FOREMOST INDUSTRIES (INDIA) LTD, MUMBAI V. ITO WD 9(1)(4), MUMBAI

ITA 5775/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100563 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 17-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G M DOSS SR AR
• Assessee Lawyers: AJIT C SHAH
• Keywords: Bad and doubtful debts
• Section: 43B; 143(3)

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI A.D. JAIN, JM AND SHRI N.K. BILLAIYA, A M .. , . . , ./ I.T.A. NO. 5775 /MUM/2012 ( / ASSESSMENT YEAR : 2007-08 M/S FOREMOST INDUSTRIES (INDIA) LTD., 138-141, INDUSTRIAL ESTATE, KANDIVALI (W), MUMBAI 400 067. / VS. INCOME TAX OFFICER - WARD 9(1)(4),2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACF0585E ( ! / APPELLANT ) .. ( '# ! / RESPONDENT ) A PPELLANT BY MS. ARATI VISSANJI & SHRI AJIT C. SHAH R E SPONDENT BY : SHRI G.M. DOSS, SR. AR $ % & ' ( ) / DATE OF HEARING : 9-7-2015 *+,- ' ( ) / DATE OF PRONOUNCEMENT : 07-08-2015 [ 5 / O R D E R PER A.D. JAIN, J.M . : .. , THIS IS ASSESSEES APPEAL FOR A.Y. 2007-08, AGAINS T THE ACTION OF THE LD. CIT(A) IN REJECTING THE CLAIM OF THE ASSESSEE RELAT ING TO INTEREST PAYABLE TO FINANCIAL INSTITUTIONS FOR RS. 50,67,582/- AND AGAI NST THE ACTION OF THE LD. CIT(A), WHILE HOLDING THAT THE CLAIM OF BAD DEBTS W RITTEN OFF AMOUNTING TO RS. 9,15,92,936/- WAS ALLOWED TO THE ASSESSEE, SETTING ASIDE THE ISSUE TO THE A.O. WITH A DIRECTION FOR VERIFICATION. 2. AS PER THE REGISTRY, THERE IS A DELAY OF 510 DAY S IN FILING THE APPEAL. AS PER THE AFFIDAVIT FILED, THE COPY OF THE LD. CIT(A) S ORDER DATED 28.1.2011 WAS ITA 5775/M/12 2 RECEIVED BY THE CHARTERED ACCOUNTANT OF THE ASSESSE E ON 23-2-2011. THE LIMITATION FOR FILING THE APPEAL EXPIRED ON 25.4.20 11 AND THERE WAS A DELAY OF 511 DAYS IN FILING THE APPEAL. THE COMPANY, BEING A SICK INDUSTRIAL COMPANY, WAS ALREADY STRUGGLING TO REVIVE ITS OPERATIONS AND HAD BEEN CONTESTING VARIOUS LITIGATIONS BEFORE DIFFERENT FORUMS. THE RE TURNED INCOME OF THE ASSESSEE WAS AT A LOSS OF RS. 1,70,89,092/-. THE LD . CIT(A) HAD DECIDED THE MAJOR GROUND IN FAVOUR OF THE ASSESSEE AND, THEREFO RE, THERE WAS NO PERCEIVED TAX LIABILITY. VIDE ORDER DATED 10-6-2010, ISSUED B Y THE BIFR, THE ASSESSEE COMPANY GOT APPROVAL, IN PRINCIPLE, OF THE REHABILI TATION SCHEME AND, HENCE, IT WAS MAKING STRENUOUS EFFORTS FOR REVIVAL. THE APPEA L OF THE ASSESSEE BEFORE THE LD. CIT(A) MET WITH SUCCESS IN PRINCIPLE. HOWEV ER, WITH REGARD TO THE LEGAL ISSUE, INADVERTENTLY, THE APPEAL BEFORE THE TRIBUNA L COULD NOT BE FILED IN TIME. THE A.O. MADE UNNECESSARY ADDITION WHILE GIVING EFF ECT TO THE ORDER OF THE LD. CIT(A). 3. IN THIS REGARD, IT IS SEEN THAT THE ASSESSEE COM PANY IS A SICK COMPANY. DURING THE RELEVANT TIME, IT WAS STRUGGLING TO REVI VE ITS OPERATION. IT WAS FIGHTING DIFFERENT PIECES OF LITIGATION. THE LD. CI T(A)S ORDER WAS, IN PRINCIPLE, IN FAVOUR OF THE ASSESSEE. IT WAS, IN THESE CIRCUMSTAN CES, THAT NO APPEAL WAS FILED BEFORE THE TRIBUNAL. IT WAS ONLY THE A.O.S O RDER GIVING EFFECT TO THE LD. CIT(A)S ORDER, WHICH GAVE RISE TO THE CAUSE OF ACT ION FOR FILING OF THE APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL, IT WAS SINCE IN T HIS SUBSEQUENT ORDER, THAT THE A.O. MADE ADDITION. 4. FROM THESE UNDISPUTED FACTS, WE FIND THAT THE AS SESSEE WAS VISITED WITH SUFFICIENT CAUSE PREVENTING IT FROM FILING THE APPE AL BEFORE THE TRIBUNAL IN TIME. THE DELAY WHICH OCCURRED IN THE PROCESS IS EV IDENTLY INADVERTENT AND BONAFIDE. OTHERWISE TOO, NO ASSESSEE CAN STAND TO G AIN BY DELAYING THE FILING OF ITS APPEAL, SINCE THE DISPOSAL OF SUCH APPEAL IN VOLVES VALUABLE RIGHTS OF THE ASSESSEE AND NO ASSESSEE WOULD FRITTER AWAY SUCH RI GHTS BY EXPOSING THE ITA 5775/M/12 3 APPEAL TO THE DANGER OF BEING DISMISSED ON ACCOUNT OF LIMITATION, IN CASE THE FILING THEREOF IS PURPOSELY DELAYED. 5. FOR THE ABOVE DISCUSSION, THE DELAY IN FILING TH E APPEAL IS CONDONED. 6. APROPOS THE MERITS OF THE CASE, AS PER GROUND NO . 1, THE LD. CIT(A) WAS WRONG IN REJECTING THE ASSESSEES CLAIM REGARDING I NTEREST OF RS. 50,67,582/-, PAYABLE TO FINANCIAL INSTITUTION (IFCI). 7. AS PER THE RECORD, THE ASSESSEE, AS A RESULT OF A ONETIME SETTLEMENT, RECEIVED THE BENEFIT OF INTEREST WAIVER OF RS. 7,88 ,81,972/-. THE ASSESSEE TREATED IT AS REVENUE AND OFFERED IT TO TAX. THE AS SESSEE CLAIMED THAT WHAT WAS TAXABLE IN THE YEAR UNDER CONSIDERATION, UPON WRITE BACK A SUM OF RS. 7,38,14,205/-, SINCE IT HAD BEEN CLAIMED AND ALLOWE D AS EXPENDITURE IN THE RESPECTIVE ASSESSMENT YEAR; AND THAT THE BALANCE AM OUNT OF RS. 50,67,582/- REPRESENTED THE AMOUNT PAYABLE TO IFCI, WHICH HAD B EEN ALLOWED AS A DEDUCTION, SINCE THE AMOUNT WAS NOT PAID. THE ASSES SEE CONTENDED THAT, AS SUCH, THIS AMOUNT SHOULD NOT BE CONSIDERED AS LIABL E TO TAX AND THAT THE RETURN OF INCOME FILED SHOULD BE TREATED AS AMENDED ACCORDINGLY. 8. HOWEVER, THE A.O. WAS OF THE VIEW THAT IT WAS ON ACCOUNT OF VIOLATION OF THE PROVISIONS OF SECTION 43B OF THE ACT, THAT THIS AMOUNT WAS ADDED BACK, AS IT HAD NOT BEEN PAID AND SINCE SECTION 43B OF THE A CT ALLOWED DEDUCTION ONLY ON PAYMENT BASIS. THE A.O. WAS OF THE VIEW THAT IT WAS DUE TO NON-COMPLIANCE OF THE PROVISIONS OF SECTION 43B OF THE ACT, THAT T HE AMOUNT WAS NOT ALLOWED AS A DEDUCTION IN THE EARLIER YEAR, AND THAT THE AS SESSEE COULD NOT ESCAPE THE RIGOR OF SECTION 41(I) AND AVOID OFFERING THE CEASE D LIABILITY TO TAX BY TRYING TO TAKE SHELTER OF THE EARLIER DISALLOWANCE FOR VIOLAT ION OF PROVISIONS OF SECTION 43B OF THE ACT. THE LD. CIT(A) CONFIRMED THE ACTIO N OF THE A.O. THE LD. CIT(A) PLACED RELIANCE ON THE CBDT CIRCULAR NO. 549 DATED 31-10-1989, WHEREIN, IT HAS BEEN INSTRUCTED THAT INCOME CANNOT BE ASSESSED AT A FIGURE LOWER THAN ITA 5775/M/12 4 THAT OF THE RETURNED INCOME. IT WAS THE LD. CIT(A) S VIEW THAT BY ALLOWING THE CLAIM MADE BY THE ASSESSEE, THE RETURNED INCOME WOU LD GO DOWN. 9. THE LD. COUNSEL FOR THE ASSESSEE, CHALLENGING TH E IMPUGNED ORDER ON THIS COUNT, SAYS THAT IN LAW, THERE IS NO IMPEDIMEN T IF THE LD. CIT(A) GRANT RELIEF WHICH WOULD OTHERWISE, RESULT IN DOUBLE TAXA TION OF INCOME, I.E., PROHIBITED IN LAW. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF GUJARAT GAS CO. LTD. VS. JCIT, 245 ITR 84 AND THAT IN THE CASE OF CIT VS. MILTON LAMINATES LTD, 37 TAXMANN.COM 249 (GUJ.). 10. THE LD. D.R., ON THE OTHER HAND, HAS STRONGLY R ELIED ON THE IMPUGNED ORDER. 11. IN THIS REGARD, IT IS SEEN THAT IN GUJARAT GAS CO. LTD. (SUPRA), DEALING WITH THE AFORESAID CBDT CIRCULAR NO. 549 DATED 31-1 0-1989, IT WAS HELD THAT THIS CIRCULAR REFERS TO ASSESSMENTS WHICH ARE TO BE MADE U/S 143(3) OF THE ACT; THAT IN THE SAID ASSESSMENTS, THE INCOME CAN N EITHER BE ASSESSED AT A FIGURE LOWER THAN THE RETURNED INCOME, NOR THE LOSS ASSESSED AT A FIGURE HIGHER THAN THE LOSS, NOR FURTHER REFUND GIVEN, EXC EPT WHAT WAS DUE ON THE BASIS OF THE RETURNED INCOME; THAT BY ISSUANCE OF T HE SAID CIRCULAR, THE QUASI- JUDICIAL OFFICER WAS DIRECTED TO ASSESS CASES OF A PARTICULAR NATURE IN A PARTICULAR MANNER. THE HONBLE HIGH COURT DIRECTED THE A.O. TO MAKE ASSESSMENTS WITHOUT KEEPING IN MIND THE SAID CBDT C IRCULAR. 12. GUJARAT GAS CO. LTD. (SUPRA) WAS FOLLOWED IN THE CASE OF MILTON LAMINATES LTD. (SUPRA), TO HOLD, INTER ALIA, THAT WHERE THE ASSESSEE HAS FILED A RETURN OF INCOME AND HAS DISCLOSED CERTAIN INCOME T HEREIN, WHILE GIVING EFFECT TO THE ORDER OF THE CIT(A) IN FAVOUR OF THE ASSESSE E, THE COMPUTATION OF ASSESSED INCOME CAN GO BELOW THE RETURNED INCOME. NO DECISION TO THE CONTRARY HAS BEEN BROUGHT BEFORE US BY THE DEPARTME NT. THEREFORE, ITA 5775/M/12 5 RESPECTFULLY FOLLOWING THE DECISIONS IN THE CASES O F GUJARAT GAS CO. LTD. (SUPRA) AND MILTON LAMINATES LTD. (SUPRA), GROUND NO. 1 IS ACCEPTED AND THE CLAIM OF THE ASSESSEE RELATING TO INTEREST OF RS. 5 0,67,582/- PAYABLE TO FINANCIAL INSTITUTION (IFCI) IS ACCEPTED. 13. COMING TO GROUND NO.2, THE GRIEVANCE OF THE ASS ESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SETTING ASIDE THE ISSUE REGARDI NG THE ASSESSEES CLAIM FOR BAD DEBTS WRITTEN OFF FOR A SUM OF RS. 9,15,92,936 /-. 14. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT SAL E WAS BEING EFFECTED TO VARIOUS PARTIES ALL OVER INDIA ON CONSIGNMENT AS WE LL AS LOCAL AND CENTRAL SALES; THAT THE ASSESSEE HAD BEEN DECLARED A SICK I NDUSTRIAL UNIT ON 20-02- 1995; THAT THIS DISCLOSURE ADVERSELY AFFECTED THE O PERATIONS OF THE COMPANY AND IT HAD TO FUNCTION WITH A BARE MINIMUM STAFF; T HAT THOUGH EFFORTS WERE MADE FOR RECOVERY OF THE DUES, SUBSTANTIAL AMOUNTS COULD NOT BE RECOVERED FROM THREE PARTIES, NAMELY, M/S HARYANA MILK TRADER S, M/S UNITED AGENCIES AND M/S NIKIT OVERSEAS; AND THAT IT WAS UNDER THESE CIRCUMSTANCES, THAT IT WAS DECIDED TO WRITE OFF THE CLAIMS AS BAD DEBTS. 15. THE A.O., HOWEVER, DECLINED TO ACCEPT THE EXPLA NATION OF THE ASSESSE AND IT WAS HELD THAT THE ASSESSEE HAD FAILED TO CON VINCINGLY PROVE THAT IT WAS IMPOSSIBLE TO COLLECT MONEY FROM ITS DEBTORS, AND T HAT THE ASSESSEE HAD FAILED TO ESTABLISH THAT THE DEBTS WRITTEN OFF WERE BAD DE BTS. 16. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE, SUBJECT TO VERIFIC ATION THAT THE CORRESPONDING AMOUNT HAD BEEN BOOKED AS SALE AND HAD BEEN OFFERED TO TAX IN THE RESPECTIVE YEARS. 17. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT ONCE THE LD. CIT(A) HAD PRINCIPALLY AGREED THAT THE ASSESSEES CLAIM WA S TO BE ALLOWED, NO ITA 5775/M/12 6 DIRECTION FOR VERIFICATION OUGHT TO HAVE BEEN ISSUE D TO THE A.O. IT HAS FURTHER BEEN CONTENDED THAT THE LD. CIT(A) ALSO ERRED IN GI VING THE IMPUGNED DIRECTION, SINCE THE POWER TO SET ASIDE THE ISSUE H AS BEEN OMITTED U/S 251, BY THE FINANCE ACT, 2001. IT HAS BEEN CONTENDED THAT T HE LD. CIT(A) OUGHT TO HAVE DECIDED THE MATTER HERSELF, BY EITHER CALLING FOR A REPORT ON THE ISSUE FROM THE A.O., OR BY ADJUDICATING THE SAME BY GETTING RELEVA NT EVIDENCE ADDUCED AS PER LAW. ON THE OTHER HAND, THE LD. D.R. STRONGLY RELIE D ON THE IMPUGNED ORDER. 18. ON THIS ISSUE, THERE IS NO DISPUTE THAT THE CLA IM OF THE ASSESSEE WAS HELD BY THE LD. CIT(A) TO BE ALLOWABLE. THE OBJECTI ON OF THE ASSESSEE IS THAT SINCE THE POWER OF THE LD. CIT(A) TO SET ASIDE THE ISSUE TO THE FILE OF THE A.O. STOOD WITHDRAWN/OMITTED BY VIRTUE OF THE FINANCE AC T, 2001, THE IMPUGNED DIRECTION COULD NOT HAVE BEEN ISSUED UNDER THE LAW. IN OUR CONSIDERED OPINION, THE FINDING THAT THE ASSESSEES CLAIM IS A LLOWABLE, ITSELF COMES WITH A NECESSARY CONCOMITANT, I.E., VERIFICATION THAT THE CORRESPONDING AMOUNTS STAND IN FACT BOOKED AS SALE AND ACTUALLY OFFERED T O TAX IN THE CONCERNED YEARS. THEREFORE, THOUGH THE ASSESSEE IS RIGHT IN CONTENDING THAT THE LD. CIT(A) DID NOT HAVE THE POWER TO ISSUE THE IMPUGNED DIRECTION, WE HEREBY DIRECT THE A.O. TO ALLOW THE ASSESSEES CLAIM, ON M AKING THIS VERY VERIFICATION. THEREFORE, GROUND NO. 2 IS REJECTED. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH AUGUST, 2015 5 ' *+,- $ 67 8 9 07-08-2015 + ' :& SD/- SD/- (N.K. BILLAIYA) (A.D. JAIN ) ACCOUNTANT MEMBER /J UDICIAL MEMBER 6 $ & MUMBAI ; 8 DATED 07-08-2015 [ %.../ R.K. R.K. R.K. R.K. , SR. PS ITA 5775/M/12 7 ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $ F( () / THE CIT(A)-192, MUMBAI 4. $ F( / CIT-9, MUMBAI 5. I%J : '(KL , ) KL- , 6 $ & / DR, ITAT, MUMBAI F BENCH 6. : M N & / GUARD FILE. ! ( / BY ORDER, # I( '( //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , 6 $ & / ITAT, MUMBAI