Jham Plastic Industries, Faridabad V. ACIT, Faridabad

MA 478/DEL/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8828 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 6 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 08-11-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 13-10-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 02-06-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Rectification of order; Proportionate interest; Set aside
• Section: 154; 14A; 36 (1) (iii); 254(2)

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER M.A.No.-478/Del/2019 [In ITA No.3127/Del/2017] [Assessment Year : 2012-13] Jham Plastic Industries, E-18, Sanjay Colony, Sector-23, Faridabad, Haryana. PAN-AABFJ8407H vs ACIT, Circle-II, Faridabad. APPELLANT RESPONDENT Appellant by None Respondent by Shri Om Prakash, Sr.DR Date of Hearing 14.10.2022 Date of Pronouncement 09.11.2022 ORDER PER KUL BHARAT, JM : This Miscellaneous Application is filed by the applicant seeking recalling of the order dated 15.02.2019 in ITA No.3127/Del/2017 passed by the Tribunal for the Assessment year 2012-13. 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. Ld. Counsel for the assessee submitted that this M.A was fixed for clarification on various occasions. Therefore, the M.A. is taken up for hearing and has been decided in the absence of the assessee. 3. The submissions of the assessee as embedded in the application are as under:- Fact of The Case:- “The assessee is a partnership firm. The assessee is a small manufacturer of Plastic components and is supplying the same to various industries of Faridabad and around. For the year under consideration the assessee Page | 2 filed its return on 15/09/2012 declaring Total Income at 2,079,670. Addition of Rs. 2,55,270/- was made to filed Income by the assessing officer detail of these additions are as under: 1. Disallowance of Depreciation 1,518,158 2. Disallowance on account of personal user in the expenses incurred 22,169 3. Disallowance u/s 36(l)(iii) on account of interest on investment not put to use 1,011,640 The assessee filed an appeal before C.I.T (Appeals) Faridabad. Addition of Rs.15,18,458 on account of deprecation was deleted. However disallowance u/s 36 (1) (iii) on account of interest on investment not put to use Rs. 1011640 was confirmed by him. An appeal against this order was preferred before the honorable SMC Bench of ITAT. This addition was confirmed by the said honorable bench of ITAT. However the assessee feels that this order has a mistake apparent from the record. Hence this appeal is made for rectifying this mistake. Submission In view of our application u/s 254(2) we submit as under. The section deals with mistakes apparent from record. Here we would like to deal with following questions MISTAKE 1. Whether there is a mistake There appears to be a clear cut mistake as the law on section 36(l)(iii) stands as under:- As per decisions of hon. Supreme court and various high courts addition u/s 36 (1) (iii) cannot be made on funds spent on assets not put to use or given to subsidiary companies if the assessee has interest free funds exceeding the above amounts so spent or given An addition of Rs. 10,11,640/- has been made by the Assessing officer U/S 36(l)(iii).This has been made on A/c of a sum of Rs. 84,30,330 Page | 3 invested by the assessee in industrial plots. A sum Calculated at 12% of this amounting to Rs. 10, 11,640/- has been added to the income. As per the assessee this is a mistake apparent from record. Law on this subject In view of the following decision of the honorable Supreme Court and various honorable high courts. A summary of this decision is given as under:- 1. Hero Cycles Pvt. Ltd vs. CIT (Central) Ludiana[(2015) 63 taxmann.com 308(SC)] : - The assessee made advances of Rs. 116.26 lakhs to its subsidiary and Rs. 34 Lacs to its directors. The additions of Rs. 16,39,010 made u/s 36 (1) (iii) to the filed income. All these additions were deleted by hon. supreme court. The hon. supreme court observed that there is nexus between the expenditure and purpose of business, the revenue cannot justifiably claim to have put itself in the arm chair of the business man or in the position of Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case, (the case discussed in length hereinafter) 2. S A Builders Vs. CIT [(2007)288 ITR 1(SC)] :- The assessee had transferred a sum of the 82 lacs to its subsidiary without charging interest. An Addition of Rs.566729 was made on A/c of interest on this sum. The honorable supreme court deleted the above additions stating that the expenditure for the purpose of business include expenditure voluntarily incurred for commercial expediency and it is immaterial if a third partly also benefited thereby. 3. CIT Bangalore vs. himatsinghka seide limited [2016] 69 taxmann.com 259 (Karnataka) The assessee had advanced a loan of Rs, 9.6 crores to its subsidiary and net worth of the company was Rs. 600.71 Crores. An addition of Rs. 4471565/- was made to the income u/s 36(1) (iii). The honorable high court deleted the additions. The hon. Court observed once the interest is of Page | 4 a loan taken for the existing manufacturing unit, may be as term loan or may be working capital, the interest cannot be disallowed. Further on the question of diversion of fund, it is by now well settled that the business wisdom of the assessee cannot be substituted by the assessing officer. Further the loan was actually taken for establishing a new unit and the utilization thereof is proved-----“ 4. PCIT vs. Diamond Textile Mill Pvt. Ltd [2018] 96 taxmann.com 234 (Gujrat) :- In course of assessment, Assessing officer disallowed interest paid by assessee on various loans and advances - Tribunal found that assessee was already having a huge interest free funds available with it; moreover, amount of loans and advances were utilized for business purpose, more particularly in fixed assets and capital work in progress- Tribunal thus deleted disallowance made by Assessing Officer. HON. Court observed " we have carefully considered the orders of the authorizes below. A perusal of the documentary evidences show that assessee was having interest free funds available with it totaling to Rs. 48.58 crores and the impugned advances were Rs. 12.78 crores. This shows that the interest free funds available with the assessee were far more in excess of the interest free advances. 5. Wadhwa Residency PVt. Ltd. Vs. additional CIT Mumbai [2018] 95 taxmann.com 294 (Mumbai - Trib.) The assessee had borrowed huge loans and advances on which interest was claimed. The assessee had some income which was exempt under section 10(2A). A disallowance was made of interest claimed. The assessee made an alternative argument that its own interest free funds in the form of share capital and reserves, interest free unsecured loans and advances received from customers is more that value of investments made in partnership firm which yielded exempt income and hence, once the assessee has proved that its own funds are more or it is having a mixed fund, including interest bearing funds, then a general presumption is Page | 5 drawn that investment in tax exempt securities/share or investments is out of interest free funds. The hon. ITAT bench observed " held, yes - whether since assessee had higher amount of interest free funds than that invested, it was to be presumed that investment was made out of interest free funds available with assessee thus, disallowance under section 14A was unjustified- Held, yes [paras 10 and 12] [in favour of assessee] RECORD Record means piece of evidence or information constituting an account of something that has occurred or been said or state of being set down or preserved in writing etc. The 'record' contemplated by section 154 does not mean only an order of assessment. It also comprises all the proceedings on which the assessment is made or the proceedings relating to appeals and the AO or any other authority is entitled for the purpose of exercising rectification jurisdiction to look into the whole evidence and the law applicable to ascertain whether there was an error. The authority(s) rectifying mistake u/s 154 cannot go beyond the records and look into fresh evidence or material which has not been on record at the time when order sought to be rectified was passed. The Apex court in the case of Atmala Nagraj held that the mistake should be discovered from the assessee's own record and not from the records of another assessee or a result of disposal of another case. In CIT v. MRM Plantations Private Limited, 1999 240 ITR 660 Mad the Madras High Court held that the records for the purposes of section 154 are those which are available to the authorities at the time of initiation of the proceedings for rectification and not merely the records of original proceedings sought to be rectified. In other words, the records should be those which are produced by the assessee at the time of passing the assessment order. Here the record primarily means Balance sheet of the company and according to this balance sheet dated 31/03/2012 the position of funds is as under:- Page | 6 JHAM PLASTIC INDUSTRIES BALANCE SHEET AS AT 31ST MARCH, 2012 LIABILITIES SCH NO AMOUNT ASSETS SCH NO AMOUNT CAPITAL 1 2,03,62,955.93 FIXED ASSETS 5 2,48,72,585.78 LOAN FUNDS INVESTMENTS 6 84,30,330.00 SECURED LOANS 2 1,82,89,338.80 UNSECURED LOANS 3 31,44,459.88 CURRENT ASSETS INVENTORY 7 17,32,970.00 CURRENT LIABILITIES 4 1,85,14,027.64 SUNDRY DEBTORS 8 2,21,96,840.03 CASH AND BANK 9 3,14,443.65 OTHER CURRENT ASSETS 10 13,70,403.79 LOANS AND ADVANCES (ASSETS) 11 13,93,209.00 TOTAL 6,03,10,782.25 TOTAL 6,03,10,782.25 Interest free funds available with assessee 1. Capital 2,03,62,955.93 2. Unsecured Loans from family of partners 31,44,459.88 3. Current Liabilities 1,85,14,027.64 Total 4.20.21.443.45 Investments 84,30,330.00 This balance sheet which is the basic record for making the decision on the matter under consideration was submitted by the assessee and was part of the record both before the Assessing Officer and Hon. CIT (Appeals) Faridabad and hon. SMC bench of ITAT. APPARENT FROM RECORD After explaining mistake in the decision and meaning of the record the question that remains is whether the mistake is apparent from the record, as described by the honorable Supreme Court in T.S. balaram ITO vs. Voleart brothers the mistake apparent from record must be an obvious and patents mistake. A decision on a debatable point of law is not a mistake apparent from record. In the above we have already explained and cited the unmistakable and clear cut decisions given by the honorable Supreme Court and number of high court. All hold the view that no addition of interest is leviable where there is a clear cut nexus between the amount paid and the revenue. Further where the assessee has interest free funds available at his disposal and the amount of their fund is markedly Page | 7 higher than the amount paid by the assessee in acquiring new assets no addition can be made from the above we have cleanly established that the order against which application for rectification has been given defiantly suffer from a mistake. This mistake is very clearly apparent from record and requires no further explanation or justification. Since the order has a mistake apparent from the records it needs to be rectified. We have already established that record in this case is balance sheet of the firm. Even a single first look of the balance sheet itself establishes that the investments are much lower than the interest free funds available with the firm. The balance sheet as filed by the assessee is as under: Interest free funds available with assessee 4. Capital 2,03,62,955.93 5. Unsecured Loans from family of partners 31,44,459.88 6. Current Liabilities 1,85,14,027.64 Total 4,20,21,443.45 Investments 84,30,330.00 JHAM PLASTIC INDUSTRIES balance Sheet as at 31st march, 2012 LIABILITIES SCH NO AMOUNT ASSETS SCH NO AMOUNT CAPITAL 1 2,03,62,955.93 FIXED ASSETS 5 2,48,72,585.78 LOAN FUNDS INVESTMENTS 6 84,30,330.00 SECURED LOANS 2 1,82,89,338.80 UNSECURED LOANS 3 31,44,459.88 CURRENT ASSETS INVENTORY 7 17,32,970.00 CURRENT LIABILITIES 4 1,85,14,027.64 SUNDRY DEBTORS 8 2,21,96,840.03 CASH AND BANK 9 3,14,443.65 OTHER CURRENT ASSETS 10 13,70,403.79 LOANS AND ADVANCES (ASSETS) 11 13,93,209.00 TOTAL 6,03,10,782.25 TOTAL 6,03,10,782.25 Calculation of interest clearly wrongly calculated : A Sum of Rs. 10,11,640/- has been calculated on total advance of Rs. 84,30,330. The investment of assessee in industrial plot was as under: In Rs. Investment as on 01/04/2011 861157 Investment as on 31/03/2012 8430330 Average Investment 4645744 Page | 8 Total Bank Interest Paid by assessee 3902468 Total of assets as per balance sheet on 31.03.2012 60310782 Proportionate Interest 300607 Section 154 I RECTIFICATION OF MISTAKES 899. Mistakes apparent from records - Whether can be treated as such on the basis of subsequent decision of Supreme Court 1. The Board are advised that a mistake arising as a result of a subsequent interpretation of law by the Supreme Court would constitute "a mistake apparent from the records" and rectificatory action under section 35/154 of the 1922 Act/the 1961 Act would be in order. It has, therefore, been decided that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular. 2. The Board desire that any appeals or references pending on the point at issue may please be withdrawn. Circular: No. 68 [F.No. 245/17/71-A&PAC], dated 17-11-1971. JUDICIAL ANALYSIS EXPLAINED IN - In ITO v. Smt. Manini Niranjanbhai [1992] 41 ITD 324 (Ahd.-Trib.) (SMC) it was observed that as per Circular No. 68, dated 17- 11-1971, it is now a well established position that the Supreme Court does not declare the law with effect from the date of its order and the law declared by the Supreme Court has effect not only from the date of the decision but from the inception of the statutory provision. It has been mentioned therein that the Board have been advised that the mistake arising as a result of subsequent interpretation of law by the Supreme Page | 9 Court would constitute a mistake apparent from record and rectificatory action under section 154 would be justified. ________________________________________________________________________ As per the above circular it is clear that once a decision is given by the Hon. Supreme court on any subject the same is applicable to the cases on the same subject even for the years prior to the date of the decision by apex court. Prayer:- It is prayed that a judicious and lenient view of the proceeding be taken and appropriate relief.” 4. On the other hand, Ld. Sr. DR opposed these submissions and submitted that the assessee is seeking review of the order as the Tribunal has considered the submissions of the parties and correctly upheld the decision of Ld.CIT(A). He further relied upon the judgement of Hon’ble Supreme Court in the case of CIT vs M/s. Reliance Communication Ltd. in Civil Appeal No.7111 of 2021 dated 03.12.2021 to buttress the contention that the scope of section 254 of the Act, is very limited. It does not empower the Tribunal to review its own order. He contended that by way of the present M.A, the assessee is seeking for review of well-reasoned decision of the Tribunal. 5. I have heard Ld. Sr. DR and perused the material available on record. The Hon’ble Supreme Court in the case of CIT vs M/s. Reliance Communication Ltd. in Civil Appeal No.7111 of 2021 (supra) has held as under:- 5. “From the impugned judgment and order passed by the High Court, it appears that the High Court has dismissed the writ petitions by observing that (i) the Revenue itself had in detail gone into merits of the case before the ITAT and the parties filed detailed submissions based on which the ITAT passed its order recalling its earlier order; (ii) the Revenue had not contended that the ITAT had become functus officio after delivering its original order and that if it had to Page | 10 relook/revisit the order, it must be for limited purpose as permitted by Section 254(2) of the Act; and (iii) that the merits might have been decided erroneously but ITAT had the jurisdiction and within its powers it may pass an erroneous order and that such objections had not been raised before ITAT. 6. None of the aforesaid grounds are tenable in law. Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it does not confer jurisdiction upon the ITAT to pass the order de hors Section 254(2) of the Act. As observed hereinabove, the powers under Section 254(2) of the Act are only to correct and/or rectify the mistake apparent from the record and not beyond that. Even the observations that the merits might have been decided erroneously and the ITAT had jurisdiction and within its powers it may pass an order recalling its earlier order which is an erroneous order, cannot be accepted. As observed hereinabove, if the order passed by the ITAT was erroneous on merits, in that case, the remedy available to the Assessee was to prefer an appeal before the High Court, which in fact was filed by the Assessee before the High Court, but later on the Assessee withdrew the same in the instant case. 7. In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court as well as the common order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 deserve to be quashed and set aside and are accordingly quashed and set aside. The original orders passed by the ITAT dated 06.09.2013 passed in the respective appeals preferred by the Revenue are hereby restored. 8. Considering the fact that the Assessee had earlier preferred appeal/s before the High Court challenging the original order passed by the ITAT dated 06.09.2013, which the Assessee withdrew in Page | 11 view of the subsequent order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013, we observe that if the Assessee/s prefers/prefer appeal/s before the High Court against the original order dated 06.09.2013 within a period of six weeks from today, the same may be decided and disposed of in accordance with law and on its/their own merits and without raising any objection with respect to limitation. 9. Both the appeals are accordingly allowed in the aforesaid terms. However, there shall be no order as to costs.” 6. In the light of the judgement of Hon’ble Supreme Court in the case of CIT vs M/s. Reliance Communication Ltd. in Civil Appeal No.7111 of 2021 (supra), the M.A. filed by the assessee is devoid of any merit hence, rejected. 7. In the result, the Miscellaneous Application filed by the assessee is dismissed. Order pronounced in the open Court on 09 th November, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI