ACIT, Bangalore V. Shri B.M.Siyal, Bangalore

ITA 276/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0620 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-10-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 03-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: M G VINAY SINHA
• Section: 132

Judgement Text

ITA NO.276/B/09 1 IN THE INCOME TAX APPEL LATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH BANGALORE BENCH BANGALORE BENCH BANGALORE BENCH A AA A BEFORE BEFORE BEFORE BEFORE GEORGE GEORGE K, JUDICIAL MEMBER GEORGE GEORGE K, JUDICIAL MEMBER GEORGE GEORGE K, JUDICIAL MEMBER GEORGE GEORGE K, JUDICIAL MEMBER AND AND AND AND SHRI SHRI SHRI SHRI A. MOHAN ALANKAMONY A. MOHAN ALANKAMONY A. MOHAN ALANKAMONY A. MOHAN ALANKAMONY, A , A, A , ACCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER ITA NO.276/BAN G/2009 (ASSESSMEN T YEAR 2005-06) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLES-8(1), BANGALORE. . APPELLANT VS. SHRI B.M SIYAL, PROP : B.M ELECTRICALS, #18, INFANTRY ROAD CROSS, BANGALORE-1. APPELLANT BY : SMT. JACINTA ZIMIK VASHAI RESPONDENT BY : SHRI M.G VINAY SINHA O R D E R O R D E R O R D E R O R D E R PER PER PER PER GEORGE GEORGE GEORGE GEORGE GEORGE GEORGE GEORGE GEORGE K KK K, , , , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER : : : : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) - VI, BANGALORE DATED 27.01.2009. THE ASSESSMENT YEAR CO NCERNED IS 2005-06. 2. THE SOLITARY ISSUE THAT IS RAISED IN APPEAL IS W HETHER LEARNED CIT(A) IS JUSTIFIED IN DELETING THE SUM OF RS.40,74 ,000/- WHICH ACCORDING TO THE AO REPRESENTED INTEREST ACCRUED ON OUTSTANDING ADVANCES TO 11 PARTIES (RUPEES 1.94 CRORES). ITA NO.276/B/09 2 BRIEFLY STATED FACTS ARE AS FOLLOWS : 3. THE ASSESSEE IS AN INDIVIDUAL AND IS AN ELECTRIC AL CONTRACTOR EXECUTING WORK FOR THE MINISTRY OF DEFENCE. FOR TH E CONCERNED YEAR RETURN OF INCOME WAS FILED ON 31.10.05 DECLARING A TOTAL INCOME OF RS.12,30,550/-. A SECOND RETURN OF INCOME WAS FILE D ON 31.3.06. IN THE SECOND RETURN OF INCOME FILED ON 31.3.06, IN AD DITION TO TRADING AND PROFIT AND LOSS ACCOUNT, BALANCE SHEET, THE ASSESSE E HAD FILED REVISED STATEMENT OF AFFAIRS AS ON 31.3.05. AS PER THE STA TEMENT OF AFFAIRS, THE ASSESSEE HAD SHOWN ADVANCES OF RS.1.94 CRORES AND S CHEDULE FOR THE SAME IS ENCLOSED. AS PER THE SCHEDULE, ASSESSEE HA D SHOWN ADVANCES TO 11 PARTIES. 4. IT WAS NOTED BY THE AO THAT SEARCH U/S 132 WAS C ONDUCTED IN ASSESSEES PREMISES ON 13.10.03 AND CERTAIN MATERIA LS WERE SEIZED. FROM THE SEIZED MATERIAL, IT WAS NOTICED THAT THE A SSESSEE HAD GIVEN LOANS TO VARIOUS PERSONS DURING THE PERIOD 1.4.99 T O 31.3.04. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS PROVID ED WITH THE SEIZED MATERIALS AND WAS DIRECTED TO WORKOUT THE LO ANS ADVANCED AND THE INTEREST INCOME EARNED BY HIM. THE ASSESSEE AC CORDINGLY WORKED OUT THE LOANS GIVEN AND THE INTEREST EARNED. THE A O DIRECTED THE ASSESSEE TO EXPLAIN THE SOURCES OF THESE ADVANCES. ASSESSEE VIDE LETTER DATED 6.3.06 OFFERED AS ADDITIONAL INCOME, T HE ADVANCES AND INTEREST EARNED ON THEM. IT WAS STATED BY THE ASSE SSEE IN ITS LETTER THAT ITA NO.276/B/09 3 SAME WAS DONE VOLUNTARILY TO BUY PEACE WITH THE DEP ARTMENT AND HE AGREED TO PAY THE TAX. 5. AS PER THE DETAILS FILED ALONG WITH THE SECOND R ETURN, THE ADVANCES MADE BY THE ASSESSEE AND OUTSTANDING AS ON 31.3.05 WERE RS.1.94 LAKHS. THE AO WAS OF THE OPINION THAT SINC E ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHY INTER EST ON THE AMOUNT OUTSTANDING AS ON 31.3.05 SHOULD NOT BE BROUGHT TO TAX AND SHOW CAUSED ASSESSEE FOR THE SAME. 6. THE ASSESSEE SUBMITTED THAT THESE ADVANCES WERE NON PERFORMING ASSETS AND IT WAS NOT GENERATING INCOME IN REALITY. IT WAS SUBMITTED NO INTEREST WAS RECEIVED ON THESE ADVANCE S. THE ASSESSEE FILED DETAILED SUBMISSIONS VIDE LETTER DATED 5.10.0 7 AND 10.10.07 BEFORE THE LEARNED AO. THE VARIOUS OBJECTIONS RAIS ED BY THE ASSESSEE WAS REJECTED BY THE AO AND HE WORKED OUT INTEREST @ 21% PER ANNUM ON THE OUTSTANDING LOAN AS ON 31.3.05 AND ADDED A S UM OF RS.40,74,000/- AS INTEREST ACCRUED ON THESE ADVANCE S. BEING AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE C IT(A). 7. IT WAS SUBMITTED BEFORE THE CIT(A) THOUGH THE AS SESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, NO REAL INCOME IN THE SHAPE OF ACCRUAL OF INTEREST WAS RECEIVED BY THE ASSESSEE NECESSITATING THE SAME TO BE BROUGHT TO TAX. IT WAS PLEADED THAT AN ADDITION MADE ITA NO.276/B/09 4 NOTIONALLY IS WITHOUT ANY BASIS AND THERE IS NO ACC RUAL OF INCOME IN THE REAL SENSE. THEREFORE, PRAYED FOR DELETION OF THE SAME. THE CIT(A) FOLLOWING THE DECISION OF ALLAHABAD HIGH COURT IN T HE CASE OF CIT VS. GIRIRAJ UDYOG (P) LTD., 273 ITR 495 ALLOWED THE APP EAL OF THE ASSESSEE. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US . 8. IT WAS SUBMITTED BY THE LEARNED DR THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ADVANCES SHOWN BY THE ASSESSEE WERE EXISTING AS ON 31.3.05 AND ACCORDINGLY THE SAM E WAS ENFORCEABLE. IT WAS FURTHER SUBMITTED BY HER THAT THESE ADVANCES WERE NOT WRITTEN OFF IN THE CONCERNED ASST. YEAR NOR WAS THERE ANY ATTEMPT BY THE ASSESSEE TO RECOVER THESE ADVANCES. THE LEARNE D AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE AUT HORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT THERE WAS N OT RECEIPT OF INTEREST INCOME ON THESE ADVANCES AS ON THE DATE OF COMPLETI ON OF ASSESSMENT. THE INTEREST WAS ASSESSED NOTIONALLY B Y THE AO FOR THE REASON THAT THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING AND ACCORDING TO THE AO THERE WAS ACCRUA L OF INTEREST ON THE AMOUNT OUTSTANDING TO THE ASSESSEE AS ON 31.3.0 5. ON A QUERY FROM THE BENCH, IT WAS SUBMITTED BY THE LEARNED AR THAT NO INTEREST INCOME WAS EVER RECEIVED ON THESE ADVANCES. IN FAC T, IT WAS ITA NO.276/B/09 5 SUBMITTED THAT THESE ADVANCES WERE WRITTEN OFF AS B AD DEBTS DURING THE FINANCIAL YEAR 2005-06. THIS SUBMISSION OF THE AS SESSEE WAS NOT CONTROVERTED BY THE LEARNED DR. THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS. SHOORJI VALLABHDAS AND CO. (1962) 4 6 ITR 144, 148 HAD HELD - INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME-TAX TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED. V IZ THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBST ANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RE SULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEE PING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME WHICH DOES NOT MATERIALIZE. 10. HERE THE REAL QUESTION FOR DECISION IS WHETHER THE INCOME IS REALLY ACCRUED OR NOT. IT IS NOT HYPOTHETICAL ACCR UAL OF INCOME THAT HAS GOT TO BE TAKEN INTO CONSIDERATION BUT THE REAL ACC RUAL OF THE INCOME. IN THE INSTANT CASE, AS RIGHTLY POINTED OUT BY THE CIT (A), REALIZATION OF INTEREST HAS BECOME AN IMPOSSIBILITY. IN FACT THE SAME IS NOT REALIZED AT ANY POINT OF TIME. THEREFORE, WE ARE OF THE VIE W THAT ON FACTS OF THIS CASES, THE ORDER OF THE LEARNED CIT(A) IS CORRECT A ND IN ACCORDANCE WITH LAW. IN COMING TO THE ABOVE CONCLUSION, WE AL SO RELY UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS . JAYALAKSHMI TRADING CO., 214 ITR 660 AND THE DECISION OF THE HO NBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GIRIRAJ UDYOG (P) LTD., 273 ITR 495. ITA NO.276/B/09 6 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 9TH OCT, 2009. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - ( (( (A. MOHAN ALANKAMONY A. MOHAN ALANKAMONY A. MOHAN ALANKAMONY A. MOHAN ALANKAMONY) ) ) ) ( ( ( (GEORGE GEORGE K) GEORGE GEORGE K) GEORGE GEORGE K) GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED : 09 /10/09 VMS. COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF 7. GF, ITAT, NEW DELHI. BY ORDER ASST. REGISTRAR, ITAT, BANGAL ORE.