BRIJESH THAKKAR PROP. THAKKER & THAKKER, MUMBAI V. ACIT 11(2), MUMBAI

ITA 3840/MUM/2008

• Counselvise Citation: 384019914 RSA 2008
• Duration Of Justice: 2 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 02-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: SANJIV M SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 3840/MUM/2008 (ASSESSMENT YEAR: 2004-05) SHRI BIJESH THAKKAR ACIT, WARD 11(2) THAKKAER & THAKKER, 20TH FLOOR AAYAKAR BHAVAN, M.K. ROAD NIRMAL, NARIMAN POINT VS. MUMBAI 400020 MUMBAI 400021 PAN - AAAPT 7758 G APPELLANT RESPONDENT APPELLANT BY: SHRI SANJIV M. SHAH RESPONDENT BY: SHRI G.P. TRIVEDI O R D E R PER R.S. SYAL, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 18.02.1008 IN RELATION TO A.Y. 2004-05. I T IS A RECALLED MATTER IN AS MUCH AS THE EARLIER EX PARTE PASSED BY THE ITAT WAS SUBSEQUENTLY RECALLED VIDE ITS ORDER DATED 1 ST JANUARY 2010. 2. THE ONLY GRIEVANCE IN THIS APPEAL IS AGAINST CON FIRMATION OF ADDITION OF ` 80,08,497/-. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE IS PRACTISING ADVOCATE. IN THE RETURN FILED FOR THE YEAR UNDER CO NSIDERATION ASSESSEE OFFERED BANK INTEREST OF ` 24,097/-. THE A.O. NOTED THAT IN THE IMMEDIATE PRECEDING YEAR ASSESSEE HAD OFFERED INTEREST INCOME OF ` 80,08,497/- FROM CERTAIN PARTIES LISTED ON PAGE NO. 12 OF THE ASSESS MENT ORDER. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE INTEREST WAS N OT OFFERED FOR TAXATION IN ITA NO. 3840/MUM/2008 SHRI BIJESH THAKKAR 2 THIS YEAR DESPITE THE FACT THAT THE ADVANCES WERE S TILL CONTINUING, THE ASSESSEE SUBMITTED THAT IT WAS FOLLOWING CASH SYSTE M TO ACCOUNT FOR THE PROFESSIONAL INCOME AND MERCANTILE SYSTEM IN RESPEC T OF INTEREST INCOME. IT WAS EXPLAINED THAT THE ASSESSEE RECALLED LOANS FROM THE BORROWING PARTIES BUT THE CHEQUES ISSUED WERE BOUNCED AND LEGAL ACTIO N WAS TAKEN AGAINST THE PARTIES, WHICH WAS PENDING WITH THE COURT. NOT CONV INCED WITH ASSESSEES SUBMISSION, THE A.O. MADE ADDITION OF ` 80,08,497/- BEING INTEREST INCOME AT THE LEVEL OF THE EARLIER YEAR. ASSESSEE WAS UNSU CCESSFUL BEFORE THE LEARNED CIT(A) AS WELL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSEE ADVANCED THESE LOANS IN EARLIER YEARS FROM WHICH INTEREST INCOME WAS SHOWN ON ACCRUAL BASIS. CERTAIN DISPUTES AROSE WITH THESE PARTIES AS A RESU LT OF WHICH THE ASSESSEE RECALLED THE LOANS SO ADVANCED. THE CHEQUE S ISSUED BY THE PARTIES WERE BOUNCED. ASSESSEE GAVE LEGAL NOTICE TO THESE PARTIES ON 18 TH MARCH 2004, COPY OF WHICH IS AVAILABLE ON PAGE 138 OF THE PAPER BOOK. THEREAFTER THE ASSESSEE TOOK UP PROCEEDINGS AGAINST THESE PARTIES UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT. COPI ES OF SUCH PETITIONS FILED IN MAY 2004 ARE AVAILABLE ON PAGE 156 OF THE PAPER BOOK. IN REPLY TO ASSESSEES NOTICES, THESE PARTIES, THROUGH ADVOCATE , ACCEPTED THAT THE DISPUTE WAS GOING ON. EVENTUALLY THE MATTER WAS TAK EN TO THE HON'BLE BOMBAY HIGH COURT. COPY OF THE JUDGEMENT IS AVAILAB LE ON PAGE 78 ONWARDS OF THE PAPER BOOK. AS PER THIS JUDGEMENT TH ERE WAS CONSENT OF THE PARTIES AND THE ORDER WAS PASSED ACCORDINGLY BY WHICH A COMPOSITE AMOUNT OF ` 8 CRORES + INTEREST THEREON WAS AGREED TO BE PAID B Y THESE PARTIES IN 18 EQUAL MONTHLY INSTALMENTS COMMENCING FROM 05.03.2006. THESE FACTS INDICATE THAT DURING THE YEAR IN QUESTI ON LEGAL DISPUTE WAS GOING ON BETWEEN THE PARTIES FOR THE RECOVERY OF TH E SUM ADVANCED IN AS MUCH AS THE CHEQUES GIVEN BY THE PARTIES WERE BOUNC ED. IN SUCH A SITUATION THE QUESTION ARISES AS TO WHETHER INTERES T INCOME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE UNDER THE MERCANTILE S YSTEM OF ACCOUNTING. THERE IS NO DISPUTE THAT AN INCOME UNDER SUCH SYSTE M ACCRUES WHEN A RIGHT TO RECEIVE SUCH INCOME IS FINALLY ACQUIRED. I F THE VERY RIGHT TO RECEIVE ITA NO. 3840/MUM/2008 SHRI BIJESH THAKKAR 3 SUCH INCOME IS IN DISPUTE, THE INCOME CANNOT BE SAI D TO HAVE ARISEN. THE HON'BLE P&H HIGH COURT IN THE CASE OF CIT VS. FEROZ PUR FINANCE LIMITED (1980) 124 ITR 619 (P&H) HAS HELD THAT INTEREST DOE S NOT ACCRUE IN DEBTS WHICH ARE DOUBTFUL OR RECOVERY. THE SLP FILED BY TH E REVENUE AGAINST THIS JUDGEMENT CAME TO BE DISMISSED VIDE (1983) 144 ITR (ST.) 50. SIMILAR VIEW WAS TAKEN BY THE HON'BLE M.P. HIGH COURT IN CIT VS. M.P. FINANCE CORPORATION (1996) 136 CTR 312 (M.P.). IN THE LIKE MANNER THE HON'BLE MADRAS HIGH COURT IN CIT VS. MOTOR CREDIT CO. P. LT D. (1981) 127 ITR 572 (MAD) HAS ALSO HELD THAT INTEREST CANNOT BE CHARGED TO TAX WHEN THE DEBT IS DOUBTFUL OF RECOVERY. THE SLP AGAINST THE HON'BL E MADRAS HIGH COURT JUDGEMENT FILED BY THE REVENUE WAS ALSO DISMISSED A S REPORTED IN (1984) 159 ITR (ST.) 93. THESE JUDGEMENTS CLEARLY INDICATE THAT WHEN THE DEBT IS ITSELF DOUBTFUL OF RECOVERY, THERE CANNOT BE ANY QU ESTION OF ACCRUAL OF INTEREST ON SUCH DEBT IN THE MERCANTILE SYSTEM OF A CCOUNTING. 5. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS NOTICED THAT IN THE INSTANT YEAR THE DEBTS ADVANCED BY THE ASSESSEE WER E DOUBTFUL OF RECOVERY DUE TO THE DISPUTE GOING ON. THE CHEQUES ISSUED BY THESE PARTIES WERE ALSO BOUNCED AND THE MATTER WAS TAKEN TO THE COURT. IT WAS ONLY IN 2006 THAT THE HON'BLE BOMBAY HIGH COURT PASSED CONSENT D ECREE DIRECTING THE PARTIES TO PAY COMPOSITE AMOUNT OF ` 8 CRORES WITH INTEREST. IT IS A MATTER OF RECORD THAT WHEN THE DISPUTE WAS SETTLED AND THE ASSESSEE RECEIVED THE AMOUNT OF INTEREST, THE SAME WAS OFFERED FOR TAXATI ON. IT CAN BE NOTICED FROM THE ASSESSMENT ORDER PASSED FOR A.Y. 2008-09 T HAT THE ASSESSEE OFFERED A SUM OF ` 80,08,497/- AS INTEREST INCOME PERTAINING TO THE A. Y. 2004-05 UNDER CONSIDERATION. THE ASSESSING OFFICER ASSESSED SUCH INCOME ON PROTECTIVE BASIS IN THE SAID LATER YEAR. THUS IT IS EVIDENT THAT THE INTEREST INCOME DID NOT ACCRUE TO THE ASSESSEE IN THE YEAR IN QUESTION AND IT WAS ONLY IN THE PREVIOUS YEAR TO THE ASSESSM ENT YEAR 2008-09 THAT WHEN THERE WAS SETTLEMENT AND THE ASSESSEE RECEIVED THE INTEREST IT WAS OFFERED FOR TAXATION. IN SUCH A SITUATION WE HOLD T HAT THE PROTECTIVE ASSESSMENT MADE FOR THE SAID SUM OF ` 80,08,479/- BE MADE SUBSTANTIVE IN A.Y. 2008-09, AS A RESULT OF WHICH THE ADDITION SO SUSTAINED IN THE ITA NO. 3840/MUM/2008 SHRI BIJESH THAKKAR 4 INSTANT YEAR DESERVES AND IS HEREBY ORDERED TO BE D ELETED. THE IMPUGNED ORDER IS SET ASIDE ON THIS ISSUE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH MAY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XI, MUMBAI 4. THE CIT XI, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.