DESTIMONEY INDIA SERVICES P.LTD,MUMBAI vs. CIT 6, MUMBAI

आयकर अपीलीय अिधकरण, मुंबई �ायपीठ “आई‘’ मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No.3055/Mum/15 (िनधा�रण वष� / Assessment Year: 2011-12) बनाम/ Destimoney India Services The Commissioner of Pvt. Ltd. Income Tax – 6 Vs. Shop No.5, Ground Floor, Room No.501, 5th Floor, Sahjeevan CHS, Aaykar Bhavan, N.M.Joshi Marg, Mumbai - 400020 Elphinstone Road (West) Mumbai – 400013 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AACCD1326K (अपीलाथ� /Appellant) (��थ� / Respondent) .. आयकर अपील सं/ I.T.A. No.3056/Mum/15 (िनधा�रण वष� / Assessment Year: 2011-12) बनाम/ Destimoney Enterprises The Commissioner of Ltd. (Formerly known as Income Tax – 6 Vs. Destimoney Enterprises Room No.501, 5th Floor, Pvt. Ltd.) Aaykar Bhavan, Shop No.5, Ground Floor, Mumbai - 400020 Sahjeevan CHS, N.M.Joshi Marg, Elphinstone Road (West) Mumbai – 400013 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AACCD5100F (अपीलाथ� /Appellant) (��थ� / Respondent) .. Assessee by: Shri Prakash Kotadia Department by: Shri P. R. Ghosh

ITA No.3055&3056/M/15 A.Y. 2011-12

सुनवाई की तारीख / Date of Hearing: 18.08.2016 घोषणा की तारीख /Date of Pronouncement:28.10.2015 आदेश / O R D E R PER AMARJIT SINGH, JM: The assessee has filed the present appeals against the order dated 26.08.2014 passed by the Commissioner of Income Tax (Appeals) 6, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011-12. The above said appeals are taken up for adjudication because common question of law and facts involved therein. ITA NO.3055/MUM/2015 (Destimoney India Services Pvt. Ltd.):- 2. The brief facts of the case are that the assessee filed the return of income on 27.09.2011 showing total loss to the tune of Rs.5,79,50,090/-. The revised return was filed on 31.03.2013 wherein total income has been shown as Nil. The assessment was completed u/s.143(3) of the Income Tax Act, 1961 ( in short “the Act”) on 29.03.2014 determining the total taxable income to the tune of Rs.18,16,28,888/-. During the course of assessment proceedings various additions / disallowances were made which included under Rule 8D r.w.s.14A(2) of the Act to the extent of Rs.47,78,553/-, addition on account of interest waived on loan to the extent of Rs.1,19,49,666/-, disallowance u/s.36(1)(iii) of the Act of Rs.1,66,00,000/- on account of interest free loan to the associated entity, addition u/s.68 of the Act for share premium received on conversion of cumulative non convertible redeemable preference shares to ordinary shares to the extent of Rs.85,99,680/-, amount of unpaid dividend of Rs.2,20,95,117/- was also 2

ITA No.3055&3056/M/15 A.Y. 2011-12 considered “benefit” as it was not paid because of conversion and addition was made. The assessee being aggrieved filed the rectification application u/s.154 of the Act dated 28.04.2014 and in view of the rectification application, the Assessing Officer settled the issue regarding set off of unabsorbed depreciation of Rs.18,16,28,888/- against assessed income comprises addition of Rs.10,80,94,797/- made u/s.68 of the Act. Since this issue was debatable and the concerned authority observed that this issue was out of purview of section 154 of the Act and the said rectification was erroneous and prejudicial to the interest of revenue, therefore, invoked the provision u/s.263 of the Act by setting aside the rectification order and directed to decide the matter afresh in accordance with law. Feeling aggrieved the assessee has filed the present appeal before us. 3. The assessee has raised the following issues: “1. That on the facts and in the circumstances of the case, the impugned order passed u/s.263 is grossly arbitrary and bad in law in relation to the issue raised and adjudicated therein and needs to be summarily rejected. 2. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax – 6, Mumbai [here-in-after referred to as the ld. CIT] was not justified in initiating the proceedings u/s.263 of the Income Tax Act, 161 (here-in-after referred to as the Act) in utter disregard of the fact that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the revenue. 3. That on the facts and in the circumstances of the case and without prejudice to the ground no.1 & 2 taken above, the ld. CIT has erred in law in holding that the issue regarding set-off of unabsorbed depreciation of 3

ITA No.3055&3056/M/15 A.Y. 2011-12 Rs.18,16,28,888/- against assessed income comprising of addition of Rs.10,80,94,797/- made u/s.68 of the Act is debatable and therefore, outside the purview of section 154 of the Act disregarding the fact that the said set off was made as per the provisions of the Act. 4. That on the facts and in the circumstances of the case, the ld. CIT grossly erred in holding that no claim of set-off of unabsorbed depreciation was made by the appellant in the return of income disregarding the fact that in the revised return of total income, the appellant has duly set-off brought forward business loss to the extent of taxable income.” 4. The assessee has also filed the application for condonation of delay as the present appeal has been filed 201 days delayed. The learned representative of the assessee has argued that the assessee filed an appeal against the order passed by the Assessing Officer which is pending and during the pendency of the appeal the assessee moved an application u/s.154 of the Act which was allowed partly by the Assessing Officer on the point of setting off unabsorbed depreciation and thereafter, the CIT invoked the provision u/s.263 of the Act and set aside the order passed u/s.154 of the Act and directed the Assessing Officer to decide the matter afresh which was wrong against law and facts. The assessee received the copy of order delayed and the said order mixed with the other papers of the company, therefore the same was not sent to the concerned counsel to take the action, hence the delay is liable to be condoned. It is argued that huge tax demand is involved, therefore the matter is liable to be considered on merits in the interest of justice. On the other hand the learned Departmental Representative has refuted the said contentions. It is not in dispute that the 4

ITA No.3055&3056/M/15 A.Y. 2011-12 assessee filed the present appeal 201 days delayed. The assessee took the plea of the loss of the documents. On appraisal of the order in question, we are of the view that the case of the assessee deserved to be heard on merit in the interest of justice being declining the application for the condonation of delay would cause injustice. The application is supported by affidavit, therefore in the said circumstances we condoned the delay and allowed the application. 5. On merits the issues are interconnected vide which infact the assessee challenged the order u/s.263 of the Act. It is not in dispute that the assessment order passed by the Assessing Officer on 29.03.2014. Subsequently, the application u/s.154 of the Act filed in which the claim of the assessee regarding set off of the unabsorbed depreciation of Rs.18,16,28,888/- was allowed. However, this order is erroneous and prejudicial in the interest of the revenue is not understoodable. Firstly this claim was declined by the Assessing Officer by virtue of order dated 29.03.2014. Subsequently, the same was allowed by the Assessing Officer on application u/s.154 of the Act moved by the assessee. This claim has also not been wrongly allowed by the Assessing Officer. The issue regarding set off of unabsorbed depreciation against the addition made u/s.68 of the Act has rightly been allowed by the Assessing Officer, in view of the law settled by the Hon’ble Supreme Court of India in CIT vs. Virmani Industries Pvt. Ltd. (1995)(216 ITR 607)(SC) and Hon’ble Mumbai Tribunal in the case of Suresh Industries (P.) Ltd. Vs. ACIT in ITA No.5374/Mum/2011 dated 10.10.2012 and Hon’ble Ahmedabad Tribunal in ACIT Vs. Shree Raghupati Fibres Pvt. Ltd. in ITA No.256/Ahd/2011 dated 12.09.2014 and Hon’ble 5

ITA No.3055&3056/M/15 A.Y. 2011-12 Ahmedabad Tribunal in ITP Vs. Hytaisun Magnetics Ltd. in ITA No.2897,2898/Ahd/2008 dated 25th January 2011 and Hon’ble Chandigarh Tribunal in Liberty Plywood Pvt. Ltd. Vs. ACIT in ITA No.727/Chd/2012 dated 17.12.2012 and Hon’ble Madra High Court in Commissioner of Income Tax Vs. SPEL Semi Conductor Ltd. in ITA No.2490/Mad/2006 dated 10.10.2012. In view of the above said circumstances when the claim has been justifiably allowed by the Assessing Officer then the same cannot be treated as a ground to invoked the provision u/s.263 of the Act because the order is not erroneous and prejudicial in the interest of revenue. Taking into account of the above said facts and circumstances we are of the view that the CIT has passed the order dated 26.08.2014 wrongly and illegally which is not required to be sustainable in the eyes of law, therefore we set aside the same and allowed the appeal of the assessee. ITA NO.3056/MUM/2015 (Destimoney Enterprises Ltd..):- 6. The brief facts of the case are that the assessee filed the return of income on 29.09.2011 showing total loss to the tune of (-)Rs.16,65,29,638/-. The case was taken for scrutiny and income was determined at Rs.1,96,22,24,748/- of the Income Tax Act, 1961 ( in short “the Act”) During the course of assessment proceedings various additions / disallowances were made which included under Rule 8D r.w.s.14A(2) of the Act to the extent of Rs.70,39,705/-, addition u/s.68 for share premium received to the extent of Rs.1,51,87,33,150/-, addition u/s.56(2)(viia) in respect of gift of shares of Destimoney India Services Pvt. Ltd. and Destimoney Securities Pvt. Ltd. from NSR Alpha Mauritius LLC. The 6

ITA No.3055&3056/M/15 A.Y. 2011-12 Assessing Officer noticed that NSR Alpha had initially non-convertible preference share which were later on converted to convertible preference share which were gifted to the assessee company. The assessee being aggrieved filed the rectification application u/s.154 of the Act dated 28.04.2014 and in view of the rectification application the Assessing Officer settled the issue regarding set off of unabsorbed depreciation of Rs.6,01,84,290/- and addition of Rs.151,87,33,150/- made while disallowing expenses u/s 14A to the extent of 70,39,705. Since this issue was debatable and the concerned authority observed that this issue was out of purview of section 154 of the Act and the said rectification was erroneous and prejudicial to the interest of revenue, therefore, invoked the provision u/s.263 of the Act by setting aside the rectification order and decide the matter afresh in accordance with law. Feeling aggrieved the assessee has filed the present appeal before us. The assessee has raised the following ground:- “1. That on the facts and in the circumstances of the case, the impugned order passed u/s.263 is grossly arbitrary and bad in law in relation to the issue raised and adjudicated therein and needs to be summarily rejected. 2. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax – 6, Mumbai [here-in-after referred to as the ld. CIT] was not justified in initiating the proceedings u/s.263 of the Income Tax Act, 161 (here-in-after referred to as the Act) in utter disregard of the fact that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the revenue. 7

ITA No.3055&3056/M/15 A.Y. 2011-12 3. That on the facts and in the circumstances of the case and without prejudice to the ground no.1 & 2 taken above, the ld. CIT has erred in law in holding that the issue regarding set-off of unabsorbed depreciation of Rs.18,16,28,888/- against assessed income comprising of addition of Rs.10,80,94,797/- made u/s.68 of the Act is debatable and therefore, outside the purview of section 154 of the Act disregarding the fact that the said set off was made as per the provisions of the Act. 4. That on the facts and in the circumstances of the case, the ld. CIT grossly erred in holding that no claim of set-off of unabsorbed depreciation was made by the appellant in the return of income disregarding the fact that in the revised return of total income was arrived at loss and hence question of claiming such set off did not arise.” 7. The assessee has also filed the application for condonation of delay as the present appeal has been filed 201 days delayed. The learned representative of the assessee has argued that the assessee filed an appeal against the order passed by the Assessing Officer which is pending and during the pendency of the appeal, the assessee moved an application u/s.154 of the Act which was allowed partly by the Assessing Officer on the point of setting off unabsorbed depreciation and thereafter, the CIT(A) invoked the provision u/s.263 of the Act and set aside the order passed u/s.154 of the Act and directed the Assessing Officer to decide the matter afresh which was wrong against law and facts. It was also contended that the assessee received the copy of order delayed and the said order mixed with the other papers of the company, therefore the same was not sent to the concerned counsel to take the action, hence the delay is liable to be 8

ITA No.3055&3056/M/15 A.Y. 2011-12 condoned. It is argued that huge tax demand is involved, therefore the matter is liable to be considered on merits in the interest of justice. On the other hand the learned Departmental Representative has refuted the said contentions. It is not in dispute that the assessee filed the present appeal 201 days delayed. The assessee took the plea of the loss of the documents. On appraisal of the order in question, we are of the view that the case of the assessee deserved to be heard on merit in the interest of justice being declining the application for the condonation of delay would cause injustice. The application is also supported by affidavit, therefore in the said circumstances we condoned the delay and allowed the application. Issue N.1 to 3 8. Since the facts and circumstances of the present case is quite similar with the case mentioned above in which the order u/s.263 of the Act has been ordered to be set aside, therefore, in view of the finding of the above said ITA No.3055/Mum/2015, we also set aside the finding of the CIT(A) in this case also. 9. In the result the both the appeals filed by the assessee is hereby Allowed. Order pronounced in the open court on 28th October, 2016. Sd/- Sd/- (D.KARUNAKARA RAO) (AMARJIT SINGH) लेखा सद� / ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER मुंबई Mumbai; िदनांक Dated : 28th October, 2016 MP 9

ITA No.3055&3056/M/15 A.Y. 2011-12 आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. आयकर आयु�(अपील) / The CIT(A)- 3. आयकर आयु� / CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, 5. Mumbai गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�ािपत �ित //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai