M/S. Tinna Finex Ltd., New Delhi V. ITO, New Delhi

ITA 6219/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3411 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-01-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 21-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UMESH CHAND DUBEY
• Keywords: Additional evidence
• Section: 145; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A .NO. 6219/DEL/2013 ASSESSMENT YEAR-2001-02 TINNA FINEX LTD., NO.11, WOOD VILLA LIND AVENUE, BUND ROAD, CHANDAN HOLA, NEW DELHI-110074 (PAN: AAACT5064C) (APPELLANT) VS ITO, WARD-16(3), NEW DELHI. (RESPONDENT) APPELLANT BY SHRI VED JAIN, CA RESPONDENT BY SHRI UMESH CHAND DUBEY, SR. DR ORDER PER SUDHANSHU SRIVASTAVA, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST ORDER DATED 28/06/2013 PASSED BY THE LD. CIT (APPEA LS) 19, NEW DELHI AND PERTAINS TO ASSESSMENT YEAR 0102. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC LIMITED COMPANY INCORPORATED UNDER THE PROVISIONS O F THE COMPANIES ACT, 1956 AND ALSO REGISTERED AS A NON-BA NKING FINANCIAL COMPANY (NBFC) UNDER THE RESERVE BANK OF INDIA ACT. ORIGINALLY, THE ASSESSMENT IN THIS CASE WAS COMPLET ED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (THE A CT) AT A LOSS OF 2 RS. 5,12,714/- AS AGAINST THE RETURNED LOSS OF RS. 28,55,795/-. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE 1 ST APPELLATE AUTHORITY WHO VIDE ORDER DATED 11/01/2005 ALLOWED T HE APPEAL OF THE ASSESSEE WHEREIN AN ADDITION OF RS. 19,57,000/- ON ACCOUNT OF ACCRUED INTEREST ON NON-PERFORMING ASSETS WAS CH ALLENGED. AGGRIEVED, THE DEPARTMENT FILED AN APPEAL BEFORE TH E INCOME TAX APPELLATE TRIBUNAL WHICH WAS DISMISSED BY THE TRIBU NAL VIDE ORDER DATED 1 ST MAY 2008 IN ITA NO. 1722/DEL/2005. STILL AGGRIEVED, THE DEPARTMENT PREFERRED AN APPEAL BEFOR E THE HONBLE DELHI HIGH COURT. VIDE ORDER DATED 15/10/2010 IN IT A NO. 68/2009, THE HONBLE HIGH COURT SET ASIDE THE ORDER S OF THE AUTHORITIES BELOW AND REMANDED THE CASE BACK TO THE FILE OF THE AO TO DETERMINE THE ISSUE AFRESH IN LIGHT OF THE DI RECTIONS CONTAINED IN THE ORDER. THE OPERATIVE PART OF THE H ONBLE HIGH COURTS ORDER READS AS UNDER THE QUESTION, IN THESE CIRCUMSTANCES WHICH ARISES FOR CONSIDERATION IS AS UNDER WHETHER THE ITAT WAS CORRECT IN LAW IN DELETING TH E ADDITION OF RS. 19,57,000/- MADE BY THE AO ON ACCOUNT OF INTERE ST ON NON- PERFORMING ASSETS, ACCRUED TO THE ASSESSEE AS PER M ERCANTILE SYSTEM OF ACCOUNTING? 3 IN A RECENT JUDGEMENT PRONOUNCED BY THE SUPREME COU RT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD VERSUS JCIT, COIM BATORE (320 ITR 577), THIS VERY ASPECT, VIZ. THE EFFECT OF THE 1998 DIRECTIONS ISSUED BY THE RBI UNDER THE RBI ACT VIS-A-VIS, THE PROVISIONS OF THE ACT, HAVE BEEN CONSIDERED AT LENGTH. IT IS NOT NECE SSARY TO DEAL WITH THE SAID CASE ON DETAIL BECAUSE OF THE REASON THAT FOLLOWING OBSERVATIONS IN THE SAID JUDGEMENT CONTAINED IN PAR AGRAPH 31 THEREOF, WE ARE PROPOSING TO REMIT THE CASE BACK TO THE AO TO RE- EXAMINE THE CASE. PARA 31 OF THE SAID JUDGEMENT REA DS AS UNDER 31. BEFORE CONCLUDING ON THIS POINT, WE NEED TO EM PHASISE THAT THE 1998 DIRECTIONS HAS NOTHING TO DO WITH THE ACCOUNTING TREATMENT OR TAXABILITY OF INCOME UNDE R THE IT ACT. THE TWO, VIZ. IT ACT AND THE 1998 UNDER THE ME RCANTILE SYSTEM OF ACCOUNTING, INTEREST/HIRE CHARGES INCOME ACCRUES THE TIME. IN SUCH CASES, INTEREST IS CHARGED AND DE BITED TO THE ACCOUNT OF THE BORROWER AS INCOME IS RECOGNISED U NDER ACCRUAL SYSTEM. HOWEVER, IT IS NOT SO RECOGNISED UN DER THE 1998 DIRECTIONS AND THEREOF, IN THE MATTER OF ITS P RESENTATION UNDER THE SAID DIRECTIONS, THERE WOULD BE AN ADDED BACK BUT NOT UNDER THE IT ACT NECESSARILY. IT IS IMPORTANT T O NOTE THAT COLLECTIVE ABILITY IS DIFFERENT FROM ACCRUAL. HENCE , IN EACH CASE, THE ASSESSEE HAS TO PROVE, AS HAS HAPPENED IN THIS CASE WITH REGARD TO THE SUM OF RS. 20,34,605/- THA T INTEREST IS NOT RECOGNISED OR TAKEN INTO ACCOUNT DUE TO UNCE RTAINTY IN COLLECTION OF THE INCOME. IT IS FOR THE ASSESSING O FFICER TO ACCEPT THE CLAIM OF THE ASSESSEE UNDER THE IT ACT OR NOT T O ACCEPT IN WHICH CASE THERE WILL BE ADDED BACK EVEN UNDER REAL INCOME THEORY AS EXPLAINED HERE IN BELOW. AS POINTED OUT IN THE AFORESAID CASE BY THE SUPREME COURT, IN EACH CASE, THE ASSESSEE HAS TO PROVE THAT THE INTEREST I S NOT RECOGNISED OR TAKEN INTO CONSIDERATION DUE TO UNCERTAINTY IN C OLLECTION OF THE INCOME. IT IS FOR THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE UNDER 4 THE IT ACT OR NOT TO ACCEPT IT, IN WHICH CASE THERE WILL BE ADDED BACK EVEN UNDER REAL INCOME THEORY. IN THE PRESEN T CASE, HOWEVER, SIMPLY ON THE BASIS THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE AO ADDED THE I NTEREST INCOME ON ACCRUAL BASIS. THE AO WAS SUPPOSED TO EXAMINE AS TO WHETHER THE LOAN ADVANCED BY THE ASSESSEE HAD BECOME NON-PE RFORMING ASSET AND THERE WAS LIKELIHOOD OF INTEREST INCOME A CCRUING THEREON. TO PUT IT OTHERWISE, IT WAS INCUMBENT UPON THE AO T O APPLY THE THEORY OF REAL INCOME AND TO DETERMINE AS TO WHET HER THAT WAS APPLICABLE IN THE FACTS OF THE PRESENT CASE OR NOT. THE APPLICABILITY OF THE THEORY OF REAL INCOME IN THE CONTEXT OF AF ORESAID RBI GUIDELINES, IS ALSO EXPLAINED IN DETAIL BY THE SUPR EME COURT IN SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THESE CIRCUMS TANCES, WE SET ASIDE THE ORDERS PASSED BY THE AUTHORITIES BELOW AN D REMIT THE CASE BACK TO THE AO TO DETERMINE THIS ASPECT OF THE MATTER FROM THE AFORESAID PERSPECTIVE, KEEPING IN VIEW THE DICTA LA ID DOWN BY THE SUPREME COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA) . 2.1 IN VIEW OF THE DIRECTIONS OF THE HONBLE HIGH C OURT, NOTICE UNDER SECTION 143 (2) OF THE ACT WAS ISSUED TO THE ASSESSEE ALONG WITH THE QUESTIONNAIRE. IN REPLY, THE ASSESSEE REIT ERATED ITS STAND AS HAD BEEN TAKEN IN THE ORIGINAL ASSESSMENT PROCEE DINGS. THE MAIN THRUST OF THE ASSESSEE WAS THAT IT WAS A NONBA NKING FINANCIAL CORPORATION DULY APPROVED BY THE RBI. IT WAS CONTENDED THAT RBI HAD ISSUED GUIDELINES AS TO THE TREATMENT OF ACCRUED INTEREST ON NON-PERFORMING ASSETS IN THE CASE OF NO N-BANKING 5 FINANCIAL COMPANIES. IT WAS FURTHER CONTENDED THAT THE POWER TO ISSUE THESE NORMS, KNOWN AS PRUDENTIAL NORMS, IS DE RIVED BY THE RBI FROM THE RBI ACT BUT THE RBI WAS NOT EMPOWERED TO ISSUE ANY DIRECTIONS WHICH WOULD BE BINDING ON THE AO. IT WAS FURTHER SUBMITTED BEFORE THE AO THAT THE PROVISIONS OF SECT ION 4 READ WITH SECTION 145 WERE VERY CLEAR THAT IN CASE OF A COMPANY IT HAS TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING AND HENCE ANY INCOME ACCRUED BUT NOT RECEIVED IS ASSESSABLE IN ITS HANDS IN THE YEAR IN WHICH IT ACCRUES AND IT HAS NOTHING TO DO WITH THE FACT AS TO WHETHER IT HAS BEEN RECOGNISED AS ITS INCOME UNDER THE RBI ACT OR NOT. THE ASSESSEE SUBMITTED, BEFORE THE AO, THAT THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA) HAS OPINED THAT THE INCOME TAX ACT AND THE RBI ACT OPERATED IN DIFFERENT FIELDS AND WERE FOR DIFFERENT PURPOSES. H OWEVER, THE AO NOTED THAT ON PERUSUAL OF VARIOUS SCHEDULES OF THE BALANCE SHEET REVEALED THAT THE AMOUNT OF DEBTORS (OLDER THAN 6 M ONTHS) HAD DECREASED AS COMPARED TO THE PRECEDING YEAR. THE AO ALSO NOTED THAT THE AMOUNT OF CLAIMS RECEIVABLE HAD ALSO REDUC ED. THE AO PROCEEDED TO CONCLUDE THAT IT WAS NOT POSSIBLE TO C OMPREHEND THAT THE ASSESSEE COMPANY WAS NOT LIKELY TO GET INT EREST INCOME IN FUTURE EVEN FROM NON-PERFORMING ASSETS, AS TERME D BY IT FOR THE 6 TIME BEING. THE AO FURTHER OBSERVED THAT THE ENTIRE EXERCISE OF NOT RECOGNISING ACCRUED INTEREST AND DECLARING IT A S INCOME WAS A CALCULATED ATTEMPT TO REDUCE THE BURDEN OF TAX. THE AO PROCEEDED TO TREAT RS. 19,57,000/- AS INCOME ON ACC OUNT OF ACCRUED INTEREST AND THE ASSESSMENT WAS COMPLETED A T A LOSS OF RS. 5,12,714/- AS ORIGINALLY ASSESSED. 2.2 AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. CIT (APPEALS) WHO DISMISSED THE APPEAL. NOW THE ASS ESSEE HAS APPROACHED THE ITAT AGAINST THE SAID ORDER AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) HAS ERRED IN NOT CONSIDERING THE APPLICATION U/R 46A FILED BY THE COUNSEL OF THE ASS ESSEE DURING THE COURSE OF APPEAL AND CONFIRMING THE ADDITIONS MADE BY THE A.O. OF RS.19,57,000/-. 2. THAT THE HONORABLE HIGH COURT OF DELHI VIDE IT S ORDER DATED 5/10/2010 HAD SET ASIDE THE ORDERS OF T HE AUTHORITIES BELOW AND REMANDED BACK THE MATTER TO T HE A.O. TO VERIFY THE RECOVERABILITY OF THE INTEREST N OT ACCOUNTED FOR/ WRITTEN OFF BY THE APPELLANT DURING THE YEAR UNDER ASSESSMENT. 3. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, AMEN D, ALTER, WITHDRAW OR FORGO ANY GROUND OR GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 7 3. AT THE OUTSET, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD FILED AN APPLICATION UNDER RU LE 46A OF THE INCOME TAX RULES BEFORE THE LD. COMMISSIONER OF INC OME TAX (APPEALS) REQUESTING ADMISSION OF ADDITIONAL EVIDEN CE WHICH WAS HOWEVER REJECTED BY THE LD. CIT (APPEALS). OUR ATTE NTION WAS DRAWN TO PARA 5 OF THE IMPUGNED ORDER WHEREIN THE L D. CIT (APPEALS) HAS REJECTED THE ASSESSEES APPLICATION O N THE GROUND THAT THE ASSESSEE HAD NOT GIVEN ANY SATISFACTORY EX PLANATION OR FILED ANY EVIDENCE OF ANY DIFFICULTY AS TO WHY THES E DOCUMENTS, WHICH WERE BEING SOUGHT TO BE FILED UNDER RULE 46A, WERE NOT FILED DURING THE ASSESSMENT PROCEEDINGS. THE LD. AR IS SUBMITTED THAT THE ISSUE MAY BE SENT BACK TO THE FILE OF THE AO WITH A DIRECTION FOR GIVING THE ASSESSEE AN OPPORTUNITY TO FILE THE RELEVANT DOCUMENTS IN SUPPORT OF ITS CLAIM. 4. THE LD. DEPARTMENTAL REPRESENTATIVE OPPOSED THE PLEA OF REMAND AND SUBMITTED THAT IT WAS ALREADY SECOND-ROU ND BEFORE THE ITAT AND PRAYED THAT NO FURTHER OPPORTUNITIES S HOULD BE GIVEN TO THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE RELEVANT DOCUMENTS ON RECORD. AN ISSUE AROSE BE FORE THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SH. SHA NKER 8 KHANDSARI SUGAR MILLS VERSUS CIT REPORTED IN 193 IT R 669 WHEREIN THE AO HAD FRAMED BEST JUDGEMENT ASSESSMENT UNDER SECTION 144 OF THE ACT BY RELYING UPON THE MATERIAL FROM THE COMMERCIAL TAX DEPARTMENT RELATING TO THE TURNOVER OF THE ASSESSEE. BEFORE THE CIT (APPEALS), THE ASSESSEE PR ODUCED SALES TAX ASSESSMENT ORDER FOR THE 1 ST TIME WHO REFUSED TO LOOK INTO THE SAME ON THE PRETEXT OF ADDITIONAL EVIDENCE. HOLDING THE ACTION OF THE CIT APPEALS TO BE UNJUSTIFIED, THE COURT OBSERV ED THE APPELLATE AUTHORITY SHOULD HAVE ACCEPTED THE M ATERIAL PRODUCED BY THE ASSESSEE AS CLARIFICATORY IN NATURE AND CONSIDERED THE SAME TO TEST THE FAIRNESS AND PROPRIETY OF THE ESTIMATE OF INCOME MADE BY THE INCOME TAX OFFICER. THOUGH IT WA S ABOUT BELATED PRODUCTION OF VERY RELEVANT MATERIAL, NO PR EJUDICE (IN ITS LEGAL SENSE) WOULD HAVE RESULTED TO THE REVENUE BY CONSIDERING THE MATERIAL PRODUCED BY THE ASSESSEE. IN ABSENCE OF AN Y PREJUDICE TO THE REVENUE, AND THE BASIS OF THE TAX UNDER THE ACT BEING TO LEVY TAX, AS FAR AS POSSIBLE, ON THE REAL INCOME, THE AP PROACH SHOULD BE LIBERAL IN APPLYING THE PROCEDURAL PROVISIONS OF TH E ACT. AN APPEAL IS BUT A CONTINUATION OF THE ORIGINAL PROCEEDINGS A ND WHAT THE INCOME TAX OFFICER COULD HAVE DONE, THE APPELLATE A UTHORITY ALSO COULD DO. 5.1 THEREFORE, LOOKING INTO THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE DEEM IT FIT TO RESTORE THE ISSUE TO THE FI LE OF THE AO TO DECIDE THE ISSUE AFRESH AFTER CONSIDERING THE RELEV ANT DOCUMENTS 9 TO BE FILED BY THE ASSESSEE AND AFTER GIVING DUE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ALSO DIRECT THE ASS ESSEE TO PRODUCE THE REQUISITE EVIDENCES BEFORE THE AO WITHI N 30 DAYS OF RECEIVING THE NOTICE FROM THE AO FAILING WHICH THE AO SHALL BE AT LIBERTY TO DRAW A NEGATIVE INFERENCE AND PROCEED EX PARTE. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2017. SD/- SD/- (N. K. SAINI) (SUDHANSHU SRIVAST AVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11TH APRIL 2017 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSTT. REGISTRAR ITAT NEW DELHI 10