M/s. India Cements Capital & Finance Limited, CHENNAI V. ACIT, CHENNAI

ITA 871/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60950 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Bad and doubtful debts; Assessment record
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.871(MDS)/2011 ASSESSMENT YEAR : 2006-07 M/S. INDIA CEMENTS CAPITAL & FINANCE LIMITED, 827-ANNA SALAI, CHENNAI-600 002. PAN AAACA3071C. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE II(3), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.VIJAYARAGHAVAN, A DVOCATE RESPONDENT BY : SHRI S.MOHARANA, IRS, COMMIS SIONER OF IT DATE OF HEARING : 22 ND MARCH, 2012 DATE OF PRONOUNCEMENT : 3 RD APRIL, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE REVISION ORDER UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961, - - ITA NO.871 OF 2011 2 PASSED BY THE COMMISSIONER OF INCOME-TAX, CHENNAI-I , CHENNAI, ON 16-3-2011. 2. THE ASSESSEE IS A COMPANY ENGAGED IN HIRE PURCHASING, LEASING, BILL DISCOUNTING, MONEY CHANGI NG, FOREX ADVISORY SERVICES AND TRAVELS. THE RETURN OF INCOM E FOR THE IMPUGNED ASSESSMENT YEAR WAS FILED BY THE ASSESSEE COMPANY ON A LOSS OF ` 53,68,535/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT, ACCEPTING THE LOSS RETURNED BY THE ASSESSEE. 3. ON PERUSAL OF THE ASSESSMENT RECORDS, THE COMMISSIONER OF INCOME-TAX FOUND THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE RELEVANT ASPECTS AND SIGNIFICA NCE OF MAJOR ISSUES INVOLVED IN THE ASSESSMENT. THE ASSESSEE HA S WRITTEN OFF BAD DEBTS TO THE TUNE OF ` 5.49 CRORES. THE COMMISSIONER OF INCOME-TAX OBSERVED THAT THIS WAS NOT PROPERLY EXAM INED BY THE ASSESSING AUTHORITY. IN THE PREVIOUS YEAR, RELEVAN T TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD ASSI GNED ALL ITS RECEIVABLES TO M/S.UNIQUE RECEIVABLE MANAGEMENT PRIVATE - - ITA NO.871 OF 2011 3 LIMITED (URMPL) ON THE BASIS OF A TRIPARTITE AGREEM ENT EXECUTED ON 28-6-2006 BETWEEN THE ASSESSEE, URMPL AND THE CONSORTIUM OF BANKS, WHO HAD ADVANCED FINANCE TO TH E ASSESSEE COMPANY. THE TOTAL RECEIVABLES AS PER ACCOUNTS WER E ` 93.45 CRORES AND THE BANK LOAN LIABILITIES WERE ` 89.86 CRORES. THE COMMISSIONER OF INCOME-TAX FOUND THAT THE DIFFE RENTIAL AMOUNT OF ` 3.59 CRORES HAS BEEN SHOWN AS RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. BUT, IN THE LIGHT OF THE ASSIGNMENT OF RECEIVABLES TO THE SPECIAL PURPOSE VEHICLE URMPL, T HE ASSESSING OFFICER HAS NOT CONSIDERED WHETHER THE SA ID DIFFERENTIAL AMOUNT OF ` 3.59 CRORES WOULD BE IN THE NATURE OF INCOME OR NOT. THE COMMISSIONER OF INCOME-TAX ALSO OBSERVED THAT THE TOTAL RECEIVABLE ASSIGNED TO URMPL IS ` 89.86 CRORES, AGAINST WHICH THE SAID URMPL HAS TO MAKE A PAYMENT OF ` 43 CRORES ALONE TO THE CONSORTIUM OF BANKS, RESULT ING IN REMISSION OF LIABILITY. THE ASSESSING OFFICER HAS NOT CONSIDERED THE TAXABILITY OF THE ABOVE REMISSION OF LIABILITY. 4. IN VIEW OF THE ABOVE FINDINGS, THE COMMISSIONER OF INCOME-TAX ISSUED NOTICE UNDER SECTION 263, PROPOSI NG TO REVISE - - ITA NO.871 OF 2011 4 THE ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) . AFTER EXAMINING THE DETAILED REPLY FILED BY THE ASSESSEE COMPANY, THE COMMISSIONER OF INCOME-TAX CONFIRMED THE PROPOSALS AND PASSED THE REVISION ORDER, SETTING ASIDE THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING AUTHORITY. HE SET ASIDE TH E ASSESSMENT WITH A DIRECTION TO THE ASSESSING OFFICER TO ENQUIR E ABOUT ALL THE ABOVE THREE ISSUES POINTED OUT BY HIM AND PASS A FR ESH ASSESSMENT ORDER IN ACCORDANCE WITH LAW. 5. IT IS AGAINST THE ABOVE THAT THE ASSESSEE HAS C OME IN APPEAL BEFORE THE TRIBUNAL. 6. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPE AL READ AS BELOW:- 1. THE COMMISSIONER OF INCOME-TAX ERRED IN ASSUMING JURISDICTION U/S 263 AND SET ASIDE THE ASSESSMENT BACK TO THE FILE OF THE ASSESSING OFFICER WITHOUT GIVING FINDING IN THE ISSUES MENTIONED IN THE SHOW CAUSE NOTICE. - - ITA NO.871 OF 2011 5 2. THE COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT THE SCRUTINY ASSESSMENT WAS COMPLETED U/S 143(3) AFTER EXAMINING THE BOOKS OF ACCOUNT AND CONSIDERING THE VARIOUS DETAILS FILED BEFORE THE ASSESSING OFFICER. 3. THE COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE MERE LY BECAUSE THE DECISION OF THE ASSESSING OFFICER IS NOT IN CONSONANCE WITH THE VIEW OF THE CIT. 4. THE COMMISSIONER OF INCOME-TAX OUGHT TO HAVE APPRECIATED THAT IF THE ASSESSING OFFICER HAS TAKEN ONE OF THE TWO POSSIBLE VIEWS IT CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE (MALABAR INDUSTRIAL CO. VS. CIT 243 ITR 83 (SC)). 5. THE COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THE ASSESSING OFFICER ALLOWED THE CLAI M OF BAD DEBTS AMOUNTING TO ` 5.49 CRORE WITHOUT ASCERTAINING WHETHER THE BAD DEBTS HAVE BEEN - - ITA NO.871 OF 2011 6 WRITTEN OFF PROPERLY AS PER LAW AND ALSO WHETHER THERE IS HONEST JUDGMENT ON WRITING OFF THE DEBT. 6. THE COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THE ASSESSING OFFICER FAILED TO ENQUIR E WHETHER THE EXCESS OF ` 3.59 CRORES IS TAXABLE AS INCOME. 7. THE COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY FROM THE ASSESSMENT RECORDS WHETHER INTEREST/DEPRECIATION/HIRE CHARGES OR ANY OTHER EXPENDITURE RELATED TO BANK LIABILITY HAS BEEN CLAIMED AND ALLOWED BY THE ASSESSING OFFICER IN THE EARLIER YEARS AND TO EXAMINE THE TAXABILITY OF THE REMISSION OF BANK LIABILITY U/S 41(1) AND 28(IV ). 8. THE COMMISSIONER OF INCOME-TAX OUGHT TO HAVE APPRECIATED THAT THERE IS NO REMISSION OF LIABILITY ITS ONLY A MINIMUM GUARANTEED AMOUNT TO BE PAID TO THE BANK AND THE BANK AGREEING TO ACCEPT WHETHER ADDITIONAL AMOUNT RECEIVABLES FROM THE CLIENT. THE LOAN GIVEN BY THE BANK IS ON THE CAPITAL FIELD ANY - - ITA NO.871 OF 2011 7 WAIVER CANNOT BE CONSIDERED AS INCOME EITHER U/S 41(1) OR 28(IV). 7. WE HEARD SHRI R.VIJAYARAGHAVAN, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE, AND SHRI S.MOHA RANA, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR TH E REVENUE. 8. THE ASSESSEE HAS WRITTEN OFF ` 5.49 CRORES AS BAD DEBTS AND CLAIMED IT AS DEDUCTION IN COMPUTING ITS INCOME. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED BEFORE THE ASSESSING AUTHORITY THAT DEBTS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND CLAIMED AS DEDUCTIO N FOR THE IMPUGNED ASSESSMENT YEAR 2006-07, WHICH WERE IN FAC T WRITTEN OFF AGAINST THE PROVISIONS MADE ON NON PERFORMING A SSETS, AS PER RESERVE BANK OF INDIA PRUDENTIAL NORMS ISSUED FOR E ARLIER YEARS. BUT, THE PROVISION HAS BEEN ADDED BACK IN COMPUTING THE INCOME FOR THOSE EARLIER YEARS, AS PROVISION FOR DOUBTFUL DEBTS, AS SUCH, IS NOT ALLOWABLE AS DEDUCTION. AS THE PROVISION HA S SO FAR BEEN WRITTEN OFF, THE CLAIM OF DEDUCTION HAS BEEN MADE B Y THE ASSESSEE. THE ASSESSEE HAS ALSO FILED COPIES OF DE TAILS, - - ITA NO.871 OF 2011 8 FURNISHING THE NAMES OF THE CUSTOMERS WHOSE DEBTS W ERE WRITTEN OFF. EVEN THOUGH THESE DETAILS WERE FURNISHED BEFO RE THE ASSESSING AUTHORITY AND EXPLANATIONS WERE MADE BEFO RE HIM, THERE IS NO DISCUSSION MADE IN THE ASSESSMENT ORDER ON THIS ISSUE. THE AMOUNT WRITTEN OFF BY THE ASSESSEE AND CLAIMED AS DEDUCTION IS THE SUM OF ` 5.49 CRORES. THE SIZE OF THE CLAIM ITSELF SHOULD ALERT THE ASSESSING OFFICER TO INVEST IGATE THE MATTER IN A REASONABLE MANNER AND RECORD HIS FINDINGS IN T HE ASSESSMENT ORDER, EXPLAINING THE REASONS LEADING TO THE CONCLUSION ARRIVED AT BY HIM. BUT, THE ASSESSING O FFICER HAS NOT MADE ANY SUCH FINDING OR DISCUSSION IN HIS ASSESSME NT ORDER. 9. IT IS SEEN THAT THE ASSESSING OFFICER HAS SENT A LETTER TO THE ASSESSEE ON 11-10-2007, ASKING FOR CERTAIN P OINTS IN CONNECTION WITH THE IMPUGNED ASSESSMENT. IT IS SEE N THAT THE ASSESSEE HAS SENT A REPLY TO THE ASSESSING OFFICER EXPLAINING THE ISSUES OF BAD DEBTS WRITTEN OFF AND SHORT TERM CAPITAL GAINS. 10. BUT, THERE IS NOTHING ON RECORD TO SEE WHETHER THE ASSESSING OFFICER HAS ASKED ANYTHING ABOUT THE OTHE R TWO ISSUES - - ITA NO.871 OF 2011 9 TO THE ASSESSEE OR THE ASSESSEE HAD EXPLAINED THOSE TWO ISSUES BEFORE THE ASSESSING OFFICER. THOSE TWO ISSUES AR E THE DIFFERENTIAL AMOUNT OF ` 3.59 CRORES AND THE DIFFERENTIAL AMOUNT BETWEEN ` 89.86 CRORES AND ` 43 CRORES, BOTH ARISING OUT OF THE TRIPARTITE AGREEMENT OF ASSIGNMENT OF RECEIVABLES I N FAVOUR OF THE SPECIAL PURPOSE VEHICLE URMPL AND THE CONSORTIUM OF LENDING BANKS. 11. THE QUESTION OF THE DIFFERENTIAL AMOUNT BETWEE N ` 89.86 CRORES AND ` 43 CRORES IS A VERY PREDOMINANT ISSUE THAT SHOULD HAVE BEEN METICULOUSLY EXAMINED IN THE ASSES SMENT ORDER. THE TRIPARTITE AGREEMENT ENTERED INTO BETWEE N THE ASSESSEE, THE SPECIAL PURPOSE VEHICLE URMPL AND THE STATE BANK OF MYSORE, AS THE REPRESENTATIVE OF THE CONSOR TIUM OF LENDING BANKS, ENTERED INTO ON 28-6-2006, LISTS OUT THE TERMS AND CONDITIONS OF THE ASSIGNMENT OF RECEIVABLES TO THE SPECIAL PURPOSE VEHICLE AND THE REPAYMENT OF LOANS BY THE S PECIAL PURPOSE VEHICLE TO THE CONSORTIUM OF LENDING BANKS. THE CONSORTIUM OF BANKS IS HAVING A FIRST AND PRIOR CHA RGE ON ALL RECEIVABLES OF THE ASSESSEE COMPANY AS SECURITY FOR THE LOANS - - ITA NO.871 OF 2011 10 AND CREDIT FACILITIES EXTENDED TO THE ASSESSEE. AS ON THE DATE OF THE TRIPARTITE AGREEMENT, THE TOTAL OF THE RECEIVAB LES OF THE ASSESSEE WAS ` 93.45 CRORES. AS AGAINST THE ABOVE AMOUNT, THE TRIPARTITE AGREEMENT LIMITED ITS ASSIGNMENT TO ` 89.86 CRORES. THE DIFFERENTIAL AMOUNT OF ` 3.59 CRORES IS SHOWN AS RECEIVABLES IN THE ACCOUNTS OF THE ASSESSEE COMPANY. THE EXACT NA TURE OF THIS AMOUNT, WHETHER IT SUBSISTS AS RECOVERABLE OR ALREA DY INCLUDED IN THE BAD DEBTS WRITTEN OFF OR IS IN THE NATURE OF IN COME, ETC. HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER, IF NOT DISCUSSED IN THE ASSESSMENT ORDER. THE AMOUNT OF RECEIVABLES AS SIGNED TO THE SPECIAL PURPOSE VEHICLE URMPL WAS ` 89.86 CRORES. IT IS STATED IN THE TRIPARTITE AGREEMENT THAT THE AGREEME NT WAS EXECUTED TO CRYSTALLISE THE LIABILITIES OF THE ASSE SSEE COMPANY TO THE CONSORTIUM OF BANKS. IN PARAGRAPH 3 OF THE TRI PARTITE AGREEMENT IT IS STATED AS BELOW:- 3. THE DUES OF THE FIRST PART AMOUNTING TO ` 89.05 CRS TO THE THIRD TO FOURTEENTH PARTS IS HEREBY CRYSTALLIZED AND FIXED AT - - ITA NO.871 OF 2011 11 ` 43 CRORES (WITH THE APPLICATION OF INTEREST TO CEASE FROM 1 ST JULY 2005). THEREAFTER, THE AGREEMENT SPEAKS ABOUT THE MODALITI ES OF THE PAYMENT OF THE SUM OF ` 43 CRORES BY THE SPECIAL PURPOSE VEHICLE URMPL TO THE CONSORTIUM OF BANKS. 12. CLAUSE 7 OF THE TRIPARTITE AGREEMENT READS AS BELOW:- 7. THE PARTIES AGREE THAT ON THE SECOND PART PAYING THE THIRD PART THE AFORESAID SUM OF ` 43 CRORES IN TERMS OF CLAUSE 5 ABOVE AND INTEREST IN TERMS OF CLAUSE 6 ABOVE, ALL DUES, CLAIMS, DEMANDS AND LIABILITIES OF THE THIRD TO FOURTEENTH PARTS AGAINST THE SECOND PART SHALL CEASE AND THE SAME SHALL CONSTITUTE A FULL AND FINAL SETTLEMENT AND ABSOLUTE RELEASE OF T HE SECOND PART FROM ANY OBLIGATION WHATSOEVER TO THE THIRD TO FOURTEENTH PARTS AND THE THIRD TO FOURTEENTH PARTS SHALL NOT BE - - ITA NO.871 OF 2011 12 ENTITLED TO COMMENCE ANY LEGAL PROCEEDINGS AGAINST THE SECOND PART EITHER IN THE DEBT RECOVERY TRIBUNAL OR ELSEWHERE. 13. THE ABOVE CLAUSES IN THE TRIPARTITE AGREEMENT CLEARLY SHOWS THAT THE LIABILITY TO THE CONSORTIUM OF BANKS HAS BEEN CRYSTALLISED AT ` 43 CRORES AND ONCE THE SAID AMOUNT OF ` 43 CRORES WAS PAID OVER TO THE BANKS, THE LIABILIT IES OF THE ASSESSEE COMPANY TOWARDS THE BANKS STAND FULLY DISC HARGED AND SETTLED. THEREAFTER, THE BANKS DO NOT HAVE ANY OPTION FOR LEGAL PROCEEDINGS AGAINST THE ASSESSEE OR THE SPECI AL PURPOSE VEHICLE. THEREFORE, IT IS CLEAR THAT PRIMA FACIE T HERE IS A REMISSION OF LIABILITY IN FAVOUR OF THE ASSESSEE CO MPANY. THIS PARAMOUNT ISSUE OUGHT TO HAVE BEEN EXAMINED BY THE ASSESSING AUTHORITY IN THE ASSESSMENT ORDER. 14. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO CLAUSE 5(D) OF THE TRI PARTITE AGREEMENT WHICH STATES THAT ANY AMOUNT COLLECTED OV ER AND ABOVE THE CRYSTALLIZED AMOUNT WILL ALSO BE PAID TO THE BANKS AFTER - - ITA NO.871 OF 2011 13 EXTINGUISHING THE OUTSIDE LOAN OF ` 15 CRORES RAISED FOR THE INITIAL THREE INSTALMENTS. WE AGREE WITH THE ARGUMENT OF T HE LEARNED COUNSEL APPEARING FOR THE ASSESSEE THAT THERE IS DI STANT POSSIBILITY THAT THE SPECIAL PURPOSE VEHICLE MAY RE ALIZE MORE THAN ` 43 CRORES AND IN SUCH A SITUATION SOME MORE AMOUNT WOULD HAVE TO BE PAID TO THE BANKS. BUT, THAT IS O NLY A POSSIBILITY. THAT LIABILITY OF THE ASSESSEE IS ONL Y CONTINGENT. 15. FOR THE PURPOSE OF SECTION 263, IT IS NOT NECE SSARY FOR THE COMMISSIONER OF INCOME-TAX TO MAKE A FINAL ADJUDICATION OF THE ISSUES. IF HE FINDS PRIMA FACIE THAT CERTAI N RELEVANT ASPECTS OF THE ASSESSMENT HAVE NOT BEEN EXAMINED BY THE ASS ESSING AUTHORITY, WHICH HAS MADE THE ASSESSMENT ORDER ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CO MMISSIONER OF INCOME-TAX IS WITHIN HIS COMPETENCE TO INVOKE SECTI ON 263. 16. AS FAR AS THE PRESENT CASE IS CONCERNED, THE ASSESSMENT ORDER PASSED BY THE ASSESSING AUTHORITY IS A VERY CRYPTIC ORDER WHERE THERE IS NO DISCUSSION REGARDIN G CERTAIN VITAL ISSUES ARISING FROM THE ASSESSMENT. - - ITA NO.871 OF 2011 14 17. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE UPHOLD THE REVISION ORDER PASSED BY THE CO MMISSIONER OF INCOME-TAX. 18. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 3 RD OF APRIL, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 3 RD APRIL, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.