MAHARASHTRA STATE FINANCIAL CORPORATION, MUMBAI V. DCIT 1(2), MUMBAI

ITA 3629/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88405 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Keywords: Competent authority
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3629/MUM/2013 ASSESSMENT YEAR: 2008-09 MAHARASHTRA STATE FINANCIAL CORPORATION UNITED INDIA BUILDING, 1 ST FLOOR, FORT, MUMBAI 400 001 PAN:-AAACM 3751 F VS. DCIT-1(2) 535, AAYAKAR BHAVAN M.K. ROAD, CHURCHGATE, MUMBAI 400 021 (APPELLANT) (RESPON DENT) ASSESSEE BY : NONE REVENUE BY : SH RI AKHILENDRA YA DAV DATE OF HEARING : 18.02.2015 DATE OF ORDER : 18 .02.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE, AG AINST ORDER DATED 09.01.2013, PASSED BY LD. CIT(A)-7, MUMBAI FO R THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2008-09. 2. THE SOLE GROUND RAISED BY THE ASSESSEE IS THAT, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITIO N ON THE AMOUNT RECEIVED FROM THE BORROWERS IN ONE TIME SETTLEMENT (OTS) AMOUNTING TO RS.5,61,41,000/-. ON THE LAST DATE OF HEARING I. E. ON 14.08.2014, AT THE REQUEST OF ASSESSEE, THE CASE WAS ADJOURNED ON 18.02.2015 AND BOTH THE PARTIES WERE DULY INFORMED IN THE OPEN COU RT. HOWEVER, ON THIS DATE NON APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT ITA NO. 3629/MUM/2013 ASSESSMENT YEAR: 2008-09 2 APPLICATION HAS BEEN FILED. ACCORDINGLY, WE ARE PRO CEEDING TO DECIDE THE APPEAL AFTER HEARING THE LD. DR. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A STATE GOVERNMENT CORPORATION OF MAHARASHTRA, WHOSE PRINCIPAL BUSINES S IS FINANCING ACTIVITIES ON SHORT TERM AND LONG TERM BASIS. DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS, ON THE PERUSAL OF CLAUSE 13 D TO THE TAX AUDIT REPORT, AO NOTED THAT ASSESSEE HAS RECEIVED SUM OF RS.5,67,41,000/- FROM BORROWERS TOWARDS OTS AND THE SAME WAS NOT CRE DITED TO THE P&L ACCOUNT. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED AS UNDER:- IN SO FAR AS YOUR SPECIFIC QUERY REGARDING THE AMO UNTS RECEIVED FROM THE BORROWERS TOWARDS ONE TIME SETTLEMENT (OTS ) WE SUBMIT AS UNDER:- A. THE CORPORATION HAD INTRODUCED THE OTS SCHEME FOR SETTLEMENT OF NON-PERFORMING ASSETS (NPA) ACCOUNTS. B. UNDER THE SAID SCHEME THE BORROWER HAS TO DEPOSIT A CERTAIN AMOUNT UPFRONT WITH THE APPLICATION FOR OTS IN TERM S OF THE SCHEME. C. ON RECEIPT OF UPFRONT AMOUNT AND THE RELEVANT DOCUM ENTS, SUCH APPLICATION ARE PLACED FOR APPROVAL BEFORE THE COMPETENT AUTHORITY. D. FURTHER, SOME OF THE BORROWERS PAID THE AMOUNT ON P IECEMEAL BASIS ON APPROVAL OF THE OTS. E. THE UPFRONT AMOUNT RECEIVES AS WELL AS THE AMOUNTS RECEIVED ON PIECEMEAL BASIS ARE CREDITED TO AS SUSPENSE ACC OUNT CREATED FOR THIS PURPOSE AND SHOWN UNDER SCHEDULE 6 -OTHER LIABILITIES OF THE STATEMENT OF ACCOUNTS. F. MAJORITY OF THE OTS APPLICATIONS ARE FOR SETTLEMENT OF ACCOUNTS WHICH COMPRISES MAINLY OF PRINCIPAL OUTSTANDING AMO UNT. HENCE DESPITE FOLLOWING CASH SYSTEM OF ACCOUNTS, TH E AMOUNTS RECEIVED DO NOT PARTAKE THE NATURE OF INCOME. ITA NO. 3629/MUM/2013 ASSESSMENT YEAR: 2008-09 3 HOWEVER, THE AO REJECTED THE ASSESSEES CONTENTION ON THE GROUND THAT RECEIPT OF MONEY FROM BORROWERS TOWARDS OTS PARTAKE S THE CHARACTER OF INCOME. FURTHER, THE ASSESSEE IS FOLLOWING CASH SYS TEM OF ACCOUNTING THEREFORE, THE ASSESSEE SHOULD HAVE INCLUDED THE SA ID MONEY RECEIVED FROM THE CUSTOMERS AS ITS INCOME. ACCORDINGLY, HE A DDED THE SAID SUM TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE LD. CIT(A), THE ASSESSEE AFTER REITER ATING THE SAME SUBMISSION CATEGORICALLY BROUGHT ON RECORDS THAT TH E MAJORITY OF THE OTS APPLICATIONS FOR THE SETTLEMENT OF ACCOUNTS MAINLY COMPRISED OF PRINCIPAL OUTSTANDING AMOUNT. THE ASSESSEE HAS APPORTIONED TH E INTEREST PORTION AND ADDED IT TO THE INCOME OF THE CORPORATION, HOWE VER, THE PRINCIPAL AMOUNT HAS BEEN APPORTIONED TOWARDS LOAN AND ADVANC ES OF THE ASSESSEE. OUT OF THE SAID AMOUNT ONLY THE INTEREST COMPONENT IS TAXABLE AND NOT THE PRINCIPAL AMOUNT. THE ASSESSEES DETAIL ED SUBMISSION HAS BEEN INCORPORATED BY THE LD. CIT(A) AT PAGES 3 AND 4 OF THE APPELLATE ORDER. HOWEVER, THE LD. CIT(A) WITHOUT ASSIGNING AN Y REASON HAS CONFIRMED THE ACTION OF THE AO IN THE FOLLOWING MAN NER:- 4.3 I HAVE CONSIDERED THE AOS ORDER AS WELL AS TH E APPELLANTS SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT THE RE IS NO FORCE IN APPELLANTS REQUEST. I AM COMPLETELY CONVINCED W ITH THE AOS REASONS GIVEN BY THE AO, IN THE ORDER AS CATEGORICA LLY DELIBERATED BY THE AO IN PARA-4 OF THE ASSESSMENT ORDER, WHEREI N THE AO ASSIGNED HIS REASONS FOR SUCH DISALLOWANCE. I AM CO MPLETELY IN AGREEMENT WITH THE AOS FINDINGS AND HENCE THE ADDI TIONS SO MADE IS CONFIRMED. THUS, THIS GROUND OF APPEAL IS D ISMISSED. 5. AFTER HEARING THE LD. DR AND ALSO ON THE PERUSAL OF THE IMPUGNED ORDER, IT IS SEEN THAT ASSESSEES MAIN BUSINESS IS TO PROVIDE SHORT TERM AND LONG TERM FINANCING TO VARIOUS PARTIES. THE AS SESSEE HAD INTRODUCED OTS SCHEME FOR SETTLEMENT OF NON-PERFORMING ASSETS (NPA). UNDER THE SAID SCHEME THE BORROWER HAS TO DEPOSIT CERTAIN AMO UNT OF UP FRONT WITH ITA NO. 3629/MUM/2013 ASSESSMENT YEAR: 2008-09 4 THE APPLICATION OF OTS IN THE TERMS OF THE SCHEME W HICH IS TO BE APPROVED BY THE COMPETENT AUTHORITY OF THE CORPORAT ION. THE ENTIRE MONEY RECEIVED IS CREDITED TO SUSPENSE ACCOUNT CR EATED FOR THIS PURPOSE. THE ASSESSEE HAS CATEGORICALLY APPORTIONED THE OTS AMOUNT INTO TWO PARTS, INTEREST PORTION AND PRINCIPAL PAYM ENT, WHICH HAS BEEN APPROPRIATED TOWARDS LOANS AND ADVANCES. THE APPROP RIATION OF INTEREST COMPONENT HAS BEEN OFFERED AS INCOME AND THE PRINCI PAL AMOUNT HAS BEEN APPROPRIATED TO LOANS AND ADVANCES, BECAUSE TH E SAME IS NOT TAXABLE. ON THESE FACTS, WE ARE UNABLE TO UNDERSTAN D AS TO HOW THE PRINCIPAL AMOUNT APPROPRIATED CONSTITUTES INCOME OF THE ASSESSEE. IN THE CASE OF FINANCING, ONLY THE INTEREST ELEMENT PARTAK ES THE CHARACTER OF THE INCOME AND NOT THE PRINCIPAL AMOUNT WHICH IS PAID B ACK BY THE BORROWER. SINCE THIS VITAL ASPECT HAS NOT BEEN PROP ERLY DEALT OR CONSIDERED BY THE LD. CIT(A), THEREFORE, WE ARE OF THE OPINION THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE L D. CIT(A) TO DEAL AND DECIDE THE ISSUE AFTER CONSIDERING THE ASSESSEES SUBMISSION MATERIAL PLACED ON RECORD AND ALSO IN ACCORDANCE WITH THE PR OVISIONS OF LAW. WHILE DOING SO THE LD. CIT(A) WILL PROVIDE DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF FEBRUARY, 2015. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18.02.2015 ITA NO. 3629/MUM/2013 ASSESSMENT YEAR: 2008-09 5 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.