The ITO, Ward-2(4), Ahmedabad V. M/s. Chimanlal Dosabhai narodia, Ahmedabad

ITA 217/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85675 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: S N DIVETIA
• Keywords: Capital receipt
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFO RE SHRI SHAILENDRA KR. YADAV, J.M. & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 217 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2006 - 07) THE I.T.O., WARD - 2(4), AHMEDABAD V/S M/S. CHIMANLAL DOSABHAI NARODIA 420, CHOKHA BAZAR, AHMEDABAD (APPELLANT) (RESPOND ENT) PAN: AABFC0910G APPELLANT BY : SHRI M.K. SINGH, SR. D.R RESPONDENT BY : SHRI S.N. DIVETIA, A.R. ( )/ ORDER DATE OF HEARING : 03 - 02 - 2015 DATE OF PRONOUNCEMENT : 19 - 0 2 - 2 015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - XIV, AHMEDABAD DATED 28.09.2010 FOR A.Y. 2006 - 07. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF TRADING OF GRAIN ITEM S AND GENERAL COMMISSION AGENT. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 06 - 07 ON 30.12.2006 DECLARING TOTAL INCOME OF RS. 6,42,718/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSME NT ITA NO 217/AHD/2011 . A.Y. 2006 - 07 2 WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 22.12.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 41,54,983/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 30.03.2010 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS; - 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 35,08,765/ - MADE ON ACCOUNT OF CREDIT IN P ARTNERS CAPITAL ACCOUNT DUE TO REMISSION OF LOAN LIABILITY CONSIDERED AS INCOME OF THE FIRM U/S. 2(24) R.W.S. 28(IV) OF THE I.T.ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, O N PERUSING THE AUDIT REPORT FILED BY THE ASSESSEE, A.O NOTI CED THAT ASSESSEE HAS CREDITED RS. 35,08,765/ - AS CAPITAL RECEIPTS IN THE CAPITAL ACCOUNT O F THE PARTNERS AND THE AMOUNT WAS NOT OFFERED TO TAX. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT NOT BE TAXED U/S. 41 OF THE ACT TO WHICH ASSESSEE INTERALIA SUBMITTED THA T IT HAD SHARFI ACCOUNT WITH RAJKUMAR ENTERPRISES, THE INTEREST ON THE LOAN WAS PROVIDED IN A.Y. 01 - 02 AND A.Y. 02 - 03 AND WAS ALSO CLAIMED AS DEDUCTION . SUBSEQUENTLY SINCE THE PARTY HAD LEFT INDIA AND SETTLED ABROAD , THE OUTSTANDING LOAN WAS CONSIDERED AS NOT PAYABLE . O UT OF THE TOTAL OUTSTANDING BALANCE, T HE INTEREST AMOUNTING TO RS. 10,37,143/ - WAS WRITTEN BACK AND WAS OFFERED FOR TAX U/S. 41(1) OF THE ACT. WITH RESPECT TO THE PRINCIPAL AMOUNT OF RS. 35,08,765/ - , IT WAS SUBMITTED THAT IT BEING NOT IN THE NATURE OF TRADING LIABILITY THE SAME WAS CREDITED TO THE PARTNERS ACCOUNT IN THEIR PROFIT SHARE RATIO AND WAS NOT OFFERED TO TAX . THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O AS HE WAS OF THE VIEW THAT THE ENTIRE AMOUNT WRITTEN BACK S HOULD BE TREATED AS INCOME WITHIN THE MEANING OF SECTION 2(24) READ WITH CLAUSE (IV) OF SECTION 28 OF THE ACT. HE ITA NO 217/AHD/2011 . A.Y. 2006 - 07 3 ACCORDINGLY CONSIDERED THE ENTIRE AMOUNT WRITTEN BACK AS INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER B EFORE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: - 5.1 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE EVIDENCE PRODUCED BY HIM. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. IT IS NOTICED THAT AO HAS TR EATED THE AFORESAID AMOUNT OF RS.35,08,765/ - AS INCOME SIMPLY ON THE GROUND THAT THE INTEREST EXPENDITURE HAS BEEN ADDED IN CESSATION OF THIS LIABILITY WAS OF THE FIRM AND IT CANNOT BE SHIFTED TO THE PARTNERS,. THE AO HAS ALSO OBSERVED THAT ANY GAINS AND BENEFITS ARISING FROM THE BUSINESS WAS TAXABLE INCOME IN VIEW OF SECTION 28(IV) R.W.S. 2(24)(VD) OF THE ACT. THE AMOUNT WHICH WAS NOT PAYABLE TO THE DEPOSITOR AND CREDITED TO THE PARTNERS CAPITAL ACCOUNT WAS AS GOOD AS PROFITS. THE ASSESSING OFFICER HAS AL SO CONCLUDED THAT IN VIEW OF NET INTEREST INCOME OF RS.3,81,828 SHOWN IN THE P&.L ACCOUNT, IT WAS ENGAGED IN SHARAFI (MONEY LENDING BUSINESS). 5.2HOWEVER, I AM NOT INCLINED TO ACCEPT THE CONTENTIONS RAISED BY ASSESSING OFFICER FOR HOLDING THE PRINCIPAL AMO UNT WRITTEN BACK AS INCOME OF THE FIRM. THE SAID AMOUNT CANNOT BE TREATED AS BENEFIT OR PERQUISITE ARISING FROM REMISSION IN THE UNSECURED LIABILITY BECAUSE ON READING OF SECTION 28(IV), IT IS APPARENT THAT IT CAN BE INVOKED ONLY IN RESPECT OF THE BENEFIT OR PERQUISITE OTHER THAN CASH. IF, THEREFORE, WHAT IS RECEIVED AS BENEFIT OR PERQUISITE IS MONEY, THERE WOULD BE NO QUESTION OF CONSIDERING THE VALUE OF SUCH MONETARY BENEFIT OR PERQUISITE UNDER THIS CLAUSE. EVEN, IN CASE OF CIT VS. CHETAN CHEMICALS PVT. L TD (SUPRA), THE JURISDICTIONAL COURT HAS HELD AS UNDER: - 'SECT/ON 28 OF THE ACT DEALS WITH PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CLAUSE (IV) THEREOF SAYS THAT THE VALUE OF ANY BENEFIT OR PERQUISITE WHETHER CONVERTIBLE INTO MONEY TOR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION SHALL BE CHARGEABLE AS THE INCOME UNDER HEAD 'PROFITS AND GAINS OR BUSINESS OR PROFESSION'. IN THE FACTS OF THE PRESENT CASE, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY WAS CARRYING ON BUSINESS OF OBTAINING LO ANS AND THAT THE REMISSION OF SUCH LOANS BY THE CREDITORS OF THE COMPANY WAS A BENEFIT ARISING FROM SUCH BUSINESS.' EVEN IN THIS CASE, THE ASSESSEE COMPANY HAD OBTAINED UNSECURED LOANS FROM VARIOUS CREDITORS AND IN THE LIGHT OF THE FINANCIAL DIFFICULTIES F ACED BY THE COMPANY, A COMPROMISE WAS REACHED WHEREIN CERTAIN CREDITORS REMITTED UNSECURED LOAN WHICH THE AO TREATED AS A BENEFIT ACCRUING TO THE COMPANY IN THE COURSE OF ITS BUSINESS ACTIVITY AND BROUGHT TO TAX U/S.28(IV) OF THE ACT. THUS, THE FACTS OF TH E APPELLANT ARE IDENTICAL TO THE FACTS IN THE CASE RELIED UPON BY THE APPELLANT. THEREFORE, RESPECTFULLY FOLLOWING THE BINDING DECISION OF THE JURISDICTIONAL HIGH COURT OF GUJARAT, IT IS HELD THAT THE REMISSION OF UNSECURED LOAN COULD NOT BE SUBJECTED TO T AX BY INVOKING SECTION 28(IV) OF THE ACT. 5.3 IN THE FACTS OF THE PRESENT CASE, IT COULD NOT BE SAID THAT THE APPELLANT FIRM WAS CARRYING ON BUSINESS OF OBTAINING LOANS AND THE REMISSION OF SUCH LOAN WAS A BENEFIT ARISING FROM SUCH BUSINESS. 5.4 IT IS NOT ICED FROM THE AUDITED P&L A/C., FOR THE YEAR ENDED 31.3.2006 THAT THE MAJOR INCOME OF THE APPELLANT FIRM IS COMMODITY - SPECULATION OF 'RS.37,84,484/ - , SHARE TRADING ACCOUNT RS.2,70,868, SHARE DERIVATIVES LOSS RS.21 ,65,358, WHEREAS THE NET INTEREST ITA NO 217/AHD/2011 . A.Y. 2006 - 07 4 INCOME I S ONLY RS,3.81 ,828/ - . EVEN, THE AO HAS OBSERVED IN THE ASSTT. ORDER ITSELF AT SR. NO.10 OF THE PARTICULARS GIVEN ON FIRST PAGE AND IN PARA 1 THEREOF THAT THE APPELLANT IS TRADING IN GRAIN ITEMS AND GENERAL COMMISSION AGENT, SHARE DERIVATIVES / INDEX TRADI NG TRANSACTION OF F & O AND COMMODITY SPECULATIVE ACTIVITIES. THE CLAUSE (III) OF THE PARTNERSHIP DEED DATED 4.2.1993 PRODUCED BY THE APPELLANT ALSO STATES THAT THE BUSINESS OF THE PARTNERSHIP WAS ADAPT, COMMISSION IN FOOD GRAINS, KHOL, OIL SEEDS, ETC. THE REFORE, THE CONTRARY FINDINGS GIVEN BY AO ARE NOT JUSTIFIED. 5.5 THE COUNSEL FOR THE APPELLANT HAS DRAWN MY ATTENTION TO THE RECENT DECISION OF HON. DELHI HIGH COURT IN THE CASE OF CIT VS. JINDAL EQUIPMENTS LEASING &, CONSULTANCY SERVICES LTD. (37 DTR 172) WHEREIN IT HAS BEEN HELD THAT WAIVER / WRITE OFF OF PRINCIPAL AMOUNT OF LOAN IS NOT TAXABLE AS BENEFITS OR PERQUISITES U/S.28(IV) BECAUSE BENEFITS OR PERQUISITES SHOULD BE OF THE NATURE OTHER THAN CASH. THIS DECISION HAS FOLLOWED THE CASES OF MAHENDRA & M AHENDRA LTD. VS. CIT (261 ITR 501) (BOM.) CIT VS. ALCHEMIC (P) LTD (130 ITR 168) (GUJ.) IN VIEW OF THE AFORESAID FACTS OF THE CASE AND POSITION IN LAW, THE ADDITION OF RS. 35,08,765/ - MADE U/S. 28(IV) R.W.S. 2(24) IS DELETED. APPEAL IS ALLOWED 5. AGGRIEVED B Y THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT THE TAXABILITY OF WRITTEN BACK AMOUNT OF LOAN. LD. CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE HAS GIVEN A FINDING THAT THE ASSESSEE WAS NOT CARRYING ON THE BUS INESS OF OBTAINING LOANS AND THEREFORE THE REMISSION OF LOAN CANNOT BE CONSIDERED TO BE A BENEFIT ARISING OUT FROM THE BUSINESS. WE FIND THAT LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAD RELIED ON THE DECISIONS CITED THEREIN AND ALSO THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHETAN CHEMICALS PVT. LTD. 267 ITR 770. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR COULD POINT ANY DISTINGUISHABLE FEATURE OF THE DECISIONS RELIED BY A.R. WE THEREFORE FIND NO REASON TO ITA NO 217/AHD/2011 . A.Y. 2006 - 07 5 INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 02 - 201 5 . SD/ - SD/ - (SHILENDRA KR. YADAV ) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CI T (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD