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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S.JAYARAMAN
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.
The assessee, M/s.Biomed Hitech Industries Ltd., 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 Ld. A.R. submitted that the Ld CIT(A) failed to appreciate 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
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 reopening made by the A.O. is not valid under the law and hence, he pleaded that assessment proceedings should be quashed.
Further, Ld. A.R. submitted that the assessee company was 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 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
Per contra, Ld. D.R. submitted that the assessment was 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 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.
We have heard the rival submissions and perused the material 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 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.
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 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.