M/s. TRIUMPH SECURITIES LTD, MUMBAI V. ACIT. CENT. CIR. - 40, MUMBAI

ITA 6877/MUM/2008

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71196 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Depreciation
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI ! ! ! ! !'##%&' ( ) ) ) ) BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K.BILLAIYA , AM ./ I.T.A. NO. 6877 /MUM/2008 ( ' * ' * ' * ' * +* +* +* +* / ASSESSMENT YEAR : 2005-06) TRIUMPH SECURITIES LTD. RADHA BHUVAN, 1 ST FLOOR, 121, NAGINDAS MASTER ROAD, FORT, MUMBA-400023 ' ' ' ' / VS. ACIT, CENTRAL CIRCLE 40, MUMBAI , ( ./ PAN : AAACT2152P ( ,- / APPELLANT ) .. ( ./,- / RESPONDENT ) ,- 0 1 / APPELLANT BY : SHRI RAJIV KHANDELWAL ./,- 0 1 / RESPONDENT BY : SHRI DR.P.DANIEL ' 0 2( / DATE OF HEARING : 05-09-2013 34+ 0 2( / DATE OF PRONOUNCEMENT : 18 -09-2013 5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-7, MUMBAI, DATED 10.09.2008 PERTAINING TO A.Y. 2005-06 . THE ASSESSEE HAS RAISED FOUR SUBSTANTIATE GROUNDS OF APPEAL AND ONE ADDITIONAL GROUND. 2. ADDITIONAL GROUND IS TAKEN FIRST BY WHICH THE AS SESSEE HAS CHALLENGED THE VALIDITY OF THE ORDER OF THE ASSESSMENT FRAMED U/S 143(3) READ WITH SECTION 148, AS BAD IN LAW AND DESERVES TO BE QUASHED. BEF ORE US, THE COUNSEL FOR THE 2 ITA NO.6877/MUM/2012 TRIUMPH SECURITIES LTD. ASSESSEE HAS RAISED THIS ISSUE FOR THE FIRST TIME C LAIMING THAT THE AO HAS NOT SUPPLIED REASONS FOR REOPENING THE ASSESSMENT AND T HEREFORE, THE REASSESSMENT ORDER IS BAD IN LAW, AS NO REASONS HAVE BEEN PROVID ED TO THE ASSESSEE TILL DATE. THE COUNSEL RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FOMENTO RESORTS AND HOTELS L TD. PER CONTRA , THE LD. DR STRONGLY OBJECTED TO THIS SUBMISSION OF THE COUNSEL STATING THAT THE NOTICE U/S.148 WAS ISSUED ASKING THE ASSESSEE TO FILE THE RETURN OF INCOME, THEREFORE, THERE IS NO OCCASION TO SUPPLY REASONS FOR REOPENIN G THE ASSESSMENT. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D FORCE IN THE SUBMISSION OF THE LD DR. AS NO PREVIOUS ASSESSMENT WAS FRAMED NOR ANY RETURN OF INCOME WAS FILED BY THE ASSESSEE, THE AO HAS ISSUED NOTICE U/S 148 ONLY ASKING THE ASSESSEE TO FILE ITS RETURN OF INCO ME, THEREFORE, WE DO NOT FIND ANY REASON WHY THE AO SHOULD HAVE GIVEN ANY REASON FOR REOPENING THE ASSESSMENT. THE ADDITIONAL GROUND IS ACCORDINGLY D ISMISSED. 4. ON MERITS WITH GROUND NO. 1, THE ASSESSEE HAS CH ALLENGED THE ADDITION OF RS.2,49,26,390/- BEING AMOUNT CREDITED TO CAPITAL R ESERVE ON ACCOUNT OF WAIVER OF PRINCIPAL AMOUNT OF LOAN ALLOWED BY CENTURIAN BA NK. 5. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE AO OBSERVED THAT THE ASSESSEE HAS INCREASED CAPITAL RESERVES. T HE ASSESSEE WAS ASKED TO FURNISH THE DETAILS ON INCREASE IN CAPITAL RESERVE ON LOAN WRITTEN OFF BY CENTURIAN BANK DURING THE YEAR. THE ASSESSEE FILED ITS DETAILED REPLY AND STATEMENT WHICH IS EXHIBITED ON PARA 5 OF THE ASSES SMENT ORDER. IT WAS EXPLAINED THAT THE AMOUNT CREDITED TO THE CAPITAL R ESERVE AT RS.9,23,16,981/- IS ON ACCOUNT OF WAIVER ALLOWED BY THE BANK ON PRINCIP AL AMOUNT. IT WAS CLAIMED THAT THE EXTINGUISHMENT IS OF LIABILITY OF PRINCIPA L AMOUNT AND HENCE THE SAME IS NOT LIABLE TO BE TAXED UNDER THE ACT BEING ON CA PITAL ACCOUNT. THE SUBMISSION OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO, WHO WAS OF THE OPINION THAT THE TOTAL AMOUNT PAYABLE TO CENTURIAN BANK INCLUDED INTEREST TILL 3 ITA NO.6877/MUM/2012 TRIUMPH SECURITIES LTD. MARCH 2001. ACCORDING TO THE AO, RS.17,72,125/- IS INCLUDED IN THE LOAN AS INTEREST AND OTHER CHARGES UP TO 31.03.2012. SINCE , THE ASSESSEE DEFAULTED IN REPAYMENT OF LOAN IN TIME, THE BANK FILED A SUIT BE FORE THE HONBLE DEBT RECOVERY TRIBUNAL, MUMBAI. THE BANK ALSO INVOKED S HARES PLEDGED BY THE COMPANY AND THEREBY REDUCING THE LIABILITY BY RS.7, 03,23,886/- AGAINST THE ORIGINAL DEMAND OF RS.16,47,21,682/-. THE BALANCE AMOUNT OF RS.10,17,91,981/- WAS SETTLED BY ORDER DATED 25.11. 2004 PASSED BY THE DRT. THE ASSESSEE HAS PAID RS.94,75,000/- AS AGAINST THE LIABILITY OF RS.1,01,791,981/- AND THE REMAINING AMOUNT OF RS.9, 23,16,981/- IS WRITTEN OFF. ACCORDING TO THE AO, THE ORDER OF THE DRT DOE S NOT CLEARLY SPECIFY WHETHER THE WRITE-OFF AMOUNT INCLUDES A BANK GUARANTEE, PRI NCIPAL OR INTEREST AMOUNT. ACCORDING TO THE AO, THE LIABILITY WRITTEN OFF AT R S.9,23,16,981/- INCLUDES PRINCIPAL AMOUNT OF RS.6,73,90,591/- AND INTEREST A ND OTHER CHARGES ARE AT RS.2,49,26,390/-. THE AO WAS OF THE FIRM BELIEF TH AT THE ASSESSEE HAS ALREADY DEBITED INTEREST AND OTHER CHARGES TO ITS PROFIT AN D LOSS ACCOUNT IN THE RELEVANT ASSESSMENT PROCEEDINGS AND NOW THE ASSESSEE HAS BEE N BENEFITED BY WAY OF WRITTEN-OFF OF INTEREST AND OTHER CHARGES BY THE OR DER OF THE DRT. PROVISIONS OF SECTION 41(1) OF THE ACT SQUARELY APPLY ON THESE F ACTS. THE AO FURTHER OBSERVED THAT THE ENTIRE LIABILITY WRITTEN OFF OF RS.9,23,16 ,981/- ALSO INCLUDES PRINCIPAL AMOUNT OF RS.6,73,90,591/-. THE ASSESSEE HAS ALSO BEEN BENEFITED BY WAY OF REMISSION OF PRINCIPAL AMOUNT. THEREFORE THE SAME S HOULD ALSO BE TREATED AS REMISSION OR CESSATION OF LIABILITY AND DESERVES TO BE ADDED TO ASSESSEES TOTAL INCOME. THE AO WENT ON TO ADD THE LOAN WRITTEN OFF AMOUNTING TO RS.9,23,16,981/-. 6. ASSESSEE STRONGLY AGITATED THIS MATTER BEFORE TH E CIT(A). AFTER CONSIDERING THE FACTS AND SUBMISSIONS OF THE ASSESS EE, THE CIT(A) WAS CONVINCED THAT THE PRINCIPAL AMOUNT WRITTEN OFF AT RS.6,73,90,591/- IS CAPITAL IN NATURE AND THERE BEING NOTHING ON RECORD TO SHOW THAT THE SAME WAS ALLOWED AS DEDUCTION IN THE PAST. THEREFORE, THE PRINCIPAL AMOUNT CANNOT BE TAXED U/S 41(1) OF THE ACT. HOWEVER, THE CIT(A) WAS OF THE F IRM BELIEF THAT SO FAR AS THE 4 ITA NO.6877/MUM/2012 TRIUMPH SECURITIES LTD. WAIVER OF INTEREST IS CONCERNED AT RS.2,49,26,390/- , THIS INTEREST IS CLEARLY HIT BY THE PROVISIONS OF SECTION 41(1) OF THE ACT AND A CCORDINGLY RESTRICTED THE DISALLOWANCE TO 2,49,26,390/-. AGGRIEVED BY THIS, ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BE EN SUBMITTED BEFORE THE LOWER AUTHORITIES. THE LD. DR STRONGLY SUPPORTED T HE ORDER OF THE LD. CIT(A). 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. THE STATEMENT OF LOAN AMOUNT AS EXHIBITED AT PARA 5 OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE ASSESSEE HAS TRANSFERRED THE WAIVER TO ITS CAPITAL RESERVES AMOUNT TOTALING TO RS.9,23,16,891/-. IT I S NOT IN DISPUTE THAT THE SETTLEMENT AGREEMENT BETWEEN ASSESSEE AND THE BANK DOES NOT SPECIFY THE PRINCIPAL AMOUNT AND THE INTEREST AND OTHER CHARGES . HOWEVER, THE AO HAS GIVEN A VERY CATEGORICAL FINDING BY BIFURCATING THE PRINCIPAL AMOUNT AND THE INTEREST AMOUNT. IN OUR CONSIDERED VIEW, THE CIT(A ) HAS VERY CORRECTLY EXCLUDED THE PRINCIPAL AMOUNT FROM THE CLUTCHES OF THE PROVI SIONS OF SECTION 41(1) OF THE ACT AND RESTRICTED RIGHTLY THE INTEREST PART TO BE TAXED U/S 41(1) OF THE ACT. WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 8. GROUND NO. 2 IS NOT PRESSED AND IS ACCORDINGLY D ISMISSED. 9. GROUND NO. 3 RELATES TO THE ENHANCEMENT OF THE I NCOME BY RS.7,61,354/. THE CIT(A) INVOKING POWERS OF ENHANCEMENT DURING TH E COURSE OF APPELLATE PROCEEDINGS, OBSERVED THAT THE AO DETERMINED THE BU SINESS LOSS AT RS.7,61,354/-. THE CIT(A) FURTHER OBSERVED THAT TH E AO HAS ALLOWED DEPRECIATION OF RS.6,14,812/- IN RESPECT OF BSE CAR D. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS SHOWN OTHER INCOME O F RS.39,000/- AND AGAINST SUCH INCOME, THE ASSESSEE HAS CLAIMED EXPENDITURE O F RS.4,72,676/-. THE CIT(A) WAS OF THE FIRM BELIEF THAT THERE BEING NO B USINESS ACTIVITY AT ALL, THE EXPENDITURE CLAIMED AGAINST THE SUCH INCOME CANNOT BE ALLOWED THOUGH WRONGLY ALLOWED BY THE AO. ACCORDINGLY THE CIT(A) ISSUED NOTICE OF 5 ITA NO.6877/MUM/2012 TRIUMPH SECURITIES LTD. ENHANCEMENT AND DIRECTED THE AO TO TREAT THE BUSINE SS LOSS AT RS.7,61,354 AS NIL/-. THIS HAS RESULTED INTO ENHANCEMENT OF INCOM E TO SUCH EXTENT. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 10. THE COUNSEL FOR ASSESSEE IN HIS LETTER DATED 5 TH SEPTEMBER FAIRLY CONCEDED THAT THE CLAIM OF DEPRECIATION ON BSE CARD OUGHT TO BE DISALLOWED. FOR THE OBSERVATION OF THE CIT(A) THAT THERE IS NOT BUSINESS ACTIVITY, THE COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE TR IBUNAL IN THE CASE OF ITS GROUP CONCERN CLASSIC SHARES & STOCK BROKING PVT. LTD. IN ITA NO.5244/MUM/2011 AND SUBMITTED THAT THE ASSESSEE IS ALSO A PART OF K ETAN PAREKH GROUP AND THE FACTS ARE IDENTICAL. THEREFORE, THE CLAIM OF THE E XPENSES DESERVE TO BE ALLOWED. PER CONTRA THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE CIT( A). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY PERUSED THE ORDER OF THE CIT(A) AS STATED HEREINABOVE. THE CLAI M OF DEPRECIATION ON BSE CARD IS STRAIGHTWAY DISALLOWED FOR THE REASON MENTI ONED HEREINABOVE. SO FAR AS THE OTHER BUSINESS ACTIVITY IS CONCERNED, WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRIBUNAL IN A GROUP CONCERN NAMELY CLASSIC SHARES & STOCK BROKING PVT. LTD. AT PARA 3 OF ITS ORDER HAS HELD AS UNDER:- AS REGARDS GROUND NO.2, IT IS OBSERVED THAT THE ISS UE INVOLVED THEREIN RELATING TO THE HEAD OF INCOME UNDER WHICH INTEREST AND MISCELLANEOUS INCOME IS ASSESSABLE TO TAX IN THE HANDS OF THE ASS ESSEE, IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL RENDERED IN THE CASES OF VARIOUS SISTER CONCERNS OF THE ASSESSEE COMPANY BELONGING T O THE SAME GROUP. IN ONE OF SUCH DECISION RENDERED IN THE CASE OF M/S CLASSIC SHARES & STOCK BROKING SERVICES LTD. VS. ACIT (ITA NO. 191/M UM/2008 AND ITA NO. 1135/MUM/2008 DATED 19-11-2010 ) FOR ASSESSMENT YEAR 2002-03 AND 2003-04, THE TRIBUNAL HAS DECIDED A SIMILAR ISS UE IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRA PH NO. 4.2 OF ITS ORDER : WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MA TTER CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INTEREST INCOME RECE IVED BY THE ASSESSEE FROM THE FDRS PLEDGED WITH THE BANKS FOR ISSUE OF B ANK GUARANTEE TO THE STOCK EXCHANGE IN CONNECTION WITH THE TRADING B USINESS OF THE ASSESSEE. THE ASSESSEE HAD BEEN DEBARRED BY SEBI FO R SHARE 6 ITA NO.6877/MUM/2012 TRIUMPH SECURITIES LTD. TRANSACTIONS BUSINESS IN 2001 DUE TO ALLEGATIONS OF IRREGULARITIES AND MANIPULATIONS. THE CASE OF THE ASSESSEE IS THAT THE ORDER OF SEBI HAD BEEN CHALLENGED. THE LICENSE OF THE ASSESSEE HAD BE EN CANCELLED ONLY IN THE YEAR 2005 AND THE ORDER CANCELLING THE LICENSE HAD ALSO BEEN CHALLENGED BY THE ASSESSEE WHICH WAS DISMISSED BY S AT MUCH LATER AND THE ORDER OF SAT WAS ALSO CONFIRMED BY THE HON BLE SUPREME COURT. BUT THESE WERE SUBSEQUENT ACTIVITIES AND IN THE YEA R UNDER CONSIDERATION THE BUSINESS OF THE ASSESSEE HAD NOT CLOSED AND IT WAS ONLY SUSPENDED IN VIEW OF THE ADVERSE ORDER OF SEBI . WE FIND SMALLER SITUATION HAD BEEN CONSIDERED BY THE TRIBUNAL IN CA SE OF KNP SECURITIES PVT. LTD. (SUPRA) ANOTHER CONCERN OF KETAN PAREKH G ROUP IN WHICH SIMILAR CLAIM WAS MADE BY THE ASSESSEE THAT BUSINESS WAS IN EXISTENCE AND NOT CLOSED. THE TRIBUNAL FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS VELLORE ELECTRICAL COR PORATION LTD. (243 ITR 529) HELD THAT THE BUSINESS HAD NOT CLOSED AND THE CLAIM OF EXPENDITURE HAD TO BE ALLOWED. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL WE HOLD THAT THE BUSINESS OF THE ASSESSEE HAD NOT BEEN CLOSED IN THE RELEVANT YEAR AND THEREFORE FDRS HAD TO BE T REATED AS PLEDGED IN CONNECTION WITH THE BUSINESS WHICH WAS IN EXISTENCE AND THEREFORE THE INTEREST INCOME HAD TO BE TREATED AS INCIDENTAL BUS INESS INCOME. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND ALLOW ED THE CLAIM OF THE ASSESSEE. 12. FACTS AND CIRCUMSTANCES BEING IDENTICAL, RESPE CTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE DO NOT AGREE W ITH THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUS INESS ACTIVITY. THIS FINDING OF THE CIT(A) IS REVERSED EXCEPT FOR THE DISALLOWAN CE OF DEPRECIATION ON BSE CARD. ORDER OF THE CIT(A) IS SET-ASIDE AND THAT OF THE AO IS RESTORED SO FAR AS THIS ISSUE IS CONCERNED. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 8/09/2013 5 0 34+ ( 6' 18 /09/2013 , 4 0 7 SD/- (VIJAY PAL RAO) SD/- (N.K.BILLAIYA) / JUDICIAL MEMBER ( / ACCOUNTANT MEMBER MUMBAI; 7 ITA NO.6877/MUM/2012 TRIUMPH SECURITIES LTD. 6' /DATED : 18 TH SEPTEMBER, 2013. SHEKHAR. P.S. 5 5 5 5 0 00 0 .28 .28 .28 .28 9+2 9+2 9+2 9+2 / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. : ( ) / THE CIT- , MUMBAI. 4. : / CIT(A)- , MUMBAI 5. ;7 .2' , , / DR, ITAT, MUMBAI 6. 7<* = / GUARD FILE. 5' 5' 5' 5' / BY ORDER, /2 .2 //TRUE COPY// > >> > / ? ? ? ? (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI