M/s U.P State Mineral Development Corporation Ltd., Lucknow V. Commissioner Of Income Tax (Appeal) II, Lucknow

ITA 254/LKW/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78501 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice
• Section: 5(2)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.254/LKW/2013 ASSESSMENT YEAR:2006 - 07 M/S U.P. STATE MINERAL DEVELOPMENT CORPORATION LTD. PRAGATI KENDRA, KAPOORTHALA, LUCKNOW. PAN:AAACU2954Q VS. DY.C.I.T., RANGE - VI, LUCKNOW. (APPELLANT) (RESPONDENT) ITA NO. 208 /LKW/201 3 ASSESSMENT YEAR:200 6 - 0 7 DY.C.I.T., RANGE - VI, LUCKNOW. VS. M/S U.P. STATE MINERAL DEVELOPMENT CORPORATION LTD. PRAGATI KENDRA, KAPOORTHALA, LUCKNOW. PAN:AAACU2954Q (APPELLANT) (RESPONDENT) O R D E R PER A. K. GARODIA, A.M. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE, WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) - II , LUCKNOW DATED 28 /01/201 3 FOR ASSESSMENT YEAR 200 6 - 0 7 . ASSESSEE BY SHRI SAMRAT CHANDRA, ACA ASSESSEE BY SHRI P. K. DEY, D.R. DATE OF HEARING 0 5 /03/2014 DATE OF PRONOUNCEMENT 0 8 /05/2014 2 2. FIRST WE TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. BECAUSE WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, ENTIRE DEPRECIATION OF RS.6,70,322/ - IS DISALLOWED BY THE LEARNED CIT(A), LUCKNOW WHICH IS UNCALLED FOR AND AGAINST THE NATURAL JUSTICE. 3. LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME CONTENTIONS WHICH WERE RAISED BEFORE LEARNED CIT(A). LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAIL ABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE HAS BEEN DECIDED BY CIT(A) AS PER PARA 4.2 OF HIS ORDER, WHICH IS REPRODUCED BELOW: 4(2) I HAVE EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT THE APPELLANT HA S BEEN PROVIDING DEPRECIATION ON ASSETS AS PER COMPANY'S LAW AND NO WORKING HAS BEEN PROVIDED TO THE AO AS PER INCOME TAX RULES BASED ON WRITTEN DOWN VALUE OF DIFFERENT ASSETS. THERE IS NO MATERIAL PLACED BEFORE ME TO INTERFERE WITH THE ORDER OF THE AO. TH E AO IS THEREFORE JUSTIFIED IN DISALLOWING DEPRECIATION CLAIMED AS PER COMPANY ACT AND NOT AT RATES PRESCRIBED IN INCOME TAX RULES. THE GROUND OF APPEAL FAILS AND IS REJECTED. 5. WE ALSO FIND THAT THE PRESENT APPEAL IS IN THE SECOND ROUND. THE TRIBUNAL ORDER IN THE FIRST ROUND IS AVAILABLE FROM PAGE NO. 94 TO 101 OF THE PAPER BOOK. AS PER THIS ORDER, IT WAS NOTED BY THE TRIBUNAL THAT IN THE ORIGINAL ASSESSMENT ORDER , IT WAS STATED BY THE ASSESSING OFFICER THAT HE HAS MADE DISALLOWANCE FOR THE REASON THA T THERE WAS NO BUSINESS ACTIVITY BUT CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE BY STATING THAT NO WORKING HAS BEEN PROVIDED TO THE ASSESSING OFFICER AS PER I.T. RULES BASED ON THE WDV OF 3 VARIOUS ASSETS. THEREAFTER, IT WAS OBSERVED BY THE TRIBUNAL THA T THE FINDING OF BOTH THE AUTHORITIES ARE CONTRADICTORY AND THEREFORE, THE MATTER WAS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION. AS PER THE PRESENT ORDER PASSED BY THE ASSESSING OFFICER, IT IS NOTED BY HIM THAT THE ASSESSEE WAS REQUIRED TO FURNISH THE COMPLETE WORKING OF WDV AS PER INCOME TAX RULES. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THERE WAS NO BUSINESS ACTIVITY DURING THE PRESENT YEAR AND FOR THIS REASON ALSO, DEPRECIATION IS NOT ALLOWABLE. AS PER THE IMPUGNED ORD ER, IT IS NOTED BY CIT(A) THAT HE HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THE BASIS THAT NO WORKING HAS BEEN PROVIDED BASED ON WDV OF DIFFERENT ASSETS. HE HAS ALSO NOTED THAT THERE IS NO MATERIAL PLACED BEFORE HIM TO INTERFERE WITH THE ORDER O F THE ASSESSING OFFICER. BEFORE US ALSO, NO MATERIAL HAS BEEN PLACED IN THIS REGARD TO ESTABLISH THAT THERE WAS ANY BUSINESS ACTIVITY IN THE PRESENT YEAR. EVEN THE WORKING OF COMPUTATION OF WDV IS NOT MADE AVAILABLE BEFORE US ALTHOUGH THE ASSESSEE HAS FI LED PAPER BOOK CONTAINING 101 PAGES. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS GROUND IS REJECTED AND THE APPEAL OF THE ASSESSEE IS DISMISSED. 6. NOW WE TAKE UP THE APPEAL FILED BY THE REVENUE. THE GROUNDS ARE AS UNDER: 1. THE COMMISSIONER OF INCOME - TAX(APPEAL) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,99,00,000/ - MADE BY THE A.O. ON ACCOUNT OF DISALLOWING EXPENDITURE CLAIMED BY ASSESSEE COMPANY AS BANK GUARANTEE PROVIDED TO ITS SUBSIDIARY UPCCL. THE LD. CIT(A) FAILED TO APPRECIATE THE FACTS MARSHALED BY THE AO THAT THE ASSESSEE COULD ESTABLISH THE FACTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ITS MEMORANDUM AND ARTICLES ASSOCIATION ALLOWED IT TO FURNISH BANK GUARANTEES FOR ITS SUBSID IARY COMPANY AS NORMAL COURSE BUSINESS. 4 THE LD. CIT(A) FAILED TO INTERPRET THE DECISION OF HON'BLE APEX COURT IN THE CASE OF THE CIT VS. AMALGMATIONS PVT, LTD. REPORTED IN 226 ITR 188 (SC). 2. THAT THE APPELLANT CRAVES LEAVES TO ADD OR AMEND ANY ONE OR MORE OF THE GROUNDS OF APPEALS, SLATED ABOVE, AS AND WHEN NEED TO DO SO ARISES WITH THE PRIOR PERMISSION OF THE COURT. 7. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT( A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT THIS ISSUE WAS DECIDED BY THE LEARNED CIT(A) AS PER PARA NO. 5.1 AND 5.2 OF HIS ORDER AND FOR THE SAKE OF READY REFERENCE, THE SAME ARE REPRODUCED BELOW: 5(1) GROUND OF APPEAL NUMBER 2 REL ATES TO AN ADDITION OF RS.1,99,00,000/ - MADE BY THE ASSESSING OFFICER. THE ASSESSEE PROVIDED A BANK GUARANTEE OF RS.1,99,00,000/ - FOR ITS SUBSIDIARY UPCCL. ON THE DIRECTIONS OF HON'BLE ALLAHABAD HIGH COURT THE OFFICIAL LIQUIDATOR REALIZED THE GUARANTEE AND DISTRIBUTED THE MONEY. THE AMOUNT OF RS.1,99,00,000/ - THEREFORE BECAME IRRECOVERABLE AND WAS CLAIMED BY THE APPELLANT AS LOSS. THE AO DISALLOWED THE CLAIM OBSERVING THAT THE AMOUNT WAS NOT AUTHORIZED AS PER MEMORANDUM AND ARTICLES OF ASSOCIATION AND WAS N OT INCURRED IN NORMAL COURSE OF BUSINESS. THE APPELLANT HAS FILED WRITTEN SUBMISSIONS WHICH ARE PLACED ON RECORD. IT IS STATED THAT THE BANK GUARANTEE WAS GIVEN AS A NORMAL BUSINESS PRACTICE IN RESPECT OF ITS SUBSIDIARY AND THE AMOUNT HAS NOW BECOME IRREC OVERABLE. 5(2) I HAVE EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT THE APPELLANT FURNISHED BANK GUARANTEE TO IDBI VIDE BOARDS RESOLUTION DATED 13.04.1985. UPCCL IN RESPECT OF WHICH THE GUARANTEE WAS GIVEN BECOME A SICK COMPANY AND WAS WOUND UP ON THE DIR ECTIONS OF HON'BLE HIGH COURT. THE OFFICIAL LIQUIDATOR REALIZED THE GUARANTEE 5 AND DISTRIBUTED THE AMOUNTS TO THE CREDITORS. THE AMOUNT OF RS.1,99,00,000/ - IS THEREFORE A LOSS SUSTAINED IN THE COURSE OF BUSINESS. RELIANCE IS PLACED ON THE DECISION IN THE CA SE OF CIT VS AMALGAMATIONS (P) LTD 226 ITR 188. THE ADDITION OF RS.1,99,00,000/ - MADE BY THE AO IS THEREFORE DELETED GIVING RELIEF TO THE APPELLANT. 9. THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX V. AMALGAMATION PVT. LTD. [1997] 226 ITR 188. THE FACTS ABOUT THIS ISSUE IN THIS CASE AND IN THE DECISION OF HON'BLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX V. AMALGAMATION PVT. LTD. (SUPRA) ARE AS UNDER: THE COMPANY SSM, WAS ORIGINALLY A SUBSIDIARY OF A, WHICH WAS A SUBSIDIARY OF THE ASSESSEE - COMPANY. ON AND FROM FEBRUARY 1, 1954, THE ASSESSEE - COMPANY PURCHASED ALL THE SHARES OF SSM FROM A AND SSM THUS BECAME THE DIRECT SUBSIDIARY OF THE ASSESSEE - COMPANY. SSM HAD BORROWED MONIES FROM A BANK AND THE ASSESSEE - COMPANY HAD GUARANTEED THE LOAN TO THE SAID COMPANY BY THE BANK. SSM WENT INTO LIQUIDATION SOME TIME IN 1955. WHEN SSM WENT INTO LIQUIDATION, THE ASSESSEE - COMPANY, AS GUARANTOR, WAS REQUIRED TO CLEAR THOSE OVERDRAFTS IN ACCORDANCE WITH THE TERMS OF THE GUARANTEE. AFTER ADJUSTING THE AMOUNT RECOVERED FROM THE LIQUIDATORS, TH E SUM DUE TO THE ASSESSEE - COMPANY FROM THE LIQUIDATED COMPANY ON ACCOUNT OF THE SAID OVERDRAFT WAS RS. 9,08,764. THE ASSESSEE - COMPANY CLAIMED DEDUCTION OF THIS AMOUNT AS A LOSS WHICH AROSE IN THE COURSE OF AND INCIDENTAL TO ITS BUSINESS IN THE ASSESSMENT F OR THE YEAR 1958 - 59 RELYING ON ITS MEMORANDUM OF ASSOCIATION WHICH AUTHORISED IT TO BE THE GUARANTOR FOR THE LOANS. THERE WERE RECEIPTS BY THE ASSESSEE - COMPANY IN THE COURSE OF THE LIQUIDATION OF SSM IN LATER YEARS. THE TOTAL AMOUNT RECEIVED CAME TO RS.4,8 5,508.28 SPREAD OVER THE RELEVANT ACCOUNTING YEARS FOR THE ASSESSMENT YEARS 1959 - 60 TO 1962 - 63. THE INCOME - TAX OFFICER HELD THAT THE LOSS IN QUESTION DID NOT ARISE DURING THE COURSE OF OR INCIDENTAL TO THE BUSINESS OF THE ASSESSEE - COMPANY AND IN HIS VIEW, IT WAS AT BEST A CAPITAL LOSS. 6 IN MAKING THE ASSESSMENTS FOR THE YEARS 1959 - 60 TO 1962 - 63, THE INCOME - TAX OFFICER TREATED THE RECEIPTS FROM THE LIQUIDATOR AS INCOME AS A PROTECTIVE MEASURE. THE TRIBUNAL HELD THAT THE ASSESSEE - COMPANY HAD GUARANTEED THE LOA N IN THE COURSE OF CARRYING ON ITS OWN BUSINESS AND THE LOSS WAS CLEARLY ADMISSIBLE AS A DEDUCTION. BUT SINCE THE ASSESSEE - COMPANY HAD RECEIVED THE LAST OF THE PAYMENTS FROM THE LIQUIDATOR IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1962 - 63 IT WAS HELD THAT THE BALANCE OF RS. 4,23,256 REMAINING UNRECOVERABLE REPRESENTED THE REAL BUSINESS LOSS ALLOWABLE FOR THE ASSESSMENT YEAR 1962 - 63. THIS WAS UPHELD BY THE HIGH COURT. ON APPEAL TO THE SUPREME COURT BY THE REVENUE: HELD, DISMISSING THE APPEAL, THA T THE ASSESSEE - COMPANY HAD INCURRED THE LOSS IN CARRYING ON ITS OWN BUSINESS WHICH INCLUDED FURNISHING GUARANTEES TO DEBTS BORROWED BY ITS SUBSIDIARY COMPANIES. THE ASSESSEE - COMPANY COULD HAVE ASCERTAINED WHETHER THERE WAS LOSS IN THE TRANSACTION OF GUARAN TEE ONLY AT THE STAGE OF FINAL PAYMENT BY THE LIQUIDATORS, WHICH WAS RECEIVED IN THE RELEVANT PREVIOUS YEAR FOR THE ASSESSMENT YEAR 1962 - 63 AND IT WAS ALLOWABLE IN THAT YEAR. 9.1 FROM THE ABOVE PARAGRAPHS REPRODUCED FROM THE JUDGMENT OF HON'BLE APEX COUR T, IT IS SEEN THAT THERE ARE TWO MATERIAL FINDINGS OF HON'BLE APEX COURT. THE FIRST FINDING IS THAT IN THIS CASE , THE TRIBUNAL HELD THAT THE ASSESSEE COMPANY HAD GUARANTEED THE LOAN IN THE COURSE OF CARRYING ON ITS OWN BUSINESS AND THE LOSS WAS CLEARLY AD MISSIBLE AS A DEDUCTION. THE SECOND FINDING IS THAT THE ASSESSEE COMPANY RECEIVED THE LAST OF THE PAYMENTS FROM THE LIQUIDATOR IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1962 - 63 AND, THEREFORE, IT WAS HELD THAT THE REAL BUSINESS LOSS WAS ALLOWABLE FOR THE ASSESSMENT YEAR 1962 - 63. IN THE PRESENT CASE, WE FIND THAT NO MATERIAL IS BROUGHT ON RECORD TO ESTABLISH THAT THE BANK GUARANTEE IN QUESTION GIVEN BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY UPPCL WAS IN COURSE OF CARRYING ON ITS OWN BUSIN ESS . BEFORE US ALSO, NO MATERIAL HAS BEEN PRODUCED BY THE ASSESSEE TO ESTABLISH THAT THE BANK GUARANTEE IN QUESTION WAS GIVEN BY THE 7 ASSESSEE COMPANY IN COURSE OF CARRYING ON ITS OWN BUSINESS. IN THE ABSENCE OF PROOF, IT IS NOT POSSIBLE FOR US TO DECIDE THE ISSUE EITHER WAY. HENCE, IN OUR CONSIDERED OPINION, THIS MATTER SHOULD GO BACK TO THE FILE OF CIT(A) FOR FRESH DECISION AFTER GIVING CLEAR FINDING ON THIS ASPECT AS TO WHETHER THE BANK GUARANTEE IN QUESTION GIVEN BY THE ASSESSEE F OR ITS SUBSIDIARY WAS GIVEN IN COURSE OF CARRYING ON ITS OWN BUSINESS OR NOT. 10. THE CIT(A) SHOULD ALSO EXAMINE THIS ASPECT AS TO WHEN THE LOSS HAS ACTUALLY CRYSTALISED. EVEN IF IT IS FOUND THAT THE BANK GUARANTEE IN QUESTION WAS GIVEN BY THE ASSESSEE COMPANY IN COURSE OF C ARRYING ON ITS OWN BUSINESS , AS PER THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX V. AMALGAMATION PVT. LTD. (SUPRA), LOSS IS ALLOWABLE ONLY IN THAT YEAR IN WHICH ENTIRE PAYMENT IS MADE BY THE LIQUIDATOR. ON PAGE NO. 3 OF THE ASSESSMENT ORDER, THE AMOUNTS DISTRIBUTED BY LIQUIDATORS TO VARIOUS PARTIES ARE NOTED BUT NO DATE OF PAYMENT IS GIVEN THEREIN. SUCH DATE OF PAYMENT IS NOT MENTIONED ANYWHERE IN THE ORDER OF CIT(A) ALSO. ALTHOUGH THE ASSESSEE HAS SUBMITTED PAPER BOOK CONTAINING 101 PAGES BUT SUCH DETAILS ARE NOT AVAILABLE IN THE PAPER BOOK ALSO. IN FACT , ON PAGE NO. 100 OF THE PAPER BOOK, WE FIND THAT IT IS NOTED BY THE TRIBUNAL IN THE FIRST ROUND THAT THE TOTAL AMOUNT REALIZED FROM THE SALE OF ASSETS HAS BEEN D ISTRIBUTED BY THE OFFICIAL LIQUIDATOR TILL FINANCIAL YEAR 2004 - 05 AND THEREAFTER , IN THE PRESENT YEAR, THE ASSESSEE COMPANY HAS MADE PAYMENT TO INDIAN OVERSEAS BANK RS.115.20 LAC AND INDUSTRIAL DEVELOPMENT BANK OF INDIA RS.83.80 LAC IN ORDER TO SETTLE THEI R FINAL CLAIM AS THE ENTIRE ASSETS OF ITS SUBSIDIARY COMPANY M/S CALCIUM CARBIDE AND CHEMICALS LIMITED HAS ALREADY BEEN SOLD AND REALIZED BY THE OFFICIAL LIQUIDATOR AND DISTRIBUTED AND NO FUNDS WERE LEFT TO BE REALIZED. AS PER THIS NOTING OF THE TRIBUNAL IN THE FIRST ROUND, IT COMES OUT THAT THE LOSS IN QUESTION HAS CRYSTALISED IN FINANCIAL YEAR 2004 - 05 8 ITSELF RELEVANT TO ASSESSMENT YEAR 2005 - 06 AND IF THAT BE THE SITUATION, SUCH LOSS CANNOT BE CLAIMED AND ALLOWED IN THE PRESENT YEAR BUT STILL WE FEEL THAT SINCE NO FINDING IS GIVEN BY ANY OF THE AUTHORITIES BELOW IN THE PRESENT ROUND, IT IS FIT AND PROPER THAT CIT(A) SHOULD EXAMINE THIS ASPECT ALSO WHILE DECIDING THE ISSUE AND THEN PASS NECESSARY ORDER AS PER LAW IN THE LIGHT OF THE ABOVE DISCUSSION AND ALS O IN THE LIGHT OF JUDGMENT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX V. AMALGAMATION PVT. LTD. (SUPRA). WE ORDER ACCORDINGLY. 11. AS THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE COMBINED RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED AND APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 8 / 05/2014 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR