MORESHWAR TRADING CO. P. LTD, MUMBAI V. ITO 6(3)(4), MUMBAI

ITA 5091/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71310 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 30-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PANKAJ TOPRANI
• Keywords: Depreciation; Rectification of order
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, A.M. AND SHRI AMIT SHUKL A, J.M. ./ I.T.A. NO.5091/MUM/2011 ( / ASSESSMENT YEAR: 2005-06) MORESHWAR TRADING CO. PVT. LTD. 53, DUTTA BHAVAN, VIJAY MANJREKAR LANE, GOKHALE ROAD (NORTH), DADAR (WEST), MUMBAI-400 028 / VS. INCOME TAX OFFICER 6(3)(4), R. NO. 524, AAYKAR BHAVAN, MUMBAI-400 020 ' ./# ./PAN/GIR NO. AAACM 7515 P ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' / APPELLANT BY : SHRI PANKAJ TOPRANI %&'$ ( ' / RESPONDENT BY : SHRI O. P. SINGH )* + ( , / DATE OF HEARING : 01.08.2013 -./ ( , / DATE OF PRONOUNCEMENT : 25.09.2013 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-12, MUMBAI (CIT(A) FOR SH ORT) DATED 03.01.2011, DISMISSING THE ASSESSEES APPEAL CONTESTING THE REJECTION OF I TS APPLICATION U/S.154 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2005-06 VIDE ORDER DATED 26.06.2008 2 ITA NO.5091/MUM/2011 (A.Y. 2005-06) MORESHWAR TRADING CO. PVT. LTD. VS. ITO 2. IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND F ACTS OF THE CASE. THE ASSESSEE, A COMPANY IN THE BUSINESS OF TRADING IN AUTO SPARES, FILED ITS RETURN OF INCOME FOR THE YEAR ON 22.11.2006 AT NIL INCOME, ADJUSTING THE INCOME F OR THE YEAR AGAINST BROUGHT FORWARD CLAIMS (OF BUSINESS LOSS/DEPRECIATION). THE SAME ST OOD ASSESSED UNDER SECTION 143(3) R/W.S. 147 OF THE ACT ON 31.12.2007 AT RS.10,93,295 /-, MAKING THE FOLLOWING ADJUSTMENTS: PARTICULARS AMOUN T (RS.) - DISALLOWANCE UNDER SEC.14A 70,689 - PROVISION AGAINST BAD DEBT 1,25,393 - DISALLOWANCE OF INTEREST RELATABLE 15,96,499 TO INTEREST FREE LOANS TO DIRECTORS - DISALLOWANCE OF RENT UNDER 1,20,000 19,12,581/- SEC. 40A(2)(A) THE TAXABLE INCOME, HOWEVER, WAS COMPUTED AT NIL, I .E., AFTER ADJUSTMENT OF CLAIM QUA BROUGHT FORWARD DEPRECIATION. THE BUSINESS LOSS FOR THE YEAR WAS BARRED FOR CARRIED FORWARD U/S.72 IN VIEW OF THE RETURN FILED HAVING B EEN FILED BELATEDLY. THE ASSESSEE DID NOT APPEAL AGAINST THE SAID ASSESSMENT. IT THOUGH M OVED AN APPLICATION U/S. 154 OF THE ACT ON 16.06.2008, CLAIMING A MISTAKE IN RESPECT OF THE LAST TWO DISALLOWANCES LISTED SUPRA, I.E., INTEREST U/S.36(1)(III) AND OF RENT U/S. 40A( 2)(A). THE SAME STOOD REJECTED BY THE ASSESSING OFFICER (A.O.) VIDE HIS ORDER DATED 26/06 /2008 ON THE BASIS THAT THERE WAS NO MISTAKE APPARENT FROM THE RECORD, AND NEITHER HAD O NE BEEN POINTED OUT BY THE ASSESSEE. IN CASE IT HAD ANY GRIEVANCE, THE SAME OUGHT TO HAV E BEEN AGITATED IN APPEAL, AND RECOURSE TO SEC. 154 FOR THE PURPOSE IS NOT VALID IN LAW. TH E ASSESSEE APPEALED AGAINST THE SEC. 154 ORDER. THE LD. CIT(A) DID NOT FIND ANY SUBSTANCE IN THE CHALLENGE TO THE RECTIFICATION ORDER, AND DISMISSED THE APPEAL THERE-AGAINST VIDE HIS ORDER DATED 03.01.2011. QUA BOTH THE DISALLOWANCES FOR WHICH RECTIFICATION STOOD SOU GHT BY THE ASSESSEE, THE LD.CIT(A) WAS OF THE VIEW THAT THE A.O. HAD TAKEN A CONSCIOUS DEC ISION, HAVING REGARD TO THE FACTS OF THE CASE, AND AFTER ALLOWING DUE OPPORTUNITY TO THE ASS ESSEE TO EXPLAIN ITS CASE. THE PLEA OF THE ASSESSEE, FOR IT TO BE CONSIDERED, WOULD REQUIR E VERIFICATION AND CONSIDERATION AND, RATHER, EVEN ADMISSION OF FRESH EVIDENCE/S. FURTHER , NO DOUBT THE DISALLOWANCE QUA 3 ITA NO.5091/MUM/2011 (A.Y. 2005-06) MORESHWAR TRADING CO. PVT. LTD. VS. ITO INTEREST, MADE SIMILARLY FOR A.Y. 2001-02, TO WHICH REFERENCE HAS BEEN MADE BY THE A.O. IN THE ASSESSMENT ORDER, HAS SINCE BEEN DELETED IN APPEAL BY THE TRIBUNAL (IN ITA NO.5020/MUM/2008 DATED 19.05.2009/COPY ON RECORD), YET THE A.O. HAD FOR THE CURRENT YEAR TAKEN A INDEPENDENT DECISION. THE DISALLOWANCE QUA RENT, WHICH AGAIN STOOD ALSO MADE FOR A.Y. 2001-02, AT THE SAME AMOUNT OF RS.1.2 0 LACS, TO WHICH THE A.O. ADVERTS IN THE ASSESSMENT ORDER, STOOD NOT EVEN APPEALED AGAIN ST BEFORE THE TRIBUNAL. ON BOTH THE COUNTS, THEREFORE, THE ASSESSEES CASE FOR RECTIFIC ATION U/S.154, THE PREMISE OF WHICH IS TO RECTIFY A MISTAKE APPARENT FROM THE RECORD, ADMITTI NG OF NO DEBATE, IS NOT MAINTAINABLE. THE REJECTION OF ITS RECTIFICATION BEING CONFIRMED, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE SHALL PROCEED ISSUE-WISE. 3.1 QUA THE FIRST ISSUE, A SIMILAR DISALLOWANCE FOR A.Y. 2 001-02 MADE IN ASSESSMENT (AT RS.8,86,925/-) STOOD DELETED, I.E., FOR MOST PA RT, BY THE FIRST APPELLATE AUTHORITY, ON THE BASIS THAT THE ASSESSING AUTHORITY HAD NOT CONSIDER ED, CORRESPONDINGLY, THE INTEREST-FREE LOANS TO THE ASSESSEE-COMPANY FROM THE DIRECTORS. A S AGAINST THE INTEREST FREE LOANS TO THE DIRECTORS FOR RS.64.91 LACS, THE ASSESSEE HAD AVAIL ED OF INTEREST-FREE LOANS FROM THE DIRECTORS AT RS.59.90 LACS. ACCORDINGLY, THE INTERE ST COULD BE DISALLOWED FOR ONLY THE BALANCE RS.5.01 LACS. ON THIS BEING POINTED OUT TO US DURING HEARING, THE LD. AR WAS REQUIRED TO SHOW AS TO WHAT IS ON RECORD TO EXHIBIT THAT THE SAID INTEREST-FREE LOANS FROM THE DIRECTORS CONTINUE TO SUBSIST FOR THE CURRENT Y EAR AS WELL. AND TOWARD WHICH HE WOULD TAKE US THROUGH THE ASSESSEES BALANCE-SHEET AS AT THE YEAR-END, REFLECTING THE UNSECURED LOANS FROM THE DIRECTORS, CLEARLY MENTIONING OF THE SAME TO BE INTEREST-FREE. CONTINUING FURTHER, NO DOUBT, THE SAME DOES NOT BY ITSELF INDICATE IF THE BALANCE OUTSTANDING AS AT THE YEAR-END (31.03.2005) OBTAINE D THROUGHOUT THE YEAR AND, FURTHER, IF NO INTEREST HAD ACTUALLY BEEN ALLOWED BY THE ASSESS EE-COMPANY FOR THE YEAR. BOTH ARE MATTERS OF FACT, WHICH WOULD NEED TO BE ASCERTAINED THROUGH VERIFICATION. HOWEVER, AT THE SAME TIME, IT CANNOT BE LOST SIGHT OF THAT THE ASSE SSEE HAS INDEED ALSO BEEN ALLOWED INTEREST-FREE LOANS FROM ITS DIRECTORS, I.E., AS PE R THE RECORD, AND WHICH FACT HAS BEEN 4 ITA NO.5091/MUM/2011 (A.Y. 2005-06) MORESHWAR TRADING CO. PVT. LTD. VS. ITO IGNORED OR FAILED TO BE TAKEN INTO ACCOUNT WHILE FR AMING THE ASSESSMENT DISALLOWING INTEREST QUA DIVERSION OF FUNDS FOR NON-BUSINESS PURPOSES. THIS MOST DEFINITELY CONSTITUTES A MISTAKE. IN FACT, THE ASSESSEE HAD BEEN ALLOWED R ELIEF FOR A.Y. 2001-02 ONLY ON THIS BASIS. THOUGH, THEREFORE, WITHOUT DOUBT SOME VERIFI CATION WOULD BE REQUIRED IN THE MATTER, IF ONLY TO DETERMINE THE EXTENT TO WHICH RE LIEF IS WARRANTED TO THE ASSESSEE, AND WHICH (VERIFICATION) WOULD NORMALLY EXCLUDE RECTIFI CATION INASMUCH AS THE SAME IS ONLY WITH REFERENCE TO A MISTAKE/S APPARENT FROM THE REC ORD, THE A.O. HAS CLEARLY AND UNMISTAKABLY COMMITTED A MISTAKE IN OVERLOOKING A V ITAL FACT OF NEARLY THE SAME SUM, AS IT APPEARS, HAVING BEEN AVAILED OF BY THE ASSESSEE ON INTEREST-FREE BASIS FROM ITS DIRECTORS, TO WHOM, AS A CLASS, INTEREST-FREE LOANS HAD BEEN G IVEN, AND QUA WHICH THE DISALLOWANCE STANDS EFFECTED BY HIM. IT IS WELL-SETTLED THAT NO PREJUDICE COULD BE CAUSED TO THE SUBJECT (ASSESSEE) BY ANY ACTION OR NON ACTION ON THE PART OF THE COURT (A.O.). UNDER THE CIRCUMSTANCES, THEREFORE, WE ADMIT THE AS SESSEES CLAIM AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. TO ALLOW RELIEF QUA INTEREST DISALLOWED U/S.36(1)(III) AS EXIGIBLE TO THE ASSESSEE ON THE BASIS OF THE MATERI AL ON RECORD. HE MAY THOUGH, TO SATISFY HIMSELF; THE MANDATE OF THE RULE OF LAW OPERATING B OTH WAYS, CALL UPON THE ASSESSEE TO SUBSTANTIATE ANY CLAIM MADE BY IT IN SUPPORT OF OR WITH REFERENCE TO THE MATERIAL ON RECORD, VIZ. THE LEDGER ACCOUNTS, ETC. WE DECIDE AC CORDINGLY. THE ASSESSEES GROUND NOS. 1 & 2 ARE DISPOSED OF IN THE ABOVE TERMS. 3.2 AS REGARDS THE DISALLOWANCE OF RENT U/S.40A(2)( A), AS A READING OF THE ASSESSMENT ORDER WOULD SHOW, THE ASSESSEE WAS REQUIRED TO JUST IFY ITS CLAIM DURING THE ASSESSMENT PROCEEDINGS BY THE A.O., TO WHICH IT RESPONDED. THE DISALLOWANCE HAS BEEN EFFECTED UPON DUE CONSIDERATION OF THE ASSESSEES EXPLANATION (RE FER PARA 4.8 OF THE ASSESSMENT ORDER). NO CASE OF ANY MISTAKE, MUCH LESS ONE APPARENT FR OM THE RECORD, HAS BEEN MADE OUT BY THE ASSESSEE; THE MATTER, AS APPARENT FROM THE ASSE SSEES EXPLANATION, BEING DEBATABLE, INVOLVING A MIXED QUESTION OF FACT AND LAW. IN FACT , NO SPECIFIC ARGUMENTS WITH REGARD TO ITS SAID GRIEVANCE STOOD RAISED BEFORE US DURING HE ARING BY THE ASSESSEE, AND WHICH WE 5 ITA NO.5091/MUM/2011 (A.Y. 2005-06) MORESHWAR TRADING CO. PVT. LTD. VS. ITO FIND TO BE ALSO THE CASE BEFORE THE AUTHORITIES BEL OW. THE ASSESSEE, ACCORDINGLY, FAILS ON THIS ISSUE, RAISED PER ITS GROUND NO.3. 4. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 0/ 1 )2 30 ( 4( 567 8 * 9 ( :; ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 25, 2013 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER <+ MUMBAI; =) DATED : 25.09.2013 *.)../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. @*A B %)C2 , , C2/ , <+ / DR, ITAT, MUMBAI 6. B D3 E + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , <+ / ITAT, MUMBAI