M/s Sarita Synthetics and Industries Ltd., Rajam V. The Commissioner of Income Tax-II, Visakhapatnam

ITA 498/VIZ/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94087 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C V S MURTHY
• Keywords: Principle of natural justice
• Section: 43B; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BENCH, VISHAKHAPATNAM BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 SARITA SYNTHETICS AND INDUSTRIES LTD., 118 - 120, ANTHAKAPALLI VILLAGE, PONDURU ROAD, RAJAM VS. THE CIT - II, VISHAKAPATNAM PAN/GIR NO. : AADCS 4025 R APPELLANT ) .. RESPONDENT ) APPELLANT BY : SHRI C.V.S.MURTHY RESPONDENT BY : SHRI GURU SWAMY DATE OF HEARING : 20/7/2015 DATE OF PRONOUNCEMENT : 20/7/2015 O R D E R PER B.R.BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE REVISION ORDER PASSED BY THE LD CIT - II, VISHAKHAPATNAM UNDER SECTION 263 OF THE ACT FOR THE ASSESSMENT YEAR 2006 - 07. 2. WE HEARD THE PARTIES AND PERUSED THE RECORDS. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE WAS COMPLETED BY THE A SSESSING OFFICER UNDER SECTION 143(3) OF THE I.T.ACT, 1961 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 28.11.2008. THE ASSESSEE HAD AVAILED TERM LOANS AND WORKING CAPITAL LOAN FROM STATE BANK OF INDIA AND CENTURION BANK. THE ASSESSEE ENTERED INTO ON E TIME 2 I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 SETTLEMENT OF THE LOANS RECEIVED FROM THE ABOVE SAID BANKS AND, ACCORDINGLY, IT GOT WAIVER OF RS.20.44 CRORES AS PER DETAILS GIVEN BELOW: SR.NO. PARTICULARS AMOUNT 1. LOANS UTILIZED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS 14950225 2. WORKING CAPITAL WAIVED PRINCIPAL COMPONENT 138540915 3. INTEREST COMPONENT DISALLOWED U/S.43B 50930413 TOTAL 204421553 3. THE ASSESSEE TRANSFERRED THE ABOVE SAID AMOUNT DIRECTLY TO CAPITAL RESERVE ACCOUNT. THE LD CIT NOTICED THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, DID NOT EXAMINE ABOUT THE TAXABILITY OF THE AMOUNTS WAIVED BY THE BANKS IN TERMS OF THE PROVISIONS OF SECTION 41(1) OF THE ACT. ACCORDINGLY HE TOOK THE VIEW THAT THE ASS ESSMENT ORDER IS RENDERED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HENCE, HE INITIATED REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. THE ASSESSEE CONTENDED BEFORE THE LD CIT THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT SHALL NOT APPLY TO THE LOAN AMOUNTS WAIVED BY THE BANKS AS THEY DO NOT CONSTITUTE TRADING RECEIPTS. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD., 261 ITR 501(BOM). HOWEV ER, THE LD CIT DID NOT AGREE WITH THE SAID CONTENTIONS OF THE ASSESSEE. THE LD CIT, BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. SOLID CONTAINERS LTD. VS DCIT, 222 CTR (BOM) 455, AND ALSO THE DECISION OF HONBLE SUP REME COURT IN THE CASE 3 I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 OF CIT VS. T.V.SUNDARAM IYENGAR & SONS LTD., 222 ITR 344 (SC) EXPRESSED THE VIEW THAT THE ENTIRE AMOUNTS WAIVED BY THE BANKS IS TAXABLE. ACCORDINGLY, HE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY THE ABOVE SAID ISSUE AND RECOMPUTE THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEE DINGS, TOOK NOTE OF THE FACT THAT THE ASSESSEE HAS TRANSFERRED THE AMOUNTS WAIVED BY THE STATE BANK OF INDIA AND CENTURION BANK TO CAPITAL RESERVE ACCOUNT AND HENCE, IT IS A CASE WHERE THE ASSESSING OFFICER HAS EXAMINED THE ISSUE. ACCORDINGLY, HE CONTENDE D THAT THE LD CIT DOES NOT HAVE JURISDICTION TO INITIATE THE REVISION PROCEEDINGS ON THE ISSUES WHICH HAVE ALREADY BEEN EXAMINED BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE LEARNED CIT HAS DIRECTED TO EXAMINE THE INTEREST COMPONENT OF RS.5,09, 30,413/ - ALSO, WHICH THE ASSESSEE HAD ALREADY DISALLOWED UNDER SECTION 43B OF THE ACT IN THE EARLIER YEARS. HE SUBMITTED THAT THE ASSESSMENT OF THE SAME AGAIN DURING THE INSTANT YEAR WOULD LEAD TO DOUBLE ASSESSMENT OF SAME INCOME. 5. ON THE CONTRAR Y, THE LD DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE ASSESSMENT ACCEPTING THE BOOK ENTRIES PASSED BY THE ASSESSEE, WITHOUT EXAMINING ABOUT THE TAXABILITY OF THE AMOUNTS WAIVED BY THE BANKS. HE FURTHER STATED THAT THE LAC K OF EXAMINATION ON THE PART OF THE ASSESSING OFFICER WOULD RENDER THE 4 I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, HE SUBMITTED THAT THE LD CIT WAS JUSTIFIED IN PASSING THE IMPUGNED REVISION ORDER. WITH REGARD TO THE INTEREST COMPONENT ALREADY DISALLOWED BY THE ASSESSEE UNDER SECTION 43B OF THE ACT, THE LEARNED D.R FAIRLY AGREED THAT THE SAME CANNOT BE SUBJECTED TO TAX IF THE ASSESSEE HAD ALREADY DISALLOWED UNDER SECTION 43B OF THE ACT IN THE EARLIER YEARS. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RECORD. BEFORE PROCEEDING FURTHER, WE FEEL IT PERTINENT TO DISCUSS ON THE LEGAL POSITION RELATING TO THE REVISION PROCEEDINGS CARRIED OUT UNDER SECTION 263 OF THE ACT. THE HON'BLE BOMBAY HIGH CO URT, IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) HAS DISCUSSED ABOUT THE SCOPE OF PROVISIONS OF SECTION 263 AS UNDER: SECTION 263 OF THE INCOME - TAX ACT, 1961 EMPOWERS THE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS U NDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHANCIN G OR MODIFYING THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST S OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATIO N OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS 5 I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEAD NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDI CIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME - TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME - TAX OFFICER HAS TAKEN ONE VIEW WITH WHI CH THE CO MMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME - TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR INDU STRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 ITR 282. 7. IN THE INSTANT CASE, WE NOTICE THAT THE ASSESSING OFFICER DID NOT MAKE ENQUIRIES ABOUT THE TAXABILITY OR OTHERWISE OF THE LOAN AMOUNTS WAIVED BY THE STATE BANK OF INDIA AND CENTURIAN BANK. THOUGH THE LEARNED A.R CONTENDED THAT THE ASSESSING OFFICER WAS AW ARE OF THE WAIVER AND HAS ALSO DISCUSSED ABOUT THE SAME IN THE ASSESSMENT ORDER, YET HE FAIRLY ADMITTED THAT THE ASSESSING OFFICER DID NOT MAKE ANY SPECIFIC ENQUIRY ABOUT THE TAXABILITY OR OTHERWISE OF THE WAIVED AMOUNTS. HENCE, WE ARE OF THE VIEW THAT TH IS IS A CLEAR CASE OF LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER. AS PER THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF MALABAR INDUSTRIAL COMPANY ((SUPRA)), THE LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER WOULD RENDER TH E ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HOWEVER, WE FIND MERIT IN 6 I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 THE CONTENTIONS OF THE ASSESSEE THAT THE INTEREST COMPONENT WAIVED BY THE BANKS TO THE EXTENT OF RS.5,09,30,413/ - , WHICH HAS ALREADY BEEN DISALLOWED BY TH E ASSESSEE UNDER SECTION 43B OF THE ACT IN THE EARLIER YEARS, SHOULD NOT BE ASSESSED AGAIN UNDER SECTION 41(1) OF THE ACT. HOWEVER, THE SAID SUBMISSIONS REQUIRE VERIFICATION AT THE END OF THE ASSESSING OFFICER. 8. ACCORDINGLY, WE MODIFY THE ORDER OF THE LEARNED CIT AND RESTORE ALL THE ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THEM IN ACCORDANCE WITH THE LAW WITHOUT BEING INFLUENCED BY THE VIEWS EXPRESSED BY LEARNED CIT IN THE REVISION ORDER. WITH REGARD TO THE INTEREST CO MPONENT OF THE WAIVED AMOUNT, THE ASSESSING OFFICER SHOULD ALSO EXAMINE THE CLAIM OF THE ASSESSEE ABOUT ITS DISALLOWANCE MADE UNDER SECTION 43B OF THE ACT IN THE EARLIER YEARS AND IF IT IS FOUND TO BE CORRECT, SO MUCH OF THE INTEREST AMOUNT DISALLOWED BY T HE ASSESSEE UNDER SECTION 43B OF THE ACT IN EARLIER YEARS AND NOT CLAIMED IN ANY OF THE YEARS NEED NOT BE CONSIDERED FOR ASSESSMENT UNDER SECTION 41(1) OF THE ACT. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 20/7/2015. S D/ - S D/ - (D.MANMOHAN ) (B.R.BASKARAN) VICE PRESIDENT ACCOUNTANT MEMBER DATED 20 / 7 /2015 B.K.PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 7 I.T.A. NO. 498/VIZ/2010 ASSESSMENT YEAR : 2006 - 07 1. THE APPELLANT: SARITA SYNTHETICS AND INDUSTRIES LTD., 118 - 120, ANTHAKAPALLI VILLAGE, PONDURU ROAD, RAJAM 2. THE CIT - II, VISHAKAPATNAM 3. THE CIT(A) - VISHAKHAPATNAM 4. CIT , VISHAKHAPATNAM 5. DR, ITAT, VISHAKHAPATNAM 6. / GUARD FILE. BY ORDER, //TRUE COPY// ASST. REGISTRAR, ITAT, VISHAKHAPATNAM