M/s. Stamina Holdings Pvt. Ltd., Ahmedabad V. The JT.CIT.,(OSD)MC-1, Mumbai

ITA 312/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9078 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-09-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 01-02-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH SENIOR
• Keywords: Liquidation
• Section: 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.312/AHD/2005 (ASSESSMENT YEAR: 1998-99) M/S STAMINA HOLDINGS PVT. LTD., 505, SUYOJAN, B/H HOTEL PRESIDENT, OFF C G ROAD, NAVRANGPURA, AHMEDABAD V/S THE JOINT COMMISSIONER OF INCOME-TAX (OSD) MC-I, MUMBAI [APPELLANT] [RESPONDENT] PAN NO.: AAECS 5600 B APPELLANT BY :- SHRI DEEPAK SONI RESPONDENT BY:- SMT. NEETA SHAH, SENIOR DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 30-11- 2004. 2 THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES T O THE ADDITION MADE BY THE AO AMOUNTING TO RS.13,35,616/- AS INTEREST ACCRUED TO THE ASSESSEE ON THE BASIS OF MERCANTILE SYSTEM OF 2 ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE, ON T HE DEPOSIT OF RS.1,25,00,000/- BY THE ASSESSEE TO M/S ENARAI FINA NCE LTD. 3 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E RECEIVED INTEREST AMOUNTING TO RS.19,14,384/- DURIN G THE ASSESSMENT YEAR ON THE DEPOSIT OF RS.1,25,00,000/- I.E. UPTO OCTOBER, 1997 WHILE THE INTEREST AS ACCRUED AT THE RATE OF 26% COMES TO RS.32,50,000/-. THE ASSESSEE SUBMITTED THA T ALTHOUGH THE ASSESSEE RECEIVED POST-DATED CHEQUES BUT THOSE WERE DISHONORED AND REVERSE ENTRIES WERE PASSED IN THE B OOKS OF ACCOUNT. COMPLAINT U/S 138 OF THE NEGOTIABLE INSTRU MENT ACT WAS FILED AGAINST THE COMPANY BUT THE ASSESSEE COULD NO T RECEIVE THE INTEREST. ULTIMATELY THE COMPANY GOT LIQUIDATED AND THE ASSESSEE HAD EVEN WRITTEN OFF THE PRINCIPAL AMOUNT AS BAD DE BTS IN THE SUCCEEDING ASSESSMENT YEAR AND CLAIMED THE DEDUCTIO N FOR THE SAME. THE INTEREST SINCE RELATES TO THE DOUBTFUL DE BTS, THEREFORE, THE INTEREST DID NOT ACCRUE AND THE ASSESSEE HAS NO T PROVIDED IN ITS BOOKS OF ACCOUNT. THE AO DID NOT AGREE WITH THE ASSESSEE AND MADE AN ADDITION OF RS.13,35,616/-. THE ASSESSEE W ENT IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE FURNISHED THE COPY OF LETTER 26-04-1999 FROM M/S ENARAI FINANCE L TD. STATING THAT THE COMPANY HAS BEEN LIQUIDATED AND THE LIQUID ATOR HAD BEEN 3 APPOINTED BY THE BOMBAY HIGH COURT, ANOTHER ONE DIR ECTING THE ASSESSEE NOT TO PRESENT THE CHEQUES AND GUIDELINES ISSUED BY RESERVE BANK OF INDIA, WHICH ARE APPLICABLE TO NON BANKING FINANCIAL COMPANY. THE CIT(A) AFTER APPRECIATING TH E SUBMISSIONS OF THE ASSESSEE SUSTAINED THE ADDITION BY OBSERVING AS UNDER:- 3.3 I HAVE CAREFULLY GONE THROUGH THE OBSERVATIONS MADE BY THE AO IN THE ASST. ORDER S WELL AS THE SUBMISSIONS AS ADV ANCED BY THE APPELLANT. I HAVE ALSO GONE THROUGH THE CASE LAWS A S RELIED UPON 1W THE A.O. AND THE COUNSEL OF THE APPELLANT. IN THE FIRST INSTANCE, THE DOUBLE STANDARD BEING FOLLOWED BY THE APPELLANT CANNOT BE ACCEPTED WITH REGARD TO PASSING THE REVERSE ENTRIES, WRITING OFF ETC.. BECAUSE AS HAS BEEN RIGHTLY POINTED OUT BY THE A.O. THAT ON ONE HA ND THE APPELLANT WRITES THAT THE AMOUNT HAS NOT BECOME BAD FOR RECOV ERY SINCE THE SAME HAS NOT FALLEN DUE FOR REPAYMENT WHILE ON THE OTHER HAND THE APPELLANT DO NOT OFFER THE INTEREST INCOME ACCRUED ON THE SAM E FOR TAXATION. IN MY OPINION, THERE IS A REMOTE CHANCE THAT THE APPEL LANT BECOMES ALL OF A SUDDEN SICK OF ITS FINANCIAL BURDEN, ESPECIALLY W HEN IT WAS REGULARLY PAYING THE INTEREST UPTO OCT. 97 AND THE REVERSE EN TRY MADE IN THE BANK PASS BOOK CANNOT BE USED BY THE APPELLANT AS A SHEL TER AND AS RIGHTLY OBSERVED BY THE A.O., SINCE THIS IS AN EXTRA ORDINA RY ITEM, THE MATTER SHOULD HAVE BEEN DISCUSSED IN THE BOARD MEETING AND A RESOLUTION TO THIS EFFECT BE PASSED. I AM INCLINED TO AGREE WITH THE OBSERVATIONS OF THE A.O. THAT WHILE THE PRINCIPAL AMOUNT CONTINUES TO BE SOUND. SINCE THE SAME HAS NOT FALLEN DUE FOR REPAYMENT NOT ACCOU NTING FOR A PART OF THE YEAR, THE INTEREST INCOME ACCRUED ON IT IS NOT ONLY CONSISTENT TO THE UNIVERSALLY ACCEPTED ACCOUNTING NORMS BUT IS ALSO L EGALLY INCORRECT. THE CHANCES OF RECOVERY OF INTEREST IS STILL A SURE POSSIBILITY, AS THE APPELLANT HAS NOT GIVEN UP AND FILED A SUIT IN THE COURT OF METROPOLITAN MAGISTRATE AND FINAL VERDICT IS AWAITED. IN LIGHT O F THE ABOVE DISCUSSION AND FOLLOWING VARIOUS JUDICIAL PRONOUNCEMENTS, WHIC H INCLUDES THE DECISION OF APEX COURT IN THE CASE OF STATE BANK OF TRAVANCORE, WHEREIN THE JUDGES HAD DISTINGUISHED THE DECISION O F CIT V MOTOR CREDIT CO., AS RELIED UPON BY THE APPELLANT, I HOLD THAT THE ACTION OF 4 AO IN DISALLOWING THE ACCRUED AMOUNTING TO RS.13,35 ,616/- IS QUITE IN ORDER AND NO INTERFERENCE WHATSOEVER IS CALLED FOR. 4 BEFORE US, THE LEARNED AR VEHEMENTLY CONTENDED T HAT SINCE THE ASSESSEE DID NOT RECOVER THE INTEREST, TH EREFORE, IT CANNOT BE REGARDED TO BE THE INCOME OF THE ASSESSEE . THE DEPOSIT HAS BECOME DOUBTFUL OF THE RECOVERY AND, THEREFORE, THE ASSESSEE HAS NOT PASSED ANY BOOK ENTRY SHOWING THE ACCRUAL O F THE INTEREST. THE COMPANY HAS GONE INTO LIQUIDATION. TH E ASSESSEE HAS WRITTEN OFF THE DEPOSIT AND CLAIMED IT AS DEDUCTION IN THE SUCCEEDING YEAR WHICH WAS ALLOWED. IN THE ALTERNATI VE, IT WAS SUBMITTED THAT EVEN IF THIS INTEREST BE TREATED AS AN INCOME, THE ASSESSEE SHOULD BE ALLOWED DEDUCTION AS A LOSS INCI DENTAL TO THE BUSINESS U/S 29 OF THE ACT. 5 THE LEARNED DR, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE AO AND THAT OF THE CIT (A) AND CONTENDED THAT ACCRUAL OF INCOME IS DIFFERENT FROM RECEIPT OF INCOME. ONCE IT IS ESTABLISHED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHATEVER INCOME HAS ACCRUED TO THE ASSESSEE, IT IS CHARGEABLE TO TAX. THE ASSESSEE NEED NOT TO WAIT FOR THE RECEIPT OF INCOME. THE ASSESSEE HAS AD VANCED THE LOAN DURING THE COURSE OF BUSINESS. THE INCOME UNDE R THE HEAD 5 BUSINESS HAS TO BE DETERMINED AS PER SECTION 145 OF THE ACT ON THE BASIS OF METHOD OF ACCOUNTING REGULARLY FOLLOWE D BY THE ASSESSEE. THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER TH E MERCANTILE SYSTEM OF ACCOUNTING THE INCOME IS CHARGEABLE TO TA X AS SOON AS IT ACCRUES TO THE ASSESSEE. THUS, IT WAS CONTENDED THAT THE ORDER OF THE CIT(A) BE CONFIRMED. 6 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE O RDER OF THE AUTHORITIES BELOW. IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A). THE CIT(A) HAS RIGHTLY UPH ELD THE ORDER OF THE AO. THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER TH E MERCANTILE SYSTEM OF ACCOUNTING THE INCOME IS CHARGEABLE TO TA X AS SOON AS IT ACCRUES TO THE ASSESSEE. THE INTEREST ACCRUED TO THE ASSESSEE AND IT IS ONLY ON 26-04-1999 THAT THE COMPANY HAS G ONE INTO LIQUIDATION AND THE LIQUIDATOR HAS BEEN APPOINTED B Y THE HIGH COURT. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT T O OUR KNOWLEDGE WHICH MAY PROVE THAT THE INTEREST HAS NOT ACCRUED TO THE ASSESSEE DURING THE YEAR. WE ARE, THEREFORE, OF THE OPINION THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION AS MADE BY THE 6 AO. EVEN, IN OUR OPINION, THE ASSESSEE IS NOT ENTIT LED FOR THE DEDUCTION U/S 29 AS LOSS INCIDENTAL TO THE BUSINESS . THE ASSESSEE HAS NOT WRITTEN OFF THE INTEREST IN ITS BOOKS OF AC COUNT WHICH MAY BE A PRIMA FACIE EVIDENCE THAT THE INTEREST HAS BEC OME NON RECOVERABLE DURING THE YEAR IN VIEW OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF LORD DAIRY FARM LTD. V CIT (1955) 27 ITR 700 (BOM) , WHEN THE STATE OF GUJARAT WAS UNDER THE JURISDICTION OF BOMBAY HIGH COURT. IN THIS JUDG MENT, IT WAS HELD THAT IN THIS CASE IT IS IN EVIDENCE THAT THE ASSESSEE WROTE OFF THIS AMOUNT OF RS.32,000 IN THE YEAR OF ACCOUNT. THE ADV OCATE-GENERAL SAYS THAT THERE IS NO FINDING THAT THIS AMOUNT BECA ME IRRECOVERABLE IN THIS YEAR. WHEN A BUSINESSMAN WRITES OFF AN AMOUNT, THERE IS PRIMA FACIE EVIDENCE THAT THAT AMOUNT IS IRRECOVERABLE. U NDOUBTEDLY THE DEPARTMENT CAN REBUT THE PRIMA FACIE INFERENCE BY D RAWING ATTENTION TO CIRCUMSTANCES OR BY LEADING SOME EVIDENCE TO SUG GEST THAT THE POSITION TAKEN UP BY THE ASSESSEE WAS NOT CORRECT. IN THIS CASE THERE IS NO EVIDENCE WHATSOEVER ON THE RECORD EXCEPT THE FAC T THAT THE ASSESSEE WROTE OFF THIS AMOUNT IN THE YEAR OF ACCOUNT. IN TH E ABSENCE OF ANY EVIDENCE WE ARE ENTITLED TO PRESUME THAT THE AMOUNT BECAME IRRECOVERABLE WHEN THE ASSESSEE WROTE IT OFF IN ITS BOOKS OF ACCOUNT. THEREFORE, IN OUR OPINION, NOT ONLY IS THE ASSESSEE ENTITLED TO CLAIM THIS AMOUNT OF RS. I2G 000 AS A TRADING LOSS BUT IS ALSO ENTITLED TO CLAIM THIS AMOUNT IN THE ASSESSMENT YEAR, VIZ., 1Q47-48. (EMPHASIS SUPPLIED) 7 WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 11-09-2 009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 11-09-2009 COPY OF THE ORDER FORWARDED TO : 1. M/S STAMINA HOLDINGS PVT. LTD., 505, SUYOJAN, B/H HOTEL PRESIDENT, OFF C G ROAD, NAVRANGPURA, AHMEDAB AD 2. THE JT. CIT (OSD) MC-I, MUMBAI 3. CIT CONCERNED 4. CIT(A)-XIV, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA