SUYASH OUTSOURCING P. LTD, MUMBAI v. DCIT 7(2), MUMBAI

ITA 1713/MUM/2016 | 2009-2010
Pronouncement Date: 27-11-2017 | Result: Allowed

Appeal Details

RSA Number 171319914 RSA 2016
Assessee PAN AAICS6262P
Bench Mumbai
Appeal Number ITA 1713/MUM/2016
Duration Of Justice 1 year(s) 8 month(s) 5 day(s)
Appellant SUYASH OUTSOURCING P. LTD, MUMBAI
Respondent DCIT 7(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted Not Allotted
Tribunal Order Date 27-11-2017
Assessment Year 2009-2010
Appeal Filed On 22-03-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI P K BANSAL VICE PRESIDENT & SHRI AMARJIT SINGH JUDICIAL MEMBER ITA NO.1713/MUM/2016 ASSESSMENT YEAR : 2009-10 SUYASH OUTSOURCING P LTD. 4 TH FLOOR PAVILLE HOUSE TWIN TOWER OFF VEER SAVARKAR MARG PRABHADEVI MUMBAI 400 025. PAN AAICS6262P VS. DCIT 7(2) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI SANTANU SAIKIA DATE OF HEARING : 14.1 1 .2017 DATE OF PRONOUNCEMENT : 27 . 11 .2017 O R D E R PER P K BANSAL VICE-PRESIDENT: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-14 MUMBAI DATED 29.01.2016 FOR A.Y.2009-1 0. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO THE SUSTENANCE O F THE ADDITION BY THE CIT(A) IN RESPECT OF THE INTEREST AMOUNTING TO ` 1 05 30 822/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD MADE INTER- CORPORATE DEPOSITS AMOUNTING TO ` 6 70 00 000/- ON VARIOUS DATES IN ORDYN TECHNOLOGIES PRIVATE LIMITED @15% P.A.. THE INTERE ST FOR THE IMPUGNED ASSESSMENT YEAR COMES TO ` 45 30 822/-. THE ASSESSEE HAS ALSO ADVANCED ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 2 LOAN AMOUNTING TO ` 4 CRORE TO SHRI SATEESH KUMAR @ 15% INTEREST AND T HE INTEREST THEREON WAS ` 60 LACS. IN BOTH THE CASES DUE TO COMMERCIAL CONSIDERATION AND FINANCIAL POSITION OF THE BORROWE R THE ASSESSEE DID NOT RECOGNIZE ANY INTEREST IN ITS BOOKS OF ACCOUNT. TH E ASSESSMENT U/S. 143(3) WAS COMPLETED BUT THE ASSESSING OFFICER DID NOT MAK E ANY ADDITION IN THE INCOME OF THE ASSESSEE. THE CIT-7 VIDE HIS ORDER DATED 09.01.2013 PASSED U/S. 263 OF THE INCOME TAX ACT REMANDED THE MATTER BACK TO THE ASSESSING OFFICER FOR THE LIMITED ISSUE OF NON-RECOGNITION OF THE INTEREST INCOME ON INVESTMENT MADE BY THE ASSESSEE IN INTER-CORPORATE DEPOSITS AND LOAN GIVEN TO SHRI SATEESH KUMAR. THE ASSESSING OFFICER THERE FORE CONDUCTED FRESH ASSESSMENT PROCEEDINGS AND MADE AN ADDITION OF ` 1 05 30 822/- FOR NON- RECOGNITION OF THE INTEREST INCOME VIDE ORDER PASSE D U/S. 143(3) R.W.S.263. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE CIT (A). BEFORE THE CIT(A) THE ASSESSEE CONTENDED THAT SIMILAR ISSUE HAS ARISE N FOR A.YS 2010-11 AND 2011-12 AND DURING THOSE ASSESSMENT YEARS ALSO THE ORDERS WERE PASSED IN FAVOUR OF THE ASSESSEE. HOWEVER THE CIT(A) DISMIS SED THE APPEAL AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE THE REFORE PROCEED TO DISPOSE OFF THE APPEAL AFTER HEARING THE LEARNED DR AND ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD. WE NOTED THAT THE AS SESSEE HAS INVESTED ` 6 70 00 000/- ON VARIOUS DATES AS INTER-CORPORATE DEPOSITS IN ORDYN ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 3 TECHNOLOGIES PRIVATE LIMITED FOR INTEREST @ 15%. TH E ASSESSEE HAS ALSO ADVANCED LOAN AMOUNTING TO ` 4 CRORE TO SHRI SATEESH KUMAR @15%. BUT THE INTEREST ON THESE AMOUNTS HAS NOT BEEN SHOWN BY THE ASSESSEE AS ACCORDING TO THE ASSESSEE INTEREST HAS NOT ACCRUED. FROM THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW WE NOTED THA T THE STATUTORY AUDITORS OF ORDYN TECHNOLOGIES PRIVATE LIMITED IN THEIR REPO RT HAS OBSERVED AS UNDER: (X) IN OUR OPINON THE COMPANYS ACCUMULATED LOSSE S AT THE END OF THE FINANCIAL YEARS ARE MORE THAN FIFTY PERCENT OF ITS NET WORTH. THE COMPANY HAS INCURRED CASH LOSSES DURING THE YEAR AN D THE IMMEDIATELY PRECEDING FINANCIAL YEAR. (XI) THE COMPANY HAS DEFAULTED IN REPAYMENT OF DUES TO OPTIONALLY CONVERTIBLE DEBENTURE TWITTERS. DEBENTURES AMOUNTIN G TO RS. 200 000 000 WHICH BECAME DUE FOR REDEMPTION ON 21 N OVEMBER 2008 HAS NOT YET BEEN REDEEMED BY OK COMPANY AND THE INTEREST (INCLUDING DEFAULT INTEREST FOR NON-REDEMPTION OF D EBENTURES AND NON-PAYMENT OF INTEREST) DUE AN SUCH DEBENTURES AMO UNTING TO RS. 64 823 474/- HAS ALSO NOT BEEN PAID. FURTHER THE D UE DATE FOR REDEMPTION OF DEBENTURES AMOUNTING TO RS. 32 000 000/- WHICH FELL DUE BETWEEN 31 ST MARCH 2008 AND 31 ST MARCH 2009 HAS BEEN EXTENDED TO 31 ST MARCH 2010 BY THE DEBENTURE HOLDER AFTER THE YEAR END. THE COMPANY HAS NO DUES PAYABLE TO FINANCIAL I NSTITUTIONS. STATUTORY AUDITORS OF ORDYN HAVE COMMENTED IN CLAUS E 5 OF THEIR REPORT AS EXPLAINED BELOW: 'WE DRAW ATTENTION TO NOTE 2 IN SCHEDULE 21 TO THE FINANCIAL STATEMENTS AS AT 31 MARCH 2009 THE CARRYING VALUE OF INVESTMENTS IN THE COMPANY'S SUBSIDIARIES AMOUNTED TO RS. 139 1 36 461/- IN ADDITION TO RS 18 183 276/- ADVANCED TO THESE SUBS IDIARIES. AS INDICATED THEREIN THE NET WORTH OF THE COMPANY'S S UBSIDIARIES HAS SUBSTANTIALLY ERODED. BECAUSE OF THE UNCERTAINTY IN VOLVED IN THE PLANS GIVEN BY THE MANAGEMENT WE ARE UNABLE TO COM MENT ON THE CARRYING VALUE OF THE INVESTMENTS AND ADVANCE GIVEN TO THE SUBSIDIARIES.' ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 4 FURTHER TO THAT EVEN THE AUDITORS HAVE TAKEN NOTE OF THIS FACT OF NON-PAYMENT OF INTEREST AS PER ITS REPORT FOR YEAR ENDING 31/03/2009 IN CLAUSE III(G) WHICH IS EXTRACTED AS U NDER: IN RESPECT OF LOANS TAKEN THE PRINCIPAL AMOUNTS AR E REPAYABLE ON DEMAND AND THERE IS NO REPAYMENT SCHEDULE. SOME OF THE DEBENTURES ARE INTEREST FREE AND FULLY CONVERTIBLE HENCE THIS CLAUSE IS NOT APPLICABLE. SOME OF THE DEBENTURE ISSUED WHI CH WERE DUE FOR REDEMPTION THE DATES OF REDEMPTION HAVE BEEN EXTEN DED BY THOSE DEBENTURE HOLDERS. THE PAYMENT OF INTEREST WITH RES PECT TO THESE DEBENTURES HAS NOT BEEN REGULAR. FROM THE OBSERVATIONS OF THE AUDITOR IT IS APPAREN T THAT THE COMPANY IN WHICH THE ASSESSEE HAS MADE INTER CORPORATE DEPOSIT S HAS INCURRED HEAVY LOSS AND THE ACCUMULATED LOSSES WERE VERY HIGH. TH E COMPANY WAS NOT EVEN ABLE TO REPAY ITS DEBENTURE. THE ASSESSEE HAS ALSO SUBMITTED BEFORE THE AUTHORITIES BELOW THAT IT HAS NOT RECEIVED ANY INTE REST OR REFUND OF THE SAID AMOUNT TILL THE DATE OF MAKING SUBMISSIONS. THE IN TEREST INCOME IN FACT HAS NOT ACCRUED TO THE ASSESSEE. WE NOTED THAT INCOME TAX IS LEVIABLE ON THE REAL INCOME AND IF NO INCOME HAS ACCRUED TO THE ASSESSEE INCOME TAX CANNOT BE LEVIED. THE QUESTION THEREFORE ARISES WHETHER ANY INCOME HAS ACCRUED DURING THE YEAR. IT IS NOT DENIED THAT THE ASSESSEE BEING PRIVATE LIMITED COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT AS PROVI DED U/S. 145(1) OF THE INCOME TAX ACT. SECTION 145(2) EMPOWERS THE CENTRA L GOVERNMENT TO NOTIFY ACCOUNTING STANDARD IN THE FINANCIAL GAZETTE BY ANY CLASS OF THE ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME IN CASE THE ASSES SEE DID NOT COMPLY WITH THE ACCOUNTING STANDARD COULD INVOKE THE PROVISIONS OF SECTION 145(2). BY ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 5 INVOKING THE POWER CONFERRED U/S. 145(2) THE CENTR AL GOVERNMENT HAS NOTIFIED TWO ACCOUNTING STANDARDS. ACCOUNTING STAN DARD 1 RELATE TO THE DISCLOSURE OF THE ACCOUNTING POLICIES. CLAUSE 4 OF THE SAID ACCOUNTING STANDARD STATES THAT ACCOUNTING POLICY ADOPTED BY T HE ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS PROFESSION OR VOCATION IN THE FINANCIAL S TATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. FOR THIS PURPOSES THE MAJOR CONSIDERATIONS ARE (I) PRUDENCE; (II) SUBSTAN CE OVER FORM AND (III) MATERIALITY. PRUDENCE REQUIRES THAT PROVISION SHOU LD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNO T BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN TH E LIGHT OF AVAILABLE INFORMATION. CLAUSE 5 OF THIS ACCOUNTING STANDARD ALSO STATES THAT THE FUNDAMENTAL ACCOUNTING ASSUMPTIONS RELATING TO GOIN G CONCERNS CONSISTENCY AND ACCRUAL ARE FOLLOWED IN FINANCIAL STATEMENTS. ACCRUAL HAS BEEN DEFINED UNDER SUB CLAUSE (C) OF CLAUSE 6 REFERS TO THE ASSU MPTION THAT REVENUES AND COSTS ARE ACCRUED THAT IS RECOGNIZED AS THEY ARE EARNED OR INCURRED. CONSISTENCY HAS ALSO BEEN ONE OF THE BASIC ASSUMPTI ONS WHICH HAS TO BE FOLLOWED. 4. KEEPING IN VIEW THE FINANCIAL STRENGTH OF THE CO MPANY IT IS NOT DENIED THAT THE INTER-CORPORATE DEPOSITS MADE BY THE ASSES SEE WERE NOT RECOVERABLE FROM THE COMPANY THEN WHAT TO TALK OF INTEREST. WH EN THE RECOVERY OF THE ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 6 MONEY ADVANCED ITSELF IS DOUBTFUL THE QUESTION OF ACCRUAL OF INTEREST IN OUR OPINION WOULD NOT ARISE. INTEREST WOULD HAVE ACCR UED TO THE ASSESSEE IF IT GOT ENFORCEABLE RIGHT AND INTEREST WOULD HAVE BEEN RECEIVED BY IT. ON THE SAME ANALOGY THE INTEREST IN RESPECT OF THE NON-PER FORMING ASSETS IN THE CASE OF THE BANKERS ARE NOT TAKEN TO BE THEIR INCOME. E VEN OTHERWISE ALSO SINCE THE REVENUE HAS NOT MADE ANY ADDITION IN THE A.Y. 2 010-11 AND 2011-12 ON THE BASIS OF THESE FACTS IN RESPECT OF INTEREST AND ON THE PRINCIPLE OF CONSISTENCY WE ARE OF THE VIEW THAT IT CANNOT BE S AID THAT INTEREST HAS ACCRUED TO THE ASSESSEE DURING THE YEAR WHEN THE IN TER-CORPORATE DEPOSITS IS EQUIVALENT TO NON-PERFORMING ASSETS IN THE CASE OF THE ASSESSEE. 5. NOW COMING TO THE NON-RECOGNITION OF INTEREST ON LOAN ADVANCED TO SHRI SATEESH KUMAR. WE NOTED THAT THE ASSESSEE COMPANY HAD GRANTED LOAN AMOUNTING TO ` 4 CRORE TO SHRI SATEESH KUMAR ON 30.01.2008. SHRI SATEESH KUMAR IS CHIEF EXECUTIVE OFFICER AND MANAGING DIREC TOR OF ENZEN GLOBAL SOLUTIONS PRIVATE LIMITED. THE LOAN WAS GRANTED TO HIM FOR THE PURPOSE OF BUYING THE SHARES OF ENZEN GLOBAL SOLUTIONS PRIVATE LIMITED FROM AN ANGEL INVESTOR AND HAS APPROACHED THE ASSESSEE TO GRANT H IM A LOAN FOR SUCH PURPOSE AGAINST SECURITY AND UPON THE TERMS AND CON DITIONS AS PER THE LOAN AGREEMENT. FOR THIS PURPOSE THE BORROWER HAS TAKE N LOAN BY WAY OF PLEDGE 1 26 540 SHARES OF ENZEN GLOBAL SOLUTIONS PRIVATE L IMITED OWNED BY HIM HAVING FACE VALUE OF ` 12 65 400/- ALONG WITH A DEMAND PROMISSORY NOTE AN D ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 7 TWO POST DATED CHEQUES OF ` 4 05 00 000/-. THE ASSESSEE HAS RECOGNIZED INTEREST AMOUNT OF ` 10 19 178/- DURING THE F.Y 2007-08 FOR SIXTY TWO D AYS BUT THE SAID INTEREST WAS ALSO NOT RECOVERED. THE BORROWER DID NOT OWN UP THE COMMITMENT. THE BORROWERS COMPANY WAS PERFORMI NG BADLY. UNDER THESE CIRCUMSTANCES ALSO AND SINCE THE RECOVERY OF THE ORIGINAL AMOUNT ITSELF IS DOUBTFUL THE INTEREST INCOME IN OUR VIEW CAN AL SO NOT BE ADDED AS INCOME OF THE ASSESSEE. WHEN THE PRINCIPAL AMOUNT ITSELF IS A NON-PERFORMING ASSET INTEREST CANNOT BE SAID TO HAVE ACCRUED TO THE ASSE SSEE. WE THEREFORE IN THE LIGHT OF THE AFORESAID DISCUSSIONS SET ASIDE T HE ORDER OF THE CIT(A) AND DELETE THE ADDITION OF ` 1 05 30 822/-.. 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF NOVEMBER 2017. SD/- SD/- (AMARJIT SINGH) (P K BANSAL) JUDICIAL MEMBER VICE-PRESIDENT MUMBAI; DATED: 27 TH NOVEMBER 2017 SA ITA NO.1713/MUM/2016 SUYASH OUTSOURCING P LTD. 8 COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A) MUMBAI 4. THE CIT 5. DR H BENCH ITAT MUMBAI BY ORDER #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI