ITO 3(3)(4), MUMBAI V. VASANT INVESTMENT CORPORATION LTD, MUMBAI

ITA 7338/MUM/2012

• Counselvise Citation: 733819914 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 12-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R M MADHURIDR
• Assessee Lawyers: PRADIP N KAPASI
• Keywords: Bad and doubtful debts

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.7338/MUM/2012 ASSESSMENT YEAR: 2009-10 ITO-3(3)(4), ROOM NO.672, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD MUMBAI-400020 / VS. M/S VASANT INVESTMENT CORPORATION LTD. 1017, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 ( / REVENUE) ( !' # /ASSESSEE) PAN. NO. AABCV3823A CROSS OBJECTION NO.33/MUM/2014 (ARISING OUT OF ITA NO.7338/MUM/2012) ASSESSMENT YEAR: 2009-10 M/S VASANT INVESTMENT CORPORATION LTD. 1017, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 / VS. ITO-3(3)(4), ROOM NO.672, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD MUMBAI-400020 ( !' # /ASSESSEE) ( / REVENUE) PAN. NO.AABCV3823A / REVENUE BY MS. R. M. MADHURI-DR !' # / ASSESSEE BY SHRI PRADIP N. KAPASI $ % & # ' / DATE OF HEARING : 23/09/2015 & # ' / DATE OF ORDER: 07/10/2015 VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS IN APPEAL AGAINST THE IMPUGNED ORDE R DATED 16/08/2012 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI, WHEREAS, THE ASSESSEE HAS PREFERRED CROSS O BJECTION. 2. FIRST, WE SHALL TAKE UP APPEAL OF THE REVENUE, WHEREIN ADDITION OF RS.27,97,000/- BEING ACCRUED IN TEREST ON LOANS AND ADVANCES WAS DELETED BY THE LD. COMMISSIO NER OF INCOME TAX (APPEALS). THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF THE REVENUE IS THAT THE ADDITION WAS DELE TED WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COM PANY IS LIABLE TO DISCLOSE THE SAME IN ITS BOOKS ON THE BAS IS OF MERCANTILE SYSTEM OF ACCOUNTING. ON THE OTHER HAND , THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT EVEN FOR FA LAK HOMES DEVELOPERS PVT. LTD, THE ASSESSEE COMPANY COU LD NOT GET ANY INTEREST IN FINANCIAL YEAR 2008-09 AND CONS EQUENT TO CRIMINAL COMPLAINT, FILED IN THE COURT, THE ASSESSE E COULD NOT GET THE INTEREST WHICH WAS DULY RECORDED BY THE ASS ESSEE COMPANY IN F.Y. 2011-12. IT WAS CONTENDED THAT IT W AS ASSESSED IN LATER A.Y. 2011-12 AND DUE TAXES WERE P AID. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE CO MING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RE LEVANT PORTION FROM THE IMPUGNED ORDER AS CONTAINED IN PAR A 6.1 ONWARDS ALONGWITH THE SUBMISSIONS OF THE ASSESSEE W HICH HAVE BEEN REPRODUCED IN PARA 6.2:- VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 3 6.2. IN THE COURSE OF APPELLATE PROCEEDINGS, THE APPE LLANT'S AR HAS VEHEMENTLY ARGUED AGAINST ABOVE DISALLOWANCE MADE BY THE AO AND HAS FILED WRITTEN SUBMISSION IN SUPPORT OF ITS CONTEN TION. THE RELEVANT PORTION OF APPELLANT'S SUBMISSION IS EXTRACTED HEREIN BELOW:- THE APPELLANT COMPANY HAD GIVEN CERTAIN LOANS AND AL SO DISCOUNTED BILLS OF EXCHANGE DURING THE COURSE OF ITS BUSINESS. THERE WERE DEFAULTS IN REPAYMENT OF PRINCIPAL AND ALSO INTEREST F OR LONG TIME BY SOME PARTIES. FROM THE FOLLOWING PARTIES FOR THIS REASON , THE APPELLANT COMPANY CONSIDERED BOTH PRINCIPAL AND INTEREST AS DOUB TFUL OF RECOVERY AND IRRECOVERABLE AND IN FACT PROVISION OF RS 1 044009471- WAS MADE FOR BAD AND DOUBTFUL DEBTS IN THE FINANCIAL YEAR 2005-06. FOR THIS REASON INTEREST DUE FROM THESE PARTIES WAS NOT TAKEN INTO INCOME DESPITE THE FACT THAT THE APPELLANT FOLLOWS ACCRUAL SYSTEM OF ACCOUNTING. AS NARRATED IN THE STATEMENT OF FACTS NOT ONLY IT WAS NECESSARY TO TAKE PROLONGED LEGAL ACTION AND EVEN THE N THE CHEQUE ISSUED AS AGREED IN THE COURT BOUNCED BACK AND IT WAS NECESSARY TO TAKE CRIMINAL ACTION UNDER NEGOTIABLE INSTRUMENTS ACT. THE PARTIES AND RESPECTIVE INTEREST DUE BUT NOT TAKEN CREDIT WERE A S UNDER A) SHARADA STEEL CORPORATION RS. 16.34 LACS B) FALAK HOME DEVELOPERS PVT. RS. 10.43 LACS C) MRS. BHARATI SATYAJIT DALI RS. 1.20 LACS THE DIRECTOR'S REPORT OF THE APPELLANT COMPANY CONTAIN S DETAILED NOTE ABOUT NOT TAKING CREDIT FOR SUCH INTEREST CONSID ERED IRRECOVERABLE. IN APPELLANT'S OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02 THE QUESTION OF INTEREST DUE FROM M/S SHARADA STEEL CORPORA TION AND NOT TAKEN INTO ACCOUNT WAS BEFORE HON'BLE INCOME TAX APP ELLANT TRIBUNAL BENCH 'B' MUMBAI IN APPEAL NO ITA 2151/M A. Y. 2001 -02/2004. ALSO FOR THE ASSESSMENT YEAR 2002-03 WHERE THE LEARNED CIT(A ) HAD DELETED ADDITION, THE DEPARTMENT HAD GONE IN APPEAL BEFORE SAME BENCH IN APPEAL NO I.T.A. NO 5289/MUM/05 A. Y. 2002 -03. BOTH THE APPEALS WERE DECIDED TOGETHER. THE HON'BLE ITAT DECID ED APPEAL BY THE APPELLANT COMPANY FOR THE ASSESSMENT YEAR 2001-02 IN APPELLANTS FAVOUR DELETING ADDITION OF INTEREST ACCRUED BUT NOT T AKEN INTO AND DEPARTMENT'S APPEAL FOR THE ASSESSMENT YEAR 2002-03 AG AINST DELETION OF ADDITION ON ACCOUNT OF SUCH INTEREST BY THE LEARNED CIT(A) WAS REJECTED THUS CONFIRMING ACTION OF THE APPELLANT COMPANY IN NOT TAKING INTO ACCOUNT CREDIT FOR INTEREST CONSIDERED IRREC OVERABLE. VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 4 THE ABOVE DECISION WAS SUBMITTED TO THE LEARNED ASSE SSING OFFICER BUT HE HAS NOT FOLLOWED THE DECISION OBSERVING THAT THE FACTS OF THE CASE ARE DIFFERENT. IT IS SUBMITTED THAT DESPITE HIGH COURT'S DECREE NO PAYMENTS WERE FORTHCOMING. BESIDES IN CASE OF FALAK H OME DEVELOPERS PVT. LTD. THE CONSENT TERMS WERE FILED ON 29/11/2010. IN THE CASE OF SHARADA STEEL CORPORATION AS STATED IN PARA 5(A)(IV)AND (V), THE SAID CORPORATION COULD NOT DEPOSIT RS 85.00 LAKHS IN THE COURT AND APPELLANT COMPANY HAD ISSUED INSOLVENCY NOTICE AND TOOK OUT NOTICE OF MOTION. IT WAS ONLY ON 21-09-2010 IN RESPO NSE TO NOTICE OF MOTION THE COURT DIRECTED SAID CORPORATION TO PAY RS 1 0,00,000/- BY 19/10/2010 AND THEREAFTER RS 3,00,000 EVERY MONTH. THESE EVENTS HAPPENED IN SEPT 2010 THAT IS MUCH AFT ER CLOSE OF ACCOUNTING YEAR 2008-09 AND ACCOUNTS WERE PLACED BEFO RE MEMBERS. SO TILL THEN SITUATION WAS THAT NO ACTUAL PAYMENT W AS FORTH COMING AND CONDITIONS WERE SAME AS BEFORE PREVAILING RELEVANT WITH PERIOD A. Y. 2001-02 AND 2002-03. AS STATED IN STATEMENT OF F ACTS THE APPELLANT COMPANY HAS TAKEN INTO ACCOUNT BY CREDITING INTEREST DUE FROM SHARADA STEEL CORPORATION IN ITS ACCOUNTS FOR THE FIN ANCIAL YEAR 2010- 11 RELEVANT TO THE ASSESSMENT YEAR 2011-12 AND OFFERED THE SAME FOR TAX. AS REGARDS FALAK HOME DEVELOPERS PVT. LTD. CHEQUE FOR R S 1.25 CRORES BOUNCED BACK OUT OF RS 1.35 CRORES AGREED TO BE PAID A S PER CONSENT TERMS. THE APPELLANT COMPANY FILED, ON 29-11-2011 CRI MINAL COMPLAINT UNDER SECTION 138 READ WITH SECTIONS 141 AN D 142 OF NEGOTIABLE INSTRUMENTS ACT BEFORE THE ADDL. CHIEF MET ROPOLITAN MAGISTRATE. THIS AMOUNT OF RS 1.25 CRORES WAS EVENTUAL LY RECEIVED ONLY IN FEBRUARY 2012 AND INTEREST PART THEREOF WILL B E TAKEN INTO ACCOUNT IN THE FINANCIAL YEAR 2011-12. AS REGARDS MRS. DALI THE CRIMINAL SUIT IS PENDING AS NO MONEY IS RECEIVED. IN THIS CASE AS POINTED OUT EARLIER NO REPAYMENT OF LO AN OR PAYMENT OF INTEREST WAS FORTH COMING INSPITE OF COURT PROCEEDING. THIS CREATED THE DOUBT ABOUT BORROWER'S ABILITY TO PAY THE AMOUNTS DUE. IT IS SUBMITTED THAT FOR ANY PRUDENT BUSINESSMAN ACTUAL RECE IPT OF MONEY OR CERTAINTY ABOUT RECEIPT OF MONEY IS MORE IMPORTANT T ITAN EVEN SUCCESS IN THE LITIGATION FOR RECOVERY. THIS GUIDES HI S DECISIONS AND ACCOUNTING. WE FURTHER SUBMIT THAT THIS VIEW IS ALSO SUPPORTED BY ACCOUNTING STANDARD - 9 ( REVENUE RECOGNITION) LAID DOWN BY THE VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 5 INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, AND ALSO MADE MANDATORY UNDER THE COMPANIES ACT, 1956. IT IS RESPECTFULLY SUBMITTED THAT SITUATION, WHEN AC COUNT WERE MADE FOR THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSM ENT YEAR 2009- 10 WAS SAME AS WAS PREVAILING DURING THE RELEVANT ASSE SSMENT YEARS WHICH WERE DECIDED BY HON I. T.A. T. IT IS RESPECTFUL LY SUBMITTED THAT THE DECISION OF HON 'BLE 1. TA. T AS STATED ABOVE S HOULD BE FOLLOWED. 6.3. HAVING CONSIDERED THE AO'S ORDER AS WELL AS THE A PPELLANT AR'S SUBMISSION, I FIND THAT THE AO WAS INCORRECT IN ADDIN G A SUM .OF RS.27,97,OOO/- ON ACCOUNT OF INTEREST ACCRUED TO THE TOTAL INCOME OF THE ASSESSEE. I FIND THAT THE APPELLANT AR'S CONTEN TION THAT THE COMPANY HAS NOT TAKEN CREDIT OF SIMPLE INTEREST OF RS .27.97 LAKHS ON LOANS FOR THE YEAR UNDER REPORT SINCE THE PRINCIPAL AMOUN T DUE FROM THE BORROWERS ARE NOT ONLY STAGNANT BUT ARE DOUBTFUL OF RECOVERY AND CHANCES OF COVERING EVEN THE PRINCIPAL AMOUNT ARE DOUB TFUL DOES HOLD GROUND. MOREOVER, IN APPELLANT'S OWN CASE FOR AY. 2001 -02, AND ALSO FOR AY. 2002-03 WHERE THE LEARNED CIT(A) HAD DELETED ADDITION, THE HON'BLE ITAT HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT COMPANY. 6.4. FURTHER, THE SUBMISSION OF THE APPELLANT CLEARLY SUGGESTS THAT THE APPELLANT COMPANY COULD NOT GET ANY INTEREST AMOUNT TILL 29/09/2010 WHEN NOTICE OF MOTION WAS MOVED TO THE COURT. SUBSEQ UENT TO THAT THE APPELLANT GOT THE PAYMENT OF OUTSTANDING INTERES T AMOUNT CONSEQUENT TO THE COURT ORDER WHICH THE APPELLANT HAD ITSELF OFFERED IN AY. 2011-12 AS AFFIRMED BY THE APPELLANT COMPANY IN ITS SUBMISSION. FURTHER TO THAT, EVEN FROM FALAK HOME DEV ELOPERS PVT. LTD., THE APPELLANT COMPANY COULD NOT GET ANY INTERE ST IN THE F. Y. 2008-09. CONSEQUENT TO THE CRIMINAL COMPLAINT FILED BY THE APPELLANT U/S. 138 BEFORE THE ADDL. CHIEF METROPOLITAN MAGISTRAT E, THE APPELLANT COULD GET THE INTEREST WHICH WAS DULY RECORD ED BY THE APPELLANT COMPANY IN F.Y. 2011-12. EVEN THE LOAN I NTEREST FROM MRS. DALI WAS STILL DOUBTFUL AND NO PORTION OF THE SAME W AS RECEIVED TO THE APPELLANT COMPANY. IN VIEW OF THE SAME, I AM OF THE VIEW THAT THE AO'S ACTION OF MAKING THE ADDITION OF RS.27,97,OOO/ - WAS NOT JUSTIFIED WHEN THE PRINCIPLE ITSELF WAS UNDER DOUBT F OR ITS RECOVERY AND ALSO WHEN THERE WAS A DECISION TO THIS EFFECT IN JURI SDICTIONAL ITA T'S DECISION REFERRED AS ABOVE IN THE APPELLANT'S SUBMISSI ON, WHICH WERE DECIDED IN FAVOUR OF THE APPELLANT. IN VIEW OF THE S AME, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE AO. WAS NOT JUS TIFIED IN HIS VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 6 ACTION. ACCORDINGLY THE ADDITION SO MADE BY THE AO. IS DELETED. THUS, THE APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSELS, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE NOTE THAT THE ASSES SING OFFICER MADE ADDITION OF RS.27,97,388/- TO THE RETURNED INC OME BEING INTEREST AS ACCRUED/DUE TO THE ASSESSEE COMPANY, W HICH AS PER THE ASSESSING OFFICER WAS NOT TAKEN INTO ACCOUN T FROM CERTAIN BORROWERS LIKE SHARDA STEEL CORPORATION (RS .16.34 LAKHS) FALAK HOMES DEVELOPERS PVT. LTD. (RS.10.43 L AKHS) AND M/S BHARTI SATYAJIT DALI (RS.1.20 LAKHS). THE ASSES SEE COMPANY BY WAY OF NOTES TO THE ACCOUNTS MENTIONED R EASONS FOR NOT TAKING THE CREDIT FOR INTEREST INTO ACCOUNT AND ALSO MADE WRITTEN SUBMISSIONS DURING ASSESSMENT PROCEEDI NGS. THE ASSESSEE COMPANY FILED SUMMERY SUIT NO. 2872/20 01 FOR RECOVERY AGAINST SHARDA STEEL CORPORATION (THE BORR OWER) FOR THE CLAIM ALONG WITH INTEREST. THE HONBLE BOMBAY H IGH COURT, ON 04/02/2004 DIRECTED THE RESPONDENT TO DEPOSIT A SUM OF RS.85 LAKH (INCLUDING PRINCIPLE AND INTEREST) WITHI N A PERIOD OF FOUR WEEKS. THE RESPONDENT I.E. SHARDA STEEL CORPO RATION FILED AN APPEAL AGAINST THE SAID ORDER BEFORE THE DIVISIO N BENCH WHICH WAS DISMISSED ON 23/08/2004. THEREAFTER, SLP WAS FILED BEFORE HONBLE APEX COURT, WHICH WAS ALSO DIS MISSED ON 25/08/2005. SINCE THE BORROWER FAIL TO DEPOSIT RS.8 5 LAKH, AS DIRECTED BY THE HONBLE HIGH COURT, THE ASSESSEE MO VED AN APPLICATION FOR AN EX-PARTE DEGREE AGAINST THE RESP ONDENT, VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 7 WHICH WAS PASSED IN FAVOUR OF THE ASSESSEE. IN SPI TE OF PASSING THE DEGREE, THE AMOUNT DUE TO THE ASSESSEE WAS NOT PAID. THE APPELLANT COMPANY, THEREAFTER, FILED INSO LVENCY NOTICE BEING NO.109/2007 AND ALSO TOOK OUT A NOTICE OF MOTION NO. 118/2007 IN THE SAID INSOLVENCY NOTICE. THE RES PONDENT OPPOSED THE NOTICE OF MOTION. ON 21 ST SEPTEMBER, 2010, THE HONBLE HIGH COURT PASSED THE ORDER IN NOTICE OF MO TION WITH A DIRECTION TO THE BORROWER TO PAY RS.10 LAKH TO THE ASSESSEE ON OR BEFORE 19/10/2010 AND THEREAFTER AS SUM OF RS.3 LAKH ON OR BEFORE 10 TH OF EVERY MONTH COMMENCING FROM 10/11/2010. THE BORROWER, THEREAFTER, APPROACHED THE ASSESSEE C OMPANY FOR SETTLING THE CLAIM ON 5 TH APRIL, 2011. FINALLY, TILL SEPTEMBER, 2010, I.E. MUCH AFTER CLOSE OF ACCOUNTING YEAR 2008 -09, THE ACCOUNTS WERE PLACED BEFORE THE MEMBERS/BOARD AND T ILL THEN THERE WAS NO ACTUAL PAYMENT. THE ASSESSEE TOOK INTO ACCOUNT BY CREDITING INTEREST DUE FROM SHARDA STEEL CORPORA TION IN ITS ACCOUNTS FOR A.Y. 2011-12 AND OFFERED THE SAME FOR TAX. THE ASSESSEE DID NOT TAKE CREDIT OF SIMPLE INTEREST OF RS.27.97 LAKHS ON LOANS, SINCE THE PRINCIPLE AMOUNT FROM THE BORROWERS WAS NOT ONLY STAGNANT BUT THE RECOVERY WAS DOUBTFUL . THE ASSESSEE COULD GET THE INTEREST WHICH WAS DULY RECO RDED IN F.Y. 2011-12, THEREFORE, THERE WAS NO JUSTIFICATION FOR MAKING THE ADDITION, MORE SPECIFICALLY WHEN THE PRINCIPLE ITSELF WAS UNDER DOUBT, THUS, WE FIND NO INFIRMITY IN THE CONC LUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 2.5. SO FAR AS, THE CROSS OBJECTION 33/MUM/2014 (ARISING OUT OF ITA NO.7338/MUM/2012) IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THE SAME, TH EREFORE, THE VASANT INVESTMENT CORPORATION LTD. ITA NO.7338/MUM/2012 & C.O. NO.33/M/2014 8 CROSS OBJECTION, RAISED BY THE ASSESSEE, ARE DISMIS SED AS NOT PRESSED. FINALLY, THE APPEAL OF THE REVENUE AS WELL AS THE C ROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 23/09/2015. SD/ - (RAMIT KOCHAR) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ) DATED : 07/10/2015 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 $ 2# ( +, ) / THE CIT, MUMBAI. 4. 1 1 $ 2# / CIT(A)- , MUMBAI 5. 45 /# , 1 +,' + 6 , $ % / DR, ITAT, MUMBAI 6. 7! % / GUARD FILE. / BY ORDER, 04,# /# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI