DCIT, CHENNAI V. Shri Jagadish A. Sdarangani, CHENNAI

ITA 235/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6286 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-05-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 27-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CH ENNAI. . , . !' !' !' !' , # # # # $ $ $ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.235/MDS/2014 # ' %' / ASSESSMENT YEAR :2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. SHRI JAGADISH A. SADARANGANI, ROMAR FASHIONS, ROMAR HOUSE, 15, JAGANNATHAN ROAD, NUNGAMBAKKAM, CHENNAI 600 034. [PAN : AALPS3121P] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT () &' * + / RESPONDENT BY : SHRI M. KARUNAKARAN, ADVOCATE * , / DATE OF HEARING : 29.05.2014 -% * , /DATE OF PRONOUNCEMENT : 20.06.2014 . . . . / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) III, CHENN AI, DATED 31.10.2013 RELEVANT TO THE ASSESSMENT YEAR 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL CARRYING ON BUSINESS IN DERIVATIVES AND DERIVES INCOME BY WA Y OF INTEREST INCOME. THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOM E OF ` .74,11,600/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER DUE PROCESS, THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.23 2323 235 55 5/M/ /M/ /M/ /M/14 1414 14 2 ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS ADVANCED LOAN OF ` .1,10,00,000/- AND ` .78,71,000/- TO ONE SHRI C. RAVINDRAN AND VAMANA PI CTURES RESPECTIVELY. THE ASSESSEE HAD CHARGED INTEREST AT THE RATE OF 12 % ON THE LOANS ADVANCED TO OTHER BORROWERS. THE ASSESSEE HAS NOT O FFERED THE INTEREST INCOME ON THE LOAN ADVANCED TO SHRI C. RAVINDRAN FO R THE PERIOD FROM 01.12.2009 TO 31.03.2010 AND CHARGED NOTIONAL INTER EST OF ` .13,20,000/-. SO FAR AS LOAN ADVANCED TO VAMANA PICTURES OF ` .78,71,000/- IS CONCERNED, THE MONEY HAS TO BE WRITTEN OFF AS THERE IS NO WAY TO R ECOVER THE SAME WAS NOT ACCEPTED AS THE ASSESSEE HAS NOT PRODUCED ANY MATER IAL EVIDENCE TO JUSTICE HIS CLAIM AND THEREFORE, THE ASSESSING OFFICER HAS MADE ADDITION OF ` .9,44,520/- AS NOTIONAL INTEREST FOR THE PERIOD FRO M 01.04.2008 TO 31.03.2009. 3. ON APPEAL, THE LD. CIT(APPEALS) HAS OBSERVED AN D HELD AS UNDER: 7. DURING THE COURSE OF APPEAL PROCEEDINGS, I HAV E CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, CONSIDERED THE STATEM ENT OF FACTS AND THE GROUNDS OF APPEAL AND CONSIDERED THE VARIOUS CASE L AWS RELIED UPON BY THE AR. THE ISSUE OF ADVANCES TO BOTH THE PARTIES V IZ. TO SHRI C. RAVINDRAN AND TO M/S.VAMANA PICTURES ARE SQUARELY C OVERED BY THE ORDER OF THE CIT(A)-III AND THE HON'BLE ITAT. THE H ON'BLE ITAT IN THE ORDER CITED SUPRA IN THE CASE OF LOAN ADVANCED TO S RI C. RAVIDRAN HAS HELD THAT ' ... ONCE HE RECEIVED THE MONEY BACK ALO NG WITH INTEREST, THE ASSESSEE HAS OFFERED FOR TAXATION FOR THE ASSESSMEN T YEAR 2012-13. IN THESE CIRCUMSTANCES, WE FIND THAT THE RECOGNITION O F INCOME ON ACTUAL RECEIPT OF THE INTEREST IS JUSTIFIED IN THE PRESENT CASE. THERE IS NO ABSOLUTE RULE REGARDING RECOGNITION OF INCOME WHETH ER ON RECEIPT BASIS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.23 2323 235 55 5/M/ /M/ /M/ /M/14 1414 14 3 OR AN ACCRUAL BASIS.' FURTHER IN THE CASE OF M/S.VA MANA PICTURES, THE HON'BLE HAS HELD IN THE SAME ORDER MENTIONED SUPRA THAT ' ... THIS ADVANCE WAS GIVEN NOT AS A BUSINESS TRANSACTION, BU T AS A PERSONAL COURTESY TO A FORMER EMPLOYEE. THE MONEY WAS GIVEN TO PRODUCE A FILM. THE FILM WAS A FLOP. THE ASSESSEE DID NOT GOT BACK THE MONEY AT ALL. ACCORDINGLY, THE ASSESSEE HAS NOT OFFERED ANY AMOUN T OF INTEREST AS INCOME PERTAINING TO THE AMOUNT OF ADVANCE MADE TO M/S. VAMANA PICTURES . ...... THEREFORE, THE ASSESSEE IS JUSTIF IED IN NOT RECOGNIZING ANY INCOME WITH REFERENCE TO THE ADVANCE TO M/S. VAMANA PICTURES. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS IN THE S IMILAR ISSUE FOR THE RELEVANT ASSESSMENT YEAR 2010-11, THE ADDITIONS MAD E BY THE AO ARE DELETED AND THE GROUND IS ALLOWED. 4. THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE COORDINATE BENCH DECISION I N ASSESSEES OWN CASE. 6. ON THE OTHER HAND, THE LD. DR HAS ALSO FAIRLY S TATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. HOWEVER, HE HAS DUTIFULLY RELIED ON THE ORDER PASSED BY THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH ORDERS OF AUTHORITIES BELOW. AFTER CAREFUL CONSIDERATION OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE C OORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NO. 2267/MDS/2012 DATED 17.04.2013, WHEREIN THE TRIBUNA L HAS HELD AS UNDER: 3. IN THE CASE OF SHRI C. RAVINDRAN, THE ASSESSEE HAD IN FACT, RECEIVED BACK THE VERY AMOUNT ADVANCED ALONG WITH I NTEREST AS A RESULT OF A MUTUAL UNDERSTANDING ARRIVED AT BETWEEN THE PA RTIES IN PURSUANCE OF THE CRIMINAL PROCEEDINGS INITIATED BY THE ASSESS EE AGAINST SHRI C. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.23 2323 235 55 5/M/ /M/ /M/ /M/14 1414 14 4 RAVINDRAN. THE FACT THAT THE ASSESSEE HAD INITIATED THE CRIMINAL PROCEEDINGS AGAINST SHRI C. RAVINDRAN IS AN ACCEPTA BLE TESTIMONY IN SUPPORT OF THE ARGUMENT OF THE ASSESSEE THAT THE AM OUNT ADVANCED TO SHRI C. RAVINDRAN WAS DOUBTFUL OF RECOVERY AT THE E ND OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE ARGUMENT THAT IF THE ADVANCE GIVEN TO SHRI C. RAVINDRAN WAS DOUBTFUL OF RECOVERY, THE ASSESSEE SHOULD HAVE WRITTEN OFF THE AMOUNT OF ADVA NCE IS NOT RELEVANT IN THE PRESENT CASE; BECAUSE THE ASSESSEE IS NOT CL AIMING ANY DEDUCTION AS BAD DEBT. IN THE PRESENT CASE, THE ASSESSEE HAD INITIATED LEGAL PROCEEDINGS. THEREFORE, HE HAD REASONABLE GROUND TO BELIEVE THAT THE ADVANCE MIGHT BE DOUBTFUL OF RECOVERY. ANY SUIT BEF ORE A COURT, THE ULTIMATE VERDICT CANNOT BE PREDICTED. IN SUCH CIRCU MSTANCES, IT IS NOT PRUDENT ON THE PART OF THE ASSESSEE TO RECOGNIZE AN Y INCOME BY WAY OF INTEREST ON THAT DOUBTFUL ADVANCE. IT IS FOR THIS R EASON, THE ASSESSEE HAS NOT OFFERED ANY INTEREST TO THE IMPUGNED ASSESSMENT YEAR 2009-10. BUT AS ALREADY STATED, ONCE HE RECEIVED THE MONEY BACK ALONG WITH INTEREST, THE ASSESSEE HAS OFFERED FOR TAXATION FOR THE ASSES SMENT YEAR 2012-13. IN THESE CIRCUMSTANCES, WE FIND THAT THE RECOGNITIO N OF INCOME ON ACTUAL RECEIPT OF THE INTEREST IS JUSTIFIED IN THE PRESENT CASE. THERE IS NO ABSOLUTE RULE REGARDING RECOGNITION OF INCOME WHETH ER ON RECEIPT BASIS OR ON ACCRUAL BASIS. IT DEPENDS UPON THE FACT OF TH E CASE. 4. LIKE-WISE, IN THE CASE OF SHRI MAHAVEERCHAND KO THARI ALSO THE ASSESSEE HAS OFFERED THE INTEREST FOR THE ASSESSMEN T YEAR 2010-11 FOR THE SAME REASON STATED IN THE CASE OF SHRI C. RAVIN DRAN. 5. IN THESE CIRCUMSTANCES, WE FIND THAT THE INTERE ST INCOME HAVING ALREADY SUFFERED TAX IN THE ASSESSMENT YEARS 2010-1 1 AND 2012-13, THERE IS NO TECHNICAL NECESSITY OF CONSIDERING WHET HER THOSE AMOUNTS ARE ASSESSABLE FOR THE YEAR 2009-10. WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. 6. THE NEXT ISSUE IS REGARDING THE INTEREST AMOUNT COMPUTED BY THE ASSESSING OFFICER AGAINST THE ADVANCE OF ` .78,71,000/-MADE BY THE ASSESSEE TO M/S. VAMANA PICTURES. ACCORDING TO THE ASSESSEE, THIS ADVANCE WAS GIVEN NOT AS A BUSINESS TRANSACTION, BU T AS A PERSONAL COURTESY TO A FORMER EMPLOYEE. THE MONEY WAS GIVEN TO PRODUCE A FILM. THE FILM WAS A FLOP. THE ASSESSEE DID NOT GOT BACK THE MONEY AT ALL. ACCORDINGLY, THE ASSESSEE HAS NOT OFFERED ANY AMOUN T OF INTEREST AS INCOME PERTAINING TO THE AMOUNT OF ADVANCE MADE TO M/S. VAMANA PICTURES. THE ASSESSEE NEVER RECOGNIZED ANY INCOME ON THAT ADVANCE. ONCE THE AMOUNT HAS BECOME BAD AND THE PRINCIPAL AM OUNT IS IRRECOVERABLE, IN FACT, THE ASSESSEE NEVER HAD AN O CCASION EVEN TO THINK I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.23 2323 235 55 5/M/ /M/ /M/ /M/14 1414 14 5 OF THE INTEREST. THEREFORE, THE ASSESSEE IS JUSTIFI ED IN NOT RECOGNIZING ANY INCOME WITH REFERENCE TO THE ADVANCE TO M/S. VA MANA PICTURES. 7. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 8. THE LD. DR HAS NOT BROUGHT ANY MATERIAL ON REC ORD TO CONTROVERT THE ABOVE DECISION OF THE COORDINATE BENCH. HENCE, RESP ECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2009-10 (SUPRA), WE REJECT THE GROU NDS RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF JUNE, 2014 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 20.06.2014 VM/- . * (#,/0 10%, /COPY TO: 1. &' / APPELLANT, 2. ()&' / RESPONDENT, 3. 2 ( ) /CIT(A), 4. 2 /CIT, 5. 03! (#,# /DR & 6. !4' 5 /GF.