GUJRAT ORGANICS LTD, MUMBAI V. ITO WD 6(3)1, MUMBAI

ITA 4879/MUM/2011

• Counselvise Citation: 487919914 RSA 2011
• Duration Of Justice: 4 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 13-04-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 17-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: D H SHAH
• Keywords: Reopening of assessment; Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Deemed dividend
• Section: 143(3); 14A; 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.4879/M/2011 ASSESSMENT YEAR: 1998-99 M/S. GUJRAT ORGANICS LTD., 3-A, BARODAWALA MANSION, 81, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018 PAN: AAACR 2060G VS. ITO, WARD 6(3)1, AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI D.H. SHAH, A.R. REVENUE BY : SHRI VIJAY KUMAR BORA, D.R. DATE OF HEARING : 13.04.2015 DATE OF PRONOUNCEMENT : 08.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 18.03.2011 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 1998-99. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. RE-OPENING OF ASSESSMENT U/SEC 147 : 1.1 THE HONBLE C.I.T. (APPEALS) -12, MUMBAI, ERRED IN NOT DECIDING THE GROUND NO.2 PERTAINING TO RE-OPENING OF ASSESSMENT U/S. 14 7 BY THE LD. ITO 6(3)(1) BY FORMING AN OPINION BASED ON THE CONFIRMATION OF ADDITION MADE U/SEC 2 (22)(E) BY THE HONBLE C.I.T. (APPEALS)-26 IN THE A PPEAL FOR A/Y 2001-02. THE REASON FOR RE-OPENING OF ASSESSMENT U/SEC 147 DOES NOT SUSTAIN WHEN THE ADDITION U/SEC 2(22)(E) HAS BEEN DELETED BY THE HON BLE I.T.A.T. G BENCH, MUMBAI (ITA NO.7382/M/04) DATED 23/06/2008. 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. A.O. ERRED IN MAKING A COMPLETE ASSESSMENT OF INCOME U/SEC 143(3) INSTEAD RESTRICTI NG THE ASSESSMENT OF ESCAPEMENT OF DEEMED DIVIDEND INCOME U/SEC 2(22)(E) . ITA NO.4879/M/2011 M/S. GUJRAT ORGANICS LTD. 2 2. DISALLOWANCE OF BAD-DEBTS WRITTEN OFF RS.10,88,2 44/- U/SEC 36(1)(VII) R.W.S. 36(2) 2.1 THE LD. C.I.T. (APPEALS) ERRED IN CONFIRMING TH E DISALLOWANCE OF RS.10,88,244/- BEING BAD-DEBTS WRITTEN OFF U/SEC 36 (1)(VII) R.W.S. 36(2) IGNORING THE FACT THAT THE BAD DEBT WAS WRITTEN OFF DURING THE YEAR BUT WAS ERRONEOUSLY TYPED AS PROVISION FOR BAD DEBT IN TH E FINANCIAL STATEMENTS. THE LD. C.I.T. (APPEALS) ERRED IN NOT CONSIDERING T HE LEDGER ACCOUNT OF BAD DEBTS WRITTEN OFF AS WELL AS CLEAN REPORT OF THE T AX AUDITOR TO SUBSTANTIATE THE CLAIM FOR BAD-DEBTS WRITTEN OFF. 2.2 WITHOUT PREJUDICE, THE LD. C.I.T. (APPEALS) ERR ED IN NOT ALLOWING THE CLAIM MADE U/SEC 36(1)(VII) FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. V/S CIT 323 ITR 397. 3. DISALLOWANCE U/SEC 14A OF ADDITIONAL INTEREST EX PENDITURE RS.16,99,257/- 3.1 THE LD. C.I.T. (APPEALS) ERRED IN CONFIRMING TH E DISALLOWANCE U/SEC 14A BY RS.16,99,257/- BEING ADDITIONAL INTEREST EXPENDITUR E DERIVED IN PROPORTION OF EXEMPTED DIVIDEND INCOME TO TOTAL INCOME IGNORIN G THE FACT THAT THE CBDT HAS RESTRICTED ON RE-OPENING OF COMPLETED ASSE SSMENT ON ACCOUNT OF PROVISION OF SEC 14A VIDE CIRCULAR NO.11 OF 2001, D TD 23/07/2001 AND HENCE NO ADDITION U/S 14A CAN BE CALLED FOR. 3.2 WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANT HAS VOLUNTARILY DISALLOWED EXPENSES OF RS.13,99,528/- (INTEREST EXPENDITURE RS .6,88,274/- + OTHER EXPENSES RS.7,11,254/-) INCURRED IN RELATION TO EXE MPTED DIVIDEND INCOME WHICH IS QUITE A REASONABLE AMOUNT IN RELATION TO E ARNING OF DIVIDEND INCOME, AND HENCE, NO FURTHER DISALLOWANCES CAN BE CALLED FOR FOLLOWING THE HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF G ODREJ & BOYCE MFG. CO. LTD. 328 ITR 81. 3. THE GROUND NO.1 OF THE APPEAL IS RELATING TO TH E VALIDITY OF THE REOPENING OF THE ASSESSMENT U/S 147 OF THE INCOME T AX ACT. THE BRIEF LEADING TO THE REOPENING OF THE ASSESSMENT ARE THAT THE INCOME TAX RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS FILED BY TH E ASSESSEE ON 20.11.1998 WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 4.6.20 09. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) DURING THE ASSE SSMENT PROCEEDINGS U/S 143(3) FOR AY 2001-02 ADDED THE UNSECURED LOANS FRO M THE RELATED GROUP CONCERNS AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT WHICH ADDITION WAS FURTHER CONFIRMED BY THE LD. CIT(A). THE AO FURTHER NOTED THAT THE ASSESSEE ITA NO.4879/M/2011 M/S. GUJRAT ORGANICS LTD. 3 COMPANY HAD RECEIVED UNSECURED LOANS OF RS.1,95,81, 292/- DURING THE FINANCIAL YEAR 1997-98. HE THEREFORE FORMED THE BELIEF THAT T HE INCOME CHARGEABLE TO TAX FOR THE A.Y. UNDER CONSIDERATION HAD ESCAPED ASSESS MENT. HE ACCORDINGLY REOPENED THE ASSESSMENT AND SERVED NOTICE U/S 148 U PON THE ASSESSEE ON 29.3.2005. 4. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT TH E ASSESSEE HAD AGITATED THE ADDITIONS MADE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT IN RELATION TO A.Y. 2001-02 BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 23.6.2008 HAS DELETED THE SAID ADDITIONS MADE A U/S 2(22)(E) OF THE ACT IN RELATION TO A.Y. 2001-02. THE LD. CIT(A) IN THE IMPUGNED ORDER WHILE RELYING UPON THE DECISION OF THE TRIBUNAL FOR A.Y. 2001-02 HAS DELET ED THE ADDITIONS MADE U/S 2(22)(E) OF THE ACT FOR THE YEAR UNDER CONSIDERATIO N ALSO. NOW THE CONTENTION OF THE LD.AR FOR THE ASSESSEE HAS BEEN THAT THE GRO UND FOR REOPENING OF ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS BAS ED ON THE ADDITIONS MADE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT FOR A.Y. 2001-02. SINCE THE SAID ADDITIONS FOR A.Y. 2001-02HAVE ALREADY BEEN DELETED BY THE TRIBUNAL VIDE ORDER DATED 23.6.2008 AND FURTHER FOR THE YEAR UNDE R CONSIDERATION BY THE LD. CIT(A) VIDE IMPUGNED ORDER HENCE, THE VERY REOPENIN G OF THE ASSESSMENT HAS BECOME INVALID. HE HAS RELIED UPON THE FOLLOWING DE CISIONS IN THIS RESPECT. 1. CONNECTION VS. ITO 355ITR 465 (GUJ) 2. ULTRAMARINE AIR AIDS (P) LTD. V/S. INSPECTING AC IT 332 ITR 273 (DELHI) 3. P.G. FOILS LTD. VS. DCIT 353 ITR 548 (GUJ). 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. AR AND HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY HIM. IN OUR H UMBLE VIEW NONE OF THE CASE LAWS RELIED UPON BY THE LD. AR ARE APPLICABLE TO TH E CASE OF THE ASSESSEE BEFORE US. IN THE CASE OF CONNECTION VS. ITO (SUP RA) THE ORIGINAL ASSESSMENT WAS DONE U/S 143(3) OF THE ACT. THE HONBLE HIGH CO URT HELD THAT PROVISO TO SECTION 147 WAS APPLICABLE TO THE SAID CASE. MOREOV ER THE ADDITIONS ON THE ITA NO.4879/M/2011 M/S. GUJRAT ORGANICS LTD. 4 BASIS OF REOPENING WAS MADE IN THAT CASE HAD ALREAD Y BEEN DELETED BY THE TRIBUNAL MUCH PRIOR TO THE REOPENING OF THE ASSESSM ENT BY THE AO. UNDER SUCH CIRCUMSTANCES THE HONBLE HIGH COURT HAS HELD IT WA S NOT PERMISSIBLE TO THE AO TO REOPEN THE ASSESSMENT. SIMILARLY IN THE CASE OF P.G. FOILS LTD. VS. DCIT (SUPRA) THE IMPUGNED ADDITIONS HAD ALREADY BE EN DELETED BY THE LD. CIT(A) BEFORE THE REOPENING OF THE ASSESSMENT BY TH E CIT(A). IN THE CASE OF ULTRAMARINE AIR AIDS (P) LTD. V/S. INSPECTING ACIT (SUPRA) A NOTIFICATION GRANTING EXEMPTION TO THE ASSESSEE WAS WITHDRAWN BY THE GOVT. WITH RETROSPECTIVE EFFECT. THE AO HAD REOPENED THE ASSES SMENT FOR THE TECHNICAL REASON OF WITHDRAWAL OF EXEMPTION WITH RETROSPECTIV E OPERATION. THE HIGH COURT SUBSEQUENTLY QUASHED THE NOTIFICATION OF WITH DRAWAL OF EXEMPTION. IT WAS UNDER SUCH CIRCUMSTANCES THAT THE HONBLE HIGH COURT HELD THAT THE REASON FOR REOPENING OF THE ASSESSMENT DID NOT SURVIVE. NO NE OF THE ABOVE CASE LAW CITED BY THE ASSESSEE FITS TO THE FACTS AND CIRCUMS TANCES OF THE CASE IN HAND. IN THIS CASE THE ADDITIONS MADE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT HAVE ALREADY BEEN CONFIRMED BY THE CIT(A) IN RELATION TO BASE YEAR AY 2001-02. ON THE DATE OF REOPENING OF THE ASSESSMENT FOR THE YEA R UNDER CONSIDERATION, THE AO HAD REASONABLE BELIEF THAT THE INCOME OF THE ASS ESSEE FOR THE YEAR UNDER CONSIDERATION HAD ESCAPED ASSESSMENT. HENCE WE DO N OT FIND ANY MERIT IN GROUND NO.1 IN RELATION TO THE VALIDITY OF THE REOP ENING OF THE ASSESSMENT. THIS GROUND IS ACCORDINGLY DISMISSED. GROUND NO.2 6. THE ASSESSEE THROUGH GROUND NO.2 OF THE APPEAL H AS AGITATED THE CONFIRMATION OF THE ADDITIONS IN RELATION TO PROVIS ION FOR BAD DEBTS. THE LD. AR, BEFORE US HAS CONTENDED THAT THE SAME WAS NOT T HE PROVISION BUT WAS THE ACTUAL DEBT WRITTEN OFF IN THE P & L ACCOUNT. INADV ERTENTLY IT WAS MENTIONED AS A PROVISION. HE HAS FURTHER CONTENDED THAT THE BAD DEBTS ARE ALLOWABLE IN THE ITA NO.4879/M/2011 M/S. GUJRAT ORGANICS LTD. 5 LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. 322 ITR 397. THE LD. DR ON THE OTHER HAND HAS RELIED UPON THE FI NDINGS OF THE LOWER AUTHORITIES. 7. THE LD. AR HAS SUBMITTED THAT IT WAS NOT THE PRO VISION BUT THE ACTUAL IRREVOCABLE DEBTS WRITTEN OFF. THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. 322 ITR 397 HAS HELD THAT IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE; IT IS ENOU GH IF THE BAD DEBT IS WRITTEN OFF AS IRREVOCABLE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF ABOVE OBSERVATIONS, THIS ISSUE IS RESTORED TO THE FILE OF THE AO TO EXAMINE IT A FRESH AND DECIDE THE SAME IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT (SUPRA). GROUND NO.3 8. VIDE GROUND NO.3 THE ASSESSEE HAS AGITATED THE A DDITION U/S 14A MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME. IT HAS BEEN SUBMITTED THAT THE ASSE SSEE HAS THREE UNITS VIZ., MANUFACTURING, EXPORT AND INVESTMENT. SEPARATE ACCO UNTS HAVE BEEN MAINTAINED FOR EACH OF THE UNIT. ASSESSEE HAD GIVEN A COMPREHENSIVE WORKING TO THE AO MAKING SUO-MOTO DISALLOWANCE OF RS.6,88,2 74/-. THE LOWER AUTHORITIES HAVE IGNORED THE WORKING GIVEN BY THE A SSESSEE. IT HAS BEEN FURTHER CONTENDED THAT THE ASSESSEE HAD MADE INVESTMENTS OU T OF OWN/INTEREST FREE FUNDS WHEREAS THE INTEREST BEARING FUNDS WERE USED FOR BUSINESS/MANUFACTURING ACTIVITY OF THE ASSESSEE. THE LD. AR HAS FURTHER RE LIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT 328 ITR 81 (BOM.) WHEREIN, IT HAS BE EN HELD THAT THE AO HAS TO ITA NO.4879/M/2011 M/S. GUJRAT ORGANICS LTD. 6 LOOK INTO THE WORKING OF THE ASSESSEE AT THE TIME O F MAKING DISALLOWANCE U/S 14A. 9. IT MAY BE FURTHER NOTED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 HAS OBSERVED THAT IF THERE ARE FUNDS AVAILABLE WITH THE ASSESSEE, BOTH INTERES T FREE AND OVERDRAFT/LOANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT S WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. A SIMILAR VIEW WAS TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF HDFC BANK LTD. IN ITA NO.330 OF 2012. 10. WE FIND THAT THE ABOVE CONTENTIONS OF THE ASSES SEE HAVE NOT BEEN EXAMINED BY THE AO. FURTHER, HE IS NOT HAVING THE B ENEFIT OF GOING THROUGH THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT ON THE ISSUE AT THE TIME OF MAKING THE ASSESSMENT. WE ACCORDINGLY RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO WITH DIRECTION TO EXAMINE THE CONTENTIONS OF THE ASSESSEE IN THE LIGHT OF THE ABOVE DECISIONS OF THE HONBLE JURISIDICTIONAL HIGH COURT AND DECIDE THE ISSUE A FRESH. 11. IN VIEW OF ABOVE OBSERVATIONS, THE APPEAL OF TH E ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08.07.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 08.07.2015. * KISHORE, SR. P.S. ITA NO.4879/M/2011 M/S. GUJRAT ORGANICS LTD. 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.