2022 (6) TMI 150 - AT - Income Tax

STCG - Allowability of sum paid to Cosmos bank against the total sale consideration - deduction towards amount of principal and interest paid on the outstanding loan from M/s Cosmos cooperative Bank Ltd which was paid directly by the purchaser to the bank for the purpose of issuing NOC by the said bank and releasing the mortgaged properties with this bank - allowability of deduction from the sale consideration received on account of sale of factory premises plant and machinery furniture and fixture etc. on slump sale basis to M/s Sukriti Polymers - HELD THAT - In our considered view it is difficult to accept the argument of the assessee that this amount of Rs. 3.8 crores is a charge by overriding title and hence this sum never accrued to the assessee in the first instance. In a considered view this charge on property was created by the assessee company itself since it took business loan from M/s Cosmos Bank Ltd by mortgaging the impugned property. Therefore clearly this amount represents application of income and not diversion by overriding title and the assessee cannot claim deduction thereof from the sale consideration. In light of the above analysis and the case of CIT vs. Attili N. Rao 2001 (10) TMI 5 - SUPREME COURT and CIT v. Roshanbabu Mohammed Hussein Merchant 2005 (1) TMI 53 - BOMBAY HIGH COURT which are directly and squarely applicable to the assessee s set of facts we are of the considered view that the said amount represents application of income and does not qualify as diversion of income by overriding title and the assessee is not entitled in the instant set of facts to claim deduction thereof from the sale consideration received on the impugned property in question. The cases relied upon by the assessee are not directly applicable to the assessee s set of facts and are distinguishable in the instant set the facts. In the result we hold that the Ld. CIT (Appeals) has not erred in facts and law in confirming the action of the AO in disallowing the sum of Rs. 3, 80, 00, 000/-from the sale consideration. Estimation of net profit @ 2.5% as against business loss - HELD THAT - It is seen that the books of account were never produced either before the AO or Ld. CIT(Appeals) for their consideration. Accordingly in absence of production of books of account in our considered view the Ld. CIT(Appeals) has been quite reasonable in restricting the net profit @2.5% of the total turnover. Therefore we are of the view that Ld. CIT(Appeals) has not erred in facts and law in restricting the net profit @2.5% of the total turnover in instant set of facts.

Summary

Issues Involved:
1. Confirmation of additions towards Short Term Capital Gains (STCG) and business profit.
2. Allowability of deduction for loan liability paid to Cosmos Cooperative Bank.
3. Working out of short-term capital loss on sale of plant and machinery.
4. Rejection of book results and estimation of net profit.

Detailed Analysis:

Issue 1: Confirmation of Additions towards STCG and Business Profit
The assessee contested the confirmation of additions by the CIT(A) towards STCG of Rs. 3,23,99,007/- and business profit of Rs. 5,55,186/-. The Tribunal noted that these grounds were general in nature and did not require specific adjudication.

Issue 2: Allowability of Deduction for Loan Liability Paid to Cosmos Cooperative Bank
The primary contention was whether the deduction of Rs. 3,80,00,000/- paid to Cosmos Bank should be allowed against the sale consideration of Rs. 3,99,06,000/- received on the sale of factory premises, plant, and machinery. The assessee argued that this amount was a charge by overriding title and should not be included in the sale consideration. The Tribunal, however, held that this charge was created by the assessee itself by mortgaging the property, and thus, it represented an application of income, not diversion by overriding title. The Tribunal relied on the Supreme Court judgment in CIT vs. Attili N. Rao and other relevant case laws to conclude that the assessee was not entitled to claim this deduction from the sale consideration. Consequently, the Tribunal upheld the CIT(A)'s decision to disallow the deduction.

Issue 3: Working Out of Short-Term Capital Loss on Sale of Plant and Machinery
The assessee submitted that it would not press this ground. Accordingly, the Tribunal dismissed this ground as not pressed.

Issue 4: Rejection of Book Results and Estimation of Net Profit
The assessee challenged the rejection of declared book loss and the estimation of net profit at 2.5% of turnover. The Tribunal noted that the assessee did not produce books of accounts before the Revenue Authorities at any stage. Given this non-production of books, the Tribunal found the CIT(A)'s decision to estimate the net profit at 2.5% of the turnover to be reasonable. The Tribunal cited relevant case laws, including Swayambhu Furniture and Zora Singh v. CIT, to support the decision of estimating profits in the absence of books of accounts. Therefore, the Tribunal upheld the CIT(A)'s estimation of net profit at 2.5%.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the CIT(A)'s order in confirming the additions towards STCG and business profit, disallowing the deduction for the loan liability paid to Cosmos Bank, and estimating the net profit at 2.5% of the turnover. The assessee's appeal was dismissed in its entirety.

Order Pronouncement:
The order was pronounced in the open court on 30-05-2022.