Golden Sun Resorts Private Limited, CHENNAI V. ITO, CHENNAI

ITA 1787/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7756 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: SUNIL SETHIA
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1787/MDS/2015 ( / ASSESSMENT YEAR:2007-08) M/S. GOLDEN SUN RESORTS PVT.LTD., 9D, 1 ST LANE, KARNESWARAR KOIL STREET, MYLAPORE, CHENNAI-600 004. VS THE INCOME TAX OFFICER, COMPANY WARD-II(1), CHENNAI. PAN:AAACG1088K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SUNIL SETHIA, C.A /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 14 TH JANUARY, 2016 /DATE OF PRONOUNCEMENT : 18 TH MARCH, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS)- 6, CHENNAI, DATED 17.04.2015 IN ITA NO. 65/CIT(A)-6 /2009- 10 PASSED UNDER SECTION 143(3) R.W.S 250(6) OF THE ACT FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IN ITS APPEAL HAS RAISED SEVERAL EL ABORATE GROUNDS, HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLO WS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ADDITION OF ` 13,57,325/- 2 ITA NO.1787 /MDS/2015 MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF INTEREST ACCRUED @12% ON THE LOANS ADVANCED BY THE ASSESSEE WHEN THE RECOVERY OF LOAN ITSELF IS DOUBTF UL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN FOR THE ASSESSMENT YEAR 2007-08 ON 25.10.200 7 DECLARING LOSS OF ` 85,695/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED BY THE LE ARNED ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT O N 30.12.2009 WHEREIN ADDITION OF ` 13,57,325/- WAS MADE UNDER THE HEAD INCOME FROM OTHER SOURCES. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LEARN ED ASSESSING OFFICER FROM THE BALANCE SHEET OF THE ASS ESSEE COMPANY THAT THE ASSESSEE HAD ADVANCED LOAN OF ` 1,13,66,046/-, HOWEVER NO INTEREST INCOME WAS OFFE RED TO TAX. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN, IT WAS STATED THAT ALL THESE LOANS HAVE BECOME BAD AND EVEN THE P RINCIPAL AMOUNT CANNOT BE RECOVERED. FURTHER THERE WAS NO PO SSIBILITY OF REALIZING THE INTEREST INCOME. REJECTING THE CON TENTIONS OF THE ASSESSEE, THE LEARNED ASSESSING OFFICER ESTIMAT ED THE INTEREST INCOME OF THE ASSESSEE @ 12% ON THE LOANS 3 ITA NO.1787 /MDS/2015 ADVANCED AND THEREBY MADE ADDITION OF ` 13,57,325/- UNDER THE HEAD INCOME FROM OTHER SOURCES. ON APPEAL, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BY OBSERVING AS UNDER:- 4.2 I HAVE CONSIDERED THE ASSESSEES SUBMISSIONS CAREFULLY. FURTHER CONTRARY TO THE CLAIMS OF THE ASSESSEE THE ABOVE LOAN OF RS.113,66,046/- WAS CLASSIFIED AS LOAN CONSIDERED AS GOOD IN ITS BOOKS OF ACCOUNTS. THUS, THE PRESENT CLAIM OF THE ASSESSEE THAT THE RECOVERY OF PRINCIPAL AMOUNT ITSELF IS DOUBTFUL CANNOT BE ACCEPTED AS GENUINE. THEREFORE, SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM, THE ACCRUED INTEREST ON THE LOANS ADVANCED BY IT, ESPECIALLY WHEN THE LOANS ARE CONSIDERED AS GOOD IN ITS BOOKS, IS REQUIRED TO BE CALCULATED ON ACCRUAL BASIS. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY CALCULATED THE ACCRUED INTEREST @ 12% ON THE ABOVE LOANS ADVANCED AND BROUGHT TO TAX. THE ACTION OF THE ASSESSING OFFICER IS JUSTIFIED AND CONFIRMED. 4. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE US THAT THE RECOVERY OF LOAN RS. RS.113,66,046/ - ITSELF WAS DOUBTFUL AND THEREFORE, THE ASSESSEE HAS NOT RE COGNIZED THE INTEREST INCOME. HENCE, IT WAS ARGUED THAT THE ADDITION MADE BY THE REVENUE MAY BE DELETED. 4 ITA NO.1787 /MDS/2015 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENT LY ARGUED BY STATING THAT THE ASSESSEE COMPANY IS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY THE ACCRUED INTEREST HAS TO BE RECOGNIZED AS INCOME OF THE COMP ANY. IT WAS THEREFORE PLEADED THAT THE ADDITION MADE BY THE REVENUE MAY BE CONFIRMED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE LOAN ADVANCED BY THE ASSESSEE HAS BECOME STICKY AND DOUBTFUL. IN SUCH CIRCUMSTANCES, THE REALIZATION OF INTEREST IS OUT O F QUESTION. IF SUCH INCOME IS RECOGNIZED DURING THE RELEVANT ASSES SMENT YEAR, THE ACCOUNTS OF THE ASSESSEE WILL NOT SHOW TH E CORRECT STATE OF AFFAIRS. FURTHER AS POINTED OUT BY THE LEA RNED AUTHORIZED REPRESENTATIVE, THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS. MOTOR CREDIT CO.P.LTD. REPORTED IN 127 ITR 572 HAS HELD THAT IF INCOME DOES NOT RE SULT AT ALL THERE CANNOT BE LIABILITY TO TAX SIMPLY ON THE GROU ND THAT ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. IT WAS FURTHER HELD THAT EVEN THOUGH THE ASSESSEE HAD ADOP TED 5 ITA NO.1787 /MDS/2015 MERCANTILE SYSTEM OF ACCOUNTING, NO INTEREST INCOME COULD ACCRUE IN ITS HANDS ON ACCRUAL BASIS AS THE PRINCIP AL AMOUNT ITSELF HAD BECOME IMPOSSIBLE OF RECOVERY. THE HONB LE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. LAXMI D AL MILLS REPORTED IN 146 TAXMAN 625 HAS HELD THAT ASSESSEE H AVING STOPPED CHARGING INTEREST ON THE LOAN ADVANCED TO A PARTY AFTER IT FOUND THAT RECOVERY OF PRINCIPAL AMOUNT IT SELF WAS DOUBTFUL, ADDITION OF ESTIMATED INTEREST ON THE SAI D LOAN WAS NOT JUSTIFIED. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GOYAL M.G.GASES P.LTD. REPORTED IN 303 ITR 159 HAS HELD THAT THERE WAS NO REAL ACCRUAL OF INCOME BY WA Y OF INTEREST WHEN EVEN THE REALIZATION OF PRINCIPAL AMO UNTS OF LOANS WAS IN JEOPARDY AND THE SAME WERE EVENTUALLY WRITTEN OFF AS BAD DEBTS AND ALLOWED AS SUCH BY THE ASSESSI NG OFFICER. 7. FROM THE ABOVE DISCUSSIONS AND THE DECISIONS CIT ED BY THE LEARNED AUTHORIZED REPRESENTATIVE, WE DO NOT HA VE ANY HESITATION TO HOLD THAT RECOGNITION OF INTEREST INC OME FROM STICKY LOANS OF THE ASSESSEE DURING THE RELEVANT AS SESSMENT YEAR IS ERRONEOUS AND ACCORDINGLY, WE HEREBY DIRECT THE 6 ITA NO.1787 /MDS/2015 LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MA DE ON ACCOUNT OF ACCRUED INTEREST OF ` 13,57,325/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 18 TH MARCH, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 18 TH MARCH, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /