M/s Global Emerging Market India Ltd., New Delhi V. DCIT, New Delhi

ITA 1760/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3729 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: A C SETH; SUMIT SETH

Judgement Text

ITA NO. 1760/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1760/DEL/2011 A.Y. : 2005-06 M/S GLOBAL EMERGING MARKETS INDIA LTD., B-28, PUSHPANJALI FARMS, BIJWASAN, NEW DELHI 110 061 (PAN : (PAN : (PAN : (PAN : AACG3233C AACG3233C AACG3233C AACG3233C) )) ) VS. DCIT, CIRCLE 12(1), NEW DELHI 110 001 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. A.C. SETH AND SH. SUMIT SETH, CA DEPARTMENT BY : MS. MONA MOHANTY, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 31.12. 2009 AND PERTAINS TO ASSESSMENT YEAR 2005-06. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF IN TEREST INCOME OF ` 97,56,068/-. 3. IN THIS CASE ASSESSING OFFICER OBSERVED THAT THE APPELLANT HAD SHOWN AN ADVANCE /ICD TO THE TUNE OF ` 167214045/- . ON THE ABOVE ADVANCE IN THE IMMEDIATELY PRECEDING YEAR THE APPEL LANT HAS SHOWN AN INTEREST INCOME OF ` 9756068/- ON ACCRUAL BASIS. IN THE YEAR UNDER ITA NO. 1760/DEL/2011 2 APPEAL NO INTEREST INCOME WAS SHOWN BY THE APPELLANT . THE ASSESSING OFFICER HAS OBSERVED IN THE ASSESSMENT O RDER THAT SINCE THE APPELLANT WAS REGULARLY FOLLOWING THE MERCANTILE SYS TEM OF ACCOUNTING AND INTEREST INCOME WAS REGULARLY BEING OFFERED FO R TAXATION ON ACCRUAL BASIS, THEREFORE, THERE WAS NO JUSTIFICATIO N ON THE PART OF THE APPELLANT NOT TO HAVE OFFERED INTEREST INCOME IN T HE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT NO RESOLUTION HAS ALSO BEEN PASSED BY THE APPELLANT COMPANY WAIVING OFF THE INTEREST. IN VIEW OF THE ABOVE FACTS AND PLAC ING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE AND ALSO IN THE CASE OF C.I.T. VS. SHIV PRASAD JANAK RAJ & CO. PVT. LTD. 222 ITR 583, THE ASSESSING OFFICER HA S HELD THAT ACCRUED INTEREST OF ` 9756068/- WAS TAXABLE IN THE HANDS OF THE APPELLANT COMPANY. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE ASSESSING OFFICERS AC TION. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APP EAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT A SSESSEE HAS GRANTED INTEREST BEARING LOAN TO M/S MERLIN RESOURCE PVT. LTD. OF ` 22.25 CRORES. M/S MERLIN RESOURCES PVT. LTD. WAS R EGULAR IN PAYMENT OF INTEREST AS PER AGREED RATE OF INTEREST BETWEEN THE PARTIES UPTO JULY, 2002 BUT FAILED TO PAY INTEREST AFTER THAT. THE AS SESSEE DID NOT RECEIVE INTEREST FROM THE PARTY FROM AUGUST, 2002. DESPITE VA RIOUS REMINDERS AND CORRESPONDENCE, ASSESSEE COULD NOT RECEIVE INTE REST, ASSESSEE ISSUED STATUTORY NOTICE ON 25.1.2003 TO M/S MERLIN RESOURCE PVT. LTD.. ITA NO. 1760/DEL/2011 3 6.1 THE ASSESSEE COMPANY IN ITS BOARD MEETING HEL D ON 14.8.2003 PASSED A BOARD RESOLUTION TO LODGE WINDING UP AND CRIMINAL PROCEEDINGS AGAINST M/S MERLIN RESOURCES PVT. LTD. ACCORDINGLY, IT FILED PETITION BEFORE THE HONBLE HIGH COURT OF KOL KATA ON 24.12.2003 FOR RECOVERY INTEREST AS WELL AS PRINCIPAL OUTSTAN DING IN THE INSTANT CASE. ULTIMATELY, THE PARTIES SETTLED THE DISPUTE OUTSIDE THE COURT AND PETITION FILED BEFORE THE HONBLE HIGH COURT OF KOLKATA WAS WITHDRAWN ON 12.10.2004. 6.2 IT WAS MUTUALLY AGREED BETWEEN THE PARTIES V IDE COMPROMISE AGREEMENT ENTERED INTO IN THE MONTH OF SEPTEMBER, 2004 THAT M/S MERLIN RESOURCES PVT. LTD. WILL PAY LUMPSUM ` 1.00 CR ORE TOWARDS INTEREST AS FULL AND FINAL SETTLEMENT AGAINST TOTAL OUTSTANDING OF ` 1,48,39,814/- AS ON 31.3.2004 AND ` 15.00 CRORES AS AGAINST PRINCIPAL OUTSTANDING ON 31.3.2004. IN THIS BACKGROUND ASSESS EE DID NOT PROVIDE INTEREST FOR THE CONCERNED ASSESSMENT YEAR. 6.3 WE FIND THAT AS PER FACTS NARRATED ABOVE ASSESS EE WAS FULLY JUSTIFIED IN NOT PROVIDING FOR INTEREST ACCRUED IN THE CURRENT ASSESSMENT YEAR. JUST BECAUSE IN EARLIER YEARS IN TEREST WAS PROVIDED WILL NOT BE A BASIS FOR ACCOUNTING FOR INTEREST A CCRUED WHEN THERE IS NO CHANCE OF RECEIVING THE INTEREST. MOREOVER, THER E IS AN AGREEMENT AS PER WHICH ASSESSEE HAD AGREED TO SETTLE THE ACCO UNT WITHOUT RECEIPT OF INTEREST FOR CURRENT ASSESSMENT YEAR. 6.4 IN THIS REGARD THE CASE LAWS SUBMITTED BY THE LD . COUNSEL OF THE ASSESSEE ALSO SUPPORT THE ASSESSEE CASE. IN C.I.T. VS. EICHER LTD. 320 ITR 410 HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT INTEREST ON LOAN OF DOUBTFUL RECOVERY, WHICH WAS OFFERED FOR SOME YE ARS THOUGH NOT RECEIVED COULD NOT BE ASSESSED ON ACCRUAL BASIS, W HEN THE ASSESSEE ITA NO. 1760/DEL/2011 4 DID NOT ACCOUNT FOR THE SAME AND LATER ON ENTERED INTO ONE TIME SETTLEMENT WITH THE DEBTOR AND ASSIGNED THE SAME TO THE THIRD PARTY. 6.5 IN THE BACKGROUND OF THE AFORESAID DISCUSSION A ND PRECEDENT, WE SET ASIDE THE ORDERS OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/6/2011. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 10/6/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES