USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES . IT IS ALSO NOT DISPUTED THAT THESE ASSETS WERE FIXE D ASSETS OF THE ASSESSEE. THE ONLY ARGUMENT OF THE ASSESSEE HAS BEEN THAT THEY HAVE DIRECT NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE AND THEREFORE, ARE BUSINESS ASSETS AND ANY GAINS FROM T HE SALE OF SUCH ASSETS WOULD ALSO HAVE THE CHARACTER O F BUSINESS INCOME. WE ARE UNABLE TO AGREE WITH THIS CONTENTION OF THE ASSESSEE THAT THE ASSETS SOLD BY THE ASSESSEE WERE BUSINESS ASSETS. UNDISPUTEDLY, THEY - - ITA 1641/10, 2071 & 287/MDS/11 10 WERE CAPITAL ASSETS AND THE CAPITAL RECEIPTS ARE NO T TAXABLE NOR ARE THE CAPITAL PAYMENTS DEDUCTIBLE FRO M THE INCOME OF THE ASSESSEE. THE CAPITAL IS TO BE US ED FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT SHALL REMAIN IN THE BUSINESS OF THE ASSESSEE TILL IT IS EITHER CONVERTED INTO STOCK-IN- TRADE OR IS DISPOSED OFF. THE INCOME EARNED BY THE ASSESSEE BY CARRYING ON THE BUSINESS BY USE OF THE STOCK IN TRADE ONLY IS THE BUSINESS INCOME OF THE ASSESSEE. LIKEWISE, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR CARRYING ON OF BUSINESS AND FOR EARNING THE INC OME FROM SUCH BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION. AFTER TAKING INTO ACCOUNT THE RECEIPTS A ND PAYMENTS FOR CARRYING ON THE BUSINESS OF THE ASSESS EE ONLY THE PROFIT OR GAIN OR LOSS FROM THE BUSINESS I S COMPUTED. IF THE PROFIT OR LOSS RELATE TO THE SAME ASSESSMENT YEAR FROM ONE SOURCE THEN IT CAN BE SET OFF FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME U/S 70 ACT, AND IT CAN BE SET OFF AGAINST TH E INCOME FROM ANY OTHER HEAD OF INCOME U/S 71 OF THE ACT. SEC.72 OF THE ACT HOWEVER, PERMITS THE CARRY FORWARD BUSINESS LOSS TO SUBSEQUENT ASSESSMENT YEARS AND ALLOWS IT TO BE SET OFF AGAINST PROFIT & GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THE RELEVANT ASSESSMENT YEAR. THUS, IT IS CLEAR THAT IT IS ONLY THE BUSINES S LOSS THAT CAN BE CARRIED FORWARD U/S 72 OF THE ACT AND I T CAN ALSO BE SET OFF ONLY AGAINST THE BUSINESS INCOME OF THE ASSESSEE, BE IT FROM THE SAME BUSINESS OR FROM ANY OTHER BUSINESS. IN THE CASES RELIED UPON BY THE LEA RNED COUNSEL FOR THE ASSESSEE, THE HON''BLE SUPREME COUR T WAS DEALING WITH THE CASES OF THE ASSESSEE''S WHOSE BUSINESS WAS DEALING IN SECURITIES ALSO AND IT WAS THUS HELD THAT THESE SECURITIES WERE TRADING ASSETS AND THEREFORE, THE INCOME THEREFROM THOUGH TO BE COMPUTED UNDER THE HEAD 'INCOME FROM SECURITIES' DOES NOT LOSE THE CHARACTER OF 'BUSINESS INCOME'. B UT IN THE CASE OF EXPRESS NEWSPAPERS LTD. (SUPRA) THE FACTS OF THE CASE ARE LITTLE DIFFERENT AND AFTER TA KING INTO CONSIDERATION THE FACTS OF THE CASE THEREIN, THE HO N''BLE - - ITA 1641/10, 2071 & 287/MDS/11 11 SUPREME COURT HAS HELD THAT THE CAPITAL GAINS ON SA LE OF CAPITAL ASSETS IS NOT TO BE SET OFF AGAINST THE BROUGHT FORWARD LOSS OF EARLIER YEARS. IN OUR OPINION, THE DECISION OF THE HON''BLE SUPREME COURT IN THE CASE OF EXPRESS NEWSPAPERS LTD. (SUPRA), IS FAIRLY APPLICAB LE TO THE FACTS OF THE CASE BEFORE US. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF STEELCON INDUSTRIES (P.) LTD. (SUPRA) HAS MISPLACED ITS RELI ANCE UPON THE DECISION OF THE APEX COURT IN THE CASES OF UNITED COMMERCIAL BANK LTD., AND COCANADA RADHASWAMI BANK LTD. (SUPRA). IN VIEW OF THE SAME, WE ARE INCLINED TO REJECT THE GROUNDS OF APPEAL NOS .5 & 6 RAISED BY THE ASSESSEE. THUS, THE REFERENCE IS ANSWERED IN FAVOUR OF REVENUE. BEING SO, THE ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE SUPREME COURT IN THE CASE OF CIT V. EXPRESS NEWSPAP ERS LTD CITED SUPRA AND WE ARE OF THE OPINION THAT BROUGHT FORWARD UNABSORBED BUSINESS CAN BE SET OFF ONLY AGAINST THE BUSINESS PROFIT U/S.72, BEING VERY SAME BUSINESS OR ANY OTHE R BUSINESS AND NOT AGAINST CAPITAL GAINS. IN VIEW OF THE DEC ISION OF THE SUPREME COURT CITED SUPRA, IN THE PRESENT CASE, THE ISSUE DEALT BY THE CIT(APPEALS) CANNOT BE PROCEEDED U/S.154 OF THE ACT AND IT IS ALSO A DEBATABLE ISSUE, WHICH CANNOT BE DEALT IN THE PROCEEDINGS U/S.154 OF THE ACT. ACCORDINGLY, THIS APPEAL OF THE REVENUE IS ALLOWED. 8. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.287/MDS/2011. THE GROUNDS RAISED BY THE ASSESSE E IN THIS - - ITA 1641/10, 2071 & 287/MDS/11 12 APPEALS ARE AS UNDER : 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER WITH REGARD TO THE DIFFERENCE IN LONG TERM CAPITAL GAIN AMOUNTING TO ` 1,42,63,200/- AND SHORT TERM CAPITAL GAIN AMOUNTING TO `1 ,48,273/- BY APPLYING MARKET VALUE AS PER PROVISION OF SECTION 5 0C. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE APPRECIATED THAT THE GUIDE LINE VALUE ADOPTED AT THE TIME OF REGISTRATION WAS ` 21,64,18,000/- CONSIST OF ` 18,80,03,200/- FOR LAND AND ` 2,84,14,800/- FOR BUILDING. BUT THE SUBSTANCE OF TRANSFER WAS ONLY THE LAND AND THE QUESTION OF ASSIGNMENT OF VALUE OF BUILDING DID NOT ARISE FOR COMPUTING THE CAPITAL GA INS BY APPLYING U/S. 50C. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE APPRECIATED THAT THE BUYER HAD NO USE FOR THE BUILDING. THE OPTION FOR THE APPELLANT TO DEMOLISH THE BUILDING AND TRANSFER. IN ORDER TO AVOID ADDITIONAL EXPENDITURE TO BE INCURRED DEMOLITION OF FACTORY BUILDING, THE SELLING PRICE WAS NEGOTIATED WITH THE BUYER PRICE WAS FIXED AT ` .20,00,000/-. (SIC) 9. THERE IS A DELAY OF 174 DAYS IN FILING THIS APPE AL BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED AN AFFIDAVIT FOR CONDONATION OF DELAY STATING THAT THE ORIGINAL ORDER WAS SENT T O THE MUMBAI OFFICE, WHO IN TURN REFERRED THE MATTER TO THEIR LO CAL ADVOCATE, WHOSE CLERK MISPLACED THE SAME. LATER THE ORDER WAS FOUND OUT AND SENT BACK TO THE ASSESSEE ONLY ON 15 TH FEB., 2011. THEREFORE, THE ASSESSEE COULD NOT FILE THE APPEAL W ITHIN THE - - ITA 1641/10, 2071 & 287/MDS/11 13 SPECIFIED TIME AND STATED THAT THE DELAY WAS NEITHE R WILFUL NOR DELIBERATE BUT DUE TO THE REASONS BEYOND THE CONTRO L OF THE ASSESSEE. WE HAVE GONE THROUGH THE REASONS ADVANCE D BY THE ASSESSEE IN THE AFFIDAVIT FILED BEFORE US. IN OUR OPINION, THE REASONS ADVANCED BY THE ASSESSEE ARE BONA FIDE AND THERE EXITS GOOD AND SUFFICIENT REASON TO CONDONE THE DELAY IN FILING THIS APPEAL. ACCORDINGLY, THE DELAY IS CONDONED AND TH E APPEAL IS ADMITTED FOR ADJUDICATION. 10. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD SOLD LAND AND BUILDING FOR A CONSIDERATION OF ` 20 CRORES AND ADOPTED THIS VALUE FOR COMPUTING CAPITAL GAINS. HOWEVER, THE MA RKET VALUE OF THE PROPERTY WAS ESTIMATED AT ` 21,64,18,000/-, WHICH WAS HIGHER THAN THE REGISTERED VALUE. THE AO ADOPTED T HE MARKET VALUE OF THE PROPERTY AND COMPUTED THE CAPITAL GAIN S ACCORDINGLY. AGAINST THIS, THE ASSESSEE WENT IN AP PEAL BEFORE THE CIT(APPEALS), WHO CONFIRMED THE FINDING OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 11. ACCORDING TO THE LD. AR, THE SUBSTANCE OF TRANS FER WAS ONLY THE LAND AND THE QUESTION OF ASSESSMENT OF VAL UE OF BUILDING DID NOT ARISE BY APPLYING THE PROVISIONS OF SEC.50C OF THE ACT. - - ITA 1641/10, 2071 & 287/MDS/11 14 12. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TH E ASSESSEE SOLD THE LAND ALONG WITH THE BUILDING FOR A NEGOTIATED PRICE AS THE DEMOLITION OF LAND WAS LEFT TO THE TRA NSFEREE. THE ACTUAL OBJECTIVE OF THE BUYER WAS TO DEVELOP A NEW PROPERTY AND THE SAME IS EVIDENT FROM THE FACTS SUBMITTED BY THE ASSESSEE. BEING SO, THE PROVISIONS OF SEC.50C OF THE ACT ARE APPLICABLE AND HE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE SOLD THE PRO PERTY, WHICH IS CAPITAL ASSET BEING LAND AND BUILDING AND THE VALUE ADDED BY THE ASSESSEE FOR COMPUTATION PURPOSES OF CAPITAL GAIN I S LESS THAN THE VALUE ADOPTED BY THE STATE GOVERNMENT AUTHORITY FOR THE PURPOSE OF VALUATION. BEING SO, THE PROVISIONS OF SEC.50C IS DIRECTLY APPLICABLE. BEFORE US, THE ASSESSEE STATE D THAT OBJECTIONS FROM THE ASSESSEE NOT INVITED BEFORE CON SIDERING THE VALUE U/S.50C AND THE DEPARTMENT REFERRED THE MATTE R TO DVO FOR FIXING THE VALUE OF THE PROPERTY. HOWEVER, WE FIND THAT THE ASSESSEE HAS NOT CLAIMED BEFORE THE AO THAT THE VAL UE ADOPTED BY THE REGISTRATION AUTHORITIES EXCEEDS THE FAIR MA RKET VALUE OF THE PROPERTY AS ON THE DATE OF TRANSFER. BEING SO, WHEN THERE IS - - ITA 1641/10, 2071 & 287/MDS/11 15 NO OBJECTION FROM THE ASSESSEE TO CONSIDER THE VALU E OF THE PROPERTY U/S.50C OF THE ACT, NOW, THE ASSESSEE CANN OT CLAIM TO REFER THE MATTER TO THE DVO FOR THE FIRST TIME WITH OUT ANY VALID REASON, BEFORE US. IN OUR OPINION, THE LOWER AUTHO RITIES ARE JUSTIFIED IN CONSIDERING THE VALUE OF THE PROPERTY AS ON THE DATE OF TRANSFER UNDER THE PROVISIONS OF SEC.50C OF THE ACT , WHICH IS CONFIRMED. THIS GROUND OF APPEAL OF THE ASSESSEE I S REJECTED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISMISSE D. 14. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO.1641/MDS/2010. THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 40,34,98,207/- ON ACCOUNT OF WAIVER OF CAPITAL PORT ION OF LOANS STATING IT AS CAPITAL IN NATURE. 15. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD WRITTEN BACK ` 76,45,46,788/- AS PER SCHEME U/S.391 OF THE COMPAN IES ACT, 1956 AND ` 4,78,11,693/- AS ONE TIME SETTLEMENT OF UNSECURED CREDITORS. THESE AMOUNTS WERE TRANSFERRE D TO GENERAL RESERVE. THE ASSESSEE TREATED THE SAME AS GENERAL RESERVE ON THE BASIS OF SCHEME OF ARRANGEMENT SANCT IONED BY THE HIGH COURT OF MADRAS. THE AO TREATED THE SAME (OTHER THAN - - ITA 1641/10, 2071 & 287/MDS/11 16 INTEREST OF ` 19,20,29,295/- NOT ALLOWED AS DEDUCTION) AS INCOME FALLING WITHIN THE PROVISION OF SEC.28(IV) BY RELYI NG UPON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T V. ARIES ADVERTISING PRIVATE LTD. (255 ITR 510) AND HENCE AD DED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVE D BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 16. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT WAIVE R OF PRINCIPAL LOAN IS ONLY A CAPITAL RECEIPT AND IT CAN NOT BE ASSESSED TO TAX U/S.28(IV) OF THE ACT. REGARDING THE TAXABI LITY OF INCOME U/S.41(1), THE CIT(APPEALS) OBSERVED THAT THE PROVI SIONS OF SEC.41(1) OF THE ACT, WOULD APPLY TO THE ASSESSEE O NLY WHEN THE ASSESSEE OBTAIN A DEDUCTION IN THE ASSESSMENT FOR A NY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY I NCURRED BY THE ASSESSEE. FURTHER, THE CIT(APPEALS) OBSERVED THAT IN THIS CASE, THE ASSESSEE HAS NOT OBTAINED SUCH ALLOWANCE OR DED UCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY ATLEAST ON THE CAPITAL PORTION OF LOAN OBTAINED. IN OTHER WORDS, UNLESS T HE AMOUNTS HAVE BEEN ALLOWED AS DEDUCTION IN EARLIER YEARS THE Y CANNOT BE TREATED AS TRADING LIABILITY. BUT, ACCORDING TO TH E CIT(APPEALS), IN THE CASE OF INTEREST WAIVER, THE COMPANY HAS AVAILE D THE - - ITA 1641/10, 2071 & 287/MDS/11 17 DEDUCTION IN THE P & L ACCOUNT AND ACCORDINGLY, SEC .41(1) IS APPLICABLE TO THE EXTENT OF WAIVER OF INTEREST AND NOT TO THE LOAN. IN THESE CIRCUMSTANCES, THE CIT(APPEALS) OBSERVED T HAT SEC.41(1) OF THE ACT WAS NOT APPLICABLE AND THE TRE ATMENT FOR WAIVER OF LOAN AND WAIVER OF INTEREST ARE DEALT WIT H SEPARATELY. FURTHER, THE CIT(APPEALS) OBSERVED THAT FIRSTLY THE PRINCIPAL PORTION OF LOAN IN THIS CASE CAN NEITHER BE TAXED U /S.28(IV) OR U/S.41(1), AS IT IS NEITHER A REVENUE RECEIPT NOR A TRADING LOSS OR AN EXPENDITURE IN RESPECT OF WHICH DEDUCTION WERE A LLOWED IN THE EARLIER YEARS. ACCORDINGLY, THE CIT(APPEALS) OBSER VED THAT THE WAIVER OF PRINCIPAL PORTION OF LOAN OF ` 40,34,98,207/- IS IN CAPITAL FIELD NOT LIABLE TO BE INCLUDED IN THE TAXABLE INCO ME AND DELETED THE ADDITION. IT IS THE CESSATION OF LIABILITIES I N PURSUANT TO DECREE OF THE COURT AND NOT EMANATED OUT OF THE VOLUNTARY ACTION BY THE CREDITORS CONCERNED. REGARDING WAIVER OF INTEREST A ND OTHER LIABILITIES VIZ., INTEREST OF ` 15,88,47,784/- AND OTHER LIABILITIES OF ` 5,79,82,795/- AGGREGATING TO ` 21,68,30,579/-, HE SUSTAINED THE ADDITION. AGAINST THIS, THE REVENUE IS IN APPEAL B EFORE US. 17. THE LD. DR SUBMITTED THAT IN RESPECT OF LIABILI TIES U/S.41(1) OF THE ACT, THE ASSESSEE HAS TAKEN THE ABOVE AMOUNT TO GENERAL - - ITA 1641/10, 2071 & 287/MDS/11 18 RESERVE IN THE BALANCE SHEET. FURTHER, HE SUBMITT ED THAT WHEN IT IS QUESTIONED AS TO WHY IT WAS NOT SHOWN AS REVE NUE RECEIPT, THE ASSESSEE CLAIMED THAT IT IS A CAPITAL RECEIPT. THE LD. DR SUBMITTED THAT THIS IS NOTHING BUT REVENUE RECEIPT TO BE TREATED AS INCOME OF THE ASSESSEE. THE LD, DR FURTHER SUBMITTE D THAT THE AMOUNTS WERE RECEIVED BY THE ASSESSEE AS A LOAN AND ULTIMATELY IT RETAINED BY THE ASSESSEE IN ITS BUSINESS AND WAI VER OF LOAN IS TAXABLE U/S.41(1)/28(IV) OF THE ACT. 18. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E WAIVER OF PRINCIPAL AND INTEREST IS CAPITAL IN NATURE AND NOT INCOME FROM OPERATIONS REQUIRING CREDIT TO THE P&L ACCOUNT AND IT IS NOT BEING MONIES EARNED BY THE ASSESSEE, IT DOES NOT AMOUNT T O INCOME ACCORDING TO THE MERCANTILE SYSTEM OF ACCOUNTING RE GULARLY FOLLOWED BY THE ASSESSEE. THE CREDIT DIRECTLY TO T HE GENERAL RESERVE HAS BEEN MADE IN COMPLIANCE WITH THE SCHEME SANCTIONED BY THE HIGH COURT AND THEREFORE, IT IS S UPPORTED BY LEGAL BASIS. HE RELIED ON THE FOLLOWING DECISIONS: 1. ISKRAEMECO REGENT LTD. V. CIT (331 ITR 317)(MADR AS) 2. ACIT V. SPEL SEMICONDUCTOR LTD. (59 SOT 114)(CHE NNAI) 3. CIT V. JINDAL EQUIPMENT LEASING AND CONSULTANCY SERVICES (325 ITR 87)(DELHI) - - ITA 1641/10, 2071 & 287/MDS/11 19 4. CIT V. SAURASHTRA PACKAGING P. LTD. (259 ITR 520 )(GUJ.) 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL ON RECORD. DURING THE ASSESSMENT PROCEEDI NGS, THE AO CONSIDERED THE WAIVER OF ` 40,34,98,207/- AS REVENUE RECEIPT. SIMILARLY, HE HAS CONSIDERED THE INTEREST OF ` 15,88,47,784/- AND SUNDRY CREDITORS OF ` 5,79,82,795/- AS INCOME OF THE ASSESSEE U/S.28(IV) OF THE ACT. HOWEVER, THE CIT(APPEALS) O BSERVED THAT THE INCOME OF ` 40,34,98,207/- BEING PRINCIPAL AMOUNT CANNOT BE TAXED EITHER U/S.41(1) OR SEC.28(IV) OF THE ACT. ACCORDING TO THE LD. AR, IT CANNOT BE TREATED AS DEEMED PROFIT U /S.41(1) OR PERQUISITE U/S.28(IV) OF THE ACT, AS THE AMOUNT EAR NED IS NEITHER REVENUE RECEIPT NOR INTENDED TO REVENUE ACCOUNT. I N THIS CONNECTION, WE REFER TO THE DECISION OF THE SUPREM E COURT IN THE CASE OF CIT V. T.V.SUNDARAMA IYENGAR & SONS LTD. (2 22 ITR 344), WHEREIN IT WAS HELD THAT IF AN AMOUNT IS REC EIVED IN THE COURSE OF A TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE A SSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STA TUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMM ON SENSE - - ITA 1641/10, 2071 & 287/MDS/11 20 DEMANDS THAT THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSESSEE. WHETHER THE ASSESSEE RECEIVED THE DEPOS ITS IN THE COURSE OF DAILY TRANSACTIONS, SUCH CREDIT BALANCE W AS BARRED BY LIMITATION AND IT WAS RETAINED BACK TO THE ASSESSEE S PROFIT AND LOSS ACCOUNT TO BE ASSESSED AS INCOME OF THE ASSESS EE. 20. FURTHER, IN THE CASE OF CIT V. ARIES ADVERTISIN G PVT. LTD. (255 ITR 510), THE MADRAS HIGH COURT WAS OF THE VIE W THAT THE ASSESSEE BECAUSE OF TRADING OPERATION BECAME THE OW NER OF THE AMOUNT WHICH HAD BEEN TRANSFERRED OR RETAINED TO PR OFIT AND LOSS ACCOUNTS OF THE ASSESSEE. FURTHER, IN THE CASE OF EXPRESS NEWSPAPERS PVT. LTD. V. CIT (227 ITR 325), THE JURI SDICTIONAL HIGH COURT HELD THAT INTEREST BORROWED MONEY WAS CL AIMED AS A DEDUCTION AND RATE REDUCED BY CREDITORS UNDER SETTL EMENT WAS WRITTEN BACK IN ITS BOOKS OF ACCOUNTS, SUCH REDUCED AMOUNT IS CHARGEABLE U/S.41(1) OF THE ACT. 21. THUS, THE PRINCIPLE AMOUNT OF LOAN, WHICH IS TA KEN FOR THE PURPOSE OF BUSINESS OR TRADING ACTIVITY, ON ITS WAI VER BY ITS CREDITOR, WOULD CONSTITUTE INCOME CHARGEABLE TO TAX UNDER THE ACT. HOWEVER, LOAN IS UTILIZED FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET, THE SAME, ON ITS WAIVER, COULD NOT B E CONSTITUTED - - ITA 1641/10, 2071 & 287/MDS/11 21 INCOME CHARGEABLE TO TAX EITHER U/S.41(1) OR U/S.28 (IV) OR U/S.2(24) OF THE ACT. FURTHER, THE ASSESSEE CAN HA RDLY DERIVE ANY ADVANTAGE FROM THE DECISIONS RELIED ON BY THE LD. A R, WHICH HAVE BEEN RENDERED ON DIFFERENT SET OF FACTS AND IT HAS NOT BEEN LOOKED INTO OR EXAMINED, WHETHER THAT LOAN AMOUNT H AS BEEN UTILIZED FOR THE PURPOSE OF CAPITAL ASSET OR NOT. THE CIT(APPEALS) RELIED ON VARIOUS DECISION WITHOUT EXAMINING AND AP PRECIATING THE NATURE AND PURPOSE FOR WHICH THE LOAN WAS TAKEN . WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO EXAMINE THE LOAN FOR WHICH PURPOSE IT WAS AVAILED. ACCORDINGLY, THE ASS ESSEE SHALL GIVE INFORMATION WHICH IS WITHIN ITS KNOWLEDGE AND CONTROL AND IT IS THE DUTY OF THE ASSESSEE TO PROVE AND ESTABLISH THAT THE AMOUNT OF LOAN TAKEN BY THE BANK WAS UTILIZED FOR T HE PURPOSE OF ACQUIRING CAPITAL ASSET, IF THE ASSESSEE WANTS TO G ET BENEFIT OF VARIOUS CASE LAW RELIED ON BY IT. ON AN ENQUIRY AN D VERIFICATION, IT TRANSPIRES THAT THE ASSESSEE HAS UTILIZED THE LOAN FOR THE PURPOSE OF BUSINESS OR TRADING ACTIVITY IN DAY-TO-DAY OPERA TION, THAT AMOUNT OF LOAN TO THE EXTENT IT HAS BEEN WAIVED BY THE BANK SHALL BE DEEMED TO BE ASSESSEES INCOME CHARGEABLE TO TAX IN TERMS OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF - - ITA 1641/10, 2071 & 287/MDS/11 22 T.V.SUNDARAM IYENGAR & SONS LTD. (SUPRA). ACCORDI NGLY, FOR THE PURPOSE OF EXAMINING THE NATURE OF LOAN, WE REMIT T HE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 22. IN THE RESULT, THE APPEALS OF THE REVENUE IN IT A NO.2071/MDS/2011 IS ALLOWED AND 1641/MDS/2010 IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IN ITA NO.287/MDS/2011 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 11 TH OF DEC., 2015 AT CHENNAI. SD/- SD/- ( ' ( . ) *+, ) ( - . / 0# ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) < => /JUDICIAL MEMBER *$ =>/ACCOUNTANT MEMBER -*< /CHENNAI, E= /DATED, THE 11 TH DEC., 2015. MPO* =*F ! 'GH I*H' /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. J' () /CIT(A) 4. J' /CIT 5. HKL ' M /DR 6. L, N /GF.