M/S Sarup Tanneries Ltd., Jalandhar v. The Commissioner Of Income Tax-Ii, Jalandhar

ITA No. 472 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 472 of 2009 (O&M) Date of Decision: 21.9.2015 M/s Sarup Tanneries Ltd., Jalandhar ....Appellant. Versus The Commissioner of Income Tax-II, Jalandhar ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not?3.Whether the judgment should be reported in the Digest?3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Mr. B.M. Monga, Advocate for the appellant.Mr. B.M. Monga, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the revenue. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 23.1.2009 (Annexure A-1) passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar (hereinafter referred to as “theTribunal”) in ITA No. 476(Asr)/2008, for the assessment year 2005-06.The appeal was admitted by this Court vide order dated 18.1.2010 fordetermination of the following substantial questions of law:- (i)Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was right in ITA No. 472 of 2009 law in holding that the loss sustained by theassessee on account of advancing of loan andstanding as guarantor to/for its wholly ownedsubsidiary company was allowable only in theassessment year 2004-05 and not inassessment year 2005-06? (ii) Whether the Tribunal acted illegally andperversely, on the facts and in thecircumstances of the case, in arriving at aconclusion that loss claimed by the assesseewas a capital loss and not a business loss? (iii) Whether the Tribunal was legally correct inholding that the assessee was entitled to claimthe carry forwarded of losses of Rs.8,76,277/- inthe assessment year 2004-05 and not in theassessment year 2005-06? 2.Put shortly, the facts necessary for disposal of the presentappeal as mentioned therein are that the assessee is engaged in thebusiness of manufacturing and sale of leather goods, shoe upper, solesetc. On scrutiny of the profit and loss account of the assessee by theAssessing Officer, it was found that the assessee had claimed anexpenditure of ` 3,86,63,896/- on account of loss due to irrecoverabilityof direct loan as also loan amount for the execution of standby letter ofcredit paid to the wholly owned subsidiary company in USA. Since theloss did not spring from the business of the assessee, its explanationqua the said loss was called for. The assessee pleaded that it was abusiness loss incurred on account of commercial expediency to be 2.Put shortly, the facts necessary for disposal of the presentappeal as mentioned therein are that the assessee is engaged in thebusiness of manufacturing and sale of leather goods, shoe upper, solesetc. On scrutiny of the profit and loss account of the assessee by theAssessing Officer, it was found that the assessee had claimed anexpenditure of ` 3,86,63,896/- on account of loss due to irrecoverabilityof direct loan as also loan amount for the execution of standby letter ofcredit paid to the wholly owned subsidiary company in USA. Since theloss did not spring from the business of the assessee, its explanationqua the said loss was called for. The assessee pleaded that it was abusiness loss incurred on account of commercial expediency to be allowed as business loss. The Assessing Officer vide assessment orderdated 28.12.2007 (Annexure A-3) made an addition of ` 3,86,63,896/-on account of disallowance of loss claimed as amount written off duefrom the subsidiary. Feeling aggrieved, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide order dated 24.7.2008 (Annexure A-2) partlyallowed the appeal and deleted the addition of ` 3,86,63,896/- made bythe Assessing Officer. Further, the CIT(A) had deleted the disallowanceof ` 86,183/- made out of foreign travelling expenses and ` 1,00,000/-out of car expenses and allowed the assessee to carry forward a loss of` 8,76,277/- in the assessment year 2004-05. Being dissatisfied, therevenue filed an appeal before the Tribunal who vide order dated23.1.2009 (Annexure A-1) partly allowed the appeal. The Tribunalsustained the addition of ` 3,86,63,896/- made by the Assessing Officerbut confirmed the findings of the CIT(A) in deleting the allowance of carexpenses and foreign travelling expenses. Further, the Tribunal heldthat the assessee was entitled to claim the carry forward capital loss at` 8,76,277/- in the assessment year 2004-05 and not in 2005-06.Hence, the present appeal by the assessee. 3.It was pointed out by learned counsel for the parties that anapplication under Section 254(2) of the Act bearing MA No. 46(Asr)/2009was filed by the assessee. The Tribunal vide order dated 30.6.2010corrected the mistake on account of not having noticed the judgment ofthe Supreme Court in CIT v. M/s Amalgamations Private Limited(1997) 226 ITR 188. It was observed by the Tribunal that the applicabilityof the aforesaid decision cannot be adjudicated under the provisions ofSection 254(2) of the Act as it is covered under Section 254(1) of the Act. ITA No. 472 of 2009-4- The said application was, thus, partly allowed by recalling its earlierorder on this aspect. Thereafter, revenue also filed MA No. 12(ASR)/2011 under Section 254(2) of the Act against the order dated 30.6.2010which was dismissed by the Tribunal vide order dated 19.11.2012. Therevenue filed appeal bearing ITA No. 53 of 2013 assailing the said orderwhich was dismissed by this Court on 9.4.2015 with the followingobservations:- “3. The appellant filed M.A. No. 12 (ASR)/2011under Section 254(2) of the Act against the orderdated 30.06.2010 which was dismissed by theimpugned order and judgment dated 19.11.2012. Inview of what we have mentioned earlier, the appellantis in any event not without a remedy. However, thisorder in an application under Section 254(2) is notappealable. 4. Needless to add that the decision in ITA-472-2009, if decided before the Tribunal decides thematter under Section 254(1), would have its owneffect.” 4.Learned counsel for the revenue produced the record of ITANo. 53 of 2013 for the perusal of the Court. 5.It was further submitted by learned counsel for the partiesthat the Tribunal after partially recalling its order dated 23.1.2009 whichhas been impugned in this appeal had kept the matter pending regardingadmissibility of the deduction. 4. Needless to add that the decision in ITA-472-2009, if decided before the Tribunal decides thematter under Section 254(1), would have its owneffect.” 4.Learned counsel for the revenue produced the record of ITANo. 53 of 2013 for the perusal of the Court. 5.It was further submitted by learned counsel for the partiesthat the Tribunal after partially recalling its order dated 23.1.2009 whichhas been impugned in this appeal had kept the matter pending regardingadmissibility of the deduction. 6.It was prayed by learned counsel for the parties that in viewof the subsequent developments that have taken place after the filing of ITA No. 472 of 2009 -5- the appeal, the present appeal be disposed of by directing the Tribunalto adjudicate the issue pending before it in accordance with law withoutbeing influenced by any finding or observation noticed by the Tribunal inits earlier order dated 23.1.2009 in that regard. Ordered accordingly. 7.The appeal stands disposed of in the manner indicated above. (AJAY KUMAR MITTAL)JUDGE September 21, 2015(RAMENDRA JAIN) gbs JUDGE