M/s.Easwar Oil Industries P. Ltd, Malappuram V. The DCIT, Tirur

ITA 234/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7551 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 05-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: C B M WARRIER
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO. 234/COCH/2015 ASSESSMENT YEAR : 2009-10 M/S. ESAWAR OIL INDUSTRIES P. LTD., C/O R.EASWARAN, MANAGING DIRECTOR, EASWAR NIVAS, THRIKKAVU, PONNANI-679 577. [PAN:AACCE 1111D] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(2), TIRUR. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI C.B.M. WARRIER, CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 05/01/2016 DATE OF PRONOUNCEMENT 22/01/2016 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE ARISES FROM THE OR DER OF THE LD. CIT(A), KOZHIKODE DATED 02-01-2015 FOR THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1. THE APPELLANT IS M/S. EASWAR OIL INDUSTRIES PVT. LTD., PONNANI AND IN REGARD TO AY 2009-10, THE COMMISSIONER OF INCOME TA X(APPEALS) HAS GONE WRONG IN CONFIRMING THE DISALLOWANCE OF RS.3,3 9,10,100/- PAYMENT MADE TO KERALA STATE FINANCIAL CORPORATION AND BANK S OUT OF SALE PROCEEDS OF THE PROPERTY AND IN NOT CONSIDERING THE PAYMENT OF INTEREST RS.94,26,236/- ON ACCOUNT OF PLANT AND MACHINERY FR OM THE SALE I.T.A. NO.234/COCH/2015 2 PROCEEDS OF THE ASSETS FOR THE PURPOSE OF DETERMINI NG THE TAXABLE INCOME ON THE SALE OF ASSETS. 2. THE APPELLANT HAS INCURRED INTEREST OF RS.94,26, 236/- ON THE BORROWINGS OF PURCHASE OF PLANT AND MACHINERY AND T HIS INTEREST COST HAS TO BE ALLOWED AS DEDUCTION IN THE COMPUTATION O F NET INCOME FROM THE SALE OF ASSETS. 3. THE APPELLANT HAS AVAILED A LOAN FROM KERALA STA TE FINANCIAL CORPORATION AND BANKS FOR THE PURPOSE OF PURCHASE O F PLANT AND MACHINERY AND OTHER ASSETS AND ON ACCOUNT OF DEFAUL T OF REPAYMENT OF LOAN THE PROPERTIES WERE UNDER ATTACHMENT AND THE S ALE PROCEEDS ARE DIRECTLY APPROPRIATED BY THE LENDING INSTITUTIONS A ND HENCE THE PAYMENT OF RS.3,39,10,100/- MAY BE CONSIDERED AS THE PAYMEN T OF A PRIMARY CHARGE AND ALLOWED DEDUCTION FROM THE SALE PROCEEDS OF RS.6 CRORES IN THE COMPUTATION OF INCOME FROM THE SALE OF THE PROP ERTY. 4. FOR THE ABOVE REASONS AND OTHER ARGUMENT THOSE MAY BE PUT FORWARD AT THE TIME OF HEARING THE APPELLANT MAY REQUEST TO ALLOW:- 1. THE COST BY WAY OF INTEREST TO THE EXTENT OF RS. 94,26,236/- MAY BE ALLOWED AS DEDUCTION FROM THE SALE PROCEEDS TOWARDS THE COST OF PLANT AND MACHINERY. 2. TO ALLOW THE SET OFF THE PAYMENT OF 3,39,10,100/ - TO THE FINANCIAL INSTITUTIONS FROM THE SALE PROCEEDS OF THE PROPERTY BY WAY OF A PRIMARY CHARGE ON THE PROPERTY SOLD BY THE APPELLANT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LAND AND BUILDING HAS BEEN SOLD BY THE ASSESSEE FOR A DOCUMENTED CONSIDERATION OF R S.6 CRORES WHICH INCLUDES AN AMOUNT OF RS.3,39,10,100/- COLLECTED DI RECTLY BY THE KERALA STATE FINANCIAL CORPORATION AND OTHER BANKS, AS THE IR DUE FROM THE ASSESSEE AND THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTI ON OF THE SAID AMOUNT COLLECTED AS A PRIMARY CHARGE, WHEREAS THE ASSESSEE S CLAIM WAS THAT THE SAID INSTITUTIONS HAD OVERRIDING CLAIM ON THE PROPE RTY SOLD. I.T.A. NO.234/COCH/2015 3 4. THE LD. CIT(A) AFTER OBTAINING THE REMAND REP ORT FROM THE ASSESSING OFFICER CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER. 5. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSE SSEE, SHRI C.B.M WARRIER, CA THAT THE ASSESSEE HAS AVAILED THE LOAN FROM THE KERALA STATE FINANCIAL CORPORATION AND THE BANKS FOR THE PURPOSE OF PURCHA SE OF PLANT AND MACHINERY AND OTHER ASSETS. ON ACCOUNT OF DEFAULT IN REPAYMENT OF LOAN, THE PROPERTIES WERE UNDER ATTACHMENT AND THE SALE P ROCEEDS WERE DIRECTLY APPROPRIATED BY THE LENDING INSTITUTIONS AND HENCE THE PAYMENT OF RS.3,39,10,100/- SHOULD HAVE BEEN CONSIDERED AS THE PAYMENT OF A PRIMARY CHARGE AND ALLOWED A DEDUCTION FROM THE SALE PROCEE DS OF RS.6 CRORES IN THE COMPUTATION OF INCOME FROM THE SAID SALE OF THE PRO PERTY. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE SAID INSTITUTIONS HAVE OVERRIDING CLAIM ON THE SAID PROPERTY AND THEREFORE, THE AMOUNT OF RS.3 ,39,10,100/- COLLECTED DIRECTLY BY THE INSTITUTIONS SHOULD BE DEDUCTED FRO M THE SALE PROCEEDS FOR COMPUTING CAPITAL GAINS. HE RELIED UPON THE DECISI ON OF THE HONBLE KERALA HIGH COURT IN THE CASE OF KTC TYRES (INDIA) LTD. (2 003) 180 CTR 57 IN THIS REGARD. 6. THE LD. DR ON THE OTHER HAND RELIED UPON THE O RDER OF THE AUTHORITIES BELOW. THE LD. DR ARGUED THAT THE DECISION IN THE CASE OF KTC TYRES (INDIA) LTD. (SUPRA) IS NOT APPLICABLE SINCE IN THA T CASE THE OFFICIAL LIQUIDATOR I.T.A. NO.234/COCH/2015 4 WAS APPOINTED WHEREAS THE FACTS ARE DIFFERENT IN TH E PRESENT CASE. ACCORDINGLY, THE DECISION IN THE CASE OF KTC TYRES (INDIA) LTD. (SUPRA) CANNOT BE MADE APPLICABLE IN THE PRESENT CASE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. THE UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT T HE ASSESSEE HAS CREATED A LIABILITY OF RS.3,39,10,100/- DUE TO KERALA STATE FINANCIAL CORPORATION AND THE BANKS. THE SAID INSTITUTIONS HAVE DIRECTLY APPR OPRIATED THE SALE PROCEEDS AS THEIR DUE FROM THE ASSESSEE. THE QUESTION ARISES WHETHER THE SAID APPROPRIATION SHOULD BE GIVEN DEDUCTION OUT OF THE TOTAL SALE CONSIDERATION OF RS. 6 CRORES OR NOT AS AN OVERRIDING TITLE OF TH E INSTITUTIONS. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION I N THE CASE OF KTC TYRES (INDIA) LTD. (SUPRA) WHICH IN FACT CANNOT BE MADE A PPLICABLE IN THE PRESENT CASE FOR THE REASONS THAT THE COMPANY, M/S. KTC TYR ES (INDIA) LTD. WAS ORDERED TO BE WOUND UP IN THE LIQUIDATION PROCEEDIN GS AND DURING THE PENDENCY OF LIQUIDATION, THE OFFICIAL LIQUIDATOR HA D DISPOSED OF ALL THE MOVABLE AND IMMOVABLE ASSETS BY PUBLIC AUCTION AND FULL CONSIDERATION WAS RECEIVED BY THE OFFICIAL LIQUIDATOR AND THE ENTIRE ASSETS OF THE COMPANY HAD BEEN CHARGED TO CANARA BANK, CALICUT AND INDUSTRIAL DEVELOPMENT BANK OF INDIA. DURING THE COURSE OF WINDING UP PROCEEDINGS , THE OFFICIAL LIQUIDATOR HAD SETTLED THE LIST OF CREDITORS AND THE TOTAL AMO UNT TO THE SECURED CREDITORS AND WORKMEN. OUT OF THE ADMITTED AMOUNT, THE OFFICIAL LIQUIDATOR I.T.A. NO.234/COCH/2015 5 HAD PAID FIRST DIVIDEND TO THE SECURED CREDITORS AN D WORKMEN WHEREAS IN THE PRESENT CASE, THE COMPANY IS NOT IN LIQUIDATION AND THEREFORE, THE DECISION IN THE CASE OF KTC TYRES (INDIA) LTD. (SUP RA) CANNOT BE MADE APPLICABLE. MOREOVER, IN THE LIQUIDATION PROCEEDIN GS, ALL THE ASSETS AND LIABILITIES INCLUDING ALL THE POWERS OF THE MANAGEM ENT ARE TRANSFERRED TO THE OFFICIAL LIQUIDATOR WHO HAS TO REALIZE THE ASSETS A ND HAS TO PAY OFF THE SAID PAYMENTS SO COLLECTED FIRSTLY THE PREFERENTIAL PAYM ENTS AND THEN OTHER DEBTS AS PER THE PROVISIONS OF COMPANIES ACT, 1956. IT IS ONLY IN THIS BACKGROUND THAT THE OFFICIAL LIQUIDATOR HAD MADE PR EFERENTIAL PAYMENTS IN THE CASE OF KTC TYRES (INDIA) LTD. WHICH FACT IS NO T APPLICABLE IN THE PRESENT CASE. ACCORDINGLY, THERE CANNOT BE AN OVERRIDING T ITLE IN THE PRESENT CASE SINCE THE PROPERTY HAS BEEN SOLD BY THE ASSESSEE IT SELF WITH THE HELP OF THE CONSULTANT AND HENCE IN THE CIRCUMSTANCES AND FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RI GHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THUS THE ISSUE REGARDING THE DEDUCTION OF RS.3,39,10,100/- AS PAYMENT MADE TO KERALA STATE FI NANCIAL CORPORATION AND BANKS, RAISED BY THE ASSESSEE IS DISMISSED. 8. AS REGARDS THE ISSUE RELATING TO DISALLOWANC E OF INTEREST PAID ON THE BORROWINGS FOR THE PURCHASE OF THE ASSETS OF THE CO MPANY AMOUNTING TO RS.94,26,236/-, THE ASSESSEE HAD RAISED THE ISSUE B EFORE THE LD. CIT(A), BUT IT HAS NOT BEEN DECIDED BY THE LD. CIT(A). ACC ORDINGLY, THE MATTER IS I.T.A. NO.234/COCH/2015 6 SET ASIDE TO THE FILE OF THE LD. CIT(A) WHO WILL DE CIDE THE SAID ISSUE DE NOVO AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I .T.A. NO.234/COCH/2015 IS PARTLY ALLOWED. PRONOUNCED IN THE OP EN COURT ON 22-01-2016. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 22 ND JANUARY, 2016 GJ COPY TO: 1. M/S. ESAWAR OIL INDUSTRIES P. LTD., C/O R.EASWAR AN, MANAGING DIRECTOR, EASWAR NIVAS, THRIKKAVU, PONNANI-679 577. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2( 2), TIRUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN