M/s Kothari Global Limited, Kolkata V. D.C.I.T Cir - 9,kolkata, Kolkata

ITA 595/KOL/2013

• Counselvise Citation: 59523514 RSA 2013
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: S M SURANA
• Keywords: Capital asset; Business income; Depreciation
• Section: 263; 43B

Judgement Text

I.T.A. NO.: 595/KOL./201 3 ASSESSMENT YEAR : 2008-09 PAGE 1 TO 6 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA CORAM : SHRI ABRAHAM P. GEORGE (ACCOUNTANT MEMBER) AND SHRI GEORGE MATHAN (JUDICIAL MEMBER) I.T.A. NO.: 595/KOL./ 2013 ASSESSMENT YEAR : 2008-2009 M/S. KOTHARI GLOBAL LTD.,......................... .........APPELLANT 207, MAHARSHI DEVENDRA ROAD, KOLKATA-700 007 [PAN : AABCK 4312 K] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ..........RESPONDENT CIRCLE-9, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI S.M. SURANA, ADVOCATE, FOR THE ASSESSEE SHRI RAVI JAIN, CIT (D.R), FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : JANUARY 16, 2014 DATE OF PRONOUNCING THE ORDER : JANUARY 29, 2014 O R D E R PER ABRAHAM P. GEROGE : 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER DATED 19.02.2013 PASSED BY LD. COMMISSIONER OF INCOME TAX , KOLKATA-III, KOLKATA UNDER SECTION 263 OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT). 2. FACTS APROPOS ARE THAT ASSESSEE, A SICK COMPANY REGISTERED WITH BFIR, FILED RETURN DECLARING LOSS OF RS.15,36,969/- FOR THE IMPUGNED ASSESSMENT YEAR. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS WI TH REGARD TO ITS RETURN AND SUCH DETAILS WERE FILED. ASSESSEE HAD DURING RE LEVANT PREVIOUS YEAR ARRIVED AT A ONE TIME SETTLEMENT WITH BANKS AND FIN ANCIAL INSTITUTIONS. PRINCIPAL LOANS TOTALLING TO RS.701.59 LAKHS AND IN TEREST OF RS.4,72,23,027/- WERE WAIVED BY THE BANKS. ASSESSIN G OFFICER COMPLETED I.T.A. NO.: 595/KOL./201 3 ASSESSMENT YEAR : 2008-09 PAGE 1 TO 6 2 THE ASSESSMENT ACCEPTING THE RETURN FILED EXCEPT FO R A DISALLOWANCE OF RS.50,000/- UNDER THE HEAD TRAVELLING EXPENSES AN D A DISALLOWANCE OF RS.2,53,000/- FOR WANT OF PARTICULARS. 3. ON 26.10.2012, LD. CIT ISSUED A NOTICE UNDER SEC TION 263 OF THE ACT. IN THE SAID NOTICE IT WAS MENTIONED BY THE LD. CIT THAT ASSESSING OFFICER HAD NOT EXAMINED WHETHER INTEREST OF RS.4,72,23,027 /- WAIVED BY THE FINANCIAL INSTITUTIONS COULD BE TREATED AS INCOME U NDER SECTION 28(IV) OF THE ACT. FURTHER AS PER LD. CIT, BANK AND FINANCIAL INSTITUTIONS HAD ALSO WAIVED PRINCIPAL AMOUNT OF RS.701.59 LAKHS WHICH WA S CREDITED BY THE ASSESSEE TO ITS CAPITAL RESERVE A/C. AS PER LD. CIT , ASSESSING OFFICER DID NOT MAKE ANY ENQUIRY REGARDING THE PURPOSE OF LOANS , THOUGH SUCH LOANS WERE OBTAINED BY HYPOTHECATION OF STOCK, SUNDRY DEB TORS AND RAW MATERIALS. 4. IN REPLY TO THE ABOVE SHOW-CAUSE NOTICE, ASSESSE E SUBMITTED THAT INTEREST WAS NEVER CLAIMED AS A DEDUCTION IN ANY OF THE PRECEDING YEARS AND, THEREFORE, IT COULD NOT BE TAXED UNDER SECTION 41(1) OR 28(IV) OF THE ACT. SIMILAR CONTENTIONS WERE MADE WITH REGARD TO T HE PRINCIPAL AMOUNT ALSO. HOWEVER, LD. CIT WAS OF THE OPINION THAT ASSE SSING OFFICER HAD NOT PROPERLY EXAMINED THE ISSUE AND HAD NOT CONSIDERED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ROLLATAINER S LTD. VS.- CIT [339 ITR 54], HONBLE MUMBAI HIGH COURT IN THE CASE OF S OLID CONTAINERS LTD. VS.- DCIT [308 ITR 417], AND THAT OF HONBLE APEX C OURT IN THE CASE OF CIT VS.- T.V. SUNDARAM IYENGER & SONS LTD. [222 ITR 34 4]. ACCORDING TO HIM, DUE TO THIS REASON, ASSESSMENT WAS ERRONEOUS AND HA D CAUSED PREJUDICE TO THE INTEREST OF REVENUE. HE, THEREFORE, SET ASID E THE ASSESSMENT AND DIRECTED THE ASSESSING OFFICER TO PASS A FRESH ASSE SSMENT. 5. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE ORD ER OF LD. CIT SUBMITTED THAT ASSESSING OFFICER HAD MADE DETAILED VERIFICATION OF THE PRINCIPAL AMOUNT AS WELL AS THE INTEREST AMOUNT WAI VED BY THE BANK AND I.T.A. NO.: 595/KOL./201 3 ASSESSMENT YEAR : 2008-09 PAGE 1 TO 6 3 FINANCIAL INSTITUTIONS. ASSESSING OFFICER HAD EVEN CULLED OUT THE DECISIONS RELIED ON BY THE ASSESSEE, IN SUPPORT OF ITS CONTE NTION THAT NEITHER THE PRINCIPAL AMOUNT WAIVED NOR THE INTEREST WAIVED COU LD BE TAXED. THEREFORE, ACCORDING TO HIM, LD. CIT WAS ONLY TRYIN G TO SUBSTITUTE A LAWFUL VIEW TAKEN BY THE ASSESSING OFFICER WITH HIS OWN. S UBSTITUTION OF A VIEW LAWFULLY TAKEN BY THE ASSESSING OFFICER CANNOT BE D ONE BY INVOKING SECTION 263 OF THE ACT. THEREFORE, ACCORDING TO HIM , LD. CIT FELL IN ERROR IN INVOKING POWERS UNDER SECTION 263 OF THE ACT, WHEN THE REQUISITE CONDITIONS FOR INVOKING SUCH POWERS WERE NOT SATISF IED. 6. PER CONTRA, LD. D.R. SUBMITTED THAT ASSESSING OF FICER HAD NOT VERIFIED WHETHER THE LOANS TAKEN BY ASSESSEE WERE U TILIZED ONLY FOR ACQUIRING CAPITAL ASSETS. ASSESSING OFFICER DID NOT VERIFY WHETHER WAIVER OF INTEREST RESULTED IN A TYPE OF BENEFIT WHICH WOU LD FALL UNDER SECTION 28(IV) OF THE ACT. ASSESSING OFFICER ALSO FAILED TO CONSIDER THE PRINCIPLES LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CASE O F ROLLATAINERS LTD., HONBLE MUMBAI HIGH COURT IN THE CASE OF SOLID CONT AINERS LTD. (SUPRA) AND HONBLE APEX COURT IN THE CASE OF T.V. SUNDARAM IYENGER & SONS LTD. (SUPRA). THEREFORE, ACCORDING TO HIM THE ORDER OF ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF REVENUE. LD. CIT WAS, THEREFORE, ACCORDING TO HIM, JUSTIFIED IN INVO KING SECTION 263 OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THAT ASSESSEE HAD MADE A CLAIM THAT WAIVER OF PRINCIPAL OF AMOUNT OF RS.701.59 LAKHS AND INTEREST OF RS.4,72,23,027/- AS NOT TAXABLE UNDER THE ACT IS CLEAR FROM THE ORIGINA L ASSESSMENT ORDER. RELEVANT PAGE 2 & 3 OF THE ASSESSMENT ORDER DATED 1 4.12.2010 IS REPRODUCED HEREUNDER :- THE ASSESEE TOOK LOANS FROM BANKS AND FINANCIAL IN STITUTIONS IN THE EARLIER YEARS. THE ASSESSEE COMPANY ARRIVED AT ONE TIME SETTLEMENT WITH THE BANKS AND FINANCIAL INSTITUTION S DURING THE YEAR. THE BANKS AND FINANCIAL INSTITUTIONS WAIVED A PART OF THE I.T.A. NO.: 595/KOL./201 3 ASSESSMENT YEAR : 2008-09 PAGE 1 TO 6 4 PRINCIPAL AMOUNT OF LOAN IN ALL TOTALLING TO RS.701 .59 LAKHS AND ALSO THE INTEREST OF RS.4,72,23,027/-. DURING THE Y EAR THE ASSESSEE COMPANY LEASED OUT ITS ENTIRE FACTORY ALON G WITH MACHINES AND EQUIPMENTS ON RENT UNDER AN AGREEMENT TO M/S. K.S. OIL MILLS. THE COPY OF THE AGREEMENT DATED 12 TH SEPTEMBER, 2007 WAS FILED IN THE COURSE OF HEARING. TO MAKE TH E PAYMENT TO THE FINANCIAL INSTITUTIONS AND BANKS AGAINST ONE TIME SETTLEMENT, FUNDS WERE PROVIDED BY THE DIRECTORS AN D THEIR RELATIVES. CONFIRMATIONS LETTERS FOR THE LOANS TAKE N DURING THE YEAR ALONG WITH PAN WERE ALSO FILED. THE ASSESSEE HAS CLAIMED THE INCOME FROM THE RENT OF THE FACTORY LEASED OUT ALONG WITH MACHINERY AND EQUIPME NTS AS BUSINESS INCOME AND HAS CLAIMED DEPRECIATION ON THE SAME. THE DETAILS FAILED BY THE ASSESSEE WERE EXAMINED. IN SO FAR AS THE AMOUNT OF RS.4,72,23,027/- BEING THE INT EREST WAIVED, IT WAS FOUND THAT THE SID AMOUNT WAS TAKEN IN THE P.L. ACCOUNT BUT WHILE COMPUTING THE TOTAL INCOME THE SA ME WAS EXCLUDED. I FIND THAT THIS AMOUNT OF INTEREST WAS W AIVED BY ICICI AND IFCI. IT WAS ALSO FOUND THAT THIS AMOUNT OF INTEREST WAS DEBITED IN THE P.L. ACCOUNT FOR THE ASSESSMENT YEAR 1998- 99 TO ASSESSMENT YEAR 2001-02. HOWEVER, THE SAID AM OUNT OF INTEREST WAS DISALLOWED BY THE ASSESSEE HIMSELF WHI LE COMPUTING THE TOTAL INCOME FOR THOSE FOUR YEARS APP LYING THE PROVISIONS OF SECTION 43B. SINCE THE AMOUNT WAS NEV ER CLAIMED AS DEDUCTION BY THE ASSESSEE IN EARLIER YEARS WHILE COMPUTING THE TOTAL INCOME, NO INTERFERENCE IS CALLED FOR. IN SO FAR AS THE PRINCIPAL AMOUNT OF THE LOAN WAIV ED BY THE FINANCIAL INSTITUTIONS/ BANKS AMOUNTING TO RS.7 01.59 LAKHS IT WAS FOUND THAT THE AMOUNT WAS TAKEN IN THE CAPIT AL RESERVE. THE AMOUNT RELATED TO THE PRINCIPAL LOANS FOR WHICH NECESSARY SETTLEMENT LETTERS WERE EXAMINED. THE ASSESSEE RELI ED ON THE JUDGMENTS IN THE CASE OF MAHINDRA & MAHINDRA LTD. 2 61 ITR 501 (BOMBAY), PRINCIPAL AMOUNT OF LOAN REMISSION NO T AN INCOME. 267 ITR 770 CHETAN CHEMICALS LTD. (GUJ.) PRINCIPAL AMOUNT WRITTEN OF NOT AN INCOME. CONFIND FINANCIAL SERVICES LTD. 67 ITD PAGE 304 FORFEITURE OF SHARE APPLICATION MONEY NOT AN INCOME . 116 TTJ 941 TOSHA INTERNATIONAL LTD. WAIVER OF LOA NS BY FINANCIAL INSTITUTIONS NOT INCOME. 114 ITD 242 INDERSON LEATHERS (P) LTD. REMISSION O F DEBT. HENCE THE CLAIM OF THE ASSESSEE IS ACCEPTED. I.T.A. NO.: 595/KOL./201 3 ASSESSMENT YEAR : 2008-09 PAGE 1 TO 6 5 8. IT IS CLEAR FROM THE ABOVE NARRATIONS MADE BY TH E ASSESSING OFFICER THAT HE HAD EXAMINED THE DETAILS FILED BY ASSESSEE WITH REGARD TO BOTH THE WAIVER OF PRINCIPAL LOAN AS WELL AS INTEREST. ASSES SEE HAD IN THE EARLIER YEARS DISALLOWED BY ITSELF, INTEREST PAYABLE ON THE LOANS SINCE SUCH INTEREST WAS NOT PAID, AS STIPULATED UNDER SECTION 43B OF THE ACT. ONCE A REVENUE OUTGO IS NOT CONSIDERED AS AN ALLOWABLE EXP ENDITURE, THERE IS NO QUESTION OF ANY BENEFIT DERIVED BY THE ASSESSEE, WH EN THERE IS A REFUND OR SQUARING UP ON SUCH HEAD, AT A LATER POINT OF TIME. VIS-A-VIS PRINCIPAL LOANS, ASSESSING OFFICER HAD CLEARLY VERIFIED THE S ETTLEMENT LETTERS. NOT ONLY HAD THE ASSESSING OFFICER VERIFIED THE RECORDS IN RELATION TO THE CLAIMS OF ASSESSEE, BUT HE HAD ALSO CONSIDERED THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS.- CIT [261 ITR 501], COORDINATE BENCH OF DELHI TRIBUNAL I N THE CASE OF DCIT VS.- TORSHA INTERNATIONAL LIMITED (2008) 9 DTR 360, AMRITSAR BENCH OF THIS TRIBUNAL IN THE CASE OF INDERSON LEATHERS (P) LTD. VS.- ACIT (2008) 114 ITD 242, AND HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS.- CHETAN CHEMICALS LTD. [267 ITR 770]. IN THE CASE OF TORSHA INTERNATIONAL LTD. DELHI BENCH OF THIS TRIBUNAL HAD HELD THAT PRO VISIONS OF LOAN/ DEBT BY BANKS/ FINANCIAL INSTITUTIONS DID NOT CONSTITUTE PROFITS NOR CONSTITUTED INCOME UNDER SECTION 28(IV) OF THE ACT SINCE LOANS WERE NEVER CLAIMED AS EXPENDITURE AND ASSESSEE NEVER GOT DEDUCTION FOR AC QUISITION OF CAPITAL ASSET OUT OF SUCH LOANS. HONBLE AMRITSAR BENCH IN THE CASE OF INDERSON LEATHERS (P) LTD. HAD ALSO TAKEN THIS VIEW, THAT TO O AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.V. SUNDARAM IYENGER & SONS LTD. (SUPRA), RELIED ON BY LD. CIT HERE, FOR I NVOKING SECTION 263 OF THE ACT. HONBLE GUJARAT HIGH COURT IN THE CASE OF CHETAN CHEMICALS LTD. (SUPRA) ALSO HELD THAT SECTION 41(1) COULD NOT BE A PPLIED WHEN THERE WAS A REMISSION OF LOANS WHICH WERE NEVER CLAIMED OR AL LOWED AS A DEDUCTION. NO DOUBT IN THE CASE OF SOLID CONTAINERS LTD. (SUPR A), HONBLE MUMBAI HIGH COURT HAD HELD THAT WAIVER OF LOANS TAKEN BY A N ASSESSEE FOR TRADING ACTIVITY COULD BE TAXED UNDER SECTION 28(IV) OF THE ACT. THE LOANS IN THAT CASE WERE ENTIRELY TAKEN FOR TRADING ACTIVITY. HERE , ON THE OTHER HAND, I.T.A. NO.: 595/KOL./201 3 ASSESSMENT YEAR : 2008-09 PAGE 1 TO 6 6 ASSESSING OFFICER HAD ACCEPTED THE CLAIM OF ASSESSE E THAT THE LOANS WERE IN THE CAPITAL FIELD AFTER VERIFYING THE SETTLEMENT LETTERS OF THE CONCERNED BANKS/ FINANCIAL INSTITUTIONS. IN THE CASE OF ROLLA TAINERS LTD. (SUPRA) DECIDED BY THE HONBLE DELHI HIGH COURT, THE LOAN T AKEN BY THE ASSESSEE WAS A CASH CREDIT ACCOUNT. UNDER THE CIRCUMSTANCES, WE FIND THAT LD. CIT WAS TRYING TO SUBSTITUTE A LAWFUL VIEW TAKEN BY THE ASSESSING OFFICER AFTER CONSIDERING VARIOUS JUDGMENTS, WITH ANOTHER VIEW WH ICH AT THE BEST COULD BE CONSIDERED ONLY AS A POSSIBLE ALTERNATIVE ONE. F OR INVOKING SECTION 263 OF THE ACT, IT IS A TRITE LAW THAT NOT ONLY THE ORD ER OF ASSESSING OFFICER HAS TO BE ERRONEOUS BUT IT HAS ALSO TO BE PREJUDICIAL T O THE INTEREST OF REVENUE. IT CANNOT BE INVOKED FOR SUBSTITUTING A LA WFUL VIEW TAKEN BY THE ASSESSING OFFICER. EVEN WHEN THERE ARE TWO LAWFUL I NTERPRETATIONS POSSIBLE, IF THE ASSESSING OFFICER HAD TAKEN ONE OF THEM, WHICH INCIDENTALLY BECAME ADVANTAGEOUS TO THE ASSESSEE, W OULD NOT BE A REASON TO HOLD THAT THE ORDER OF ASSESSING OFFICER WAS ERR ONEOUS. WE ARE, THEREFORE, OF THE OPINION THAT LD. CIT FELL IN ERRO R IN INVOKING THE POWERS VESTED ON HIM UNDER SECTION 263 OF THE ACT IN THE I NSTANT CASE. THE ORDER STANDS QUASHED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DAY OF JANUARY, 2014. SD/- SD/- GEORGE MATHAN ABRAHAM P. GEORGE (JUDICIAL MEMBER) (ACC OUNTANT MEMBER) KOLKATA, THE 29 TH DAY OF JANUARY, 2014 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT(APPEALS) (4) CIT (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.