M/s. DHANRAJ MILLS P. LTD., MUMBAI V. ACIT CENT. Rg. -7, OSD-II, MUMBAI

ITA 3004/MUM/2007

• Counselvise Citation: 300419914 RSA 2007
• Duration Of Justice: 7 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-08-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 18-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Assessee Lawyers: VIJAY C KOTHARI
• Keywords: Capital asset; Business income; Depreciation; Bad and doubtful debts
• Section: 43B

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.3004/MUM/2007, ! ! ! ! / ASSESSMENT YEAR-1999-2000 DHANRAJ MILLS PVT. LTD., C/O PANDYA GANDHI & CO., ADVOCATES AND SOLICITORS, ADER HOUSE 6, K.M. DUBASH MARG, FORT, MUMBAI-400023 VS DCIT (OSD-II),CENTRAL RANGE-7, MUMBAI-400020 PAN:AAACD5580D ( '# / APPELLANT) ( $%'# / RESPONDENT) &' ( ) / ASSESSEE BY : SHRI VIJAY C. KOTHARI ( ) / REVENUE BY : DR. P. DANIEL ( (( ( '* '* '* '* / DATE OF HEARING : 06-08-2014 +,! ( '* / DATE OF PRONOUNCEMENT : 28-08-2014 , 1961 ( (( ( 245(1) '-' '-' '-' '-' . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DATED 23.01.2007 OF THE CIT(A )-CENTRAL-VIII, MUMBAI ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ORDER PASSED U/S 143 (3) WITHOUT SERVING PROPER NOTICE ON THE REPRESENTATIVE ASSESSEE IS BAD IN LAW. 1.1 THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORD ER PASSED U/S 143 (3) OF THE INCOME TAX ACT. 1961 EVEN THOUGH THE NOTICE HAS NOT BEEN SERVED TO THE CUSTODIAN APPOINTED BY THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECU RITIES) ACT. 1992. 1.2 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT C USTODIAN HAS BEEN APPOINTED UNDER SPECIAL COURT (TORTS) ACT. 1992 TO MANAGE THE PROPERTIES OF YOUR APPELLATE AS PROVIDED U/S 160(1) OF THE ACT ON WHOM THE NOTICE OF SCRUTINY AND ASSESSMENTS IS TO BE MADE. 2. WITHOUT PREJUDICE TO GROUND NO 1 ABOVE 2.0 ADDITION OF INTEREST INCOME OF RS. 12,82,75,328 THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITIO N OF INTEREST INCOME OF RS. 12,82,75,328. IT IS RESPECTFULLY SUBMITTED THAT MAJORITY OF THE PARTIES ARE UNABLE TO PAY INTEREST AND PRINCIPAL AMOUNT INSPITE OF THE ORDER OF THE SPECIAL COURT AND WHERE RECOVERY OF PRINCIPAL IS DOUBTFUL, NO REAL INCOME ACCRUED TO THE ASSESSEE, HENCE SAME CANNOT B E TAXED. 3. ADDITION OF INTEREST INCOME OF RS. 2,57,60,000 F ROM CIFCO GROUP. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION OF RS. 2,57,60,000/- FROM CIFCO GROUP. IT IS RESPECTFULLY THAT THE LEARNED CIT(A) FAILED TO A PPRECIATE THAT ABOVE PARTY HAS DEFAULTED IN MAKING PAYMENT OF INSTALLMENT AS DECIDED BY THE SPE CIAL COURT AND THE COURT RECEIVER HAS BEEN APPOINTED FOR RECOVERY OF DEBT AND WHERE THE PRINCI PAL AMOUNT ITSELF IS DOUBTFUL OF RECOVERY, THE INTEREST INCOME CANNOT BE SAID TO BE ACCRUED ON SUC H LOAN. 4. WITHOUT PREJUDICE TO GROUND NO.3 THE LEARNED CIT (A) HAS ERRED IN OBSERVING THAT GRO UND NO. 7 IS NOT PRESSED. IT IS RESPECTFULLY SUBMITTED THAT SINCE THE AMOUNT OF RS. 2,36,56,263/ - IS CALCULATED @ 200/0 ON THE PRINCIPAL AMOUNT BASED ON THE SPECIAL COURT ORDER, THE AMOUNT OF RS. 2,57,60,000/- NEEDS TO BE DELETED. 2 ITA NO.3004/MUM/2007 DHANRAJ MILLS PVT. LTD. 5. DISALLOWANCE OF BAD DEBTS 1 BUSINESS LOSS OF RS. 15.401001000 IN RESPECT OF DEBT DUE FROM VKSA INVESTMENTS LTD AND RUKHSHMANI INVESTMENTS P.L TD. THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLO WANCE OF BAD DEBTS 1 BUSINESS LOSS OF RS. 15,40,00,0001- WITH RESPECT OF VKSA INVESTMENTS LTD . & RUKSHMANI INVESTMENTS P.LTD. 6. ADDITION OF FINANCING CHARGES OF RS. 41681871000 IN RESPECT OF VKSA INVESTMENTS P.LTD. AND SWADESHI ENTERPRISES. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITIO N OF FINANCING CHARGES OF RS. 4,68,87,000/- IN RESPECT OF VKSA INVESTMENTS LTD. AND SWADESHI ENTER PRISES. IT IS RESPECTFULLY SUBMITTED THAT INSPITE OF ORDER OF THE SPECIAL COURT, THESE PARTIE S HAVE DEFAULTED IN MAKING PAYMENT OF THE INSTALLMENT FIXED BY THE SPECIAL COURT AND ACCORDIN GLY THE CUSTODIAN HAS PROCEEDED AGAINST THEM AND FILED A SUIT FOR APPOINTING A COURT RECEIVER TO RECOVER THE AMOUNT DUE FROM THEM. WITHOUT PREJUDICE TO ABOVE, THE SPECIAL COURT HAS REDUCED T HE RATE OF INTEREST. 7. WITHOUT PREJUDICE TO GROUND NO.6 THE LEARNED CIT (A) HAS ERRED IN OBSERVING THAT GRO UND NO. 10 IS NOT PRESSED. IT IS RESPECTFULLY SUBMITTED THAT SINCE THE AMOUNT OF RS. 1 CRORE IS @ 20% ON PRINCIPAL AMOUNT BASED ON THE ORDER OF THE SPECIAL COURT ORDER, THE AMOUNT OF ADDITION OF RS. 1,92,40,000 NEEDS TO BE DELATED. 8. DISALLOWANCE OF SALES TAX LIABILITY OF RS. 3,91, 304 : THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLO WANCE OF CLAIM OF SALES TAX LIABILITY OF RS. 3,91,304. IT IS RESPECTFULLY SUBMITTED THAT THE ABO VE SALES TAX LIABILITY HAS ARISEN ON SALE OF MOTOR CAR, WHICH WAS USED IN THE BUSINESS AND HENCE ALLOW ABLE ON PAYMENT BASIS U/S 43B OF THE ACT. FURTHER IN THE YEAR UNDER APPEAL AND IN EARLIER YEA RS ALSO THE INCOME HAS BEEN ASSESSED UNDER THE HEAD BUSINESS INCOME HENCE QUESTION OF NON-EXISTENC E OF BUSINESS DOES NOT ARISE. 9 LEVY OF INTEREST U/S 2348 TO THE TUNE OF RS. 4,62 ,76,784 : THE LEARNED CIT (A) HAS ERRED IN LEVYING INTEREST U /S 234 B OF RS. 4,62,76,784 AS ASSESSEE BEING NOTIFIED PARTY CANNOT HAVE CONTROLLED ON ITS BANK A CCOUNTS, THE IT DEPARTMENT CANNOT CHARGE INTEREST U/S 234 B AGAINST THE ASSESSEE . 10.YOUR APPELLANT RESERVE IT IS RIGHT TO ADD/ALTER AMEND ANY OF THE GROUNDS OF APPEAL. 2.DURING THE COURSE OF HEARING BEFORE US, THE AUTHO RISED REPRESENTATIVE (AR) OF THE ASSESSEE DID NOT PRESS GROUND NO.1. HENCE, SAME IS DISMISSED AS NOT PRESSED. GROUND NO.2 IS ABOUT ADDITION OF INTEREST INCOME OF RS. 12.82 CRORES.DURING THE ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO)FOUND THAT THE PROFIT & LOSS ACCOUNT OF THE ASS ESSEE SHOWED INCOME OF RS. 5.01 CRORES AS INTEREST INCOME. HE DIRECTED THE ASSESSEE TO FURNIS H DETAILS OF INTEREST INCOME ON ACCRUAL BASIS. AFTER CONSIDERING THE REPLY OF THE ASSESSEE IN THIS REGARD, AO FOUND THAT AS PER THE ORDER OF THE SPECIAL COURT THE INTEREST DUE ON ACCRUAL BASIS WOR KED OUT TO RS. 13.27 CRORES. APART FROM THE ABOVE INTEREST INCOME AS PER PETITION FILED BY THE CUSTODIAN WHERE, THE ORDERS YET TO BE PASSED BY THE SPECIAL COURT DIRECTING THE CONCERNED PARTIES T O PAY THE PRINCIPLE AMOUNT AND INTEREST AGGREGATED TO RS. 4.56 CRORES. HE CALLED FOR AN EXP LANATION OF THE ASSESSEE IN THIS REGARD. THE AO WORKED OUT THE INTEREST INCOME DUE THE ASSESSEE AS PER THE ORDERS OF THE SPECIAL COURT AS UNDER: (I) INTEREST INCOME CALCULATED AS PER THE ORDER OF THE HON'BLE SUPREME COURT: (A) LOAN TO COMPANIES UNDER THE SAME MANAGEMENT R S 2,91,72,386/- (B) LOAN TO OTHER COMPANIES RS 3,41,55,613/- (C) LOAN TO OTHERS RS 6,94,57,123/- TOTAL RS 13,27,85,1 22 (II) INTEREST INCOME AS PER PETITION FILED BY THE C USTODIAN: (A) LOAN TO OTHER COMPANIES RS 2,54,45,841/- (B) LOAN TO OTHERS RS 2,01,84,051/- TOTAL R S 4,56,29,892/- TOTAL OF (I) & (II) ABOVE - RS 17,84,15,014/- THE AO HELD THAT RS. 17.84 CRORES HAD TO BE CONSIDE RED AS INTEREST INCOME OF THE ASSESSEE IN PLACE OF RS. 5.01 CRORES DECLARED BY IT IN THE RETU RN. THE DIFFERENCE BETWEEN THE INTEREST AMOUNT 3 ITA NO.3004/MUM/2007 DHANRAJ MILLS PVT. LTD. HAS COMPUTED BY HIM (17.84 CRORES 5.01 CRORES ASS ESSEE 12.82 CRORES) WAS ADDED TO THE INCOME OF THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, FAA REFERRED TO THE ORDERS OF THE EARLIER YEARS PASSED BY HIS PREDECESSORS, SPECIALLY THE ORDER FOR THE AY 1993-94. HE HELD THAT INTEREST INCOME ACCRUED TO THE ASSESSEE ON DAY TO DAY BASIS AND NOT FROM THE DATE ON WHICH THE SPECIAL COURT HAD PASSED THE ORDER. HE UPHELD THE ACTION OF THE A IN TAXING INTEREST INCOME ON ACCRUAL BASIS AND AS PER THE PETITION MADE BY THE CUSTODIAN. HE DIRECTED THE AO TO RECOMPUTE THE AMOUNT OF INTEREST ON THE B ASIS OF ORDER OF THE SPECIAL COURT. DURING THE COURSE OF HEARING. 2.2. BEFORE US,AR AND THE DR AGREED THAT CONSIDERING THE DEVELOPMENTS THAT HAD TAKEN PLACE AFTER THE ORDER OF THE FAA, BECAUSE OF THE ORDERS OF THE SPECIAL COURT, MATTER NEEDS TO BE VERIFIED BY THE FAA, CONSIDERING THE STATEMENTS MADE BY BOTH TH E PARTIES, WE ARE RESTORING BACK THE ISSUE TO THE FILE OF THE FAA FOR FRESH ADJUDICATION. HE WILL DECIDE THE ISSUE AFTER CONSIDERING ALL THE ORDERS PASSED BY THE SPECIAL COURT TILL DATE.GROUND NO.2 I S ALLOWED FOR STATISTICAL PURPOSES. 3. GROUND NO.3 IS ABOUT IN ADDITION OF INTEREST INCOME OF RS. 2.57 CRORES FROM CIFCO GROUP. FROM THE PAST RECORDS, THE AO FOUND THAT ASSESSEE H AD ADVANCED INTEREST FREE LOAN TO SIFCO GROUP OF COMPANIES AMOUNTING TO RS. 12.88 CRORES.HE FOUND THAT THE SPECIAL COURT HAD TAKEN NOTE OF THE AMOUNT DUE AND PAYABLE TO THE ASSESSEE WITH INT EREST BY THE SIFCO GROUP OF COMPANIES AND VIDE ITS INTERIM ORDER HAD ACCEPTED CUSTODIAN PLEA AND HAD OBSERVED THAT MONEY TRANSFERRED BY CANNEL WORK INVESTMENT PVT. LTD. THE CONDUIT BETWEE N THE ASSESSEE AND SIFCO GROUP OF COMPANIES, BELONGED TO THE ASSESSEE. THE COURT HAD ALSO DIRECTED THE FUNDS LYING WITH SIFCO GROUP OF COMPANIES SHOULD RETURNED TO THE ASSESSEE COMPANY DIRECTLY BY SIFCO GROUP WITH 20% INTEREST AND TO CREATE THE ACCOUNT OF M/S CANNE L WORTH INVESTMENT COMPANY. HE FURTHER FOUND THAT ON THE BASIS OF THE DECISION OF THE COUR T INTEREST @ 20% ON THE AMOUNTS DUE AND PAYABLE BY SIFCO GROUP ACCRUED TO THE ASSESSEE EVER Y YEAR SINCE MARCH 1992. FOLLOWING THE ORDERS PASSED BY HIS PREDECESSORS FOR THE AY 1997-98 AND 1998-99, THE AO COMPUTED THE INTEREST AS UNDER: 'WITH CIFCO GROUP OF COMPANIES SHOULD BE RETURNED T O THE ASSESSEE COMPANY DIRECTLY BY THE CIFCO GROUP WITH 20% INTEREST, CREDITING THE ACCOUNT OF M /S. KENILWORTH INV. CO. PVT. LTD. IN THE PROCESS. ON THE BASIS OF THE DECISION OF THE HON'BLE COURT, INTEREST AT 20% ON THE AMOUNTS DUE AND PAYABLE BY CIFCO GROUP OF COMPANIES ACCRUED TO THE ASSESSEE EVERY YEAR SINCE 25.03.1992. SINCE A FINDING OF THE FACT HAS BEEN GIVEN THAT THE AMOUNT ADVANCED TO CIFCO GROUP ACTUALLY BELONGED TO THE ASSESSEE COMPANY, INTEREST PAYABLE BY THAT GROUP IS THE INCOME OF THE ASSESSEE AND IS THEREFORE REQUIRED TO BE ASSESSED AS SUCH. 5.2 IN THIS CONNECTION, IT IS NOTICED THAT THE ORDE RS HAVE BEEN PASSED IN THE PRECEDING YEAR AFTER TAKING INTO ACCOUNT THE SUBMISSIONS MADE BY THE ASS ESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 1998-99 SUBMITTED MADE BY M/S. BHUTA SHAH & CO. VIDE THEIR LETTER DATED 16.01.2001 WAS DULY CONSIDERED AND THE CONCEPT OF R EAL INCOME THEORY AS ADVOCATED BY THEM HAS BEEN DISCUSSED IN THAT ORDER AND IN THE ORDER FOR A .Y. 1997-98. THEREFORE, DISCUSSION ON THIS ISSUE WOULD ONLY AMOUNT TO REPEATING WHAT HAS ALREADY BEE N SAID IN THIS REGARD IN THE ORDERS FOR A.Y. 1997-98 AND 1998-99 AND WOULD ONLY AMOUNT TO A REPE TITION. SINCE THE ISSUE CONTINUES TO REMAIN UNCHANGED ON FACTS THIS YEAR ALSO, THE OBSERVATIONS MADE ON THIS ISSUE AND CONCLUSION ARRIVED AT THEREON WOULD BE EQUALLY APPLICABLE FOR THIS YEAR A LSO. THEREFORE, INTEREST AT 20% AS DIRECTED BY THE COURT HAS ACCRUED TO THE ASSESSEE WHICH IS COMP UTED AS UNDER. S.NO. NAME OF THE PARTY LOAN AMOUNT ( RS. ) PERIOD INT.@20% 1 M/S. CIFCO PROPERTIES LTD. 6,75,00,000/- 01.04.97 TO31.03.98 1,35,00,000/- 2 M/S CIFCO LTD. 3,25,00,000/- -DO- 65,00,000/- 3 M/S CIFCO FINANCE LTD. 2,88,00,000/- -DO- 57,6 0,000/- 2,57,60,000/- 4 ITA NO.3004/MUM/2007 DHANRAJ MILLS PVT. LTD. 5.3 THE AFORESAID ADDITION IS MADE SUBJECT TO THE F INALIZATION OF THE ISSUE REGARDING HIGHER RATE OF INTEREST RECEIVABLE BY THE ASSESSEE COMPANY. THE AD DITION MADE HERE IS ON SUBSTANTIVE BASIS. SINCE THE ASSESSEE HAS NOT DISCLOSED INCOME TO THIS EXTEN T, PROCEEDINGS U/S 271(I)(C) R.W.EXPL.1 IS SEPARATELY INITIATED. 3.1. IN THE APPELLATE PROCEEDINGS,IT WAS ARGUED BEFORE T HE FAA THAT IN REALITY NO INTEREST INCOME HAD ACCRUED TO THE ASSESSEE,THAT IT WAS IMPOSSIBLE FOR THE ASSESSEE TO RECEIVE THE INCOME THAT IT COULD HAVE CLAIMED UNDER THE TERMS OF PRIVATE CONTR ACT DUE TO THE FACT THAT IT WAS A NOTIFIED PERSON, THAT PARTIES WERE NOT MAKING THE PAYMENT TO ITS, TH AT IT WOULD BE UNREASONABLE TO TAX INCOME IN ITS HANDS/IN REALITY HAD NOT ACCRUED TO IT.FOLLOWING HI S ORDER FOR THE INTEREST AMOUNT OF RS.12.82 CRORES (GROUND NO.2),HE UPHELD THE ORDER OF THE A.O . 3.2. BEFORE US,AR STATED THAT AS PER THE CONSENT DECREE PASSED RS. 2.57 CRORES WERE DUE FOR THE PERIOD 01.04.1998 TO 31.03.1999, THAT THE AO AND FA A HAD NO ACCESS TO THOSE FACTS, THAT MATTER NEEDS FURTHER VERIFICATION.DR AGREED WITH THE PROPO SAL. ACCORDINGLY, WE RESTORE THE MATTER TO THE FILE OF THE FAA TO PASS A FRESH ADJUDICATION ORDER, AFTER HEARING THE ASSESSEE AND AFTER CONSIDERING ALL THE LATEST DEVELOPMENTS THAT HAD TAKEN PLACE AF TER HE HAD PASSED THE ORDERS.GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 4. GROUND NO.4 & 5 ARE ABOUT BAD-DEBTS.DURING THE ASSE SSMENT PROCEEDINGS, THE AO FOUND FROM THE PAST RECORDS,FROM AY 1993-94 ONWARDS, THAT INCO ME ON FINANCING CHARGES HAD BEEN BROUGHT TO TAX IN RESPECT OF RS. 15.36 CRORES AND RS. 9.62 CRO RES FINANCED BY THE ASSESSEE TO M/S V.K.S.A. INVESTMENT PVT. LTD. AND M/S SWADESH ENTERPRISES RE SPECTIVELY IN BOTH THE CASE SPECIAL COURT HAD PASSED DECREE IN FAVOUR OF THE ASSESSEE DIRECTING T HE PARTY CONCERNED TO PAY INTEREST @ 18% ON AMOUNTS DUE BY M/S VKSA AND 20 % ON AMOUNT DUE TO M /S SWADESH ENTERPRISES, THAT THE ASSESSEE HAD DECLARED UPTO AY 1993-94 INCOME OF RS. 6.30 CRORES HAS FINANCING CHARGES FROM THE AFORESAID TWO PARTIES.THE AO FOUND THAT IN THE RETU RN OF INCOME ASSESSEE HAD POINTED OUT THAT THE AMOUNT OF RS.5.36 CRORES RESPECTIVELY FROM VKSA HAD BEEN RETURNED OF AS IRRESPECTIVELY AMOUNT THAT THE AMOUNT CONSISTED OF PRINCIPLE OF RS. 10 CR ORES AND INTEREST OF RS. 5.36 CRORES, THAT IT WAS NOT POSSIBLE FOR THE CUSTODIAN TO RECOVER THE AMOUN T DUE FROM VKSA,THAT THE FINANCIAL CONDITION OF VKSA WAS NOT SOUND ENOUGH TO REPAY THE AMOUNT, T HAT VKSA HAD FILE AN AFFIDAVIT BEFORE THE SPECIAL COURT. THE ASSESSEE INFORMED THAT IN VIEW O F NON-COMPLIANCE OF THE ORDER OF THE SPECIAL COURT, THE DIRECTOR OF VKSA WERE PUT BEHIND THE BAR S. REFERRING TO THE PROVISIONS OF SECTION 36(2) OF THE ACT AND RELYING UPON THE DECISION OF THE HON 'BLE JURISDICTIONAL HIGH COURT DELIVERED IN THE CASE OF JATA BHAI (122 ITR 792), IT WAS ARGUED THAT THE AMOUNT WRITTEN OFF BY THE ASSESSEE SHOULD BE ALLOWED.THE AO IN HIS ORDER HELD THAT THE CUSTOD IAN WAS IN-CHARGE OF THE PROPERTIES OF THE ASSESSEE ON THE BASIS OF THE ORDER OF THE SPECIAL C OURT, THAT THE CUSTODIAN CAN DECIDE AS WHAT WAS RECOVERED AND WHAT WAS NOT RECOVERED, THAT HE WAS E MPOWERED TO MAKE RECOVERIES FROM THE LETTERS, THAT THE ROLE OF THE ASSESSEE WAS NOT MORE THAN SPECTATOR, THAT UTMOST THE ASSESSEE WAS ONE OF THE INTEREST PARTIES, THAT ASSESSEE COULD NOT DE CIDE AS WHICH AMOUNT WAS BAD/GOODS, THAT WAS THE JOB OF THE CUSTODIAN,THAT WRITE OFF OF RS. 15.40 CR ORES,INCLUDING THE RIGHT OF 15.36 CRORES,IN CASE OF VKSA WAS UNWARRANTED. FINALLY, HE MADE AN ADDITI ON OF RS. 15.40 CRORES TO THE TOTAL INCOME OF THE ASSESSEE.IN ADDITION TO IT,HE HELD THAT FINA NCIAL CHARGES OF RS. 4.68 CRORES WAS THE INTEREST INCOME FOR THE PERIOD UNDER CONSIDERATION AS RECEIV ABLE ITEM FROM VKSA AND SWADESHI ENTERPRIESES. 4.1. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE ARGUED B EFORE THE FAA THAT INSPITE OF THE ORDER OF THE SPECIAL COURT THE ADVANCE WERE NOT RECOVERABLE, THAT THE ASSESSEE COULD RIGHT OF THE SAME IN ITS BOOKS OF ACCOUNTS, THAT NOT A SINGLE RS. WAS RECOVE RED TILL IT FILE THE APPEAL BEFORE THE FAA, THAT DECISION TO RIGHT OF THE AMOUNT WAS AN HONEST DECIS ION, IT HAD ACTUALLY WRITTEN OF THE SAID AMOUNTS IN ITS BOOKS OF ACCOUNT.AFTER CONSIDERING THE AVAIL ABLE MATERIAL BEFORE HIM, THE FAA HELD THAT THE ASSESSEE WAS A NOTIFIED PERSON, THAT ALL ASSETS UND ER THE CONTROL OF CUSTODIAN, THAT TAKING RIGHT OF ANY ASSETS WITHOUT THE CONSENT OF THE CUSTODIAN, TH AT THE CLAIM FOR BAD-DEBTS COULD NOT BE ALLOWED THAT THE CONSENT OF THE CUSTODIAN EVEN IF THE CLAIM OF THE ASSESSEE WAS GENUINE. 5 ITA NO.3004/MUM/2007 DHANRAJ MILLS PVT. LTD. 4.2. BEFORE US,AR STATED THAT CUSTODIAN HAD A LIMIT ROLE TO PLAY, THAT HE WAS APPOINTED FOR SPECIFIC PURPOSE,THAT A CUSTODIAN WAS NOT EMPOWERED TO TAKE DECISION ABOUT WRITING OF THE BAD-DEBTS, IT WAS PREROGATIVE OF THE ASSESSEE, THAT THE CUSTODIAN WAS EMPOWERED TO TAKE DECISION ABOUT THE ATTACHMENT AND DISPOSAL OF PROPERTY. DR SUPPORTED T HE ORDER OF THE FAA . 4.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AO AND FAA HAD DISALLOWED THE CLAIM MADE BY THE ASSESSEE B ECAUSE OF THEY WERE UNDER THE IMPRESSION WITHOUT THE CONSENT OF THE CUSTODIAN ASSESSEE WAS N OT ENTITLED TO RIGHT OF THE AMOUNTS. WE FIND THAT THEY HAVE NOT DISCUSSED THE PROVISIONS OF THE SPECIAL COURT ACT 1992 THAT DEALS WITH THE POWER AND DUTIES OF THE CUSTODIAN.IN OUR OPINION, I N THE INTEREST OF JUSTICE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA FOR FRESH ADJU DICATION. HE IS DIRECTED TO TAKE A DECISION AFTER GOING THROUGH THE PROVISIONS OF THE ACT SPECIALLY T HE POWERS AND DUTIES OF THE CUSTODIAN. HE WOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.GROUND NO. 4 AND 5 ARE ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. 5. GROUND NO. 6 IS DIRECTLY RELATED WITH GROUND NO.5 A ND THEREFORE,STANDS PARTLY ALLOWED. 6. WITH REGARD TO GROUND NO.7, THE AR STATED BEFORE US THAT SAME WAS RAISED WITHOUT PREJUDICE TO SUBJECT TO THE ORDER OF THE SPECIAL COURT,WE ARE OF THE OPINION THAT GROUND NO.7 IS ACADEMIC IN NATURE AND HENCE DOES NOT REQUIRE ANY ADJUDICATION. 7. NEXT GROUND OF APPEAL IS ABOUT SALE TAX LIABILITY(G OA-8).DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DEBITED AN AMOUN T OF RS.3.91 LAKHS AS SALES TAX DUES.HE DIRECTED THE ASSESSEE TO FURNISH MATERIAL FACTS REL ATING TO THE SALES TAX LIABILITY. VIDE ITS REPLY DA TED 05.03.2002 THE ASSESSEE STATED THAT THE AMOUNT IN Q UESTION REPRESENTED INTEREST AND PENALTIES,THAT THE DEDUCTION SHOULD BE ALLOWED ON THE ACTUAL PAYME NT BASIS IN VIEW OF THE PROVISIONS OF SECTION 13B OF THE SALES TAX ACT. AFTER CONSIDERING THE REP LY OF THE ASSESSEE, THE AO HELD THAT CONTENTION RAISED BY THE ASSESSEE COULD NOT BE ACCEPTED, THAT IN ORDER TO ALLOW ANY LIABILITY IT WAS NECESSARY THAT THE RELATED BUSINESS IN RESPECT OF WHICH THE E XPENSES IS CLAIMED TO HAVE BEEN MADE SHOULD BE IN EXISTENCE,THAT ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS, THAT THE LIABILITY IN RESPECT OF PAST BUSINESS COULD NOT BE ALLOWED, THAT PENALTY AND INT EREST LEVIED AS PER THE PROVISIONS OF SECTION 36(3) OF THE SALES TAX ACT COULD NOT BE ALLOWED, TH AT THE PAYMENT RELATED VIOLATION OF THE LAW OF LAND. FINALLY, HE ADDED RS.3.91 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 7.1. AGGRIVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT THE ASSESSEEHAD SOLD A CAR,THAT IT WAS CAPITAL ASSET,THAT SALE TAX HAS TO BE TAKEN IN TO CONSIDERATION WHILE COMPUTING THE SHORT TERM CAPITAL GAIN,THAT PROVISIONS OF SECT ION 43B WERE NOT APPLICABLE TO THE TRANSACTION IN QUESTION.FINALLY,HE UPHELD THE ORDER OF THE AO. 7.2. BEFORE US,THE AR CONTENDED THAT THE SALES TAX LIABI LITIES HAD ARISEN DUE TO THE COMPLETION OF SALES TAX ASSESSMENT ORDER ON 1.8.1996 FOR THE PERI OD FROM 1.4.1992 TO 31.3.1993 WITH THE TOTAL DEMAND OF RS.7,09,447/-,THAT IN INCLUDED SALES TAX PAYABLE AMOUNTING TO RS.3,91,304/- AND INTEREST AND PENALTIES AMOUNTING TO RS.3,18,304/-,T HAT RS.3,91,304/- WERE PAID BY THE ASSESSEE DURING THE YEAR UNDER APPEAL I.E.ON 16.7.1998,THAT IT WAS ELIGIBLE FOR CLAIMING DEDUCTION U/S.43B ON PAYMENT BASIS,THAT THE ABOVE SALES TAX LIABILITI ES HAD ARISEN ON SALE OF MOTOR CAR,THAT MOTOR CAR WAS USED IN THE BUSINESS OF THE ASSESSEE,THAT THE A SSESSEE WAS BEING ASSESSED UNDER THE HEAD BUSINESS INCOME,THAT THE PAYMENT WAS NOT RELATED TO THE PENALTY,THAT THE SPECIAL COURT HAD NOT ALLOWED PAYMENT OF PENALTY AMOUNT.DR SUPPORTED THE ORDER OF THE FAA. 7.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE FAA HAD UPHELD THE ORDER OF THE AO AS HE WAS OF THE OPI NION THAT THE ASSESSEE SOLD A CAR,A CAPITAL ASSET.IT IS A FACT THAT THE CAR WAS A BUSINESS ASSE T AND THE AO WAS ALLOWING DEPRECIATION ON IT.ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR SELLING TH E BUSINESS ASSET HAS TO BE ALLOWED ON PAYMENT BASIS.THE GENUINENESS OF THE PAYMENT HAS NOT BEEN D OUBTED BY THE AO OR FAA AND THEY HAVE NOT DISPUTED THE FACT THAT IT WAS A PART OF BUSINESS AS SETS.THEREFORE,IN OUR OPINION SALES TAX PAID BY THE 6 ITA NO.3004/MUM/2007 DHANRAJ MILLS PVT. LTD. ASSESSEE ON SALE OF CAR HAS TO BE ALLOWED.GROUND NO .8 IS ALLOWED IN FAVOUR OF THE ASSESSEE. 8. LAST GROUND OF APPEAL IS ABOUT LEVY OF INTEREST TO BE LEVIED U/S.234B OF THE ACT.BEFORE US,THE AR FAIRLY CONCEDED THAT ISSUE HAS TO BE DECIDED AGAINS T THE ASSESSEE,IN LIGHT OF THE DECISION OF THE HONBLE APEX COURT.THRERFORE,GROUND NO.9 IS DECIDED AGAINST THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. /'0 &' 1 2 ( - VA'KR% 3 ( ' 45 . ORDER PRONOUNCED IN THE OPEN COURT ON 28TH AUGUST,2014 . . ( +,! 6 7 28 VXLR , 201 4 , ( - 8 SD/- SD/- ( MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7 /DATE: 28.08.2014. SK . . . . ( (( ( $'9 $'9 $'9 $'9 :9!' :9!' :9!' :9!' / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ ; < , 4. THE CONCERNED CIT / ; < 5. DR D BENCH, ITAT, MUMBAI / 9=- $' MH MHMH MH , . . . 6. GUARD FILE/ - / %9' %9' %9' %9' $' $'$' $' //TRUE COPY// . / BY ORDER, > / 4 DY./ASST. REGISTRAR , /ITAT, MUMBAI