Commissioner Of Income Tax, Visakhapatnam v. $ M/S. Sri Kamakshi Food Products (P) Ltd

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY and THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY I.T.T.A. Nos. 126 and 127 of 2001 % 02.07.2014 Between: Commissioner of Income Tax, Visakhapatnam. Versus ...APPELLANT $ M/s. Sri Kamakshi Food Products (P) Ltd... ...RESPONDENT < Gist: > Head Note: ! COUNSEL FOR THE APPELLANT :- Sri S.R.Ashok ^COUNSEL FOR RESPONDENT :-Sri Y.Ratnakar ? Cases Referred: 1.124 ITR 152.272 ITR 381 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHYI.T.T.A. Nos. 126 & 127 of 2001 COMMON JUDGMENT:(per the Hon’ble Sri Justice L.NarasimhaReddy) Both the appeals arise out of a common order, dated27.03.2001, passed by the Income Tax Appellate Tribunal,Visakhapatnam (for short ‘the Tribunal’). While I.T.T.A.No.126 of 2001 is filed by the Department,the other appeal is filed by the Assessee. For the sake of convenience, the parties are referred toas arrayed in I.T.T.A.No.126 of 2001. The respondent filed its returns for the assessment year1991-92. The Income Tax Officer (I.T.O.) noticed that certainitems of income were not shown in the returns. That includedRs.4,91,805/-, which the respondent treated as written off, onaccount of the fact that the creditors were not either traceable or that it has become time barred and an amount ofRs.9,85,988/-, representing the interest, written off by theconcerned Bank. Ultimately, those two amounts were broughtunder the purview of the tax. The I.T.O. initiated proceedingsunder Section 271(1)(c) of the Income Tax Act, 1961 (for short‘the Act’) proposing to levy penalty in respect of those twoamounts. After considering the explanation submitted by therespondent, the I.T.O passed an order, dated 16.11.1995,levying penalty. The respondent carried the matter in appealbefore the Commissioner of Income Tax (Appeals) (for short‘the Commissioner’). The appeal was partly allowed throughorder, dated 28.06.1996. The Commissioner granted the reliefin respect of the interest waived by the Bank, but dismissed theappeal, in respect of the other amount. In this view of thematter, the Revenue filed I.T.A.No.1738/Hyd/1996, feelingaggrieved by the order of the Commissioner, to the extent it hasset aside the order of penalty in relation to Rs.9,85,988/-. Therespondent, on the other hand, filed I.T.A.No.1607/Hyd/1996 inrelation to the other item. The Tribunal dismissed both theappeals through the order, dated 27.03.2001. Hence, theseappeals under Section 260A of the Act. Sri S.R.Ashok, learned Senior Standing Counsel for theDepartment, submits that the Commissioner as well as theTribunal erred in setting aside the proceedings under Section271(1) (c) of the Act in relation to the first item. He contendsthat once the Bank has written off the interest, the respondentwas under obligation to show it as income and failure to do so would naturally attract Section 271 of the Act. He furthersubmits that the very fact that the amount was brought undertax and the same became final would disclose that there wasclear intention on the part of the respondent to suppress thesource of income. It is also his case that the mere reflection ofthat amount in the books of account would not absolve theAssessee, of the liability to disclose the amount. He further contends that the appeal preferred by therespondent is bereft of any merit. It is argued that therespondent claimed the benefit of deduction of the second itemon the basis of the unilateral declaration that the amounts dueto him from various persons became irrecoverable. Accordingto the learned Senior Counsel, the question of amount beingwritten off would arise, if only any Court of law declares thedebts as time barred or concerned creditor has expressed hisintention to waive the same, and that none of thosecircumstances exist in the instant case. He further contends that the appeal preferred by therespondent is bereft of any merit. It is argued that therespondent claimed the benefit of deduction of the second itemon the basis of the unilateral declaration that the amounts dueto him from various persons became irrecoverable. Accordingto the learned Senior Counsel, the question of amount beingwritten off would arise, if only any Court of law declares thedebts as time barred or concerned creditor has expressed hisintention to waive the same, and that none of thosecircumstances exist in the instant case. Sri Y.Ratnakar, learned counsel for the respondent, onthe other hand, submits that the Commissioner as well as theTribunal have taken correct view of the matter, as regards thefirst item and that no interference is warranted. He contendsthat both the amounts were reflected in the books of accountand it cannot be said that there was any intention on the part ofthe respondent, to conceal the items or source of income.Learned counsel further submits that the Tribunal has taken ahyper-technical view of the matter, in the context of giving effect to Section 41 (1) of the Act. He placed reliance uponcertain precedents. The respondent claimed the benefit of deduction of thesecond item by stating the debts owed to him, by variouspersons or agencies became time barred. Section 41 of the Actis to the effect that where an Assessee gets the benefit ofallowance or deduction in a particular assessment year, butthereafter, gets the benefit of that very amount or part of it,such amount shall be deemed to be profit or gains of businessor profession and accordingly chargeable to income tax. In theconcerned assessment year, the respondent has endorsed inhis books of account that the second item is written off. Thereason mentioned therein is that either the creditors were nottraceable or that it has otherwise become time barred. In thatview of the matter, the respondent did not feel like showing it asprofit and gains of business or profession in the concernedassessment year. The I.T.O. took the view that the amountought to have been shown as income under Section 41 (1) ofthe Act and accordingly, levied tax. That aspect has assumedfinality. Another aspect noticed by the I.T.O. was that the firstitem representing the written off interest was not shown as anitem of income and that also attracts Section 41 (1) of the Act. Having brought both the items under the purview of thetax, the I.T.O proceeded to initiate proceedings for levy ofpenalty under Section 271 of the Act. Show cause notice wasissued and order of penalty was passed. In the appeal, the Commissioner sustained the penalty in respect of the seconditem and has set aside the one, as regards the first item. TheCommissioner took the view that though the addition of thesame as an item of income was sustained, it cannot be saidthat there was any mala fide intention on the part of therespondent in not showing it. Reliance was placed upon thejudgment of the Supreme Court in Cement Marketing Company of India Limited Vs. Assistant Commissioner of Sales Tax[[1]]. Itwas treated as a bona fide mistake and the penalty to thatextent was set aside. The Tribunal concurred with the finding. We too are of the same view. It is almost a case ofunderstanding of the relevant provision of law by theAssessee. It is only when an amount, which is already allowedor deducted, that can constitute the subject matter of Section41 (1) of the Act, cannot be rejected as irrelevant. It is adifferent matter that the amount was brought under theassessment. However, as long as there is possibility tounderstand the provision in different ways and the Assesseehas chosen one, the occasion to invoke Section 271 of the Actdoes not arise. We draw support from the judgment of theSupreme Court in Commissioner of Income Tax Vs. DelhiAutomobiles[[2]]. We too are of the same view. It is almost a case ofunderstanding of the relevant provision of law by theAssessee. It is only when an amount, which is already allowedor deducted, that can constitute the subject matter of Section41 (1) of the Act, cannot be rejected as irrelevant. It is adifferent matter that the amount was brought under theassessment. However, as long as there is possibility tounderstand the provision in different ways and the Assesseehas chosen one, the occasion to invoke Section 271 of the Actdoes not arise. We draw support from the judgment of theSupreme Court in Commissioner of Income Tax Vs. DelhiAutomobiles[[2]]. Coming to the second item, if the debts were written offby the respondent itself, the situation is substantially different.It is not a case where the debtors have instituted proceedingsand the debts were found to be barred by time or that any creditor has made a declaration to the effect that he is waivingthe loan. It is only when those circumstances exist, that theoccasion to take the amount from the purview of Section 41 ofthe Act, may arise. We do not intend to pronounce upon thecorrectness or otherwise of the invocation of Section 41 of theAct, vis-à-vis the said amount. The issue is as to whether therespondent was under obligation to reflect the amount writtenoff as an item of income. A unilateral act on its part did nothave the effect of writing off, of the amount, and in that view ofthe matter, it ought to have been reflected in the tax. We do notsee any error in the order of the Tribunal in this behalf. We, therefore, dismiss both the appeals. There shall beno order as to costs. The miscellaneous petitions filed in these appeals shallalso stand disposed of. _____________________ L.NARASIMHA REDDY,J ____________________________ M.SATYANARAYANAMURTHY,JDt:02.07.2014Note: L.R. copy to be marked.kdl [1]124 ITR 15 [2]272 ITR 381