ITO 2(3)(3), MUMBAI V. STERLITE PAPER LTD ( STERLITE INFRA LTD), MUMBAI

ITA 4056/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2868 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRAJIT SINGH ITA NO M A Y
• Keywords: Depreciation
• Section: 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI . . , , ! '#, $ , % BEFORE SHRI B.R.BASKARAN, AM AND SHRI AMARJIT SINGH , JM / I.T.A. NO.3865/MUM/2012 ( $ & '& / ASSESSMENT YEAR: 2008-09) M/S. STERLITE INFRA LTD. (EARLIER KNOWN AS STERLITE PAPER LTD. ) NO.1, SAI FLATS NO.55, PILLAYAR KOIL STREET, KANGAM THARAMANI, CHENNAI - 600113 / VS. INCOME TAX OFFICER 2(3)(3 ) AAYAKAR BHAWAN, M.K.ROAD, MUMBAI - 400020 / I.T.A. NO.4056/M/12 ( $ & '& / ASSESSMENT YEAR: 2008-09) ACIT 2(3) R.NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M. K.ROAD, MUMBAI - 400020 / VS. M/S. STERLITE INFRA LTD. (EARLIER KNOWN AS STERLITE PAPER LTD.) KHAUTAU BLDG, 2 ND FLOOR, SBS ROAD, BANK ST., FORT, MUMBAI - 400023 ./ ./ PAN/GIR NO. : AAFCS1424A ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 22.03.2016 !' /DATE OF PRONOUNCEMENT: 22.06.2016 ASSESSEE BY: SHRI VIMAL PUNMIYA DEPARTMENT BY: SHRI CHANDRAJIT SINGH ITA NO.3865&4056/M/12 A.Y. 2008-09 2 #$ / O R D E R PER AMARJIT SINGH, JM: THIS ORDER SHALL DISPOSED OF BOTH THE APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE ORDE R DATED 09.03.2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 6, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y.2008-09. THESE APPEALS ARE TAKEN UP TOGETHER BEING THE PARTI ES ARE THE SAME AND THE MATTER OF CONTROVERSY CAN CONVENIENTLY BE ADJUD ICATED BY A SINGLE ORDER. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- '1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.1,83,848/- U/S. 41(1) OF THE INCOME TAX ACT, 1961 TOWARDS AMOUNT PAYABLE TO RASHTRIYA ISPAT NIGAM LTD. RS.1,55,991/- AND PRITHVI CONSTRUCTION CO. RS.27,857/- ON ACCOUNT OF CONFIRMATION HAVING NOT BEEN PRODUCED AND THIS ACTION OF THE LD COMMISSIONER OF INCOME TAX (APPEALS) IS ARBITRARY, UNJUSTIFIED, UNWARRANTED AND ILLEGAL. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT LIABILITIES REFLECTED IN THE BALANCE SHEET OF THE APPELLANT COMPANY CANNOT BE PRESUMED AS CESSATION OF LIABILITIES MERELY BECAUSE THE LIABILITIES ARE OUTSTANDING FOR A LONG PERIOD OF TIME AND THE ACTION OF THE ITA NO.3865&4056/M/12 A.Y. 2008-09 3 CIT(A) IN CONFIRMING THE ADDITION WAS BASED ON SURMISES AND CONJECTURES. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ADDITION OF RS1,83,848/- U/S. 41(1) OF THE INCOME TAX ACT, 1961 IS LIABLE TO BE DELETED. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.38,30,671/- WITHOUT APPRECIATING THE FACT THAT THERE IS NO BUSINESS ACTIVITY SINCE 1997 AND THE EXPENSES WHICH HAD BEEN ALLOWED AS DEDUCTION ON ACCOUNT OF FIXED EXPENDITURE REQUIRED FOR SURVIVAL OF THE COMPANY. 2. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF HIS INCOME ON 29.09.2008 DECLARING TOTAL INCOME TO THE TUNE OF RS.23,18,828/-. THE RETURN WAS PROCESSED U/S.143(1 ) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S.142(1) AND 143(2) OF THE A CT WERE ISSUED AND SERVED UPON THE ASSESSEE. THEREAFTER THE ASSESSME NT WAS COMPLETED BY ASSESSING THE TOTAL LOSS TO THE TUNE OF RS.17,11 ,890/-. THE ASSESSING OFFICER MADE AN ADDITION U/S.41(1) OF THE ACT AS CESSATION OF LIABILITY AND THE SAID ACTION WAS CONFIRMED BY THE CIT(A), THEREFORE ITA NO.3865&4056/M/12 A.Y. 2008-09 4 THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US . SO FAR AS THE APPEAL OF THE REVENUE IS CONCERNED, THE REVENUE IS DISSATISFIED TO DELETE THE DISALLOWANCE OF RS.38,30,671/-. HENCE, THE REVENUE IS IN APPEAL ON THIS POINT BEFORE US. I.T.A. 3865/MUM/2012(ASSESSEES APPEAL):- 5. ISSUE NO.1 TO 3 ARE INTERCONNECTED THEREFORE ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS.1,83, 848/- U/S.41(1) OF THE ACT. THE ASSESSEE WAS UNDER OBLIGATION TO PAY AN AMOUNT TO THE TUNE OF RS1,55,991/- TO RASHTRIYA ISPAT NIGAM LTD. AND TO PAY AN AMOUNT OF RS.27,857/- TO PRITHVI CONSTRUCTION CO. THE SAID AMOUNT WAS OUTSTANDING IN THE BOOKS OF THE ASSESSEE IN THE PREVIOUS YEAR. THE REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE AMOUNT IN QUESTION STOOD AS LIABILITY IN THE BOOKS OF ACCOUNTS WHICH H AS NOT BEEN WRITTEN OFF AND AT THIS STAGE IT COULD NOT BE SAID THAT THE SAME HAS BEEN SEIZED OR EXIST THEREFORE ADDITION U/S.41(1) OF THE ACT IS NOT REQUIRED TO BE MADE. IN SUPPORT OF THIS CONTENTION THE ASSESSEE P LACED RELIANCE ON THE INCOME TAX OFFICER VS. AASIA BUSINESS VENTURE ( P.) LTD. [2014] 41 TAXMANN.COM 84 (MUMBAI-TRIBUNAL AND DCIT VS. ALL IED LEATHER FINISHERS (P.) LTD. [2009] 32 SOT 549 (LUKH.) AND I TO VS. SHRI DHANJAY M. PANDEY ITA NO.4320/M/10 AND ITO VS. BHAV ESH PRINTS (P.) LTD. [2011] (12 TAXMANN.COM 46) AND CIT VS. JA IN EXPORTS (P.) LTD. [2013] 35 TAXMANN.COM 540 (DELHI HC) AND CIT V S. NITIN S. ITA NO.3865&4056/M/12 A.Y. 2008-09 5 GARG [2012] 22 TAXMANN.COM 59 (GUJ)(HC) AND ITO VS. MAHARASHTRA STATE CO-OPERATIVE, CONSUMERS FEDERATION LTD. [2011 ] 13 TAXMAN ETC. HOWEVER, ON THE OTHER HAND LEARNED REPRESENTATIVE O F THE DEPARTMENT HAS RELIED UPON THE ORDER PASSED BY THE CIT(A). BE FORE DISCUSSING FURTHER IT IS NECESSARY TO ADVERT THE SECTION 41(1) OF THE ACT ON RECORD:- (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OF TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETH ER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOU NT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENE FIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSI ON OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERS ON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESS ION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEE N MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR ITA NO.3865&4056/M/12 A.Y. 2008-09 6 (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH LOSS OR EXPENDITURE WAS INCURRED B Y THE FIRST-MENTIONED PERSON OR SOME BENEFIT IN RESPECT O F THE TRADING LIABILITY REFERRED TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT A CCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AND ACCORD INGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR. [EXPLANATION 1. FOR THE PURPOSES OF THIS SUB-SECT ION, THE EXPRESSION LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILAT ERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY OF WRITING OF F SUCH LIABILITY IN HIS ACCOUNTS. 5.1 IN VIEW OF THE ABOVE SAID SECTIONS THE FOLLOWIN G THE CONDITIONS SHOULD BE FULFILLED BEFORE APPLICATION OF THE PROVI SION UNDER SECTION 41(1), R.W. EXPLANATION 1 OF THE ACT. ITA NO.3865&4056/M/12 A.Y. 2008-09 7 I) IN THE ASSESSMENT OF AN ASSESSEE ALLOWANCE OR DE DUCTION HAS BEEN MADE IN RESPECT LOSS, EXPENDITURE OR TRADING L IABILITY INCURRED BY HIM; II) ANY AMOUNT IS OBTAINED, WHETHER IN CASH OR IN A NY OTHER MANNER WHATSOEVER, IN RESPECT OF SUCH TRADING LIABI LITY BY WAY OF REMISSION OR CESSATION THEREOF; III) SUCH AMOUNT OR BENEFIT IS OBTAINED BY THE ASSE SSEE OR THE SUCCESSOR IN BUSINESS (WITH EFFECT FROM 1.4.1993); IV) SUCH AMOUNT OR BENEFIT IS OBTAINED IN A SUBSEQU ENT YEAR, WHETHER BUSINESS OR PROFESSION IN RESPECT OF WHICH THE DEDUCTION OR ALLOWANCE HAS BEEN MADE, IS IN EXISTENCE IN THAT YE AR OR NOT. V) THERE COULD BE A REMISSION OR CESSATION OF ANY T RADING LIABILITY BY A UNILATERAL ACT OF THE ASSESSEE BY WAY OF WRITI NG OFF SUCH LIABILITY IN HIS ACCOUNTS [EXPLANATION 1 TO SECTION 41(1) WIT H EFFECT FROM 01.04.1997) 5.2 NOW COMING TO THE CASE IN HAND, IT IS APPARENT THAT THE CASE OF THE ASSESSEE IS NOT WITHIN THE AMBIT OF REMISSION O R CESSATION LIABILITY EXIST UPON THE ASSESSEE WHICH IS NOT WAIVED BY THE ASSESSEE AS WELL AS THE CREDITORS. IN VIEW OF THE SAID CIRCUMSTANCES A ND RELYING UPON LAW SETTLED IN INCOME TAX OFFICER VS. AASIA BUSINESS VE NTURE (P.) LTD. [2014] 41 TAXMANN.COM 84 (MUMBAI-TRIBUNAL AND DCIT VS. ALLIED LEATHER FINISHERS (P.) LTD. [2009] 32 SOT 549 (LUKH .) AND ITO VS. ITA NO.3865&4056/M/12 A.Y. 2008-09 8 SHRI DHANJAY M. PANDEY ITA NO.4320/M/10 AND ITO VS. BHAVESH PRINTS (P.) LTD. [2011] (12 TAXMANN.COM 46) AND CIT VS. JAIN EXPORTS (P.) LTD. [2013] 35 TAXMANN.COM 540 (DELHI HC) AND CIT VS. NITIN S. GARG [2012] 22 TAXMANN.COM 59 (GUJ)(HC) AND ITO VS. MAHARASHTRA STATE CO-OPERATIVE, CONSUMERS FEDERATION LTD. [2011 ] 13 TAXMAN ETC.. WE ARE OF THE VIEW THAT THE SAID AMOUNT IS NOT REQU IRED TO BE ADDED TO THE INCOME OF ASSESSEE U/S.41(1) OF THE ACT. THERE FORE, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE R EVENUE. I.T.A. 4056/MUM/2012(REVENUES APPEAL):- 6. UNDER THIS ISSUE THE REVENUE HAS CONTESTED THE D ISALLOWANCE OF RS.38,30,671/-. THE ASSESSEE CLAIMED THE EXPENDIT URE TO THE TUNE OF RS.56,25,245/-. THE ASSESSING OFFICER WAS OF THE V IEW THAT THE BUSINESS WAS NOT RUNNING THEREFORE DISALLOWED THE E XPENDITURE TO THE TUNE OF RS.38,30,671/- WHICH HAS BEEN ALLOWED BY TH E CIT(A), THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD:- 3.3 I HAVE GONE THROUGH THE ORDER OF THE AO AND TH E SUBMISSION OF THE APPELLANT. THE REASON GIVEN BY A O FOR DISALLOWING EXPENSES IS THAT THERE IS NO BUSINESS ACTIVITY SINCE 1997. THE ASSESSEE HAS NOT GIVEN ANY JUSTIFICATION FOR INCURRING THESE EXPENSES IN THE ABSENCE OF BUSINESS ACTIVITY DURING THE ITA NO.3865&4056/M/12 A.Y. 2008-09 9 YEAR. BUT THE AO HIMSELF TAKES ABOUT TURN AND ALL OWED EXPENSES OF RS.17,94,574/-. JUST AS THE AO, ALLOWE D EXPENSES ON ACCOUNT OF INTEREST & FINANCE, DEPRECIATION, RAT E & TAXES AND AUDIT FEES TOTALING RS.17,94,594/-, THE PERSONNEL E XPENSES, ADMINISTRATIVE AND GENERAL EXPENSES (THE AO BY MIST AKE HAS WRITTEN ADVANCE & GENERAL EXPENSES AT PAGE 3 OF H IS ORDER) AND DEPRECIATION ARE ALSO INCURRED FOR THE PURPOSE OF BUSINESS OF THE COMPANY, HENCE THESE EXPENSES ARE ALLOWABLE. G ROUNDS 4 & 5 ARE ALLOWED. 6.1 ON APPRAISAL OF THE ABOVE MENTIONED FINDING, IT IS APPARENT THAT THE ASSESSING OFFICER HAS ALLOWED THE EXPENDITURE T O THE TUNE OF RS.17,94,594/- ON ACCOUNT OF INTEREST, FINANCE, DEP RECIATION, RATE AND TAXES AND AUDIT FEES WHEREAS DENIED THE ADMINISTRAT IVE AND GENERAL EXPENSES AND DEPRECIATION WHICH HAS BEEN ALLOWED BY THE CIT(A). THE SAID EXPENSES ARE IN THE NATURE OF PRESERVED AN D PROTECTED THE ASSETS OF THE COMPANY AND ACCORDING TO THE SECTION 37 OF THE ACT THE EXPENSES INCURRED TO PRESERVATION AND PROTECTED THE ASSETS OF THE COMPANY ARE LIABLE TO BE DEDUCTED. IN SUPPORT OF T HIS CONTENTION WE ALSO FOUND SUPPORT OF CIT VS. MALAYALAM PLANTATIONS LIMITED (1964) 53 ITR 140(SC) AND CIT VS. BIRLA COTTON SPINNING & WEAVING MILLS LTD. (1971) 82 ITR 166 (SC) AND CIT VS. R.B.BANSILA L ABIRCHAND FIRM (1971) 79 ITR 104 (BOM HC( AND HINDUSTAN CHEMI CAL WORKS LIMITED VS. CIT (1980) 124 ITR 561 (BOM. HC) ETC. THEREFORE, IN ITA NO.3865&4056/M/12 A.Y. 2008-09 10 VIEW OF THE SAID CIRCUMSTANCES WE ARE OF THE VIEW T HAT THE CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DO ES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDI NGLY THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE AND AGAINST THE REVEN UE 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED AND APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE , 2016. SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 22 ND JUNE, 2016 MP MP MP MP ) * +$!', -,'! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ) / BY ORDER, - & //TRUE COPY// ./# /(DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI