Income Tax Appellate Tribunal - Mumbai
Glorious Plastics Ltd, Mumbai vs Assessee on 4 June, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'G' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI PRAMOD KUMAR,(AM)
ITA No.5902/Mum/2007
Assessment Year : 2001-02
Glorious Plastics Ltd.
C/o. Samria & Co.
Chartered Accountants
2E, Court Chambers
35, New Marine Lines
Mumbai-400 020. .....(Appellant)
P.A. No.(AAACG 1920 E)
Vs.
Dy. Commissioner of Income tax -2(1)
Room No.575, 5th Floor
Aayakar Bhavan
M.K. Road
Mumbai-400 020. .....(Respondent)
ITA No.7305/Mum/2007
Assessment Year : 2001-02
Asstt. Commissioner of Income tax -2(1)
Room No.575, 5th Floor
Aayakar Bhavan
M.K. Road
Mumbai-400 020. .....(Appellant)
Vs.
Glorious Plastics Ltd.
C/o. Samria & Co.
2E, Court Chambers
35, New Marine Lines
Mumbai-400 020. .....(Respondent)
Assessee by : Shri R.S. Samria
Department by : Shri A.K. Nayak
2 ITA No.5902 & 7305/M/07
A.Y:01-02
ORDER
Per D.K. AGARWAL (JM).
These cross appeals by the assessee and revenue are directed against the order dated 4.6.2007 passed by the ld. CIT(A) for the assessment year 2001-02. Both these appeals are disposed of by this common order for the sake convenience.
2. Briefly stated facts of the case are that the assessee company filed its return declaring loss of Rs.32,94,530/- along with audited P&L account and Balance Sheet. The assessee was having ownership apartments (shown at Rs.1,16,68,640/- in the books of accounts) in the building known as "Poddar Chambers" on 5th/6th Floor at S.A. Brelvi Road, Fort, Mumbai. The "Poddar Chambers" building collapsed in 1993. During the course of assessment proceedings the assessee company was asked to file the submission on the following issues (page 2 of the assessment order):
"1. You have written off premises of your company at Poddar Chambers, S.A. Brelvi Road, Fort, Mumbai 400 001 amounting to Rs.1,16,68,640/-. Your reasons are that the building collapsed and has no more commercial value. Your argument is not acceptable. Your rights in the said plot of land on which the building stood continues unabated, with a distinct possibility of reconstruction of the same. Hence, the commercial value of your title to the collapsed structure is now imbibed in the undisputed right over the land. Hence, show cause why write off of Rs.1,16,68,640/- should not be disallowed.
2. It is proposed to treat the sundry creditors written off amounting to Rs.84,04,182/- as income in the hands of the company for assessment year 2001-02. Show cause why the same should not be treated as income."
The assessee company replied its submission vide letter dated 16.2.2004 which is reproduced below:-
"The assessee was having ownership apartments in building known as 'Poddar Chambers' on 5th/6th floor, at S.A. 3 ITA No.5902 & 7305/M/07 A.Y:01-02 Brelvi Road, Fort, Mumbai 400 001. The "Poddar Chambers' building collapsed in 1993. We have been trying to reconstruct the same for the rest of last 7/8 years but could not do so due to various reasons/factors including that there are lot of litigations of various tenants and our apartments being on upper floor, unless the whole collapsed portion of the building is reconstructed right from ground floor, and agreed to by all the tenants and landlord, as also, applicable permissions and NOCs are received, our portion cannot be reconstructed. In view, interalia, of all these facts and circumstances and after perusing all the efforts in this regard and in view of the relevant facts and developments during the year 2000-2001 as also as advised/opined by the auditors and legal advisors, the Board has taken a decision vide its resolution to write off the amount relating to the 'Poddar Chambers Premises'. This was also necessary to reflect a true and fair view of the Balance Sheet as at 31st March 2001. The write off is based on correct facts and legally allowable under the I.T. Act. Hence, in view of the above explanation/submission, the write off is bonafide and justified and we request you to allow the same.
The creditors written back are adjustable against the above write off and as such the same cannot be treated as income, as also cannot be taxable income as suggested by you. Without prejudice to the above, we further state and submit that out of the total creditors written back at Rs.84,04,183/-, a large amount of Rs.83,82,508/- pertains to unsecured creditors and not trade creditors. Hence, the same do not fall within the purview of sec.41(1), which treats as income, any benefit obtained by way of remission or cessation of a trading liability only and not any other liability. We, therefore, request you not to treat the same as income."
The Assessing Officer did not accept the assessee's explanation. She was of the view that the rights of the said plot of land on which the building stood continued unabated with a distinct possibility of reconstruction of the same. Therefore, the commercial value of the title of the collapsed structure was now imbibed in the undisputed right over the land and accordingly she disallowed the write off of Rs.1,16,68,640/- pertaining to office premises at Poddar Chambers, Fort, Mumbai and added to the income of the assessee. Apart from this the Assessing Officer also treated the amount of sundry creditors of Rs.84,04,182/- as income in the hands of the assessee company and accordingly completed the assessment at an income of Rs. Nil 4 ITA No.5902 & 7305/M/07 A.Y:01-02 after allowing brought forward/unabsorbed depreciation of earlier years Rs.83,74,110/-, vide order dated 27.2.2004 passed u/s.143(3) of the Income tax Act, 1961(the Act).
3. On appeal, before the ld.CIT(A) it was contended by the assessee that the assessee was having ownership apartment in the building known as Poddar Chambers on 5th/6th floor which building collapsed in 1993 and despite efforts to reconstruct it, it could not be done over a long period of time. It was further contended that their apartments being on upper floors, they could not be constructed unless apartments right from the ground floor, were reconstructed. In view of these circumstances it was contended that a decision was taken by the Board in consultation with the auditors and legal advisors to write off the amount relating to 'Poddar Chambers Premises'. It was thus contended that the write off was genuine and creditors were written back to be adjusted against this write off. It was further contended by the assessee that the said premises on 5th / 6th floor have totally extinguished and ceased to be in existence and as such this is a case of extinguishment of asset and not of exchange. The assessee was without the possession /existence of the asset for the last 12 years and it is unlikely to be in existence in future as well for an indefinite period. It was further contended that even the right of reconstruction does not belong to the assessee as it belongs to the landlord nor does this right has any value attached to it. Further this right does not come into existence unless the ground and first four floors are constructed which are also non existent. Moreover the asset is extinguished and write off is of the asset. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Grace Colis 248 ITR 323 (SC) wherein it was held that the expressions 'extinguishment of any rights therein' in sec.2(47) is not limited to 5 ITA No.5902 & 7305/M/07 A.Y:01-02 such extinguishment arising only on transfers but it can also be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. So in this case, the buildings having collapsed it was argued that all the rights have been extinguished as 5th /6th floor could be reconstructed only if first four floors were first constructed.
4. The ld.CIT(A) observed that the Assessing Officer has proceeded on the premises that the right on land belongs to the assessee so even after the destruction of the 5th and 6th floor it holds the right on the land and so also on the reconstruction of the building. No evidence to the effect that the assessee holds the title of the land has been produced. Further the re-construction of the 5th and 6th floor also depends on the construction by other persons who hold the title over the first four floors. Under these circumstances, the assessee had no option but to write off its claim on the building at Poddar Chambers. The amount of loss suffered is, therefore, to be assessed as long term capital loss which cannot be adjusted with other incomes or adjusted with losses under other heads. This long term capital loss is to be carried forward separately from the date of its write off.
5. With regard to the second issue of addition of written back creditors/ unsecured loans of Rs.84,04,183/- added by the Assessing Officer u/s.41(1) of the Act, it was contended by the assessee that the amount was wrongly shown as income as it was not income. According to the ld.CIT(A) if this was the case the return should have been revised to exclude this amount from the total income. Since the Assessing Officer proceeded to add this amount of income on the basis of returned income, the assessee has no cause of grievance and, 6 ITA No.5902 & 7305/M/07 A.Y:01-02 hence, this grievance does not arise from the order of the Assessing Officer and accordingly he rejected the claim of the assessee being not entertained.
6. Being aggrieved by the order of the ld. CIT(A) the assessee and revenue both are in appeal before us.
ITA No.5902/Mum/07 (Assessee's Appeal) :-7. The sole ground taken by the assessee is against the sustenance of disallowance of assessee's claim of deduction of addition of write back of unsecured loans of Rs.83,82,508/- made by the Assessing Officer u/s.41(1) of the Act.
8. At the time of hearing the ld. Counsel for the assessee submits that the assessee by mistake has added the amount of unsecured loans of Rs.83,82,508/- pertains to unsecured creditors and not trade creditors. Since the amount of unsecured creditors does not fall within the purview of sec.41(1) of the Act which treats as income any benefit obtained by way of remission or cessation of a trading liability only and not any other liability, therefore, the assessee in reply to the Assessing Officer's query has submitted that the same may not be treated as income. However, the Assessing Officer merely on the ground that the assessee has added the same as income, treated the same amount as income of the assessee and the ld.CIT(A) without appreciating the assessee's submission and facts of the case that non-trade creditors do not fall under the provision of sec.41(1) of the Act upheld the addition made by the Assessing Officer on the ground that the same was offered by the assessee as its income and without revising the return the assessee's claim cannot be entertained. He further submits that in any case the unsecured creditors is not the income of the 7 ITA No.5902 & 7305/M/07 A.Y:01-02 assessee under the provisions of the Act. The reliance was also placed on the CBDT Circular No.14(XL-35) of 1955 dated 11.4.1955 and the decisions in the case of (i) Badridas Daga vs. CIT (17 ITR 209,211 - PC) and (ii) Prov. Inv. Co. Ltd. vs. CIT (1958) 24 ITR 33, 41 (Bom.) approved in (1957) 32 ITR 190(SC) to show that the assessee cannot be taxed ignoring legal position and it is the duty of the Assessing Officer to assess the assessee's income according to law and if any income is not taxable then the same should not be taxed merely because the assessee has offered the same in the return of income as taxable. He, therefore, submits that the addition made by the Assessing Officer and sustained by the ld.CIT(A) be deleted. In alternative he submits that he has no objection if the issue is set aside to the file of the Assessing Officer for examining the matter afresh.
9. On the other hand the ld. DR while relying on the order of the Assessing Officer and the ld.CIT(A) further submits that in view of the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd., the ld.CIT(A) was fully justified in not entertaining the assessee's claim and in upholding the order of the Assessing Officer in this regard. However, he submits that he has no objection if the issue is set aside the file of the Assessing Officer.
10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the Assessing Officer while asking the assessee to show cause as to why the amount of sundry creditors written off amounting to Rs.84,04,182/- should not be treated as income, assessed the said amount in the income of the assessee without rejecting the assessee's claim that the same does not fall within the purview of sec.41(1) of the 8 ITA No.5902 & 7305/M/07 A.Y:01-02 Act and hence, cannot be treated as income of the assessee. On appeal, the ld.CIT(A) without going into the merits of the case has not entertained the claim of the assessee on the ground that the assessee has shown the same as income in the return filed by the assessee and without filing the revised return to exclude the said amount from the total income, the assessee has no cause of grievance and, hence, he upheld the action of the Assessing Officer .
11. In CIT Vs. Jai Prabolic Springs Ltd. (2008) 306 ITR 42 (Del), their Lordships after considering the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. vs. CIT (2006) 284 ITR 323(SC) have held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case. Therefore, there is no infirmity in the order of the Tribunal.
12. In Nathpa Jhakri Joint Venture Vs. ACIT (2010) 131 TTJ 702/ 37 SOT 160, (Mum), the Tribunal after considering the judgment of Hon'ble Supreme Court in Goetze (India) Ltd. (supra) has observed and held that the Hon'ble Supreme Court has clarified the decision further in para 04 of the judgment which makes it explicitly clear that the mandate of this judgment is limited to the power of the assessing authorities and does not impinge on the power of the Tribunal under section 254 of the Act, held that if an amount is legally deductible, nothing can prevent the Tribunal from accepting such a plea.
13. In the absence of any other contrary material or distinguishing feature brought on record by the revenue and keeping in view that the revenue authorities have not examined the issue properly we 9 ITA No.5902 & 7305/M/07 A.Y:01-02 respectfully following the above decisions consider it fair and reasonable that the matter should go back to the file of the Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and send back the matter to the file of the Assessing Officer who shall decide the same afresh and according to law after providing resonable opportunity of being heard to the assessee. The ground taken by the assessee is therefore partly allowed for statistical purposes.
ITA No.7305/Mum/ 07 (Revenue's Appeal):-
14. The ground taken by the revenue reads as under :-
"The ld. CIT(A) has erred in allowing deduction on account of write off of partially collapsed building without appreciating the facts of the case and the provisions of law."
15. At the time of hearing the ld. DR submits that for the reasons as mentioned in the assessment order the ld.CIT(A) was not justified in allowing the deduction on account of write off of partially collapsed building without appreciating the fact of the case and the provision of law. He, therefore, submits that the addition made by the Assessing Officer be restored.
16. On the other hand the ld. Counsel for the assessee while reiterating the same submissions has submitted before the Assessing Officer and the ld.CIT(A) further submits that the company was having rented tenancy rights in the 'Poddar Chamber premises'. Since these rights were purchased by the company in the year 1993, the purchase price is reflected in the books of account as the cost of 'Poddar Chamber premises'. The landlord of Poddar Chamber is G.R. Poddar 10 ITA No.5902 & 7305/M/07 A.Y:01-02 Foundation who have written a letter dated 15.2.2001 appearing at page 34 of assessee's paper book intimating the assessee that since the premises has been collapsed, the assessee's rights whatsoever therein stand extinguished. Since the assessee's rights have been extinguished by the landlord, the assessee on the basis of advise, opinion by the auditors and legal advisors and the decision of the Board has passed necessary entries to write off the amount relating to 'Poddar Chamber premises'. The reliance was also placed on the decision of Hon'ble Supreme Court in Vannattankandy Ibrayi vs. Kunhabdulla Hajee (2001) 1 Supreme Court Cases 564 wherein it has been held that "Where the tenancy is exclusively for premises and not for land, on the destruction of the subject-matter (such as by natural calamity) the tenancy stands extinguished". He, therefore submits that the order passed by the ld.CIT(A) be upheld.
17. In the rejoinder the ld. DR submits that in any case since the building had collapsed in 1993, therefore, the assessee should have written off the said amendment in the year 1993 and not in the year under consideration and, therefore, the addition made by the Assessing Officer be restored.
18. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as the assessee was having the ownership apartment in the building known as Poddar Chambers on 5th and 6th floor at S.A. Brelvi Road, Fort, Mumbai. The Poddar Chamber building collapsed in year 1993. Before the Assessing Officer it was stated by the assessee that "We have been trying to reconstruct the same for the rest of last 7/8 years but could not do so due to various 11 ITA No.5902 & 7305/M/07 A.Y:01-02 reasons/factors including that there are lot of litigations of various tenants and our apartments being on upper floor, unless the whole collapsed portion of the building is reconstructed right from ground floor, and agreed to by all the tenants and landlord, as also, applicable permissions and NOCs are received, our portion cannot be reconstructed". We further find that it was also submitted by the assessee that the landlord of the building M/s. G.R. Poddar Foundation vide their letter dated 15.2.2001 have informed the assessee that since the building has collapsed the assessee's rights whatsoever therein stands extinguished. We further find that the revenue has not placed any material on record to controvert the above facts stated by the assessee. This being so and keeping in view that the land does not belong to the assessee, we are of the view that the assessee has rightly passed the relevant entry to write-off the above amount in the year under consideration and hence, the plea taken by the ld. DR that since the building collapsed in 1993, the assessee should have passed the relevant entry in the year 1993 is devoid of any merit and the same is rejected.
20. In Vannattankandy Ibrayi vs. Kunhabdulla Hajee (supra), it has been held at placitum G at page 574 of SCC as under :-
".....The lease of a shop is the transfer of the property for its enjoyment. On destruction of the shop the tenancy cannot be said to be continuing since the tenancy of a shop presupposes a property in existence and there cannot be subsisting tenancy where the property is not in existence. Thus when the tenanted shop has been completely destroyed, the tenancy right stands extinguished as the demise must have a subject-matter and if the same is no longer in existence, there is an end of the tenancy and therefore Section 108(B)(c) of the Act has no application in case of premises governed by the 12 ITA No.5902 & 7305/M/07 A.Y:01-02 State Rent Act when it is completely destroyed by natural calamities."
21. Respectfully following the ratio of the above decision and in the absence of any other contrary material placed on record by the revenue we are of the view that in view of the natural calamity i.e. collapse of building in 1993, the tenancy right stands extinguished and the assessee was justified in claiming the same in the year under consideration. However, the ld.CIT(A) has treated the said loss as long term capital loss to be carried forward separately and the assessee is not in appeal against the said decision of the ld.CIT(A), we while upholding the finding of the ld.CIT(A) further hold that the said directions are subject to provision of sec.50 of the Act and accordingly, the Assessing Officer is directed to re-compute the said loss. The ground taken by the revenue is, therefore, partly allowed for statistical purposes.
22. In the result, the assessee's and revenue's appeals stand partly allowed for statistical purposes.
Order pronounced in the open court on 19.11.2010.
Sd/- Sd/-
(PRAMOD KUMAR) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 19.11.2010.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.