ACIT, Trichy V. Trichy Steel Rolling Mills Ltd., Trichy

ITA 834/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90388 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital receipt
• Section: 143(3); 147; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO . 834/MDS/2014 ( / ASSESSMENT YEAR: 2006-07) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I(1) TRICHY. VS M/S. TRICHY STEEL ROLLING MILLS LTD., POST BOX NO.603, SENTHANNIPURAM TIRCHY-639 002 . PAN: AAACT3372K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. N.RENGARAJ, CIT /RESPONDENT BY : MR. S.SRIDHAR, ADVOCATE /DATE OF HEARING : 13 TH APRIL, 2015 /DATE OF PRONOUNCEMENT : 22 ND MAY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS),TIRUCHIRAP ALLI DATED 20.12.2013 FOR THE ASSESSMENT YEAR 2006-07. T HE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISAL LOWANCE MADE UNDER SECTION 41(1) OF THE ACT IN RESPECT OF S UNDRY CREDITORS FORFEITED. 2. BRIEF FACTS ARE THAT ASSESSING OFFICER WHILE COM PLETING THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTI ON 147 OF 2 ITA NO.834/MDS/2014 THE ACT MADE ADDITION OF ` 6,42,13,000/- TREATING SUNDRY CREDITORS FORFEITED AS INCOME OF THE ASSESSEE UNDE R SECTION 41(1) OF THE ACT. IT WAS THE SUBMISSION OF THE ASSE SSEE THAT CREDITORS FORFEITED ARE ALL CREDITORS WHO HAD LENT MONEY TO THE ASSESSEE COMPANY ON VARIOUS OCCASIONS. THE LOANS CO ULD NOT BE REPAID BY THE COMPANY DUE TO THE ASSESSEE C OMPANY BECAME SICK. THEREFORE ASSESSEE WRITTEN THEM BACK THROUGH PROFIT AND LOSS ACCOUNT . IT WAS THE SUBMISSION THA T CREDITORS HAVE NOT ARISEN ON ACCOUNT OF SUPPLY OF GOODS AND S ERVICES BUT THEY HAVE ARISEN ON ACCOUNT OF LOANS OBTAINED BY THE ASSESSEE AND THEREFORE, PROVISIONS OF SECTION 41(1 ) ARE NOT APPLICABLE. HOWEVER, THE ASSESSING OFFICER ON EXAMI NING THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR ENDING M ARCH, 2005 AND MARCH, 2006 AND THE DETAILS PRODUCED IN R ESPECT OF CREDITORS FOR PURCHASES, CREDITORS FOR EXPENSES AND CREDITORS- OTHERS CAME TO THE CONCLUSION THAT MAXIMUM LIABILIT Y UNDER THE CREDITORS-OTHERS WAS ` 1.38 CRORES AS ON 31.03.2005 AND THE ASSESSEE AT NO POINT OF TIME HAD ` 6.42 CRORES AS SUNDRY CREDITORS IN ITS BOOKS OF ACCOUNT. THEREFORE, HE AD DED ENTIRE SUNDRY CREDITORS OF ` 6,42,13,000/- AS INCOME OF THE ASSESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TAX 3 ITA NO.834/MDS/2014 (APPEALS) DELETED THE ADDITION HOLDING THAT PROVISI ONS OF SECTION 41(1) HAVE NO APPLICATION TO THE LOAN CREDI TORS AS THE FIRST CONDITION FOR INVOKING PROVISIONS OF SECTION 41(1) IS THAT EXPENDITURE OR LOAN MUST BE ALLOWED AS DEDUCTION IN COMPUTING INCOME OF ANY EARLIER PREVIOUS YEARS WHIC H IS NOT THE CASE HERE AS THE LOAN CREDITORS WERE NOT ALLOWE D AS EXPENDITURE OR LOSS. IN THIS CASE, IT IS FOUND THAT THESE ARE LOANS TAKEN FOR DISCHARGING OF LIABILITY TO BANKS AND OTHERS. THEREFORE, THESE LIABILITIES ARE NOT TRADE LIABILIT IES AND THEIR WRITE BACK CANNOT CONSTITUTE INCOME UNDER SECTION 4 1(1) OF THE ACT. RELYING ON THE DECISION OF CIT VS. COMPAQ ELECTRIC LTD. (249 CTR 214)(KAR) THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF ASSESSING OFFICER IN TREATING THE SUNDRY C REDITORS FORFEITED AS INCOME OF THE ASSESSEE. REFERRING TO P AGE 3 AND 4 OF THE ASSESSMENT ORDER, DEPARTMENTAL REPRESENTAT IVE SUBMITS THAT AT NO POINT OF TIME ASSESSEE HAS SHOWN LOAN CREDITORS OF ` 6.42 CRORES IN THE BOOKS OF ACCOUNT. AS 4 ITA NO.834/MDS/2014 OBSERVED BY THE ASSESSING OFFICER MAXIMUM LOAN CRED ITORS WERE ONLY TO THE EXTENT OF ` 1.38 CRORES. THEREFORE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT ASSESSING OFFICER HAS RIGHTLY MADE ADDITION OF ` 6.42 CRORES UNDER SECTION 41(1) OF THE ACT. 4. COUNSEL FOR THE ASSESSEE STRONGLY PLACES RELIANC E ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) IN DELETING THE ADDITION. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISION RELIED ON. THE ISSUE ON HAND HAS B EEN ELABORATELY DISCUSSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AS TO WHETHER THE LOAN CREDITORS FORFEIT ED BY THE ASSESSEE CAN BE TREATED AS CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE ACT OR NOT. THE COMMISSIONER O F INCOME TAX (APPEALS) REFERRING TO DECISION OF KARNATAKA HI GH COURT IN THE CASE OF CIT VS. COMPAQ ELECTRIC LTD. (249 CT R 214) AND THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF CIT VS. SUAGAULI SUGARS WORKS P.LTD. (236 ITR 518) CON CLUDED THAT THE LOAN CREDITORS WRITTEN BACK BY THE ASSESSE E IS A 5 ITA NO.834/MDS/2014 CAPITAL RECEIPT AND THE PROVISIONS OF SECTION 41(1 ) HAVE NO APPLICATION AS THIS LIABILITY WAS NEVER CLAIMED AS EXPENDITURE OR LOSS AND WAS NOT ALLOWED AS A DEDUCTION IN COMPU TING INCOME OF ANY EARLIER PREVIOUS YEARS. COMMISSIONER OF INCOME TAX (APPEALS) ALSO OBSERVED THAT THESE LIABI LITIES ARE NOT TRADE LIABILITIES AND THEIR WRITE BACK CANNOT B E CONSTITUTED AS INCOME UNDER SECTION 41(1) OF THE ACT. WE FULLY AGREE WITH THE REASONING GIVEN BY THE COMMISSIONER OF INCOME T AX (APPEALS) THAT LOAN CREDITORS WRITTEN BACK CANNOT C ONSTITUTE CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE A CT. HOWEVER, IT IS THE FINDING OF THE ASSESSING OFFICER THAT MAX IMUM LIABILITY UNDER CREDITORS-OTHERS WAS ONLY ` 1.38 CRORES AND THE ASSESSEE AT NO POINT OF TIME HAD ` 6.42 CRORES AS SUNDRY CREDITORS IN ITS BOOKS OF ACCOUNT. THIS ASPECT WAS NOT EXAMINED BY THE COMMISSIONER OF INCOME TAX (APPEALS ). THE ASSESSEE HAS TO PROVE THAT SUNDRY CREDITORS FOR FEITED OF ` 6,42,13,000/- REPRESENTS ONLY LOAN CREDITORS RECORD ED IN THE BOOKS OF ACCOUNT AND WAS NOT TRADE CREDITORS I.E CR EDITORS FOR PURCHASE AND CREDITORS FOR EXPENSES. SINCE THE ASSE SSEE HAS NOT PROVIDED COMPLETE DETAILS OF LOAN CREDITORS BEF ORE LOWER AUTHORITIES TO ESTABLISH THAT THE ENTIRE AMOUNT OF ` 6.42 CORES 6 ITA NO.834/MDS/2014 REPRESENTS ONLY LOAN CREDITORS, WE RESTORE THE ISS UE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THIS A SPECT AND DELETE THE ADDITION IF IT IS PROVED THAT ENTIRE SUN DRY CREDITORS FORFEITED OF ` 6.42 CRORES ARE ONLY LOAN CREDITORS. THE ASSESSEE HAS TO FILE NECESSARY DETAILS BEFORE THE A SSESSING OFFICER TO PROVE ITS CLAIM. SUBJECT TO VERIFICATION AND SATISFACTION OF THE ASSESSING OFFICER THAT THE AMOU NT OF ` 6.42 CRORES WRITTEN BACK IS ONLY LOAN CREDITORS, THE A DDITION IS DELETED. THE ASSESSING OFFICER SHALL GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE AND DECIDE THE ISSUE KE EPING IN VIEW THE ABOVE OBSERVATIONS. 6. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MAY, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 22 ND MAY, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .