Case Law Details
Fab Engineering Pvt. Ltd. Vs ITO (ITAT Ahmedabad)
In a recent ruling, ITAT Ahmedabad ruled on a significant case concerning Fab Engineering Pvt. Ltd. and the Income Tax Officer (ITO). The dispute revolved around Fab Engineering’s claim of long-term capital loss from the sale of company shares, which the ITO had previously disallowed.
Fab Engineering’s appeal against the Ld. Commissioner of Income Tax (Appeals) was based on the disallowance of a long-term capital loss claim amounting to Rs. 14,47,390. The firm also disputed an additional disallowance of Rs. 75,79,579 under Section 43B of the Act and the levy of interest under sections 234A, 234B and 234C.
The ITAT upheld the decision of the Assessing Officer and the CIT(A) to disallow the long-term capital loss claim, on the grounds that Fab Engineering was unable to produce any proof of the claimed loss during the assessment proceedings. However, when it came to the disallowance under Section 43B, the ITAT sided with Fab Engineering. It ruled that the Assessing Officer and CIT(A) had not justified this disallowance, as the original treatment of interest paid remained the same.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
1. The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals)-9, (in short “Ld. CIT(A)”), Ahmedabad on 11.01.2017 for A.Y. 2013-14.
2. The grounds of appeal raised by the assessee are as under:
“(1) That on facts and in law the learned Commissioner of Income tax (Appeals) has grievously erred in confirming the disallowance of claim of long term capital loss of Rs.14,47,390/-.
(2) That on facts, and in law, the learned CIT(A) has grievously erred in confirming the disallowance of Rs.33,65,683/- made by the AO u/s 43B of the Act, and has further erred in enhancing the said disallowance by Rs.42,13,896/- making a total disallowance of Rs.75,79,579/-.
(3) That on facts and in law the learned Commissioner of Income tax (Appeals) has grievously erred in confirming the levy of interest u/s 234A, 234B and 234C of the Act.
3. Return of income was filed on 22.09.2013 showing total income of Rs. 7,59,188/- and claim of Long Term Capital Loss (in short “LTCL”) of Rs. 14,47,390/-. The case was selected under CASS and notice under Section 143(2) was issued on 30.09.2014 as well as served upon the assessee. The assessee filed details from time to time and attended the assessment proceedings. The Assessing Officer observed that during the course of assessment proceedings the assessee has shown loss of Rs. 5,14,800/- (520000-5200) in Profit & Loss Account and has claimed Long Term Capital Loss of Rs. 14,47,390/- in statement of income on account of sale of shares of company. The Assessing Officer further observed that the assessee company has received sale consideration of Rs. 5,200/- in cash only. No proof showing the transaction as well as in respect of purchase of share was filed by the assessee during the course of assessment proceedings and therefore, the Assessing Officer disallowed the LTCL at Rs. 14,47,390/-. Further the Assessing Officer observed that the assessee has claimed interest of Rs. 86,14,208/- under Section 43B of the Act. The Assessing Officer further held that the assessee claimed during the assessment proceedings that the assessee paid Rs. 99,64,449/- as principal amount in the F.Y. 2005-06 and interest of Rs. 44,18,601/-. However, the return filed by the assessee for A.Y. 2006-07 does not show any such payment or claim of interest. The Assessing Officer issued notice under Section 133(6) of the Act on Gujarat State Financial Corporation (in short “GSFC”) and the ledger of the assessee in their books. After taking cognizance of the reply the Assessing Officer made addition of Rs. 33,53,090/- under Section 43B treating the same as paid towards principal and not towards interest.
4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee.
5. As relates to Ground No. 1, the Ld. A.R. submitted that the CIT(A) erred in disallowance the claim of LTCL of Rs. 14,47390/-.
6. The Ld. D.R. relied upon the assessment order and the order of the CIT(A).
7. Heard both the parties and perused all the relevant material available on record. It is an admitted position that no evidence to the effect of claim of LTCL was produced during the assessment proceedings as well as before CIT(A). The Ld. A.R. fairly submitted that at this juncture when the business operation of the assessee is closed the assessee is not in a position to submit the evidence. From these circumstances it appears that the claim of LTCL will not be proved by the assessee before any of the authorities. Therefore, the Assessing Officer as well as CIT(A) was right in disallowing the said claim. Ground No. 1 is dismissed.
8. As regards Ground No. 2, the Ld. A.R. submitted that the CIT(A) not only confirm the disallowance of Rs. 42,13,896/- making a total disallowance of Rs. 75,79,579/-. The Ld. A.R. submitted that the assessee due to financial difficulties could not pay the principal as well as the interest from 1996-97 till 2005-06 and the assessee through one time settlement has paid the amount of Rs. 1,01,96,425/- in total which includes interest of Rs. 84,16,208/-. The Ld. A.R. pointed out the certificates issued by the GSFC as well as the ledger treatment given by the GSFC in assessee’ s case from Page 96 till 107 of the Paper Book. The Ld. A.R. submitted that in books of accounts of the assessee the treatment given in respect of principal amount and the interest amount which was originally set out with the GSFC while obtaining the loan has not been taken into account, in fact, in the earlier year till 1999 to 2005 the treatment given by the assessee by not claiming the disallowance was accepted by the Revenue. Therefore, the entire addition made by the Assessing Officer as well as enhancing by the CIT(A) is not justifiable.
9. The Ld. D.R. relied upon the order of the CIT(A) and submitted that the principal amount and the treatment which was given in the no due certificate clearly mention that the interest was paid limited extend of Rs. 85,36,767/- only. Therefore, the CIT(A) has rightly enhance the addition / disallowance and made addition of Rs. 75,79,579/- to the income of the
10. Heard both the parties and perused all the relevant material available on record. The Assessing Officer from the year 1999 till 2005 has not doubted the assessee’ s treatment of not claiming the benefit of interest which was originally quantified by GSFC from the assessee. The quantification given by the assessee which is reproduced in assessment order at page six were justifiable and in fact from the perusal of the records submitted before the Tribunal as well as documents which were before the Assessing Officer clearly set out that the interest component of repayment was totaling into 84,16,208/-. In fact, the assessee has calculated it meticulously and the ledger treatment in the books of accounts of GSFC for assessee at Page 105 quantified it at 86,04,208/- which is much more higher. Thus, the Assessing Officer as well as the CIT(A) was not right in making this disallowance which is originally claimed in the respective order would have been granted to the assessee. The certificate given by the GSFC pointing out that there is only the component of Rs. 8,66,757/- is that of interest appears to be the different treatment given by the said organisation while arriving at one time settlement with the authorities. But the original treatment of the interest paid remains the same. Therefore, the CIT(A) was not justifiable in enhancing the disallowance. Ground No. 2 is allowed.
11. As regards Ground No. 3, the same is consequential hence not adjudicated at this juncture.
12. In result, the appeal of the assessee is partly allowed.
This Order pronounced in Open Court on 07/07/2023
