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TMI Blog2011 (8) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained. - 1074 of 2004, 1184 of 2008, 502 and 704 of 2009 - - - Dated:- 16-8-2011 - Mrs.Justice CHITRA VENKATARAMAN, Mr.Justice M.JAICHANDREN, JJ. For Appellants : Mr.V.S.Jayakumar For respondent : Mr.T.Ravikumar JUDGMENT CHITRA VENKATARAMAN, J. The assessee is on appeals as against the order of the Tribunal relating to assessment years 2000-01 to 2003-04. 2. T.C.No.1074 of 2004 was admitted on the following substantial questions of law: (i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs.52,50,000/- accrues to the appellant towards the interest on mortgage loan of Rs.250 lakhs? (ii) Whether the Tribunal was right in holding that the sum of Rs.5,69,587/- accrues to the appellant towards interest on loan of Rs.25.27 lakhs? (iii) Whether the Tribunal was right in holding that the amount covered by the debit note represents income of the appellant? 3. T.C.No.1184 of 2008 was admitted on the following substantial questions of law: (i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, the appellate Tribunal is right in law in holding that the sum of Rs.29,39,246/- which was added to the total income of the appellant by the Assessing Officer in assessment year 2000-01 based on accrual need not be reduced from the total income of the appellant for this year as claimed by the appellant in spite of the said sum not being realised at all by the appellant? 6. The assessee is a private limited company engaged in the business of investments, lending and trading. It is seen from the facts projected before us that the assessee advanced a sum of Rs.2.5 crores to Sree Krishna Tiles and Potteries (Madras) Private Limited on the strength of the mortgage deed executed in the last quarter of 1999 in respect of 2 acres of land at Anna Nagar, which formed part of a larger extent of 34 acres of land belonging to the mortgagor. It is stated that the loan amount was deposited into the account of M/s.S S Industries and Enterprises Private Limited, which is a group concern of the borrower, who stood as guarantor for repayment of the loan. The assessee company also advanced a sum of Rs.23,37,100/- to M/s.S S Industries and Enterprises Private Limited. In respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal amount or the interest amount. Even though the landed property at Anna Nagar actually belonged to the company, there were claims and counter claims from the family members and third parties. Thus, if the assessee had to go ahead with legal action to enforce the security, there would be delay in recovery of loan. It was further pointed out that on enquiry made about the status of M/s.S S Industries and Enterprises Private Limited, who stood as guarantor as well as borrower of Rs.23 lakhs, the said company had been referred to BIFR due to its inability to pay the debts. It was also pointed out in the note that the balance sheet filed by M/s.S S Industries and Enterprises Private Limited, before the Registrar of Companies and the one given to the assessee company were at variance. Thus, while the one given to the assessee showed it as a profit making company, the one given before the Registrar of Companies showed it as a loss making company. Thus, the reliability of the financial strength of the company remaining highly doubtful, the Board of Directors were requested to consider the issue on certainty of recovery while finalizing the accounts of the company for the year ended 31.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year 2000-01 to 2002-03, as the recovery of loan for all these years remained uncertain, the question of adding the interest as income in the assessment for 2000-01 to 2002-03 did not arise. In any event, as the assessee had offered the said income on the assessment year 2003-04, to include the said income in the earlier assessment year, would amount to double taxation on the self same interest income. While completing the assessment for the assessment years 2000-2001 to 2002-2003, the Assessing Officer made addition on account of interest accrued on the mortgaged loan of Rs.250 lakhs and Rs.23.37 lakhs and thereby rejected the assessee's plea. The aggrieved assessee challenged the assessments made in respect of the above said assessment years before the Commissioner of Income Tax (Appeals), which were, however, dismissed. 12. Before the Income Tax Appellate Tribunal, the assessee took a specific stand that even though the assessee had given a loan of a sum of Rs.2.50 crores to M/s.Sree Krishna Tiles and Potteries (Madras) Private Limited, on the strength of security furnished by the said company in the form of immovable property, guaranteed by M/s.S S Industries and En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status of M/s.S S Industries and Enterprises Private Limited, the assessee took no steps to treat the interest as bad debt and was not written off in the books of accounts also. Thus, referring the decision of the Apex Court reported in 158 ITR 102 STATE BANK OF TRAVANCORE v. COMMISSIONER OF INCOME TAX, the Tribunal held that the mere impossibility of recovery of the loan amount would not make interest income a bad debt to be written off. Thus the Tribunal viewed that when the interest income had accrued to the assessee, the fact that the debtor company was declared a sick company and the matter was pending before the BIFR, would not be a ground for not recognising the accrued interest as income for the purpose of computing the total income. Thus, the Tribunal came to the conclusion that the situation that prevailed at the time of sanctioning the loan, continued; therefore, the assessee could not take advantage of the fact that the debtor company was subsequently referred to BIFR. Thus, the Tribunal rejected the assessee's claim that the interest income assessed at the hands of the assessee in respect of the loan given for the assessment year 2000-01 to 2003-04 was rightly assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and Potteries (Madras) Private Limited as well as M/s.S S Industries and Enterprises Private Limited, in the face of the conflicting balance sheet presented and the difficulties in identifying the property, the company rightly did not offer the interest income from 2000-01 onwards and that finally on the assignment of debt, the company offered entire amount of interest on the amount lent as assessable under the assessment year 2003-04. He pointed out that orders of assessment passed by the Assessing Officer had virtually resulted in double taxation on the self same interest income offered in the assessment year 2003-04. In the light of the above said facts, learned counsel submits that the order of the Tribunal has to be set aside. The Revenue, however, reiterated the stand taken by the Assessing Officer and supported the order of the Tribunal. 19. Heard learned counsel for the assessee as well as learned Standing counsel appearing for the Revenue and perused the materials papers. 20. A perusal of the order of assessment in respect of the above said assessment years show that apart from assessing the interest income in the respective assessment years, the Assessing Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; there is hardly any material to show the steps taken by the assessee for the realisation of the said amount advanced to M/s. Sree Krishna Tiles and Potteries (Madras) Private Limited or for enforcing of the mortgage. The assessee pointed out that there were civil suits filed at the instance of 20 persons claiming rights over the said property, which is stated to be a huge one and that out of the said property, only two acres was given as a security and the assessee was also one of the defendants in the suit. As rightly pointed out by the Tribunal, no steps were taken by the assessee for enforcing the mortgage. Whatever be the correctness of the decision taken, we do not find any justification in the assessee waiting upto 2003-04 for assignment of the debt and thereafter to offer interest income for the assessment. As rightly pointed out by the Revenue,the assessee had had the knowledge on all these facts even as early as 2000 as evident from the Director's note. Ultimately, only in the assessment year 2003-04 the assessee went in for tripartite agreement with the third party for the purpose of assignment of said mortgage. 22. The assessee does not deny as a matter of fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging to this company. The delay in registering the mortgage document with reference to the Anna Nagar property of M/s.Sree Krishna Tiles and Potteries (Madras) (P) Limited till 2000 and the absence of reference about the mortgage in the balance sheet of the said company are no doubt circumstances spoken to by the assessee as telling on the conduct of the debtor company. As far as the mortgaged property is concerned, a suit filed by the family member of the debtor companies in C.S.No.196 of 2001 and the suit filed by the rival claimants were cited and the difficulty in precisely pointing out the location was cited as circumstances which stood in the way of enforcing the legal claim. We do not think that in the absence of any material shown as to the efforts taken to defend its rights as mortgagee, the assessee is justified in relying on any of the above circumstances as a hurdle that stood in the way of realising the money or in making the debt a bad debt. There is hardly any material to suggest that the assessee was prevented from enforcing the mortgage or in taking steps to realise the money immediately on coming to know about the circumstances pointed out to the legal hurdles in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income Tax in her communication to the Standing Counsel, the Revenue would not be justified in taxing the entire interest income again for the year 2003-04. Thus, with the interest income of Rs.157.50 crores spread over from the assessment year 2000-01 onwards, the assessment of the said amount for the assessment year 2003-04 cannot be sustained. Hence, the Assessing Officer has to redo the assessment relating to assessment year 2003-04 by taking into account the above said facts. 28. In the light of the above said fact, the Tribunal's order as regards the assessment for the assessment year 2003-04 in respect of the appeal in T.C.No.704 of 2009 is set aside and the same is allowed in part, with a direction to the Assessing Officer to redo the same, taking note that the interest income at Rs.52.50 lakhs has to be assessed under each of the assessment year starting from 2000-01 onwards. 29. In the light of the above, barring T.C.No.704 of 2009, relating to assessment year 2003-04, we reject the Tax Case Appeals filed by the assessee; thereby, the order of the Tribunal stands confirmed. 30. Learned counsel for the assessee further pointed out the circumstances under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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