SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 4044/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9490 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 11-12-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY BAHADUR
• Assessee Lawyers: ARVIND SONDE
• Keywords: Opportunity of being heard; Bad and doubtful debts; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH , JUDICIAL MEMBER ITA NO. 4044 /MUM/201 1 : A.Y : 2003 - 04 M/S. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA 4 TH FLOOR, CORPORATE ACCOUNTS DEPT., MSME DEVELOPMENT CENTRE, C - 11, BLOCK - G, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 (APPELLANT) PAN : AABCS3480N VS. DCIT, CIRCLE - 3(3), MUMBAI (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE RESPONDENT BY : SHRI SANJAY BAHADUR, CIT - DR DATE OF HEARING : 22/06/2017 DATE OF PRONOUNCEMENT : 15 /09/2017 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 7 , MUMBAI DATED 10.03.2011 , PERTAINING TO THE ASSESSMENT YEAR 2003 - 04 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE DCIT - 3(3), MUMBAI DATED 31.10.2008 UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. 2 ITA NO. 4044/MUM/2011 SIDBI 2. IN ITS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1 .(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER TO RE - OPEN THE ASSESSMENT U/S.147 OF THE INCOME TAX ACT, 1961 IN THE APPELLANT'S CASE AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE, PROVISIONS OF THE INCOME TAX ACT, 1961 AND THE RULES MADE THEREUNDER. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE REASSESSMENT OPENED U/S. 147 IS LEGAL AND VALID. 2.(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE CHARGING TO TAX RE COVERY OF BAD DEBTS OF RS.50,00,000/ - U/S. 41(1) AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE, PROVISIONS OF THE INCOME TAX ACT, 1961 AND THE RULES MADE THEREUNDER. (B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT SAID RECOVERY OF BAD DEBTS PERTAINS TO BAD DEBTS WRITTEN - OFF PRIOR TO THE ASSESSMENT YEAR FROM WHICH THE APPELLANT BECAME LIABLE TO PAY INCOME TAX AND HENCE THE SAME IS NOT LIABLE TO TAX U/S.41(4) IN ABSENCE OF ANY BENEFIT OF DEDUCTION CLAIMED U/S.36(1)(VII). 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT INTEREST CANNOT BE LEVIED U/S. 234D AS THE SAID SECTION IS NOT APPLICABLE FOR ASSESSMENT YEAR 2003 - 04 AND NOT DOING SO IS WRONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE, PROVISIONS OF THE INCOME TAX ACT, 1961 AND THE RULES MADE THEREUNDER. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) ALTERNATIVELY OUGHT TO HAVE HELD THAT INTEREST OF RS.17,07,486/ - CANNOT BE CHARGED U/S. 234D ON THE AMOUNT OF REFUND GRANTED PURSUANT TO ORDER GIVING EFFECT TO COMMISSIONER OF INCOME TAX (APPEALS)'S 3 ITA NO. 4044/MUM/2011 SIDBI ORDER AND NOT DOING SO IS WRONG AND CON TRARY TO THE FACTS AND CIRCUMSTANCES O THE CASE, PROVISIONS OF THE INCOME TAX ACT, 196 1 AND THE RULES MADE THEREUNDER. 3. IN THIS APPEAL, THE SUBSTANTIVE DISPUTE ARISES FROM AN ADDITION OF RS.2,15,03,988/ - MADE BY THE ASSESSING OFFICER BY INVOKING SEC. 4 1(4) OF THE ACT. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME ORIGINALLY ON 27.11.2003 DECLARING TOTAL INCOME OF RS.221,78,00,932/ - , WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT DATED 28.1.20 05 DETERMINING THE TOTAL INCOME AT RS.402,89,50,550/ - . SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED BY ISSUANCE OF A NOTICE U/S 148 OF THE ACT ON 30.3.2008, AS ACCORDING TO THE ASSESSING OFFICER CERTAIN INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. IN TH E ENSUING ASSESSMENT MADE U/S 143(3) R.W.S. 147 OF THE ACT, THE ASSESSING OFFICER MADE AN ADDITION OF RS.2,15,03,988/ - U/S 41(4) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE HAD RECOVERED BAD DEBTS OF RS.2,15,03,988/ - , AND SINCE ASSESSEE GETS DEDUCTION U/S 36(1)(VIIA) , THE RECOVERY WAS LIABLE TO BE TAXED U/S 41(4) OF THE ACT. THE STAND OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE BAD DEBTS RECOVERY IN QUESTION OF RS.2,15,03,988/ - HAS NOT BEEN ALLOWED AS DEDUCTION AS BAD DEBTS U /S 36(1)(VII) AND, THEREFORE, THERE WAS NO SCOPE FOR TAXING SUCH RECOVERY U/S 41(4) OF THE ACT. HOWEVER, THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE, AS ACCORDING TO HIM, ASSESSEE COULD NOT ESTABLISH THAT THE BAD DEBTS RECOVERED ARE OUT OF THO SE BAD DEBTS WHICH HAVE BEEN DISALLOWED; AND, 4 ITA NO. 4044/MUM/2011 SIDBI THAT THE PROVISIONS OF SEC. 36(1) AND 41(4) ARE INDEPENDENT. THEREFORE, HE MADE AN ADDITION OF RS.2,15,03,988/ - TO THE TOTAL INCOME OF THE ASSESSEE TAKING RECOURSE TO SEC. 41(4) OF THE ACT. 5. BEFORE THE CIT( A), THE PLEA OF THE ASSESSEE WAS THAT SINCE IN THE EARLIER YEARS, THE CLAIM OF BAD DEBTS HAS NOT BEEN ACCEPTED, RECOVERY OF SUCH BAD DEBTS CANNOT BE TAXED. THE CIT(A) HAS ACCEPTED THE AFORESAID PLEA IN PRINCIPLE. THE CIT(A) EXAMINED THE DETAILS OF THE IM PUGNED SUM AND WITH RESPECT TO A SUM OF RS.50,00,000/ - IN THE NAME OF M/S. POUSTIK MILK, HE HAS NOTED THE SUBMISSION OF THE ASSESSEE THAT IT RELATES TO A CLAIM OF BAD DEBT FOR THE YEAR PRIOR TO ASSESSMENT YEAR 2002 - 03, WHEN ASSESSEE WAS NOT A TAXABLE ENTIT Y. THE CIT(A) HELD THAT THIS BAD DEBT STANDS AS CLAIMED AND ALLOWED AND THEREFORE IT IS A RECOVERY , WHICH HAS BEEN RIGHTLY TAXED BY THE ASSESSING OFFICER. WITH REGARD TO THE SUMS OF RS.26,00,000/ - AND RS.75,00,000/ - PERTAINING TO M/S. MADUSUDAN LEASING AND M/S. APPLE FINANCE RESPECTIVELY, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO GO BY THE FINAL STATUS OF THESE TWO AMOUNTS AS THE ISSUE OF SUCH BAD DEBTS WAS PENDING BEFORE THE TRIBUNAL AND OBSERVED THAT IF THE CLAIM OF BAD DEBT IN THE EARLIER YEARS WA S ACCEPTED, ONLY THEN THE RECOVERY MADE DURING THE YEAR WOULD BE TAXED. SIMILARLY, WITH REGARD TO THE SUM OF RS.64,00,000/ - PERTAINING TO PREMIER PAPER BOARDS, HE OBSERVED THAT THE ASSESSEE WAS ALLOWED THE BAD DEBT IN PRECEDING YEAR AND THEREFORE THE AMOU NT NEEDS TO BE TAXED IN THIS YEAR DUE TO ITS RECOVERY. 6. IN THIS BACKGROUND, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE 5 ITA NO. 4044/MUM/2011 SIDBI REFERRED TO THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03, BEING ITA NO. 673 OF 2012 DATED 12.9.2012, WHEREIN IT HAS BEEN HELD THAT IN VIEW OF SEC. 50 OF SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA ACT, 1989, ASSESSEE WAS NOT LIABLE TO PAY ANY INCOME TAX IN RESPEC T OF ANY INCOME DERIVED BY IT FOR THE PERIOD ENDING ON 31.3.2002. IT WAS, THEREFORE, CANVASSED THAT UPTO ASSESSMENT YEAR 2002 - 03 ASSESSEE ENJOYED EXEMPTION FROM INCOME TAX AND, THEREFORE, IT COULD NOT BE SAID THAT ANY OF THE BAD DEBTS OUT OF SUM OF RS.2,1 5,03,988/ - WAS ALLOWED AS A DEDUCTION IN THE PAST YEARS. THEREFORE, ACCORDING TO THE LEARNED REPRESENTATIVE, NO AMOUNT OUT OF RS.2,15,03,988/ - COULD BE BROUGHT TO TAX IN THE INSTANT YEAR U/S 41(4) OF THE ACT. 7. PERTINENTLY, IN THE MEMO OF APPEAL, ASSESS EE HAS RAISED THE ISSUE OF RS.50,00,000/ - PERTAINING TO M/S. POUSTIK MILK, WHEREAS AN ADDITIONAL GROUND HAS BEEN RAISED WITH REGARD TO THE SUMS OF RS.64,00,000/ - , RS.26,00,000/ - AND RS.75,00,000/ - WHICH HAVE BEEN FOUND TO BE TAXABLE BY CIT(A). OSTENSIBLY, THE SAID BAD DEBTS WERE WRITTEN - OFF IN ASSESSMENT YEAR 2002 - 03. THE LEARNED REPRESENTATIVE EXPLAINED THAT THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03 WAS DATED 12.9.2012, WHICH CAME SUBSEQUENT TO THE IMPUGNED DECISION OF THE CIT(A). THE LEARNED REPRESENTATIVE POINTED OUT THAT IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT, THE BAD DEBT WRITTEN - OFF IN ASSESSMENT YEAR 2002 - 03, AND WHICH HAVE BEEN RECOVERED IN THE INSTANT YEAR, COULD ALSO N OT BE TAXED U/S 41(4) OF THE ACT AS THERE WAS NO TAX LIABILITY ON THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03 AS ITS INCOME WAS EXEMPT. THE 6 ITA NO. 4044/MUM/2011 SIDBI LEARNED REPRESENTATIVE POINTED OUT THAT THE FRESH CLAIM IS WITHIN THE FOUR CORNERS OF LAW AND, IN ANY CASE, IT HAS SPR UNG - UP AS A CONSEQUENCE OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT DATED 12.9.2012 (SUPRA) IN THE CASE OF THE ASSESSEE. THEREFORE, SUCH AN ADDITIONAL CLAIM BE ADMITTED FOR ADJUDICATION SINCE THE NECESSARY FACTS ARE ALREADY ON RECORD. 8. ON THE OTHE R HAND, THE LD. DR APPEARING FOR THE REVENUE HAS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE, BUT RELIED UPON THE ORDER OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 9. WE HAVE CONSIDERE D THE RIVAL SUBMISSIONS. SEC. 41(4) OF THE ACT PRESCRIBES THAT WHERE A DEDUCTION HAS BEEN ALLOWED IN RESPECT OF A BAD DEBT OR PART THEREOF UNDER THE PROVISIONS OF SEC. 36(1)(VII) OF THE ACT, THEN, IF THE AMOUNT IS SUBSEQUENTLY RECOVERED, SUCH AMOUNT IS LI ABLE TO BE TAXED AS INCOME OF THE YEAR IN WHICH IT IS RECOVERED. IN THE INSTANT CASE, THE ASSESSING OFFICER SOUGHT TO TAX A SUM OF RS.2,15,03,988/ - AS THE SAME REPRESENTED RECOVERY OF BAD DEBT. IN THIS CONTEXT, AT THE TIME OF HEARING, THE LEARNED REPRE SENTATIVE FOR THE ASSESSEE HAD REFERRED TO NOTE NO. 33 ANNEXED TO THE RETURN OF INCOME ORIGINALLY FILED BY THE ASSESSEE U/S 139(1) OF THE ACT, WHICH READS AS UNDER : - 33. THE ASSESSEE COMPANY SUBMITS THAT THE BAD DEBTS RECOVERED AMOUNTING TO RS.2,15,03,988 PERTAINS TO CLAIMS WHICH WERE NOT CLAIMED AS DEDUCTION U/S 36(1)(VII). HENCE SAME ARE NOT LIABLE TO TAX U/S 41(4). ACCORDINGLY THE AMOUNT HAS BEEN REDUCED FROM THE INCOME. 7 ITA NO. 4044/MUM/2011 SIDBI EVEN AT THE TIME OF THE REASSESSMENT PROCEEDINGS, THE ASSESSEE RE ITERATED THAT THE BAD DEBT S RECOVERED OF RS.2,15,03,988/ - WERE NOT CLAIMED AS DEDUCTION U/S 36(1)(VII) OF THE ACT IN THE PAST AND, THEREFORE, THE SAME COULD NOT BE TAXED U/S 41(4) OF THE ACT. BE THAT AS IT MAY, AS OF NOW, THE JUDGMENT OF THE HON'BLE BOMBA Y HIGH COURT DATED 12.9.2012 IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03 (SUPRA) SUBSISTS, WHICH HAS RULED THAT ANY INCOME, PROFITS AND GAINS RECEIVED BY THE ASSESSEE IS EXEMPT FROM INCOME TAX UPTO ASSESSMENT YEAR 2002 - 03. THE NECESSARY IMPLIC ATION IS THAT FOR THE ASSESSMENT YEAR 2002 - 03, NO INCOME HAS BEEN COMPUTED UNDER CHAPTER IV PART D - PROFITS AND GAINS OF BUSINESS OR PROFESSION; WHICH, INTER - ALIA, CONTAINS SEC. 36(1)(VII) DEALING WITH BAD DEBTS. THUS, IT COULD NOT BE SAID THAT ASSE SSEE HAS BEEN ALLOWED ANY DEDUCTION U/S 36(1)(VII) OF THE ACT ON ACCOUNT OF BAD DEBTS UPTO THE ASSESSMENT YEAR 2002 - 03. THEREFORE, UNDER THESE CIRCUMSTANCES, THE PROVISIONS OF SEC. 41(4) OF THE ACT WOULD NOT BE TRIGGERED IN THIS YEAR QUA THE IMPUGNED SUM OF RS.2,15,03,988/ - INASMUCH AS THIS AMOUNT OF BAD DEBTS RECOVERED CAN BE TAXED ONLY IF THE CORRESPONDING AMOUNT HAS BEEN ALLOWED AS DEDUCTION ON AN EARLIER OCCASION. OSTENSIBLY, THAT IS NOT THE CASE HEREIN. THEREFORE, IN OUR VIEW, THERE WAS NO JUSTIFI CATION FOR THE INCOME TAX AUTHORITIES TO HAVE ADDED THE SUM OF RS.2,15,03,988/ - U/S 41(4) OF THE ACT. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. 10. INSOFAR AS THE FRESH CLAIM MADE BY THE ASSESSEE WITH REGARD TO BAD DEBTS RECOVERED OF RS.64,00,000/ - , RS.26,00,000/ - AND RS.75,00,000/ - IS CONCERNED, THE SAME IS ARISING PRIMARILY AS A CONSEQUENCE OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT DATED 8 ITA NO. 4044/MUM/2011 SIDBI 12.9 .2012 (SUPRA). THEREFORE, THE SAME IS LIABLE TO BE ADMITTED, AND SINCE IT HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES, WE DEEM IT FIT AND PROPER TO RESTORE IT BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL EXAMINE THE CLAIM AFRESH IN ACCORDANCE WI TH LAW. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND ONLY THEREAFTER ADJUDICATE THE CLAIM AS PER LAW, KEEPING IN MIND THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT DATED 12.09.2012 (SUPRA) IN THE CASE OF ASSESSEE . 11. THE OTHER ISSUE IN THIS APPEAL IS WITH REGARD TO THE VALIDITY OF THE PROCEEDINGS INITIATED U/S 147/148 OF THE ACT, WHICH IS RENDERED ACADEMIC SINCE ASSESSEE HAS BEEN ALLOWED THE NECESSARY RELIEF ON MERITS. THEREFORE, THE SAID PL EA IS NOT BEING ADJUDICATED. 12. THE LAST PLEA OF THE ASSESSEE IS WITH REGARD TO CHARGING OF INTEREST U/S 234D OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE AND NO SPECIFIC ADJUDICATION IS REQUIRED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, A S ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 5 T H SEPTEMBER, 2017. SD/ - SD/ - ( PAWAN SINGH ) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 1 5 T H SEPTEMBER , 201 7 *SSL* 9 ITA NO. 4044/MUM/2011 SIDBI COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, E BENCH, MUMBAI 6) GUARD FILE BY ORDER ASSTT. REGISTRAR /SR. PRIVATE SECRETARY I.T.A.T, MUMBAI