SARYU PROPERTIES & HOTELS P. LTD, MUMBAI V. ACIT CC 29, MUMBAI

ITA 4246/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0268 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOMANATH S UKKALIDR
• Assessee Lawyers: K R LAKSHMI NARAYANAN
• Keywords: Bad and doubtful debts
• Section: 143(3); 148

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./4246/MUM/2014, /ASSESSMENT YEAR: 2009-10 SARYU PROPERTIES & HOTELS P.LTD. PLOT NO.25, B-WING, 1ST FLOOR, GIRNAR, PALI MALA ROAD, PALI HILL, BANDRA (W) MUMBAI-400 050. PAN:AAACS 6983 M VS. ACIT CC-29 AAYAKAR BHAVAN MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SOMANATH S. UKKALI-DR ASSESSEE BY: SHRI K.R. LAKSHMINARAYANAN / DATE OF HEARING: 31.05.2017 / DATE OF PRONOUNCEMENT: 09.08.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED,16/4/2014,OF CIT(A)-40, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY DERIVING INCOME FRO M RUNNING OF HOTEL AND REAL ESTATE BUSINESS,FILED ITS RETURN OF INCOME ON 29/09/2009 D ECLARING TOTAL INCOME OF RS.6.79 CRORES. THE ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT U /S. 143(3) ON 10/11/2001,DETERMINING ITS INCOME AT RS.7.06 CRORES.LATER ON,A NOTICE U/S. 148 WAS ISSUED AS THE AO WAS OF THE OPINION THAT TAXABLE INCOME HAD ESCAPED ASSESSMENT. THE AO OBSERVED THAT IN THE BALANCE SHEET THE ASSESSEE HAD SHOWN AN OUTSTANDING LOAN OF RS.60 LAKHS FROM M/S. WISEMAN FINANCE PVT. LTD.(WFPL).WHILE COMPLETING THE ASSESSMENT OF WFPL,WHO WAS ALSO ASSESSED BY THE SAME AO,IT WAS OBSERVED THAT WFPL HAD WRITTEN OFF R S.60 LAKHS AS BAD DEBTS FOR THE YEAR ENDED ON 31/3/2009.CONSIDERING THESE FACTS THE AO H ELD THAT LIABILITY OF THE ASSESSEE TO REPAY THE AMOUNT OF LOAN TO WFPL HAD CEASED TO EXIS T ON 31/3/2009, THAT ASSESSEE WOULD SHOW THE SAME AS A LIABILITY IN ITS BOOKS OF ACCOUN T,THAT THE DISPUTED AMOUNT WAS NO LONGER RETURNABLE TO THE LENDER,THAT IT WAS A CLEAR CASE O F CESSATION OF LIABILITY.IN RESPONSE TO NOTICE ISSUED U/S. 148 OF THE ACT THE ASSESSEE CONTENTED T HAT WFPL HAD WRITTEN OFF THE LOAN AT ITS OWN VOLITION,THAT THE ASSESSEE STILL OWED THE AMOUN T TO EFPL AND HAD NOT WRITTEN OFF THE SAME IN ITS OWN BOOKS OF ACCOUNT.FINALLY,HE MADE AN ADDI TION OF RS.60 LAKHS TO THE INCOME OF THE ASSESSEE OBSERVING THAT THE LIABILITY TO PAY BACK THE MONEY TO LENDER HAD CEASED TO EXIST.HE COMPLETED THE ASSESSMENT U/S.143(3) R.W.S. 147 OF T HE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.7.69 CRORES. 4246/M/14 SARYU PROPERTIES & HOTELS PVT.LTD. 2 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).IT MADE ELABORATE SUBMISS IONS BEFORE HIM AND RELIED UPON CERTAIN CASE LAWS.AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THAT RS.60 LAKHS WERE OUTSTANDING FOR A LONG TIME(FROM AY.1998-99),THAT THE LOAN WAS GIVEN BY AN ASSOCIATED CONCERN, THAT BOTH THE COMPANIES BELONGED TO SAME GROUP I.E. RAHE JA GROUP, THAT PARTITION OF THE GROUP ENTITIES TOOK PLACE IN THE YEAR 1997-98,THAT THE ME MBERS OF THE FAMILY TOOK CONTROL OVER VARIOUS COMPANIES OF THE GROUP,THAT NO INTEREST HA D BEEN PAID BY THE ASSESSEE TO WFPL, THAT THE LENDER HAD ALSO NOT CHARGED ANY INTEREST FROM T HE ASSESSEE,THAT WFPL HAD WRITTEN OFF THE AMOUNT IN ITS BOOKS OF ACCOUNT UNDER THE HEAD IRREC OVERABLE,THAT THE AMOUNT IN QUESTION WAS NOT PAYABLE TO WFPL,THAT AFTER CONFIRMING THE RELE VANT FACTORS THE AO HAD CONFRONTED THE ASSESSEE AND REQUIRED IT TO EXPLAIN AS TO WHY RS.60 LAKHS SHOULD NOT BE TREATED AS ITS INCOME FOR THE YEAR UNDER CONSIDERATION,THAT TILL THE DATE OF DISPOSAL OF APPEAL THE ASSESSEE HAD NOT PAID PRINCIPAL AMOUNT OR INTEREST TO WFPL.HE FURTH ER OBSERVED THAT THE AO HAD NOT APPLIED THE PROVISION OF SECTION 41(1)OR SECTION 28(IV) OF THE ACT,THAT THE AO HAD HELD THAT THE ARRANGEMENT WAS IN THE NATURE OF A COLOURABLE DEVIC E THAT WAS EMPLOYED TO REDUCE THE TAX LIABILITY,THAT THE ARGUMENT ADVANCED BY THE ASSESSE E STATING THAT AMOUNT WAS PAYABLE TO WFPL WAS NOT ACCEPTABLE,THAT THE LENDER ITSELF HAD WRITTEN OFF THE AMOUNT,THAT THE MOMENT WFPL HAD WRITTEN OFF THE AMOUNT IN ITS BOOKS THE CH ARACTER OF THE RECEIPT HAD CHANGED FROM LOAN TO INCOME,THAT THE ASSESSEE SHOULD HAVE VOLUNT ARILY OFFERED THE DISPUTED AMOUNT AS INCOME IN ITS HANDS,THAT AFTER WRITING OFF THE AMOU NT BY WFPL WAS BROUGHT TO THE NOTICE OF THE ASSESSEE BY THE AO IT SHOULD HAVE OFFERED THE S AME FOR TAXATION, THAT IT WAS NOT THE CASE OF THE ASSESSEE THAT DUE TO FINANCIAL CONSTRAINTS IT COULD NOT REPAY THE AMOUNT IN QUESTION, THAT THE GENUINENESS OF THE TRANSACTION WAS NOT PROVED B Y THE ASSESSEE.REFERRING TO THE PROVISIONS OF SECTION 56(1) HE HELD THAT THE DISPUTED AMOUNT W AS CHARGEABLE IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION UNDER THE HEAD IN COME FROM OTHER SOURCES. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) ARGUED THAT THERE WAS NO CESSATION OF LIABILITY,THAT THE ASSESS EE ADMITTED THAT IT HAD TO REPAY THE LOAN,THAT WRITING OFF BY THE LENDER WOULD NOT MAKE THE DISPUT ED AMOUNT INCOME OF THE ASSESSEE,THAT NO INCOME HAD ACCRUED OR ARISEN TO THE ASSESSEE DURING THE YEAR UNDER APPEAL..HE REFERRED TO THE CASES OF RAMANIYAM HOMES (P.) LTD.(68TAXMANN.COM 28 9);JINDAL EQUIPMENTS LEASING AND CONSULTANCY SERVICES LTD. (325ITR87); CHETAN CHEMIC ALS PVT. LTD.(267ITR770); ISKRAEMECO REGENT LTD.(331ITR317); ACCELERTAED FREEZ AND DRYIN G CO. LTD.(1ITR-TRIB-226); MAHINDRA & MAHINDRA LTD.(261ITR501)& TOSHA INTERNATIONAL LTD . (331ITR440). 4246/M/14 SARYU PROPERTIES & HOTELS PVT.LTD. 3 THE DR SUPPORTED THE ORDER OF THE FAA AND STATED TH AT THE ASSESSEE HAD NOT PAID BACK THE LOAN AMOUNT OR INTEREST. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WFPL HAD ADVANCED LOAN OF RS.60 LAKHS TO THE ASSESSEE I N THE AY.1998-99,THAT THE ASSESSEE DID NOT PAY ANY INTEREST TO WFPL,THAT DURING THE YEAR UNDER CONSIDERATION WFPL HAD WRITTEN OFF THE AMOUNT IN ITS BOOK OF ACCOUNT AS IRRECOVERABLE, THAT THE AO HELD THAT LIABILITY CEASED TO EXIST AND THAT BY ADOPTING COLOURABLE DEVICE THE AS SESSEE HAD AVOIDED PAYMENT OF TAX FOR THE DISPUTED AMOUNT,THAT FAA CONFIRMED THE ORDER OF THE AO,THAT BOTH THE ENTITIES ARE OF SAME GROUP-I.E. RAHEJA GROUP,THAT EVEN AFTER FOUR YEARS OF WRITING OFF OF THE DISPUTED AMOUNT BY WFPL THE ASSESSEE HAD NOT PAID THE AMOUNT/INTEREST TO THE LENDER. WE FIND THAT WHILE DECIDING THE ISSUE THE AO AND FA A HAD NOT INVOKED THE PROVISIONS OF SECTION 41(1)OR SECTION 28.IN OTHER WORDS IN THEIR OPINION,IT IS NOT CESSATION OF LIABILITY.THE WRITING OF LOAN BY THE LENDER CAN BE RESULT OF MANY A FACTORS.THE ASSESSEE IS OWNING ITS LIABILITY.THE AO OR THE FAA HAS NOT BROUGHT ON RECO RD ANY FACT THAT COULD PROVE THE COMING IN OF AN ITEM TO THE POCKET OF THE ASSESSEE I.E.OCC URANCE OF INCOME.THE ASSESSEE IS NOT DENYING ITS LIABILITY,SO,IT CANNOT BE ASSESSED AS I NCOME FROM OTHER SOURCES(U/S.56 OF THE ACT). WE AGREE THERE ARE CERTAIN FACTORS THAT CREATE SOME SUSPICION ABOUT THE TRANSACTION,BUT NO SUSPICION CAN TAKE PLACE OF EVIDENCE.IN THE CASE BE FORE US,THERE IS EVIDENCE TO PROVE THAT AMOUNT IN QUESTION CAN BE TERMED AS INCOME.THE AO F ROM AY.1998-99 WAS ACCEPTING THE GENUINENESS OF THE TRANSACTION.IN THE YEAR OF WRITI NG OFF OF THE AMOUNT BY THE LENDER WOULD NOT AUTOMATICALLY TURN THE LOAN INTO INCOME.HE HAS ALLEGED THAT IT WAS A COLOURABLE DEVICE,BUT IT IS A MERE ALLEGATION.IT HAS NOT BEEN PROVED.THE CASE LAWS RELIED UPON BY THE AR SUPPORT THE VIEW TAKEN BY US.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA CANNOT BE ENDORSE D.SO,REVERSING THE SAME,WE DECIDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESS EE. AS A RESULT, APPEAL FIL ED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH AUGUST, 2017. 09 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 09.08.2017. JV.SR.PS. 4246/M/14 SARYU PROPERTIES & HOTELS PVT.LTD. 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.