MODERN THERADS (INDIA) LTD., Jaipur V. ADDL. CIT, Jaipur

ITA 622/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5535 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Capital receipt
• Section: 143(3); 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 622/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S MODERN THREADS (INDIA) LTD., A-4, VIJAY PATH, TILAK NAGAR, JAIPUR. CUKE VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AABCM 1850 A VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 671/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. CUKE VS. M/S MODERN THREADS (INDIA) LTD., A-4, VIJAY PATH, TILAK NAGAR, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AABCM 1850 A VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI VED JAIN & SHRI HIMANSHU GOYAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : M.S. MEENA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 26/12/2015 MN ?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 22/01/2016 ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 2 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND AN OTHER BY THE REVENUE ARISE AGAINST THE ORDER DATED 09/07/2014 PA SSED BY THE LEARNED C.I.T.(A)-II, JAIPUR FOR THE A.Y. 2009-10. THE GROUND S OF ASSESSEES AS WELL AS REVENUES ARE AS UNDER:- GROUND OF ITA NO. 622/JP/2014 1 THAT THE LD CIT(A) HAS ERRED IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER IN TREATING A SUM OF RS. 29,40,94 ,000/- AS INCOME OF THE ASSESSEE ON ACCOUNT OF REMISSION OF P RINCIPAL AMOUNT OF LOAN. THE ADDITION SUSTAINED IS ILLEGAL AN D UNJUSTIFIED. GROUND OF ITA NO. 869/JP/2012 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 16,41,000/- MADE U/S 145A ON ACCOUNT OF EXCISE DUTY LEVIABLE ON CLOSING STOCK. 2. FIRST WE TAKE THE ASSESSEES APPEAL. THE SOLE GROU ND OF THE ASSESSEES APPEAL IS AGAINST CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING A SUM OF RS. 29,40,94,000/- AS INCOME O F THE ASSESSEE ON ACCOUNT OF REMISSION OF PRINCIPAL AMOUNT OF LOAN. T HE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 25/09/2009 DECLARING NIL INCOME. THE CASE ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 3 WAS SCRUTINIZED U/S 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED AS THE ACT). THE ASSESSEE IS IN MANUFACTURI NG OF WOOLEN YARN AND OTHER ITEMS OF WOOL. THE COMPANY HAD BEEN DECLAR ED A SICK COMPANY BY THE BOARD OF FINANCIAL RECONSTRUCTION ON 23/03/2 001. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT IN COMPUTATION, THE ASSESSEE HAD ADDED AN AMOUNT OF RS. 18,15,03,000/- AS TAXABLE EXCEPTIONAL ITEMS. THE DET AILS IN RESPECT OF THE SAME WERE GIVEN BY THE ASSESSING OFFICER ON PAGE NO. 2 OF THE ASSESSING OFFICER, WHICH IS REPRODUCED HEREUNDER:- AMOUNT IN LACS EXCEPTIONAL ITEMS AS PER P&L ACCOUNT 13322.33 LESS: A. REMISSION IN PRINCIPAL AMOUNT BY BANK AND FI 2940.94 WILL NOT BE INCLUDED IN INCOME AS PER FOLLOWING CA SE LAWS A) MAHINDRA & MAHINDRA LTD. VS. CIT 182 CTR 34 (BO M) B) CIT VS CHETAN CHEMICALS P LTD. 267 ITR 770 (GUJ ) B. REMISSION IN INTEREST BY FI ALREADY IN OUR INCOM E 6574.59 IN PRECEDING YEARS HENCE NOT INCLUDED IN THIS Y EAR C. REMISSION IN INTEREST ALREADY ADDED BY US IN 1991.77 PRECEDING YEAR 11507.30 BALANCE INTEREST AMOUNT ADDED IN INCOME 1815.0 3 HE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD S ETTLED ITS LOAN AND INTEREST WITH BANK AND FINANCIAL INSTITUTIONS AND AS PER RECONSTRUCTION AND SETTLEMENT SCHEME THEY HAVE CLAIMED THE AMOUNT AS G IVEN ABOVE. AS PER ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 4 THIS NOTE, IT WAS CLAIMED THAT THE PRINCIPAL AMOUNT OF 2940.94 LACS WAS WRITTEN BACK AND WAS NOT TAXABLE AS INCOME. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE FOR TREATI NG THIS AMOUNT AS INCOME ARISING DUE TO REMISSION OF LIABILITY. THE AS SESSEE FILED ITS REPLY, WHICH HAS BEEN REPRODUCED ON PAGE 2 AND 3 OF THE ASS ESSMENT ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, THE LD ASSE SSING OFFICER HELD THAT THE LD AR HAD PLACED RELIANCE ON THE DECISION OF HO NBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHETAN CHEMICALS (P) L TD. WHEREIN IT WAS HELD THAT SECTION 41(1) CANNOT ROPE IN REMISSION OF LIABILITY, WHICH HAS NOT BEEN ALLOWED AS A DEDUCTION. THE COURT OBSERVED THAT THE ASSESSEE WAS NOT IN MONEY LENDING BUSINESS AND WHERE, THERE WAS RE MISSION OF BOTH THE PRINCIPAL AND THE INTEREST AMOUNT, THE QUESTION OF THE PRINCIPAL AMOUNT BEING CONSIDERED FOR ASSESSMENT CANNOT ARISE . THE LD ASSESSING OFFICER FURTHER FOUND THAT THE ISSUE IS ALSO DISCUS SED AT LENGTH IN RAJARTATNAMS COMMENTARY OF LANDMARK JUDGMENTS WHERE IT IS POINTED OUT THAT SUCH AN INFERENCE DOES NOT READILY FOLLOW, AS S UCH WAIVER, WHETHER OF THE PRINCIPAL AMOUNT OR INTEREST WOULD STILL BE A WIN DFALL, WHICH CAN BE TREATED AS INCOME ONLY, IF IT COULD BE DEEMED AS IN COME U/S 41(1) OF THE ACT. AS THE LANGUAGE OF SECTION 41(1) DOES NOT MAK E AN EXCEPTION FOR ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 5 THE MONEY LENDING BUSINESS, SO IT SHOULD MAKE NO DI FFERENCE WHETHER THE ASSESSEE WAS IN MONEY LENDING BUSINESS OR NOT. FURTH ER, IN THE CASE OF CIT VS. SUNDARAM IYENGAR (T.V.) AND SONS LTD. 222 ITR 344 (SC), IT WAS OBSERVED THAT THE PRINCIPAL APPEARS TO BE THAT IF AN AMOUNT IS RECEIVED IN COURSE OF TRADING TRANSACTION, EVEN THOUGH IT IS NO T TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT C HANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEES OWN MONEY BECA USE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMONSENSE DEMANDS THAT THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSESSEE. THE ASSESSEE HAD RECEIVED DEPOSITS IN COURSE OF ITS BUSINESS WHICH WERE ORIGINALLY TREATED AS CAPITAL RECEIPTS. SOME OF THE DEPOSITS WERE NEITHER CLAIMED BY NOR RET URNED TO DEPOSITORS. THERE IS NO DISPUTE THAT THE DEPOSITS WERE RECEIVED I N COURSE OF THE CARRYING ON OF THE BUSINESS OF THE ASSESSEE. ALTHOU GH IT WAS TREATED AS DEPOSIT AND WAS OF CAPITAL NATURE AT THE POINT OF TI ME IT WAS RECEIVED, INFLUX OF TIME THE MONEY HAS BECOME THE ASSESSEES OWN MONEY. WHAT REMAINED AFTER ADJUSTMENT OF THE DEPOSITS HAS NOT B EEN CLAIMED BY THE CUSTOMER. THE CLAIMS OF THE CUSTOMERS HAVE BECOME B ARRED BY LIMITATION. THE ASSESSEE HAS ON ITS OWN TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT. TH ERE IS NO EXPLANATION ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 6 FROM THE ASSESSEE WHY THE SURPLUS MONEY WAS TAKEN TO ITS PROFIT AND LOSS ACCOUNT EVEN IF IT WAS SOMEBODY ELSES MONEY. THEREF ORE, THE AMOUNT WAS TAXABLE AS TRADE RECEIPT IN THE HANDS OF ASSESSE E. THE RATIO OF THE ABOVE CITED CASE IS SQUARELY APPLICABLE TO THE FACT S IN THE INSTANT CASE. IN THIS CASE ALSO, THE ASSESSEE HAS BECOME RICHER BECA USE THE BANKS AND FINANCIAL INSTITUTIONS HAVE WRITTEN OFF THAT AMOUNT IN THEIR BOOKS AND THE ASSESSEE HAS ALSO WRITTEN BACK THE SAID AMOUNT IN IT S BOOKS. IN THIS REGARD, RELIANCE WAS FURTHER PLACED ON THE DECISIONS IN THE CASE OF SOLID CONTAINERS LTD. VS DY.CIT 308 ITR 417 AND ROLLATAINER S LTD. VS. CIT 339 ITR 54 (DEL) WHEREIN IT HAS BEEN HELD THAT WHEN A BORR OWING IS MADE FOR CARRYING ON REGULAR BUSINESS ACTIVITY, SUCH BORROWIN G IS CALLED AS WORKING CAPITAL BORROWING. IT FORMED PART OF THE TRADING LIA BILITY OF THE BORROWER WHEN THE LENDER OF SUCH TRADING FACILITY WAIVES THE A MOUNT EITHER FULLY OR IN PART SUCH AMOUNT SO WAIVED OR FOREGONE WAS CHARGEA BLE TO TAX AS INCOME. HE ALSO HAD GIVEN ILLUSTRATION OF DEEMING I NCOME ON THE BASIS OF GIVEN SITUATION. ACCORDINGLY, HE MADE ADDITION OF R S. 2940.94 LACS IN TRADING INCOME DUE TO REMISSION OF LIABILITY. 3. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 7 3.4 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. IN THE CASE O F MODERN SYNTEX INDIA LTD. (FOR AY 2004-05 TO AY 2006 -07), A SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE ITAT, JA IPUR (ITA NO. 531,532,533/JP/2009, DATED 18.12.2009) AGA INST THE APPELLANT AND IN FAVOUR OF REVENUE. RELEVANT EX TRACT OF THE ORDER OF THE ITAT IS GIVEN BELOW: SINCE ON IDENTICAL ISSUE THE DECISION HAS ALREADY BEEN TAKEN BY ITAT JAIPUR BENCH IN THE CASE OF MODERN INSULATO RS LTD, THEREFORE, WE FIND NO REASON TO DEVIATE FROM THE SA ME. THE EXPLANATION VIDE LETTER DATED 1 7- 10-2008 BEFORE THE AO BY THE ASSESSEE WAS THAT ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESPECT OF LOSSES OR EXPENDITURE AND T HEREFORE, IT CANNOT BE THEIR INCOME WHEN THEY GOT REMISSION O F THE LOAN. WHEREAS THE FACT IN THE PRESENT CASE AS ARGUE D BY DR IS THAT THE ASSESSEE HAD PURCHASED THE CAPITAL/ASSE TS FROM THE LOAN RAISED AND HAS CLAIMED DEPRECIATION ON SUC H ASSETS. BY DEDUCTING THE PRINCIPAL AMOUNT THE ASSESSEE IS GETTING DOUBLE BENEFIT I.E. ON ONE HAND DEPRECIATIO N AND ON THE OTHER HAND, REMISSION OF PRINCIPAL AMOUN T. THE ASSESSEE IS GETTING BENEFIT ARISING FROM BUSINE SS AND THEREFORE, REMISSION IS COVERED UNDER SECTION 28 (I V) OF THE ACT. ORIGINALLY THE AMOUNT RECEIVED THOUGH WAS NOT OF INCOME IN NATURE AND AMOUNT REMAINED WITH THE ASSES SEE FOR A LONG PERIOD AND BY REMISSION OF THE SAID AMOUNT, ASSESSEE BECAME RICHER BY SAID AMOUNT OF REMISSION AND THE A SSESSEE ITSELF HAS TREATED THE MONEY AS ITS OWN MONEY. THER EFORE, IN SUCH CIRCUMSTANCES AND FACTS OF THE PRESENT CASE TH E AMOUNT SO ESTIMATED IS TO BE TREATED AS ASSESSABLE INCOME OF THE IMPUGNED YEAR IN VIEW OF THE DECISION OF ON THE SUP REME COURT OF INDIA IN THE CASE OF CIT V/S SUNDARAM LYEN GER AND SONS LTD, AS LAW OF LAND AND DECISIONS OF A HIGH CO URT AND TRIBUNAL RELIED UPON BY ASSESSEE ARE NOT APPLICABLE IN THE ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 8 PRESENT CASE. THEREFORE, WE FIND NO INFIRMITY IN TH E ORDER OF AO. THE CIT (A) IS NOT JUSTIFIED IN REVERSING THE O RDER OF AO.' 3.4.2 THE APPELLANT HAS STATED THAT THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF TOSHA INTERNATIONAL (SUPRA ) WAS DELIVERED AFTER THE ABOVE ORDER OF THE ITAT WHICH WOUL D CHANGE THE LEGAL POSITION IN THIS REGARD. IU HAVE P ERUSED THE CASE OF TOSHA INTERNATIONAL. IT RELIES ON THE JU DGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA VS CIT 261 ITR 501 WHICH HAD BEEN DELIVERED BEFORE THE ORDER OF THE ITAT. THEREFORE, THIS ISSUE STANDS COVERED BY THE ABOVE ORDER OF THE JURISDICTIONAL IT AT. 3.4.3 IN VIEW OF THE ABOVE ORDER OF ITAT, JAIPUR AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. SUNDARAM IYENGAR & SONS LTD. (1996) 222 ITR 344/ 88 TAXMAN 429, THE AMOUNT OF REMISSION OF LOAN OF RS. 29,40,94,000/- IS HELD TO BE INCOME IN THE HANDS OF THE APPELLANT. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT U/S 28(IV), ONLY CASH BENEFIT CA N BE TAXED. HE HAS DRAWN OUR ATTENTION ON THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (2003) 261 ITR 501 (BOM). FURTHER THIS INCOME CANNOT BE TAXED U/S 41(1). AS P ER SECTION 41(1), THREE ITEMS I.E. LOSS, EXPENDITURE AND TRADING LIAB ILITY CAN BE TAXED. THE HON'BLE SUPREME COURT IN THE CASE OF NECTAR BEVERAG ES PVT. LTD. VS. ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 9 DCIT (2009) 314 ITR 314 (SC) HAS CONSIDERED THE ISSU E OF DEPRECIATION AND HELD THAT IT IS NEITHER A LOSS NOR AN EXPENDITU RE OR A TRADING LIABILITY HENCE, PROVISIONS OF SECTION 41(1) ARE NOT APPLICAB LE. THE JUDGMENT OF HON'BLE SUPREME COURT WAS NOT CONSIDERED BY THE HOH BLE ITAT WHILE PASSING THE ABOVE JUDGMENT ON WHICH THE RELIANCE HAS BEEN PLACED BY THE LD CIT(A). THE HONBLE JODHPUR ITAT BENCH LATER ON , HAD AN OCCASION TO CONSIDER THE SAME ISSUE IN THE CASE OF KANSARA M ODULLAR LTD. VS ACIT, JODHPUR IN ITA NO. 196/JU/2011 DATED 11/02/2013 REP ORTED AS (2013) 143 ITD 218 (JODHPUR/(2013) 155 TTJ 79 (JODH) WHEREIN IT HAS CATEGORICALLY HELD THAT THE REMISSION OF LIABILITY ON ACCOUNT OF CAPITAL ASSETS WILL NOT BE TAXABLE. THE HONBLE JODHPUR ITAT HAS CONSIDERED THE HON'BLE SUPREME COURT DECISION CITED BY THE LD CIT(A ) I.E. CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA). THIS JUDGMENT OF ITAT BEING THE JUDGMENT OF LATER DATE WILL BE APPLICABLE. MORE SO, WHEN THE JUDGMENT OF THE OTHER HON'BLE HIGH COURTS AND HON'BLE SUPREME C OURT ARE SQUARELY APPLICABLE TO THE PRESENT SET OF FACTS. FURTHER THE IMPORTANT DISTINCTION WHICH THE LD ASSESSING OFFICER AND LD CIT(A) MISSED O UT IN THIS CASE IS THAT WHERE THE REMISSION OF THE LOAN IS IN RESPECT O F THE LOAN USED FOR WORKING CAPITAL THE SAME WILL BE CHARGEABLE TO TAX IN CASE REMISSION TAKES PLACE. HOWEVER, WHERE THE LOAN RAISED IS FOR THE PURP OSE OF ACQUIRING ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 10 CAPITAL ASSETS THE REMISSION THEREOF WILL NOT BE CHA RGEABLE TO TAX IRRESPECTIVE OF THE FACT WHERE THE DEPRECIATION ON S UCH CAPITAL ASSET HAS BEEN ALLOWED OR NOT. FURTHER HE HAS ARGUED THAT IN T HE CASE BEFORE THE BOMBAY HIGH COURT IN MAHINDRA & MAHINDRA LTD. VS. C IT (SUPRA) THE ISSUE WAS CONSIDERED, THE DEDUCTION CLAIMED BY THE A SSESSEE BY WAY OF DEPRECIATION ON THE COST OF MACHINERY AND TOOLINGS, WAS TAXABLE U/S 41(1) OF THE ACT. AS THE COST OF MACHINERY/TOOLINGS BEING FORGONE BY KAISER JEEP CORPORATION DURING THE ASSESSMENT YEAR 1976-77. THE HONBLE COURT HAS DECIDED THIS ISSUE IN FAVOUR OF T HE ASSESSEE AND AGAINST THE DEPARTMENT. FURTHER IN THE CASE OF CIT VS. TOSHA INTERNATIONAL LTD. (2011) 331 ITR 440 (DELHI) WHEREI N THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF BLACK AND WHITE PICT URE TUBES. THE ASSESSEE COMPANY RAN INTO HUGE LOSSES AND IT ULTIMA TELY BECAME A SICK COMPANY AND REGISTERED WITH THE BIFR. UNDER THE ONE TIME SETTLEMENT SCHEME, THE FINANCIAL INSTITUTIONS AND BANKS REQUIR ED THE ASSESSEE TO PAY 60 PERCENT OF THE AMOUNT DUE TOWARDS PRINCIPAL AND WA IVED THE ENTIRE INTEREST PAYMENT. THERE IS NO DISPUTE WITH REGARD TO WAIVER OF INTEREST PAYMENT. THE ONLY OBJECTION RAISED BY THE ASSESSING OFFICER IS WITH REGARD TO WAIVER OF PRINCIPAL AMOUNT TO THE EXTENT O F RS. 10,47,93,857/-, WHICH THE ASSESSEE HAD DIRECTLY CREDITED TO THE CAP ITAL RESERVE ACCOUNT.. ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 11 ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD DERIVED BENEFIT ON THE BASIS OF EITHER DEPRECIATION OR UTILIZING THE WO RKING CAPITAL WHICH WOULD HAVE FORMED PART OF THE EARLIER YEARS INCOME. ACCORDING TO THE ASSESSING OFFICER SINCE THE LOANS CEASED TO EXIST, THIS AMOUNTED TO CESSATION OF LIABILITY AND, THEREFORE, IT HAS TO BE TREATED AS AN INCOME. CONSEQUENTLY, THE ASSESSING OFFICER ADDED THE SAID SUM OF RS. 10.47 CRORES IN THE INCOME OF THE ASSESSEE. ON APPEAL THE CIT(A) AND THE TRIBUNAL FOLLOWING THE DECISION IN MAHINDRA & MAHINDRA LTD.S CASE (SUPRA) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON FURTHER APPEAL BY THE REVENUE THE HONBLE HIGH COURT DID NOT INTERFERE WITH THE CONCLUSION OF THE TRIBUNAL AND UPHELD THE ORDER PASS ED BY THE TRIBUNAL. ON FURTHER APPEAL BEFORE THE HONBLE SUPREME COURT THEIR LORDSHIPS. DISMISSED THE DEPARTMENTS SPECIAL LEAVE PETITION A GAINST THE JUDGMENT DATED 23-9-2008 OF THE DELHI HIGH COURT IN ITA NO. 1143 OF 2008 WHEREBY THE HIGH COURT FOLLOWING MAHINDRA & MAHINDRA LTD.S CASE (SUPRA) UPHELD THE ORDER OF THE TRIBUNAL HOLDING THA T AS THE ASSESSEE HAD NOT GOT ANY DEDUCTION ON ACCOUNT OF ACQUISITION OF CAPITAL ASSETS AS IT HAD BEEN REFLECTED IN THE BALANCE-SHEET AND NOT IN THE PROFIT AND LOSS ACCOUNT AND THE REMISSION OF THE PRINCIPAL AMOUNT OF LOAN O BTAINED FROM THE BANK AND FINANCIAL INSTITUTION HAD NOT BEEN CLAIMED AS E XPENDITURE OR TRADING ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 12 LIABILITY IN ANY EARLIER YEAR, SECTION 41(1) WAS NOT APPLICABLE AND THAT THE ASSESSEE COMPANY HAD EITHER SHOWN THE WAIVER OF INTER EST AS INCOME OR HAD NOT CLAIMED IT AS EXPENDITURE IN THE COMPUTATIO N OF INCOME FILED BEFORE THE LOWER AUTHORITIES. RECENTLY THE HONBLE B OMBAY HIGH COURT HAS CONSIDERED SIMILAR ISSUE IN THE CASE OF CIT-8 VS. M /S SANTOGEN SILK MILLS LTD. ITA NO. 814 OF 2013 DATED 25 TH MARCH, 2015 AND CONFIRMED THE ORDER OF THE ITAT. HE FURTHER RELIED UPON THE DECISION IN THE CASE OF CIT VS. M/S XYLON HOLDINGS PVT. LTD. ITA NO. 3704 OF 2010 D ATED 13 TH SEPTEMBER, 2012 WHEREIN SIMILAR ISSUE HAS BEEN CONSIDERED BY T HE HONBLE BOMBAY HIGH COURT AND APPEAL OF THE REVENUE IS DISMISSED. HE FURTHER RELIED ON THE FOLLOWING CASE LAWS ON THIS ISSUE:- (I) ACCELERATED FREEZ & DRYING CO. LTD. VS. DCIT (20 10) 1 ITR 226. (II) COASTAL CORPORATION LIMITED VS JCIT 118 TTJ 563 VISAKHAPATNAM. THEREFORE, HE PRAYED TO DELETE THE ADDITION. 5. AT THE OUTSET, THE LD CIT DR HAS VEHEMENTLY SUPPO RTED THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE HONBLE JAIPUR B ENCH OF ITAT IN THE CASE OF ACIT VS. M/S MODERN SYNDEX (I) LTD. AND ACIT VS. M/S MODERN DENIM LTD. (WHICH ARE ALSO A GROUP OF THE PRESENT A SSESSEE) IN ITA NO. ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 13 531, 532 & 533/JP/2009 AND ITA NO. 115, 192 AND 534 /JP/2009 ORDER DATED 18/12/2009 HAD CONFIRMED THE ORDER OF THE LD CIT(A) ON THE PRESENT ISSUE IN APPEAL. THEREFORE, HE PRAYED TO CON FIRM THE ORDER OF THE LD CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE COMPANY IS MANUFACTURING OF WOOLEN YARN AND OTHER WOOL ITEMS AND TAKEN LOAN FROM BANK AND FINANCIAL INSTITUTIONS. THE ASSESSEE COMPA NY HAD BECOME SICK COMPANY AND BEFORE BIFR THE BANKS/FINANCIAL INSTITU TIONS HAD SETTLED ITS OUTSTANDING LOAN WHEREBY THE PRINCIPAL LOAN AMOUNT O F RS. 29,40,94,000/- WAS WRITTEN BACK. THE LOAN WAS TAKEN LON G TIME BACK FOR INSTALLING PLANT AND MACHINERY AND SAME WAS ON ACCOU NT OF CAPITAL ACCOUNT. THE CASE LAWS REFERRED BY THE LD CIT(A) I.E. DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SUNDARAM IYENGA R (T.V.) AND SONS LTD. (SUPRA) IS NOT SQUARELY APPLICATION AS WHEREIN THE ASSESSEE GOT THE BENEFIT OF DEPRECIATION AND ON THE OTHER HAND REMIS SION OF THE PRINCIPAL, WHICH IS COVERED U/S 28(IV) OF THE ACT. AS PER SECTI ON 28(IV) THE VALUE OF ANY BENEFIT OR PREREQUISITE WHETHER CONVERTED INTO M ONEY OR NOT ARISING FROM BUSINESS OR THE EXERCISE OF THE PROFESSION CAN BE TAXED. EVEN THE HON'BLE SUPREME COURT IN THE CASE OF NECTAR BEVERAG ES PVT. LTD. VS. ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 14 DCIT (SUPRA) HAS HELD THAT DEPRECIATION IS NEITHER A LOSS NOR AN EXPENDITURE NOR A TRADING LIABILITY, THEREFORE, SET TLEMENT OF PRINCIPAL AMOUNT BY THE BANK/FINANCIAL INSTITUTION CANNOT BE ASSESSED U/S 41(1) OF THE ACT. THE OTHER CASE LAWS REFERRED BY THE AR PARTI CULARLY THE DECISION IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (SUP RA) AND CIT VS. TOSHA INTERNATIONAL LTD. (SUPRA) AND OTHERS ARE SQUA RELY APPLICABLE. THEREFORE, WE DELETE THE ADDITION CONFIRMED BY THE LD CIT(A). THE ASSESSEES APPEAL ON THIS GROUND IS ALLOWED. 7. NOW WE TAKE THE REVENUES APPEAL. THE REVENUES GRO UND OF APPEAL IS AGAINST DELETING THE ADDITION OF RS. 16.41 LACS MADE U/S 145A OF THE ACT ON ACCOUNT OF EXCISE DUTY LEVIABLE ON CLOSING S TOCK. THE LD ASSESSING OFFICER OBSERVED THAT AS PER SCHEDULE-10 OF BALANCE SHEET, THE CLOSING STOCK HAS BEEN SHOWN AMOUNTING TO RS. 591.41 LACS I N POINT NO. 6 TO THE ANNEXURE-C-1 OF THE AUDIT REPORT. IT IS STATED THAT THE ASSESSEE HAS CLAIMED AMOUNT OF EXCISE DUTY ON PAYMENT BASIS. THE LD ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO MAKE ADJUSTMENT U/S 145A OF THE ACT. THE ASSESSEE FILED REPLY VIDE L ETTER DATED 28/11/2011, WHICH HAS BEEN REPRODUCED BY THE ASSESS ING OFFICER IN ASSESSMENT ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, IT HAS BEEN HELD THAT THE PROVISIONS OF SECTION 145A CATEGORICALLY L AID DOWN THAT IN THE ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 15 VALUATION OF CLOSING STOCK, ANY TAX, DUTY, CESS OR FEES IS REQUIRED TO BE INCLUDED IN THE VALUE OF THE STOCK PROVIDED, IT IS ACTUALLY PAID OR INCURRED BY THE ASSESSEE. THE EXPENSES IN RESPECT OF SUCH TAX , DUTY ETC. IF SO PAID OR INCURRED IN ORDER TO BRING THE GOODS TO THE PLAC E OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION IS TO BE CONS IDERED IN THE VALUATION OF CLOSING STOCK. THE TAX DUTY ETC. INCURRED BY THE ASSESSEE MEANS THAT THESE HAD BECOME PAYABLE. IT IS CLEAR THAT THE MOME NT GOODS ARE MANUFACTURED, EXCISE DUTY BECOMES PAYABLE ON THEM I RRESPECTIVE OF THE FACT THAT THEY ARE LYING UN-CLEARED IN THE WAREHOUSE . SUCH DUTY IS THEREFORE, LIABLE TO BE INCLUDED IN THE VALUE OF TH E CLOSING STOCK. THE ASSESSEE HAS NOT INCLUDED EXCISE DUTY IN CLOSING ST OCK, THEREFORE, HE MADE ADJUSTMENT OF RS. 16.41 LACS IN CLOSING STOCK U/S 145A OF THE ACT. 8. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALL OWED THE APPEAL BY OBSERVING AS UNDER:- 4.4 I HAVE PERUSED THE FACTS OF THE CASE, THE ASSES SMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS SUBMITTED THAT AS PER SECTION 4 OF THE CENTRAL EXCI SE ACT, 1944 READ WITH RULE 49, EXCISE DUTY BECOMES PAYABLE ONLY WHEN THE GOODS ARE REMOVED FROM THE WAREHOUSE. IN THE INSTANT CASE, IT HAS BEEN STATED THAT GOODS WERE NOT ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 16 REMOVED FROM THE WAREHOUSE. THE APPELLANT HAS RELIED ON THE CASE OF CIT VS. LOKNETE BALASAHEB DESAI SSK LTD. (SUPRA). I HAVE PERUSED THE CASE LAW AND IT IS SEEN THAT IT IS DIRECTLY APPLICABLE TO THE APPELLANTS CASE. THIS IS SUE ALSO AROSE IN AY 2004-05 WHEREIN THE CIT(A) DELETED THIS A DDITION WHICH WAS UPHELD/ CONFIRMED BY ITAT. IN AY 2008-09 ALS O, THIS ADDITION HAS BEEN DELETED BY THE CIT(A)-II, JAI PUR (APPEAL NO. 343/2010-11, DATED 20.12.2013). RESPECT FULLY FOLLOWING THE ABOVE ORDERS, ADDITION TO THE CLOSING STOCK ON ACCOUNT OF EXCISE DUTY U/S 145A, IS DELETED. 9. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD ASSESSING OFFICER. AT THE OUTSET, THE AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSU E IS COVERED BY THE HONBLE ITATS ORDER IN ASSESSEES OWN CASE AND EXCI SE DUTY IS PAYABLE AT THE TIME OF CLEARANCE OF GOODS FROM THE WAREHOUSE. H E RELIED ON THE DECISION IN THE CASE OF CIT VS. LOKNETE BALASAHEM DE SAI SSK LTD. (2011) 339 ITR 288 (BOM) WHEREIN IT HAS BEEN HELD THAT RELEV ANT DATE FOR THE DUTY LIABILITY IS THE DATE ON WHICH THE GOODS ARE CL EARED. THEREFORE, THE ORDER OF THE LD CIT(A) MAY PLEASE BE UPHELD. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE GO ODS ARE LYING IN THE WAREHOUSE AND ON PRODUCTION, EXCISE DUTY IS NOT PAYA BLE IT IS PAYABLE AT ITA 622 & 671/JP/2014_ M/S MODERN THREADS (INDIA) LTD. VS. ADDL.CIT 17 THE TIME OF GOODS CLEARED FROM THE WAREHOUSE, THEREF ORE, NO ADJUSTMENT U/S 145A ON ACCOUNT OF EXCISE DUTY IS REQUIRED TO B E MADE AS PER LAW. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD CIT(A). 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2016. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 22 ND JANUARY, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S MODERN THREADS (INDIA) LTD., JAIP UR 2. IZR;FKHZ @ THE RESPONDENT- THE ADDL. CIT, RANGE-6, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 622 & 671/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR