M/s BHPV Ltd., Visakhapatnam V. The ACIT, Circle-3(1), Visakhapatnam

ITA 308/VIZ/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2788 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-09-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 14-06-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Section: 263

Judgement Text

ITA NO 308 OF 2007 BHDV LTD VISAKHAPATNAM PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 308/VIZAG/2007 ASSESSMENT YEAR:2003-04 BHARAT HEAVY PLATES & VESSELS LIMITED, VISAKHAPATNAM VS. ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE-3(1) VISAKHAPATNAM (APPELLANT) PAN NO: AAACB 7076 N (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI SUBRATA SARKAR, CIT(DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30-4- 2007 PASSED BY LEARNED CIT-I, VISAKHAPATNAM U/S 263 OF THE ACT AND IT RELATES TO THE ASSESSMENT YEAR 2003-04. THE ASSESS EE IS CHALLENGING THE VALIDITY OF INITIATION OF PROCEEDINGS U/S 263 OF TH E ACT. THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING. THE COD APPROVAL OBTAINE D BY THE ASSESSEE IS PLACED ON RECORD. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE COMPANY FOR THE ASSESSMEN T YEAR 2003-04 WAS COMPLETED BY DETERMINING THE NET LOSS OF THE ASSESS EE AT RS.205.74 LAKHS. WHILE EXAMINING THE CASE RECORD, THE LEARNED CIT NO TICED THAT THE ASSESSEE HAD CLAIMED A SUM OF RS.42,15,84,934/- AS INTEREST RELATING TO PRIOR PERIOD AND THE SAME WAS ALSO ALLOWED BY THE ASSESSING OFFI CER. IN THE PROFIT & LOSS ACCOUNT THE ASSESSEE HAD DEBITED THIS AMOUNT U NDER THE HEAD PRIOR PERIOD EXPENDITURE. THE BACK GROUND OF THE SAID C LAIM WAS EXPLAINED AS UNDER VIZ., THE ASSESSEE COMPANY HAD SUBMITTED A P ROPOSAL TO THE GOVT. OF INDIA WITH REGARD TO THE WAIVER OF LOAN, CAPITAL RES TRUCTURING ETC. IN ITA NO 308 OF 2007 BHDV LTD VISAKHAPATNAM PAGE 2 OF 5 PURSUANCE OF THE SAID PROPOSAL, THE GOVERNMENTS LO AN OUTSTANDING AS ON 31-3-2001 IN THE BOOKS OF THE ASSESSEE WAS TRANSFER RED TO SHARE HOLDERS FUND AND THE OUTSTANDING INTEREST WAS CREDITED TO PROFIT & LOSS A/C OF THE FINANCIAL YEAR 2001-02. HOWEVER, THE GOVT. OF INDI A, VIDE ITS LETTER DATED 20-8-2002 COMMUNICATED THAT THE PROPOSAL OF THE ASS ESSEE COMPANY WOULD BE APPROVED IN THE EVENT OF FORMATION OF A SUCCESSF UL JOINT VENTURE AND IN CASE, THE JOINT VENTURE FORMATION FAILS, THE PROCES S FOR CLOSURE AND WINDING UP OF THE COMPANY WOULD BE INITIATED. SINCE THE JO INT VENTURE FORMATION DID NOT MATERIALIZE TILL 31-3-2003, THE ASSESSEE COMPAN Y REVERSED THE ENTRIES ORIGINALLY PASSED BY IT DURING THE FINANCIAL YEAR 2 001-02 REFERRED (SUPRA). ACCORDINGLY THE INTEREST ON GOVERNMENT LOANS AMOUNT ING TO RS.42,15,84,934/- WAS DEBITED TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD PRIOR PERIOD ADJUSTMENT AND THE SAME WAS ALSO CLA IMED IN ITS RETURN OF INCOME. THE SAID CLAIM OF THE ASSESSEE WAS ALLOWED BY THE ASSESSING OFFICER. THE LEARNED CIT WAS OF THE VIEW THAT THE A SSESSING OFFICER HAD ERRONEOUSLY ALLOWED THE SAID CLAIM, WHICH IS PREJUD ICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO REDO THE ASSESSMENT BY DISALLOWING THE SAID INTEREST CLAIM. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING THE ORDER OF THE LEARNED CIT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BEL OW THE RELEVANT PORTIONS FROM THE ASSESSMENT ORDER DATED 30-1-2006 PASSED FO R THE ASSESSMENT YEAR 2003-04: 2.2 THE ASSESSEE DEBITED PROFIT & LOSS ACCOUNT WIT H AN AMOUNT OF RS.4300.02 LAKHS TOWARD PRIOR PERIOD EXPENDITURE . THE ASSESSEE WAS ASKED VIDE THIS OFFICE LETTER DATED 10 -10-2005 TO FURNISH COMPLETE BREAK-UP OF THESE EXPENDITURES AND ALSO TO GIVE REASONS AS TO HOW THESE EXPENDITURES HAVE BECO ME DUE OR CRYSTALLIZED DURING THE FINANCIAL YEAR 2002-03. 2.2.1 IN RESPONSE THERETO THE AUTHORISED REPRESENTA TIVE SUBMITTED THAT OUT OF RS.43,49,71,894/- AN AMOUNT O F RS.42,15,84,934/- IS INTEREST PAYABLE TO THE GOVERN MENT OF INDIA ON UNSECURED LOANS WAS PROVIDED DURING THE YEA R, AS THE ITA NO 308 OF 2007 BHDV LTD VISAKHAPATNAM PAGE 3 OF 5 EFFORTS TO GO FOR A JOINT VENTURE WERE DROPPED, HEN CE IT CRYSTALLIZED ONLY DURING THE YEAR. WITH REGARD TO T HE BALANCE AMOUNT OF RS.1,33,86,960/-, THE AUTHORISED REPRESEN TATIVE SUBMITTED THAT THE SAME RELATES TO EARLIER YEARS, W HICH HAS BEEN CLAIMED IN THIS YEAR. HOWEVER, THE ASSESSEE COULD N OT PRODUCE ANY CONCRETE EVIDENCE TO PROVE THAT THE EXPENDITURE CRYSTALLIZED ONLY DURING THE YEAR. ASSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING DUE TO WHICH THE EXPENDITURE WHICH DOES NOT RELATE TO THIS YEAR CANNOT BE CLAIMED IN THE AS SESSMENT YEAR. ACCORDINGLY THE ASSESSING OFFICER PROCEEDED TO DISA LLOW THE INTEREST CLAIM OF RS.1,33,86,960/-. ON A CAREFUL READING OF THE ABOV E SAID OBSERVATIONS OF THE ASSESSING OFFICER, WE NOTICE THAT THE ASSESSING OFFICER HAS FAILED TO EXPRESS HIS VIEW CLEARLY ON THE CLAIM OF THE ASSESS EE FOR THE DEDUCTION OF IMPUGNED AMOUNT OF RS.42,15,84,934/- AND IT APPEARS THAT HE HAS ACCEPTED THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. 4. THE LEARNED CIT HAS CONSIDERED THE ISSUE AND HIS OBSERVATIONS ARE EXTRACTED BELOW: 8. I HAVE GIVEN CAREFUL CONSIDERATION TO THE ABOV E SUBMISSION OF THE ASSESSEE AND ALSO HAVE PERUSED THE MATERIALS ON RECORD. ON A CAREFUL EXAMINATION OF THE RELEVANT FACTS AND MATERIAL, I AM NOT INCLINED TO AGREEING WITH THE SUBMISSIONS MA DE IN THIS REGARD BY THE ASSESSEE. THE LETTER ISSUED BY THE GO VT. OF INDIA DT. 20.8.2002 (IBD), BASING ON WHICH THE ASSESSEE C OMPANY HAS CHANGED INTEREST OF EARLIER YEARS DURING THE YEAR U NDER PRIOR PERIOD EXPENSES, STATES THAT THE FINANCIAL RESTRUC TURING SHALL BE APPROVED AND THE SAID LETTER OF GOVT. OF INDIA IS R EPRODUCED: I AM DIRECTED TO SAY THAT CABINET IN ITS MEETING HE LD ON 02-04-2002 CONSIDERED THE PROPOSAL OF THE DEPARTMEN T ON THE ABOVE CITED SUBJECT AND APPROVED THE FOLLOWI NG PROPOSALS. (A) THE FOLLOWING IN THE EVENT OF SUCCESSFUL J V FORMATION (I) CONVERSION OF GOI LOAN AMOUNTING TO RS.3976.97 LAKHS INTO EQUITY (AS ON 31-3-2001). (II) WAIVER OF INTEREST AMOUNTING TO RS.3877.68 LAK HS (AS ON 31.3.01) (B) IN CASE J V FORMATION FAILS, INITIATE PROCESS F OR CLOSURE/ WINDING UP OF THE COMPANY. 9. BY A PLAIN READING OF THE LETTER IT IS EVIDENT T HAT NOWHERE IT IS MENTIONED THAT JOINT VENTURE OF THE ASSESSEE COMPANY HAS ITA NO 308 OF 2007 BHDV LTD VISAKHAPATNAM PAGE 4 OF 5 FAILED TO ENABLE THE ASSESSEE TO TAKE A DECISION OF CHARGING THE SUBJECT INTEREST TO P&L ACCOUNT DURING THE YEAR UND ER CONSIDERATION. THE LETTER ONLY STIPULATES THAT IN T HE EVENT OF SUCCESSFUL J V FORMATION, AS TO WHAT THE GOVT. OF I NDIA (MIN. OF HEAVY INDUSTRIES) WOULD DO IN SO FAR AS CONVERSION O F LOAN INTO EQUITY AND WAIVER OF INTEREST. WHEN THE LETTER INDI CATES ABOUT THESE TWO, THE ASSESSEE COMPANY CANNOT TAKE UNILATE RAL DECISION OF ITS OWN OF REVERSING THE INTEREST ENTRY BY CHARGE TO P&L A/C, WITHOUT ANY BASIS, MORE SO, BY RELYING ON A LETTER WHICH IS UNCONNECTED TO THE SUBMISSIONS MADE AND IS SUE ON HAND. FURTHERMORE, IN THE WRITTEN SUBMISSIONS IT WA S STATED CONSIDERING PENDANCY BEFORE THE GOVT. OF INDIA WITH REGARDS TO THE PROPOSAL OF CAPITAL RESTRUCTURING AND CONSEQUEN T WAIVER OF INTEREST, THE ASSESSEE COMPANY DURING THE FINANCIAL YEAR 2001- 02, TRANSFERRED THE LOANS DUE TO THE GOVT., TO SHA REHOLDERS FUNDS AND INTEREST PAYABLE TO LIABILITY NO LONGER REQUIRED BY GIVING CREDIT OF THE SAME IN THE P&L A/C. IN MY CON SIDERED OPINION, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE STATUS OF THESE ENTRIES AS IT WAS EXISTING IN THE FINANCIAL Y EAR 2001-02 CONTINUES TO EXIST EVEN DURING THE FINANCIAL YEAR R ELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ON A CAREFUL PERUSAL OF THE OBSERVATION OF THE LEAR NED CIT EXTRACTED ABOVE, WE ARE OF THE VIEW THAT THE LEARNED CIT HAS BROUGHT OUT CLEARLY THE DEFICIENCY IN THE IMPUGNED ASSESSMENT ORDER AND SAI D DEFICIENCY IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. WE SHALL NOW ELABORATE THE SAME. FROM THE RECORD, WE NOTICE THAT THE LIABILITY FOR PAYMENT OF INTEREST HAS ACCRUED ON THE BASIS OF TER MS AND CONDITIONS OF THE LOAN AGREEMENT ENTERED BETWEEN THE ASSESSEE COMPANY AND THE GOVERNMENT OF INDIA AND ACCORDINGLY THE ASSESSEE HA D ACCOUNTED FOR THE SAME IN THE EARLIER YEARS. DURING THE FINANCIAL YE AR 2001-02, THE ASSESSEE HAD PASSED ENTRIES FOR WRITING OFF OF THE LOANS ON THE BASIS OF A FINANCIAL RESTRUCTURING PROPOSAL SENT TO THE GOVERNMENT. AS POINTED OUT BY LEARNED CIT, IT APPEARS TO BE A UNILATERAL EXERCISE. WHEN THE PROPOSAL SUBMITTED BY THE ASSESSEE COULD NOT BE GIVEN EFFECT TO, THE ASSE SSEE COMPANY HAD TO PASS NECESSARY CORRECTION ENTRIES IN ORDER TO RECTI FY THE WRONG ENTRIES PASSED IN THE FINANCIAL YEAR 2001-02. IN OUR OPINI ON, THE CORRECTION ENTRIES PASSED BY THE ASSESSEE COMPANY DURING THE YEAR UNDE R CONSIDERATION CANNOT BE CONSTRUED AS ACCRUAL OF ANY FRESH LIABILI TY, AS CONTENDED BY THE ITA NO 308 OF 2007 BHDV LTD VISAKHAPATNAM PAGE 5 OF 5 ASSESSEE. IT IS ONLY A CONTINUATION OF LIABILITY TH AT HAD ALREADY ACCRUED IN EARLIER YEARS. AS STATED EARLIER, THE ASSESSEE HAD TO PASS THESE ENTRIES TO UNDO THE MISTAKE COMMITTED IN EARLIER YEARS. IN VIE W OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE VIEW TAKEN BY THE ASSESSING OFFICER CANNOT ALSO BE TAKEN AS ONE OF THE POSSIBLE VIEWS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 30-09-2010 COPY TO 1 M/S BHARAT HEAVY PLATES & VESSELS LTD., BHPV POST , VISAKHAPATNAM 2 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3( 1), VISAKHAPATNAM 3 THE CIT 1, VISAKHAPATNAM 4 THE DR, ITAT, VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM