DCIT, New Delhi V. M/s SQL Star International Ltd., Hyderabad

ITA 3259/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58911 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 13-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAMTA KOCHAR
• Keywords: Capital receipt; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SMT. DIVA SINGH, JM & SHRI A.N. PAHUJA, AM ITA NO.3259/DEL/2011 ASSESSMENT YEAR: 2007-08 DCIT, CIRCLE 9(1), ROOM NO.163, C.R. BUILDING, NEW DELHI V/S . M/S SQL STAR INTERNATIONAL LTD., SQL STAR HOUSE, NO.8-2-293/174/A25, ROAD NO.14, BANJARA HILLS, HYDERABAD [PAN : AAACS-0372-C] (APPELLANT) (RESPONDENT) ASSESSEE BY NONE REVENUE BY MS. MAMTA KOCHAR, DR DATE OF HEARING 13-03-2012 DATE OF PRONOUNCEMENT 13-03-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 16.06.2011 BY THE REVENUE AGAI NST AN ORDER DATED 03.02.2011 OF THE LD. CIT(A)-XII, NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW AND MERIT OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO DETERMINE THE ALLOWABILITY OF PRIOR EXPENSES OF ` `17,65,970/- AND ALLOW IT IN ANY OF THE YEARS TO WHICH IT PERTAINS TO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW AND MERIT OF THE CASE IN DELETING THE DISALLOWANCE OF ` `36,80,886/- MADE BY THE ASSESSING OFFICER U/S 41 OF THE INCOME-TAX ACT, 1961 ON ACCOUNT OF WAIVER OF LOANS. I.T.A. NO.3259/DEL./2011 2 3. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, ADD OR FORGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING NIL INCOME FILED ON 29 TH OCTOBER, 2007 BY THE ASSESSEE, IMPARTING TRAINING AND EDUCATION IN COMPUTER SOFTWARE, AFTER BEING PROCESS ED U/S 143(1) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE ISSUED U/S 143(2) OF THE AC T. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED AN AMOUNT OF ` ` 17,65,970/- ON ACCOUNT OF PRIOR PERIOD EXPENSES TOWARDS RENT AND OFFICE MAINTENANCE. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT THE CLAIM WAS RECEIVED IN T HE YEAR UNDER CONSIDERATION. HOWEVER, SINCE THE ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING, THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF THE SAID A MOUNT. 3. ON APPEAL, THE LD. CIT(A) FOLLOWING THEIR DECIS ION DATED 28.08.2009 OF THE ITAT IN THE CASE OF INDIAN RAILWAY FINANCE C ORPORATION LTD. VS. ADDL. CIT IN I.T.A. NO.1735/DEL./2006 FOR ASSESSMENT YEAR 200 2-03 CONCLUDED AS UNDER:- 5.4 I HAVE GONE THROUGH THE SUBMISSIONS FURNISHED BY THE ASSESSEE AND IT IS A FACT THAT AN EXPENDITURE HAS T O BE ALLOWED IN THE YEAR IN WHICH IT HAS GOT CRYSTALLIZED. THE ASS ESSING OFFICER HAS NOT GIVEN ANY FINDINGS REGARDING THE FACT WHETHER S UCH EXPENDITURE HAD CRYSTALLIZED DURING THE YEAR OR NOT. A SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE ITA T IN I.T.A. 1735/D/2006 FOR ASSESSMENT YEAR 2002-03 IN THE CASE OF M/S INDIAN RAILWAY FINANCE CORP. LTD. VS. ADDL. CIT, R- II DATED 28.8.2009 WHEREIN IN THE HONBLE ITAT HAS OBSERVED THAT :- WE HAVE CONSIDERED THE RIVAL SUBMISSION. THERE IS NO DISPUTE ABOUT THE ALLOWABILITY OF EXPENSES. ONLY DISPUTE IS REGARDIN G THE YEAR OF ALLOWABILITY. IF THE ASSESSING OFFICER IS OF THE V IEW THAT THE EXPENSES ARE PERTAINING TO THE PRIOR PERIOD, THE SAME ARE REQUIR ED TO BE CONSIDERED FOR THE PRIOR PERIOD AND ALLOWED IN THAT YEAR. IF IT I S FOUND THAT THE EXPENSES ARE ALLOWABLE IN THIS YEAR ON THE BASIS OF CRYSTALL IZATION OF LIABILITY, THE SAME MAY BE CONSIDERED IN THE YEAR UNDER APPEAL. T HE ASSESSEE IS, I.T.A. NO.3259/DEL./2011 3 THEREFORE, DIRECTED TO PLACE NECESSARY EVIDENCE IN SUPPORT OF CLAIM OF EXPENSES. THE ASSESSING OFFICER ON APPRECIATION OF EVIDENCE MAY DETERMINE THE YEAR OF ALLOWABILITY AND ALLOW THE SA ME IN EITHER OF THE YEAR. 5.5 FOLLOWING THE DECISION OF THE HONBLE ITAT, THE ASSESSING OFFICER IS DIRECTED TO DETERMINE OF ALLOWABILITY AN D ALLOW IN THE ANY OF THE YEARS TO WHICH IT PERTAINED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A) WHILE NONE APPEARED BEF ORE US ON BEHALF OF THE ASSESSEE. THE LD. DR SUBMITTED THAT THAT THE LD. CI T(A) WAS NOT COMPETENT TO RESTORE THE MATTER TO THE FILE OF THE AO. 5. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE. WE FIND THAT NEITHER THE AO NOR THE LD. CIT(A) ANAL YSED THE NATURE OF EXPENSES NOR RECORDED ANY FINDINGS AS TO WHEN THE LIABILITY FOR THE AFORESAID EXPENSES CRYSTALLIZED. IN TERMS OF PROVISIONS OF THE ACT, TH E LD.CIT(A) IS NOT COMPETENT TO SET ASIDE THE MATTER NOR HE ANALYSED THE NATURE O F LIABILITIES UNDER THE RELEVANT BILLS AS TO WHEN THE LIABILITY FOR AFORESA ID RENT AND MAINTENANCE EXPENSES CRYSTALLIZED.. ADMITTEDLY, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS WELL SETTLED THAT ACCRUAL OF A STATUTORY LIABILITY DEPENDS UPON THE TERMS OF THE RELEVANT STATUTE. THE QUANTIFICAT ION OR ASCERTAINMENT CANNOT POSTPONE ITS ACCRUAL TO THE EXTENT OF ADMITTED LIAB ILITY. ON THE OTHER HAND, CONTRACTUAL LIABILITY ACCRUES WHEN THE BASIS FOR IT S QUANTIFICATION IS SETTLED BY AN AGREEMENT OR OTHERWISE. AS HELD BY THE HONBLE GUJR AT HIGH COURT IN THEIR DECISION IN SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT, 213 ITR 523(GUJ) ,MERELY BECAUSE AN EXPENSE RELATES TO A T RANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLI ER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN TH E YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS TO BE REQUIRED TO BE ADJUSTED I N THE BOOKS OF ACCOUNT OF THAT I.T.A. NO.3259/DEL./2011 4 PREVIOUS YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOU S YEARS IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS THE ACCOUNTS ARE M AINTAINED ON MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTION OF THE P REVIOUS YEAR, THE HONBLE HIGH COURT OBSERVED. IT WAS FURTHER CONCLUDED THAT IT I S ACTUALLY KNOWN INCOME OR EXPENSES, THE RIGHT TO RECEIVE OR THE LIABILITY TO PAY WHICH HAS COME TO BE CRYSTALLIZED, WHICH IS TO BE TAKEN INTO ACCOUNT UND ER THE MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME O R LIABILITY, WHICH IS YET TO BE CRYSTALLIZED, CAN ONLY BE ADJUSTED AS A CONTINGENCY ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR. IN VIEW OF THE FOREGOING AND IN THE LIGHT OF VIEW TAKEN BY THE HONBLE GUJRAT HIGH COURT IN THE AFORE CITED DECISION, ESPECIALLY WHEN THE LD. CIT(A) & THE AO HAVE NOT RECORDED ANY FINDINGS AS TO WHETHER OR NOT THE LIABILITY IN RESPECT OF EACH OF THE CLAIM M ADE BY THE ASSESSEE IN THE AMOUNT OF ` 17,65,970/- ,CRYSTALLIZED IN THE YEAR UNDER CONSID ERATION, WE CONSIDER IT FAIR AND APPROPRIATE TO MODIFY THE DIRE CTIONS OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECID ING THE ISSUE RAISED IN THE GROUND NO.1 IN THE APPEAL, AFRESH IN ACCORDANCE WI TH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE RE FERRED TO ABOVE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE , BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE LIABILITY FOR EACH ITEM OF THE EXPENDITURE COM PRISING THE AMOUNT OF ` `17,65,970/- REALLY CRYSTALLIZED IN THE HANDS OF T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. WITH THESE OBSERVATIONS, GROUND NO.1 IN THE APPEA L IS DISPOSED OF. 6. GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWAN CE OF ` ` 36,80,886/- U/S 41 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT AN AMOUNT OF ` ` 36,80,886/- ON ACCOUNT OF LOANS PAYABLE BY THE ASSE SSEE WAS WAIVED BY THE RESPECTIVE CREDITORS AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. IT WAS CONTENDED BY THE ASSESSEE THAT THE AMOUNT WAS NOT TAXABLE U/S I.T.A. NO.3259/DEL./2011 5 41 OF THE ACT. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND ADDED THE AMOUNT TO THE TOTAL INCOME. 7. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF ASSESSEE IN THE FOLLOWING TERMS:- 7.1 THE ASSESSING OFFICER HAD OBSERVED THAT THE AP PELLANT HAD CREDITED THE PROFIT AND LOSS A/C BY AN AMOUNT OF ` `36,80,886/- WHICH WAS ON ACCOUNT OF WAIVER OF LOAN AND THE SAME AMOUN T WAS LATER ADJUSTED IN THE STATEMENT OF TOTAL INCOME. THE ASS ESSING OFFICER TAXED THIS AMOUNT U/S 41. THE APPELLANT ON THE OTH ER HAND HAD STATED THAT IT HAD TAKEN LOAN TO MEET SOME CAPITAL EXPENDITURE AND/ THE LOANS TAKEN WERE WAIVED BY THE CREDITORS AS MEN TIONED HEREUNDER; MR. YOGESH JAIN ` ` 1,96,000/- MR. PRADEEP GUPTA ` `4,47,706/- DR. ASHOK KR. AGARWAL ` ` 5,60,693/- MRS. DEEPA AGARWAL ` ` 19,76,486/- MR. DHAVAL GUPTA ` ` 5,00,000/- 7.2 I HAVE GONE THROUGH THE SUBMISSION GIVEN BY THE APPELLANT AND IT IS SEEN THAT SECTION 41(1) WHICH READS AS UN DER: WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN T HE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED TO AS THE FIRST MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR 7.3 THE READING OF THE ABOVE MENTIONED SECTION EXPL ICITLY STATES THAT THE AMOUNT HAS TO BE AN ALLOWANCE OR DEDUCTION WHICH HAS BEEN MADE IN THE ASSESSMENT YEAR FOR ANY PARTICULAR YEAR IS WAIVED OR THE PERSONS OBTAINS WHETHER IN CASH OR IN KIND A NY AMOUNT IN RESPECT OF THE SAME, THE SAME SHALL BE CHARGED TO I NCOME-TAX. THE LOAN RECEIVED BY THE APPELLANT HAS NEITHER BEEN CLA IMED AS A DEDUCTION OR AN ALLOWANCE BY THE APPELLANT IN ANY E ARLIER YEARS. THEREFORE, THE QUESTION OF TREATING THE SAME AS INC OME OF THE APPELLANT DURING THE CURRENT YEAR WHEN SUCH LOANS H AVE BEEN I.T.A. NO.3259/DEL./2011 6 WAIVED IS NOT LEGALLY CORRECT. THUS, THE DISALLOWA NCE OF ` ` 36,80,886/- MADE U/S 41 OF THE I.T. ACT IS HEREBY D ELETED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR MERELY SUPPO RTED THE FINDINGS OF THE AO. 9. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE. WE FIND THAT THE ENTIRE AMOUNT OF LOAN OF ` `36,80,886/- TAKEN BY THE ASSESSEE FROM THE AFORESAID FIVE CREDITORS FOR SOME CAPITAL EXPENSES WAS WAIVED BY THE RESPECTIVE CREDITORS. HOWEVER, THERE IS NOTHING TO SUGGEST THAT THESE LOANS WERE ALLOWED AS DEDUCTION IN THE PAST ASSESSMENTS. FOR INVOCATION OF THE PROVISIONS OF SEC. 41(1) OF THE ACT, IT MUST BE FIRST ESTABLIS HED THAT THE ASSESSEE HAD OBTAINED SOME BENEFIT IN RESPECT OF THE TRADING LIA BILITY WHICH WAS EARLIER ALLOWED AS A DEDUCTION. FOR THE APPLICATION OF THIS PROVISI ON, THE CONDITION PRECEDENT IS THAT THERE SHOULD BE AN ALLOWANCE OR DEDUCTION IN T HE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY I NCURRED BY THE ASSESSEE. THEN, SUBSEQUENTLY, DURING ANY PREVIOUS YEAR, IF THE CRED ITOR REMITS OR WAIVES ANY SUCH LIABILITY, THEN THE ASSESSEE IS LIABLE TO PAY TAX U NDER SECTION 41. THE WHOLE OBJECT IS TO AVOID DOUBLE BENEFIT TO THE ASSESSEE. IN THE INSTANT CASE, THE AMOUNT CLAIMED AS CAPITAL RECEIPT IS IN RESPECT TO WHICH T HERE WAS NO ALLOWANCE OR DEDUCTION CLAIMED BY THE ASSESSEE FOR THE PREVIOUS YEAR. THEREFORE, WHEN CREDITORS WAIVED THE REPAYMENT OF THE SAID AMOUNT, IT AMOUNTED TO A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT. AS THE ASSESSEE DID NOT HAVE THE BENEFIT OF ANY ALLOWANCE OR DEDUCTION IN RESPECT OF THE SAID A MOUNT, APPARENTLY ,PROVISIONS OF SECTION 41(1)(A) OF THE ACT ARE NOT ATTRACTED. IN VIEW THEREOF, ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY MATE RIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INC LINED TO INTERFERE. ACCORDINGLY, GROUND NO.2 IN THE APPEAL IS DISMISSED. 10. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.3 IN THE APPEAL, ACCORDINGLY TH IS GROUND IS DISMISSED. 11. NO OTHER SUBMISSION OR ARGUMENT WAS MADE BEF ORE US. I.T.A. NO.3259/DEL./2011 7 12. IN RESULT, APPEAL IS PARTLY ALLOWED AS INDICA TED ABOVE BUT FOR STATISTICAL PURPOSES. SD/- SD/- (DIVA SINGH) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. M/S SQL STAR INTERNATIONAL LTD., SQL STAR H OUSE, NO.8-2- 293/174/A25, ROAD NO.14, BANJARA HILLS, HYDERABAD. 2. DCIT, CIRCLE 9(1), ROOM NO.163, C.R. BUILDI NG, NEW DELHI 3. CIT CONCERNED 4. CIT(A)-XII, NEW DELHI 5. DR, ITAT,G BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT