M/s Indian Chemphar Limited, Hyderabad V. CIT-II, Hyderabad

ITA 749/HYD/2014

• Counselvise Citation: 74922514 RSA 2014
• Duration Of Justice: 1 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN SINGH SINGHANIA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Assessment record; Capital receipt
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.749/HYD/2014 (ASSESSMENT YEARS 2 007-08) M /S. INDIAN CHEMPHAR LIMITED, HYDERABAD (PAN - AABCI 5676 A ) V/S ASST. COMMISSIONER OF INCOME - TAX CIRCLE 2(1), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.MURALI MOHAN RAO RESPONDENT BY : SHRI MOHAN SINGH SINGHANIA CIT - DR DATE OF HEARING 26.10.2015 DATE OF PRONOUNCEMENT 04.11.2015 O R D E R PER SMT. P. MADHAVI DEVI, JUDICIAL MEMBER : THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007-08. IN THIS APPEAL, ASSESSEE IS AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME-TAX UNDER S.263 OF THE ACT, DIRECTING THE ASSESSING OFFICER TO BRING TO TAX A SUM OF RS.61,45,830 UNDER S.41(1) OF THE INCOME TAX ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SPECIALTY CHEMICALS, FILED ITS RETURN OF INCOME FOR THE ASSES SMENT YEAR 2007-08 ON 28.10.2007, DECLARING TOTAL INCOME OF RS.NIL. SU BSEQUENTLY, THE ASSESSMENT WAS REOPENED UNDER S.147 OF THE ACT ON T HE GROUND THAT ON EXAMINATION OF ACCOUNTS, THE ASSESSING OFFICER H AS FOUND THAT THE ASSESSEE WAS ALLOWED REMISSION OF LOAN LIABILITIES TO THE TUNE OF RS.23 CRORES AND THAT THE ASSESSEE HAS DEDUCTED RS.7.27 CRORES FROM THE TAXABLE INCOME, CLAIMING THE SAME TO BE CAPITAL REC EIPTS. THE ASSESSING OFFICER OBSERVED THAT THIS IS CESSATION O F LIABILITY AND HENCE, THE AMOUNTS CLAIMED TO BE CAPITAL RECEIPTS NEED TO BE BROUGHT TO TAX. ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 2 ACCORDINGLY, A NOTICE UNDER S.148 WAS ISSUED TO TH E ASSESSEE ON 8.6.2010, IN REPLY TO WHICH, THE ASSESSEE VIDE A LE TTER SUBMITTED THAT THE RETURN FILED ON 31.10.2007 MAY BE TREATED AS T HE RETURN FILED IN RESPONSE TO NOTICE UNDER S.148 OF THE ACT. SUBSEQUE NTLY, THE ASSESSEE WAS REQUIRED TO FILE VARIOUS DETAILS, WHICH WERE FI LED BY THE ASSESSEE. AFTER VERIFYING THE INFORMATION SUBMITTED BEFORE TH E ASSESSING OFFICER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA S RECEIVED A REMISSION OF RS.26,97,75,012 FROM VARIOUS FINANCIAL INSTITUTIONS AND BANKS, OUT OF WHICH THE ASSESSEE HAS REDUCED AN AMO UNT OF RS.7,17,21,692, CLAIMING IT TO BE CAPITAL RECEIPTS, I.E. PRINCIPAL AMOUNTS OF TERM LOANS WRITTEN BACK. THE ASSESSEE AL SO EXPLAINED AS TO WHY THE SAME WAS TREATED AS CAPITAL RECEIPTS IN ITS LETTER DATED 30.11.2011, STATING THAT THE TERM LOAN AVAILED BY I T FROM THREE BANKS WERE NOT IN THE NATURE OF TRADING LIABILITY, BUT WE RE IN THE NATURE OF CAPITAL LIABILITY, AND THEREFORE, THE WAIVER OF LOA N LIABILITY WAS NOT IN THE NATURE OF TRADING LIABILITY, BUT WERE IN THE NATURE OF CAPITAL LIABILITY AND THEREFORE, THE WAIVER OF LOAN LIABILITY WAS NOT TH E WAIVER OF ANY TRADING LIABILITY AND WOULD NOT BECOME INCOME UNDER S.41(1 ) OF THE ACT. THE ASSESSING OFFICER, AFTER CONSIDERING THE ASSESSEES SUBMISSION NOTICED THAT THE ASSESSEE HAS TAKEN LOANS FROM THE FINANCIA L INSTITUTIONS FOR THE PURPOSE OF ACQUIRING ASSETS AND THEREFORE, THE REMI SSION OF THE PRINCIPAL AMOUNT OF THE LOAN AS CAPITAL RECEIPT IS ACCEPTABLE. HE FURTHER OBSERVED THAT THE INTEREST PAID IN THE PREV IOUS YEARS WHEREIN THE ASSESSEE HAS CLAIMED INTEREST ON THE LOANS, W HICH HAS BEEN TREATED AS REVENUE RECEIPT AND WAS OFFERED TO TAX DURING THE YEAR. IN VIEW OF THE SAME, THE INCOME RETURNED BY THE ASSESS EE WAS ACCEPTED BY THE ASSESSING OFFICER AND TAX COMPUTED ACCORDING LY. 3. SUBSEQUENTLY, THE COMMISSIONER OF INCOME-TAX CA LLED FOR THE ASSESSMENT RECORD OF THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2007-08 BY VIRTUE OF THE POWER VESTED IN HIM U NDER S.263 OF THE ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 3 ACT. ON PERUSAL OF THE ASSESSMENT RECORD AND ALSO THE ASSESSMENT ORDER PASSED UNDER S.143(3) READ WITH S.148 OF THE ACT, HE CAME TO THE CONCLUSION THAT THE ASSESSMENT ORDER IS ERRONE OUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THERE FORE, HE ISSUED A NOTICE DATED 5.3.2014 UNDER S.263 OF THE ACT, REQUI RING THE ASSESSEE TO EXPLAIN AS TO HOW THE ASSESSMENT ORDER IS NOT P REJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE SUBMITTED ITS WRITTEN SUBMISSIONS ON 22.10.2014. THE COMMISSIONER HOWEVER , WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS AND HELD THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE INTEREST PAYME NTS CLAIMED IN THE SUBSEQUENT YEARS IN THE COMPUTATION OF INCOME IN TH E ASSESSMENT YEARS 2000-01 AND 2004-05. HE HELD THAT THE ASSESS ING OFFICER HAS NOT GONE THROUGH THE ACTUAL COMPUTATION OF INCOME F OR THOSE YEARS, WHICH ARE ENCLOSED TO THE STATEMENT FILED BY THE A SSESSEE, WHICH HAS RESULTED IN AN ERRONEOUS ORDER OF THE ASSESSING OFF ICER, AS A RESULT OF WHICH THE REVENUE IS LOSING THE TAX LAWFULLY PAYAB LE BY THE ASSESSEE. HE HELD THAT THE ASSESSING OFFICER WAS ALSO GUILTY OF NON-APPLICATION OF MIND AND IMPROPER APPRECIATION OF FACTS, RESULTING IN HIS ORDER BEING ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE ACCORDINGLY, SET ASIDE THE ASSESSMENT ORDER AND D IRECTED THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT ORDER BY BRINGING TO TAX RS.61,45,830 UNDER S.41(1) OF THE INCOME-TAX ACT. 4. AGGRIEVED BY THIS ORDER OF THE COMMISSIONER UND ER S.263 OF THE ACT, ASSESSEE IS IN APPEAL BEFORE US. 5. LEARNED COUNSEL FOR THE ASSESSEE, SHRI MURALI MOHAN RAO, WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE C OMMISSIONER IN RESPONSE TO THE NOTICE UNDER S.263 OF THE ACT, SUB MITTED THAT THE ASSESSING OFFICER, WHILE COMPLETING THE ASSESSMENT UNDER S.143(3) READ WITH S.147 OF THE ACT, HAS GONE THROUGH THE ST ATEMENTS AND THE ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 4 COMPUTATION OF INCOME FOR ALL THE ASSESSMENT YEARS IN WHICH THE INTEREST PAYABLE TO VARIOUS FINANCIAL INSTITUTIONS AND BANKS HAVE BEEN OFFERED BY THE ASSESSEE TO TAX, AND ALSO HAVE BEEN CLAIMED IN THE SUBSEQUENT YEARS ON PAYMENT BASIS. HE SUBMITTED TH AT THE ASSESSING OFFICER HAS APPLIED HIS MIND TO THE DETAILS FILED B Y THE ASSESSEE IN ACCEPTING THE RETURN FILED BY IT AND THE COMMISSION ER WAS NOT CORRECT IN HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE SUBMITTED THAT THE CO MMISSIONER HAS COME TO THE CONCLUSION THAT THE ASSESSMENT ORDER I S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ONLY ON THE GROUND THAT THE ASSESSEE HAS NOT OFFERED THE REMISSION OF LIABILITY AS INCOME UNDER S.41(1) OF THE ACT, WHEREAS THE SAID ASSUMPTION IS INCORRECT. HE HAS DRAWN OUR ATTENTION TO THE COMPUTATION OF INCOME FO R THE ASSESSMENT YEARS 1999-2000 TO 2007-08 TO DEMONSTRATE THAT THE ASSESSEE HAS OFFERED THE INTEREST PAYABLE TO VARIOUS FINANCIAL I NSTITUTIONS AND BANKS BY MAKING DISALLOWANCE UNDER S.43B AND HAS CLAIMED THE INTEREST PAID TO THESE INSTITUTIONS ONLY ON PAYMENT BASIS IN THE SUBSEQUENT ASSESSMENT YEARS. HE SUBMITTED THAT THE BANKS AND FINANCIAL INSTITUTIONS HAVE APPROVED THE ONE TIME SETTLEMENT OF THE LOAN IN THE RELEVANT ASSESSMENT YEAR AND NO REMISSION WAS GRANT ED FOR THE AMOUNT OF INTEREST WHICH HAS BEEN PAID BY THE ASSES SEE. THEREFORE, ACCORDING TO HIM, THE AMOUNTS PAID BY THE ASSESSEE AND CLAIMED AS LIABILITY IN THE SUBSEQUENT YEARS, COULD NOT BE BRO UGHT TO TAX IN THIS YEAR. 6. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RELIED UPON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF SPECTRA SHARES AND SCRIPS (P) LTD. V/S. CIT (2013) 36 TAXMANN.COM.348(ANDHRA PRADESH), (IN SUPPORT OF HIS CONTENTION) WHEREIN IT WAS HELD THAT THE COMMISSIONER, MERELY BECAUSE HE ENTERTAINS A DIFFERENT OPINION IN THE MATTER, CANNO T INVOKE HIS POWERS ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 5 UNDER S.263 OF THE ACT, WHERE THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER AFTER APPLICATION OF MIND BY AN E NQUIRY. IN THE CASE ON HAND ALSO, THE ASSESSING OFFICER HAS GONE INTO T HE MATERIAL FILED BY THE ASSESSEE TO COME TO A CONCLUSION THAT THE ASSES SEE HAS OFFERED REMISSION OF LIABILITY AS INCOME FOR TAXATION DURIN G THE RELEVANT YEAR. IN VIEW OF THE SAME, THE ORDER OF THE COMMISSIONER UNDER S.263 IS NOT SUSTAINABLE. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE COMMISSIONER AND S UBMITTED THAT THE ASSESSMENT ORDER PASSED UNDER S.143(3) READ WITH S. 147 WAS FACTUALLY INCORRECT IN SO FAR AS THE OBSERVATIONS O F THE ASSESSING OFFICER THAT THE ASSESSEE HAS DURING THE YEAR, OFFERED TO T AX THE REMISSION OF INTEREST ON TERM LOAN, WORKING CAPITAL, DEBENTURES , ETC. BY TREATING THEM AS REVENUE RECEIPTS. HE, THEREFORE, SUBMITTED THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF THE REVENUE AND THE ORDER OF THE COMMISSIONER IS TO BE UPHELD. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAD TAKEN LOANS F ROM VARIOUS BANKS, SUCH AS IDBI BANK, BANK OF INDIA, SBI ETC. AND HAS ALSO ISSUED DEBENTURES TO RCTC. THE INTEREST ON THESE TERM L OANS AND DEBENTURES WAS PAYABLE BY THE ASSESSEE AND IT HAS A CCORDINGLY DEBITED THE SAME TO THE PROFIT & LOSS ACCOUNT ON ACCRUAL BA SIS. WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE, THE A SSESSEE HAD MADE DISALLOWANCE OF INTEREST PAYABLE TO THESE INSTITUTI ONS UNDER S.43B OF THE ACT AND THUS OFFERED IT AS INCOME. THE FOUR AM OUNTS WHICH HAVE BEEN BROUGHT TO TAX BY THE COMMISSIONER UNDER S.263 ARE RS.51,08,857 BEING REMISSION OF INTEREST PAYABLE TO IDBI IN ASSESSMENT YEAR 2000-01; RS.5 LAKHS BEING REMISSION OF INTEREST PAYABLE TO IDBI DURING THE ASSESSMENT YEAR 2004-05; RS.1,11,939 ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 6 BEING REMISSION OF INTEREST LIABILITY PAYABLE TO B ANK OF INDIA DURING THE ASSESSMENT YEAR 2000-01; AND RS.4,25,000 BEING REMISSION OF INTEREST PAYABLE TO RCTC IN ASSESSMENT YEAR 2000-01 . THE ASSESSEE HAS FILED THE RETURNS OF INCOME AND THE COMPUTATION OF INCOME FOR ALL THE RELEVANT YEARS IN THE PAPER BOOK CONTAINING 1 T O 75 PAGES FILED BEFORE US. FROM PAGE 44 OF THE PAPER-BOOK, WHICH IS THE STATEMENT SHOWING THE COMPUTATION OF INCOME FOR THE YEAR END ED 31 ST MARCH, 1999, WE FIND THAT THE NET LOSS FOR THE YEAR ENDED 31 ST MARCH, 1999, AS PER THE PROFIT & LOSS ACCOUNT WAS (RS.1,27,03,83 3) FROM WHICH THE ASSESSEE HAS REDUCED THE DISALLOWANCE UNDER S.43B O F INTEREST OF RS.51,08,897 PAYABLE TO IDBI ON TERM LOAN, INTEREST OF RS.1,11,933 ON TERM PAYABLE TO BANK OF INDIA, RS.7,16,716 AS INTER EST PAYABLE ON DEBENTURES TO RCTC, THEREBY REDUCING THE NET LOSS. FROM THE STATEMENT SHOWING COMPUTATION OF INCOME FOR THE ACC OUNTING YEAR ENDED ON 31ST MARCH, 2000, WHICH IS PLACED AT PAGE 43 OF THE PAPER- BOOK, WE FIND THAT WHILE THE ASSESSEE HAS MADE THE DISALLOWANCE UNDER S.43B AND HAS REDUCED THE SAME FROM THE NET L OSS, CLAIMED THE AMOUNTS DISALLOWED UNDER S.43B IN THE EARLIER YEARS AS DEDUCTION ON PAYMENT BASIS, WHICH INCLUDED INTEREST ON IDBI TERM LOAN OF RS.51,08,897, INTEREST ON BANK OF INDIA TERM LOAN O F RS,1,11,933, INTEREST PAYABLE TO RCTC OF RS.4,25,000. SIMILARLY, FROM PAGE 37OF THE PAPER-BOOK, WHICH IS THE STATEMENT SHOWING COMPUTAT ION OF INCOME FOR THE YEAR ENDED 31 ST MARCH, 2003, WE FIND THAT THE LOSS FOR THE YEAR ENDED ON 31.3.2003 AS PER PROFIT & LOSS ACCOUNT WA S (RS.5,24,55,821), WHICH HAS BEEN REDUCED BY THE DIS ALLOWANCES UNDER S.43B, BEING INTEREST ON TERM LOAN PAYABLE TO IDBI OF RS.2,26,38,281. FROM PAGE 35 OF THE PAPER-BOOK, WHICH IS THE STATEM ENT SHOWING COMPUTATION OF INCOME FOR THE SUBSEQUENT ASSESSMENT YEAR, I.E. ASSESSMENT YEAR 2004-05, WE FIND THAT THE ASSESSEE HAS CLAIMED THE SAID AMOUNT OF RS.5 LAKHS AS AMOUNT DISALLOWED UNDE R S.43B IN THE EARLIER YEARS AND NOW CLAIMED AS DEDUCTION ON PAYME NT BASIS. FROM ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 7 THESE DETAILS, IT IS CLEAR THAT THE ASSESSEE HAS, T HOUGH ACCOUNTED FOR THE INTEREST PAYABLE DURING THE RELEVANT ASSESSMENT YEARS AND HAS MADE THE DISALLOWANCE OF THE SAME UNDER S.43B, AND OFFERED THE INCOME FOR TAXATION DURING THE RELEVANT ASSESSMENT YEARS. HOWEVER, ON MAKING THE PAYMENT OF INTEREST IN THE SUBSEQUENT YEARS, THE ASSESSEE HAS CLAIMED THE SAME ON PAYMENT BASIS. IT IS UNDISPUTED FACT THAT THE REMISSION OF LIABILITY WOULD BE ONLY OF THE AMOUNT PAYABLE AND NOT OF THE AMOUNTS PAID BY THE ASSESSEE. THESE AMOUNTS CANNOT BE BROUGHT TO TAX, AS THE REMISSION OF LIABILITY, A S THERE IS NO REMISSION OF LIABILITY OF THE AMOUNT ALREADY PAID BY THE ASSE SSEE. THEREFORE, WE DO NOT FIND ANY FACTUAL MISTAKE IN THE ORDER OF THE ASSESSING OFFICER PASSED UNDER S.143(3) READ WITH S.147 OF THE ACT. FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE CHART DRAWN UP BY THE CIT(A) IN HIS IMPUGNED ORDER, WHEREIN THE LIABILITY FOR THE ASSESSMENT YEAR 2004-05 HAS NOT B EEN CONSIDERED BY THE COMMISSIONER. FURTHER, HE HAS ALSO FILED A STA TEMENT SHOWING THE INTEREST CLAIMED IN COMPUTATION ON PAYMENT BASIS TO DEMONSTRATE HIS POINT. WE FIND THAT THE COMMISSIONER HAS NOT TAKEN INTO CONSIDERATION THE INTEREST PAYABLE ON TERM LOAN TO IDBI, BANK OF INDIA LAND RCTC FOR THE ASSESSMENT YEAR 2004-05. FROM THESE FACTS, IT I S CLEAR THAT THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTERESTS OF THE REVENUE. WE, THEREFORE, QUASH THE REVISION O RDER UNDER S.263 PASSED BY THE COMMISSIONER. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE COURT ON 4 TH NOVEMBER, 2015 SD/- SD/- (S.RIFAUR RAHAMAN) (P.MADHAVI DEVI) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 4 TH NOVEMBER, 2015 ITA NO.749/HYD/2014 M/S. INDIAN CHEMPHAR LIMITED, HYDERABAD 8 COPY FORWARDED TO: 1. M/S. INDIAN CHEMPHAR LIMITED, (HYDERABAD) C/O. M/S.P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1ST FLOOR, SOMAJIGUDA, HYDERABAD-82 2. DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(1), HYDERABAD 3. COMMISSIONER OF INCOME-TAX II, HYDERABAD 4. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.