Cit v. Darco Cooling Coils Ltdr

IN THE HIGH COURT AT HYDERABAD WEDNESDAY ,THE TWO THOUSAND AND PRESENT THE HON'BLE THE CHIEF AND THE HON'BLE SRIJUSTIGE [C.V. ] INCOME TAX TRIBU NAL Appeal Under Section [260- ] [of the ][lncome Tax ][Act, ][1961] against the order of the [lncome Tax Appellate ][Tribunal, ][Hyderabad]Bench "B" Hyderabad in [No. ][1845 ] [Hl96, ][dated ][21'08-2001 for]Assessment Year 1995-96 [preferred against ][the ][order ][of ][the]Commissioner of lncome Tax [( ][Appeals ])-1, [Hyderabad in ][Appeal]No. 27lDC (Assts) l/ [(A) ][l/ ][96-97 ][dated 15-07-1996 ][.] Between: The Commissioner [of ][lncome ][Tax ]- [I, ][Hyderabad] ...APPELLANT AND M/s. G.V.K. lndustries Ltd., [Road No. ][1, ][Banjara Hills, Hyderabad'] ...RESPONDENT Counsel for the Appellant [: Ms. K. MAMATA CHOUDARY]Counsel for the Respondent: The Court Delivered t he [following: ][Judgment] THE HON'BLE THE CFIIEF TUSTICE UIIAI [B][HLryAN] AND THE HON'BLE SRI IUSTI CE C.V.BREDDY IT T.A.No MENT, (Per tbe Hon'bh the ChieJ lustit Ujja/ Bhryaa) Heard Ms. I(.Mamata Choudary, learned counsel [for ][the]appellant and Mr. Challa Gunaranian, [Iearned ][counsel ][[or ][thc]respondent. 2. This appcal has been prclcrred undcr Section [260A ][ol]the Incomc'I'ax Act, 1961 (briefly'the [Act'hercinafter)]assailing the order dated 21.08.2001 [passed ][by ][the ][lncome'fax]Appcllatc fribunal, I"lvdcrabad Bcnch ['R', ][Hydcrabad ][(briefly]'the ['I'ribunal' ]hereinafter) in I.T.A.No.1845/Hyd/1996 [for ]theassessmentyear 1995-96. 3. On 02.11.2022,\earned couflsel [[or ][the ][aPPellant ][madc ][a]submission that the disputed tax [may be ][below ][the ][l-imit ][of]onc crore. Shc therefore, prayed [lor ][time ][to ][obtain]lnstfuctrons. I 4. On instructions received, today [learned counsel ]for [the] appcllant submits that disputed [tax ][would ][be ][above ][one crorc]outer limit. 1'here[ore, the [appeal ][would ][have ][to ][be ][heard on]me fl ts. 5. Though this appeal was admitted lor [hearing]or 24.02.2003, no substantial [question ][o[ ][law was ][framed]However, from the memo o[ appeal we [find ][that]appellant/revenue has proposed [the ][following ][question ][as ][a]substantiai qucstion of iaw: Whethcr on the facts and in the circumstanceso[ thc case, ['Iribunal ]was [justified ][in ][upholding]the order of the 6rst appellate authoriry [setting]aside the intimation of the assessing [officer]under Section 1a3()(a) o[ the Act on [the]ground that issuc was debatable at the time ofissuance of the intimation ? 6. It may be mentioned that respondent is an [assessce] under the Act having the status of a company. For [the]assessment year 1995-96, it filed return of [income]\ \ on 29.1.1 .1,995. Assessrng Officcr in thc intimation undcrSection 1,a3()(a) of the Act dated 27.03.1996 disallowedinterest on deposits, dcduction of which was claimed by therespondent. 7. In the intimation, assessing officer noted that theinterest income ol Rs.2,06,77,948.00 was added to thc incomeof the respondent under the head 'income from other sources'in view of the binding nature of the following decisions of thisCourt: CIT v. Darco Cooling Coils Ltdr. Andhra Pradesh Carbides Limited v. CIT2Godavari Fertilisers & Chemicals Ltd. v. CIT3Godavari Fertilisers & Chemicals Ltd. v. CIT3 8. Aggrievcd by thc same, rcspondent prelerred appealbefore the Frrst appellate authoriry 2.e., Commissioner oIIncome Tax (Appeals)-I, Hyderabad @riefly 'CfTe)'hefclnafter) 1196 l-fR 3752i98ITR JE63r98lTR 3882i98ITR JE63r98lTR 388 7. In the intimation, assessing officer noted that theinterest income ol Rs.2,06,77,948.00 was added to thc incomeof the respondent under the head 'income from other sources'in view of the binding nature of the following decisions of thisCourt: CIT v. Darco Cooling Coils Ltdr. Andhra Pradesh Carbides Limited v. CIT2Godavari Fertilisers & Chemicals Ltd. v. CIT3Godavari Fertilisers & Chemicals Ltd. v. CIT3 8. Aggrievcd by thc same, rcspondent prelerred appealbefore the Frrst appellate authoriry 2.e., Commissioner oIIncome Tax (Appeals)-I, Hyderabad @riefly 'CfTe)'hefclnafter) 1196 l-fR 3752i98ITR JE63r98lTR 3882i98ITR JE63r98lTR 388 9. One of the issucs considered by CIT(A) was whethcrdisallowing adjustment o[ interest on deposits made by therespondent could be construed as a pina facie adiustment sothat thc samc could be carti.ed out under Section 143(1)(a) olthe Acl lly thc order dated 15.07.1996, CIT(A) allowed theappeal o[ the respondcnt by declaring that such pina fariead,ustmeflt could not have been carried out by the assessingoffrcer while issuing intimation under Scction 143(1)(a) of theAct. 10. Rcvenue carried the matter in further appeal beFore thc'Iribunal. By the order dated 21.08.2001, Tribunal dismissedthe appcal of the revenue. Hcnce, this appeal. 11. Lcarned Senior Standing Counsei for the appellantsubmits that sct-off o[ adjustment o[ interest earned by thercspondcnt against intercst paid for borrowed funds was nolonger a debatable issue inasmuch as the said issue was )lconclusively detcrmined by this Court in the three decisions refered to and relied upon by the assessing officcr which wasalso urged before the ['fribunal. ]The samc no longcr being adebatabie issue could be ciisalrowed by thc assessing officer asa pinafacie adiustment under Sectioo U3(t)(a) o[ the Act. Insupport of her conrendons, she has placed reliance ofl aDivision Bench judgmenr of the Delhi High Coun in SamtelColor Ltd. v. Union of Indiaa which was subse<luentlyfollowed by the Delhi High Court in S.R.Grover v. AssistantCommissioner of Income Taxs. 12. On the other hand, lcarncd counsel for the respondenthas referred to Section M3(t)(a) of the Act, morc particuladyto the frst proviso thereto aod submits that the disallowanceof adjustment of interest on deposits by the assessing officerwould not come within the illustradons given in the saidproviso. As a matter of [act, he submits that claim of therespondent was covered by the dccision of this Court in CIT258 ITR I (Dethi)280ITR580 0t l I v. Nagariuna Steels Ltd.6 which was holding rhe field whenthe intimation was issued by thc assessing oflficer. Ofcourse ata subsequent stage, the decision in CIT v. Nagarjuna SteelsLtd. (6 supra) rvas or.erruled by thc Supremc Court in CIT v.Tuticorn Alkali Chemicals and Fcr'ilizers Ltd.r, rvhichdecision was rcndered on 08.07.1997 whcreas the inumationwas issuedolr21 .03.1996. Therefore,on27.03.1996,assessing officer could not have made pina facie adiustmentand ought to have issucd notice under Secrion 143(2) of theAct to thc respondent. 13. Submissions madc by learned counsel for the partieshavc received the duc consideration oI the Court. 74. Short point for considcration is whether the assessirg oflrccr could have madc prina facie adiustment by disallowingthe claim of adiustment o[ interest on deposits by the respondent/ as sessee at the stage of issuance of intimationunder Section 1a3(1)(a) of thc z\ct ? 15. To appreciate the rival contcntions, we may advert tothe order passed by the CIT(A). CIT(A) held that in the guiseof prima facie adjustment, assessing officer cannot adjudicateupon debatable issues. Reliance was placed on the decision o[the Madhya Pradesh High Court in Kamal Textiles v. ITO8as v/ell as on the decision of thc Calcutta High Court inModem Fibotex India Ltd. v. DCITe. Thereafter, CIT(A)hcld as follows: 13. Submissions madc by learned counsel for the partieshavc received the duc consideration oI the Court. 74. Short point for considcration is whether the assessirg oflrccr could have madc prina facie adiustment by disallowingthe claim of adiustment o[ interest on deposits by the respondent/ as sessee at the stage of issuance of intimationunder Section 1a3(1)(a) of thc z\ct ? 15. To appreciate the rival contcntions, we may advert tothe order passed by the CIT(A). CIT(A) held that in the guiseof prima facie adjustment, assessing officer cannot adjudicateupon debatable issues. Reliance was placed on the decision o[the Madhya Pradesh High Court in Kamal Textiles v. ITO8as v/ell as on the decision of thc Calcutta High Court inModem Fibotex India Ltd. v. DCITe. Thereafter, CIT(A)hcld as follows: In the present case the decision rendered by thejudsdictional High Court in the case of GodavariFertilizers & Chemicals Ltd. v. CIT (198 ITR388) has been appealed against and that the appealis pending before thc Suprcme Court. Thercfote,there caflnot be any shadow of doubt if it is saidthat the issue is highly debatable on which rwcropinions are clearly possible and that it will not beFair and appropriate to carry o pimd .itlie^ adjustment on a highly debatablc issuc without\ r ( giving thc appellant an opportunity of being heard.It is, indeed, true that the Assessing Officer hasobtained prior approval o[ thc CIT, AP-l beforepassing the aforesaid adjustmcnt. Howevet, theapptoval so accordcd is only administrative innarure and thcre is no shackle placcd upon thepowets of the CIT (Appeals) not to judge the issuein an impamial and judicial mannet. ['fhetefore,]having regard to all the facts and ckcumstanccs ofthe case, morc pardcularly, the fact that in thepfesent case the interest paymcnt sought to be setoff against the interest teccipts are having the sameorigin namely lJorrowed liunds, I am of the viewthat the prina facie adiustment carried out by theAssessing Officer is not sustainable in law.Therefote, I delcte rhe prina farie adjustnent cariedout to the tune of Rs.2,06,71 ,948 / -. 16. CI'I(A) noted that the dccision of this Court inGodavari Fertilizers and Chemicals Limited v. CIT (3supra) on which hearry reiiance is placcd by the revenue wasappealed against bcforc the Supreme Court afld the appeal waspending. CI'I(A) held that the issuc was highly debatable onwhich two opinions wcre clearly possible and on such a highly .Idebatable issue, pima farie adiustment ought not to have been ) / carried out bythe assessing officer. Taking the view thatinterest payrnents sought to be set off against interest receiptshaving the same ongin name!, borrowed funds, CIT(A) setaside the pimafacie adlutment made bythe assessing officer. 17. In further appeal before the Tribunal, TribLural held thatorder passed bythe CIT(A) was a well reasoned one which didnot warrant interference in funher appeal. Tribunal funhernoted that decision of the Supreme C-oun in CIT v. TuticomAlkaline Chemicals and Fertilisers Ltd. (7 supm) was notavailable at the time of making pina [jacie ]adjustment by theassessing officer. 18. As already noted above, Supreme C-oun hadpronounced the decision in CIT v. Tuticorn A-lkalineChemicals and Fertilisers Ltd.' (t"po) on 08.07.1997whereas the intimation was issued by the Assessing OfficerImuch earlier on 27 .A3.D96. t9. At this stage, we may refer to the [provisions ][of]Section 1+3(1)(a) of the Act as it stood then, [which ][is]extracted hereunder: Assessment: 1,43. (1) \Vhere a retum has been made undersection 139, or in response to a notice undersub-section (1) of section 1'42, strch retum shallbe processed in the following manne( [namely-] (a) The total income or loss shall becomputed alter making the followingadjustments, namely- (i) any arithmetical error in the retum:(if an incorrect claim, if such incorrectclaim is apparent from any informationin the retum;(if an incorrect claim, if such incorrectclaim is apparent from any informationin the retum; t9. At this stage, we may refer to the [provisions ][of]Section 1+3(1)(a) of the Act as it stood then, [which ][is]extracted hereunder: Assessment: 1,43. (1) \Vhere a retum has been made undersection 139, or in response to a notice undersub-section (1) of section 1'42, strch retum shallbe processed in the following manne( [namely-] (a) The total income or loss shall becomputed alter making the followingadjustments, namely- (i) any arithmetical error in the retum:(if an incorrect claim, if such incorrectclaim is apparent from any informationin the retum;(if an incorrect claim, if such incorrectclaim is apparent from any informationin the retum; (iif disallowance of loss claimed, ifretum of the previots lear for whichset off of loss is claimed was fumishedbeycnd the due date specified undersub-section (1) of section 139; (iv) disallowance of expenditure [ori"crease in incomel indicated in theaudit repon but not talren into account \ \ )) in computing the total income in theretum; (v) disallowance of deduction claimedunder [section 1OAA or under any ofthe provisions o[ Chapter Vl-A underthe heading "C- Deductiou in respur ofceflain intomesn, ,fl the retum isthe heading "C- Deductiou in respur ofceflain intomesn, ,fl the retum isfurnished beycnd the due datespecified under sub.section (1) ofsecrion 139; orsecrion 139; or (vf addition of income appearing inForm 26,{5 or Form 16,4' or Form 16which has not been included incomputing the total income in theretum; Provided that no such adiusrmena shall bemade unless an intimation is given to theassessee of such adjusrments either in writing orin electronic mode.in electronic mode. 20. \fle are of the view that the above provision clearlymentions the circumstances in wl:uch pritza facie adjustment canbe carried out under Section t+3(t)(a) of the Act. Theprirzafacie ad.justment sought to be carried our byrhe assessing officer in the instant [case ][does ][not ][fall ][within ][any ][of ][the]ilitutratio ns mentioned above. 21. In the circumstances, we do not [find ][any ][error ][or]urfirmity in the view taken [by ][the ][CIT(A) ][as ][affirmed ][by ][the]Tribunal. That being the [position, the ][substantial question ][of]law as framed above, is answered [in ][the ][affirmative and ][in]favour of the respondent. - 22Appeal is accordingly dismissed. No [costs.] fu a sequel, miscellaneous [petitions, pending ][rf ][any.,] To stand dismissed. //TRUE COPYII \.Sd/-K.SRINIVASA RAOJOINT REGISTRAR FICER SECTI 1. The lncome Tax Appellate [Tribunal, ][Hyderabad Bench "B", Hyderabad'] 2. The Commissioner [of ][lncome ][Tax ][( ][Appeal ]) [, ][Hyderabad'] 3. One CC to Ms. [. ][K. ] [CHOUDARY., Advocate ][ ] 4. One CC to SRl. CHALLA [GUNARANJAN' Advocate ][ ] 5. Two CD GoPies LY- G{ HIGH COURT DATED:2311112022 JUDGMENT !TTA.No.24 of 2003 DISMISSING THE ITTAWITHOUT COSTSWITHOUT COSTS a t4sI\,t [l]sCN\,ti.' [,. ]r5\