ACIT, Ludhiana V. Sh. Jai Pal Gaba, Ludhiana

ITA 291/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60894 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Unexplained expenditure; Bad and doubtful debts
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO.154/CHD/2011 ASSESSMENT YEAR: 2007-08 SHRI JAIPAL GABA, V ITO, WARD III(2), PROP. M/S MACK HOSIERY(REGD.), LUDHIANA. BAHADUR KE ROAD, G.T.ROAD, LUDHIANA. PAN: ABMPG-6663L & ITA NO. 291/CHD/2011 ASSESSMENT YEAR: 2007-08 ACIT, C-III, V SHRI JAIPAL GABA, LUDHIANA. PROP.M/S MACK HOSIERY(REGD), BAHADUR KE ROAD, G.T.ROAD, LUDHIANA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PANKAJ JAIN DEPARTMENT BY : SHRI S.K.MITTAL DATE OF HEARING : 14.06.2012 DATE OF PRONOUNCEMENT : 22.06.2012 ORDER PER T.R.SOOD, AM THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE, RAISING COMMON ISSUES, THEREFORE, SAME ARE HEARD TO GETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. ITA 154/CHD/2011: IN THIS APPEAL, ASSESSEE HAS RAISED FOLLOWING GROUN DS : 1. THAT BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW BY TREATING THE REMISSION OF PRINCIPAL AMOUNT OF LOAN FOR RS 2,38,93,001/- AS AN INCOME. 2 2. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW FOR TREATING THE AMOUNT OF RS.2,00,000/- AS UNEXPLAINED EXPENDITURE WHICH AMOUNT HAS BEEN WRITTEN OFF AS BAD DEBTS BY THE DEBTOR (VIJAYANAND TRADERS) ON ITS OWN WITHOUT ASSESSEE'S KNOWLEDGE. 3. ITA 291/CHD/2011 : IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUN DS: 1. THAT THE LD. CIT(A) ERRED IN DIRECTING AC) TO VERIL Y WHETHER IN EARLIER YEARS THE ASSESSEE HAD CLAIMED EXPENDITURE ON INTEREST ON LOAN THAT WAS LATER WAIVED OFF BY BANK, AS THIS GOES BEYOND THE POWERS OF ID. CIT(A) TO RESTORE OR SET ASIDE THE I SSUE FOR VERIFICATION OF CLAIM OF EXPENDITURE ON INTERES T (RS. 1,95,12,686/-) IN EARLIER YEARS TO AC), AS DEFINED IN SUB SECTION 1 OF SECTION 251 OF THE INCOME TAX ACT, 1961. 2. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE A.C). RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 4. AFTER HEARING BOTH THE PARTIES, WE FIND, DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT LOAN RAISED BY THE ASSESSEE COMPANY FROM BANK HAD BEEN WAIVED BY THE B ANK AFTER SETTLEMENT AND THE WAIVER AMOUNTING TO RS.4,34,05,687/- CONSISTED OF CAPITAL WAIVER OF RS.2,38,93,001/- AND INTEREST AMOUNT OF RS.1,94,12, 686/-. THE ASSESSEE MADE DETAILED REPRESENTATION THAT ASSE SSEE HAD NEVER CLAIMED THE INTEREST AND THEREFORE, SAME COUL D NOT BE TAXED U/S 41(1). SIMILARLY, AS FAR AS CAPITAL WAIVE R IS 3 CONCERNED, THE SAME RELATED TO CAPITAL ACCOUNT AND THEREFORE, WAS NOT TAXABLE. HOWEVER, AO DID NOT AG REE WITH THESE SUBMISSIONS AND OBSERVED THAT PROVISIONS OF S ECTION 56(2)(VI) WERE NOT ENDORSED AT THE TIME OF THE CITE D CASE LAW, WHICH ARE APPLICABLE NOW. HE ALSO MADE FOLLOWING OBSERVATIONS: THE ASSESSEE CANNOT BE ALLOWED TO SET OFF THE INTEREST INCURRED IN THE EARLIER YEARS AGAINST THE WAIVER OF INTEREST DURING THE YEAR. SINCE THE EXPENDITURE AGAINST INCOME FROM OTHER SOURCES CAN B E ALLOWED ONLY FOR THE EXPENDITURE INCURRED ON EARNIN G INCOME FROM OTHER SOURCES. THE SETTING OFF INTERES T WAS NOT INCURRED FOR EARNING INCOME BEING TAXED AS INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' THE SETTING OFF CANNOT BE ALLOWED AS PAYMENT UNDER THE INCOME FROM BUSINESS OR PROFESSION ONLY ON PAYMENT BASIS AS PER THE PROVISIONS OF SECTION 43B OF THE INCOME-TAX ACT AND THE ASSESSEE HAS NOT TAXED ANY SUCH INTEREST. THEREFORE ON NON PAYMENT BASIS ALSO THE INTEREST AS PER PROVISION OF SECTION 43B I S NOT ALLOWABLE. AS FAR AS CAPITAL WAIVER IS CONCERNED, HE HELD SAME TO BE TAXABLE BECAUSE SAME WAS TAKEN AS CASH CREDIT LOAN ON THE BASIS OF DECISION OF HON'BLE BOMBAY HIGH COURT IN T HE CASE OF SOLID CONTAINERS LTD. V DCIT 308 ITR 417 (BOM). 5. ON APPEAL, SIMILAR SUBMISSIONS WERE MADE BEFORE LD. CIT(A). HE CONFIRMED THE ACTION OF AO IN RESPECT O F ADDITION ON ACCOUNT OF CAPITAL WAIVER BECAUSE LOAN WAS TAKEN AS CASH CREDIT LOAN AND SAME WAS UTILIZED TO PAY THE TRADE LIABILITIES. AS FAR AS INTEREST AMOUNT IS CONCERNED, HE SET ASID E THE ISSUE TO THE FILE OF AO BECAUSE AO HAD NOT VERIFIED WHETHER INTEREST WAS CLAIMED AS EXPENDITURE. 6. BEFORE US, LD. DR SUBMITTED THAT AFTER 01.06.200 1, SECTION 251(1) WAS AMENDED BY FINANCE ACT, 2001 AND THE WORDS OR HE MAY SET ASIDE HAVE BEEN OMITTED. THEREFORE, CIT(A) DOES NOT HAVE POWER TO SET ASIDE THE ORDER O F AO. HE 4 SUBMITTED THAT CIT(A) HAS EXCEEDED HIS POWERS AND ACCORDINGLY, HIS ORDER SHOULD BE SET ASIDE. AS FAR AS CONFIRMATION OF ADDITION ON ACCOUNT OF CAPITAL WAIV ER IS CONCERNED, THE SAME HAS BEEN DONE ON THE BASIS OF D ECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF SOLID CONTA INERS LTD. (SUPRA). THEREFORE, NO INTERFERENCE IS CALLED FOR. 7. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CIT(A) HAS MERELY SET ASIDE THE ORDE R OF AO FOR VERIFICATION OF THE FACT WHETHER INTEREST HAD B EEN CLAIMED AS EXPENDITURE OR NOT AND THEREFORE, IT CANNOT BE S AID THAT HE HAS EXCEEDED HIS POWER. HE ALSO FURNISHED A COP Y OF ORDER DATED 24.02.2011, THROUGH WHICH APPEAL EFFECT HAS ALREADY BEEN GIVEN AND ADDITION ON ACCOUNT OF INTER EST WAIVER AMOUNTING TO RS. 1,95,12,686/- HAS BEEN ALLO WED BY AO HIMSELF. AS FAR AS THE ADDITION ON ACCOUNT OF C APITAL WAIVER IS CONCERNED, IT WAS PLEADED BEFORE CIT(A) T HAT LOAN WAS PARTLY TAKEN AS CASH CREDIT LOAN AND PARTLY AS TERM LOAN. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN CASE OF CIT V COMPAQ ELECTR IC LTD. 56 DTR 38, WHEREIN IT WAS HELD THAT WAIVER OF LOAN COULD NOT BE ADDED U/S 41(1). 8. AFTER EXAMINING RIVAL SUBMISSIONS, WE AGREE WITH THE CONTENTION OF LD. DR THAT WORDS OR HE MAY SET ASIDE HAVE BEEN OMITTED BY FINANCE ACT 2001 W.E.F. 01.06.2001. THEREFORE, AFTER THAT DATE CIT(A) HAS NO POWER TO S ET ASIDE THE ORDER. LD. CIT(A) INITIALLY OBSERVED THAT, AS REGARD INTEREST PORTION OF RS.1,9,12,686/-, SAME IN MY OPI NION IS NOT TAXABLE AS AR HAS SUBMITTED THAT NO EXPENDITURE ON ACCOUNT 5 OF INTEREST HAS EVER BEEN CLAIMED. THIS CLEARLY SHOWS THAT FIRST HE GAVE A FINDING THAT NO INTEREST EXPENDITUR E HAS BEEN CLAIMED BUT THIS FINDING IS BASED ON THE SUBMISSION OF LD. AR WITHOUT VERIFICATION AND THE ORDER WAS SET ASIDE FOR VERIFICATION OF THIS FACT, WHICH IS NOT PERMISSIBLE UNDER THE ACT. THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) A ND RESTORE THE MATTER TO HIS FILE WITH A DIRECTION TO RECORD A FINDING AND IF THE FACTS ARE NOT COMING OUT OF THE ASSESSMENT O RDER, HE MAY CALL FOR REMAND REPORT, BUT THE FINDING HAS TO BE RECORDED BY HIM. THEREFORE, ISSUE MAY BE ADJUDICATE D AFTER FINDING OUT WHETHER INTEREST WAS CLAIMED AS EXPENDI TURE OR NOT. AS FAR AS CAPITAL WAIVER ADDITION IS CONCERNED , THIS ISSUE SHOULD ALSO GO BACK TO THE FILE OF LD. CIT(A) BECAUSE IT HAS NOT BEEN CLEARLY DETERMINED WHETHER LOAN WAS TA KEN AS TERM LOAN OR AS CASH CREDIT LOAN. THEREFORE, LD. CI T(A) SHOULD RE-EXAMINE THE ISSUE AND DECIDE THE SAME IN THE LIG HT OF DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V COMPAQ ELECTRIC LTD. (SUPRA) AND HON'BLE BOMBAY H IGH COURT IN CASE OF SOLID CONTAINERS LTD. (SUPRA). 9. IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL AS OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE,2012. SD/- SD/- (H.L.KARWA) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 22 ND JUNE,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH