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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 03-01-2017 घोषणा क" तार"ख /Date of Pronouncement : 31-01-2017 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 21-10-2015 passed by the learned Commissioner of Income Tax (Appeals)- 30, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2002-03, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 30-12-2009 passed u/s 143(3) r.w.s. 147 of the Income-tax Act,1961 (Hereinafter called “the Act”).
None appeared on behalf of the assessee, hence, we proceed to dispose of the appeal after hearing the ld. D.R. and material available on record.
ITA 4051/Mum/2016 2
3. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
“1. The CIT (A) failed to appreciate its ITAT order dated 25.01.2012 in its right perspective and true meaning.
2. The petitioner respectfully submits that the CIT (A) erred in not appreciating IT AT order, passed in indistinguishable set of facts, relied upon by the petitioner in support of his case. Thus, negating its own view in held in earlier case decided by the Hon'ble Tribunal.
The Petitioner craves leave to amend and/or alter any ground and or add new ground as and when necessary with the permission of this Hon'ble Court.
4. The Petitioner submits that a copy of the impugned order was received by the petitioner on 23.12.2015 and a condonation of delay application for 109 days is attached to this application.
5. The Petitioner has not filed any other appeal application writ petition on the same cause and/or against the said order of the CIT (A) 30 in any other court in India including the Supreme Court of India.
The petitioner in light aforesaid circumstances prays: a. That pending the determination of this appeal the respondent be directed to cease and desist from recovering any outstanding demand amounts from the petitioner; b. The order of the CIT (A) 30 dated 21.10.2015 be set aside; c. The demand of Rs. 44,90,190/- be set aside "intoto"; d. Interim relief in terms of prayer clause (a) be granted; e. To condone the delay as per application annexed. f. Such other and further relief as deemed proper by this Hon. Tribunal.”
There is a delay of 114 days in filing of this appeal before the tribunal. The assessee has filed an application for condonation of delay along with ITA 4051/Mum/2016 3 affidavit wherein the assessee has taken the plea that the father of the assessee was an aged person of advanced age of 85 years who was not keeping well and was admitted in the hospital for the last six months from time to time at that relevant period when the appeal was required to be filed as per the time stipulated under law. Various supporting evidences have been enclosed by the assessee w.r.t. admission and discharge from hospital to substantiate that the assessee’s father was hospitalized from time to time with the latest admission and discharge ending on 11-05-2016 which prevented the assessee from filing the appeal within the time prescribed under the Act. An affidavit dated 08-06-2016 is also filed by the assessee which is placed in file. It is stated that the father of the assessee ultimately expired on 22-07-2016. The assessee had received the appellate order of the ld. CIT(A) on 23rd December, 2015 and appeal was required to be filed on or before 21st February, 2016 but was ultimately filed by the assessee on 14th June, 2016 with the tribunal wherein there is delay in filing of the appeal beyond the period of time of 60 days as stipulated under law. Thus, it was prayed that the delay occurred in filing the instant appeal be condoned as there was a reasonable and bonafide cause which prevented the assessee from filing the appeal in time before the tribunal as stipulated under the Act. The ld. D.R., however, objected to the condonation application filed by the assessee to explain / justify the delay but he submitted that all the relevant documents along with affidavit have been filed by the assessee in support of his contention that there was sufficient and bonafide cause which prevented the assessee from filing of appeal within stipulated time before the tribunal. Though none appeared on behalf of the assessee, we have considered the issue based upon the material placed on record. We are of the considered view that there was a sufficient and bonafide cause being illness of the aged father of the assessee of advanced age of 85 yeards who was hospitalized at that material and relevant time which prevented the assessee from filing of the instant appeal in time and in the interest of substantial justice vis-à-vis ITA 4051/Mum/2016 4 technicalities, we condone the delay in filing of this appeal and the appeal is hereby directed to be admitted in the interest of jsutice to be adjudicated on merits.
The brief facts of the case are that the assessee is an individual. The assessee has not filed any return of income with the Revenue for the impugned assessment year. The Revenue , based on the information that the accrued interest on loans given by the assessee to some persons has not been offered for taxation although the assessee was following mercantile system of accounting , invoked provisions of Section 147/148 of the Act by issuing notices u/s 148 of the Act on 24-03-2009 to the assessee , to assess the income escaped from taxation being accrued interest income on loans advanced by the assessee. The assessee in response filed return of income for the year under appeal on 23-12-2009 declaring a loss of Rs. 9,11,248/- . The assessment was completed u/s. 143(3) r.ws. 147 of the Act on 30-12-2009 determining total income at Rs. 44,90,190/- . It was observed by the AO that the assessee has advanced loans on which interest of Rs. 44,90,192/- had accrued as per Revenue as the assessee was following mercantile system of accounting which was brought to tax by the Revenue. It is the contention of the Revenue that the assessee is following mercantile system of accounting and the above interest amounts stood accrued to the assessee on the amount of loans advanced, which as per Revenue the same had not been offered to taxation by the assessee. However, it was the contention of the assessee that these amounts which are due to the assessee are in dispute and the matter is subjudiced with different courts and the same cannot be brought to tax as the principal amount recoverable itself is in dispute and doubtful of recovery. Secondly, it is contended by the assessee that the assessee is following cash system of accounting which the assessee had contended before the authorities below is supported by the return of income filed with the Revenue for various assessment years . Thirdly, it is submitted that the interest ITA 4051/Mum/2016 5 payable to Bank of Baroda to the tune of Rs.1,45,72,440/- be set-off against the interest receivable from the parties to whom the loans were advanced. The liability of interest payment was determined by the order of Debt Recovery Tribunal against which the assessee had preferred an appeal. The AO rejected this contention as the same is against the provisions of Section 43B of the Act as Bank of Baroda being Scheduled Bank and no payment of interest has actually been made by the assessee to the said Bank. The matter travelled up to the tribunal in the first round of litigation and the tribunal in and 3096/Mum/2011 vide orders dated 07-09-2012 set aside the matter back to the file of ld. CIT(A) with direction to reconsider the issue after considering the submission of the assessee and documents as may be furnished by the assessee in his support , and to pass thereafter a reasoned and speaking orders. The ld. CIT(A) has framed an appellate order dated 21- 10-2015 in compliance with the order of the tribunal in second round of litigation and held as under:-
“5.1 I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position.
5.2 These proceedings arise out of the order of the Hon'ble ITAT in & 3096/Mum/2011 dated 07-09-2012 by virtue of which the issue was set aside to the file of the Ld. CIT(A). The relevant part of the order is reproduced herewith as under:' "We have carefully considered the orders of the authorities below, the submissions of the learned representatives of both the parties as also the earlier order of the Tribunal dated 25-01-2012 (supra). The assessee has also filed a paper book containing pages 1 to 37. We have also perused the paper book. During the course of hearing, Ld. AR submitted that the principal amount itself is in dispute and accordingly the question of accrual of interest on the loans advanced by the assessee do not arise. We agree with the legal proposition made by the Ld. AR on the above issue i.e. ITA 4051/Mum/2016 6 if the loan itself is in dispute and there is no prospect of realization of the principal amount, the question of accruing of interest thereon do not arise. The Hon’ble Calcutta High Court has also considered the similar issue in the case of Calcutta Investment Co. Ltd. vs. CIT (142 ITR 120) where in was held that interest was not liable to be included in the assessment of the assessee on due basis of loan when debtor company is in a bad financial condition and there is no prospect of realization of principal interest: However; in the case of the assessee, on perusal of the papers before us, we observed that the assessee filed a winding up petition against M/s Subhash Arora Investment Pvt. Ltd. in 2005, the copy of the memo parties and an affidavit is placed at pages 12 to 14 of the paper book from which it can be inferred at- the most that the assessee was initiating winding up proceedings against the above loan creditor in 2005. We also observed on perusal of pages 15 to 20 of the paper book that there was a complaint/criminal case filed by the assessee against the two loan creditors viz. Ashish Goradia and Himmatlal Goradia on account of dishonor of cheques in 1994. Save an except the above papers on record, we observed that there is no other document filed by the assessee in the paper book to establish and/or to support the contentions that the principal amount payable to the assessee by the above named loan debtors is in dispute. Moreover, the above documents 'also do not establish that the principal amount of loan is in dispute and the assessee has not received any interest income from the said loan creditors in the year under consideration. The earlier order of the Tribunal dated 25-01-2012 (supra) relied upon by the assessee pertain to A. Ys 2004-05 and 2005-06 ie. subsequent to the assessment year under consideration. Accordingly, we are of the considered view that the contention of the Ld. AR that the issue involved in both the appeals is covered by the earlier order of the Tribunal dated 25-01-2012, has no merit. However, considering the fact in, both the assessment years under consideration viz.. assessment years 2002-03 and 2003-04 and the fact that the assessee did not appear before the Id. CIT(A) we, in the interest of justice consider it prudent to set aside the orders of the Id. CIT(A) for both the assessment years under consideration and restore the issue to his file with a direction to decide the issue afresh after giving an opportunity of hearing to both the parties and also relying upon such ITA 4051/Mum/2016 7 documents as may be furnished by the assessee by a reasoned order. Hence, we set aside the orders of the Id. CIT(A) for both the assessment years under consideration and restore the issue to the file of the Id. CIT(A) for his fresh consideration and adjudicate the same after giving due opportunity of hearing to the parties and considering such evidences as may be relied before him".
5.3 I have carefully considered the submission made by the appellant during the present proceedings, and also perused the order of the Ld. A.O. on the issue under dispute and the earlier order of the Ld. CIT(A) dated 11-02-2011 wherein the addition of Rs. 44,90,190/- made by the Ld. AO on account of interest accrued on investments was confirmed.
5.4 In the assessment order passed by the AO on 30-12-2009 the addition was considered necessary by the Ld. AO on the ground that the assessee is following ‘mercantile system of accounting' as per as per the assessment records and the appellant not furnished any documentary evidence viz. Audit report for the year under consideration confirming the method of accounting followed by him is otherwise. On the basis of the available facts on records it was held that the assessee was practicing mercantile system of accounting by the AO. The Ld. AO also observed that the fact of receipt of interest is challenged in a court of law is neither decisive nor conclusive and courts have nowhere given any injunction to the parties from whom interest is receivable and just because the interest payment is questioned by the debtor in a court of law doesn't mean that the interest thereon ceases to accrue to the assessee, Therefore the A.O. held that the interest amount of Rs. 44,90,192/- has accrued to the assessee and accordingly added to the total income. While doing so, the AO didn’t allow the contentions of the appellant of that the interest payable on the loan to Bank of Baroda determined on the orders of DRT is to be set-off against the interest receivable, as the same is not paid during the year and is not allowable u/s 438 of the Act.
5.5 The Appellant appealed against the orders of the Ld. AO and the CIT(A)-28, Mumbai after giving several opportunities without any compliance from the appellant and finalized the appeal on the basis of the grounds of appeal and on the basis of the reasoning, given in the assessment order by the AO, ITA 4051/Mum/2016 8 confirmed the addition which was set-aside by the Hon’ble ITAT in & 3096/Mum/2011 dated 07/09/2012. 5.6 During the present proceedings, the appellant was specifically asked to clarify the system of accounting followed, and also the issue pointed out by the Hon'ble ITAT while setting aside the orders of the Ld. CIT (A) to establish the principal amount of loan is in dispute and the appellant has not received any interest income from the said loan creditors in the year under consideration. In response to the same, with regard to the method of accounting, the appellant filed copies of the returns of income filed in response to the notice issued u/s 148 of the Act for the A.Y. 2002-03 and also regular returns filed for the A.Y 2008-09 & 2009-10 and the assessment orders passed for 1993- 94, 94-95 & 96-97. From these evidences the appellant tries to argue that the system of accounting followed by him is not mercantile, as stated in the assessment order by the AO. However, in the documents /copies filed nowhere it is mentioned that the appellant is following the cash system. No books of accounts or statements as called for, for the relevant years to support his contention that he is following the cash system were produced. AO clearly mentioned in the assessment order that from the records the appellant is following mercantile system. As the appellant could not substantiate with full proof documentary evidences explaining the system of accounting that he is following cash system, I hold that the accrual method adopted by the Ld. AO is correct and appellant fails on the issues raised in ground No. 1. 5.7 The other issue raised through Ground No. 2 to 5, pertains to the assessment of interest accrued on the loan given to M/s Subhash Arora Investment Pvt. Ltd, Ashish Garodia and Himmatlal Garodia. When asked to substantiate his claim that the recovery of principal amount in support of the Claim that the principal amount is in dispute, he has only filed a copy of the judgment of the Hon'ble High Court of Mumbai disposing the writ petition No. 2676 of 2008 filed by one M/s Molly Trading Co, Pvt. Ltd and Shri Satinder Kshetrapal, director of the company who stood as guarantors to the loan taken by Shri Subhash Aurora Investment Company (p) Ltd against the attachment of bank account and collecting a small portion by the TRO after treating them as assessee in default. On perusal of the judgment delivered on the writ petition filed by the above said company, it is found that the appellant is one of the respondents. In the said ITA 4051/Mum/2016 9 judgment Hon’ble Court has confirmed the action of the TRO attaching the accounts of the petitioner and dismissed the petition. The copy of the judgment is nothing to do with the issue of principal amount of the loans from the three parties is in dispute. Except this copy, the appellant could not produce any documentary evidences to show that the principal amount of the loans from three parties is in dispute. Except this copy, the appellant could not produce any documentary evidences to show that the principal amount of the loans are in dispute in the present proceedings. The appellant not even produced the winding up petition filed by the appellant which was discussed in the Hon’ble ITAT order at the time of setting aside the order of CIT(A) for the year. The appellant is silent on the present position of the winding up petition for the reasons better known to him. No new material has been filed by the appellant indicating that the money which is due to him has become irrecoverable, but from the papers on record it can be at the most derived that only some disputes are pending with regard to the quantum of liability. With regard to the loan amounts of the other two persons also, no new evidences are filed during these proceedings.
5.8 The appellant also filed copies of some case laws in support of his case. (CIT Vs. Chamanlal Mangaldas & Co AIR 1960 SC 1336 dated 19-02-1960, CIT vs. Shoorji Vallabhadas and Co 1962 46 ITR 144 SC dated 27-()3-199,2). The cases mostly discussed the context of the principal amount is in dispute and is not recoverable. The case laws filed in support of his case are applicable only when the appellant proves that in his case the recovery of principal amount is in doubt. Therefore the copies of the set of case laws filed will not come to the rescue of the appellant because he has not proved the basic issue in those decisions that the recovery of loan amount is in doubt. Despite giving specific opportunities to prove his case that the principal amount is in doubt, the appellant failed to do so in the present proceedings also. Therefore considering the different aspects of the case, I draw a conclusion that the liability of the debtors to the appellant still exist and in view of the same the conclusion arrived at by the AO that interest has accrued to the appellant during the year under consideration is correct. In fact the appellant himself admitted and declared the amounts due to him before the TRO, based on such declaration only the assessment was reopened and assessments were completed. In such a situation, I hold that the issue of assessment of interest accrued ITA 4051/Mum/2016 10 on the loans given to M/s Subhash Arora Investment (p) Ltd, Ashish Garodia and Himmmathlal Garodia raised in ground Nos 2,3,4 & 5 of the appeal filed by the appellant are not maintainable and are dismissed. Hon'ble ITAT while deciding the case for the A.Y. 2004-05 & 2005-06 allowed the assessee's appeal. However Hon’ble ITAT while setting aside the case of the Assessee for the A.Y. 2002-03 & 04 discussed the decision of the ITAT order for the A.Y. 2004-05 & 05-06 distinguishing the same and directed the CIT(A) to finalise the appeal afresh on the basis of the submissions. Accordingly the orders are passed for this A.Y. also taking into consideration the issues dealt in the order of the ITAT for the A.Y. 2004-05 & 05-06. 5.9 In the grounds of appeal, the appellant mentioned one more issue under the head "Other Grounds' without giving any ground number. The issue raised in that ground is that if the AO seeks to tax, the notional income arising out of interest receivable by the assessee from various parties then he is duty bound to give relief against notional interest payment due to third parties by the assesse. By saying so the appellant is pleading to give set- off of the interest on the loan charged by Bank of Baroda. The AO clearly discussed this issue in the assessment order in para 2.3 & 2.4. The amount of interest charged by the Bank of Baroda is not paid in the year under consideration and such interest payment deduction is allowable only on paid basis as specified in 43B of the Act. In view of the same, It is held that the interest liability of Bank of Baroda loan cannot allowable be as deduction. The action of the A.O. is correct and appellant failed to succeed on this ground.
5.10 In the end, the appellant says that he craves to add or amend or alter any of the above ground of appeal with prior permission of your honour. No such option has been exercised by the appellant during the appellate proceedings. Therefore, it is clear that this ground of appeal is academic in nature and no decision is required in respect of this ground of appeal. For the statistical purpose, this ground be taken to be dismissed ground of appeal.
5.11 In the result, the appeal for the A.Y. 2002-03 is dismissed.”
ITA 4051/Mum/2016 11 On careful perusal of the order of the ld. CIT(A) in second round of litigation and after hearing the ld. D.R., who supported the appellate order of the ld. CIT(A) , we are of the considered view that the ld. CIT(A) has not passed a speaking and reasoned order in second round of litigation whereby the contentions of the assessee of following consistently cash method of accounting was rejected by the ld. CIT(A) without giving specific and cogent reasons without considering the system of accounting followed by the assessee in the preceding as well subsequent assessment year’s, and secondly ld. CIT(A) has not passed speaking and reasoned order wherein no detailed discussions was recorded by learned CIT(A) with regards to various legal disputes raised by the assessee or the counter claims raised by the borrowers in court litigations , which were with various courts of law and also fate/status of these court cases with various forums were not discussed by the learned CIT(A) on specific basis to arrive at decision, hence, we are inclined to set aside and restore this issue to the file of the ld. CIT(A) with a direction to pass a reasoned and speaking order after considering the contentions of the assessee and material on record. Needless to say, the assessee will be allowed to file necessary and cogent evidences and contentions including copies of various petitions and the decisions of court cases along with the relevant evidences to support the averments that the assessee is following cash method of accounting and also with respect to details of disputes, claims and counterclaims w.r.t. various disputes as to the loans advanced by the assessee as well other contentions in it defense. The assessee is also directed to co-operate with the ld. CIT(A) in the proceedings and file all necessary documents in its defense and in the absence of co- operation of the assessee before learned CIT(A), the learned CIT(A) shall be free to pass an order based on material on record. The learned CIT(A) shall grant an opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.
ITA 4051/Mum/2016 12
In the result, appeal filed by the assessee in 2002-03 is allowed for statistical purposes.