JAYAM HOLDINGS P. LTD, NAVI MUMBAI V. ITO 10(3)(4), MUMBAI

ITA 6914/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62599 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 12-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: KESHAV B BHUJLE

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI N.K.BILLAIYA (ACCOUNTANT MEMBER) ITA NO.6914/MUM/2010 ASSESSMENT YEAR: 2007 -08 M/S. JAYRAM HOLDINGS PVT LTD., 203-B, PLOT NO.66, THE GREAT EASTERN SUMIT, SECTOR-15, CBD BELAPUR, NAVI MUMBAI-400 614 PA NO.AAACJ 1070E ITO 10(3)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI KESHAV B BHUJLE RESPONDENT BY: SHRI SATBIR SINGH DATE OF HEARING: 12.6.2012 DATE OF PRONOUNCEMENT: 4.7.2012 ORDER PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER DATED 20.7.2010 OF LD CIT(A)-22, MUMBAI ON THE FOLL OWING GROUND: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) HAS ERRED IN UPHOLDING THE ADDITION MADE OF RS.2,06,89, 510 U/S.28(IV) OF THE I.T.ACT. THE ADDITION MADE OF RS.2,06,89,510 TO THE TOTAL INCOME FOR A.Y. 2007-08 SHOULD BE DELETED. 2. AT THE OUTSET, WE MAY STATE THAT THE AMOUNT STAT ED IN THE GROUND OF APPEAL IS NOT FACTUALLY CORRECT AND THE AMOUNT ADDED BY THE A O ON ACCOUNT OF CESSATION OF LIABILITY U/S.41(1) IS RS.2,08,17,130, THE ADDITION OF WHICH HAS BEEN CONFIRMED BY LD CIT(A) U/S.28(IV) OF THE ACT. THEREFORE, THE AMOUNT MENTI ONED IN THE GROUND OF APPEAL IS NOT FACTUALLY CORRECT. 3. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES IN ASSESSMENT YEAR UNDER CONSIDERATION. ITA NO.6914/MUM/2010 ASSESSMENT YEAR: 2007 -08 2 THE ASSESSEE FILED THE RETURN OF INCOME DECLARING L OSS OF RS.1,18,524. THE AO HAS MADE THE ASSESSMENT U/S.143(3) OF THE ACT VIDE ORDER DAT ED 31.12.2009 AT AN INCOME OF RS.2,06,98,506 BY MAKING AN ADDITION OF RS.2,08,17, 030 ON ACCOUNT OF CESSATION OF LIABILITY U/S.41(1) OF THE ACT. THE AO HAS STATED THAT IN THE BALANCE SHEET ASSESSEE HAS SHOWN TO RECEIVE AN ADVANCE AGAINST EXPORT TO M/S. MARRON HOLDINGS LTD (MHL) OF RS.2,08,17,030. THE AO STATED THAT ASSESSEE WAS AS KED TO EXPLAIN THE NATURE OF ADVANCES AND ASSESSEE HAS STATED AS UNDER: THE CONFIRMATION IN RESPECT OF ADVANCE AGAINST EXP ORT OF M/S. MARRON HOLDINGS LTD IS ENCLOSED. (ANNEXURE-5) THE ADVANCE AGAINST EXPORT WAS RECEIVED BY US IN THE YEAR 1997-98, WHICH IS STILL REPAYABLE BY US. NO PERMISSION WAS REQUIRED FROM THE RESERVE BANK OF IN DIA, AT THE TIME WHEN THE REMITTANCE AS BOUGHT IN TO THE COUNTRY. U NFORTUNATELY WE COULD NOT ARRIVE AT A DECISION WITH MARRION HOLDINGS AS T O THE SUITABLE GOODS TO BE EXPORTED TO THEM. 4. THE ASSESSEE STATED THAT IT RECEIVED TWO AMOUNTS AS EXPORT ADVANCE FROM MARRON HOLDINGS LTD , GENEVA, SWITZERLAND AS UNDER: 1. 6.2.1997 US$ 200000 = RS. 71,65,900 2. 7.5.1997 US$ 381000 = RS.1,36,51,130 RS.2,08,17,130 5. THE ASSESSEE STATED THAT IT COULD NOT BE ABLE TO MA KE REQUISITE EXPORTS. IT ALSO WENT THROUGH A LONG PERIOD OF FINANCIAL STRINGENCY AND DUE TO WHICH, IT WAS NOT POSSIBLE TO REPAY THE ADVANCE TO MARRON HOLDINGS LTD., GENEV A, SWITZERLAND. THE AO HAS STATED THAT ASSESSEE MADE AN APPLICATION TO RBI IN 2005 AN D, INTER ALIA, SEEKS PERMISSION TO MAKE THE REMITTANCE TO MHL, GENEVA, SWITZERLAND. 6. THE AO HAS STATED THAT THE AMOUNT IS BROUGHT IN AS ADVANCE AS AGAINST EXPORT AND ASSESSEE HAS STILL NOT DECIDED AS TO WHAT IS TO BE EXPORTED. NEITHER DOES THE ASSESSEE HAVE THE LIQUIDITY TO MAKE ANY EXPORT. FU RTHER, MHL, GENEVA, SWITZERLAND IS A SISTER CONCERN AND THE FACTS SUGGEST THAT THE EXPOR T WAS NEVER INTENDED AS THE ASSESSEE HAS STILL NOT ARRIVED AT A SUITABLE GOODS TO BE EXP ORTED. THE ASSESSEE HAS ALSO NOT MADE ANY EFFORT TO RETURN THE MONEY. THE ASSESSEES APP LICATION TO RBI STATES THAT THE DIRECTORS WILL INFUSE FUNDS, HAS ALSO NOT HAPPENED. CONSIDERING THE ABOVE FACTS, AO HAS STATED THAT THE UNCLAIMED CREDIT BALANCE EVEN AFTER A PERIOD OF 10 YEARS HAS NOT BEEN ITA NO.6914/MUM/2010 ASSESSMENT YEAR: 2007 -08 3 TRANSFERRED BY THE COMPANY TO ITS PROFIT AND LOSS A CCOUNT DESPITE THE FACT THAT IT HAS NOT BEEN CLAIMED BY THE CLIENT AND, ACCORDINGLY, TREATE D THAT BY EFFLUX OF TIME, THE ADVANCE TURNED OUT TO BE ESSENTIALLY TRADING RECEIPTS IN TH E YEAR OF DETECTION. THE AO HAS TREATED THE SAID UNCLAIMED ADVANCE AS INCOME OF THE ASSESSEE U/S.41(1) OF THE ACT. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CI T(A). 7. LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF TH E ASSESSEE THAT THE BALANCE IS OUTSTANDING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE SAME HAS BEEN CONFIRMED BY MHL, WHICH HAS PAID THE ADVANCE TO THE ASSESSEE IN 1997-98 AGAINST EXPORT TO THEM, HELD THAT PROVISIONS OF SECTION 41(1) DID NOT APPLY . HOWEVER, LD CIT(A) HAS STATED THAT THE MATTER IS 10 YEARS OLD AND ALSO THE FACT THAT ASSESSEE HAS STOPPED THE EXPORT ACTIVITIES, PROVISIONS OF SECTION 28(IV) ARE APPLIC ABLE. LD CIT(A) HAS PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF PROTOS ENGG. CO.PVT.LTD. VS CIT, 211 ITR 919 (BOM). THEREFORE, LD CIT(A) HAS U PHELD THE ACTION OF AO TO TAX THE SAID AMOUNT OF ADVANCE RECEIVED U/S.28(IV) OF THE A CT. HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT ASSESSEE RECEIVED AN ADVANCE IN A.Y. 1997-98 FROM MHL, GENEVA, SWITZERLA ND AGGREGATING TO RS.2,08,17,030. TO SUBSTANTIATE HIS SUBMISSION, LD A.R. FILED TWO C OPIES OF CERTIFICATES OF INWARD REMITTANCE BOTH DATED 28.3.2005 THAT ASSESSEE RECEI VED THE SAID AMOUNT ON 19.2.1997 OF US$ 2,00,000 EQUIVALENT TO RS.71,66,000 AND ON 7 .5.1997 OF US$ 3,81,000 EQUIVALENT TO RS.1,36,51,130 AS ADVANCE AGAINST EXP ORT. HE SUBMITTED THAT EXPORT COULD NOT BE MADE AND THE LIABILITY CONTINUES IN THE BOOK S OF ACCOUNT OF THE ASSESSEE TILL DATE. LD A.R. REFERRED PAGE 5 OF PB WHICH IS SCHEDULE -7 OF THE BALANCE SHEET FOR A.Y UNDER CONSIDERATION AND SUBMITTED THAT THE SUM OF RS.2,08 ,17,030 IS SHOWN UNDER THE HEAD ADVANCE AGAINST EXPORT TO MHL. HE SUBMITTED THAT THE LIABILITY IS CONTINUED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE SAME HAS N OT BEEN WRITTEN OFF. THEREFORE, IT CANNOT BE ADDED AS INCOME OF THE ASSESSEE U/S.41(1) OF THE ACT OR U/S.28(IV) OF THE ACT AS IT DOES NOT BECOME THE MONEY OF THE ASSESSEE BEC AUSE OF EFFLUX OF TIME. LD A.R. SUBMITTED THAT MHL VIDE ITS LETTER DATED 1.6.2012 A LSO ASKED FOR REFUND OF THE MONEY AND ASSESSEE VIDE ITS LETTER DATED 6.6.2012 HAS WRI TTEN TO RBI (FOREIGN EXCHANGE) TO ITA NO.6914/MUM/2010 ASSESSMENT YEAR: 2007 -08 4 SEEK APPROVAL FOR REFUND OF EXPORT ADVANCE OF RS.2, 08,17,130 TO MHL AND THE SAID APPROVAL IS AWAITED. LD A.R. ALSO REFERRED TO LETT ER DATED 8.6.2012 WRITTEN BY THE ASSESSEE TO MHL ACCEPTING THE LIABILITY TO REPAY TH E EXPORT ADVANCE RECEIVED BY IT. HE SUBMITTED THAT RELIANCE PLACED BY LD CIT(A) ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PROTOS ENGG. CO.PVT.LTD(SUPRA) IS NOT JUSTIFIED AS IN THAT CASE UNCLAIMED BALANCE WITH THE ASSESSEE WAS WRITTEN BAC K TO ITS PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE SAID AMOUNT WAS HELD TO BE RECEIPT O F THE ASSESSEE AS THE ASSESSEES TRADING LIABILITY WAS REDUCED TO THAT EXTENT. LD A .R. SUBMITTED THAT ASSESSEE HAS NOT WRITTEN BACK THE SAID LIABILITY IN ITS BOOKS OF ACC OUNT AND THE SAID LIABILITY STILL PERSISTS AND, THEREFORE, IT CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE. 8. ON THE OTHER HAND, LD D.R. RELIED ON THE ORDER O F LD CIT(A) AND SUBMITTED THAT BY EFFLUX OF TIME, THE SAID ADVANCE HAS TO BE TREATED AS INCOME OF THE ASSESSEE AND TO BE ADDED U/S.28(IV) OF THE ACT. 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTHO RITIES BELOW AND SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND ALSO THE DECISION CITED BY LD CIT(A) TO MAKE THIS ADDITION U/S.28(IV) OF THE ACT. WE HAVE ALSO GONE THROUGH THE RELEVANT PAGES OF PAPER BOOK TO WHICH OUR ATTENTION WAS DRAWN. 10. IT IS A FACT THAT ASSESSEE RECEIVED A SUM OF RS .2,08,17,130 IN THE ASSESSMENT YEAR 1997-98 TOWARDS EXPORTS TO MHL, GENEVA, SWITZE RLAND. IT IS ALSO A FACT THAT ASSESSEE NEITHER HAS MADE EXPORTS AGAINST THE SAID ADVANCE RECEIVED NOR THE AMOUNT HAS BEEN RETURNED TILL DATE. MOREOVER, ASSESSEE HA S STOPPED EXPORT BUSINESS AND IS DEALING ONLY IN THE BUSINESS OF TRADING IN SHARES. ON THE OTHER HAND, THE SAID AMOUNT IS SHOWN AS ADVANCE IN THE BALANCE SHEET. THEREFORE, THE LIABILITY HAS BEEN ACKNOWLEDGED. THE SAID AMOUNT HAS NOT BEEN WRITTEN OFF BY THE ASS ESSEE FROM ITS BALANCE SHEET. ACCORDINGLY, IT CANNOT BE SAID THAT THE LIABILITY H AS CEASED TO EXIST. HONBLE MADRAS HIGH COURT HAS HELD IN THE CASE OF C OMMISSIONER OF INCOME-TAX V. TAMILNADU WAREHOUSING CORPORATION, 292 ITR 310(MAD) THAT THE AMOUNT REPRESENTING LIAB ILITY WHICH WAS SHOWN YEAR AFTER YEAR COULD NOT BE ADDED BACK U/S.41(1) OF THE I.T.ACT, 1961. SAME VIEW HAS ALSO BEEN TAKEN BY HONBLE P&H HIGH COURT IN THE CASE OF SMT, ITA NO.6914/MUM/2010 ASSESSMENT YEAR: 2007 -08 5 SITA DEVI JUNEJA, 2010 TIOL 32(HC P&H IT. FURTHER, HONBLE BOMBAY HIGH COURT HAS ALSO HELD IN THE CASE OF CHASE BRIGHT STEEL LTD, 17 7 ITR 128(BOM) THAT THE ISSUE OF LIMITATION IS NOT APPLICABLE FOR CESSATION OF LIABI LITY FOR THE PURPOSE OF SECTION 41(1) OF THE ACT. IN VIEW OF ABOVE FACT, WE AGREE WITH LD CIT(A ) THAT AO WAS NOT JUSTIFIED TO APPLY THE PROVISIONS OF SECTION 41(1) OF THE I.T.ACT. 11. WE ALSO OBSERVE THAT ASSESSEE HAS PRODUCED LETT ERS FROM MHL DATED 1.6.2012 VIDE WHICH THE SAID ADVANCE GIVEN TO ASSESSEE IN A. Y. 1997-98 WAS DEMANDED FOR AND ASSESSEE HAS WRITTEN LETTER TO RBI DATED 6.6.2012 S EEKING PERMISSION TO REFUND THE SAID ADVANCE TO MHL, GENEVA, SWITZERLAND. 12. BE THAT AS IT MAY, IT IS A FACT THAT ASSESSEE H AS NOT WRITTEN BACK THE SAID AMOUNTS TO ITS PROFIT AND LOSS ACCOUNT AND, THEREFORE, WE A GREE WITH LD A.R. THAT THE RELIANCE PLACED BY LD CIT(A) IN THE CASE OF PROTOS ENGG. CO. PVT.LTD(SUPRA) IS NOT JUSTIFIED. WE ARE ALSO OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 28(IV) WHICH PROVIDES THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERT IBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION SHALL BE C HARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS AND BUSINESS OR PROFESSION COULD NOT BE APPLIED AS THE SAID BENEFIT OR PERQUISITE HAS NOT ARISEN TO THE ASSESSE E BECAUSE THE ASSESSEE IS SHOWING THE SAID AMOUNT AS ITS LIABILITY IN THE BALANCE SHEET Y EAR AFTER YEAR. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE SAID AMOUNT ALSO CANNOT BE ADDED AS INCOME OF THE ASSESSEE U/S.28(IV ) OF THE ACT. ACCORDINGLY, WE DELETE THE SAID ADDITION MADE BY THE AUTHORITIES BE LOW BY ALLOWING GROUND OF APPEAL. 13. IN THE RESULT, APPEAL FIELD BY ASSESSEE IS ALLO WED. PRONOUNCED IN THE OPEN COURT ON 4 TH JULY, 2012 SD/- (N.K.BILLAIYA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 4 TH JULY, 2012 PARIDA ITA NO.6914/MUM/2010 ASSESSMENT YEAR: 2007 -08 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),22, MUMBAI 4. COMMISSIONER OF INCOME TAX, 10 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH I MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI