HAMSONS LABORATORIES P.LTD, MUMBAI V. ITO 1(1)(4), MUMBAI

ITA 684/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6633 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2005-2006
• Appeal Filed On: 24-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Principle of natural justice

Judgement Text

, ,P ,P,P ,P INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.684/MUM/2013, ! ! ! ! / ASSESSMENT YEAR-2005-06 HAMSONS LABORATORIES P. LTD. 12, 1 ST FLOOR, HORNBY VIEW BUILDING, RUSTAM SIDHWA MARG, GUNBOW STREET, FOR, MUMBAI-400001 VS ITO 1(1) (4), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN:AAACH1550P ( '# / APPELLANT) ( $%'# / RESPONDENT) &' ( ) / ASSESSEE BY : SHRI DHARMESH SHAH ( ) / REVENUE BY : SHRI PITAMBER DAS ( (( ( '+ '+ '+ '+ / DATE OF HEARING : 23-04-2014 ,-! ( '+ / DATE OF PRONOUNCEMENT : 23-04-2014 , 1961 ( (( ( 254 )1( '.' '.' '.' '.' / / / / ORDER U/S..254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.26.11.2012 OF THE CIT(A)-4 ,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)ER RED IN LAW AND IN FACTS IN NOT COMPLYING WITH PRINCIPLES OF NATURAL JUSTICE. 2.THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)ER RED IN LAW AND IN FACTS IN CONFIRMING ADDITION ON ACCOUNT OF INTEREST INCOME OF RS.2,17,7 50/- UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT ACTIVITIES,FILED ITS RETURN OF INCOME ON,30.08.2005,DECLARING TOTAL INCOME OF R S.8,52,762/-.ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT,ON28.11. 2007,DETERMINING THE TOTAL INCOME AT RS.10, 73,563/-. EFFECTIVE GROUND OF APPEAL PERTAINS TO ADDITION OF RS.2,17,750/, ON ACCOUNT OF INTEREST IN COME, UNDER THE HEAD INCOME FROM OTHER SOURCES. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD GIVEN LOANS TO GOLDEN DWELLING PVT.LTD.(GDPL)AM OUNTING TO RS.1.09 CRORES,THAT IT WAS TO RECEIVE INTEREST @9% I.E.RS.9,80,750/-,THAT THE ASS ESSEE HAD CREDITED THE SAME IN THE BOOKS OF ACCOUNTS, THAT WHILE FILING RETURN OF INCOME,BY WAY OF A NOTE,IT CLAIMED THAT THE INTEREST RATE WAS FINALLY SETTLED AT 7%,THAT GDPL HAD DEDUCTED TAX AN D PAID INTEREST TO IT ACCORDINGLY.IT WAS STATED BEFORE THE AO THAT GDPL INTIMATED ABOUT THE REVISED RATE AFTER 31.03.2005,THAT EXCESS INTEREST AND TDS SHOWN IN THE BOOKS OF ACCOUNTS OF THE ASSES SEE WAS REVERSED IN SUBSEQUENT ASSESSMENT YEAR TO THE EXTENT OF 2%,THAT IT SHOULD BE ASSESSED FOR THE INTEREST OF RS.7.70 LAKHS.AO REJECTED THE CLAIM MADE BY THE ASSESSEE AND HELD THAT THE ASSESS EE HAD SUBSTANTIAL HOLDING OF SHARES IN GDPL,THAT ASSESSEE HAD SUPPRESSED ITS INCOME BY ADO PTING COLOURABLE DEVICE.FINALLY,HE ADDED RS.2,17,750/-TO THE TOTAL INCOME OF THE ASSESSEE. 2 ITA NO.684/MUM/2013 HAMSONS LABORATORIES P. LTD. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT THE ASSESSEE AND GDPL WERE SISTER CONCERNS,THAT IT WAS AN AFTERTHOUGHT TO REDUCE THE RATE OF INTEREST FROM 9% TO 7%,THAT INTEREST HAD ACCRUED TO THE ASSE SSEE @9% AND SAME WAS CORRECTLY SHOWN IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE.HE REJECTED T HE APPEAL FILED BY THE ASSESSEE. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT RATE OF INTEREST WAS REDUCED FROM 9 TO 7% BY MUTUAL AGREEMENT,THAT GDPL INFORMED THE AS SESSEE ABOUT DEDUCTION OF TAXES AND PAYMENT OF INTEREST AT REDUCED RATE IN THE MONTH OF MAY,THAT BEFORE THAT BOOKS OF THE ASSESSEE WERE AUDITED,THAT IN THE SUBSEQUENT YEAR INTEREST W AS REVERSED IN THE BOOKS OF ACCOUNTS BY IT,THAT THE ASSESSEE DID NOT CLAIM INTEREST EXPENDITURE @9% ,THAT GDPL HAD ALSO SHOWN THE INTEREST RATE AT 7% ONLY.HE REFERRED TO THE DECISION OF HONBLE ALLA HABAD HIGH COURT DELIVERED IN THE CASE OF GIRIRAJ UDYOG (P.)LTD. (273ITR495).HE ALSO RELIED U PON THE MATTER OF POYSHA OXYGEN (P.)LTD OF DELHI BENCH OF THE TRIBUNAL(91ITD616).DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE OF AGREEMENT ABOUT REDUCTION OF INTEREST RATE BEFORE ANY AUTHORITY,THAT INCOME HAD ACCRUED TO THE ASSESSEE,T HAT ASSESSEE HAD NOT FOLLOWED PROPER SYSTEM OF ACCOUNTING,THAT IT SHOULD HAVE SHOWN INTEREST INCOM E @9% IN THE YEAR UNDER APPEAL. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.UNDISPUTED FACTS ARE THAT THE ASSESSEE HAD TAKEN LOAN FROM THE SISTER CO NCERN @ OF 9%,BUT WHILE FILING THE RETURN OF INCOME INTEREST INCOME WAS SHOWN @7%,THAT THE ASSES SEE HAD MADE A CLAIM THAT AS PER THE AGREEMENT WITH THE CREDITOR INTEREST RATE WAS REDUC ED BY 2%.IT WAS ALSO CLAIMED THAT TDS WAS DEDUCTED BY GDPL @7%.FROM THE RECORDS AVAILABLE IT IS NOT CLEAR THAT AS WHEN THE AGREEMENT WAS ENTERED IN TO BY BOTH THE SISTER CONCERNS.IT IS SURE THAT TILL THE END OF THE YEAR UNDER APPEAL AGREEMENT ABOUT REDUCTION OF INTEREST RATE WAS NOT IN EXISTENCE OTHERWISE ASSESSEE WOULD NOT HAVE SHOWN THE RECEIVABLE INTEREST @ 9%.EVEN TILL THE TI ME OF AUDIT OF THE BOOKS OF ACCOUNTS AGREEMENT WAS NOT THERE OTHERWISE IN THE AUDIT REPORT THIS FA CT WOULD HAVE APPEARED.ONE MORE IMPORTANT FACT IS THAT BOTH THE ENTITIES ARE COMPANIES AND AS PER THE COMPANIES ACT CERTAIN FORMALITIES HAVE TO BE FOLLOWED FOR SUCH DECISIONS HAVING EFFECT ON THE INCOME FOR AN EARLIER YEAR.ASSESSE HAS CLAIMED THAT IN THE NEXT YEAR REVERSE ENTRIES ABOUT THE ACCRUED INTEREST WERE PASSED IN THE BOOKS OF ACCOUNTS AND THAT IT HAD NOT CLAIMED INTEREST EXPEN DITURE IN SUBSEQUENT YEAR FOR THE REMAINING INTEREST AMOUNT.WE ARE OF THE OPINION THAT IN THE I NTEREST OF JUSTICE; CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE UNDER APPEAL;MATTER S HOULD BE RESTORED BACK TO THE FILE OF THE FAA FOR FRESH ADJUDICATION.IN THE CASE OF POYSHA OXYGEN (P.)LTD (SUPRA)TRIBUNAL HAS CULLED OUT FOLLOWING PRINCIPLES PERTAINING TO ACCRUAL OF INCOM E AND TAXABILITY OF SUCH INCOME: (1)IF THE INCOME DOES NOT RESULT AT ALL TO THE ASSE SSEE THEN IT CANNOT BE TAXED EVEN THOUGH (I) SUCH INCOME MIGHT HAVE HYPOTHETICALLY ACCRUED; OR (II) E NTRIES ARE MADE IN THE BOOKS OF ACCOUNT OF SUCH HYPOTHETICAL INCOME. (2) IF THE INCOME, ON MUTUAL UNDERSTANDING IS GIVEN UP OR SURRENDERED BY THE ASSESSEE BEFORE ITS ACCRUAL THEN THE INCOME SURRENDERED CANNOT BE TAXED ON THE PRINCIPLE OF REAL INCOME THEORY. HOWEVER, IF SUCH SURRENDER IS MADE AFTER THE ACCRUA L OF SUCH INCOME THEN SUCH INCOME WOULD BE TAXABLE THOUGH THE ASSESSEE MAY BE ENTITLED TO CLAI M BAD DEBT ON THE BASIS OF EVIDENCE. (3)IF THE INCOME HAS ACCRUED OR ARISEN FROM THE TRA NSACTIONS, THEN ITS TAXABILITY CANNOT BE POSTPONED ON THE GROUND OF IMPROBABILITY OF RECOVER Y. (4)THE ISSUE,WHETHER INCOME HAS RESULTED OR NOT TO THE ASSESSEE,SHOULD BE DECIDED AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING THE SUBSEQUENT EVENTS. FAA SHOULD DECIDE THE ISSUE AFTER AFFORDING REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. EFFECTIVE GROUND OF APPEAL RAISED BY THE ASSESSEE I S DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSE E STANDS PARTLY ALLOWED. 0'1 &' 2 3 ( .4 /'1 5 ( ' 67. 3 ITA NO.684/MUM/2013 HAMSONS LABORATORIES P. LTD. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL,2014 . / ( ,-! 9 : 23 $; 201 4 - ( . < SD/- SD/- ( MK MKMK MK0 00 0 ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, : /DATE:23.04.2014. SK / / / / ( (( ( $'= $'= $'= $'= >=!' >=!' >=!' >=!' / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 22 3. THE CONCERNED CIT(A)/ ? @ , 4. THE CONCERNED CIT / ? @ 5. DR H BENCH, ITAT, MUMBAI / =A. $' ,P ,P,P ,P , . . . 6. GUARD FILE/ . 0 %=' %=' %=' %=' $' $'$' $' //TRUE COPY// / / BY ORDER, B / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI