Judgment:
This appeal by the assessee relates to assessment year 1992-93 and has been directed against the order of the Commissioner (Appeals), Hubli, dated 28-8-1995.
The facts of the case are that the assessee, a registered firm, was carrying on business in gram dhal, flour, wheat, rice, paddy, etc. In addition to the above business, assessee was also plying trucks on hire basis to facilitate transportation of goods purchased by the customers.
For the relevant year, the assessee declared income of Rs. 6,68,455 from lorry hire as against income of Rs. 4,25,370 for the assessment year 1991-92. The assessing officer added an amount of Rs. 1,31,387 to the declared income on the basis of percentage of expenditure relating to assessment year 1990-91 and the assessing officer also made other additions against which assessee went in appeal before the Commissioner (Appeals) who did not oblige the assessee. Hence, this appeal has been filed before us and the assessee has raised various grounds of appeal, which we will deal one by one.
At the time of hearing Shri S. Venkatesan, learned authorised representative. appeared on behalf of the assessee and Shri P. C.Chadaga, learned Departmental Representative was present on behalf of the respondent-department. The first ground of appeal relates to addition in lorry hire account amounting to Rs. 1,31,387, addition in tax paid rice account of Rs. 80,431 and addition in gram flour account of Rs. 1,50,665. The case of the assessee is that although the assessee has agreed for said additions, it was the conditional agreement and the assessing officer also made certain further additions contrary to the very condition on which certain additions were accepted earlier by the assessee although the additions were not warranted at all by the facts of the case. The case of the assessee is that even in case the assessee agreed to these additions, the assessee's statutory right cannot be taken away by any principle of estoppel and agreement and that any agreement against statute is void and the proceedings before the Commissioner (Appeals) are only continuation of proceedings before the assessing officer. Therefore, the learned authorised representative has submitted on behalf of the assessee that the Commissioner (Appeals) ought to have adjudicated the issue of additions on merits and since he failed to do so, addition made requires to be deleted.
On the other hand, the learned Departmental Representative Shri P.C.Chadaga has vehemently opposed the submissions of the learned authorised representative and has made submissions before us that when the assessee himself had agreed to additions, he has got no right whatsoever to agitate the same before us by way of appeal.
We have heard the rival submissions and perused the evidence on record.
The Commissioner (Appeals) has not adjudicated the issue of additions on merits. Hence, we accept the plea of the assessee and send these issues viz. addition in lorry hire account, addition in tax paid rice account and addition in gram flour account to the file of the Commissioner (Appeals) with a direction to adjudicate upon these additions on merits and in case the assessee is able to demonstrate before him that the additions are not warranted, additions should be deleted without prejudicing his mind by the fact of admitted additions by the assessee.
The next issue raised by the assessee is that the authorities below are not justified in disallowing the sum of Rs. 3,07,333 being loss sustained on account of setting aside of the auction sale under the facts and in the circumstances of the case. According to the assessee this loss is not a capital loss and essentially is a loss connected with the business and in the course of business and ought to have been allowed in full. It has been further submitted that the authorities below failed to appreciate that what is claimed as loss is in sum and substance the claim of interest debited to investment account in earlier years and offered to tax consequent to order of the Hon'ble High Court, the amount ultimately received came to be less than the aggregate of the investment and interest debited and the resultant loss is in the nature of rebate and implied rejection of the claim or a bad debt and ought to have been allowed on the finality of the dispute and ought to have been allowed.
One of the partners of the firm had participated in a public auction conducted by the State Bank of India for sale of immovable property on 23-7-1981. The assessee purchased the said property in auction for Rs. 1.75 lakhs and had also paid a sum of Rs. 12,250 towards stamp duty.
The civil judge on 25-8-1981, confirmed this auction. The assessee spent a sum of Rs. 1.2 lakhs towards renovation of this property during the period from 4-9-1981, to 18-3-1983. The auction was challenged in the High Court of Karnataka and as a result, the assessee became suspicious about the title over the property and upon consulting the branch manager of the bank, the assessee was given an impression that the High Court would order for refund of money along with interest.
Consequently, assessee debited immovable property account and credited interest account a sum of Rs. 2.74 lakhs on 2-11-1986, and offered the interest amount to be taxed in the assessment year 1987-88. Thus, the immovable property account showed a debit balance of Rs. 5,81,250. The High Court of Karnataka declared that the title that passed to the assessee was not a valid title. Copy of the decision of the Hon'ble Supreme Court is placed before us. The plea of the counsel for assessee is that the investment made by the assessee in property never became capital asset as defined in section 2(47) of the Act because of the defective title and as a result, the assessee was not holding any asset and hence investment could not be construed as a capital asset. So, the assessee claimed loss in respect of immovable property, which was nothing but interest portion of Rs. 2.47 lakhs, which the assessee had debited in the immovable property account during the assessment year 1987-88. According to learned counsel for assessee, the amount of Rs. 3,07,033 debited in the P&L a/c of the assessee and claimed as loss was nothing but reversal of interest account credited in the assessment year 1987-88.
On the other hand, the learned Departmental Representative has supported the orders of the authorities below without disputing the cost incurred on the building and also not disputing that the loss was incidental to the court order. The department has also not disputed that it was a court auction and the sale was set aside by the order of the Hon'ble High Court.
We have considered the rival submissions and gone through the records.
The assessee has purchased property on 23-7-1981, for a sum of Rs. 1,87,250, including the stamp duty of Rs. 12,250. The assessee received an amount of Rs. 2,73,970 through the High Court's order, which included interest of Rs. 86.667. The assessee has invested an amount of Rs. 1.2 lakhs towards renovation of the property. At p. 37 of the paper book of the assessee, difference claimed as bad debt is shown at Rs. 3,07,333, which could not be refuted by the department, by any cogent proof. Certificate of sale of land is at pp. 38 to 46 of the paper book, which fortifies the case of the assessee. The order of the Hon'ble High Court is at page 47 of the paper book depicts in which the circumstances leading to the cancellation of the auction are explicitly given. The details of expenditure incurred towards repairs of building in question are given at pages 61 to 64 of the paper book, which again proves the total cost incurred on the building which is shown at page 37 of the paper book. We are convinced that the bad debt is equal to loss incidental to Hon'ble High Court's order, which cannot be said to be a capital loss in the peculiar circumstances of this case. The order of the Hon'ble High Court came on 7-3-1985, and the assessee had to undergo various nuances during that period until the final verdict of the High Court came. Thus, the assessee did suffer loss on account of cancellation of auction by the High Court, which was incidental to the carrying on of business of the assessee. As a result, we allow, we allow the claim of the loss of the assessee and allow this ground of appeal.
The next ground relates to disallowance of Rs. 10,000 towards telephone expenses. This ground has not been pressed by the learned counsel and in accordingly dismissed for non-prosecution.
The next ground relates to charging of interest under sections 234B and 234C, which are consequential and the same will follow consequent to our above order.