Gujarat High Court
Commissioner Of Income Tax Ahmedabad ... vs Niya Finstock Pvt. ... on 3 February, 2014
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/933/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 933 of 2013
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COMMISSIONER OF INCOME TAX AHMEDABAD III....Appellant(s)
Versus
NIYA FINSTOCK PVT. LTD.....Opponent(s)
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Appearance:
MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Ms. JUSTICE SONIA GOKANI
3rd February 2014
ORAL ORDER (PER : HONOURABLE Mr .JUSTICE AKIL KURESHI)
Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad {"Tribunal" for short} raising following question for our consideration : "Whether, in the facts and circumstances of the present case, learned ITAT has erred in law in confirming the order of CIT [A] deleting the addition of Rs. 1,10,40,296/= out of interest expenses on Inter Corporate Deposits [ICDs] made by the Assessing Officer on the ground of divergence of interest bearing borrowings funds to non interest bearing ICDs ?"
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O/TAXAP/933/2013 ORDER Brief facts stated are that for the Assessment Year 200506, the Assessing Officer passed an order of assessment, which was taken in revision by the Commissioner of Incometax. Besides other issues, he touched the issue of the assesseeCompany not accounting for interest on the intercorporate deposits, though the amount of such deposit in the hands of the assessee was interest bearing funds. The assessee raised two fold contentions one was that the amount of Rs. 44.48 lakhs [rounded off] was written off since the creditor agreed to return the principal sum of Rs. 1.50 Crores by way of full and final settlement. With respect to noncharging of interest on other deposits, the assessee contended that the creditorcompanies had become sick and there was no possibility of recovery of interest.
On both the counts, CIT [A] disagreed with the assessee and directed the Assessing Officer to pass a fresh order charging interest.
The assessee carried the matter in appeal before the Tribunal. Pending such appeal, the Assessing Officer passed an order consequential to the revisional order passed by the Commissioner and levied tax on the interest amount. This fresh order of the Assessing Officer was challenged before the CIT [A] by the assessee who deleted the additions, upon which the Revenue approached the Tribunal.
The Tribunal disposed of, by a common impugned judgment, the appeal Page 2 of 5 O/TAXAP/933/2013 ORDER of the assessee against the revisional order of the Commissioner, and that of the Revenue against the order of CIT [A]. The Tribunal did uphold that the revisional order was valid but on quantum addition, ruled in favour of the assessee and confirmed the appellate order of CIT [A] in the following terms : "8. We have heard the rival contentions and perused the material on record. The appellant had proved before the A.O that financial position of both the sister concern to whom advances were given, for which agreement made with Sunrise Fincap Limited on 11.05.2005. As per page no.36 of paper book, the company had negative net work. The income of the company was reducing daybyday and the company had no concrete future business plan.
It was agreed by the both that they are ready to forgo interest portion, if principal amount of Rs. 1.5 Crore is paid by the company on or before 15.05.2005. In case of Satellite Management Services Limited, the company incurred losses of Rs. 2.46 Crores as on 31.03.2005 [page no. 78 of trhe paper book]. Accordingly, this company was not in good position to repay the interest or principal amount. The company became sick. The assessee borrowed the fund for the business purpose and paid the interest on it which is allowable u/s. 37 of the IT Act. The appellant had reason to no charge interest from two companies. Thus, we have considered view that no interference is Page 3 of 5 O/TAXAP/933/2013 ORDER required in the order of th CIT [A], we dismiss the appeal of the Revenue."
Learned counsel for the Revenue vehemently contended that the Tribunal having confirmed the order of CIT [A] passed under section 263 of the Incometax Act, 1961 ["Act" for short] there was thereafter no scope of deleting the additions made by the Assessing Officer, which were merely consequential to the revisional order. On merits, he contended that the assessee had borrowed funds which were interest bearing and loaned the same to the sister concern without charging interest.
It is true that the Tribunal did uphold the Commissioner's exercise of revisional powers. However, the Tribunal did not examine the contentious issues touched by the Commissioner in such revisional order. The Tribunal only satisfied itself that the grounds for taking the order of Assessing Officer under revision exist. In that view of the matter, the Tribunal in its own order later on examining the additions on merits cannot be found fault with. Unless we harmonies the Tribunal's order in this manner, the two parts of the Tribunal's order would be rendered incongruent. We are not prepared to read the order of the Tribunal in such a manner.
Coming to the quantum addition, CIT [A] as well as Tribunal both noted that Sunrise Fincap Limited ie., the creditor had negative growth. The income of Page 4 of 5 O/TAXAP/933/2013 ORDER the company was reducing daybyday and the company had no concrete business plan. Both the sides, therefore, agreed that the assessee would forgo the interest, if the principal amount of Rs. 1.5 Crores is paid by the company before the specified date. In case of Satellite Management Services Limited, it was noticed that the company had incurred losses of Rs. 4.46 Crores. The company was not in a good condition to repay the principal and even interest and had become sick. The appellant had therefore no reason to charge interest from these two companies. It was on this count that the CIT [A] as well as Tribunal both deleted the additions on the principal and charging tax on real income.
We see no reason to take a different view. It is not even the case of the Revenue that the losses of the creditors were contrived income. It appears that the assessee company had accumulated business loss which were being carried forward in future years. It was at best the question of reduction of business loss, even if additions were to be sustained in the facts of the case. Tax Appeal is therefore dismissed.
{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash* Page 5 of 5