M/S Nasa Continental Exporters Pvt. ... vs Department Of Income Tax

This is an appeal by Revenue against the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad dated 31-10-2013. The issue in this appeal is with reference to re-opening of assessment u/s. 147 of the Income Tax Act [Act] after the end of four years from the assessment year when scrutiny assessment has been completed on the addition u/s. 41(1) of interest waived by the banks.

2. Briefly stated, assessee-company is engaged in the business of processing and polishing of rough dimensional granite blocks and other slabs and sale of polished granites, filed its return of income for the AY. 2005-06 declaring loss of Rs. 96,63,190/-. Assessing Officer (AO) completed the assessment originally on 31-12-2007 determining loss of ITA No. 288/Hyd/2014 :- 2 -: M/s. Nasa Continental Exporters Pvt. Ltd.,

Rs. 69,51,466/-. The AO subsequently, noticed that assessee has credited an amount of Rs. 11.58 Crores as prior period item and this amount has not been disclosed fully and truly as cessation of payment under One Time Settlement Scheme for this assessment year and came to a conclusion that income as escaped assessment. A notice u/s. 148 was issued on 07-02-2012 i.e., after more than four years from the end of the assessment year. In the re-assessment proceedings, AO has added the amount and determined the total income at Rs. 10,88,62,587/-.

3. Assessee inter alia contested before the Ld.CIT(A) that:

a. The assessment cannot be reopened as there is no failure on the part of the assessee in disclosing fully and truly all material facts and further, AO did enquire about the above amounts vide letter dt. 07-03-2007 in the course of original assessment.

b. As there is no failure on the part of assessee, reopening after four years from the end of the assessment year is bad in law.

With reference to the addition u/s. 41(1), it was submitted that assessee has never claimed any interest as there were no returns filed in earlier years and even if returns were to be filed, the amounts could have been disallowed u/s. 43B. Therefore, there should not be any satisfaction to be recorded before reopening the assessment. Ld.CIT(A) after giving due opportunity to assessee and obtaining Remand Report decided the issue not only on the reopening but also on merits. His findings on reopening are as under:

"5.5 In the case of the appellant, there is no failure on the part of the appellant to disclose fully and truly all the material facts necessary ITA No. 288/Hyd/2014 :- 3 -: M/s. Nasa Continental Exporters Pvt. Ltd.,

for assessment. This issue has already been considered in the original assessment dated 31-12-2007. The reopening of the assessment by the A.O. is nothing but a mere 'change of opinion' and there is no 'tangible material' available with the A.O. to reopen the assessment. I am, therefore, of the considered opinion that the initiation of proceedings u/s. 147, in the facts and circumstances of the case, is not correct and the consequent assessment made u/s. 143(3) rws 147 is therefore not sustainable in law and quashed".

4. Coming to the merits, he has examined the issue with reference to Remand Report called from the AO and concluded as under:

"6.5 I have carefully considered the submissions of the appellant, remand report and the assessment order. Similar issue has come up before my predecessor in the appellant's own case for the assessment year 2003-04. A relevant extract from this order dated 22-7-2011, is reproduced below:

"6.3 Looking at the facts of this case, it is clear that the business remained closed from 1996-97 onwards. The unpaid interest in question was never allowed as a deduction in any assessment year. The fact that the appellant has been maintaining its books of account does not mean that the deduction has been allowed under the Income Tax Act. There is no bar on the appellant to maintain its accounts. Therefore, taxing the waiver of this interest in the current year is not valid as the same was never allowed as a deduction to the appellant........."

6.6 I do not find any difference between the facts and circumstances of the case for the assessment year now under appeal, i.e., AY. 2005-06 and the AY. 2003-04. Only unpaid interest was waived by the financial institutions. The question of allowing such an interest would not have arisen even if a claim is made by the Appellant in an earlier assessment in view of the embargo in Section 43B.

6.7 The Income tax Appellate Tribunal, on appeal by the Department, set aside the order for the assessment year 2003-04, to verify the fact whether the interest waived in question was earlier claimed as a deduction was allowed in such computation u/s. 115JB in earlier years and then follow the view taken by the Tribunal in their orders in (i) Order dt. 17-2-2012 in M/s. Vista Pharmaceuticals, Hyderabad and (ii) Order dt. 4-5-2012 in the case ITA No. 288/Hyd/2014 :- 4 -: M/s. Nasa Continental Exporters Pvt. Ltd.,

of M/s. Sanghi Spinners India Ltd. The view taken in these orders by the Appellate Tribunal is that 'when this impugned interest is not actually allowed as deduction in earlier years while computing the book profit, the same cannot be brought to tax in this assessment year while computing the book profit u/s. 115JB of the Act....."

7.1 Respectfully following decisions of the Hon'ble ITAT and my predecessor mentioned above, I hold that the A.O. was not justified in adding the amount of interest waived of Rs. 11.58 Crores in the computation u/s. 115JB as well as under the normal provisions. Hence, the addition of Rs. 11.58 crores is deleted".

5. Revenue is aggrieved. The only ground raised before us by the Revenue is with reference to reopening of the assessment and not on merits of the addition made by the AO which stands deleted by the CIT(A).

6. After considering the rival contentions, we are of the opinion that there is no merit in Revenue's appeal. First of all as rightly pointed out by the Ld.CIT(A), the AO has examined this issue of 'interest waiver' by the bank and show caused assessee, why it shall not be taxed u/s. 41/28/56 vide letter dt. 07-03-2007. Therefore, the waiver of interest by IDBI/ICICI Bank is very much within the knowledge of the AO who has enquired the same in the course of original assessment. Not only that the entire transaction was disclosed in the notes to the accounts of the annual report. The AO's reasoning in reopening can only be considered as change of opinion. Moreover, all the facts were disclosed by assessee and therefore, there is no failure on the part of assessee in disclosing fully and truly all material facts. Therefore, we are of the opinion that reopening of the assessment after four years from the end of the assessment year cannot be justified.

ITA No. 288/Hyd/2014 :- 5 -: M/s. Nasa Continental Exporters Pvt. Ltd.,

7. Even on merits, there is no dispute with reference to the fact that assessee has not claimed any interest in earlier year and therefore, treating the same as 'cessation of liability' to be taxed u/s. 41(1) of the IT Act does not arise. Question of allowing such an interest would not have arisen even if claim was made by assessee in earlier assessment year in view of embargo in Section 43B. In view of this, there could not be any satisfaction to be recorded even at the time of reopening the assessment.

8. We were also surprised to see from the record that similar issue arose in AY. 2002-03 and consequent to the directions of the ITAT, AO vide his order dt. 29-11-2013 has given a finding that question of claim of deduction of interest in the computation of total income does not arise. Vide para 6.3 of the order for AY. 2002-03, AO has this to record "In the instant case, the assessee company was granted the benefit of waiver of accumulated interest of Rs. 7,22,32,678/- shall remain unpaid for certain reasons that business of the assessee was not encouraging. Further, it has not claimed the said interest in any of the earlier assessment years. Even the claim made by assessee in the AYs. 1990-91 to 1993-94 have also been disallowed invoking the provisions of Section 43B of the Act, in view of the fact that it has not actually paid the interest to the said bank". Accordingly, he determined that no income can be brought to tax under the provisions of Section 41(1).

9. In spite of clear findings given by the very same officer, we are unable to understand why Revenue has preferred the present appeal for AY. 2005-06 vide the appeal dt. 21-02-2014, when this particular issue was decided on merits and there is no scope for addition in the assessments. Coming in appeal on only legal principle of reopening which itself also factually cannot be supported, is not warranted and unnecessary. This shows the non-application of mind not only by the ITA No. 288/Hyd/2014 :- 6 -: M/s. Nasa Continental Exporters Pvt. Ltd.,

AO but also by the CIT, who approved the second appeal to the ITAT. This sort of infructuous appeals burden the ITAT un-necessarily and puts pressure on assessee with un-necessary litigation. We wish that Revenue will apply its mind and does not prefer appeals which are infructuous. There is no order as to costs.

10. With these directions, appeal is dismissed.

Order pronounced in the open Court on 30th June, 2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 30th June, 2015

TNMM

Copy to :

1. Deputy Commissioner of Income Tax, Circle-16(1), Room No. 612, 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.

2. M/s. Nasa Continental Exporters Pvt. Ltd., 6-3-351, 4th Floor, Ravi Chambers, Road No. 1, Banjara Hills, Hyderabad.

3. CIT(Appeals)-V, Hyderabad.

4. CIT-IV, Hyderabad.

5. D.R. ITAT, Hyderabad.

6. Guard File.