ITO, CHENNAI V. Chentech Computer Services Pvt. Ltd., CHENNAI

ITA 550/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9238 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K N DHANDAPANI IRS
• Assessee Lawyers: R DHIRAJ
• Section: 143(3); 142(1); 145; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.550/MDS/2016 # % &% / ASSESSMENT YEAR : 2011-2012 THE INCOME TAX OFFICER, CORPORATE WARD 1(3) CHENNAI 600 034. VS. M/S. CHENTECH COMPUTER SERVICES PVT. LTD, NEW NO.75A, OLD. NO.105A, DR. RADHA KRISHNAN SALAI, OPP. HOTEL PRESIDENT, MYLAPORE, CHENNAI 600 004. [PAN AAACM 5280H ] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. K.N. DHANDAPANI, IRS, JCIT. +,'( ) * /RESPONDENT BY : SHRI. R. DHIRAJ, ADVOCATE. ! ) - / DATE OF HEARING : 12-05-2016 ./& ) - / DATE OF PRONOUNCEMENT : 25-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1 , CHENNAI IN ITA NO.197/14-15/A-1, DT 07.12.2015 FOR THE ASSESSMENT YEAR 2011-2012 ITA NO.550/MDS/2016 :- 2 -: PASSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 2.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.4,48, 72, 968/- BEING INT EREST INCOME. 2.2. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FA CT THAT THE COMBINED READING OF THE PROVISIONS OF SECTIONS 5 AND 145 SHOWS THAT THE TOTAL INCOME OF AN ASSESSEE SHALL INCLUDE THE INCOME ON THE BASIS OF SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY HIM. 2.3. IT IS SUBMITTED THAT SECTION 145 IS NO! ONLY F OR THE PURPOSES OF RECOGNITION OF INCOME BUT IT ALSO PROVI DES FOR THE METHOD OF COMPUTATION OF INCOME UNDER THE SPECIFIED HEADS AND HENCE THE TOTAL INCOME OF AN ASSESSEE WHICH HAS BEEN EITHER RECEIVED OR ACCRUED SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145. 2.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ASSESSEE BEING A COMPANY, IS BOUND TO MAINTAIN ITS BOOKS ON MERCANTILE BASIS ONLY AND OUGHT TO HAVE OFFERED THE INTEREST INCOME ON ACCRUAL BASIS. 2.5 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT ONCE INCOME HAS ACCRUED, IT SHALL BE INCLUDED IN TO TAL INCOME. THE ASSESSEE CANNOT POSTPONE THE INCOME ON RECEIPT BASIS EXCEPT IN THE CASES OF ASSESSEE COVER ED BY THE PROVISION OF SECTION 43D. 2.6 THE LEARNED CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SHIV PRAKASH JANAK RAJ & CO P LTD (222 ITR 583) WHEREIN IT IS HELD THAT THE INTEREST ACCRUES TO THE ASSESSEE NOTWITHSTANDING THE FACT THAT NO ENTRIES M IGHT HAVE BEEN MADE IN THE ACCOUNTS OF THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS IN THE BUSINESS OF INVESTMENT ACTIVITIES AND COMPUTER SOFT WARE SERVICES AND ITA NO.550/MDS/2016 :- 3 -: FILED RETURN OF INCOME ELECTRONICALLY ON 30.9.2011 ADMITTING NIL INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND NOT ICE U/S.143(2) AND 142(1) OF THE ACT WAS ISSUE. IN COMPLIANCE TO NOT ICES, THE LD. AUTHORISED REPRESENTATIVE APPEARED FROM TIME TO TIM E AND FURNISHED DETAILS. THE LD. ASSESSING OFFICER ON PERUSAL OF TH E BALANCE SHEET FOUND THAT ASSESSEE HAS ADVANCED AN AMOUNT OF <37,39,33,8 96/- TO M/S. MAXWORTH INDUSTRIES PVT. LTD AND NO INTEREST WAS CH ARGED OR ADMITTED ON LOANS AND ADVANCES. ON PERUSAL OF THE LOAN AGRE EMENT, THE ADVANCE AMOUNT CARRIES INTEREST, AND THE ASSESSEE A S IN EARLIER ASSESSMENT YEARS HAS NOT CHARGED INTEREST ON LOANS ADVANCED TO COMPANY AND THE TRIBUNAL HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE REVENUE HAS NOT ACCEPTED THE DECISION OF ITAT AND FILED AN APPEAL U/S.260A OF THE ACT IN JURISDICTIONAL HIGH COURT AND IS PENDING. THE ASSESSEE IS A LIMITED COMPANY AND FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING, IN THE FINANCIAL STATEMENTS THE INCOME HAS TO BE RECOGNIZED ON ACCRUAL BASIS AND INTEREST HAS TO BE CHARGED ON LOAN. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN TEREST SHALL NOT BE CHARGED ON NON PERFORMING ASSETS (NPA) WERE THE REC OVERY OF PRINCIPLE ITSELF IS DOUBTFUL. BUT THE ASSESSING OFFICER FOUN D THE DECISION RELATES TO BANKING AND NBFCS WERE AS THE ASSESSEE COMPANY O BJECTS AND ACTIVITIES ARE DIFFERENT AND SUPPORTED WITH JUDIC IAL DECISIONS AND CALCULATED INTEREST ACCRUED ON LOANS AND ADVANCES A T ITA NO.550/MDS/2016 :- 4 -: 12% <4,48,72,068/-. THE ASSESSEE OBTAINED SECURE D LOAN TO PAY M/S. REDINGTON FOR INVESTMENTS IN M/S. MAXWORTH AND ASSESSED TOTAL INCOME <4,41,08,721/- AND RAISED DEMAND. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE ARGUED THE GROUNDS AND EXPLAINED THE ADVANCES MADE BY THE ASSESSEE. M/S. MAXWORTH INV ESTMENTS PRIVATE LTD HAS BECOME DEFUNCT AND HAS ACCUMULATED LOSSES WERE THE RECOVERY OF PRINCIPAL ITSELF IS A DOUBTFUL AND FUR NISHED WRITTEN SUBMISSIONS REFERRED AT PARA 5 OF THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) ORDER. THE LD. COMMISSIONER OF INCOME TA X (APPEALS) CONSIDERED THE SUBMISSIONS AND THE FINDINGS IS OF T HE OPINION THAT THE ASSESSING OFFICER HAS OVERLOOKED THE SUBMISSIONS ON DOUBTFUL RECOVERY OF THE ADVANCES OF THE ASSESSEE AS IN EARLIER YEAR S AND THE TRIBUNAL HAS ALLOWED THE APPEAL AND OBSERVED AT PARA 6 OF TH E ORDER AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF T HE AO, SUBMISSION MADE BY THE APPELLANT AND MATERIAL ON RE CORD. I FIND THAT THE ASSESSING OFFICER HAS NOT REBUTTED OR REJE CTED THE CONTENTION OF THE APPELLANT THAT THE AMOUNTS HAVE B ECOME IRRECOVERABLE. I FIND THAT IN APPELLANT'S OWN CASE FOR THE ASSESSMENT YEAR 2001-2002, 20()2-2003)2()06-L~007,2 007 - 2008,2008-2009, 2009-10 AND 2010-2011, THE ITAT, CH ENNAI IN ITA NOS. 1 242,1243/2008,216, 217/2011,1968/2011, 1410/2013 AND ITA NO.550/MDS/2016 :- 5 -: 770/2015 HAS ALLOWED THE CLAIM OF THE APPELLANT. IN DOING SO THE HON'BLE TRIBUNAL MADE OBSERVATIONS IN PARA 6 (PAGE 3) OF ORDER IN ITA NO.1242 & 1243/2008 DATED 18.5.2009 AS UNDER: 'WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MATERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON AND FIND THAT THE ISSUE RAISED IN THESE APPEAL S IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE HON 'BLE JURISDICTIONAL HIGH COURT'S DECISION IN THE CASE OF CIT V. ELGI FINANCE LTD (SUPRA) AND HEADNOTE IS AS UNDER: INCOME ACCRUAL NON BANKING FINANCIAL COMPANY MERCANTILE SYSTEM OF ACCOUNTING INTEREST OF NON-PERFORMING ASSETS- TO BE CONSIDERED ONLY AFTER RECOGNIZING INCOME FORM SUCH ASSETS NO INCOME RECOGNIZED FROM SUCH ASSETS IN CONSONANCE WITH RBI NOTIFICATION AND ACCOUNTING STANDARD INTEREST COMPUTED AS TAXABLE INCOME TO BE DELETED INTEREST TO BE TAXED IN APPROPRIATE ASSESSMENT YEARS ON BASIS OF ACTUAL RECEIPT INCOME TAX ACT, 1961. SINCE THE LD. CIT(A) BY FOLLOWING THE HONBLE JURI SDICTION HIGH COURTS DECISION, SUCH DECISION WHICH HAS NOT BEEN REVERSED BY THE HONBLE SUPREME COURT, SO FAR IT IS A BINDING P RECEDENT AND THE TRIBUNAL SITTING WITHIN THE JURISDICTION OF HON BLE MADRAS HIGH COURT CANNOT TAKE A DIFFERENT VIEW. AS SUCH, WE DO NOT FIND ANY INFIRMITY OF FLAW IN THE IMPUGNED ORDER AND UPHOLD THE SAME WHILE DISMISSING THE APPEALS OF THE REVENUE. RESPECTFULLY, FOLLOWING THE DECISION OF THE TRIBUNA L, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DIRECTED T HE ASSESSING OFFICER TO DELETE THE ADDITION. AGGRIEVED BY THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE HAS ASSAILED A N APPEAL BEFORE TRIBUNAL. ITA NO.550/MDS/2016 :- 6 -: 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGU ED THE GROUNDS ON THE APPLICABILITY OF PROVISIONS OF MERCA NTILE ACCOUNTING AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE INTEREST, AS TH E BOOKS OF ACCOUNT ARE MAINTAINED ON THE MERCANTILE ACCOUNTING SYSTEM AND INCOME HAS TO BE RECOGNIZED ON ACCRUAL BASIS. THE DEPARTMENT HAS FILED AN APPEAL AGAINST THE TRIBUNAL DECISION FOR EARLIER ASSESSMEN T YEARS AND IS PENDING. THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) WITHOUT GOING INTO MERITS OF THE CASE RELIED ON THE ORDER OF TRI BUNAL AND DELETED THE ADDITION AND PRAYED FOR SETTING ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 6. CONTRA, THE LD. AUTHORISED REPRESENTATIVE OF ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE ASSESSING OF FICER AND COMMISSIONER OF INCOME TAX (APPEALS) ON THE FACTS AND ALSO ADVANCES TO M/S. MAXWORTH INVESTMENTS PRIVATE LTD B Y THE ASSESSEE COMPANY IN EARLIER YEARS AND EXPLAINED THE DEFUNCT SITUATION OF THE COMPANY AND EMPHASIZED ON THE ORDER OF COMMISSIONE R OF INCOME TAX (APPEALS) WERE WRITTEN SUBMISSIONS AND ORDER O F ITAT IN ASSESSEE OWN CASE WAS CONSIDERED. THE LD. AUTHORISED REPR ESENTATIVE RELIED ON THE JURISDICTIONAL HIGH COURT DECISION IN THE CA SE OF CIT VS. ELGI FINANCE LTD 293 ITR 357 AND APEX COURT DECISION IN THE CASE OF CIT ITA NO.550/MDS/2016 :- 7 -: VS. KICM INVESTMENTS LTD 310 ITR (ST) 4 (SC) AND PRAYED FOR DELETING OF ADDITION. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. DEPAR TMENTAL REPRESENTATIVE ARGUED ON THE CHARGEABILITY OF INTE REST ON ADVANCES TO M/S. MAXWORTH INVESTMENTS PVT. LTD ON ACCOUNTING PR INCIPLES AND MERCANTILE SYSTEM. THE LD. AUTHORISED REPRESENTATIV E SUBSTANTIATED HIS ARGUMENTS WITH WRITTEN SUBMISSIONS FILED IN APPELLA TE PROCEEDINGS EXPLAINING THE ORIGIN OF INVESTMENTS AND THE VALID REASONS FOR NOT CHARGING INTEREST AS THE COMPANY HAS BECOME DEFUNCT AND DREW OUR ATTENTION TO THE ORDERS OF THE TRIBUNAL IN ASSESSE ES OWN CASE IN ITA NOS.1242 AND 1243/MDS/2008, DATED 18.05.2009 FOR AS SESSMENT YEARS 2001-02, 2002-03, ITA NO.216 & 217/MDS/2011, DATED 18.04.2011 FOR ASSESSMENT YEARS 2006-07 & 2007008, ITA NO.1968/MDS /2011, DATED 7.6.2012 FOR ASSESSMENT YEAR 2008-09, ITA NO.1410/M DS/2013, DATED 18.09.2013 FOR ASSESSMENT YEAR 2009-2010 AND ITA NO .770/MDS/2015, DATED 22.07.2015 FOR ASSESSMENT YEAR 2010-2011. C ONSIDERING THE APPARENT FACTS, SUBMISSIONS AND TRIBUNAL DECISIONS OF ASSESSEES COMPANY FOR EARLIER ASSESSMENT YEARS, WE ARE OF TH E OPINION, THE COMPANY HAS BECOME DEFUNCT AND HAS ACCUMULATED LOS SES AND FURTHER RECOVERY IS DOUBTFUL. WE RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH ITA NO.550/MDS/2016 :- 8 -: DECISION, DISMISS THE APPEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.550/MDS/2016 IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 25TH DAY OF M AY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 0 / DATED: 25.05.2016 KV 1 ) +#-23 43&- / COPY TO: 1 . '( / APPELLANT 3. ! 5- () / CIT(A) 5. 3 89 +#-# / DR 2. +,'( / RESPONDENT 4. ! 5- / CIT 6. 9:% ; / GF