The DCIT, Circle-5,, Ahmedabad v. Rampion Eytech Pvt. Ltd.,, Ahmedabad

ITA 2490/AHD/2009 | 2005-2006
Pronouncement Date: 25-02-2011 | Result: Dismissed

Appeal Details

RSA Number 249020514 RSA 2009
Assessee PAN AABCR0341M
Bench Ahmedabad
Appeal Number ITA 2490/AHD/2009
Duration Of Justice 1 year(s) 5 month(s) 28 day(s)
Appellant The DCIT, Circle-5,, Ahmedabad
Respondent Rampion Eytech Pvt. Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 25-02-2011
Date Of Final Hearing 23-02-2011
Next Hearing Date 23-02-2011
Assessment Year 2005-2006
Appeal Filed On 27-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND A. N. PAHUJA AM) ITA NO.2490/AHD/2009 A. Y.: 2005-06 THE D. C. I. T. CIRCLE-5 2 ND FLOOR C. U. SHAH CHAMBERS ASHRAM ROAD AHMEDABAD 380 009 VS M/S. RAMPION EYETECH PVT. LTD. KAILASH COMPLEX NEW SHARDA MANDIR ROAD PALDI AHMEDABAD PA NO. AABCR 0341 M (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R. K. DHANISTA SR. DR RESPONDENT BY SHRI S. N. DIVETIA AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI AHMEDABAD DATED 29 TH JUNE 2009 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. ON GROUND NO.1 OF THE APPEAL THE REVENUE HAS CH ALLENGED THE DELETION OF ADDITION OF RS.18 86 000/- ON ACCOUNT O F ACCRUED INTEREST. THE AO NOTED THAT THE ASSESSEE COMPANY HAD ADVANCED LOAN TO RAJESH MALLEABLE LTD. (RML) OF RS.2 00 00 000/- IN EARLIER YEARS AND HAD SHOWN AN OUTSTANDING BALANCE OF RS.`1 12 00 000 /- AS ON 31-03- 2005. THE COMPANY IS STATED TO BE DECLARED SICK IND USTRIAL COMPANY ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 2 UNDER THE ACT AND HAS MADE REFERENCE TO THE BOARD F OR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR). IN VIEW OF THE UN CERTAINTY ABOUT THE RECOVERY THE ASSESSEE DID NOT ACCOUNT FOR INTEREST ACCRUED ON DEPOSITS IN THE BOOKS OF ACCOUNT. THE AO ASKED FOR EXPLANATION AS TO WHY THE INTEREST BE NOT TAXED. THE ASSESSEE BRIEFLY EXPLAINED THAT THE LOAN WAS GIVEN TO THE SUBSIDIARY COMPANY (RIL) IN E ARLIER YEARS AND NO INTEREST HAS BEEN CHARGED. THERE WAS RECOVERY OF RS.88 00 000/- AGAINST OUTSTANDING AMOUNT IN THIS YEAR. IT WAS BRO UGHT TO THE NOTICE OF THE AO THAT THE SAID COMPANY IS A BIFR COMPANY A ND IS UNDER FINANCIAL DIFFICULTIES AND THERE ARE NO CHANCES OF RECOVERY. FURTHER NO REAL INCOME IN THE FORM OF INTEREST ACCRUED THEREF ORE THE SAME SHOULD NOT BE CHARGED TO TAX. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UCO BAN K VS CIT 237 ITR 889. THE AO HOWEVER DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE AND NOTED THAT THERE ARE COMMON DIRECTORS IN THE ASSESSEE COMPANY AND RML. NO SUIT FOR RECOVERY IS FILED AGAI NST THEM. THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING THEREFORE THE INTEREST ON ACCRUAL BASIS SHOULD BE TAXED AND ACCOR DINGLY MADE ADDITION OF RS.18 86 000/-. THE ADDITION WAS CHALLE NGED BEFORE THE LEARNED CIT(A) AND THE SAME SUBMISSIONS WERE REITER ATED. THE DECISION IN THE CASE OF TORRENT FINANCIERS VS ACIT 73 TTJ 624 AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF S. A. BUILDERS LTD. 288 ITR 1 WERE RELIED UPON. THE LEARN ED CIT(A) CONSIDERING THE FACTS NOTED THAT NO NOTIONAL INTERE ST COULD BE CHARGED ON THE ADVANCES AND ACCORDINGLY DELETED THE ADDITIO N BECAUSE THE ASSESSEE CAN BE CONSIDERED TO HAVE ADVANCED LOAN FO R BUSINESS PURPOSES. ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 3 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT M/S. RML WAS A SISTER CONCERN AND NO T A SUBSIDIARY COMPANY AS NOTED BY THE LEARNED CIT(A) AND DURING T HE YEAR PART RECOVERY WAS MADE. THEREFORE DECISION RELIED UPON BY THE LEARNED CIT(A) IS NOT JUSTIFIED FOR THE PURPOSE OF DELETING THE ADDITION. 5. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND SUBMITTED THAT LOAN/ADVANCE WAS GIVEN IN EARLIER YE ARS ON WHICH NO INTEREST WAS CHARGED IN THE PAST ALSO. IT IS NOT A CASE OF DISALLOWANCE OF INTEREST BUT ADDITION IS MADE ON ACCOUNT OF NOTI ONAL INTEREST WHICH IS AGAINST THE PROVISIONS OF LAW. HE HAS FURTHER SU BMITTED THAT THE ASSESSEE IN THE PAST HAD SUFFICIENT FUNDS THEREFOR E NO CASE IS MADE OUT THAT BORROWED FUNDS HAVE BEEN DIVERTED FOR NON- BUSINESS PURPOSES. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE AO NOTED THAT THE ASSESSEE HAD ADVANCED LOAN TO RML OF RS.2 00 00 000/- IN THE EAR LIER YEARS AND HAS SHOWN OUTSTANDING BALANCE OF RS.1 12 00 000/- O N THE END OF THE FINANCIAL YEAR I.E. 31-03-2005. IT IS THEREFORE C LEAR THAT LOAN/ADVANCE WAS GIVEN IN EARLIER YEARS AND THE ASSESSEE SPECIFI CALLY PLEADED THAT NO INTEREST HAS BEEN CHARGED IN THE PAST ALSO ON W HICH NO FINDING HAVE BEEN GIVEN. THE ASSESSEE FURTHER PLEADED THAT THE SAID CONCERN IS A BIFR COMPANY AND THERE ARE NO CHANCES OF RECOV ERY. THE ABOVE FACTS WOULD PROVE THAT SINCE NO INTEREST HAS BEEN C HARGED IN THE EARLIER YEARS ON THE ADVANCE AND LOAN THEREFORE N O NOTIONAL INTEREST ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 4 COULD BE CHARGED IN THE ASSESSMENT YEAR UNDER APPEA L BECAUSE IT WAS ONLY THE OUTSTANDING BALANCE CARRIED FORWARD FR OM THE EARLIER YEARS. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SRIDEV ENTERPRISES(192ITR165)CONSIDERING THE FACTS HELD THAT NO DISALLOWANCE OF INTEREST MADE IN THE PAST. THERE WAS OPENING BAL ANCE IN THE ACCOUNTING YEAR UNDER APPEAL. THEREFORE NO DISALLO WANCE COULD BE MADE IN THE ASSESSMENT YEAR UNDER APPEAL ALSO. THE HONBLE GAUHATI HIGH COURT IN THE CASE OF B AND A PLANTATIO NS & INDUSTRIES LTD. 242 ITR 2 HELD THAT THERE IS NO PROVISION IN THE INCOME TAX ACT EMPOWERING THE ITO TO INCLUDE IN THE INCOME OF THE ASSESSEE INTEREST WHICH WAS NOT DUE OR COLLECTED. THE HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. 67 ITR 11 HELD THAT LAW DOES NOT OBLIGE A TRADER TO MAKE MAXIMUM PROFI T. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JWALA P RASAD RADHA KRISHNA VS CIT 198 ITR 415 HELD AS UNDER: WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY AGREEMENT WHETHER IN WRITING OR OTHERWISE WHETHER EXPRESS OR IMPLIED INTEREST COULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. BROADLY INTEREST CAN ACCRU E IN FAVOUR OF THE ASSESSEE EITHER UNDER OR BY VIRTUE OF SOME STATUE OR UNDER AGREEMENT WHICH MAY BE EITHER EXPRESS OR IMPLIED. THE POSITION IN THE PRESENT CAS E IS THAT THERE IS NO MATERIAL WHATEVER TO SHOW THAT ANY SUCH AGREEMENT EXISTED. ON THE CONTRARY FROM THE CORRESPONDENCE EXCHANGED BETWEEN THE ASSESSEE AND THE DEPARTMENT AND OTHER MATERIAL ON THE RECORD IT IS APPARENT THAT THE ASSESSEE AND THE DEBTOR- COMPANIES WERE SISTER CONCERNS AND THAT THE ASSESSEE HAD STOPPED CHARGING INTEREST FROM THE DEBTOR-COMPANIES WITH EFFECT FROM JUNE 30 1969 FO R THE SIMPLE REASON THAT THE DEBTOR-COMPANIES HAD RUN ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 5 INTO FINANCIAL STRAITS AND CONSEQUENTLY THE ASSES SEE HAD STOPPED CHARGING ANY INTEREST ON THE ADVANCES. THE DEBTOR-COMPANIES HAD ALSO STOPPED CLAIMING ANY INTEREST BY WAY OF DEDUCTION. FURTHER THE FACT THAT THE ASSESSEE HAD BEEN PAID INTEREST BY THE DEBTOR-COMPANIES FOR A FEW YEA RS COULD NOT BY ITSELF AND WITHOUT MORE JUSTIFY THE INTERFERENCE THAT THERE WAS SOME AGREEMENT BETWEEN THE PARTIES FOR PAYMENT OF INTEREST. THAT BEING SO INTEREST COULD NOT BE SAID TO HAVE ACCRUED IN FAVOU R OF THE ASSESSEE. THE TRIBUNAL THEREFORE RIGHTLY S ET ASIDE THE ORDERS OF THE INCOME-TAX OFFICER AND THE APPELLATE ASSISTANT COMMISSIONER. 7. CONSIDERING THE FACTS IT IS CLEAR THAT NO INTERE ST WAS CHARGED IN THE EARLIER YEARS AND THAT FINANCIAL CONDITION OF M /S. RML WAS NOT SO GOOD THEREFORE NO INTEREST WAS CHARGED IN THE EAR LIER YEARS AS WELL AS IN THE ASSESSMENT YEAR UNDER APPEAL. THERE WAS N O AGREEMENT BROUGHT ON RECORD TO PROVE THAT THE PARTIES HAVE EV ER AGREED FOR CHARGING OF INTEREST. WE THEREFORE DO NOT FIND AN Y MERIT IN THE APPEAL OF THE REVENUE. THIS GROUND OF APPEAL IS ACCORDINGL Y DISMISSED. 8. ON GROUND NO.2 OF THE APPEAL THE REVENUE CHALLE NGED THE DELETION OF ADDITION OF RS.7 66 958/- ON ACCOUNT O F DISALLOWANCE OF BAD DEBTS. THE ASSESSEE EXPLAINED BEFORE THE AO THA T DETAILS WERE FILED TO SHOW THAT ALL THE PARTIES WHOSE ACCOUNTS H AVE BEEN WRITTEN OFF ARE DOCTORS/HOSPITALS/OPTICIANS TO WHOM THEY HAVE S OLD THEIR OPHTHALMIC PRODUCTS IN WHICH THE ASSESSEE WAS DEALI NG. IT WAS ALSO EXPLAINED THAT DESPITE SENDING REMINDERS TO THESE P ARTIES THE ASSESSEE WAS NOT ABLE TO RECOVER THE AMOUNT FROM TH EM. ACCORDINGLY THE AMOUNTS WERE WRITTEN OFF IN THE BO OKS OF ACCOUNT AS ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 6 PER PROVISIONS OF SECTION 36(1) (VII) OF THE IT ACT . THE AO HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BECAU SE THE ASSESSEE WAS NOT ON GOING CONCERN AND BAD DEBTS CANNOT BE AL LOWED. THE LEARNED CIT(A) HOWEVER CONSIDERING THE PROVISIONS OF LAW NOTED THAT THE ASSESSEE HAS MADE PURCHASE AND SALES DURING THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE THE CLAIM OF THE ASSE SSEE CANNOT BE DENIED ON ACCOUNT OF DEDUCTION OF BAD DEBTS. ADDITI ON WAS ACCORDINGLY DELETED. 9. ON CONSIDERATION OF THE SUBMISSIONS OF THE PARTI ES WE ARE OF THE VIEW THAT THE ISSUE IS NOW COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. VS CIT 323 ITR 397 IN WHICH IT WAS HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. I T IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER IN THE PRESENT CASE THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER THE DEBT HAS IN FACT BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED THUS CLOSING THE ACCOUNT OF T HE CUSTOMER. IN THE CASE OF COMPANIES THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER IN FACT THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEE N UNDERTAKEN BY THE ASSESSING OFFICER. HENCE THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE O FF. ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 7 CONSIDERING THE ABOVE WE ARE OF THE VIEW THE ASSES SEE SATISFIED THE CONDITIONS OF SECTION 36(1) (VII) OF THE IT ACT. TH E ASSESSEE HAS WRITTEN OFF THE BAD DEBTS AS IRRECOVERABLE IN THE A CCOUNTS OF THE ASSESSEE FOR PREVIOUS YEAR AS PER SECTION 36(1) (VI I) OF THE IT ACT. THEREFORE THE LEARNED CIT(A) WAS JUSTIFIED IN DELE TING THE ADDITION. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE MADE SALES AND PURCHASED DURING THE ASSESSMENT YEAR UNDER APPEAL. THERE IS N O MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS DISMIS SED. 10. ON GROUND NO.3 OF THE APPEAL THE REVENUE CHALL ENGED THE DELETION OF ADDITION OF RS.8 48 752/-. THE ASSESSEE CLAIMED DEPRECIATION OF THE ABOVE AMOUNT BY DEBITING THE SA ME TO THE PROFIT & LOSS ACCOUNT. THE AO HOWEVER NOTED THAT THE ASSESS EE IS NOT AN ON GOING CONCERN AND HAS NO EMPLOYEES FROM 1-11-2004. DEPRECIATION WAS ACCORDINGLY PROPOSED TO BE DISALLOWED. THE ASSE SSEE EXPLAINED THAT THE ASSESSEE COMPANY WAS CARRYING OUT ITS BUSI NESS ACTIVITIES IN REGULAR MANNER AND HAS MADE PURCHASES AND SALES IN LACS OF RUPEES DURING THE YEAR UNDER APPEAL AND HAS SOLD THOUSANDS IN NUMBER THE OPHTHALMIC PRODUCTS. COMPLETE DETAILS WERE PRODUCED TO SHOW THAT BUSINESS ASSETS WERE USED FOR THE PURPOSE OF BUSINE SS. THE AO HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND NOTED THAT THE ASSESSEE HAS NO EMPLOYEE FROM 1-11-2004. T HEREFORE DEPRECIATION WAS DISALLOWED. THE LEARNED CIT(A) CON SIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION. 11. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A ) HAS WRONGLY RELIED UPON THE DECISION IN THE CASE OF INDUCTOTHE RM (INDIA) LTD. VS ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 8 DCIT 73 ITD 329 IN WHICH THE ISSUE WAS DIFFERENT BE CAUSE DEPRECIATION WAS ALLOWED ON THE BLOCK OF ASSETS EVE N IF ONE SINGLE ASSET WAS NOT USED FOR THE PURPOSE OF BUSINESS. THE LEARNED DR THEREFORE SUBMITTED THAT THE LEARNED CIT(A) WAS NO T JUSTIFIED IN DELETING THE ADDITION. 12. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND SUBMITTED THAT BUSINESS WAS DONE ADMITTEDLY UP TO O CTOBER 2004 WHICH IS RELEVANT TO THE FINANCIAL YEAR UNDER APPEA L. THEREFORE DEPRECIATION HAS BEEN RIGHTLY ALLOWED BY THE LEARNE D CIT(A). 13. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE ASSES SEE HAS SPECIFICALLY PLEADED THAT SALES AND PURCHASED HAVE BEEN CONDUCTE D DURING THE ASSESSMENT YEAR UNDER APPEAL. THE QUANTUM OF SALES AND PURCHASES IN LACS OF RUPEES HAS NOT BEEN DISPUTED. THE AO MER ELY RELIED UPON THE AUDITORS REPORT TO SHOW THAT NO EMPLOYEE WAS E NGAGED FROM 1- 11-2004. EVEN IF THIS STATEMENT IS ACCEPTED IT WO ULD PROVE THAT THE ASSESSEE RAN THE BUSINESS UP TO THE END OF OCTOBER 2004 WHICH IS RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL 2005-0 6. THUS IT IS PROVED THAT THE ASSESSEE USED THE ASSETS FOR THE PU RPOSE OF BUSINESS FOR MORE THAN SIX MONTHS AND ACCORDINGLY DEPRECIATI ON SHALL HAVE TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. MAY BE THE L EARNED CIT(A) HAS RELIED UPON THE DECISION WHICH MAY NOT BE DIRECTLY RELEVANT TO THE MATTER IN ISSUE BUT THE CRUX OF THE MATTER WOULD PR OVE THAT DEPRECIATION HAS BEEN RIGHTLY ALLOWED IN FAVOUR OF THE ASSESSEE BEING ITA NO.2490/AHD/2009 DCIT CIR-5 AHMEDABAD VS M/S. RAMPION EYETECH PVT. LTD. 9 ON GOING CONCERN WHICH CONDUCTED BUSINESS IN THE AS SESSMENT YEAR UNDER APPEAL. CONSEQUENTLY THERE IS NO MERIT IN TH IS GROUND OF APPEAL OF THE REVENUE. THE SAME IS DISMISSED. 14. NO OTHER POINT IS ARGUED OR PRESSED. 15. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON 25-02-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 25-02-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD