All Grow & Investment P. Ltd v. Commissioner Of Income Tax

$~2 *IN THE HIGH COURT OF DELHI AT NEW DELHI Decided on : 20.01.2015 +ITA 17/2015, C.M. APPL.159-160/2015 ALL GROW & INVESTMENT P. LTD. ..... Appellant Through : Sh. Shashwat Bajpai, Advocate. versus COMMISSIONER OF INCOME TAX ..... Respondent Through : Sh. Kamal Sawhney, Sr. StandingCounsel with Sh. Sanjay Kumar, Jr. StandingCounsel and Sh. Vipul Dubey, Advocates. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE VIBHU BAKHRU MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1.Issue notice. Sh. Kamal Sawhney, Sr. Standing Counsel acceptsnotice. With consent, the matter was heard on merits. In this appeal underArticle 260A of the Income Tax Act by the assessee, the substantial questionof law sought to be urged is with respect to the addition of `8.75 lakhs madeby the Assessing Officer (AO) – which had been upset by the CIT (Appeals)but directed to be restored by the Income Tax Appellate Tribunal (ITAT). 2.The brief facts for deciding the question are that the assessee is a NonBanking Financial Company (NBFC) which had obtained a license from theReserve Bank of India for the said business activity. The AO, in his order, had added back the sum of `8.75 lakhs for the Assessment Year (AY) 1999-2000. The assessee had advanced `1.4 crores to M/s. Escorts Limited as aninter-corporate deposit and reported interest income for the previous year.For AY 1999-2000, however, its books and returns indicated that the entireamount had been received back in August 1998. No interest was paid from01.04.1998 to August 1998. The assessee used to maintain mercantilesystem of accounting. The AO was dissatisfied with its explanation that itsborrower refused to pay any proportionate interest on the plea that the entiredeposits had been recalled mid year. Before the CIT (Appeals), the assesseesought to adduce additional evidence under Rule 46A of the Income TaxRules in the form of a letter written by M/s. Escorts on 25.08.1998. Theassessee had also relied on an auditor’s note, indicating that steps to recoverthe amount had been made by the company. 3.The CIT(Appeals) accepted the assessee’s explanation and directeddilution of the said amount of `8.75 lakhs. The CIT (Appeal)’s reasoning isas follows: “13. It is undisputed that a loan of Rs. 1.40 crore was given toM/s. Escorts Ltd. It is also not in dispute that till 31/3/1998,M/s. Escorts had paid interest on the said loan to theassessee. However, no interest was paid by M/s Escorts Ltd.from 1/4/1998 to the date of return of the loan in August,1998. The Id. AO has charged notional interest @ 15% tomake an addition of Rs. 8,75,000/-. To my mind, the positiontaken by the Id. AO is incorrect. There is no evidence onrecord which would suggest that income had indeed beenaccrued or arisen to the assessee. In ACIT v. ShoorjiVallabhadas & Co. (1992) 46 ITR 144 (SC) the Apex Courthad dealt with the concept of income and has held thatIncome-tax is a levy on income. No doubt, the IT Act takesM/s. Escorts Ltd. It is also not in dispute that till 31/3/1998,M/s. Escorts had paid interest on the said loan to theassessee. However, no interest was paid by M/s Escorts Ltd.from 1/4/1998 to the date of return of the loan in August,1998. The Id. AO has charged notional interest @ 15% tomake an addition of Rs. 8,75,000/-. To my mind, the positiontaken by the Id. AO is incorrect. There is no evidence onrecord which would suggest that income had indeed beenaccrued or arisen to the assessee. In ACIT v. ShoorjiVallabhadas & Co. (1992) 46 ITR 144 (SC) the Apex Courthad dealt with the concept of income and has held thatIncome-tax is a levy on income. No doubt, the IT Act takes into account two points of time at which the liability to tax isattracted, viz., the accrual of the income or its receipt; butthe substance of the matter is the income. If income does notresult at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income',which does not materialize. Where income has, in fact, beenreceived and is subsequently given up in such circumstancethat it remains the income of the recipient of income, eventhough an entry to that effect might, in certain circumstances,have been made in the books of accounts. 14. In the impugned order as well as the remand report, there isnot even a shred of evidence which would suggest thatincome had arisen or accrued to the assessee during the F.Y.on which income tax could be levied. An affidavit from theDirector of the firm had also been filed. Importantly, theconfirmation from M/s Escorts Ltd. dated 25/8/1998 alsosuggests likewise. It states as under:not even a shred of evidence which would suggest thatincome had arisen or accrued to the assessee during the F.Y.on which income tax could be levied. An affidavit from theDirector of the firm had also been filed. Importantly, theconfirmation from M/s Escorts Ltd. dated 25/8/1998 alsosuggests likewise. It states as under: Dated: 25[th]August - 1998 "Dated: 25The DirectorAll Grow Finance& Investment Private LimitedB-105, Greater Kailash Part-1The DirectorAll Grow Finance& Investment Private LimitedB-105, Greater Kailash Part-1New Delhi: 110048. Sub: Repayment of your Loan of Rs. 1.40 Crores. Sir, With reference to the captioned subject, as requested byyour goodself we are herewith attaching our cheque No.915778drawnonHDFCBankLtd.NewDelhiofRs.1,40,00,000/- (Rupees One crore forty lac only) towardsfull satisfaction of Inter Corporate Deposit given by you toour company. Further, as regards to the payment of up to date interest asper the discussion held with you, we can not pay the same because your company has demanded the entire loan inlumpsum before the end of the financial year whereas youwere under an obligation not to demand the payment before31.03.1999. Therefore, we are unable to accede to yourdemand of interest. Thanking you, For ESCORTS LIMITED Sd/- Authorised signatory” 4.The ITAT in its impugned order faulted the CIT(Appeals) in havingpermitted additional evidence and was of the opinion that the explanationfurnished by the assessee as to the absence of interest for the proportionateperiod in A.Y. 1999-2000 was unconvincing, regarding directing addition ofamount. 5.We have considered the submissions of the parties. The CIT(Appeals)took into account not only the additional evidence (especially the letterwhich was doubted by the ITAT) but also the fact that the AO did not makeany enquiry. Significantly, there was a remand directed by the CIT(Appeals) in the course of which apparently, the AO made no attempt tohold further enquiries. In the absence of any concrete material, and havingregard to the circumstances that the assessee in fact maintained themercantile system of account, the failure of the AO to exert himself andrequisition the books of account and other material from the M/s. EscortsLtd. if he felt that in fact such amounts were payable contractually orotherwise, in our opinion, could not have resulted in the addition which wasultimately directed. Having regard to these circumstances, this Court is of the opinion that the assessee, on the basis of the materials on record, wasentitled to succeed on this question and the ITAT wrongly interfered withthe CIT (Appeals)’s determination. Accordingly, the impugned order is setaside. The appeal is consequently allowed along with the pendingapplications. JANUARY 20, 2015 S. RAVINDRA BHAT(JUDGE)VIBHU BAKHRU(JUDGE)