The DCIT, Circle-8, Ahmedabad V. Torrent Pvt. Ltd., Ahmedabad

ITA 690/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1659 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 13-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S PANWAR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Opportunity of being heard; Retrospective amendment
• Section: 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 [ASSTT. YEAR : 2003-2004] DCIT, CIR.8 AHMEDABAD. VS. TORRENT PVT. LTD. TORRENT HOUSE, NR. DINESH HALL ASHRAM ROAD AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI S.S.PANWAR ASSESSEE BY : SHRI S.N. SOPARKAR O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THIS IS REVENUES APPEAL AND ASSESSEES CO AGAINST THE ORDER OF THE COMMISSI ONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD DATED 27.11.2006 ARISIN G OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3 ) THE INCOME TAX ACT, 1961. 2. THE GROUND NO.1 OF THE REVENUES APPEAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.12,34,804/- MADE BY THE AO OUT OF CU STOM DUTY PAID IN RESPECT OF TORRENT EXPORTS LTD. FOR THE A.Y.1993 -94 AND 1994-95 WITHOUT CONSIDERING THE FACT THAT THE SAID LIABILIT Y WAS NOT PROVED. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE AO DISALLOWED THE PAYMENT OF RS.12, 34,804/- BEING THE PAYMENT OF CUSTOM DUTY ON THE GROUND THAT IT WAS TH E LIABILITY OF TORRENT EXPORTS LTD. WHICH WAS MERGED WITH THE ASSESSEE. HE THEREFORE STATED THAT SINCE THE LIABILITY DID NOT PERTAIN TO THE ASS ESSEE, THE DEDUCTION FOR THE ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -2- SAME CANNOT BE ALLOWED. THE CIT(A) ALLOWED THE REL IEF, HENCE REVENUE AGGRIEVED WITH THE ORDER OF THE CIT(A) IS IN APPEAL BEFORE US. 4. WE FIND THAT THIS ISSUE TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. T. VEERABHADRA RAO, 155 ITR 152 WHEREIN THEIR LORDSHIP S HELD AS UNDER: IF A BUSINESS, ALONG WITH ITS ASSETS AND LIABILIT IES, IS TRANSFERRED BY ONE OWNER TO ANOTHER, A DEBT SO TRANSFERRED WOUL D BE ENTITLED TO THE SAME TREATMENT IN THE HANDS OF THE SUCCESSOR . THE RECOVERY OF THE DEBT IS A RIGHT TRANSFERRED ALONG W ITH THE NUMEROUS OTHER RIGHTS COMPRISING THE SUBJECT OF THE TRANSFER. IF THE LAW PERMITS THE TRANSFEROR TO TREAT THE WHOLE O R PART OF THE DEBT AS IRRECOVERABLE AND TO CLAIM A DEDUCTION ON T HAT ACCOUNT, THE SAME RIGHT SHOULD BE RECOGNISED IN THE TRANSFER EE. IT IS MERELY AN INCIDENT FLOWING FROM THE TRANSFER OF THE BUSINESS, TOGETHER WITH ITS ASSETS AND LIABILITIES, FROM THE PREVIOUS OWNER TO THE TRANSFEREE. IT IS A RIGHT WHICH SHOULD, ON A PROPER APPRECIATION OF ALL THAT IS IMPLIED IN THE TRANSFER OF A BUSINESS, BE REGARDED AS BELONGING TO THE NEW OWNER. THE ABOVE OBSERVATIONS OF THEIR LORDSHIPS WITH REGA RD TO TAKE OVER OF THE ASSETS I.E. DEBT WOULD BE SQUARELY APPLICABLE WITH REGARD TO TAKE OVER OF THE LIABILITY. ONCE THE ASSESSEE HAS TAKEN OVER AL L THE ASSETS AND LIABILITIES OF THE COMPANY MERGED WITH IT, THE LIABILITY OF EXC ISE DUTY OF TORRENT EXPORTS LTD., WOULD BE REGARDED AS LIABILITY OF THE ASSESSEE. WE THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE APEX COURT, UPHOLD THE ORDER OF THE CIT(A) ON THIS POINT AND RE JECT GROUND NO.1 OF THE REVENUES APPEAL. ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -3- 5. GROUND NO2. READS AS UNDER: 2. THE LD.CIT(A) HAS FURTHER ERRED IN LAW AND ON F ACTS IN DELETING THE ADDITION IN RESPECT OF DIMINUTION IN V ALUE OF INVESTMENT AMOUNTING TO RS.13,85,00,000/- MADE TOT HE BOOK PRO FIT U/S.115JB OF THE ACT. 6. THIS GROUND IS CONNECTED WITH THE ADDITIONAL GRO UND RAISED BY THE ASSESSEE IN ITS CROSS-OBJECTIONS. IN THE CROSS-OBJ ECTION, THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN NOT CANCELING THE LEVY OF INTEREST U/S .234B OF RS.29,99,684/-, PARTICULARLY WHEN - (A) IN THE ORIGINAL ASSESSMENT ADDITION WAS MADE IN COMPUTING THE BOOK PROFIT U/S.115JB FOR THE PROVISI ON FOR DIMINUTION IN VALUE OF INVESTMENT BY APPLYING S UB- CLAUSE (C) OF EXPLANATION TO SECTION 115JB; (B) THE SAID ADDITION IN THE BOOK PROFIT OF RS.13,85,00,000/- WAS DELETED BY CIT(A) AND THE SAI D DECISION OF CIT(A) IS IN CONFORMITY WITH THE SUPREM E COURT DECISION IN THE CASE OF VS. M/S HCL COMNET SYSTEM SERVICES LTD. 305 ITR 0409 (SC): AND (C) NOW IN VIEW OF THE INSERTION OF CLAUSE (I) TO EXPLANATION 1 OF SECTION 115JB BY THE FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2001 WHICH READS AS UNDER.- (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN VALUE OF ANY ASSET.' THE BOOK PROFIT IF INCREASED ON ACCOUNT OF THE SAID AMENDMENT, THE ASSESSEE SHOULD NOT BE HELD LIABLE T O PAY INTEREST U/S.234B OF THE ACT THE ASSESSEE DENIES IT S LIABILITY TO PAY INTEREST U/S.234B WHICH HAS ARISEN ON ACCOUN T OF ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -4- ADDITION MADE DUE TO RETROSPECTIVE AMENDMENT, FOR W HICH ASSESSEE RELIES UPON THE FOLLOWING DECISIONS - (1) HINDUSTAN ELECTRO GRAPHIC LTD. 243 ITR 48 (SC) (2) DEVERSONS P. LTD VS. CHAIRMAN CBDT 273 ITR 414 (GUJ). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ASSE SSEE REQUESTS YOUR HONOURS TO TAKE INTO CONSIDERATION TH AT THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.13,85,00,000/- ON ACCOUNT OF PROVISION MADE IN THE DIMINUTION OF VALUE OF INVEST MENT IN THE BOOK PROFIT U/S 115JB IF THE SAME IS CONFIRMED IN VIEW O F RETROSPECTIVE AMENDMENT ON ACCOUNT OF INSERTION OF CLAUSE (I) IN EXPLANATION 1 TO SECTION 115JB THE SAID ADDITION WOULD AMOUNT TO DOU BLE TAXATION AS IN SUBSEQUENT YEAR WHEN ASSESSEE HAS GIVEN EFFEC T TO THE SAME BY CREDITING THE SAID AMOUNT TO THE PROFIT & LOSS A CCOUNT, INCLUDED IN BOOK PROFIT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ASSE SSEE REQUESTS YOUR HONOURS TO DIRECT THE ASSESSING OFFICER TO EXC LUDE THE SUM OF RS.9,93,93,233/- FROM THE BOOK PROFIT WHICH WAS TAK EN INTO CONSIDERATION WHILE COMPUTING BOOK PROFIT U/S. 115J B AS PER RETURN OF INCOME BEING THE CREDIT SIDE OF THE P&L A /C. ON ACCOUNT OF EXCESS PROVISION FOR LOANS & ADVANCES WRITTEN BA CK AS A NATURAL COROLLARY TO THE ABOVE MENTIONED AMENDMENT. 7. HE HAS STATED THAT THE ABOVE GROUNDS ARE PURELY LEGAL ISSUE AND SAME ARE IN FACT RAISED BECAUSE OF THE RETROSPECTIV E AMENDMENT IN SECTION 115JB BY FINANCE ACT, 2009 WITH RETROSPECTIVE EFFEC T FROM 1-4-2001. HE THEREFORE REQUESTED FOR ADMISSION OF ADDITIONAL GRO UNDS. THE LEARNED DR HAS NO SERIOUS OBJECTION TO THE ADMISSION OF THE AB OVE ADDITIONAL GROUNDS. WE THEREFORE ADMIT THE SAME. 8. WITH REGARD TO GROUND NO.2 OF THE REVENUES APPE AL AS WELL AS ADDITIONAL GROUNDS NO.2 AND 3 OF THE ASSESSEE CO, IT IS STATED BY THE LEARNED COUNSEL THAT FINANCE ACT, 2009 WITH RETROSP ECTIVE EFFECT FROM 1- ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -5- 4-2001 INTRODUCED SUB-CLAUSE (I) TO EXPLANATION-I OF SECTION 115JB, WHICH READS AS UNDER: I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET, 9. THAT AS PER THE ASSESSEES PROFIT AND LOSS ACCOU NT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE MADE PROVISION FO R DIMINUTION IN THE VALUE OF THE INVESTMENT AMOUNTING TO RS.13,85,00,00 0/- . AT THE SAME TIME, THE ASSESSEE HAS CREDITED THE PROFIT AND LOSS ACCOUNT WITH THE EXCESS PROVISION FOR LOANS AND ADVANCES WRITTEN BACK AMOUN TING TO RS.9,93,93,233/-. MOREOVER, WHENEVER ACTUAL DIMINU TION IN THE VALUE OF ASSETS OCCURRED OR DEBT BECAME BAD, THE SAME IS DEB ITED TO THE PROVISION FOR DIMINUTION OF THE VALUE OF INVESTMENT AND NOT THE PROFIT AND LOSS ACCOUNT. HE THEREFORE SUBMITTED THAT IF AT ALL ANY AMOUNT IS TO BE ADDED TO THE BOOK PROFIT, IT SHOULD BE NET AMOUNT I.E. PROVI SIONS FOR DIMINUTION IN THE VALUE OF THE INVESTMENT MADE BY THE ASSESSEE DU RING THE YEAR UNDER CONSIDERATION AS REDUCED BY THE EXCESS PROVISION WR ITTEN BACK DURING THE YEAR UNDER CONSIDERATION. HE ALSO STATED THAT IN T HE SUBSEQUENT YEAR, WHENEVER ACTUAL DIMINUTION IN THE VALUE OF THE ASSE TS TAKES PLACE AND THE SAME IS DEBITED TO THE PROVISION FOR DIMINUTION OF THE VALUE OF INVESTMENT AND NOT TO THE PROFIT AND LOSS ACCOUNT, THE SAME SHOULD BE REDUCED FROM THE BOOK PROFIT. IF IT IS NOT DONE, T HEN IT WILL RESULT IN ANOMALY AND ABSURD SITUATION. HE ALSO RELIED UPON THE DECISION OF THE ITAT, AHMEDABAD BENCH IN THE CASE OF ITO VS. GUJARA T PAGUTHAN ENERGY CORPN. LTD., ITA NO.1953/AHD/2007 DATED 12-1 1-2010. 10. THE LEARNED DR, ON THE OTHER HAND, STATED THAT ALL THESE ARGUMENTS WHICH WERE RAISED BY THE ASSESSEE BEFORE THE ITAT W AS NOT RAISED EITHER ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -6- BEFORE AO OR BEFORE THE CT(A) THEREFORE EITHER THEY SHOULD BE REJECTED OR IF AT ALL ENTERTAINED, THE MATTER MAY BE SENT BACK TO THE FILE OF THE AO SO THAT HE MAY EXAMINE THE ISSUE AFRESH BECAUSE THE CO NTENTION OF THE ASSESSEE WOULD REQUIRE VERIFICATION OF THE FACTS OF THIS YEAR AS WELL AS OTHER YEARS. 11. IN THE REJOINDER, IT IS STATED BY THE LEARNED COUNS EL THAT THE ABOVE ARGUMENTS WERE REQUIRED TO BE PLACED ONLY BECAUSE O F THE RETROSPECTIVE AMENDMENT IN THE INCOME TAX ACT, WHICH CAME MUCH AF TER THE ORDER OF THE AO AS WELL AS THE CIT(A). 12. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE AND ARGUMENTS OF BOTH THE SIDES, WE DEEM IT PROPER TO S ET ASIDE THE ORDER OF THE AUTHORITIES ON THIS POINT AND RESTORE THE MATTE R BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION IN ACCORDANCE WITH LAW. ACC ORDINGLY, GROUND NO.2 OF THE REVENUES APPEAL AS WELL AS GROUND NO.2 AND 3 OF THE ADDITIONAL GROUNDS OF THE CO OF THE ASSESSEE ARE DE EMED TO BE ALLOWED FOR STATISTICAL PURPOSE. 13. GROUND NO.1 OF THE ADDITIONAL GROUND OF THE CO AS WELL AS GROUND NO.3 OF THE CO OF THE ASSESSEE IS AGAINST CHARGING OF INTEREST UNDER SECTION 234B. IT IS CONTENDED BY THE LEARNED COUNS EL THAT THE INTEREST UNDER SECTION 234B CANNOT BE CHARGED IN RESPECT OF LIABILITY OF ADVANCE TAX WHICH AROSE BECAUSE OF THE RETROSPECTIVE AMENDM ENT. IN THIS REGARD, HE RELIED UPON THE FOLLOWING DECISIONS: I) HINDUSTAN ELECTRO GRAPHIC LTD., 243 ITR 48(SC); II) DEVERSONS P. LTD. VS.CHAIRMAN, CBDT, 273 ITR 414 (GUJ). III) CBDT CIRCULAR NO.F.NO.400/234/95-IT(B) DATED 30.1.1997. ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -7- 14. THE LEARNED DR ON THE OTHER HAND STATED THAT WH EN THE MATTER OF COMPUTATION OF BOOK PROFIT ITSELF IS SET ASIDE TO T HE FILE OF THE AO, THE ISSUE OF CHARGING OF INTEREST SHOULD ALSO BE SET AS IDE TO THE FILE OF THE AO. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES A ND THE FACTS OF THE CASE, WE SET ASIDE THE ISSUE OF CHARGING INTEREST U NDER SECTION 234B BACK TO THE FILE OF THE AO AND DIRECT HIM TO RE-ADJUDICA TE THIS ISSUE AFTER RE- COMPUTATION OF ASSESSEES BOOK PROFIT. WE ALSO DIR ECT HIM TO CONSIDER JUDICIAL PRONOUNCEMENT AS WELL AS BOARD CIRCULAR RE FERRED IN PARA 13 OF THIS ORDER, WHILE RE-ADJUDICATING THE ISSUE. NEEDL ESS TO MENTION, THE AO WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE WHILE RE- ADJUDICATING THIS ISSUE. 15. GROUND NO.1 AND 2 OF THE ASSESSEES CO READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF P ROFESSIONAL FEES OF RS.13,12,500/- BY HOLDING THEM TO BE OF CAP ITAL NATURE. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF S TAMP EXPENSES OF RS.16,23,175/- BY HOLDING THEM TO BE OF CAPITAL NATURE. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. BOTH THE ABOVE EXPENDITURE WERE INCURRE D IN CONNECTION WITH THE ACQUISITION OF SHARES WHICH ARE ADMITTEDLY HELD AS AN INVESTMENT. WHEN THE SHARES WERE HELD AS INVESTMENT, THE SAME W AS CAPITAL ASSETS IN THE HANDS OF THE ASSESSEE AND ANY EXPENDITURE FOR A CQUISITION OF THE CAPITAL ASSETS CANNOT BE ALLOWED TO BE REVENUE EXPE NDITURE. WE THEREFORE ITA NO.690/AHD/2007 WITH CO. NO.107/AHD/2007 -8- FIND NO MERIT IN THE GROUND NO.1 AND 2 OF THE ASSES SEES CO, THE SAME ARE REJECTED. 17. IN RESULT, REVENUES APPEAL AS WELL AS ASSESSEE S CROSS-OBJECTION ARE DEEMED TO BE PARTLY ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN OPEN COURT ON 31 ST MARCH, 2011 SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 31-03-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD