The ITO, Ward-4(2), Ahmedabad V. Karnavati Infrastructure Pvt. Ltd., Ahmedabad

ITA 2471/AHD/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8012 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 05-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Business income; Deemed to accrue or arise in india; Capital receipt
• Section: 143(3)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE JUSTICE SHRI P. P. BHATT, PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 2471/AHD/2014 ( ASSESSMENT YEAR : 2011-12) THE INCOME TAX OFFICER WARD- 4(2), AHMEDABAD ROOM NO. 105, 1 ST FLOOR, NAVJIVAN BUILDING, B/H. GUJARAT VIDDHYAPITH, ASHRAM ROAD, AHMEDABAD 380009 / VS. KARNAVATI INFRASTRUCTURE PVT. LTD. D-501, STATUS, OPPOSITE T.V. TOWER, DRIVE IN ROAD, GURUKUL, AHMEDABAD - 380054 ./ ./ PAN/GIR NO. : AAACK4583D ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI LALIT P. JAIN, SR.D.R. / RESPONDENT BY : SHRI SAKAR SHARMA, A.R. DATE OF HEARING 10/01/2019 !'# / DATE OF PRONOUNCEMENT 09/04/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-VIII, AHMEDABAD (CIT(A) IN SHORT), DATE D 18.06.2014 ARISING IN THE ASSESSMENT ORDER DATED 28.02.2014 PA SSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOM E TAX ACT, 1961 (THE ACT) CONCERNING AY 2011-2012. ITA NO. 2471/AHD/14 [ITO VS. KARNAVATI INFRASTRUCTURE PVT. LTD.] A.Y. 2011-12 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS TO DIRECT THE AO TO DELETE THE ADDITION OF RS.1,04,00,000/-, HOLDING TH E AMOUNT IN QUESTION TO BE CAPITAL RECEIPT DESPITE THE ASSESSE S OWN ADMISSION THAT THE AMOUNT IN QUESTION WAS USED FOR DAY-TO-DAY AFFAIRS AND AS CIRCULATING CAPITAL WHICH IN EVENT OF WAIVER, WAS T AXABLE AS BUSINESS INCOME U/S 28(IV) OF THE ACT. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS TO IGNO RE THAT ASSESSEE HAS FAILED TO PROVE THAT THE LIABILITY HAD NOT CEA SED TO EXIST ALTHOUGH THE SAME HAD ALREADY BEEN BARRED BY LIMITA TION OF TIME. 3. BRIEFLY STATED, THE ASSESSEE IS A PRIVATE LIMITE D COMPANY ENGAGED IN THE BUSINESS OF CIVIL WORK CONTRACTS. T HE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.32,98 ,100/- FOR AY 2011-12 IN QUESTION. THE CASE WAS SUBJECTED TO SC RUTINY ASSESSMENT WHILE FRAMING THE ASSESSMENT, THE INCOME OF THE ASS ESSEE WAS ENHANCED BY MAKING ADDITION OF RS.1,04,00,000/- BY INVOKING SECTION 28(IV) OF THE ACT TOWARDS AMOUNT STANDING IN THE BO OKS OF THE ASSESSEE IN THE NATURE OF UNSECURED LOANS FROM PROMOTER GROU P. THE AO MADE ADDITION ON THE GROUND THAT THERE EXISTS A CASE OF REMISSION OF LIABILITY TO PAY UNSECURED LOANS OUTSTANDING FOR LONG PERIOD SINCE 01.04.2007. THE AO ACCORDINGLY ADDED THE AFORESAID AMOUNT TO TH E TOTAL INCOME OF THE ASSESSEE UNDER S.28(IV) OF THE ACT HOLDING THE SAME TO BE THE VALUE OF BENEFIT OR PERQUISITE AROSE TO THE ASSESSEE FROM ITS BUSINESS. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 5. THE CIT(A) TOOK NOTE OF THE FACTS AND CIRCUMSTAN CES OF THE CASE IN LENGTH AND FOUND THAT THE CREDITORS HAVE NOT WAI VED THEIR LIABILITIES IN FAVOUR OF THE ASSESSEE. THE LOAN WAS TAKEN BY T HE ASSESSEE FOR THE PURPOSES OF MEETING CAPITAL REQUIREMENTS OF THE BUS INESS AND THE SAME WERE BROUGHT IN CERTAIN PROPOSITION. THE REPAYMENT OF UNSECURED LOAN IS LINKED TO THE CORRESPONDING BANK FDR AND FINALIZ ATION OF LIQUIDATION PROCEEDINGS OF THE BANK WHERE FD ARE PL ACED. THE CIT(A) ITA NO. 2471/AHD/14 [ITO VS. KARNAVATI INFRASTRUCTURE PVT. LTD.] A.Y. 2011-12 - 3 - CONCLUDED THAT THE LIABILITIES HAVE NEITHER BEEN WA IVED NOR CEASED AND THEREFORE NO ADDITION CAN BE MADE BY USING THE PROV ISION OF SECTION 28(IV) OF THE ACT IN THE ABSENCE OF ACCRUAL OF ANY BENEFIT PER SE . IT WAS FURTHER NOTICED THAT LOANS WERE TAKEN BY THE AS SESSEE FOR CAPITAL PURPOSES AND THEREFORE THE BENEFIT ACCRUING THEREFR OM, IF ANY, CANNOT BE TAXED AS REVENUE RECEIPT. THE CIT(A) ACCORDINGL Y REVERSED THE ACTION OF THE AO AND GRANTED RELIEF TO THE ASSESSEE . THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPROD UCED FOR COMPLETE UNDERSTANDING OF THE PROCESS OF REASONING ADOPTED F OR GRANTING RELIEF: 2.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AQ HAS MADE AN ADDITION OF RS. 1.04 CRORES AS THERE WERE SOME OLD UNPAID LIABILITIES APPEARING IN THE BALANCE SHEET OF THE APPELLANT. T HE AO WAS OF THE OPINION THAT THE APPELLANT COULD NOT PROVE THE CRED IT BALANCE REFLECTED IN THE BALANCE SHEET AS ON 31/03/2011 WHICH WAS CARRIE D FORWARD FROM 01/04/2007 AND THE AMOUNT SHOWN AS UNSECURED LOANS WAS ACCORDINGLY TREATED AS DEEMED INCOME UNDER SECTION 28(IV) OF TH E ACT. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT THE LIABILITIE S HAVE NOT CEASED. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT THE LOAN TAKEN BY IT WAS CAPITAL IN NATURE AND THE NATURE OF MONEY RECEIVED HAS NOT BEE N CHANGED, IT HAS REFERRED TO THE CIRCUMSTANCES IN WHICH THE LOAN WAS TAKEN AND HAS ALSO EXPLAINED SUBSEQUENT ADJUSTMENT IN THE BOOKS OF ACC OUNTS DUE TO COLLAPSE OF THE VISANAGAR NAGRIK SAHAKARI BANK LTD. THE LIA BILITIES HAVE NOT BEEN WAIVED BY THE CREDITORS. IT HAS THEREFORE, BEEN S UBMITTED BY THE APPELLANT THAT THE ADDITION MADE BY THE AO SHOULD BE DIRECTED TO BE DELETED. ON A CAREFUL CONSIDERATION OF THE EN-RE FACTS OF TH E CASE, IT IS NOTED THAT THE APPELLANT HAS POINTED OUT THE CIRCUMSTANCE S RELATED TO THESE UNSECURED LOANS IN THE AUDITED ACCOUNTS BY NOTE NO B.4. IT WOULD BE CONVENIENT, FOR THE SAKE OF CLARIFY, TO REPRODUCE T HE SAME NOTE IN ORDER TO UNDERSTAND THE CORRECT FACTS OF THE CASE: - THE COMPANY WAS INITIALLY FORMED AS JOINT VENTURE COMPANY WHEREIN FOUR BUSINESS GROUPS CONTRIBUTED SHARE CAPI TAL IN EQUAL RATIO AND ALSO BROUGHT IN NON INTEREST BEARING FUND S IN EQUAL PROPORTIONS FOR THE PURPOSE OF MAKING FOR WITH THE VISNAGAR NAGARIK SAHAKARI BANK LTD. AS MARGIN MONEY DEPOSIT IN ORDER TO GET BANK GUARANTEES AND TO GET SOLVENCY CERTIFICATE S REQUIRED TO BE FURNISHED TO VARIOUS AUTHORITIES AT THE TIME OF MAK ING TENDERS AND ALSO AS PART OF TENDER DOCUMENTS, IF TENDER IS ACCE PTED. SUBSEQUENTLY, THE VISNAGAR NAGARIK SAHAKARI BANK LT D. WAS DIRECTED TO BE LIQUIDATED BY THE RESERVE BANK OF IN DIA BY ORDER DTD. 11/07/2003, AT THAT POINT OF TIME AN AMOUNT OF RS. 50,00,000/- (RUPEES FIFTY LACS ONLY) WAS TRANSFERRED FROM THE V ALUE OF FDR TO SHARE INVESTMENT ACCOUNT BY THE BANK AND TO THIS EX TENT FDR VALUE ITA NO. 2471/AHD/14 [ITO VS. KARNAVATI INFRASTRUCTURE PVT. LTD.] A.Y. 2011-12 - 4 - WAS REDUCED AND NEW FDR WAS ISSUED TO THE COMPANY. THEREFORE, BOARD OF DIRECTORS IN ORDER TO PROTECT THE INTEREST S OF THE COMPANY DECIDED IN CONSULTATION WITH THE PROMOTERS TO RETAI N & FREEZE SUCH CREDITS OF PROMOTERS (EQUIVALENT TO THE AMOUNT OF F DR) TILL REALIZATION OF MAGIN MONEY FOR MADE WITH VISNAGAR N AGARIK SAHAKARI BANK LTD. (NOW UNDER LIQUIDATION). THE PRO MOTERS ALSO AGREED TO GET BACK FUNDS PROVIDED BY THEM IN PROPOR TION TO THE MONEY REALISED FROM THE SAID BANK FOR. PENDING REAL IZATION OF SAID FOR, MONEY BROUGHT IN BY INITIAL PROMOTER GROU PS IS CLASSIFIED AS 'UNSECURED LOANS' IN THE ACCOUNTS, FURTHER, DUE TO AVAILABILITY OF PROMOTER'S FUND, NO PROVISION AGAINST NON REALIZATI ON OF BANK FOR IS REQUIRED. IF NO FUNDS ARE REALISED AGAINST THE S AID FDR, CREDITS LYING IN PROMOTERS ACCOUNTS WOULD BE ADJUSTED AGAIN ST THE SAID BANK FDR AND SHORT FALL, IF ANY, WOULD BE CHARGED T O THE PROFIT & LOSS ACCOUNT AS DEFICIT. THE ABOVE FACTS, INDICATED IN THE NOTE TO THE AUDIT ED ACCOUNTS, ARE UNDISPUTED. IT IS THEREFORE, CLEAR FROM THESE FACTS THAT THE CREDITORS HAVE NOT WAIVED THE LIABILITIES. THE LOAN WAS TAKEN BY T HE APPELLANT FOR THE PURPOSE OF MEETING THE CAPITAL REQUIREMENTS OF THE BUSINESS AND THE SAME WERE BROUGHT IN BY THE FOUR PROMOTERS OF THE COMPAN Y IN EQUAL SHARE. THE APPELLANT MADE A FIXED DEPOSIT WITH THE VISANAGAR N AGRIK SAHAKARI BANK LTD FOR OBTAINING A BANK GUARANTEE LIMIT. THE BANK SUBSEQUENTLY COLLAPSED AND WENT INTO LIQUIDATION. THE LIQUIDATION PROCEEDI NGS OF THE BANK HAVE A STILL NOT BEEN COMPLETED AND THEREFORE, THE REPAYME NT OF THE UNSECURED LOANS WHICH IS LINKED TO THE BANK FDR AND FINALISAT ION OF THE LIQUIDATION PROCEEDINGS OF THE BANK ARE STILL APPEARING AS OUTS TANDING IN THE BALANCE SHEET OF THE COMPANY. THEREFORE, IT IS CLEAR FROM FACTS THAT THE LIABILITIES HAVE NOT CEASED. THE ABOVE FACTS ALSO SHOW THAT THE LOANS WERE TAKEN FOR CAPITAL PURPOSE AND EVEN IF IT IS ASSUMED THAT THE LIABILIT IES HAVE BEEN WAIVED OR CEASED NO ADDITION ON THAT ACCOUNT CAN BE MADE BY U SING THE PROVISIONS OF SECTION 28(IV) OF THE ACT. IT IS AN UNDISPUTED FACT THAT LOAN TAKEN BY APPELLANT WAS FOR CAPITAL PURPOSES. WHEN LOAN WAS N O1 TAKEN FOR MEETING TRADING LIABILITY, REMISSION OF SUCH LOAN CANNOT BE TAXED AS REVENUE RECEIPT IN THE HANDS OF APPELLANT COMPANY. THE CHAR ACTER OF LOAN AT THE TIME OF BORROWING AS WELL AS AT PRESENT HAS NOT CHA NGED. IT REMAINED CAPITAL IN IN THE PRESENT CASE, AS DISCUSSED HEREIN ABOVE, LOA N WAS TAKEN CAPITAL PURPOSE. THE DECISIONS REFERRED SUPRA ARE SQUARELY APPLICABLE ON FACTS OF APPELLANTS CASE. THERE IS NO FACT ON REC ORD WHICH INDICATES THAT THE LOAN HAS BEEN TAKEN FOR TRADING PURPOSES. ACCO RDINGLY, EVEN THE DEEMED REMISSION OF THESE LIABILITIES CANNOT BE TR EATED AS INCOME. THE ADDITION MODE BY THE AO IS THEREFORE, DIRECTED TO B E DELETED. THE GROUND OF APPEAL IS ACCORDINGLY, ALLOWED . 6. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), T HE REVENUE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. ITA NO. 2471/AHD/14 [ITO VS. KARNAVATI INFRASTRUCTURE PVT. LTD.] A.Y. 2011-12 - 5 - 7. THE LEARNED DR FOR THE REVENUE RELIED UPON THE O RDER OF THE AO. 8. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER HA ND, REFERRED TO THE NOTES TO THE ACCOUNTS WHEREIN THE FACTS AND C IRCUMSTANCES FOR OUTSTANDING CREDIT HAS BEEN DISCLOSED. THE LEARNED AR SUBMITTED THAT THE CIT(A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER TAKING COGNIZANCE OF THE CIRCUMSTANCES EXISTING FOR OUTSTANDING OF THE LOAN AMOUNT. THE LEARNED AR REASONED THAT THE ASSE SSEE IS NOT BENEFITTED AT ALL BY SUCH OUTSTANDING AMOUNT FROM T HE PROMOTER WHICH HAS BEEN KEPT BY THE ASSESSEE IN ITS CUSTODY WITH A MEASURE TO INDEMNIFY LOSS ARISING FROM FDR PLACED WITH SAHKARI BANK OWING TO LIQUIDATION PROCEEDINGS OF THE BANK. THE LEARNED A R THEREFORE STATED THAT NO JUSTIFICATION CAN BE GAUGED IN INVOKING SEC TION 28(IV) O THE ACT IN VIEW OF THE NON-RECOVERY OF DEPOSITS OF THE ASSESSEE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE APPLICABILITY OF SECTION 28(IV) OF THE ACT IS IN QU ESTION ON OUTSTANDING CREDITS PAYABLE AMOUNTING TO RS.1,04,00,000/- AS SH OWN BY THE ASSESSEE IN ITS BALANCE SHEET WHICH IS CARRIED FORW ARDED SINCE 01.04.2007. IT IS THE CASE OF THE REVENUE THAT THE OUTSTANDING MONEY WAS RECEIVED BY THE ASSESSEE FROM THE PROMOTERS IN THE COURSE OF CARRYING ON HIS BUSINESS AND BY THE EFFLUX OF TIME, THE MONEY WHICH REMAINED OUTSTANDING HAS TURNED INTO ITS OWN MONEY AND THUS THE BENEFIT ACCRUED TO THE ASSESSEE OWING TO ITS NON-PA YMENT FOR LONG TIME. THE AO ACCORDINGLY WAS OF THE VIEW THAT THE OUTSTANDING LIABILITY HAS CEASED TO EXIST BY WAY OF REMISSION T HEREOF AND CONSEQUENTLY, THE ASSESSEE IS LIABLE TO TAX ON SUCH BENEFIT BY WAY OF REMISSION UNDER S.28(IV) OF THE ACT. A PERUSAL OF THE ORDER OF THE CIT(A) AND THE FACTS PLACED ON RECORD CLEARLY SHOW THAT THE IMPUGNED LIABILITY TOWARDS LOANS OBTAINED FROM PROMOTERS HAV E NOT BEEN RECOGNIZED IN THE BALANCE SHEET AS CEASED. FURTHER , LOANS WERE ITA NO. 2471/AHD/14 [ITO VS. KARNAVATI INFRASTRUCTURE PVT. LTD.] A.Y. 2011-12 - 6 - INTRODUCED BY THE PROMOTERS FROM THEIR ACCOUNT WHIC H WAS CLEARLY CAPITAL IN NATURE AND THE NATURE OF MONEY RECEIVED FROM THE PROMOTERS HAVE NOT UNDERGONE ANY CHANGE WHILE LIABILITY REMAI NS UNPAID OWING TO DIFFICULTY IN RECOVERY OF CORRESPONDING INVESTME NTS MADE WITH A SAHKARI BANK WHICH IS UNDER LIQUIDATION. THE ASSES SEE IN THE CIRCUMSTANCES CANNOT BE SAID TO HAVE DERIVED ANY BE NEFIT PER SE FROM WITHHOLDING OF SUCH LOAN AS A MARK OF COMMERCIAL PR UDENCY TO HEDGE POSSIBLE LOSSES FROM LIQUIDATION OF DEPOSITEE BANK. THE CIT(A) IN OUR CONSIDERED VIEW HAD RIGHTLY VIEWED THE FACTS FROM C OMMERCIAL PERSPECTIVE AND APPLIED THE POSITION OF LAW CORRECT LY. WE THUS SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). CONSEQUENTLY, WE DECLINE TO INTERFERE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. SD/- SD/- (JUSTICE P. P. BHATT) (PRADIP KU MAR KEDIA) PRESIDENT ACCOUNTANT MEMBER AHMEDABAD: DATED /04/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 09/04/201 9