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

ITA 835/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7687 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Wrong claim; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.835/MDS/2014 ( / ASSESSMENT YEAR: 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I(1), TRICHY. VS M/S. TRICHY STEEL ROLLING MILLS LTD., POST BOX NO.603, SENTHANNIPURAM, TRICHY-639 002. PAN:AAACT3372K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MR. S.SRIDHAR, ADVOCATE /DATE OF HEARING : 21 ST JANUARY, 2016 /DATE OF PRONOUNCEMENT : 29 TH MARCH, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS), TIRUCHIRAPALLI DATED 20.12.2013 IN ITA.NO.106/2010- 11/CIT(A)/TRY PASSED UNDER SECTION 271(1)(C) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUX OF THE ISSUE IS CONCISED AS FOLLO WS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR RS.75,66,580/- IN RESPECT OF BOGUS WRITE OFF OF BAD 2 ITA NO.835 /MDS/2014 DEBTS OF RS.1.8 CRORES AND INTEREST CLAIMED AS DEDUCTION AMOUNTING TO RS.44,79,440/- WHICH IS ATTRIBUTABLE TOWARDS THE INTEREST FREE LOAN ADVANCED TO SISTER CONCERN. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF IRON RODS AND BARS FILED ITS RETURN OF INCOME ON 27.03.2008 DECLA RING NIL INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND THE REAFTER THE ASSESSMENT WAS COMPLETED BY THE LEARNED ASSESSI NG OFFICER UNDER SECTION 143(3) OF THE ACT ON 30.12.2 009 DISALLOWING VARIOUS CLAIMS OF THE ASSESSEE AND INIT IATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THEREAFTER, PENALTY WAS LEVIED WITH RESPECT TO THE BOGUS CLAIM OF BAD DEBTS AMOUNTING TO RS.1.8 CRORES AND T HE CLAIM OF THE INTEREST AMOUNTING TO RS.44,79,440/- WHICH I S ATTRIBUTABLE TOWARDS INTEREST FREE LOANS TO SISTER CONCERNS. DURING THE COURSE OF PENALTY PROCEEDINGS THE LEARNE D ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD FU RNISHED INCORRECT INFORMATION REGARDING THE WRITE OFF OF BA D DEBTS AMOUNTING TO RS.1.8CRORES AND HAD CLAIMED INTEREST ATTRIBUTABLE TOWARDS INTEREST FREE ADVANCE AS DEDUC TION. IT WAS MENTIONED IN ITS BOOKS OF ACCOUNT THAT THE DEBT S RELATED 3 ITA NO.835 /MDS/2014 TO AQUA FIRM ACTIVITY OF THE ASSESSEE IN NELLORE. H OWEVER, THE NAME OF THE AQUA FIRM WAS NOT REVEALED. DURING THE COURSE OF EARLIER ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPAN Y HAD STATED THAT THE COMPANY DID NOT HAVE ANY SUCH ACTIV ITY OR BUSINESS. AT THAT TIME, IT WAS FURTHER STATED BY TH E ASSESSEE COMPANY THAT THE UNACCOUNTED SALE PROCEEDS OF STEEL WHICH WERE NOT INVOICED WERE BROUGHT INTO THE ACCOUNTS AS INCOME FROM AQUACULTURE OR IN THE FORM OF SALE OF SCRAP. THEY HAD FURTHER ADMITTED THAT NO EXPENDITURE WAS INCURRED F OR EARNING AQUACULTURE INCOME. PRECISELY THE ASSESSEE COMPANY HAD ADMITTED THAT THE TRANSACTIONS RELATED TO AQUACULTU RE BUSINESS WERE BOGUS. THEREFORE, DURING THE RELEVANT ASSESSME NT YEAR THE LEARNED ASSESSING OFFICER HAD DISALLOWED THE CL AIM OF BAD DEBTS RELATING TO AQUACULTURE WRITTEN OFF AMOUNTING TO RS 1.8 CRORES. IN THE ASSESSMENT PROCEEDINGS, IT WAS FURTH ER OBSERVED THAT THE ASSESSEE COMPANY HAD OBTAINED BAN K OVERDRAFT AMOUNTING TO RS. 12,60,15,000/- AGAINST W HICH THE ASSESSEE HAD PAID INTEREST OF RS.1,12,67,000/-. FRO M THE ABOVE SUM OF RS.12,60,15,000/- THE ASSESSEE COMPANY HAD TRANSFERRED RS.5,01,00,000/- TO M/S KBDL AS INTERES T FREE ADVANCE. THEREFORE, THE LEARNED ASSESSING OFFICER HAD 4 ITA NO.835 /MDS/2014 DISALLOWED THE INTEREST AMOUNT OF RS.44,79,440/- W HICH IS ATTRIBUTABLE TO INTEREST FREE ADVANCE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. SINCE THE ASSESSEE HAS FURNISHED INCORRECT PARTI CULARS AND THEREBY CONCEALED HIS INCOME, THE LEARNED ASSES SING OFFICER LEVIED PENALTY OF RS.75,66,580/- BY OBSERVI NG AS UNDER:- THE PENALTY U/S.271 (1) (C) HAS BEEN ISSUED ON 30.12.2009. THE ASSESSEE HAS SUBMITTED THE REPLY ON 13.01.2010. THE ASSESSEE COMPANY STATED IN THEIR RE PLY THAT THE WRITE OFF HAS BEEN WRONGLY CLAIMED AS BAD DEBTS. THE EXPENDITURE IS ONLY A WRITE OFF OF THE ASSET WH ICH HAD IMPAIRED AND HENCE NO WRONG CLAIM HAD BEEN MADE THEREBY. MORE OVER THE COMPANY HAS HUGE ACCUMULATED LOSSES ONLY AND HAD SUSPENDED ITS OPERATION SINCE 2 009. THERE IS NO POSSIBILITY OF THE COMPANY EARNING SUFF ICIENT PROFITS TO SET OFF AGAINST THE HUGE ACCUMULATED LOS S. FURTHER, THE COMPANY HAS ALSO NO INDICATION NOR DOE S THE MANAGEMENT HAS ANY INCLINATION TO RESUME OPERATIONS AND HENCE HAS NO NECESSITY OR INTENTION TO SUPPRESS INC OME. THE ASSESSEE REPLY HAS BEEN PERUSED. REGARDING BAD AND DOUBTFUL DEBTS WRITTEN OFF, THE ASSESSEE COMPANY IT SELF ACCEPTED THAT WE DID NOT HAVE ANY AQUA CULTURE BUSI NESS AND FURTHER THEY HAVE STATED THAT THE UNACCOUNTED S ALE PROCEEDS OF STEEL WHICH WERE NOT INVOICED SOLD OUTS IDE THE BOOKS ARE BROUGHT AS INCOME FROM AQUA CULTURE. SINC E, THE EXISTENCE OF AQUA CULTURE ITSELF BOGUS THEN WHERE I S THE QUESTION OF BAD DEBTS ON AQUA CULTURE BUSINESS WILL ARISE. THEREFORE, THE ASSESSEE COMPANY HAS DELIBERATELY PRODUCED INACCURATE PARTICULARS BY WAY OF CLAIMING BAD DEBTS WRITTEN OFF. THE ASSESSEE COMPANY DID NOT MENTION ANY WORD ABOUT LOAN TO KARNATAKA BRAVERIES AND DISTILLERIES LTD IN THEIR REPLY TO PENALTY U/S 271 (1) (C). THE ASSESSEE COMPANY HAS GOT OVERDRAFT FACILITIES OF RS.12,60,15,000/- FROM ANDHRA 5 ITA NO.835 /MDS/2014 BANK IN THEIR NAME AND DIVERTED RS.5,01,00,000/- OF THE OVERDRAFT LOAN TO THE KBDL. THE ASSESSEE COMPANY HA S CLAIMED INTEREST ON THE OVERDRAFT FACILITIES IN THE IR PROFIT AND LOSS ACCOUNT AND REDUCE THE PROFIT. THE ASSESSEE COMPANY DIVERTED THE LOAN TO SISTER CONCERN AND CLA IMED INTEREST AS EXPENDITURE IN THEIR PROFIT AND LOSS AC COUNT. THEREFORE, THE ASSESSEE COMPANY HAS DELIBERATELY CO NCEAL INCOME BY WAY OF CLAIMING INTEREST ON OVERDRAFT FAC ILITIES WHICH IS NOT USED FOR THE BUSINESS PURPOSES OF THE COMPANY. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEE HAS PRODUCED INACCURATE PARTICULARS OR CONCEALMENT OF I NCOME AS PER SECTION 271 (1) (C) OF THE INCOME TAX ACT, 1 961. THUS, INITIATION OF PENALTY U/S 271 (1) (C) WAS TO THE SATISFACTION OF THE ASSESSING OFFICER. AS THE ASSES SEE FAILED TO PROVE THE FACTS OF THE CASE, I AM SATISFIED THAT IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271 (1) ( C) OF THE IN COME TAX ACT 1961. THE INCOME SOUGHT TO HAVE BEEN EVADED BY THE ASSESSEE IS RS.2,24,79,440/-. THE MINIMUM PENALTY LEVIABLE IS RS.75,66,580/- IN THIS CASE IS AND MAXI MUM PENALTY LEVIABLE IS RS.2,26,99,737/-. GIVEN THE FA CTS AND CIRCUMSTANCES OF THIS CASE I HEREBY LEVY A PENALTY OF RS.75,66,580/- WHICH SHOULD BE PAID AS PER DEMAND N OTICE AND CHALLAN ENCLOSED. 5. HOWEVER, ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE PENALTY BECAUSE TH E CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF THE AS SESSEE IN ITA NO.644 TO 647/MDS/2010 FOR THE ASSESSMENT YEARS 2002- 03 TO 2005-06 HELD THAT THE ASSESSING OFFICER HAD N OT PROVED THAT SALE OF BARS AND RODS HAS BEEN ACCOUNTED AS AQ UA SALES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. ON THIS IS SUE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RELYIN G IN THE 6 ITA NO.835 /MDS/2014 DECISION OF RELIANCE PETROPRODUCTS P. LTD., REPORTE D IN 322 ITR 158 HELD THAT THE ASSESSEE HAD DISCLOSED THE P ARTICULARS OF THE CLAIM MADE FULLY AND THEREFORE NO PENALTY CA N BE LEVIED. 6. SIMILARLY, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) OPINED THAT DISALLOWANCE OF INTEREST MADE BY THE LEARNED ASSESSING OFFICER WAS ON ESTIMATION BASIS A ND THEREFORE PENALTY CANNOT BE LEVIED. RELIANCE WAS PL ACED IN THE DECISION OF SUDARSHAN SILK & SAREES VS. CIT RE PORTED IN 300 ITR 205 AND IN THE CASE OF K.R. CHINNY KRISHNA CHETTY REPORTED IN 246 ITR 121. THUS, THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) DELETED THE ENTIRE PENALTY LEV IED BY THE LEARNED ASSESSING OFFICER 7. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE VEHEMENTLY ARGUED STATING THAT THE ASSESSEE HAD CON CEALED THE INCOME BY FURNISHING INCORRECT PARTICULARS SUCH AS BOGUS CLAIM OF BAD DEBTS AND FURTHER BY SHIFTING THE INTE REST FROM THE ASSESSEES SUBSIDIARY COMPANY TO THE ASSESSEE COMPA NY 7 ITA NO.835 /MDS/2014 SINCE THE ASSESSEE COMPANY HAD ADVANCED INTEREST FR EE LOAN TO ITS SISTER COMPANY FROM INTEREST BEARING FUNDS. 8. THE LEARNED AUTHORIZED REPRESENTATIVE ON THE OTH ER HAND RELIED ON THE ORDERS OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) AND ARGUED IN SUPPORT OF THE S AME. 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. IT IS APPARENT F ROM THE ORDERS OF THE REVENUE THAT THE ASSESSEE HAS NOT EST ABLISHED THE GENUINESS OF ITS CLAIM OF BAD DEBTS. IF THE ASS ESSEE HAD GENUINE DEBTORS ARISING FROM THE SALE OF STEEL, IT WOULD HAVE BEEN EASY FOR IT TO ESTABLISH SO. THE ASSESSEE HAS ALSO NOT MADE ANY ATTEMPT TO PROVE THAT ITS EARLIER ADMISSIO NS ARE ERRONEOUS. FROM THESE FACTS IT IS APPARENT THAT THE ASSESSEES CLAIM OF BAD DEBTS HAS NO MERITS. MORE S O WHEN IT IS APPARENT THAT THE ASSESSEE DURING THE EARLIER AS SESSMENT YEARS HAS CREDITED IN ITS BOOKS OF ACCOUNTS WITH IN COME STATING IT TO BE EARNED FROM AQUA CULTURE WHILE AS THOSE INCOME RELATED TO EARNINGS FROM UNACCOUNTED SALE OF STEEL AND CORRESPONDINGLY DEBITED THE SAME IN FICTITIOUS DEBTORS 8 ITA NO.835 /MDS/2014 ACCOUNTS BECAUSE THE ASSESSEE IN THE EARLIER PROCEE DINGS HAS ADMITTED THAT NO EXPENDITURE WAS DEBITED IN THE BOOKS OF ACCOUNTS FOR EARNING SUCH INCOME. HENCE IT IS ABUND ANTLY CLEAR THAT THESE DEBTORS ARE BOGUS. FURTHER, THE AS SESSEE HAS TRANSFERRED ITS INTEREST BEARING FUNDS TO ITS SISTE R CONCERNS AS INTEREST FREE ADVANCES AND THEREBY ERRONEOUSLY ABSO RBED THE INTEREST PERTAINING TO THAT FUNDS IN ITS BOOKS OF A CCOUNT. THIS AMOUNT OF INTEREST CAN BE COMPUTED ARITHMETICALLY W ITH ACCURACY AND CANNOT BE TERMED AS ESTIMATION AND HAS BEEN RIGHTLY DISALLOWED. THEREFORE, THE RELIANCE PLACED BY THE ASSESSEE AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE DECISIONS OF HIGHER JUDICIAL ARE N OT APPLICABLE TO THE FACTS OF THIS CASE. FURTHER THE ASSESSEE HAS NOT SUCCEEDED IN ITS QUANTUM APPEAL ON THESE ISSUES BEF ORE THE APPELLATE AUTHORITIES AS CONCEDED BY THE LEARNED AS SESSEES REPRESENTATIVE. 10. FROM THE ABOVE FACTS AND CIRCUMSTANCES OF THE C ASE, IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE HAS CONCEA LED ITS INCOME BY FURNISHING INCORRECT PARTICULARS. HENCE, THE LEARNED ASSESSING OFFICER IS JUSTIFIED IN LEVYING PENALTY O N THE 9 ITA NO.835 /MDS/2014 ASSESSEE. ACCORDINGLY, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS SET ASIDE A ND THE ORDER OF LEARNED ASSESSING OFFICER IS RESTORED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH MARCH, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 29 TH MARCH, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /