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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: DR. ARJUN LAL SAINI
PER Bench: Captioned appeal filed by the Assessee, pertaining to the Assessment Year (AY) 2009-10, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-XIV, Ahmedabad [in short “the ld.CIT(A)”]in Appeal No. CIT(A)-XIV/ACIT Cir.8/234/2011-12dated 11.03.2014 which in turn arises out of an order passed by Assessing Officer under section 143(3)of the Income Tax Act, 1961 [hereinafter referred to as the “Act”], dated 23.12.2011.
The grounds of appealraised by the assessee are as follows: “1. Ld. CIT (A) erred in law and on facts in confirming disallowance of Rs.9,460/- u/s 14A r.w.s. 8D ignoring the fact that no expenditure was incurred to earn the exempt income. Ld. CIT (A) ought to have considered the submission of the assessee and delete the disallowance. It be so held now.
ITA No.399/AHD/2018 2 2. Ld. CIT (A) erred in law and on facts in confirming addition of Rs.2,80,000/- for rental income received from Virtual BPO services ignoring fact that the possession of said property was taken over by State Bank of India under Securitization Act and subsequently all rental receipts are paid to State Bank of India by tenant and assessee do not have any intimation for the same. Ld. CIT (A) ought to have considered the factual submission and ought to have deleted the addition instead of giving direction for verification to AO. It be so held now.
Ld. CIT (A) erred in law and on facts in confirming addition of Rs.20,66,182/- being Interest on FDRs as per AIR information ignoring fact that assessee has no information of such interest due to status of assessee account under Nonperforming Assets (NPA) category. Ld.CIT (A) ought to have considered the submission of the assessee and ought to have deleted the addition. It be so held now.
Without prejudice to the above ground no.3 and in alternative, if addition of Rs.20,66,182/- for interest on FDRs is being confirmed then appropriate direction should be given to allow overdue interest expenses which was adjusted against outstanding balances. It be so held now.
Ld. CIT (A) erred in law and on facts in confirming disallowance, of depreciation of Rs.30,49,418/- for windmill sold during the year ignoring fact that block of windmill still remains and accordingly allow the depreciation. Ld. CIT (A) ought to have considered the submission of the assessee and delete the disallowance. It be so held now.
Ld. CIT (A) erred in law and in facts in confirming disallowance of Rs.6,10,000/- of Preliminary expenses by considering same as capital in nature. Ld. CIT (A) ought to have considered the submission of the assessee and allow the same as revenue expenses or deferred revenue .expenses. It be so held now. 7. Ld. CIT (A) erred in law and on facts in confirming addition of Rs.29,05,70,688/- (Rs.28,52,55,287/- for short term capital gain and Rs.53,15,401/- for long term capital gain). Ld. CIT (A) ought to have considered the submission of the assessee and delete the addition made by AO. It be so held now.
Confirming levy of interest u/s 234A, 234B and 234C is unjustified. Initiation of penalty u/s, 271(1)(c) of the Act is unjustified.
Initiation of penalty u/s 271(1)(c) of the Act is unjustified.”
3.The appeal filed by the assessee for Assessment Year 2009-10, is barred by limitation by 1484 days. The assessee has moved a petition requesting the Bench to
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condone the delay. The contention raised by the assessee in the affidavit is reproduced below: “That we delay in filling this Appeal by 1384 days. This delay was due to various unavoidable circumstances, reasons, situations which were beyond our control, explained hereunder: 1. Vishal Exports Overseas Ltd was a 4-Star Export House engaged into Import/Export of Agro Commodities, Chemicals, Bulk Drugs, Pharmaceutical Raw Materials, Garments, Plastic Raw Materials, Gold and Diamond jewellery as well as into generation of Electricity through wind Mills. Company’s operations were normal till middle of 2006. The last turnover of the company in the Financial year 2005-06 was around Rs.4000 crores and the Net Profit was Rs.54 Crores. However, in the middle of 2006 the company faced major financial set back/ problems due to its outstanding payment blocked by the overseas customers due to heavy recession in the international diamond trade. This affected the company very badly and company’s operations were came into standstill in the year 2006- 07. Company’s account with consortium of 23 banks because NPA during the period and all the banks started recovery proceedings. The company had submitted its Restructuring proposal to the banks which was initially considered favourably by the banks but somewhere in 2007 few banks backed out and the whole restructuring process flopped. Company’s all bank accounts, movable as well as immovable assets including all the assets of the promoters/directors were attached by the banks and sold under the process of securitization.
Alongwith the recovery proceedings under Securitization, criminal proceedings, 138 proceedings were also simultaneously started by the banks, other creditors. Some of the banks, (5 banks) viz. Punjab National Bank, Andhra Bank, UCO Bank, Vijaya Bank and State Bank of Hyderabad filed their complaints with CBI and CBI investigations were also started under which all the promoters/directors, senior executive staff members of the company were arrested, questioned. As such the staff members who were around 150 in the year 2006 left the company and company was left with just 8-10 persons to handle the day-to-day affairs.
All the main 3 promoters/Directors, Shri Subhashchandra C Mehta, Shri Pradeep S. Mehta and Shri Dipak Mehta were taken into custody by CBI under various cases at different times from the year 2010 to 2012. It took long years to get the bail in all these eases filed by the CBI.
Immediately thereafter the Directorate of Enforcement (ED) initiated its proceedings, investigations under the Prevention of Money Laundering Act (PMLA) in the year 2014 and their investigations lasted till 2016 under which various proceedings were initiated, all the people were questioned and properties of the company sold by banks under Securitization Act were provisionally attached and all the Third Parties whosoever bought the properties were also came into litigation, creating total atmosphere of chaos and those parties starting harassing the promoters/directors.
ITA No.399/AHD/2018 4 5. All the Charge Sheets by the CBI as well as ED were filed in the Courts and the promoters / Directors alongwith others had to undergo again for the bail proceedings. 6. Alongwith the bankers and institutions other few big creditors also initiated civil and criminal cases like Punjab State Warehousing Corporation, Chandigarh, Arbitration proceedings for recovery as well as 138 cases and NAKED recovery proceedings, arbitration as well as filed complaints with CBI and PMLA. 7. Further the staff members have also left and after 2014 were left with hardly 3/4 people, those who are also on part time basis so it became very- difficult to attend the routine matters. 8. Due to all above situation, reasons we could not concentrate on Income Tax matters as so many criminal matters were not allowing us to see the other side. As such the Appeal in the present case could not be filed in time and there was delay of 1384 days. 9. We humbly request the Tribunal for condonation of this delay which was due to reasons mentioned hereinabove. These are all genuine reasons and we request Hon'ble Tribunal to condone the delay and proceed further in the mater.”
The ld Counsel argued that based on the reasons given in the affidavit, the delay may be condoned.
On the other hand, Learned DR for the Revenue has strongly opposed the prayer of the assessee for condonation of delay and stated that delay should not be condoned merely because assessee company became bankrupt and shut down its business.
6.We have heard both the parties on this preliminary issue. We note that bankers and institutions and other few big creditors initiated civil and criminal cases, against the assessee company, like Punjab State Warehousing Corporation, Chandigarh, Arbitration proceedings for recovery as well as 138 cases and NAKED recovery proceedings, arbitration as well as filed complaints with CBI and PMLA and staff members have also left the company hence it became very difficult to attend the income tax matters, therefore delay of 1384 days has occurred. We note that power to condone the delay is discretionary and the discretion must be
ITA No.399/AHD/2018 5 judicially exercised. If there was sufficient cause for not presenting the appeal within the limitation period and assessee has demonstrated sufficient cause, the delay may be condoned.The words ‘sufficient cause’ should receive a liberal construction so as to advance substantial justice where no negligence is imputable to the applicant. We have gone through the affidavit filed by the assessee and noted that assessee has explained the delay in a satisfactorily manner, hence, having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.
Ground No. 1 raised by the assessee relates to disallowance of Rs.9,460/- under section 14A r.w.s. Rule 8D of the Rules.
8.Learned Counsel for the assessee, informs the Bench that assessee, does not wish to press ground No.1, therefore, we dismiss ground No.1, as not pressed.
9.Ground No.2 relates to addition of rental income of Rs.2,80,000/- received from M/s Virtual BPO services.
10.Succinct facts qua ground no.2 are that Assessing Officer during the assessment proceeding observed from AIR/ITS date information that assessee has received rent income from M/s Virtual BPO Services to the tune of Rs.2,80,000/-. On being asked, the assessee submitted before the Assessing Officer that assessee-company did not received rental income, in fact the bank is directly getting the rental income, as approved. However, Assessing Officer rejected the contention of the assesseeand made addition of Rs.2,80,000/-.
On appeal, Ld. CIT(A)confirmed the action of Assessing Officer.Aggrieved, the assessee is in further appeal before us.
Before us, Ld. Counsel pleads that assessee’s propertysituated at 412, Sarthak, was rented to M/s Virtual BPO Services and the said rental income was taken by SBI under Securitization Act.Therefore thisis therent received by SBI- Bank directly from the tenant, without informing to the assessee and adjusted by
ITA No.399/AHD/2018 6 SBI-Bank against the outstanding dues of the assessee. The SBI has not provided any information in this regard to the assessee. Therefore, assessee is not liable to pay tax on such rental income.
13.Without prejudice, to the above, Ld. Counsel contended that if the rent received is added in the total income of the assessee, then credit of TDS deducted on this receipt should be granted to the assessee since assessee has not claimed the TDS on such rental income.
14.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee.We note that assessee’s property was taken over by SBI-bank, as the assessee failed to pay the dues to SBI and such rent had been collected by SBI directly from the tenant and adjusted against the over dues of the assessee.Therefore, said rent income is the income of the assessee and adjustment of such receipt against over dues by SBI is in the nature of application of such receipts.Hence, it should be treated as rental income of the assessee. However, as requested by Ld. Counsel that TDS deducted from such receipts was not claimed by assessee, and if the said rental income is treated as income of the assessee, then in that circumstances, the assessee is entitled to claim the benefit of the TDS. We note that ld CIT(A) has already given direction to the assessing officer that benefit of TDS should be granted to the assessee. We are of the view that assessee should be given credit of such TDS after verification of Form No. 26AS and TDS Certificate from party, if issued to SBI.Therefore, we direct the Assessing Officer to grant such credit of TDS, after proper verification.
In the result, ground no.2 raised by the assessee is allowed for statistical purposes to the extent indicated above.
ITA No.399/AHD/2018 7 17.Ground Nos.3 and 4 raised by the assessee relate to addition of Rs.20,66,182/- being interest on fixed deposit as per AIR Information.
So far ground Nos. 3 and 4 are concerned, the facts are like this. The addition of Rs.20,66,182/- was made by the Assessing Officer on account of interest on fixed deposits as per information of AIR/ITS. The Assessing Officer on the basis of AIR/ITS information, observed that assessee was in receipt of interest being credited by various banks (as discussed at para 4.2 of the assessment order).On being asked, the assessee submitted before Assessing Officer that such interest was credited on various FDRs with such bank for L/C margin and on account of all such bank had filed suit against assessee for recovery of heavy amount might have credited the interest but has not informed assessee. The assessee, therefore, failed to reconcile such interest before Assessing Officer, therefore Assessing Officer made addition of Rs.20,66,182/-.
On appeal, Ld. CIT(A) confirmed the action of Assessing Officer.The Ld. Counsel for the assessee submitted that assessee does not have any information before him, therefore assessee has not recorded such interest in books of accounts, hence addition should not be made.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer.
20.We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee.We note that in view of financial circumstances and suits pending before Hon'ble DRT for recovery of Rs.500 crore by consortium of various banks, such interest could have credited by some bank having such FDR and appropriated such interest against dues of assessee hence there is no information with assessee. But, such credit of interest on mercantile system of accounting is receipt of assessee and its appropriation by bank is in the form of application of such receipt. It is therefore, we are of the view that such interest of Rs.20,66,182/- being credited by various bank under the PAN of assessee for
ITA No.399/AHD/2018 8 previous year is income of assessee. Therefore, the addition so made is upheld and confirmed. 21. However, we note thatassessee made a prayer before ld CIT(A) that assessee has not claimed TDS deducted from such interest and Assessing Officer also not allowed the same, therefore TDS benefit should be allowed to him.Therefore, ld CIT(A) directed the assessing officer to verify from records about any of TDS so deducted from such interest on the basis of Form 26AS and TDS certificate so issued by respective bank and grant the credit to assessee. We also direct the assessing officer to include the interest income in the hands of assessee and benefit of TDS should be given to the assessee. Therefore, ground no.3 and 4 are allowed to the extent indicated above.
22.Ground No.5 raised by the assessee relates to disallowance of depreciation of Rs.30,49,418/- for windmill sold during the year ignoring the fact that the block of windmill still remain/exist.
23.Brief facts qua the issue are that during the assessment proceedings, the AO verified from tax audit report in Form 3CD clause 14 for the previous year that assessee claimed depreciation of Rs.30,49,418/- on W.D.V. of windmill of Rs.38,11,773/- at the rate of 80%. The A.O. on being observed that assessee sold out windmills in previous year, called for assessee's explanation about whether the sale consideration of such windmill were reduced from WDV of windmill block or not, as per the provisions of the Act. The assessee though contended that same was reduced but as indicated in tax audit report that the same was not done. It is therefore A.O. disallowed such depreciation claim because windmills were sold for Rs.28,90,67,060/- which is much more than WDV of Rs.38,11,773/-. Infect after reducing complete WDV of Rs.38,11,773/-, there will be surplus of Rs.28,52,55,287/- (28,90,67,060 – 38,11,773) which is required to be considered as short term capital gain as per section 50 of the Act.Therefore, assessing officer disallowed the deduction of Rs.30,49,418/-.
ITA No.399/AHD/2018 9 24. On appeal, ld CIT(A) confirmed the action of the assessing officer. The ld Counsel argued before us that there were two blocks of windmill and one block of such windmill having WDV Nil, was sold.However, another block was notsold on which depreciation@ 80%, was claimed, (see depreciation as per tax audit). It was further contended that A.O. disallowed claim of depreciation but not reduced the WDV from the working of short term capital gain. However, ld DR supported the findings of the assessing officer.
We have heard both the parties. We note that ld CIT(A) observed that as far as reduction of sale, consideration of windmill from WDV of such block, the same is as per the provisions of Act. The assessee has kept two blocks of windmill, one with NIL WDV while another with WDV having eligible rate of dep. at 80%. But AO noted that all the windmill are having 80% rate of depreciation and it is on account of additional depreciation of 20% being provided to some windmill its WDV was NIL in the very first year. Therefore, ld AO was of the view that there cannot be two different block with same rate of depreciation. It is therefore, the opening WDV of Rs.38,11,773/- has to be adjusted against sale consideration of windmills of Rs.28,90,67,060/- and surplus is required to be treated as short term capital gain u/s 50 of the Act. Therefore, disallowance of depreciation of Rs.30,49,418/- was upheld and confirmed by ld CIT(A).
However, we note that block is existing and for that Ld. Counsel took us through the paper book at page no.23 wherein we noted that block of the windmill is in existence and the assessee is claiming depreciation on remaining block, therefore the depreciation on remaining block should be allowed to the assessee. Therefore, we direct the Assessing Officer to allow depreciation of Rs.30,49,418/-. Thus, ground no.5 raised by the assessee is allowed.
27.Ground No.6 raised by the assessee relates to disallowance of preliminary expenses of Rs.6,10,000/-, treating it to be capital in nature.
ITA No.399/AHD/2018 10 28. So far ground No.6 is concerned, the relevant material facts are that assessing officer disallowed preliminary Expenses (written off) of Rs.6,10,000/-. The AO rejected assessee’s explanation to the effect that these expanses are in the nature of deferred revenue expense and 10% of the same were being claimed by assessee. Therefore, assessing officer made addition at Rs.6,10,000/-.
29.Aggrieved by the order of the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. The Ld. Counsel for the assessee submitted that amount of Rs.6,10,000/- is deferred preliminary expenses and Revenue in nature and assessee has been claiming since a long, therefore these preliminary expense should be allowed.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer.
30.We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee. We have gone through the paper book of the assessee ( vide Pb 62, 64, 65 and 107) and observed that amount of Rs. 6,10,000/- pertains to preliminary expenses, and assessee has been claiming such deferred revenue expenses since long. Therefore, we note that assessee is entitled to claim these expenses, hence we direct the assessing officer to allowpreliminary expenses, of Rs.6,10,000/-. Thus, ground no.6 raised by the assessee is allowed.
Ground No.7 consists addition of Rs.28,52,55,287/- for short term capital gain (STCG) and Rs.53,15,401/- for long term capital gain (LTCG) totaling to Rs.29,05,70,688/-.
32.Brief facts qua the issue are that assessing officer in the impugned assessment order, in view of information through AIR / ITS, considered the transaction of sale of windmills and land related to such windmill. The A.O. considered the details as provided by assessee in respect of sale of land as well as windmill installed on such land. The A.O. also observed that the WDV of all such windmill was NIL hence after giving credit of cost of land on which depreciation was not claimed by
ITA No.399/AHD/2018 11 assessee, the A.O. computed profit on sale of land at Rs.29,46,45,500/- and made addition.
33.Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has partly allowed the appeal of the assessee.Aggrieved by the order of ld. CIT(A), the assessee is in appeal before us. The Ld. Counsel for the assessee submits that assessee has given the windmill as a part of security to the SBI Bank against the loan given by it to the assessee. Since the SBI Bank has sold the property and adjusted the amount against the outstanding loan. Therefore, there should not be any addition in the hands of the assessee.On the other hand, Ld. DR for the Revenue submitted that property was belonged to the assessee, and assessee was owner of the property, since the property was hypothecated to the bank and when the assessee failed to pay the installment of the loan then the bank has sold the property and adjusted the sale consideration with the loan amount. Therefore, the property remains in the name of the assessee and the assessee’s liability was reduced, therefore it is an income in the hands of the assessee, therefore the short term capital gain and long term capital gain is to be sustained in the hands of the assessee.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record.We note that A.O, has not worked out the short term capital gain as well as long term capital gain on account of such sale transactions. The ld CIT(A) noted that out of total sale consideration of all the windmills at Rs.28,90,67,060/-, it should be first reduced to Rs.28,52,55,287/- because of opening WDV of balance windmills. It is therefore this surplus of Rs.28,52,55,287/- has to be treated as short term capital gain as per provisions of section 50 of the I.T. Act. In the case of sale of land which were acquired in F.Y. 04-05 (land at Irrukundarai) and in F.Y. 05-06 (land at Andhiyur), these land were long term capital asset being acquired and kept for more than 36 months. The ld.
ITA No.399/AHD/2018 12 CIT(A) noted that these lands were not depreciable assets. Therefore, the sale of these land for which separate consideration is received will result into long term capital ( LTCG).The same was worked out by ld CIT(A), as follows: (Rs.) (i) Sale consideration of land at Andhiyur 68,22,900 less: Indexed cost of acquisition 751500 x 582/497 8,80,026 59,42,874 Long term capital gain (Rs.) (ii) Sale consideration of land at Irrukundarai 1,40,040 less: Indexed cost of acquisition 633000 x 582/480 7,67,512 Long term capital loss 6,27,473 As per provisions of section 70(3) of the Act, the net resultant long term capital gain on account of sale of these two land will be Rs.53,15,401/-(5942874 - 627473).It is therefore, in the place of addition of Rs.29,46,45,500/- profit as worked out by A.O. it is to be with short term capital gain of Rs.28,52,55,287/- and long term capital gain of Rs.53,15,401/-. The total addition in the form of such gain of Rs.29,05,70,688/- (28,52,55,287 + 53,15,401) were upheld and confirmed by ld CIT(A). Therefore, ld CIT(A) directed the A.O. to delete the balance addition of Rs.40,74,812/- (29,46,45,500 – 29,05,70,688). From the above narrated facts, it is abundantly clear that ld CIT(A) has passed speaking order on the issue under consideration, which does not contain infirmity, therefore we decline to interfere in the order passed by ld CIT(A). 35. In the result, ground No.7 raised by the assessee is dismissed. 36.In combined result, the assessee`s appeal is partly allowed for statistical purposes, as indicated above. Order pronounced in the open court on 29th June, 2022.
Sd/- Sd/- (MADHUMITA ROY) (Dr. A. L. SAINI) JUDICIAL MEMBER ACCOUNTNAT MEMBER Ahmedabad, dated 29/06/2022 TRUE COPY SAMANTA/TANMAY
ITA No.399/AHD/2018 13
आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Assessee s2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file. आदेशानुसार/BY ORDER,
उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Ahmedabad
Date of dictation- 21-4-2022 2. Date on which the typed draft is placed before the Dictating Member 5-5-2022 3. Date on which the approved draft comes to the Sr.P.S./P.S. - 4. Date on which the fair order is placed before the Dictating Member for Pronouncement ……………….. 5. Date on which the file goes to the Bench Clerk .. 29 -6-2022 6. Date on which the file goes to the Head Clerk……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. Date of Despatch of the Order………………