The ACIT, Circle -1, Surat V. M/s. Banco Silk Mills Pvt. Ltd., Surat

ITA 1983/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0335 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 06-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 23-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: KK SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER ./ ITA NO. 1983/AHD/2013 / ASSESSMENT YEAR : 2005-06 ACIT, CIRCLE-1, SURAT VS M/S. BANCO SILK MILLS PVT LTD, 62-A, NR. GIDC COMPOUND, OPP. ELECTRIC SUB-STATION, KHATODARA, SURAT PAN : AABCB 1687 N / (APPELLANT) / (RESPONDENT) REVENUE BY : SMT. SONIA KUMAR, SR DR ASSESSEE BY : SHRI K. K. SHAH, AR / DATE OF HEARING : 06/10/2016 / DATE OF PRONOUNCEMENT: 07/10/2016 / O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, SUR AT DATED 15.05.2013 FOR ASSESSMENT YEAR 2005-06. 2. THE SOLITARY GROUND RAISED IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING THE PENALTY OF RS.18,41,219/-, LEVIED ON A CCOUNT OF CESSATION OF LIABILITY AND ESTIMATION OF NET PROFIT FOR CONCEALM ENT OR FURNISHING INACCURATE PARTICULARS OF INCOME. 3. THE LD. DR RELIED ON THE ORDER OF ASSESSING OFFI CER. 4. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, CONTENDS THAT THE ASSESSEE IS A SICK UNIT INCURRING HUGE LOSSES YEAR AFTER YEAR AND WAS IN THE PROCESS OF WINDING UP. THE ASSESSEE-COMPANYS PLANT AND MACHINERIES, FACTORY SHED AND ELECTRIC FITTINGS ETC. WERE HYPOTH ECATED TO GUJARAT INDUSTRIAL CO-OP. BANK LTD. THE ADDITION IN QUESTI ON WAS MADE BY THE AO WITH FOLLOWING OBSERVATIONS:- SMC-ITA NO. 1983/AHD/2013 ACIT VS. M/S. BANCO SILK MILLS PVT LTD AY : 2005-06 2 6.3 IN VIEW OF NON-PAYMENT OF LOAN AND CLOSURE OF BUSINESS, THE BANK SOLD THE FIXED ASSETS FOR RS.17,25,000/-. THIS AMOUNT OF RS.17,25,000/- WAS ADJUSTED AGAINST THE OUTSTANDING LOAN OF RS.66,73,4 56/- AND THE BALANCE AMOUNT OF RS.49,48,456/- WAS TRANSFERRED TO NPA ACC OUNT. HOWEVER, IT WAS NOT WRITTEN OFF BY THE BANK. ON THE OTHER HAND, TH E APPELLANT TRANSFERRED THE DIFFERENCE BETWEEN THE LOAN AMOUNT OF RS.66,73,456/ - AND THE WDV OF RS.8,84,743 I.E. AN AMOUNT OF RS.57,88,713/- TO THE CAPITAL RESERVE ACCOUNT. SINCE THE WDV AS PER THE INCOME TAX ACT OF THESE ASSETS WAS RS.33,97,519/-, THE SAID TRANSACTION OF SALE OF ASS ETS BY THE BANK FOR RS.17,25,000 RESULTED IN CAPITAL LOSS OF RS.16,72,5 19. THEREFORE, TECHNICALLY APPELLANT SHOULD HAVE SHOWN SHORT TERM CAPITAL LOSS OF RS 16,72,519/- IN ITS RETURN OF INCOME AND SHOULD HAVE TRANSFERRED TH E AMOUNT OF RS.49,48,456/- TO 'CAPITAL RESERVE' ACCOUNT. SINCE THE ASSESSEE WAS IN THE PROCESS OF WINDING UP , NO USEFUL PURPOSE WOULD HAVE BEEN SERVED IN FILING THE APPEAL INASMUCH AS THE ULTIMATE INCOME WAS GOING TO RESULT IN LOSS. THERE FORE, THOUGH THE ISSUE WAS DEBATABLE, ASSESSEE DID NOT FILE APPEAL TO AVOID LE GAL PROCEEDINGS. SINCE THE BANK HAD NOT WRITTEN OFF THE LOAN, THIS WAS AT THE MOST A UNILATERAL WRITE OFF CAPITAL DEBT RAISED FOR PLANT AND MACHINERY. THERE FORE, TECHNICALLY IT DID NOT FALL U/S 41(1) OF THE ACT. IT IS FURTHER CONTENDED THAT ALL THESE DETAILS ABOUT WRITE OFF WERE MENTIONED IN THE AUDITED REPORT FILE D ALONG WITH THE RETURN; THEREFORE, ALL THE RELEVANT PARTICULARS ABOUT THE C LAIM WERE FILED ALONG WITH THE RETURN. THE AO INITIATED PENALTY PROCEEDINGS A ND HOLD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS/CONCEALMENT OF INCOME. 5. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL W HERE THE PENALTY WAS DELETED BY THE LD. CIT(A) BY FOLLOWING OBSERVATIONS :- . I. IT WAS A CAPITAL LIABILITY TOWARDS LOAN WHICH WA S TRANSFERRED TO THE 'CAPITAL RESERVE' ACCOUNT. TAXABILITY OF THE SAME U/S 41 (1) IS A HIGHLY DEBATABLE ISSUE THOUGH, APPELLANT CHOOSE NOT TO FILE AN APPEAL PROB ABLY BECAUSE THE BUSINESS WAS GETTING CLOSED. II. SECONDLY, IT IS A CASE WHERE 'SHORT TERM CA PITAL LOSS WHICH SHOULD HAVE BEEN SHOWN BY THE APPELLANT, BUT NOT SHOW, IN ITS RETURN OF INCOME. SMC-ITA NO. 1983/AHD/2013 ACIT VS. M/S. BANCO SILK MILLS PVT LTD AY : 2005-06 3 6.6 AS MENTIONED EARLIER, THE BANK ONLY TRANSFERRED THE LOAN AMOUNT TO NPA ACCOUNT AND HAS NOT WRITTEN IT OFF. MOREOVER, THERE WAS NO NON DISCLOSURE OF MATERIAL FACTS. THE AUDIT REPORT (UNDER COMPANIES A CT, 1956) DID MENTION THAT AN AMOUNT OF RS.57,88,714/- WAS TRANSFERRED TO CAPITAL RESERVE ACCOUNT CONSEQUENT TO SALE OF FIXED ASSETS. IN VIEW OF THE ABOVE DISCUSSED FACTS, THE ADDITION MADE BY THE ASSESSING OFFICER C ANNOT FALL UNDER THE DEFINITION OF CONCEALMENT OR 'DEEMED CONCEALMENT . CONSEQUENTLY, THE PENALTY LEVIED BY THE ASSESSING OFFICER IN RESPECT OF ADDITION OF RS.49,48,456/- IS CANCELLED. 6. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE J UDGMENTS:- I) CIT VS. RELIANCE PETROPRODUCTS PVT LTD, [2010] 322 ITR 158 (SC) IF ALL THE RELEVANT PARTICULARS ARE FILED ALONG WI TH RETURN OF INCOME, MERELY BECAUSE SOME ITEM IS ADDED OR DISALLOWED BAS ED ON THE INFORMATION PROVIDED IN THE RETURN, PENALTY U/S 271(1)(C) CANNO T BE IMPOSED. II) CIT VS. SUGAULI SUGAR WORKS (P) LTD, 236 ITR 518 (S C) ADDITION U/S 41(1) OF THE ACT WAS NOT JUSTIFIED IF THE AMOUNT IS WRITTEN OFF BY AN UNILATERAL AND TRANSFER ENTRY IN THE ACCO UNTS. III) DCIT VS. DARSHAN AGRO OILS LTD IN ITA NO.26/AGRA/2 013 ADDITION MADE U/S 41(1) OF THE ACT AND PENALTY U/S 271(1)(C) IS DELETED IV) CIT VS. GUJARAT INSECTICIDES LTD, (2013) 35 TAXMAN. COM 313 (GUJ. HC) THE ASSESSEES CLAIM WAS NOT ACCEPTED IN THE ASSES SMENT PROCEEDINGS, IT WOULD NOT LEAD TO IMPOSITION OF PENALTY. 7. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. IT EMERGES FROM THE RECORD THAT THE ASSESSEE WAS RUNNING INTO PERENNIAL LOSSES AND BECAME A SICK UNIT UNABLE TO PAY ITS OUTSTANDING LO ANS SECURED AGAINST THE FIXED ASSETS. THE LOAN IN QUESTION, THOUGH ADJUSTED TO CAPITAL RESERVE ACCOUNT BY THE ASSESSEE, WAS NOT WRITTEN OFF BY THE GUJARAT INDUSTRIAL CO-OP. BANK LTD. ALL THE RELEVANT DETAILS ABOUT THE TRANS FER OF THE AMOUNT TO CAPITAL RESERVE ACCOUNT ARE DULY MENTIONED IN THE AUDITED R EPORT. THIS CLEARLY SMC-ITA NO. 1983/AHD/2013 ACIT VS. M/S. BANCO SILK MILLS PVT LTD AY : 2005-06 4 REFLECTS THAT ALL THE RELEVANT PARTICULARS WERE FIL ED BY THE ASSESSEE ALONG WITH RETURN OF INCOME. MERELY BECAUSE THE ASSESSEE DID NOT CONTEST THE ADDITION, CANNOT GIVE RISE TO ANY ADVERSE INFERENCE AGAINST T HE ASSESSEE, AS IN ANY CASE IT WAS RUNNING INTO HUGE LOSSES. THEREFORE, IN VIE W OF THE HONBLE SUPREME COURT JUDGMENTS IN THE CASE OF RELIANCE PETROPRODUC TS PVT LTD (SUPRA) AND SUGAULI SUGAR WORKS (P) LTD (SUPRA), I SEE NO INFIR MITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE PENALTY, WHICH IS CONFIRMED. THUS, THE REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 7 TH OCTOBER, 2016 AT AHMEDABAD. SD/- R.P. TOLANI (JUDICIAL MEMBER) AHMEDABAD; DATED 07/10/2016 *BIJU T. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD