The ITO, Ernakulam V. Late Smt. Khairunnisa Ebrahim rep by L/hrs (Prop) Anna Sea Foods, Ernakulam

ITA 340/COCH/1980

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7313 (ITAT-COCHIN)
• Duration Of Justice: 36 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Next Hearing Date: 07-02-2017
• Assessment Year: 1976-1977
• Appeal Filed On: 17-07-1980
• Court: TRIBUNAL
• Keywords: Question of law; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER I.T.A. NO. 340 /COCH/ 1980 ASSESSMENT YEAR : 1976 - 77 I.T.O., WARD - 1, MATTANCHERRY. VS. LATE SMT. KHAIRUNNISA IBRAHIM BY L/HRS (PROP.) ANNA SEA FOODS, KOCHANGADI, COCHIN-2. ( REVENUE - APPELLANT) ( ASSESSEE - RESPONDENT) REVENUE BY SHRI A. DHANARA J, SR. DR ASSESSEE BY SHRI MATHEW JOSEPH, CA DATE OF HEARING 07 / 0 2 / 201 7 DATE OF PRONOUNCEMENT 08 TH / 0 2 /201 7 O R D E R PER GEORGE GEORGE K.,JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE WAS RESTORED TO THE T RIBUNAL BY THE JUDGMENT OF THE HONBLE HIGH COURT DATED 25-05-2016 IN I.T.A. N O. 178 OF 2010. 2. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A PROPRIETRIX OF ANNA SEA FOO DS, WHICH IS ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORT OF SEAFOOD. THE ASSESSEE WAS ALSO I.T.A. NO.340COCH/1980 2 UNDERTAKING BUSINESS FOR INDIA TOBACCO COMPANY (ITC ). THE ASSESSEE HAD TAKEN ADVANCE FROM ITC FROM FINANCIAL YEAR 1972-73 ONWARD S. THE OUTSTANDING AMOUNT DUE TO ITC AS ON 31/03/1976 WAS RS.10,17,371 /-. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT DATED 01/03/1976 WITH ITC . BASED ON THIS AGREEMENT, THE ASSESSEES CANNING PLANT WAS TAKEN OVER BY ITC FOR A PERIOD OF FIVE YEARS WHICH WAS RENEWABLE FOR A FURTHER PERIOD OF TWO YEARS WITHOUT PAYMENT OF RENT AND THE AMOUNT OF RS.10,17,371/- DU E TO ITC WAS WAIVED. 3. FOR THE ASSESSMENT YEAR 1976-77, ASSESSMENT WAS COMPLETED BY ORDER DATED 18/08/1979. THE ASSESSING OFFICER HELD THAT THE AM OUNT OF RS.10,17,371/- WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE U/S. 41(1) OF THE I.T. ACT. ACCORDING TO THE ASSESSING OFFICER, THE AMOUNT DUE TO ITC WAS TR ADING LIABILITY WHICH WAS ALLOWED IN THE PREVIOUS YEARS AND BY VIRTUE OF AGRE EMENT DATED 01/03/1976, THE LIABILITY HAD CEASED TO EXIST. HENCE IT WAS CONCLU DED BY THE ASSESSING OFFICER THAT THE SUM REPRESENTED THE STATUTORY INCOME LIABL E TO BE ASSESSED U/S. 41(1) OF THE ACT. 4. ON APPEAL TO THE FIRST APPELLATE AUTHORITY, TH E CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE REQUIREMENT OF SECTION 41( 1) OF THE ACT WAS NOT SATISFIED IN THIS CASE AND ALLOWED THE APPEAL OF THE ASSESSEE . I.T.A. NO.340COCH/1980 3 5. ON FURTHER APPEAL TO THE TRIBUNAL, IT WAS CONTE NDED BY THE REVENUE THAT EVEN ASSUMING THAT SECTION 41(1) WAS NOT ATTRACTED, THE AMOUNT BECOMES INCLUDIBLE IN THE TOTAL INCOME BY VIRTUE OF SECTION 28(IV) OF THE I.T. ACT AS THE BENEFIT HAS ARISEN TO THE ASSESSEE DURING THE COURSE OF THE ASS ESSEES BUSINESS. THE TRIBUNAL DECIDED BOTH THE ISSUES AGAINST THE REVENUE AND REJ ECTED THE APPEAL OF THE DEPARTMENT. 6. ON REFERENCE BY THE REVENUE, THE HONBLE HIGH COURT VIDE ITS JUDGMENT DATED 24/06/1992 IN I.T.R. NO. 525/1985 DIRECTED TH E TRIBUNAL TO CONSIDER BOTH THE ISSUES AFRESH. IN PURSUANT TO THE JUDGMENT OF THE HONBLE HIGH COURT, THE TRIBUNAL VIDE ITS ORDER DATED 10/09/2009 REJECTED T HE APPEAL OF THE REVENUE. THE TRIBUNAL HELD THAT THE TAX EFFECT IN THIS CASE IS BELOW THE PRESCRIBED LIMIT AND MOREOVER THE DEPARTMENT HAS NOT BROUGHT THE LEGAL R EPRESENTATIVE ON RECORD. THE TRIBUNAL DID NOT DECIDE THE ISSUE ON MERITS. 7. AGAINST THE ORDER OF THE TRIBUNAL DATED 10/09 /2009, THE REVENUE FILED FRESH APPEAL TO THE HONBLE HIGH COURT. THE HONBLE HIGH COURT IN ITS JUDGMENT DATED 25/05/2016 IN I.T.A. NO. 178/2010 DIRECTED THE TRIB UNAL TO DECIDE THE QUESTION OF LAW ON MERITS. THE RELEVANT FINDING OF THE HON BLE HIGH COURT READS AS FOLLOWS: 10. IN THE FACTS AND CIRCUMSTANCES, APART FROM SET TING ASIDE ANNEXURE C ORDER, WE FURTHER REMAND THE MATTER TO THE APPELLATE TRIBU NAL REITERATING OUR STAND. I.T.A. NO.340COCH/1980 4 THE LEARNED TRIBUNAL OUGHT TO ANSWER THE QUESTIONS OF LAW INCORPORATED IN PARAGRAPH 1 OF ANNEXURE C ORDER. 8. PURSUANT TO THE JUDGMENT OF THE HONBLE HIGH C OURT, THIS APPEAL WAS HEARD BY THE TRIBUNAL ON 07 TH FEBRUARY, 2017. THE QUESTION OF LAW I AM REQUIRED TO ANSWER NOW AS PER THE JUDGMENT OF THE HONBLE HIGH COURT DATED 25/05/2016 READS AS FOLLOWS: (1) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN HOLDING THAT THE SUM IS NOT ASSESSABLE FOR THE ASSESSMENT YEAR 1976-77? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN HOLDING THAT NO BENEFIT CAN BE SAID TO H AVE ARISEN TO THE ASSESSEE UNDER THE AGREEMENT? 9. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FOR INVOKING SECTION 41 OF THE I.T. ACT, TWO CONDITIONS ARE REQUIRED TO BE SATISFIED. FIRSTLY, THERE SHOULD BE AN ALLOWANCE OR DEDUCTION IN THE EARLIER ASSESSMENT YEARS TOWARDS LOSS, EXPENDITURE OR TRADING LIABILITY INCU RRED BY THE ASSESSEE. SECONDLY, DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE H AD OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER AN AMOUNT IN RESP ECT OF SUCH LOSS, EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. FIRST AND FOREMOST , THE REVENUE HAS NOT PROVED, IN THE EARLIER YEARS THAT THE ASSESSEE HAS DEBITED IN ITS P&L ACCOUNT ANY LOSS OR EXPENDITURE OF THE AMOUNTS RECEIVED FROM ITC. ON T HE CONTRARY, THE AMOUNTS RECEIVED FROM ITC ARE ADVANCE/LOANS AND THERE IS NO THING ON RECORD TO SUGGEST THAT THESE AMOUNTS WERE ALLOWED AS A DEDUCTION IN P &L ACCOUNT IN THE PREVIOUS I.T.A. NO.340COCH/1980 5 YEARS. EVEN ASSUMING THAT THE AMOUNT OUTSTANDING TO ITC IS A TRADING LIABILITY, THE SAME HAVE NOT CEASED TO EXIST DURING THE RELEV ANT ASSESSMENT YEAR SINCE THE AMOUNT FOREGONE BY ITC WAS IN CONSIDERATION OF USING THE ASSESSEES CANNING PLANT FOR A PERIOD OF SEVEN YEARS. THEREFOR E, ACCORDING TO ME, BOTH THE CONDITIONS REQUIRED U/S. 41 DOES NOT HAVE APPLICATI ON AND HENCE, THE FIRST QUESTION REFERRED ABOVE IS DECIDED AGAINST THE REVE NUE AND IN FAVOUR OF THE ASSESSEE. 9.2 THE SECOND ISSUE RAISED BY THE REVENUE IS WHET HER SECTION 28(IV) HAS APPLICATION IN THE FACTS OF THE INSTANT CASE. AS M ENTIONED EARLIER, THE ASSESSEE HAS NOT EARNED ANY BENEFIT DURING THE YEAR. THE AS SESSEE HAD ENTERED INTO AN AGREEMENT WITH ITC AS ON 01/03/1976. IN THE SAID A GREEMENT, THE ASSESSEE HAD PERMITTED ITC TO UTILIZE THE CANNING PLANT FOR A TE RM OF SEVEN YEARS IN VIEW OF THE AMOUNT PAYABLE BY HER TO ITC. THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER HAS NOT MENTIONED ANYTHING ABOUT THE CONSIDERATION FOR THE RELINQUISHMENT OF THE ADVANCE FROM ITC. THE ITC WHICH WOULD HAVE BEE N FULLY AWARE OF THE SUBSTANTIAL SUM DUE TO IT FROM THE ASSESSEE, THE UT ILIZATION OF THE PLANT BY ITSELF FOR A PERIOD OF SEVEN YEARS WOULD BE ADEQUATE CONS IDERATION FOR RELINQUISHMENT OF THE AMOUNT OF RS.10,17,371/-. THE REVENUE DOES NOT HAVE A CASE THAT THE UTILIZATION OF ASSESSEES PLANT FOR SEVEN YEARS BY ITC IS NOT AN ADEQUATE CONSIDERATION FOR WAIVER OF RS.10,17,371/-. IN THE ABSENCE OF CLAIM BY THE REVENUE OF INADEQUATE CONSIDERATION FOR WAIVER OF T HE LIABILITY OF RS.10,17,371/-, I.T.A. NO.340COCH/1980 6 IT CANNOT BE STATED THAT THE ASSESSEE HAS GAINED AN Y BENEFIT AS PER THE PROVISIONS OF SECTION 28(IV) OF THE I.T. ACT. IT I S ORDERED ACCORDINGLY. 10. I N THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 8 TH -02-2017. SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER PLACE: KOCHI DATED: 8 TH FEBRUARY, 2017 GJ COPY TO: 1. LATE SMT. KHAIRUNNISA IBRAHIM, BY L/HRS (PROP.) ANNA SEA FOODS, KOCHANGADI, COCHIN-2. 2. THE INCOME TAX OFFICER, WARD-1,MATTANCHERRY, 3. THE COMMISSIONER OF INCOME-TAX(APPEALS),KOCHI 4. THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN