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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA [Before Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM] I.T.A No. 1378/Kol/2013 Assessment Year : 2007-08 DCIT, Circle-8, Kolkata -vs- M/s Shree Krishna Fodder Mills Pvt. Ltd. [PAN: AADCS 2476 A] (Appellant) (Respondent)
For the Appellant : Shri S. Dasgupta, Addl. CIT(DR) For the Respondent : Shri Subash Agarwal, Advocate Date of Hearing : 06.03.2018 Date of Pronouncement : 16.03.2018
ORDER Per M.Balaganesh, AM
This appeal is directed against the order passed by the Learned Commissioner of Income Tax(Appeal) Kolkata [in short the ld CIT(A)] u/s 154 of the Act dated 25.02.2013. The assessee was completed by the DCIT, Circle-8, Kolkata [ in short the ld AO] under section 144 of the Income Tax Act, 1961 (in short “the Act”) dated 16.12.2009 for the Assessment Year 2007-08.
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the addition made in the sum of Rs. 1,28,65,102/- towards unpaid interest liability, in the facts and circumstances of the case.
2 ITA No.1378/Kol/2013 M/s Shree Krishna Fodder Mills Pvt. Ltd. A.Yr. 2007-08 3. The brief facts of this issue is that the assessee is an Indian company producing Day Old Chicks, poultry feed and rearing ready bird (broiler live birds for poultry meat) through contract farming. The Poultry farming in the state was affected by Bird Flu in the year 2004 for the first time. The infection caused due to bird flu is life threatening for its consumers. In India majority of consumers prefer live chicken for consumption, thus, as soon as the news spread, consumption of chickens dropped to the negligible level and the standing crop of ready bird could not be sold for several months even after its mortality. With the result, the company suffered huge losses on account of excessive mortality in the firm and feeding the bird for months together. The company some how survived this calamity in 2004-05 but the company’s entire business came to grinding halt in early 2006 when the bird flu hit the poultry for the second time. This time the Government appointed special force for culling the birds in the farm for the safety of the chicken consumers in the State. This was the final blow in the company when all its operations were closed and it could never revive. Finally, all the company’s assets were sold by the financial instruction to recover their dues and all the workers and staff lost their job. The assessee for the assessment year 2007- 08 filed its return of income showing loss of Rs. 1,70,53,982/-. During the assessment proceedings, none appeared on behalf of the assessee and accordingly the ld. AO sought to estimate the net profit of the assessee. For this purpose he took the total credits of profit and loss account in the sum of Rs. 1,42,18,159/- and estimated net profit at 10% thereon amounting to Rs. 14,21,816/-. The relevant observation of the ld AO in para 2 of his assessment order in this regard is as under: “This net profit is determined after taking into consideration depreciation as per IT, Act, disallowance u/s 40A(3), 40a(ia). So the net profit of assessee is determined at Rs. 1421816/-.”
3.1. The ld. AO observed that the assessee had claimed interest expenditure of Rs. 1,28,65,102/- in respect of substantial loans borrowed by it from bank. In the absence of
3 ITA No.1378/Kol/2013 M/s Shree Krishna Fodder Mills Pvt. Ltd. A.Yr. 2007-08 any details given by the assessee before the ld. AO, the ld. AO sought to disallow the said interest expenditure u/s 43B of the Act in the sum of Rs. 1,28,65,102/-.
3.2 The assessee stated before the Ld. CIT(A) that the total credit figure of profit and loss account was taken by the ld. AO at Rs. 1,42,18,159/- instead of Rs. 1,08,63,231/- as per the tax audit report. The assessee pleaded that the total credits should have been arrived based on total of sales and other income as reduced by the decrease in stock. The Ld. CIT(A) observed that since the assessee had not given any cogent evidence regarding the loss of stock at Rs. 20,98,683/- he arrived at the total credits to be considered at Rs. 1,29,61,914/- and directed the ld. AO to compute the net profit at 5% by taking into account of such figure.
3.3. The assessee pleaded before the Ld. CIT(A) that when the estimated profit is taken by the ld. AO is inclusive of expenditure incurred by accrued interest on secured loans, any addition made towards interest expenditure separately would result in double addition made by the ld. AO. It was pleaded that the net profit @ 10% has been arrived by the ld. AO after taking into account all the disallowances u/s 40A(3), 40a(ia) etc. which is very clear from the wordings used in the assessment order in para 2. Hence, no separate addition towards interest expenditure could be made by the ld. AO. The Ld. CIT(A) observed in his order as under: “I have carefully considered the submission on behalf of the appellant. Evidently, the Assessing Officer has made the trading addition by estimating the net profit by applying a rate of 10% on the total credits in the profit and loss account. Of course, this is not- withstanding the correctness or reasonability of the computation as discussed in the preceding grounds of appeal. Admittedly, the deduction of a statutory liability is to be allowed on actual payment basis. In that case, the assessee company is entitled for such deduction as and when the payment is made. This naturally would lead to the conclusion that the estimate made by the Assessing Officer in computing the profit by application of a rate does not include the amount of unpaid liability of accrued interest on secured loans. Thus, there could not be any double addition in this regard. The action of the Assessing Officer in separately adding the said unpaid liability of Rs. 1,28,65,102/- is hereby confirmed.”
4 ITA No.1378/Kol/2013 M/s Shree Krishna Fodder Mills Pvt. Ltd. A.Yr. 2007-08 3.4 Against this order of Ld. CIT(A) no appeal was preferred by both the parties.
3.5. Later the Ld. CIT(A) passed an order u/s 154 of the Act on 25.02.2013 pursuant to rectification petition filed by the assessee on 25.02.2013, wherein he deleted the disallowance made by the ld. AO towards interest expenditure in the sum of Rs. 1,28,65,102/- by observing that it is double addition in view of the estimation of net profit. Aggrieved the revenue is in appeal before us on the following grounds: 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting AO’s addition on account of unpaid accrued interest on secured loans taken for financial institutions.
That the appellant reserves the right to amend, alter or add to any ground of appeal before or at the time of hearing of the appeal.
3.6. We have heard the rival submissions. We find from the observation of the Ld. CIT(A) reproduced supra that the Ld. CIT(A) had consciously come to the conclusion that disallowance made by the ld. AO towards interest expenditure on secured loans in the sum of Rs. 1,28,65,102/- would only amount to double addition since the entire net profit has been estimated by the ld. AO at 10% on credits in the profit and loss account. But the Ld. CIT(A) in his concluding remark as above had erroneously mentioned that the addition of Rs. 1,28,65,102/- is hereby confirmed instead of mentioning that it is hereby deleted. This typographical error committed by the Ld. CIT(A) was rightly brought to his notice by the assessee and the Ld. CIT(A) had rightly passed an order u/s 154 of the Act on 25.02.2013 rectifying his earlier mistake. Though on the face of it, it amounts to review of his earlier decision, we hold that the conclusion of the Ld. CIT(A) should be viewed harmoniously with the observations and reasoning given by the Ld. CIT(A). From the observation and reasoning given by the Ld. CIT(A) which are reproduced supra, it could be safely inferred that the Ld. CIT(A) was only intending to delete the addition made towards interest expenditure in the sum of Rs. 12865102/-. But in the concluding remark he had erroneously mentioned as addition is confirmed in 4
5 ITA No.1378/Kol/2013 M/s Shree Krishna Fodder Mills Pvt. Ltd. A.Yr. 2007-08 respect of stating addition is deleted. We hold that there cannot be any grievance for the revenue in the Ld. CIT(A) rectifying his mistake by passing an order u/s 154 of the Act and this issue is also not debatable. Hence, we do not find any infirmity in the order of the Ld. CIT(A) passed u/s 154 of the Act dated 25.02.2013. Accordingly grounds raised by the Revenue are dismissed.
In the result, the appeal of the revenue is dismissed .
Order pronounced in the Court on 16.03.2018
Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 16.03.2018
SB, Sr. PS
Copy of the order forwarded to: 1. DCIT, Circle-8, Kolkata, Aayakar Bhawan, 5th Floor, P-7, Chowringhee Square, Kolkata-700069. 2. M/s Shree Krishna Fodder Mills Pvt. Ltd., 108, Elliot Road, Kolkata-700016. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.