BIOMED HITECH INDUSTRIES LIMITED,CHENNAI vs. ACIT CORPORATE CIRCLE 1(2), CHENNAI

आदेश / O R D E R PER S.JAYARAMAN, ACCOUNTANT MEMBER

The assessee filed this appeal against the order of the

Commissioner of Income Tax (Appeals)-5, Chennai in ITA

No.45/CIT(A)-5/2013-14, dated 31.01.2018 for the assessment year

2007-08.

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is engaged in the manufacture of medical consumables, filed its return

of income on 16.10.2007 for assessment year 2007-08 admitting NIL

income after set off of brought forward losses and unabsorbed

depreciation. Subsequently, a revised return was filed on 10.09.2008.

The original assessment was completed under Section 143(3) of the

Act on 08.09.2011. Subsequently, the A.O. reopened the assessment

by issue of a notice under Section.148 dated 19.03.2012 and

reassessed the income under Section 143(3) r.w.s. 147 of the Act on 18.03.2013 determining the assessed total income at ₹ 17,06,62,317/-

by making additions towards disallowance under Section 37(1) of the Act at ₹2,40,13,212/- and waiver of principal component under One Time Settlement Scheme (O.T.S) at ₹.7,74,73,061/-. Aggrieved, the

assessee filed an appeal before the CIT(A). The learned CIT(A)

dismissed the appeal. Against the orders of the learned CIT(A), the

assessee filed this appeal.

the following facts and circumstances:

i) When assessee’s appeal against the original order passed under

Section 143(3) of the Act was pending before the learned CIT(A),

the A.O. sent a proposal to enhance the income by adding

principal component of loan waiver obtained by the assessee

under one-time settlement. This issue was considered by learned

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CIT(A) and placing reliance on the decision of Hon’ble Bombay

High Court in the case of Mahindra & Mahindra Ltd. Vs. C.I.T

reported in 281 ITR 501(Bom.), learned CIT(A) held that the

amount of remission of the principal amount due to O.T.S cannot

be charged to tax and accordingly, he did not accept the proposal

for enhancement of the income in the order in I.T.A. No.

No.548/09-10/A.III dated 08.09.2011. Aggrieved against the

order of learned CIT(A), the Revenue preferred an appeal before

the Tribunal. The ‘D’ Bench of this Tribunal, in its order

No.2001/Mds./2011 dated 22,11,2012, inter alia dismissed the

Revenue’s appeal on this issue. Therefore, the A.O. had no

jurisdiction to reopen the assessment. Further, it was not open for

the assessing authority to resort to the addition on the same

issue, again in a different proceedings under Section 147 of the

Act, which was earlier made under Section.143(3) of the Act, but

deleted by the CIT(A) and confirmed by the Income Tax Appellate

Tribunal (ITAT).

3.1 The Ld. A.R. further submitted that the Commissioner also failed

to appreciate the fact that the Department is in appeal against the

order of ITAT before Hon’ble Jurisdictional High Court and hence the

A.O. had no jurisdiction to consider the same issue in re-opened

assessment proceedings. Therefore, the Ld. A.R. submitted that the

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reopening made by the A.O. is not valid under the law and hence, he

pleaded that assessment proceedings should be quashed.

established for manufacture of surgical consumable. Due to high cost

of production, the assessee could not sustain its production activity

during the relevant year. The production facility was not operated

other than for maintenance. The Ld. A.R. further submitted that in

order to enable the company to maintain and upkeep its own

machineries, expenditure has to be incurred on labour, maintenance

consumables power etc., to keep the infrastructure. In fact, the

interest income earned is on account of deposits made consequent to

business activity as the company was required to make deposits with

banks as mandated by customs and excise Departments and the

income earned out of that is assessable as business income only. The

assessee has carried out various activities which assessee required to

upkeep the business infrastructure and maintain the business

sustainability even if not in the relevant year but in the future years.

Therefore, the interest and finance charges incurred by the assessee

should be allowed under the head “business”.

4.1 The Ld. A.R. further submitted that the interest and

finance charges disallowed by the A.O is not correct for the reason that

these interest and finance charges have already been paid and

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thereafter the only one time settlement was granted by the Bank.

Therefore, on merits also, the addition made by the A.O. and sustained

by the learned CIT(A) is required to be deleted

reopened within four years from the end of the relevant assessment

year for disallowing certain expenditure as the assessee had not

carried any business activity during the above year. Therefore, the Ld.

D.R submitted that the reopening is validly made and hence, he

vehemently supported the orders of the lower authorities.

5.1 The Ld. A.R. submitted that the original assessment under

Section 143 was completed on 24.12.2009. In the assessment order,

the fact relating to non-carrying of business activity has been duly

considered and the fact that in that relevant previous year, the

assessee had only income under Section 41(1), which was substantial

also duly reckoned. Subsequently, the assessee filed a petition under

Section 154 of the Act requiring the A.O. to adjust the carry forward

losses on 28.01.2010. This was processed on 15.03.2010 and

subsequently further revised on 28.04.2010. Subsequently, a notice

under Section.154 was issued for rectifying certain mistakes in the

order. In response to the notice, the assessee filed various details vide

its letter dated 18.03.2011. After considering the representations

submitted by the assessee, an order under Section.154 was passed

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disallowing certain expenditure and adjustments of carry forward was

made which resulted in income being assessed under Section 115JB

only. Against that order, the assessee filed an appeal before the

learned CIT(A). The learned CIT(A) dismissed the appeal in I.T.A. No.

No.350/13-14 dated 31.01.2014. Aggrieved against that order,

Revenue filed appeal before the Tribunal. The Tribunal vide order

dated 25.05.2016 in I.T.A. No. No.1155/Mds/2014 dismissed the

appeal of Revenue. Therefore,, the Ld. A.R. submitted that the

reopening of assessment is not valid and hence the re-assessment

proceedings be quashed.

available on record. The assessee challenged the reopening for the

reason that the reopening of assessment was made to consider waiver

of principal component under O.T.S scheme which was already

considered by the appeal order passed by the learned CIT(A) against

the original assessment order and allowed in assessee’s favour.

Therefore, the reopening was not valid. However, it is clear from the

assessment order that the assessment was reopened by issue of notice

under Section 148 on 19.03.2012 to disallow the expenditure of ₹.3,83,62,305/- as the assessee had not carried on any business

activity during the year. The claim of expenditure, therefore, was not

in relation to the income offered. However, in the re-assessment made

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under Section 143(3) r.w.s.147 dated 18.03.2013, the A.O., inter alia made disallowance of ₹.2,23,92,916/- towards interest and finance

charges and waiver of principal component under O.T.S Scheme at ₹.7,74,73,061/-.

6.1 Thus, it is clear that the reason for reopening the assessment was for assessing the expenditure claimed at ₹3,83,62,305/- and not

to consider the waiver of principal component under O.T.S Scheme.

Since notice under Section 147 was issued within four years from the

end of the relevant assessment year, in the absence of any

material/evidence from the assessee’s side that the issues on which

reopening was made was already examined and considered by the

A.O., it is not possible to hold that re-opening of the assessment was

invalid. Therefore, corresponding grounds of assessee fail. However,

there is merit in the assessee’s plea that in the re-assessment made

the A.O. should not have made addition towards waiver of principal

component under O.T.S Scheme, which was originally proposed by the

A.O for an enhancement before the learned CIT(A) against the original

assessment order, which was duly considered by the learned CIT(A)

and rejected it in his order, which was ultimately sustained by the

ITAT. Therefore,, the A.O. should not have once again added such

sum in this re-assessment order. Hence, the A.O. is directed to delete

that addition.

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6.2 With regard to assessee’s plea that the expenditure disallowed in

respect of interest and finance charges paid is allowable under

Section.43B of the Act etc., it is clear from the Appellate Authorities

order that the assessee pleaded that it has carried on various

activities, which required to upkeep the business infrastructure and to

maintain business sustainability etc. The assessee has also pleaded

that it had paid the interest and finance charges, thereafter only it got

the one time settlement, part of which was already assessed.

Therefore, interest and finance charges actually paid by the assessee

should be allowed under Section 43B. On this issue, it appears that the

facts and associated circumstances have not been properly examined

by the lower authorities. Therefore, we deem it fit to remit this issue

back to the file of A.O. for a fresh examination, to verify as to whether

the assessee continued its business or not during the period relevant

to assessment year, why and how the assessee has incurred the

impugned interest and finance charges whether such expenditure was

connected to its business or other sources of income, whether if the

interest and finance charges were paid during the year, whether it is

allowable under Sections 28 to 43 of the Act or under the head “other

sources” etc., and then decide the issues in accordance with law. The

assessee shall place relevant materials in support of its contentions

before the A.O. and comply with the requirements of the A.O. in

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accordance with law. The A.O. is also free to conduct appropriate enquiry as deemed fit. The A.O. after affording effective opportunity to the assessee shall decide the matter on merits.

In the result, the appeal of assessee is partly allowed for 7. statistical purposes.

Order pronounced on 17th March, 2020 at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (एस जयरामन) (DUVVURU RL REDDY) (S. JAYARAMAN) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/Accountant Member

चे�नई/Chennai �दनांक/Dated: 17th March,2020. K S Sundaram

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�त/CIT 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 3. आयकर आयु�त (अपील)/CIT(A) 6. गाड� फाईल/GF