Appeal details
Counselvise Citation
[2023] 103 COUNSELVISE.COM (IT) 0946 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Miscellaneous Application
Pronouncement Date
21-03-2023
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
09-03-2023
Assessment Year
2004-2005
Appeal Filed On
22-01-2023
Judgement Text
आयकर अपीलीय अिधकरण, ‘सी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI ᮰ी वी दुगाᭅ राव, ᭠याियक सद᭭य एवं ᮰ी मंजुनाथ. जी, लेखा सद᭭य के समᭃ BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI MANJUNATHA. G, HON’BLE ACCOUNTANT MEMBER Misc. Application No. 25/Chny/2023 [In ITA No. 2403/Chny/2006] (िनधाᭅरणवषᭅ / Assessment Year: 2005-06) Income Tax Officer, Corporate Ward 6(3), Chennai. v. M/s. Sporting Pastime India Ltd., 19, Kothari Road, Nungambakkam, Chennai. [PAN: AAGCS-1709-M] (ᮧाथᭅक /Petitioner) (ᮧ᭜यथᱮ/Respondent) ᮧाथᭅक कᳱ ओरसे/ Petitioner by : Shri. P. Sajit Kumar, JCIT ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri. R. Vijayaraghavan, Advocate सुनवाई कᳱ तारीख/Date of Hearing : 10.03.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 22.03.2023 आदेश /O R D E R PER MANJUNATHA. G, ACCOUNTANT MEMBER: The revenue has filed present Miscellaneous Application u/s. 254(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) against order of the Tribunal in ITA No. 2403/Chny/2006 dated 21.09.2022 and relevant to assessment year 2004-05. :-2-: MA. No: 25/Chny/2023 2. The revenue has narrated facts and mistakes stated to be apparent on record from the order of the Tribunal and relevant contents of Miscellaneous Application filed by the revenue are reproduced as under: The assessee company is engaged in the business of executing a project of developing a golf course and related works on the East Coast Road of Chennai. It was incorporated on 02.05.1994 under the Companies Act 1956. Since the assessee company had not reportedly derived any income on completion of the project, it had been consistently filing 'NIL' returns of income from A.Y. 1995-96 till the assessment year 2004-05. In about December, 2004, a piece of information was received by the Investigation Wing, Chennai, from the JCIT, Range-49, New Delhi, that a survey operation was conducted under Section 133A of the Incometax Act, 1961 in Delhi on 16.09.2004 in the case of M/s. Data Access (India) Ltd (DAIL) in connection with contravention of the TDS provisions by that company. In the course of survey operations it was gathered that there was a large debt of Rs.81 crores due from M/s. Data Access America Inc., USA (DAUS) to the aforesaid company. It has also been informed by the JCIT, Range-49, New Delhi that M/s. DAIL stood taken over by One Shri K.C. Palanisamy with effect from 01.08.2004, The new management of M/s. DAIL was reported to have fraudulently siphoned off an amount of US $ 17 million (equivalent to Rs. 78.45 Cr) received from DAUS. The new management was also reported to have opened a new bank account in ABN Amro Bank, Chennai. On receipt of information about the fraudulent transfer of funds by the K.C. Palanisamy group from'DAIL account in Delhi to bank accounts of Shri K.C, Palanisamy's personal companies in Chennai the Investigation Wing of Chennai launched an immediate enquiry. The said probe revealed that M/s. Cheran Enterprises Pvt. Ltd of Shri K.C. Palanisamy had received about Rs.53 crores out of the aforesaid sum of Rs.78.45 Cr. It was further gathered by the Chennai Investigation Wing that out of the receipt of 53 crores, a sum of Rs. 50 crores stood invested in FDs in different banks in Chennai. The enquiry further revealed that a sum of Rs 25 crores was kept as Term Deposit with State Bank of India, Adyar Branch, Chennai in the name of the assessee company and that the same was operated by Shri K.C. Palanisamy. It was gathered by the assessing Officer that the FD maintained in the :-3-: MA. No: 25/Chny/2023 name of the assessee company was made out of the fund received from one M/s. Cheran Holdings Pvt. Ltd. having office at 7, College Lane, C-Bungalow, 'Happy Nook', Nungambakkam, Chennai 600 034. The Assessing Officer through enquiry came to know that there was no such company at the said address. Allegations were also received from Canara Bank, the bankers of DAIL, that they had been cheated through illegal fund transfer by the K.C. Palanisamy group. As per the bank records, the Registered Office of the assessee company was found to be at 33/34, GST Road, Saidapet, 'Chennal-600 015. But the enquiry revealed that the assessee company was also not existent at that address. The aforsaid information followed by subsequent enquiries at Chernial gave rise to a strong belief in the mind or the department that the assessee company might transfer, alienate, dispose off or otherwise part with its assets with a view to avoiding payment of any liability under the provisions of the Income-tax Act. On being guided. by this firm belief, an accelerated assessment proceedings under Section 175 r.w.s. 174(4) of the I.T. Act were initiated by the assessing officer by issue of statutory notice on 06.01.2005. The notice was reportedly served on the assessee through affixture at its Registered Office at Saidapet, Chennai. By way of abundant precaution the sum of Rs.25 crores lying invested in the form of term deposit in the name of the assessee company was provisionally attached by the Assessing Officer under Section 281 B of the IT Act with the prior approval of the CIT-Ill, Chennai in order to protect the interests of revenue. In response to the assessing officer's notice, the authorized representative of the assessee company attended before the assessing officer and explained the source or the term deposit as share advance made by M/s. Cheran Holdings Pvt. Ltd having its office at 19, Kothari Road, Nungambakkam, Chennai gathered by the Chennai Investigation Wing that out of the receipt of 53 crores, a sum of Rs. 50 crores stood invested in FDs in different banks in Chennai. The enquiry further revealed that a sum of Rs 25 crores was kept as Term Deposit with State Bank of India, Adyar Branch, Chennai in the name of the assessee company and that the same was operated by Shri K.C. Palanisamy. It was gathered by the assessing Officer that the FD maintained in the name of the assessee company was made out of the fund received from one M/s. Cheran Holdings Pvt. Ltd. having office at 7, College Lane, C-Bungalow, 'Happy Nook', Nungambakkam, Chennai600 034. The Assessing Officer through enquiry came to know that there was no such company at the said address. Allegations were also received :-4-: MA. No: 25/Chny/2023 from Canara Bank, the bankers of DAIL, that they had been cheated through illegal fund transfer by the K.C. Palanisamy group. As per the bank records, the Registered Office of the assessee company was found to be at 33/34, GST Road, Saidapet, 'Chennal-600 015. But the enquiry revealed that the assessee company was also not existent at that address. The aforesaid information followed by subsequent enquiries at Chennai gave rise to a strong belief in the mind or the department that the assessee company might transfer, alienate, dispose off or otherwise part with its assets with a view to avoiding payment of any liability under the provisions of the Income-tax Act. On being guided by this firm belief, an accelerated assessment proceedings under Section 175 r.w.s. 174(4) of the I.T. Act were initiated by the assessing officer by issue of statutory notice on 06.01.2005. The notice was reportedly served on the assessee through affixture at its Registered Office at Saidapet, Chennai. By way of abundant precaution the sum of Rs.25 crores lying invested in the form of term deposit in the name of the assessee company was provisionally attached by the Assessing Officer under Section 281B of the Act with the prior approval of the CIT-III, Chennai in order to protect the interests of revenue. In response to the assessing officer's notice, the authorized representative of the assessee company attended before the assessing officer and explained the source or the term deposit as share advance made by M/s. Charan Holdings Pvt. Ltd having its office at 19, Kothari Road, Nungambakkam, Chennai 600 034. Subsequently a return of income signed by Shri K.C. Palanisamy in the capacity of the director was filed on 25.01.2005 along with balance sheet, profit and loss account and statement of income. A net loss of Rs.2,32,05,676/- was declared in the said return along with a claim for refund amounting to Rs.3,97,038/-. The accelerated scrutiny assessment was framed u/s. 143(3) of the Act read with 174(4) and 175 of the Act on 23.02.2005 on a total income of Rs.47,55,87,927/-. In the assessment order the following additions were made by the assessing officer: on account of remission of : 22,36,02,749 On account of unexplained share capital advance lying invested in term deposits : 25,00,00,000 On account of income from other : 19,85,178 :-5-: MA. No: 25/Chny/2023 Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A) and CIT(A) vide order dated 08.09.2006 deleted the addition made on account of remission of liability of Rs.22,36,02,749/- and addition made on account of unexplained share capital advance lying invested in term deposit of Rs.25,00,00,000/- and confirmed the addition made on account of income from other sources of Rs. 19,85,178. Aggrieved by the order of CIT(A), revenue filed appeal before the ITAT. Order of the Hon'ble IT AT: (i) For the addition of Rs.25 crores u/s, 68 of the Act: As per facts brought on record alleged unexplained income assessed by the Assessing Officer in the hands of the assessee towards amount received from M/s.Cheran Holdings Pvt Ltd. for Rs.25 crores is originally belonged to one Data Access (India) Ltd., which in turn has received money from M/s. Data Access America Inc. Further, on 19" August, 2004 Data Access (India) Ltd. transferred an amount of Rs.78.45 crores to M/s. Cheran Holdings Pvt Ltd. On 18.10.2004, out of amount received from M/s. DAIL, M/s. Cheran Holdings Pvt Ltd. transferred a sum of Rs.25 crores to M/s. SPIL, the assessee company. M/s. DAIL went for winding up, wherein several parties filed their claim both as secured and unsecured creditors. The Canara Bank as creditor of M/s .DAIL filed recovery suit before the Hon'ble Delhi High Court and the- Hon'ble Court vide their order dated 23.11.2004 passed an order restraining from dealing with amount received from Data Access America in bank Account maintained by the assessee company with ABN Amro bank, Chennai. Further, Canara Bank has filed Civil Appeal before the Hon'ble Delhi High Court and the Hon'ble high Court has passed order on 18.11.2005 and directed all parties, including income-tax department to remit amount received from M/s.Data Access India Ltd. to Canara Bank count. From the above, it is very clear that amount received by the assesses from M/s. Cheran Holdings Pvt Ltd. does not belong to the assessee, in view of the specific order of the Hon'ble Delhi High Court and thus, it cannot be said that it is unexplained income of the assessee. Further, from the above details it is very clear that source of money has been explained by the assessee, including identity of the creditors and further said amount has been transferred through proper banking channel only. The learned CIT(A), after considering relevant facts held that the assesses has identified creditors and hence, deleted additions made by the Assessing :-6-: MA. No: 25/Chny/2023 Officer towards amount received from M/s. Cheran. Holdings Pvt Ltd. as unexplained income of the assessee. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the Revenue. (ii) For the addition made on account of remission of liability of Rs.22,36,02,749The Hon'ble ITAT has not adjudicated this issue in its order dated 21.09.2022. 2.1 The learned CIT(A) erred in deleting the disallowance of Rs. 22,36,02,749/- on account of remission of liability u/s. 41 (1) on three counts: (a) The transaction between two share holders cannot in anyway affect the capital base of a company nor it can give rise to a remission of liability by a shareholder with regard to the assessee company. (b) The aggregate value of the liability did not change only the value of the liability got regrouped under some other heads. (c) M/S. Kasturi & Sons Ltd. has entered the incurred loss in books of account only as a provision for a loss on sale of investments and has not claimed any long term capita/ loss in its I. T .return for the a-y 2005-06. 2.2 Having regard to the decision of the Hon'ble Supreme Court in the case of Union of India u J.K. Synthetics Ltd. (199 [TR 14), wherein the ratio that a cessation of liability for the purposes of Sec.41( 1) would mean irrevocable cessation, so that there is no possibility of the liability being revived in future was upheld, the learned CIT(A) ought to have upheld the action of the assessing officer. In the Instant case, the learned CIT(A) ought to have seen that there is no possibility of the liability being revived in future. 2.3 The learned CIT(A) ought to have seen that the assessee had stood to gain by conversion of a debt into equity (in a way, converting a creditor into a proprietor of the company), certain advantages being: (a) In a debt, the company have to pay interest to the creditor whether it earns profit or not, while in an equity, the company pays dividend to the shareholders, only when there is a profit Thus. the interest liability on a debt is a charge against the profits while the dividend liability arising out of an equity share is an "appropriation of profits". :-7-: MA. No: 25/Chny/2023 (b) Further, in case, the company is unable to pay its debt to its creditors, compulsory winding up of the company may take place, whereas in the case of an equity shareholder, such a contingency does not arise. 2.4. The learned CIT(A) failed to appreciate that merely because M/s. Kasturi & sons Ltd. (KSL) had not claimed the Long Term Capital Loss in its I.T. return for the AY 2005-06, cannot be said that the amount cannot be assessed u/s.41 (I) of the I. T. Act, in the hands of the assessee company." However Hon'ble IT AT has not adjudicated this issue in its order dated 21.09.2022. Hence for adjudication of this issue, it is prayed that the Hon'ble IT AT may be pleased to recall the order passed vide IT A No.2403/Chny/2006 dt.21.9.2022. 3. We have heard both the parties and considered relevant contents of Miscellaneous Application filed by the revenue and we find that although the revenue has agitated order of the CIT(A) on two issues, the Tribunal while adjudicating the issue by an inadvertent error has disposed off ground no 3.1 to 3.2 of revenue appeal, but does not adjudicated ground no. 2.1 to 2.4 of revenue appeal. Therefore, we are of the considered view that non-consideration of specific ground raised in Memorandum of appeal constitutes a mistake apparent of record which can be rectified u/s. 254(2) of the Act. Therefore, we recall the order of the Tribunal in ITA No. 2403/Chny/2006 dated 21.09.2022, qua ground no. 2.1 to 2.4 :-8-: MA. No: 25/Chny/2023 of revenue’s appeal. The Registry is directed to list the appeal for hearing in due course and intimate both the sides. 4. In the result, Miscellaneous Application filed by the revenue is allowed in terms of our observations given herein above. Order pronounced in the Court on 22 nd March, 2023 at Chennai. Sd/- (वी दुगाᭅ राव) (V. DURGA RAO) ᭠याियकसद᭭य/Judicial Member Sd/- (मंजुनाथ. जी) (MANJUNATHA. G) लेखासद᭭य/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated: 22 nd March, 2023 JPV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ/CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF
AI Insights
The case involves the Income Tax Officer, Corporate Ward 6(3), Chennai as the petitioner and M/s. Sporting Pastime India Ltd. as the respondent. The core issue revolves around the revenue's appeal against the order of the Tribunal concerning the assessment year 2004-05. The revenue contended that the Tribunal's earlier order did not address certain grounds related to the remission of liability and unexplained share capital advance, which were crucial for determining the correct tax liability of the assessee. The Tribunal acknowledged the oversight and recalled the previous order to rectify the mistake.
