AARSREE INVESTMENTS PRIVATE LIMITED, CHENNAI v. ACIT CORPORATE CIRCLE 1(1), CHENNAI

ITA 3099/CHNY/2018 | 2005-2006
Pronouncement Date: 05-11-2019 | Result: Dismissed

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Appeal Details

RSA Number 309921714 RSA 2018
Assessee PAN AAACA5345B
Bench Chennai
Appeal Number ITA 3099/CHNY/2018
Duration Of Justice 11 month(s) 22 day(s)
Appellant AARSREE INVESTMENTS PRIVATE LIMITED, CHENNAI
Respondent ACIT CORPORATE CIRCLE 1(1), CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-11-2019
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 05-11-2019
Last Hearing Date 14-08-2019
First Hearing Date 14-08-2019
Assessment Year 2005-2006
Appeal Filed On 13-11-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . . BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI S. JAYARAMAN ACCOUNTANT MEMBER ./ ITA NO.3099/CHNY/2018 [ [ /ASSESSMENT YEAR: 2005-06 M/S. AARSREE INVESTMENTS PVT. LTD. MEENAKSHI TOWERS NEW NO.13 OLD NO.6 4 TH FLOOR RAJAMANNAR STREET T. NAGAR CHENNAI 600 017. VS. THE ACIT CORPORATE CIRCLE 1(1) CHENNAI. PAN: AAACA 5345B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI L. SHIBI CS /RESPONDENT BY : SHRI AR.V. SREENIVASAN JCIT /DATE OF HEARING : 14.08.2019 /DATE OF PRONOUNCEMENT : 05.11.2019 / O R D E R PER SHRI S. JAYARAMAN ACCOUNTANT MEMBER : THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3 CHENNAI IN ITA NO.12/2007- 08/A-1 DATED 28.09.2018 FOR THE ASSESSMENT YEAR 2005-06. 2. WHILE MAKING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005- 06 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE ADVANCED RS.1 10 00 000/- TO M/S.SEAHORSE HOSPITALS LIMITED ON 01.12.2004 AT ITA NO.3099/CHNY/2018 :- 2 -: THE INTEREST RATE OF 10.5%. HOWEVER THE ASSESSEE HAS NOT RECOGNIZED ANY INTEREST AGAINST THIS ADVANCE. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE IS FOLLOWING ACCRUAL METHOD OF ACCOUNTING. THEREFORE FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF INDERMANI JATIA V. CIT 35 ITR 298 (SC) AND CIT V. SHIV PRAKASH JANAK RAJ AND CO.P. LTD. 222 ITR 583 (SC) TREATED THE INTEREST RECEIVABLE AT RS.3 85 000/- AT THE RATE OF 10.5% AS INCOME AND CONCLUDED THE ASSESSMENT. AGGRIEVED AGAINST THAT ORDER THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD.CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THAT ORDER THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS:- 1. THE APPELLANT CHALLENGES THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ('CIT (A)') ON THE FOLLOWING GROUNDS AMONGST OTHERS EACH WITHOUT PREJUDICE TO THE OTHER OR OTHERS. 2. THE ORDER OF THE CIT (A) IS ARBITRARY AND CONTRARY TO LAW CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE RESPONDENT FACTUALLY COMMITTED AN ERROR AND HAS STATED IN HIS ORDER THAT THE AUTHORISED REPRESENTATIVE STATED THAT THE INTEREST WAS NOT RECOGNISED IN THE BOOKS SINCE THE SAME WAS NOT RECEIVED DURING THE YEAR WHILE THE FACT REMAINS THAT THE APPELLANT HAD RECOGNISED THE REVENUE ON ACCRUAL BASIS AS PER THE TERMS OF THE AGREEMENT AND AS PER ACCOUNTING STANDARDS AND RECORDED THE INTEREST INCOME SOON AFTER IT BECAME DUE IN THE FINANCIAL YEAR 2007- 08. THE LEARNED CIT (A) FAILED TO CONSIDER THE ARRANGEMENT ENTERED INTO BY THE APPELLANT WITH THE BORROWER. ITA NO.3099/CHNY/2018 :- 3 -: 4. THE LEARNED CIT(A) FAILED TO NOTE THAT THE INCOME HAS NOT ACCRUED IN THE FINANCIAL YEAR 2004-05 BUT HAS ACCRUED ONLY IN FINANCIAL YEAR 2007-08 AND THE BORROWER HAS DEDUCTED TAX SOURCE IN FINANCIAL YEAR 2007-08 AND THE SAME HAS BEEN REFLECTED IN FORM 26 AS. THERE WAS A SPECIFIC ARRANGEMENT BETWEEN THE PARTIES ON THE MODE OF REPAYMENT AND THE SAME IS NOT CONSIDERED BY THE LEARNED CIT (A). THEREFORE THE ORDER OF THE CIT (A) IS LIABLE TO BE DELETED AS THE AMOUNT HAS BEEN OFFERED TO TAX IN THE FINANCIAL YEAR 2007-08 ON ACCRUAL BASIS. 5. THE LEARNED CIT (A) COMPLETELY IGNORED THE FACT THAT THE INTEREST INCOME HAS BEEN OFFERED TO TAX IN THE FINANCIAL YEAR 2007-08 AND HAS PAID TAXES ON THE SAME. WITHOUT PREJUDICE TO THE FACT THAT INCOME IS ACCRUED IN THE FINANCIAL YEAR 2007-08 THE CIT(A) OUGHT TO HAVE GIVEN A DIRECTION/FINDING THAT IF THE INTEREST INCOME IS BROUGHT TO TAX IN FINANCIAL YEAR 2004-05 THE SAME IS TO BE ELIMINATED FROM FINANCIAL YEAR 2007-08 AND TAX BE COMPUTED ACCORDINGLY AND ISSUE REFUND CONSEQUENTLY IN THE FINANCIAL YEAR 2007-08. THEREFORE THIS WARRANTS INTERFERENCE OF THIS HONBLE TRIBUNAL. 6. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GROUND AT THE TIME OF HEARING. 3. THE LD.AR PRESENTED THE CASE AND ARGUED ON THE LINES OF GROUNDS OF APPEAL AND TOOK US THROUGH THE RELEVANT PORTION OF THE PAPER-BOOK. HE SUBMITTED THAT THE INTEREST AND THE PRINCIPAL AMOUNT WAS RECEIVED IN FINANCIAL YEAR 2007-08 AND WAS OFFERED TO TAX IN THE ASSESSMENT YEAR 2008-09. THEREFORE HE PLEADED TO ALLOW THE APPEAL. ITA NO.3099/CHNY/2018 :- 4 -: 4. PER CONTRA THE LD.DR SUPPORTED THE ORDER OF THE LD.CIT(A) AND HENCE THE RELEVANT PORTION IS EXTRACTED AS UNDER:- 4.3. I HAVE CONSIDERED SUBMISSIONS OF THE LD.AR AND PERUSED ASSESSMENT ORDER. THE ADMITTED FACT IS THAT AN ADVANCE OF RS.1 10 00 000/- HAD BEEN GIVEN TO M/S.SEAHORSE HOSPITALITY LTD. AS A LOAN WHICH CARRIES INTEREST RATE OF 10.5%. HOWEVER LD.AR SAYS THAT APPELLANT HAS NOT DEMANDED INTEREST DURING THE FINANCIAL YEAR 2004-05 AND 2005-06 AND THEREFORE THE SAME HAS NOT BEEN RECOGNIZED IN ITS BOOKS OF ACCOUNTS. IT IS ALSO STATED THAT APPELLANT HAS BEEN FOLLOWING ACCOUNTING STANDARD 9 WHICH HAS NOT BEEN APPRECIATED BY THE AO. LASTLY LD.AR HAS STATED THAT THE INTEREST AND PRINCIPAL AMOUNT WAS RECEIVED IN THE FY 2007-08 AND SAME WAS OFFERED TO TAX IN THE A.Y.2008-09. IN SUPPORT OF HIS ARGUMENTS HE HAS ALSO FILED FORM 26AS AND BANK STATEMENT ETC. ON CONSIDERATION OF SUBMISSIONS OF THE LD.AR I FOUND THAT THERE IS A CONTRADICTION IN HIS OWN STATEMENTS. IN THE WRITTEN SUBMISSIONS REPRODUCED AT SUPRA LD.AR HIMSELF HAS STATED THAT REVENUE HAS TO BE RECOGNIZED ON ACCRUAL BASIS AS PER THE ACCOUNTING STANDARD 9. HOWEVER HE FURTHER SAYS THAT IT WAS MUTUALLY AGREED UPON NOT TO RECOGNIZE REVENUE ON ACCRUAL BASIS BECAUSE THE APPELLANT HAS NOT DEMANDED FOR IT. THIS ARGUMENT IN MY CONSIDERED OPINION IS BASELESS AND WITHOUT ANY SUBSTANCE. HE HIMSELF ADMITTED THAT INTEREST INCOME HAS TO BE RECOGNIZED ON ACCRUAL BASIS AS PER ACCOUNTING STANDARD 9 AND APPELLANT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THIS FACT SHOWS THAT APPELLANT HAS TO RECOGNIZED INTEREST INCOME ON ACCRUAL BASIS. FURTHER MUTUALLY AGREEING NOT TO DEMAND INTEREST FOR A CERTAIN PERIOD CANNOT BE THE BASIS FOR NOT RECOGNIZING THE INCOME AS PER THE ACCOUNTING STANDARD 9. IN MY CONSIDERED OPINION AO HAS RIGHTLY RELIED UPON CASE LAWS CITED AT SUPRA AND BROUGHT THE INTEREST INCOME TO TAX ON ACCRUAL BASIS IN APPELLANTS CASE. ON THE OTHER HAND THE SUBMISSIONS MADE BY THE LD.AR ARE CONTRADICTORY AND DEVOID OF MERITS. IN THE CIRCUMSTANCES ADDITION MADE BY THE AO IS CONFIRMED. THE GROUNDS TAKEN BY THE APPELLANT ARE DISMISSED. 4.2 FOLLOWING MY OWN DECISION IN APPELLANTS OWN CASE AO IS DIRECTED TO FOLLOW AND APPLY THE ABOVE DECISION FOR THIS A.Y.2005-06. THE GROUNDS TAKEN ON THIS ISSUE ARE DISMISSED. ITA NO.3099/CHNY/2018 :- 5 -: 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIALS. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS A COMPANY AND FOLLOWING MERCANTILE ASSESSMENT OF ACCOUNTING. THE ASSESSEE PRIMARILY RELIED ON THE COPY OF THE LETTER ISSUED BY M/S. SEAHORSE HOSPITALS LIMITED DATED 01.12.2004 WHEREIN M/S. SEAHORSE HOSPITALS LTD. CONFIRMED THE RECEIPT OF RS.1 10 00 000/- FROM THE ASSESSEE COMPANY AND ALSO CONFIRMED THE TERMS OF REPAYMENT OF LOAN AS UNDER:- 1. THAT THE LOAN SHALL CARRY AN INTEREST AT THE RATE OF 10.5% PER ANNUM. 2. THAT THE INTEREST ON LOAN TOGETHER WITH THE PRINCIPAL SHALL BE REPAYABLE AS AND WHEN DEMANDED BY YOUR COMPANY BUT NOT EARLIER THAN TWO YEARS FROM THE DATE OF RECEIPT OF THE LOAN. 3. THE INTEREST ON THE LOAN SHALL BECOME DUE AS AND WHEN DEMANDED BY YOUR COMPANY. 4. AT THE TIME OF PAYMENT OF INTEREST WE SHALL DEDUCT THE TAX AT SOURCE AS PER THE PROVISIONS OF THE INCOME TAX ACT 1961. FROM THE ABOVE IT IS CLEAR THAT THE LOAN CARRIED INTEREST AT THE RATE OF 10.5% PER ANNUM. THEREFORE THE INTEREST ACCRUES AND ARISES AS ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE ASSESSEES ACCOUNTS ARE CLOSED. ONCE THE INTEREST IS ACCRUED IT HAS TO BE CHARGED TO TAX IN ACCORDANCE WITH THE METHOD OF ACCOUNTING I.E. MERCANTILE SYSTEM EMPLOYED BY THE ASSESSEE. THE TREATMENT BETWEEN THE PARTIES OR THE ITA NO.3099/CHNY/2018 :- 6 -: SUBSEQUENT SETTLEMENT BETWEEN THE ASSESSEE AND THE OTHER PARTY IS NOT AFFECTING THE CHARGEABILITY OF TAX. THEREFORE THE INTEREST ACCRUED AT THE RATE OF 10.5% ON THE IMPUGNED LOAN FOR THE PERIOD 01.12.2004 TO 31.03.2005 IS ASSESSABLE DURING THE PERIOD RELEVANT TO THIS ASSESSMENT YEAR AND ACCORDINGLY THE AMOUNT LEVIED BY THE ASSESSING OFFICER AND SUSTAINED BY THE APPELLATE AUTHORITY IS HELD AS IN ORDER. THE ASSESSEES CORRESPONDING PLEA ARE DISMISSED. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 5 TH NOVEMBER 2019 IN CHENNAI. SD/- SD/- /CHENNAI /DATED 5 TH NOVEMBER 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER