The Assistant Commissioner Of Income Tax v. Adhrut Investment Pvt. Ltd.....opponent(S

O/TAXAP/11/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 11 of 2002 With TAX APPEAL NO. 14 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ THE ASSISTANT COMMISSIONER OF INCOME TAX....Appellant(s) Versus ADHRUT INVESTMENT PVT. LTD.....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and O/TAXAP/11/2002 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER Date : 13/10/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.Both these Tax Appeals have been preferred by the appellant-Revenue against the order passed by the Income Tax Appellate Tribunal, Ahmedabad in the two appeals preferred by the assessee which was disposed of by the common judgment in ITA No. 4783/Ahd/1995 for the A.Y. 1991-92 and ITA No. 4784/Ahd/1995 for the A.Y. 1992-93, which are admitted by this court to consider the following substantial question of law: “Whether the Appellate Tribunal is right in law and on facts in deleting the accrued interest added by the Assessing Officer, when amounts were advanced by the Assessee to Shri Budh Holdings & Trading Co. (P) Ltd and Shri Bahi & Co. (P) Ltd. and when the Assessee was maintainingMercantileSystemof Accounting ?” 2.The brief facts of Tax Appeal No. 11 of 2002 are that the return of income is filed on 31.12.1992 declaring loss of Rs. 1,62,337. The return has been processed under sec. 143(1) of the IT Act, 1961 on 16.3.1993 and refund of Rs. O/TAXAP/11/2002 JUDGMENT “Whether the Appellate Tribunal is right in law and on facts in deleting the accrued interest added by the Assessing Officer, when amounts were advanced by the Assessee to Shri Budh Holdings & Trading Co. (P) Ltd and Shri Bahi & Co. (P) Ltd. and when the Assessee was maintainingMercantileSystemof Accounting ?” 2.The brief facts of Tax Appeal No. 11 of 2002 are that the return of income is filed on 31.12.1992 declaring loss of Rs. 1,62,337. The return has been processed under sec. 143(1) of the IT Act, 1961 on 16.3.1993 and refund of Rs. O/TAXAP/11/2002 JUDGMENT 1,080/- is adjusted against the demand of A.Y. 1985-86. The assessee has disclosed dividend income at Rs. 6017/- and interest income at Rs. 1,733/-. As against this, the assessee has disclosed Rs. 4,20,502/- in the immediately proceeding year being income from interest. The assessee has also claimed interest expenses at Rs. 1,60,110/-. On verification, it is found that the assessee has debited Rs. 1,60,110/- being interest payable to various parties. Thus, the interest expenses are debited by the assessee on mercantile basis. However, on verification, it is observed that the interest receivable is not credited by the assessee on mercantile basis. Thus the assessee has applied different system of accounting which is not correct. These tactics are adopted only with a view to conceal the particulars of income and thereby assessee has not disclosed the income from interest on accrual basis. The assessee has advanced to two parties viz. Shri Bahel & Co. (P) Ltd. and Budh Holding & Trading Co. (P) Ltd. The assessee has not credited correct amount of interest accrued last year also. In view of above, it is clear that the assessee has not disclosed the income from interest at Rs. 4,78,093/- being interest accrued from the above parties. The same is, therefore, added to the income of the assessee as concealed and notice under sec. 271(1)(c) of the Act is also issued. O/TAXAP/11/2002 JUDGMENT 3.The facts of Tax Appeal No. 14 of 2002 are that the return of income is filed on 9.9.1992 declaring total income of Rs. 2,50,500/- which was processed on 23.11.1992. The assessee has disclosed income from dividend and interest. It is found that the assessee has disclosed interest income at Rs. 4,20,501. On verification of details, it is found that the assessee has advanced Rs. 12,11,937/- to Shri Bahel & Co. Pvt. Ltd. and Rs. 16,36,116/- to Shri Budh Holding & Trading Co. Pvt. Ltd. The opening balance as per copies of accounts filed remains consistent through out the year. The assessee is entitled to interest at the rate of 15%p.a. In view of this, the assessee is entitled to receive an interest of Rs. 1,81,790/- in the case of Shri Bahel & Co. Pvt. Ltd. & Rs. 2,45,117/- in the case of Shri Buddh Holding & Trading Co. Pvt. Ltd. As against this, the assessee has disclosed interest receivable at Rs. 1,80,000/- and Rs. 2,02,500/- respectively from the above two parties. IN view of this, it is clear that the assessee has disclosed less interest to the extent of Rs. 1,790/- from Shri Bahel & Co and Rs. 42,917/- from Shri Buddh Holding & Trading Co. Pvt. Ltd. It is also found that the assessee is maintaining books of accounts as per mercantile system and is showing interest payable as outstanding as well as interest receivable as outstanding in the assets side. The assessee has not disclosed interest receivable from above two parties and therefore, the same is required to be considered for addition. Thus, it is clear that the assessee is also demanding interest as per opening balance at the beginning of the year and not otherwise. therefore, the same is required to be considered for addition. Thus, it is clear that the assessee is also demanding interest as per opening balance at the beginning of the year and not otherwise. However, the assessee has not shown total interest receivable from the principal amount as discussed above. The advance given by the interest receivable from the principal amount as discussed above. The advance given by the assessee are not sticky advances and re not likely to be bad debts but recoverable. The assessee ought to have credited interest account and debited parties account. This is not done and assessee ought to have credited interest account and debited parties account. This is not done and therefore, the assessee has concealed income from interest. 4. Against the said assessment order, the assessee has preferred appeal before the Commission of Income Tax (Appeals), which was dismissed, against which, an appeal has been preferred before the Income Tax Appellate Tribunal, Ahmedabad Bench, which came to be allowed. Hence, both these appeals are preferred by the appellant-Revenue. 5.Heard the learned advocates appearing for the respective parties and considered the rival submissions made on behalf of the respective parties. 6.The learned advocate Mr. Bhatt appearing for the appellant-Revenue has contended that the learned Tribunal has committed an error in not accepting the concurrent finding of the A.O. and CIT(A), wherein, the addition made by the A.O. was accepted. It is also contended that in view of mercantile system adopted by the assessee, the reasons given in para-6 at page – 32 by the Commissioner of Income Tax (Appeals) are just and proper and the appeals are rightly dismissed by the Commissioner of Income Tax (Appeals), Ahmedabad. Para-6 reads as under: “6. I have carefully considered the above. Certain peculiar features emerge from the submissions made by the assessee. The assessee is an investment company. It has sold certain shares and has advanced the proceeds to two companies at Bombay on interest @ 15% per annum. These two companies at Bombay operate from the same premises. The confirmation letters of both the companies have been signed by one and the same person. These two companies have not paid interest ever since the loans were given to them, i.e. on 11[th ]and 12thJuly, 1988. The terms of the loans including security, if any, taken therefore have not been disclosed by the assessee. For the years ending 31.3.1989 and 31.3.1990, the assessee claims to have offered for tax interest on accrual basis. From the confirmation letters filed by the debtor companies, it is seen that they have deducted tax at source also and only net interest had been added to the credit balance in their books. The interest, according to the confirmation letters, has been charged only on the principal amount of loans, for 3 years starting from 1989 to 1991. The copies of accounts of these companies as appearing in the books show that the interest has been charged on outstanding interest also. There appears to be some inter-connection between the debtor companies and the assessee which again has not been disclosed. This part, the amounts of interest charged also varies between debtor companies books and assessee’s books as shown below: 1.Shri Budh holding Trading Co. Pvt. Ltd. (Loan amount Rs. 13.50 lakhs) companies as appearing in the books show that the interest has been charged on outstanding interest also. There appears to be some inter-connection between the debtor companies and the assessee which again has not been disclosed. This part, the amounts of interest charged also varies between debtor companies books and assessee’s books as shown below: 1.Shri Budh holding Trading Co. Pvt. Ltd. (Loan amount Rs. 13.50 lakhs) 7.He has further contended that the learned Tribunal while considering the appeal, has not treated the appeal as appeal but treated as if it is under original jurisdiction. He has relied upontwodecisions;onedecisionof jurisdictional High Court in the case of Sarabhai Chemicals Pvt. Ltd. vs. Commissioner of Income-Tax reported in 257 ITR 355 and another decision of the Hon’ble Supreme Court in the case4 of Kerala Financial Corporation v. Commissioner of Income-Tax, reported in 210 ITR 129. 8.Mr. R.K. Patel learned advocate appearing on behalf of assessee has contended that in view of the observations made by the learned Tribunal in para-5 and 6 at page 42 and 46 and in view of the decision of the Hon’ble Supreme Court in the case of Godhra Electricity Co. Ltd. v. Commissioner of Income-Tax, reported in 225 ITR 746 the issue involved in these appeals is squarely covered in favour of assessee. He has also pointed out that in view of consent given by D.R. dated 16.12.1991 and the observations made by this Court in the case of Commissioner of Income-Tax vs. Shahibaug Enterprises (P) Ltd., reported in [2010] 320 ITR 695 (Guj.) in para-5, which reads as under: O/TAXAP/11/2002 JUDGMENT “5. Heard the learned senior standing counsel for the applicant-Revenue as well as Shri R.K. Patel learned advocate for the assessee. It is an accepted fact between the parties that in the case of Sercon P. Ltd., the order of the Tribunal was carried before this Court by way of Income-tax Application No. 253 of 1988 under section 25692) of the Act and vide order dated April 16, 1990, the application was rejected refusing to direct the Tribunal to raise and refer any question of law, either as proposed or otherwise. In the fact situation when on similar facts the issue stands concluded in favour of one assessee and there is nothing on record to suggest that the aforesaid order dated April 16, 1990, in the case of Sercon P. Ltd. has been challenged further, the order made by the apex court in the case of Union of India vs. Kaumudini Narayan Dalai [2001] 249 ITR 219 (SC), wherein, it is held that “it is not open to the Revenue to accept the judgment in the case of oneassesseeandchallengeits correctness in the case of other assessee without just cause” applies with full force. No distinguishing feature has been pointed out and hence in the absence of any just cause the question referred to the court requires to be answered in the affirmative upholding the view taken by the Tribunal considering the fact that in the case of Sercon P. Ltd. similar issue stands concluded against the Revenue. The question is, therefore, answered in the affirmative, that is, in favour of assessee and against the Revenue.” 9.The facts on which the learned Tribunal has allowed the appeal, more particularly, para-6 & 7, reads as follows: “6. The learned DR did not dispute the correctness of the facts stated by the learned counsel nor he disputed the claim made by the assessee that the facts of the present case are identical with the facts in the case of Shri Apara Textile & Traders P. Ltd. (supra) where the Tribunal has deleted similar addition of notion income. 7.I have considered the submissions made by the learned representatives of the parties and have gone through the orders of the learned Departmental Authorities and all other documents 9.The facts on which the learned Tribunal has allowed the appeal, more particularly, para-6 & 7, reads as follows: “6. The learned DR did not dispute the correctness of the facts stated by the learned counsel nor he disputed the claim made by the assessee that the facts of the present case are identical with the facts in the case of Shri Apara Textile & Traders P. Ltd. (supra) where the Tribunal has deleted similar addition of notion income. 7.I have considered the submissions made by the learned representatives of the parties and have gone through the orders of the learned Departmental Authorities and all other documents submitted in the compilation including the copy of submissions made before the CIT(A), Board Resolution passed on 16.12.1991, copies of accounts of two debtor companies, balance sheets and other documents. After going through all the documents, I find that the contention of the assessee is correct. The point in issue is clearly covered in favour of the assessee by the order of the Tribunal in the case of Apara Textile & Traders Ltd. (supra), where,on identical facts the addition of notional interest income made by the AO and confirmed by the CIT(A) was deleted by the Tribunal. I, therefore, respectfully following the aforesaid order of the Tribunal and in view of the aforesaid facts and discussions, hold that the addition of notional interest income made in the case of the assessee for both the years deserves to be deleted. I accordingly direct the AO to delete the same.” O/TAXAP/11/2002 JUDGMENT 10. The learned Tribunal has relied on the decision of Apara Textile & Traders Ltd. v. ITO, the judgment which has attained finality. This Court in the case of Commissioner of Income-Tax vs. Shahibaug Enterprise (P.) Ltd. has also decided in favour of the respondent-assessee. 11. In that view of the matter, we answer the question raised against the Revenue and in favour of the assessee. Both these appeals are dismissed. (K.S.JHAVERI, J.) mandora (K.J.THAKER, J)