The ACIT, Circle-4, Ahmedabad V. Gujarat Optical Communication Ltd., Ahmedabad

ITA 2524/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9079 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-09-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 24-11-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Keywords: Tax effect
• Section: 143(3)

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI H.L.KARWA AND SHRI N.S.SAINI ITA NO.2524/AHD/2006 (ASSESSMENT YEAR : 2002-03) ACIT, CIRCLE-4, AHMEDABAD VS. GUJARAT OPTICAL COMMUNICATION LTD. IST FLOOR, NAVJEEVAN BUILDING, B/H GUJARAT VIDHYAPITH ASHRAM ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.C.PANDIT, SR. D.R. RESPONDENT BY : NONE ( (( ( )/ )/)/ )/ ORDER PER KARWA, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF CIT(A)-VIII, AHMEDABAD DATED 01.9.2006 RELATING TO ASSESSMENT YEAR 2002-03. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE RE ADS AS UNDER: THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE PROPORTIO NATE INTEREST EXPENSES OF RS.62,68,900/- BY THE ASSESSING OFFICE R U/S 36(1)(III) ON ADVANCES MADE TO PARTIES WHICH WERE HELD BY THE ASSESSING OFFICER TO BE NOT OUT OF INTEREST FREE FUNDS BEI NG SHARE CAPITAL. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE A SSESSEE IS A LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF TELEPHONE CABLES. THE RETURN OF INCOME WAS FILED ON 30.10.2002 DE CLARING TOTAL LOSS OF RS.7,06,27,100/- ALONG WITH AUDITED ACCOUNTS AND REP ORT U/S 44AB OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSIN G OFFICER CALLED 2 FOR VARIOUS DETAILS FOR FINALIZATION OF THE ASSESSMENT, W HICH WAS SUBMITTED BY THE ASSESSEE FROM TIME TO TIME. THE ASSESSEE, VIDE ITS LE TTER DATED 28.2.2005, EXPLAINED TO THE ASSESSING OFFICER THAT NO BO RROWED FUNDS HAVE BEEN UTILIZED FOR MAKING INTEREST FREE ADVANCES A ND, THEREFORE, NO DISALLOWANCE OUT OF INTEREST SHOULD BE MADE AS THE BORRO WED FUNDS HAVE BEEN FULLY AND EXCLUSIVELY UTILIZED FOR THE BUSINESS PUR POSE OF THE ASSESSEE AND FULFILL CONDITION LAID DOWN U/S 36(1)(III) O F THE ACT. HOWEVER, THE ASSESSING OFFICER HAS WORKED OUT SUCH DISALLOWANCE AT RS.6 2,68,900/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER PASSED ASSESSMENT ORDER U/S 143(3) OF THE ACT ON 25.2.2005, WHEREIN HE COMPUTED THE INCOME OF THE ASSESSEE AS UNDER: INCOME AS PER STATEMENT LOSS RS.7,06,27,100 ADD:1. OUT OF INTEREST EXPENSES RS. 62,68,900 2. P.F. AS DISCUSSED ABOVE (EMPLOYEES CONTRIBUTIONS) RS. 74,392 TOTAL LOSS RS. 6,42,83,808 I.E. RS.6,42,83,800 FROM THE ABOVE COMPUTATION, IT IS CLEAR THAT THE ASSESSIN G OFFICER HAS MADE CERTAIN ADDITIONS/DISALLOWANCES. HOWEVER, THE ASSESSED INCOME DETERMINED BY THE ASSESSING OFFICER WAS AT LOSS. 4. ON APPEAL, THE CIT(A) DELETED THE ADDITION OF RS. 62,58,900/- AND HENCE, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE LD. D.R. AT LENGTH. IN OUR VIE W, EVEN IF THE ORDER OF ASSESSING OFFICER IS UPHELD, INCOME OF THE ASSESSEE WOULD B E NEGATIVE AND, THEREFORE, TAX EFFECT WOULD BE CERTAINLY LESS THAN RS. 2 LACS. IN OUR OPINION, KEEPING IN VIEW THE C.B.D.T. INSTRUCTION NO .2 OF 2005 OF 24.10.2005 F. NO.279/MISC./64/05-ITJ), THE REVENUE SHO ULD NOT HAVE 3 FILED THIS APPEAL BEFORE THE TRIBUNAL ON 24.11.2006 BECAUSE THE TAX EFFECT IS LESS THAN RS.2 LACS. IN OUR VIEW, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION O F THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. MANGALAM RICIN US LTD. (2008) 174 TAXMAN 186 (DELHI). IN THE CASE OF MANGALAM RICINUS (SU PRA), THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS. 70,58,000/- BEING INTEREST ON LIABILITY CLAIMED BY THE ASSESSEE. THE ORDER OF THE A.O. WAS REVERSED BY THE CIT(A). THE REVENUE FILED AN APPEAL BEFORE T HE TRIBUNAL AND THE TRIBUNAL CAME TO THE CONCLUSION THAT EVEN IF ORDER OF T HE A.O. IS UPHELD, THE INCOME OF THE ASSESSEE WOULD BE NEGATIVE AND, THEREF ORE, THE TAX WOULD BE CERTAINLY LESS THAN RS. 1 LAC. ON THIS BASIS, THE TRIBUNAL DECLINED TO INTERFERE IN THE APPEAL. THE REVENUE HAS CHALLENGE D THE ORDER OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT OF DELHI U/S 26 0A OF THE ACT AND THE HONBLE HIGH COURT UPHELD THE ORDER OF THE TRIBUN AL, OBSERVING AS UNDER: 5. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUN AL THAT EVEN IF THE ORDER OF THE ASSESSING OFFICER IS UPHELD THE TAX RECOVERY SO FAR AS THE REVENUE IS CONCERNED WOULD BE NIL. IN THE EV ENT THE QUESTION HAS ANY IMPACT ON SUBSEQUENT YEARS, WE LEAVE IT OPEN TO THE REVENUE TO RAISE IT IN THE SUCCEEDING YEARS, IF NEED ARISES. 6. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF MANGLAM RICINUS LTD. (SUPRA), WE HO LD THAT IN VIEW OF THE CBDT INSTRUCTION NO.2 OF 2005 DATED 24.10.2005, T HE REVENUE SHOULD NOT HAVE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE HONBLE DELHI HIGH COURT IN THE CASE OF MANGLAM RICINUS LTD. (SUPRA) ALSO OB SERVED AS UNDER: 9. WE MAKE IT CLEAR THAT IN CASE THE ISSUE ARISES IN THE SUCCEEDING YEARS AND HAS ANY TAX EFFECT, IT IS LEFT OPEN F OR CONSIDERATION. IN VIEW OF THE ABOVE, WE DIRECT THE REVENUE TO FOLL OW THE DIRECTIONS/GUIDELINES GIVEN BY THE HONBLE HIGH COURT O F DELHI IN THE CASE 4 OF MANGLAM RICINUS LTD. (SUPRA), IF NEED ARISES. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11.9. 2009. SD/- (N.S.SAINI) ACCOUNTANT MEMBER SD/- (H.L.KARWA) JUDICIAL MEMBER AHMEDABAD, DATED: 11.9.2009 PSP* COPY TO : (1) THE ASSESSEE (2) THE ASSESSING OFFICER (3) THE CIT(A) CONCERNED, (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD.