Metal Box India Ltd, Kolkata V. A.C.I.T Cir - 11,kolkata, Kolkata

ITA 2019/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1641 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 24-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 25-06-2013
• Court: TRIBUNAL
• Assessee Lawyers: IS AGAINST PASSED
• Keywords: Business income; Depreciation; Opportunity of being heard; Additional evidence; Bad and doubtful debts; Competent authority; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH A) BEFORE SHRI N. V. VASUDEVAN , JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 ORDER PER M. BALAGANESH , AM 1. THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [IN SHORT LD CITA] VIDE APPEAL NO. 1020/CIT(A)-XII/CIR-11/09-10 DATED 14.03.2013 FOR THE ASST YEAR 2005-06 AGAINST THE ORDER OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED 31.12.2007. METAL BOX INDIA LTD. [PAN : AABCM9196M] -VS- D.C.I.T, CIRCLE 11, KOLKATA (APPELLANT) (RESPONDENT) FOR THE APPELLANT SHRI MANISH TIWARI, FCA FOR THE RESPONDENT SHRI SANDEEP CHOUBE, CIT DATE OF HEARING 31.05.2017 DATE OF PRONOUNCEMENT 02.06.2017 2 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE LD AO ON ACCOUNT OF SUNDRY DEBTORS AND LOANS / ADVANCES WRITTEN OFF IN THE ACCOUNTS FOR AGGREGATE AMOUNT OF RS 6,90,39,000/-, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. SIMILARLY WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE TAXATION OF WRITE BACK OF PROVISIONS AMOUNTING TO RS 3,92,47,000/- MADE BY THE LD AO , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE IS A COMPANY ESTABLISHED WITH THE OBJECT OF CARRYING ON THE BUSINESS OF MANUFACTURING AND SALE OF METAL CONTAINERS, COLLAPSIBLE TUBES, PAPER PACKAGES, PLASTIC MOULDED GOODS, PACKAGING AND PRINTING MACHINERY AND PROPERTY SALES DEVELOPMENT. THE RETURN OF INCOME FOR THE ASST YEAR 2005-06 WAS FILED ON 30.10.2005 DECLARING TOTAL INCOME OF RS NIL AFTER SETTING OFF BROUGHT FORWARD LOSS OF RS 34,53,54,130/- . THE LD AO OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION TOWARDS INVENTORY, SUNDRY DEBTORS, LOANS /ADVANCES WRITTEN OFF IN THE BOOKS AMOUNTING TO RS 6,90,39,000/- NET OFF WRITE BACK OF PROVISIONS TO THE TUNE OF RS 3,92,47,000/-. THIS WAS REFLECTED AS EXTRAORDINARY ITEM IN THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE. THE LD AO OBSERVED THAT THE ASSESSEE COMPUTED THE PROFIT UNDER INCOME TAX ACT IN COMPUTATION OF INCOME AS PER PROFIT IN PROFIT AND LOSS ACCOUNT AFTER EXTRAORDINARY ITEMS INSTEAD OF PROFIT FOR THE YEAR BEFORE EXTRAORDINARY ITEMS WHICH IS NOT IN ACCORDANCE WITH LAW FOR COMPUTATION OF INCOME. THE LD AO OBSERVED THAT IF THE PROFIT FOR THE YEAR BEFORE EXTRAORDINARY ITEMS IS TAKEN, THEN THE SAME WOULD BE RS 10,02,74,000/- THEREBY RESULTING IN INCREASE IN PROFIT BY RS 6,90,39,000/-. HENCE THIS RESULTED IN DISALLOWANCE OF RS 6,90,39,000/- IN THE ASSESSMENT. 3 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. 2.2. BEFORE THE LD CITA, THE ASSESSEE SUBMITTED THAT AS PER NOTES ON ACCOUNTS CONTAINED AT NOTE 9, SCHEDULE 17 OF THE ANNUAL REPORT, SUNDRY DEBTORS AND LOANS / ADVANCES WERE WRITTEN OFF FOR CLOSED UNITS AS DETAILED BELOW:- SUNDRY DEBTORS RS 798.85 LACS LOANS / ADVANCES RS 284.01 LACS ------------------- RS 1082.86 LACS LESS: PROVISION MADE IN EARLIER YEARS IN RESPECT OF THE ABOVE (DISALLOWED IN THOSE YEARS) WRITTEN BACK RS 392.47 LACS -------------------- RS 690.39 LACS -------------------- THE ASSESSEE STATED THAT IT BECAME A SICK INDUSTRIAL COMPANY AND WENT TO BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) FOR REVIVAL IN 1987. THE REHABILITATION SCHEME SANCTIONED BY BIFR ON 10.6.1996 WAS NOT ACCEPTED. AN APPEAL TO APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (AAIFR) WAS FILED. AAIFR SANCTIONED A FRESH REVIVAL SCHEME IN 2000. IT GOES WITHOUT SAYING THAT STOCKS LYING IN CLOSED UNITS FOR SUCH LONG TIME WOULD NOT HAVE ANY MONETARY VALUE. SIMILARLY, SUNDRY DEBTORS AS WELL AS LOANS / ADVANCES APPEARING IN THE BOOKS OF THESE CLOSED UNITS CANNOT HAVE ANY INTRINSIC VALUE AT SUCH DISTANT DATE. THEREFORE, THE COMPANY WROTE OFF OBSOLETE STOCK,SUNDRY DEBTORS AS WELL AS LOANS / ADVANCES RELATABLE TO THESE CLOSED UNITS AGGREGATING TO RS 6,90,39,000/- . SUCH CLAIM IS ALLOWABLE AS A BUSINESS LOSS WITHIN THE MEANING OF SECTION 28(1) AND U/S 36(2) OF THE ACT. IT WAS SUBMITTED THAT THE CONTENTION OF THE LD AO THAT SUCH CLAIMS ARE MERE PROVISIONS IS CONTRARY TO FACTS. THE REASON FOR WHICH STOCK, DEBTORS AND LOANS/ADVANCES WERE WRITTEN OFF REMAINS THE SAME AS IN AY 2004-05. IT WAS SUBMITTED THAT SO FAR AS LOANS / ADVANCES AMOUNTING TO RS 2,84,01,000/- WRITTEN OFF, SUCH ADVANCES WERE GIVEN TO SUPPLIERS FOR DELIVERY OF GOODS IN THE COURSE OF RUNNING UNITS WHICH WERE LATER ON CLOSED OR WERE UNDER LOCK 4 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. OUT. HENCE SUCH TRADE ADVANCES WERE COVERED U/S 28(1) OF THE ACT. IT WAS ARGUED THAT IT IS TRUE THAT LOSSES ARE NOT DEDUCTIBLE UNLESS IT IS INCURRED IN CARRYING OUT THE OPERATION OF BUSINESS AND IS INCIDENTAL TO BUSINESS. IT WAS SUBMITTED THAT THE BUSINESS OF THE ASSESSEE COMPANY WAS NEVER CLOSED. SOME OF THE UNITS OF THE OMPANY WERE CLOSED FOR SEVERAL YEARS. MOREOVER, THE REVIVAL SCHEME WAS APPROVED AND FINALIZED BY HONBLE DELHI HIGH COURT. IT IS WELL KNOWN THAT WHEN A REVIVAL SCHEME IS APPROVED BY COMPETENT AUTHORITY, THE SAID AUTHORITY CONSIDERS THE ENTIRE POSITION INCLUDING ACCOUNTS. THE AUTHORITY WILL NOT GRANT REVIVAL UNLESS A TRUE, CORRECT AND A REALISTIC APPROACH OF ASSETS / LIABILITIES IS PLACED BEFORE THEM OTHERWISE THE AUTHORITY DOES NOT SANCTION THE SCHEME. THEREFORE WRITING OFF OF OBSOLETE STOCK, SUNDRY DEBTORS AND LOANS / ADVANCES INCLUDING WRITING BACK OF LIABILITIES IN RESPECT OF CLOSED UNITS MUST BE HELD AS INCIDENTAL TO BUSINESS. 2.3. BEFORE THE LD CITA, IT WAS ALSO EXPLAINED THAT TOTAL AMOUNT WRITTEN OFF ON ACCOUNT OF UNREALIZED SUNDRY DEBTORS AND ADVANCES OF CLOSED UNITS WAS MADE BY EXCLUDING PROVISIONS OF RS 3,92,47,000/- MADE FROM TIME TO TIME UNDER EACH HEAD OF ACCOUNT. IT WAS THE PRACTICE OF THE ASSESSEE COMPANY TO REDUCE THE BOOK VALUE OF DEBTS ON ACCOUNT FO PROVISIONS MADE THERE AGAINST. IT IS WELL KNOWN THAT PROVISIONS FOR DOUBTFUL DEBTS MADE IN THE ACCOUNTS ARE NOT ALLOWABLE UNDER IT ACT. SINCE THE ENTIRE SUNDRY DEBTORS BALANCE IS WRITTEN OFF AND CLAIMED AS BAD WITHIN THE MEANING OF SECTION 36(2) OF THE ACT, IT IS ESSENTIAL TO WRITE BACK THOSE PROVISIONS WHICH WAS ACCORDINGLY DONE BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT IT IS WELL SETTLED THAT IT ACT DOES NOT ALLOW PROVISIONS AT ANY STAGE. HENCE THERE SHOULD NOT BE ANY CONTROVERSY THAT TOTAL PROVISIONS OF RS 3,92,47,000/- UNDER THE HEAD SUNDRY DEBTORS OR LOANS / ADVANCES WAS CLAIMED OR ALLOWED IN EARLIER YEARS. 5 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. 2.4. THE LD CITA HOWEVER REJECTED ALL THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE DISALLOWANCES MADE BY THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1A.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FINDINGS OF LD. CIT(A) THAT THE APPELLANT HAS FAILED TO SUBSTANTIATE ITS CLAIM AND THERE CONFIRMING A.O.'S VIEW THAT ASSESSEE'S CLAIM REPRESENTS MERELY PROVISIONS ERRONEOUS AND ARBITRARY. 1B.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED DISMISSING GROUND NO.1 WITHOUT GIVING ANY FINDINGS ON JUDICIAL DECISIONS RELIED UPON. 1C.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS WRONG UNJUSTIFIED IN CONFIRMING ADDITION MADE BY THE A.O. ON ACCOUNT OF SUNDRY DEBTORS AND LOANS/ADVANCES WRITTEN OFF IN THE ACCOUNTS FOR AGGREGATE AMOUNT RS.6,90,39,000/-. 2.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN DISMISSING GROUND NO.2 AND CONFIRMING THE ACTION OF A.O. WHO FAILED TO CONSIDER THAT FOLLOWING PROVISIONS WRITTEN BACK IN THE ACCOUNT CANT BE TREATED AS INCOME SINCE SUCH PROVISIONS WERE NOT ALLOWED WHILE COMPUTING INCOME IN EARLIER YEAR. A) SUNDRY DEBTORS WRITTEN BACK - RS. 3,92,47,0001- 2.5. THE LD AR ARGUED THAT THE FIRST TWO GROUNDS ARE COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASST YEAR I.E AY 2004-05 WHEREIN THE ISSUES WERE SET ASIDE TO THE FILE OF THE LD AO FOR DENOVO ADJUDICATION AND PRAYED FOR FOLLOWING THE SAME DIRECTION FOR THE YEAR UNDER APPEAL ALSO. IN RESPONSE TO THIS, THE LD DR FAIRLY AGREED FOR THE SAME. 2.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUES UNDER DISPUTE ARE COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASST YEAR 2004-05 IN ITA NO. 2018/KOL/2013 DATED 28.4.2017, WHEREIN IT WAS HELD AS UNDER:- 6 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. 8. AS SUBMITTED BY THE ID. COUNSEL FOR THE ASSESSEE, THE NATURE OF THE TWO RELEVANT AMOUNTS THUS WAS DIFFERENT AND THE SAME WAS DULY EXPLAINED IN NOTES TO ACCOUNT AS FILED BY THE ASSESSEE ALONG WITH ITS PROFIT & LOSS ACCOUNT. IT APPEARS THAT THE ASSESSING OFFICER, HOWEVER, DID NOT APPRECIATE THE EXACT NATURE OF THE SAID AMOUNTS AND PROCEEDED TO MAKE DISALLOWANCE OF RS.645 LAKHS ON WRONG PRESUMPTION THAT THE AMOUNT OF RS.1826.27 LAKHS DEBITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT OF INVENTORIES, SUNDRY DEBTORS, LOANS AND ADVANCES WRITE OFF WAS A MERE PROVISION AND NOT LOSS. EVEN THE LD. CII(APPEALS) COULD NOT APPRECIATE THE SPECIFIC SUBMISSION MADE ON BEHALF OF THE ASSESSEE BEFORE HIM IN SUPPORT OF ITS CASE ON THIS ISSUE POINTING OUT THE EXACT NATURE OF RELEVANT AMOUNTS DEBITED AND CREDITED TO THE PROFIT & LOSS ACCOUNT AND PROCEEDED TO UPHOLD THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE MERELY ON THE GROUND THAT NO DETAILS WHATSOEVER REGARDING OBSOLETE STOCK DETAILS, ETC, OF CLOSED UNITS AS WELL AS LOSS AND ADVANCES CLAIMED TO BE WRITTEN OFF WERE FILED BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE ON THE ISSUE UNDER CONSIDERATION THUS HAS BEEN DISALLOWED BY THE ASSESSING OFFICER AND THE DISALLOWANCE SO MADE HAS BEEN CONFIRMED BY THE LD. CIT(APPEALS) WITHOUT PROPERLY EXAMINING/VERIFYING THE SAME ON MERIT IN ACCORDANCE WITH LAW AND EVEN THE LD. D.R., HAS NOT BEEN ABLE TO REBUT OR CONTROVERT THIS POSITION, WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF' THE ID. CIT (APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SAME AFRESH ON MERIT IN ACCORDANCE WITH LAW AFTER DUE EXAMINATION/VERIFICATION AND AFTER GIVING THE ASSESSEE PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. 2.7. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ISSUES RAISED IN GROUNDS 1 & 2 AND RESTORE THE MATTERS TO THE FILE OF THE LD AO WITH A DIRECTION TO DECIDE THE SAME AFRESH ON MERITS IN ACCORDANCE WITH LAW AFTER DUE EXAMINATION / VERIFICATION OF THE CONTENTIONS OF THE ASSESSEE. NEEDLESS TO MENTION THAT THE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY THE GROUNDS 1 & 2 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE ADDITION OF RS 2,06,151/- AS UNDISCLOSED INCOME OF THE 7 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. ASSESSEE WHICH WAS MADE BASED ON TDS CERTIFICATES, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT THE ASSESSEE HAS SHOWN INCOME FROM INTEREST AMOUNTING TO RS 6,75,000/- WHEREAS ON VERIFICATION FROM TDS CERTIFICATES AND FROM THE IT RECORDS, THE ASSESSEE HAD DERIVED INTEREST INCOME AS BELOW:- INTEREST FROM STANDARD CHARTERED BANK (TDS AT RS 1,61,068/- ) 7,71,634 INTEREST FROM ICICI BANK (TDS AT RS 3,621/-) 17,659 INTEREST ON INCOME TAX REFUND 91,858 ----------- 8,81,151 LESS: INTEREST INCOME OFFERED BY THE ASSESSEE 6,75,000 ----------- DIFFERENCE 2,06,151 ----------- SINCE NO PROPER EXPLANATION / RECONCILIATION WAS GIVEN BY THE ASSESSEE FOR THE SAID DIFFERENCE, THE LD AO TREATED THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 3.2. BEFORE THE LD CITA, THE ASSESSEE PLEADED THAT THIS ISSUE WAS NOT AT ALL RAISED BY THE LD AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HENCE ASSESSEE COULD NOT EXPLAIN THE SAME BEFORE THE LD AO. THE ASSESSEE SIMPLY STATED THAT ASSESSEE HAD DISCLOSED OTHER INCOME OF RS 33,02,000/- IN ITS PROFIT AND LOSS ACCOUNT. THE LD CITA HELD THAT NO PROPER EXPLANATION / RECONCILIATION WAS FURNISHED BEFORE HIM AND ACCORDINGLY UPHELD THE ADDITION MADE BY THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 8 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. 3.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS WRONG IN DISMISSING ASSESSEES GROUND AND CONFIRMING THE ADDITION OF RS.2,06,151/- AS UNDISCLOSED INCOME AS PER TDS CERTIFICATE. 3.3. THE LD AR SIMPLY PLEADED FOR SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LD AO ON THE GROUND THAT THERE WERE CERTAIN DEPOSITS KEPT BY THE ASSESSEE WITH THE BANKS WHEREIN THE INTEREST INCOME WOULD BE OFFERED TO TAX ON RECEIPT BASIS AND HENCE THERE COULD BE SOME DIFFERENCE IN THE TREATMENT GIVEN BY THE ASSESSEE VIS A VIS TREATMENT GIVEN BY THE BANKERS ON THE INTEREST COMPONENT. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND STATED THAT EVEN BEFORE THIS TRIBUNAL, THE ASSESSEE HAD NOT COME UP WITH ANY RECONCILIATION TO EXPLAIN THE DIFFERENCE OF INTEREST INCOME OF RS 2,06,151/-. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LD AR HAD NOT FURNISHED ANY RECONCILIATION FOR THE DIFFERENCE IN INTEREST INCOME OF RS 2,06,151/- EVEN BEFORE US AS RIGHTLY POINTED OUT BY THE LD DR . WE FEEL THAT THE LD AR HAD MADE MERELY MADE BALD ORAL SUBMISSIONS WITHOUT CORROBORATING THE SAME WITH MATERIAL EVIDENCES. WE FIND NO ADDITIONAL EVIDENCE IS ALSO FILED BEFORE US EITHER IN THE FORM OF PROPER EXPLANATION / RECONCILIATION OF THE DIFFERENCE, SO AS TO AFFORD ONE OPPORTUNITY TO THE LD AO FOR VERIFICATION. WE FIND THAT THE INTEREST ON INCOME TAX REFUND OF RS 91,858/- ALSO HAS NOT BEEN OFFERED TO TAX BY THE ASSESSEE IN THE RETURN OF INCOME. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHEREIN INTEREST INCOME ON DEPOSITS WITH BANKS ARE TO BE OFFERED ON ACCRUAL BASIS. HENCE WE ARE NOT INCLINED TO AGREE TO THE ARGUMENT OF THE LD AR THAT THE SAID INTEREST INCOME ON DEPOSITS WERE TO BE OFFERED ON RECEIPT BASIS AND HENCE THE DIFFERENCE. IN FACT NO EVIDENCE WAS FURNISHED BEFORE US TO PROVE THE FACT OF THOSE INTEREST INCOME BEING OFFERED ON RECEIPT BASIS IN THE SUBSEQUENT YEARS. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LD AR PRAYING FOR SETTING ASIDE OF THIS ISSUE TO THE FILE 9 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. OF THE LD AO, WHICH IN OUR CONSIDERED OPINION, IS WITHOUT ANY BASIS. HENCE THE GROUND NO. 3 RAISED BY THE ASSESSEE IS DISMISSED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED, IN CONFIRMING THE ADDITION OF RS 87,32,000/- MADE ON ACCOUNT OF INCOME FROM PROPERTY DEVELOPMENT IN ASST YEAR 2005-06 WHEN THE SAME HAS BEEN OFFERED TO TAX IN ASST YEAR 2004-05 ON ACCRUAL BASIS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE APART FROM ITS MANUFACTURING ACTIVITY OF CONTAINERS STARTED THE ACTIVITY OF PROPERTY DEVELOPMENT AND SALE WHICH IS PART OF THE BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE AS MENTIONED IN TAX AUDIT REPORT. THE LD AO OBSERVED THAT THE ASSESSEE HAD RECEIVED CONSIDERATION OF TRANSFERABLE DEVELOPMENT RIGHTS OF THE PROPERTY SITUATED AT DEONAR MUMBAI DURING THE YEAR AMOUNTING TO RS 87,32,000/- OUT OF THE TOTAL CONSIDERATION OF RS 401 LACS WHICH WERE RECEIVED IN FY 2002-03 (RS 40.10 LACS) AND FY 2003-04 (RS 273.58 LACS). THE ASSESSEE HAD CREDITED IN ITS PROFIT AND LOSS ACCOUNT AS INCOME FROM PROPERTY SALE DEVELOPMENT THE CONSIDERATION RECEIVED IN PART IN RESPECTIVE FINANCIAL YEARS ON RECEIPT BASIS. ACCORDINGLY, THE ASSESSEE CREDITED THE SUM OF RS 87.32 LACS IN ITS PROFIT AND LOSS ACCOUNT ON RECEIPT BASIS DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO ASST YEAR 2005-06. THE LD AO OBSERVED THAT SINCE THE SAID SUM OF RS 87.32 LACS WAS NOT OFFERED TO TAX BY THE ASSESSEE IN ASST YEAR 2005-06, THE SAME WAS ADDED TO TOTAL INCOME OF THE ASSESSEE. IT WAS SUBMITTED BEFORE THE LD CITA AND LD AO THAT ASSESSEE HAD ALREADY OFFERED THE ENTIRE SALE CONSIDERATION OF RS 401 LACS IN ASST YEAR 2004-05 ITSELF ON ACCRUAL BASIS BY WAY OF FILING THE REVISED RETURN. HENCE THE TAXATION OF RS 87.32 LACS WHICH IS ALREADY INCLUDED IN RS 401 LACS WOULD RESULT IN DOUBLE TAXATION. THE LD CITA BRUSHED ASIDE THE 10 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO BRING ANY EVIDENCE ON RECORD TO PROVE THE SAME AND UPHELD THE ADDITION MADE BY THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 4A.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS WRONG IN DRAWING ADVERSE INFERENCE BY MISLEADING THE ASSESSMENT YEAR REPORTED IN THE WRITTEN SUBMISSIONS IS WHICH SAME INCOME WAS OFFERED TO TAX ON ACCRUAL BASIS. 4B.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ACTION OF LD. CIT (A) TO DISMISS GROUND NO.4 IS OPPOSED TO HIS OWN FINDINGS IN APPEAL NO.1021/CIT(A)-XII/CIR-11/09-10 RELEVANT TO A.Y 2004-05 ON 14.03.2013; THEREFORE THE ADDITION OF RS.87,32,000/- AS INCOME FROM PROPERTY DEVELOPMENT TANTAMOUNT DUPLICATION WHICH IS NOT PERMITTED IN LAW. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT IF THE INCOME FROM PROPERTY SALE DEVELOPMENT HAS BEEN OFFERED TO TAX BY THE ASSESSEE IN ASST YEAR 2004-05 ON ACCRUAL BASIS, THEN THE BALANCE CONSIDERATION OF RS 87.32 LACS (WHICH IS ADMITTEDLY INCLUDED IN THE TOTAL CONSIDERATION OF RS 401 LACS ) WHICH WAS RECEIVED IN ASST YEAR 2005-06 AND CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, CANNOT BE BROUGHT TO TAX. HOWEVER, SINCE NO EVIDENCE HAS BEEN PRODUCED BEFORE THE LOWER AUTHORITIES TO PROVE THE SAME, THE ADDITION WAS SUSTAINED BY THE LD CITA. THE LD AR MERELY STATED THAT IN THE APPEAL FOR THE ASST YEAR 2004-05, THE LD CITA HAD DIRECTED THE LD AO TO CONSIDER THE REVISED RETURN FILED FOR THE ASST YEAR 2004-05 WHEREIN THE ENTIRE INCOME FROM PROPERTY SALE DEVELOPMENT HAVE BEEN CLAIMED TO BE OFFERED TO TAX ON ACCRUAL BASIS. THE SAID STATEMENT OF THE LD AR IS RECKONED AS A STATEMENT GIVEN ACROSS THE BAR AND ACCORDINGLY, WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO AVOID DOUBLE TAXATION, TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD AO TO VERIFY WHETHER THE SAID CONSIDERATION HAS BEEN OFFERED TO TAX BY THE ASSESSEE IN ASST YEAR 2004-05 AND IF FOUND TO BE CORRECT, THEN THE SAME IS TO BE DELETED IN THE HANDS OF 11 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. THE ASSESSEE IN ASST YEAR 2005-06. ACCORDINGLY, THE GROUNDS 4A) & 4B) RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 5. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN CONFIRMING ADDITION OF RS. 15,69,91,197/- AS SHORT TERM CAPITAL GAIN AS AGAINST THE BUSINESS INCOME OFFERED BY THE ASSESSEE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT DURING THE YEAR, THE ASSESSEE COMPANY SOLD ITS ASSETS USED IN ITS BUSINESS IN EARLIER YEARS AND HAD CLAIMED DEPRECIATION THEREOF. FROM THE SALE OF THOSE ASSETS, THE ASSESSEE COMPANY RECEIVED RS 16,07,62,197/- AGAINST THE BOOK VALUE OF RS 37,71,000/- AND THUS RECEIVED SHORT TERM CAPITAL GAINS U/S 50 OF THE ACT AT RS 15,69,91,197/-. THE LD AO OBSERVED THAT THE ASSESSEE COMPANY HAD SHOWN THESE SALE OF ASSETS AS BUSINESS INCOME. THE DETAILS OF PROPERTIES SOLD BY THE ASSESSEE ARE AS BELOW:- A) DEONAR TDR RS 1,34,51,700 B) 4 FLATS AT MITHA TOWER CO-OPT HOUSING SOCIETY RS 54,75,000 C) DEONAR LAND RS 5,68,80,000 D) COMMERCIAL WING RS 4,03,00,000 E) WORLI FACTORY & OFFICE BLOCK RS 3,99,00,000 F) KOLKATA UNIT NO. 1 RS 14,75,000 G) KOLKATA UNIT NO. 2 RS 30,00,000 H) MANGALORE UNIT RS 2,80,497 ------------------------ RS 16,07,62,197 ------------------------ THE ASSESSEE COMPANY ADDED BACK THE BOOK VALUE OF THESE ASSETS OF RS 37,71,000/- IN ITS COMPUTATION OF INCOME . BOOK VALUE OF LAND AND BUILDING DISPOSAL CHARGED TO OPERATING EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THE LD AO OBSERVED THAT 12 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. SINCE THE PROPERTIES SOLD WERE THOSE ON WHICH DEPRECIATION WAS CLAIMED BY THE ASSESSEE IN EARLIER YEARS AND THEREFORE IT BECOMES A DEPRECIABLE ASSET AND HENCE ANY GAINS ARISING FROM ITS SALE HAS TO BE TAXED AS SHORT TERM CAPITAL GAINS U/S 50 OF THE ACT. ACCORDINGLY, THE LD AO TREATED THE GAINS AS SHORT TERM CAPITAL GAINS AS AGAINST THE CLAIM OF BUSINESS INCOME MADE BY THE ASSESSEE. THIS ACTION OF THE LD AO WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 5.) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS WONG AND UNJUSTIFED IN DISMISSING GROUND NO.5 AND CONFIRMING ADDITION OF RS.15,69,91,197/- AS SHORT TERM CAPITAL GAIN BY MISREADING THE PROVISIONS OF SECTION 50 OF I.T. ACT, 1961. 5.2. THE LD AR STATED THAT REHABILITATION SCHEME HAS BEEN SANCTIONED BY BIFR AND PURSUANT TO THE SAME, THE ASSETS WERE SOLD BY THE ASSESSEE COMPANY FOR SETTLING ITS STATUTORY OBLIGATIONS AND PAYMENTS TO CREDITORS. HE STATED THAT THE LD AO HAD CATEGORICALLY STATED IN HIS ASSESSMENT ORDER THAT ONE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE IS PROPERTY SALE DEVELOPMENT. HE ARGUED THAT THE ASSESSEE HAD STOPPED CLAIMING DEPRECIATION ON THESE PROPERTIES FROM EARLIER YEARS PURSUANT TO THE SCHEME OF REHABILITATION. EVENTHOUGH THOSE ASSETS WERE NOT CONVERTED FROM FIXED ASSETS TO STOCK IN TRADE, THEY ARE ONLY IN THE NATURE OF BUSINESS ASSETS AND THOSE BUSINESS ASSETS WERE SOLD FOR MEETING THE BUSINESS EXIGENCIES. HENCE THE RESULTANT GAIN DERIVED THEREON SHOULD BE CONSTRUED ONLY AS BUSINESS INCOME AND THE BENEFIT OF BROUGHT FORWARD BUSINESS LOSSES SHOULD BE SET OFF AGAINST THE SAME. HE ALSO ARGUED THAT THE ASSESSEE CANNOT BE INVITED WITH UNWARRANTED TAX LIABILITY ON THIS SALE OF ASSETS , OTHERWISE, THE VERY PURPOSE OF THE REHABILITATION SCHEME WARRANTING SALE OF ASSETS WOULD FAIL AND THE END RESULT WOULD BE THAT ASSESSEE MAY NOT BE IN POSITION TO MEET ITS CREDITORS AND OTHER OBLIGATIONS INCLUDING STATUTORY OBLIGATIONS. HOWEVER, HE ALSO STATED THAT SINCE THE PROPERTY SITUATED AT DEONAR TDR WHICH WAS THE SUBJECT MATTER OF DISPUTE IN GROUND NO. 4 ABOVE HAS TO BE SET 13 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. ASIDE TO THE FILE OF THE LD AO, THE FINDING TO BE GIVEN BY THE LD AO ON THAT PROPERTY WOULD ALSO HAVE A BEARING ON OTHER PROPERTIES ALSO AS ADMITTEDLY ALL THE PROPERTIES WERE USED ONLY FOR MEETING BUSINESS EXIGENCIES. ACCORDINGLY, HE PRAYED FOR SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LD AO. IN RESPONSE TO THIS, THE LD DR STATED THAT THE DIRECTIONS OF THE BIFR ARE NOT BINDING ON INCOME TAX AUTHORITIES AND THE INCOME TAX ACT IS A SELF CONTAINED CODE IN ITSELF AND HENCE THE LD AO HAD TREATED THE GAINS AS SHORT TERM CAPITAL GAINS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND IF RUNS CONTRARY TO THE DIRECTIONS OF BIFR, THE SAME CANNOT BE AVOIDED. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUTSET, WE ARE NOT ABLE TO FULLY APPRECIATE THE VARIOUS CONTENTIONS RAISED BY THE ASSESSEE THAT THE BIFR HAD PASSED AN ORDER DIRECTING THE INCOME TAX DEPARTMENT TO TREAT THE GAINS ON SALE OF ASSETS AS BUSINESS RECEIPTS SO AS TO GIVE THE BENEFIT OF SET OFF OF THE SAME WITH THE BROUGHT FORWARD BUSINESS LOSS, IN VIEW OF THE FACT THAT THE COPY OF THE BIFR ORDER AND ITS DIRECTIONS ARE NOT PLACED ON RECORD BEFORE US. HENCE WE ARE NOT IN A POSITION TO APPRECIATE THE CONTENTIONS OF THE LD AR IN THIS REGARD . HOWEVER, THE SAME WOULD BE UNDERSTOOD ONLY FROM THE LANGUAGE USED BY THE BIFR IN ITS DIRECTIONS AND THEREAFTER WE NEED GO INTO THE BINDING NATURE OF THOSE DIRECTIONS. IN THE ABSENCE OF THE SAID ORDER BEFORE US, IT WOULD BE PREMATURE TO GET INTO THOSE LINE OF ARGUMENTS ADVANCED BY THE LD AR. HOWEVER WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LD AR THAT THE PROPERTY AT DEONAR TDR MUMBAI HAS BEEN THE SUBJECT MATTER OF DISPUTE IN GROUND NO. 4 AND WE HAVE ALREADY SET ASIDE THE GROUND NO.4 TO THE FILE OF THE LD AO . WE FIND THAT ALL THE PROPERTIES THAT WERE SUBJECT MATTER OF SALE IN THIS YEAR FALL UNDER THE SAME AMBIT AND SCOPE. HENCE THE DECISION TAKEN IN ASST YEAR 2004-05 BY THE LD AO WOULD HAVE A SIGNIFICANT BEARING ON THE TREATMENT OF GAINS FOR THE OTHER PROPERTIES ALSO IN ASST YEAR 2005-06. HENCE WE DEEM IT FIT AND APPROPRIATE , TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD AO TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER DECIDING THE GROUND NO. 4 INDEPENDENTLY. 14 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD. THE ASSESSEE IS AT LIBERTY TO MAKE FRESH PLEA AND FILE FRESH EVIDENCES, IF ANY, IN SUPPORT OF HIS CONTENTIONS. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE GROUND NO. 6 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 02.06.2017. SD/- SD/- [N. V. VASUDEVAN] [M. BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : {RS SPS} COPY OF THE ORDER FORWARDED TO: 1. APPELLANT/ASSESSEE METAL BOX INDIA LTD., WOODLAND SYNDICATE, FLAT NO.11, 8/7, ALIPORE ROAD, KOLKATA - 700027 2. REVENUE/RESPONDENT- D.C.I.T, CIRLCE-11, KOLKATA. 3. CIT(A)- KOLKATA 4. CIT , KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE, DDO, KOLKATA BENCHES, KOLKATA. 15 I.T.A. NO.2019/KOL/2013 ASSESSMENT YEAR 2005-06 METAL BOX INDIA LTD.