M/s. Housing & Urban Development Corporation Ltd., New Delhi V. DCIT, New Delhi

ITA 1165/DEL/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4279 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SAROHA
• Keywords: Audit objection; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 37; 263

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1165/DEL/2012 (ASSESSMENT YEAR: 2004 - 05 ) HOUSING & URBAN DEVELOPMENT CORPORATION LTD., HUDCO BHAWAN, LODHI ROAD, NEW DELHI, PAN:AAACH0632A VS. DCIT, CIRCLE - 12(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. GAGAN KUMAR, ADV REVENUE BY: SH. A. K. SAROHA, CIT DR DATE OF HEARING 15 /0 7 / 2016 DATE OF PRONOUNCEMENT 07 / 10 /2016 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THE ASSESSEE FILES THIS APPEAL AGAINST THE ORDER DATED 11.01.2012 FOR THE ASSESSMENT YEAR 2004 - 05 PASSED BY THE LD CIT (A) - XXVIII , NEW DELHI ON APPEAL AGAINST ORDER OF ASSESSING OFFICER U/S 143(3) READ WITH SECTION 263 OF THE INCOME TAX ACT . 2. THE BRIEF HISTORY OF THE CASE IS THAT THE APPELLANT COMPANY IS GOVT OF INDIA UNDERTAKING PROVIDING FINANCE AND CONSULTANCY FOR HOUSING AND INFRASTRUCTURE PROJECTS. A SSESSEE FILED ITS RETURN OF INCOME FOR RS.3087302381/ - ON 29.10.2004 WHICH WAS ASSESSED U/S 143(3) OF THE ACT ON 26.12.2006 ON A TOTAL INCOME OF RS. 3395815115/ - . ASSUMING JURISDICTION U/S 263 OF THE INCOME TAX ACT, LD CIT PASSED AN ORDER ON 26.03.2009 SETTING ASIDE THE ASSESSMEN T ON SOME ISSUES TO THE FILE OF ASSESSING OFFICER PAGE 2 OF 15 HOLDING THAT ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ASSESSEE DID NOT CONTEST THE ORDER UNDER SECTION 263 OF THE ACT. CONSEQUENTLY THE LD. A SSESSING OFFICER PASSED ORDER UNDER SECTION 143 (3) READ WITH SECTION 263 OF THE INCOME TAX ACT ON 17/11/2009 MAKING THREE DISALLOWANCES /ADDITIONS AS UNDER: A. DISALLOWANCE OF RS. 7.14 CRORES ON ACCOUNT OF PRIOR PERIOD EXPENSES B. ADDITION OF RS. 1.20 CRORES ON ACCOUNT OF LOANS PENDING RECONSIDERATION OF EXCESS OR ADDITIONAL INTEREST C. DISALLOWANCE OF RS. 1 5678 6815/ - ON ACCOUNT OF FINANCIAL CHARGES PAID FOR ISSUE OF BONDS ETC HELD AS CAPITAL EXPENDITURE 3. AGAINST THIS ORDER OF THE LD. ASSESSING OFFICER THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT APPEAL WHO DISMISSED APPEAL OF THE ASSESSEE ON DISALLOWANCE AT SERIAL NUMBER (A) AND (B) ABOVE AND PARTIALLY CONFIRMED THE DISALLOWANCE IN SERIAL NUMBER (C). T HEREFORE, ASSESSEE IS IN APPEAL BEFORE US. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT (A) HAS ERRED IN FACT AND IN LAW BY NOT DELETING THE ADDITION MADE BY LD. ASSESSING OFFICER AN AMOUNT OF RS. 7.14 CRORES ON ACCOUNT OF PRIOR PERIOD EXPENDITURE AS INTEREST PAID TO GOVT. 2. THE LD, CIT (A) HAS ERRED IN FACT AND IN LAW BY NOT DELETING THE ADDITION MADE BY LD. ASSESSING OFFICER AN AMOUNT OF RS 1.20 CRORES BEING AMOUNT OF DEDUCTION FROM LOAN PENDING RECONCILIATION OF EXCESS/ADDIT IONAL INTEREST. 3. THE LD. CIT (A) HAS ERRED IN FACT AND IN LAW BY NOT DELETING THE ADDITION MADE BY LD. ASSESSING OFFICER AN AMOUNT OF RS. 15.68 CRORES ON ACCOUNT OF FINANCIAL CHARGES WRITTEN OFF. 5. GROUND NO. 1 OF THE APPEAL IS AGAINST THE ORDER OF TH E LD. CIT APPEAL IN CONFIRMING THE ADDITION MADE BY THE LD. ASSESSING OFFICER AN AMOUNT OF RS. 7.14 THE INTEREST PAID TO GOVERNMENT OF PAGE 3 OF 15 INDIA ON UNSPENT SUBSIDY IS PRIOR PARADE EXPENDITURE. THE BRIEF FACTS OF THIS GROUND IS THAT DURING THE YEAR THE ASSESSEE HAS MADE A PAYMENT OF RS. 7.14 CRORES TOWARDS INTEREST TO SETTLE THE ISSUE OF AUDIT OBJECTION RAISED BY C & AG FOR THE YEAR ENDED MARCH 2000. THE MATTER WAS TAKEN BY THE MINISTRY AND IT W AS DECIDED THAT THE APPELLANT SHOULD PAY THE INTEREST OF RS. 7.14 CRORE TO THE GOVERNMENT. THIS LIABILITY OF INTEREST IS ARISING ON APPELLANT ON THE SURPLUS AMOUNT OF SUBSIDY . THE GOVERNMENT OF INDIA INITIALLY RAISED THIS DEMAND IN JUNE 1997. SUBSEQUENTLY THE AUDIT PARTY RAISED AN OBJECTION IN THIS REGARD WHEREAS THE PUBLIC ACCOUNTS COMMITTEE ALSO RAISE D THE SIMILAR QUESTION FOR PAYMENT OF INTEREST ON UN SPENT AMOUNT OF SUBSIDY WHICH HAS BEEN RECEIVED BY THE APPELLANT. ULTIMATELY, THE MINISTRY V IDE LETTER D ATED 07/10/2003 HAS DECIDED THAT THE APPELLANT SHOULD REFUND WHATEVER INTEREST IT HAS EARNED ON THE FUND RELEASED BY THE MINISTRY REMAINING UN - SPENT ON VARIOUS SCHEMES AS SUBSIDY. SUBSEQUENTLY V IDE MEETING OF BOARD OF DIRECTORS OF APPELLANT HELD ON 17/11/2 003 DECIDED THAT THE PAYMENT OF THE INTEREST AT THE RATE OF 6% P.A. AMOUNTING TO RS. 7.14 CRORES TO GOVERNMENT OF INDIA ON UNSPENT SUBSIDY WAS TO BE PAID. THIS AMOUNT HAS BEEN PAID ON 21/11/2003. THE APPELLANT CLAIMED THIS EXPENDITURE WHICH WAS DISALLOWED BY THE LEARNE D ASSESSING OFFICER HOLDING THAT THIS EXPENDITURE IS PRIOR PERIOD EXPENSES IN NATURE AND NOT ALLOWABLE. THE APPELLANT CARRIED MATTER BEFORE THE LD. CIT APPEAL WHO AGREED WITH THE CONTENTION OF THE LD. ASSESSING OFFICER AND CONFIRMED THE DISAL LOWANCE. 6. BEFORE US THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT CLAIM OF INTEREST EXPENDITURE IS NOT A PRIOR PERIOD EXPENDITURE AS IT HAS BEEN ACCEPTED FOR THE PAYMENT DURING THE YEAR BY VIRTUE OF THE BOARD RESOLUTION. HE SUBMITTED THAT THE LIABILITY H AS CRYSTALLIZED PAGE 4 OF 15 DURING THE YEAR. HE REFERRED TO THE BACKGROUND OF THE CLAIM OF THE ASSESSEE AND VARIOUS NOTES THEREON. HE SUBMITTED THAT THE LIABILITY ACCORDING TO THE MERCANTILE SYSTEM OF ACCOUNTING HAS BEEN ADMITTED BY THE APPELLANT DURING THE YEAR AND THEREFORE IT IS ACCRUED DURING THE YEAR AND HENCE IT IS ALLOWABLE DURING THE YEAR ONLY. HE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN CASE OF NON SUCH TEA ESTATE P LTD VERSUS COMMISSIONER OF I NCOME T AX 98 ITR 189 (SC). 7. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT INTEREST PAYABLE BY THE ASSESSEE IS PERTAINING TO THE EARLIER YEARS AND NOT OF THIS YEAR AS THIS OUTSTANDING SUBSIDY WAS LYING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR SEVERAL PAST YEARS AND THE CLAIM OF THE GOVERNMENT WAS ALSO PLACED SEVERAL YEARS , BEFORE THE YEAR IN WHICH IT IS ACCOUNTED FOR. THEREFORE, HIS SUBMISSION WAS THAT MERELY BECAUSE THE YEAR THE LIABILITY HAS BEEN ADMITTED IT DOES NOT BECOME PERTAINING TO THIS YEAR AND ALLOWABLE. HE THEREFORE SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. HE THEREFORE REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN NON - SUCH TEA E STATE LTD VERSUS COMMISSIONER OF INCOME TAX 98 ITR 189 (SC) . HE FURTHER SUPPORTED THE ORDERS OF THE LOWER AUTHORITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE APPELLANT HAS RECEIVED SUBSIDY FROM GOVERNMENT OF INDIA UNDER NEHRU ROJGAR YOJNA FOR SHELTER UPGRADATION AND TRAINING COMPONENT. IT STARTED FROM THE YEAR 1989 - 90 WHEREIN CENTRAL SUBSIDY WAS TO BE DISP ERSED THROUGH THE APPELLANT ALONG WITH SOFT LOAN. THE FIRST TIME MINISTRY ASKED FOR THE INTEREST ON UNSPENT CENTRAL SUBSIDY V IDE ITS LETTER DATED 6 TH OF JUNE 1997. THE MATTER WAS THEREAFTER FURTHER REVIEWED AND UNSPENT SUBSIDY HAS ALREADY BEEN REFUNDED TO THE MINISTRY BY THE APPELLANT , THEREFORE ACCORDING TO THE PAGE 5 OF 15 APPELLANT AS ON THE DATE THERE IS NO UNSPENT SUBSIDY LYING WITH THE APPELLANT FROM MINISTRY. HOWEVER, APPELLANT PROVIDED LOAN ASSISTANCE UNDER THE SCHEME AT SUBSIDIZED INTEREST RATES RANGING FROM 6% TO 10% AS COMPARED TO AVERAGE BORROWING RATE OF THE APPELLANT FROM 11% TO 14% AND GOVERNMENT PROVIDED INTEREST SUBSIDY OF 48.96 CRORES ON THE L OAN ASSISTANCE PROVIDED BY IT TO THE VARIOUS AGENCIES UNDER THE SCHEME. THEREFORE THERE ARE CHANCES THAT THERE M AY BE UNSPENT GRANT LYING WITH THE ASSESSEE WHICH IS SET OFF THE INTEREST LIABILITY OF THE ASSESSEE. THEREFORE GOVERNMENT HAS REQUESTED FOR PAYMENT OF INTEREST WHICH THE APPELLANT HAS EARNED BY DEPLOYING THE UNSPENT SUBSIDY. FURTHER BY LETTER DATED 09/07/2 002 THE CLAIM OF THE GOVERNMENT OF INDIA ON THE PAYMENT OF INTEREST ON UNUTILIZED SUBSIDY WAS NOT ACCEPTED BY THE APPELLANT AND IT WAS REQUESTED TO THE GOVERNMENT THAT THERE WAS NO SUCH STIPULATION AT THE TIME OF THE RELEASE OF FUNDS THAT THE GOV GOVERNMEN T OF INDIA WILL DEMAND THE PAYMENT OF INTEREST BY THE APPELLANT. FURTHER V IDE LETTER DATED 07/10/2003 THE DEMAND OF INTEREST WAS FURTHER RAISED RECONSIDERING THE REQUEST OF THE APPELLANT AND THE CLAIM OF THE GOVERNMENT WAS NOW THAT IT HAS NOW BEEN DECIDED THAT THE APPELLANT SHOULD REFUND WHATEVER INTEREST IT HAS EARNED ON THE FUNDS RELEASED BY THESE MINISTRY TO APPELLANT UNDER THE PARTICULAR SCHEME . SUBSEQUENTLY V IDE ITEM NO. 350 .33 IT WAS AGREED BY THE BOARD OF DIRECTORS OF THE APPELLANT THAT INTEREST AT T HE RATE OF 6% MAY BE PAID TO THE GOVERNMENT AND THEREFORE SUCH A LIABILITY WAS ADMITTED AND QUANTIFIED BY THE APPELLANT DURING THE YEAR , THOUGH INTEREST IS PERTAINING TO PERIOD FROM 01/06/1997 TILL THE SUBSIDY WAS PAID . CONSEQUENTLY ON 19/11/2003 THE INTER EST ON THE SUBSIDY WAS DEBITED BY THE APPELLANT OF RS. 71473600/ - AND CLAIMED THE SAME AS PAGE 6 OF 15 EXPENDITURE. LD. A SSESSING OFFICER WAS OF THE VIEW THAT IT IS A PRIOR PERIOD EXPENDITURE AND THEREFORE IT IS DISALLOWABLE. HONBLE GUJARAT HIGH COURT IN CASE OF SAURASHTRA CEMENTS VERSUS CIT IN 213 ITR 527 HAS HELD AS UNDER: - FROM THE STATEMENT OF THE CASE AND THE ORDER OF THE TRIBUNAL IT APPEARS THAT THE CONTENTION OF THE ASSESSEE WAS THAT THE EXPENDITURE IN DISPUTE WAS I NCURRED IN THE YEAR UNDER CONSIDERATION BECAUSE THEY WERE QUANTIFIED IN THE PREVIOUS YEAR CONCERNED AND THE COMMISSIONER OF INCOME - TAX (APPEALS) REST CONTENTED BY SAYING THAT WHEN THE EXPENSES RELATED TO THE EARLIER ACCOUNTING YEARS HOW EACH OF THESE EXPE NSES COULD BE QUANTIFIED IN THE YEAR OF CONSIDERATION. THE TRIBUNAL AFFIRMED THE DISALLOWANCE BY OBSERVING THAT THERE IS NO DISPUTE THAT THE ASSESSEE - COMPANY MAINTAINED ITS BOOKS OF ACCOUNT ON MERCANTILE BASIS. IT WAS OBSERVED THAT IF THAT IS SO THERE WAS NO JUSTIFICATION IN CLAIMING THESE EXPENSES FOR THE ASSESSMENT YEAR UNDER APPEAL. HAVING CONSIDERED THE MATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE ON SUCH AN ABSTRACT PROPOSITION. MERELY BECAUSE A N EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE ME RCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS TO BE REQUIRED TO BE ADJUSTED IN THE BO OKS OF ACCOUNT OF THAT PREVIOUS YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOUS YEARS IT CANNOT BE DISA LLOWED AS DEDUCTION PAGE 7 OF 15 MERELY ON THE BASIS THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTION OF THE PREVIOUS YEAR. THE TRUE PROFITS AND GAINS OF A PREVIOUS YEAR ARE REQUIRED TO BE COMPUTED FOR THE PURPOSE OF DETERMINING TAX LIABILITY. THE BASIS OF TAXING INCOME IS ACCRUAL OF INCOME AS WELL AS ACTUAL RECEIPT. IF FOR WANT OF NECESSARY MATERIAL CRYSTALLIZING THE EXPENDITURE IS NOT IN EXISTENCE IN RESPECT OF WHICH SUCH INCOME OR EXPENSES RELATE, THE MERCANTILE SYSTEM DOES NOT CAL L FOR ADJUSTMENT IN THE BOOKS OF ACCOUNT ON ESTIMATE BASIS. IT IS ACTUALLY KNOWN INCOME OR EXPENSES, THE RIGHT TO RECEIVE OR THE LIABILITY TO PAY WHICH HAS COME TO BE CRYSTALLIZED, WHICH IS TO BE TAKEN INTO ACCOUNT UNDER THE MERCANTILE SYSTEM OF MAINTAININ G BOOKS OF ACCOUNT. AN ESTIMATED INCOME OR LIABILITY, WHICH IS YET TO BE CRYSTALLIZED, CAN ONLY BE ADJUSTED AS A CONTINGENCY ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR. TO ILLUSTRATE, WE FIND FROM THE DETAILS OF THE EXPENSES THAT CERTAIN E XPENSES RELATED TO THE FEES PAID TO THE EXPERTS, OUT - OF - POCKET EXPENSES INCURRED BY THE CONSULTATION FIRM AND DISCHARGE OF LIABILITY ON ACCOUNT OF DEMURRAGE CLAIMED BY THE PORT AUTHORITIES. SUCH ITEMS WITHOUT INVESTIGATION INTO THE FACTS ABOUT THE CRYSTALL IZATION OF SUCH DUES CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THEY RELATE TO TRANSACTIONS PERTAINING TO AN EARLIER ACCOUNTING YEAR. IN THIS CONNECTION, IT IS USEFUL TO REFER TO A DECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V. NATHMAL TOLAR AM [1973] 88 ITR 234 WHICH WAS A CASE ARISING UNDER THE INDIAN INCOME - TAX ACT, 1922, AS TO THE INTERPRETATION OF SECTION 10(2)(XV) WHICH IS CORRESPONDING TO SECTION 37(1) OF THE 1961 ACT. THE QUESTION RELATED TO THE CLAIM OF DEDUCTION ON ACCOUNT OF THE SALES TAX LIABILITY PAID DURING THE YEAR 1957 - 58, WHEREAS THE LIABILITY RELATED TO THE ACCOUNTING YEAR 1949 - 50. THE DIVISION BENCH IN THAT CASE OBSERVED AS UNDER (AT PAGE 238) : PAGE 8 OF 15 ' UNDER SECTION 4 OF THE INCOME - TAX ACT, THE INCOME THAT ACCRUES OR ARISES DURING ANY PREVIOUS YEAR ALONE IS TO BE TAKEN NOTE OF. THERE IS, THEREFORE, A BAR TO INCLUDE ANY INCOME THAT ACCRUES OR ARISES OUTSIDE THE PREVIOUS YEAR SUBJECT TO THE DEEMING PROVI SIONS IN THE ACT. THERE IS, HOWEVER, NO EXPRESS BAR IN LAW, NOR ONE BY NECESSARY IMPLICATION, RESTRICTING THE POWER OF THE INCOME - TAX OFFICER TO EXCLUDE THE EXPENDITURE LAID OUT OR EXPENDED UNDER SECTION 10(2)(XV) OF THE ACT. WE ARE, THEREFORE, UNABLE TO A CCEDE TO THE SUBMISSION OF LEARNED COUNSEL FOR THE DEPARTMENT. SECTION 10(2)(XV), SHORN OF OTHER DETAILS FOR OUR PURPOSE, PROVIDES FOR MAKING ALLOWANCES OF ANY EXPENDITURE 'LAID OUT' OR 'EXPENDED'. THE WORDS 'LAID OUT' ARE WITH REFERENCE TO THE MERCANTILE SYSTEM WHILE THE WORD 'EXPENDED' IS WITH REGARD TO THE CASH SYSTEM. ONCE THERE WAS THE SALES TAX DEMAND IN THIS CASE, WHICH WAS AN ENFORCEABLE LIABILITY AND AS SUCH A REAL EXPENDITURE, FOR WHICH THE ASSESSEE LAID OUT THE AMOUNT BY DEBITING HIS ACCOUNT IN THE ACCOUNTING YEAR WHICH WAS ALSO THE YEAR OF DEMAND OF THE DEPARTMENT, DEDUCTION CAN BE LEGITIMATELY CLAIMED UNDER SECTION 10(2)(XV). HERE IS A CASE WHERE THERE IS NO DOUBT ABOUT THE GENUINENESS OF THE EXPENDITURE. THERE IS ALSO THE COMPULSIVENESS IN THE SALES TAX DEMAND WHICH CAN BE IGNORED ONLY AT THE PERIL OF THE ASSESSEE. THIS EXPENDITURE HAD NEVER BEEN TAKEN NOTE OF IN THE EARLIER YEARS FOR ONE REASON OR THE OTHER. IN THE ABSENCE OF ANY LEGAL BAR IN THE WAY OF THE ASSESSEE CLAIMING THIS EXPENDITURE I N THE YEAR OF DEMAND FOR WHICH PROVISION HAS ALREADY BEEN MADE IN HIS ACCOUNTING YEAR, DEDUCTION UNDER SECTION 10(2)(XV) IS PERMISSIBLE IN LAW AND HAS BEEN RIGHTLY ALLOWED BY THE TRIBUNAL. ' ECHOING THE SIMILAR VOICE , HONBLE DELHI HIGH COURT ALSO IN CAS E OF JET LITE INDIA PRIVATE LIMITED VERSUS CIT 379 ITR 185 HAS HELD THAT ACCORDING TO THE MERCANTILE SYSTEM OF ACCOUNTING, BILLS PAGE 9 OF 15 RECEIVED BY THE ASSESSEE IN RESPECT OF ADVERTISEMENT SERVICES PERTAINING TO THE PREVIOUS YEAR AND CONTINUED DURING THE YEAR W ERE BOOKED ONLY WHEN THE LIABILITY CRYSTALLIZED . MERELY BECAUSE THE EXPENDITURE RELATED TO AN EARLIER YEAR, IT DID NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. THE ASSESSEE FURTHER RELIED ON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VERSUS SHIVAM MOTORS PRIVATE LIMITED 272 CTR 277 WHEREIN IT HAS BEEN HELD THAT WHERE LIABILITY TO PAY INTEREST AS STIPULATED IN INITIAL AGREEMENT WAS DISPUTED AND LIABILITY WAS CRYSTALLIZED ONLY ON EXECUTION OF SUPPLEMENTARY AGREEMENT IN CURRENT YEAR THE DEDUCTION OF INTEREST LIABILITY OF ASSESSEE WOULD BE ALLOWED IN CURRENT YEA R. IN THE PRESENT CASE ALSO IN THE ORIGINAL DISBURSEMENT OF SUBSIDY BY GOVERNMENT OF INDIA THERE WAS NO ST IPULATION OF INTEREST HOWEVER LA TER ON DEMAND WAS RAISED BY THE GOVERNMENT OF INDIA WHICH WAS INITIALLY RESISTED BY THE APPELLANT BUT SUBSEQUENTLY AG REED UPON IN THE CURRENT YEAR FOR PAYMENT OF INTEREST . T HEREFORE THE DEDUCTION OF INTEREST LIABILITY IS NOT PERTAINING TO EARLIER YEARS BUT IS PART OF THE CURRENT YEAR AND IT IS ALLOWABLE AS DEDUCTION TO THE APPELLANT IN THE CURRENT YEAR. IN THE PRESENT CASE THE LIABILITY IS ADMITTED AND CRYSTALLIZED DURING THE YEAR WHEN APPELLANT HAS ADMITTED THIS LIABILITY. UNDISPUTEDLY THE LIABILITY IS ADMITTED BY THE ASSESSEE V IDE ITS BOARD MEETINGS DATED 17/11/2003 WHICH IS FALLING INTO ASSESSMENT YEAR 2004 - 2005. THEREFORE THE LIABILITY ACCORDING TO ACCRUAL SYSTEM OF ACCOUNTING WHICH IS MANDATORY FOR THE APPELLANT TO BE FOLLOWED THE LIABILITY ACCRUED DURING THE YEAR. WE HAVE ALSO PERUSED THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN CASE OF NON SUCH TEA ESTATE P LTD VERSUS PAGE 10 OF 15 COMMISSIONER OF INCOME TAX (SUPRA), WHICH IS RELIED UP ON BY BOTH THE PARTIES , HOWEVER , ACCORDING TO US THE FACTS OF THAT CASE WAS WITH RESPECT TO THE APPROVAL OF THE GOVERNMENT OF INDIA WITH RESPECT TO PAYMENT MADE TO MANAGING AGENT ACCORDING TO THE COMPANIES ACT 1956. THE HONBLE SUPREME COURT HELD THAT WHEN APPOINTMENT OF MANAGING AGENT IS PROHIBITED BY THE COMPANIES ACT , IT COMES INTO OPERATION ONLY WHEN THE APPROVAL OF THE CENTRAL GOVERNMENT IS RECEIVED AND NOT EARLIER. THE REFORE SUCH REMUNERATION PAYABLE TO THE MANAGING AGENT ACCRUES ONLY AT THE TIME OF APPROVAL GRANTED BY THE GOVERNMENT OF INDIA. HOWEVER IN THE PRESENT CASE THE ISSUE IS NOT OF ANY APPROVAL TO BE OBTAINED FROM GOVERNMENT AUTHORITIES BUT IT IS A COMMERCIAL T RANSACTION BETWEEN GOVERNMENT OF INDIA AND THE ASSESSEE ABOUT THE PAYMENT OF INTEREST TO THE GOVERNMENT OF INDIA. THE MOMENT THE LIABILITY IS ADMITTED IN THE PRESENT CASE IT ACCRUES A S AN EXPENDITURE AND THEREFORE IN THE YEAR OF ACCRUAL THE LIABILITY IS RE QUIRED TO BE RECORDED FOR IN THE BOOKS OF ACCOUNTS AND IS LIABLE IN THE YEAR IN WHICH IT IS RECORDED THEREFORE ACCORDING TO US IT IS NOT A PRIOR PERIOD EXPENDITURE BUT EXPENDITURE PERTAINING TO THE CURRENT YEAR AS IT CRYSTALLIZED DURING THE YEAR. LOOKING F ROM THE DIFFERENT ANGLE, THERE WAS NO STIPULATION ORIGINALLY FOR PAYMENT OF ANY INTEREST HOWEVER THE ASSESSEE AND THE GOVERNMENT OF INDIA AGREED ON A CERTAIN TERMS AND CONDITION FOR COMPENSATION TO THE GOVERNMENT OF INDIA BASED ON THE UNSPENT SUBSIDY LYING WITH THE APPELLANT, THE RESULTANT EXPENDITURE WHICH IS A COMPENSATION OF THE EARNING MADE BY THE ASSESSEE ON ACCOUNT OF FUNDS OF GOVERNMENT OF INDIA BEING USED BY THE ASSESSEE FOR INTERMITTENT PERIOD, BECOMES AN EXPENDITURE WHICH IS ALLOWABLE UNDER SECTIO N 37 (1) OF THE ASSESSEE DURING THE CURRENT YEAR AS IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. IN VIEW PAGE 11 OF 15 OF THIS, WE REVERSE THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (A) DISALLOWING A SUM OF RS. 7.14 CRORES ON ACCOUNT O F INTEREST PAID BY THE APPELLANT TO THE GOVERNMENT OF INDIA ON UNSPENT SUBSIDY RECEIVED BY IT. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OF RS. 1.20 CRORES BE ING THE AMOUNT OF DEDUCTION FROM LOAN PENDING RECONSIDERATION OF EXCESS/ADDITIONAL INTEREST. DURING THE YEAR THE ASSESSEE HAS SHOWN DEDUCTION OF RS. 1.20 CRORE FROM LOAN PENDING RECONSIDERATION OF EXCESS/ADDITIONAL INTEREST AS THE AMOUNT WAS ACTUALLY NOT P AID. THIS DEDUCTION ACCORDING TO THE ASSESSEE WAS THAT INCOME IS ACCOUNTED FOR ON MERCANTILE SYSTEM OF ACCOUNTING AN D AMOUNT OF EXCESS INTEREST RECEIVED IS SHOWN AS LIABILITY TILL THE TIME IT IS ADJUSTED AGAINST THE SUBSEQUENT DUES . THE LD. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND DISALLOWED THIS SUM. ON APPEAL BEFORE THE LD. CIT APPEAL HE CONCURRED WITH THE VIEWS OF THE ASSESSING OFFICER. THEREFORE THE APPELLANT HAS CONTESTED THIS DISALLOWANCE IN GROUND NO. 2. 10. THE LD. AUTHO RIZED REPRESENTATIVE SUBMITTED BEFORE US THAT VARIOUS AGENCIES HAVE TAKEN LOAN FROM THE COMPANY , THEY DEPOSIT THE AMOUNT OF INTEREST AND INSTALLMENT AS PER THE TERMS OF AGREEMENT ON OR BEFORE THE DUE DATES. HOWEVER INTEREST IS BEING CHARGED ON THE BASIS OF THE ACTUAL AMOUNT DUE AS PER THE LOAN DISBURSED AND REPAYMENT RECEIVED FROM THOSE AGENCIES ON A PARTICULAR DATE . IN VIEW OF THIS THE AMOUNT OF INTEREST REMITTED BY THE PARTY SOMETIMES BECOMES MORE THAN THE AMOUNT ACTUALLY DUE BECAUSE OF THE EARLY REMITT ANCE OF FUNDS BY THE AGENCIES AND THEREFORE THE AMOUNT OF EXCESS SO RECEIVED IS ADJUSTED AGAINST THE NEXT DUES AS PER THE TERMS OF AGREEMENT. THE INCOME IS PAGE 12 OF 15 ACCOUNTED FOR ON MERCANTILE SYSTEM OF ACCOUNTING AND THE AMOUNT OF EXCESS INTEREST RECEIVED IS SHOWN AS LIABILITY TILL THE TIME IT IS ADJUSTED AGAINST THE SUBSEQUENT DATE WHEN IT BECOMES DUE. IN VIEW OF THIS HE SUBMITTED THAT THIS SUM IS NOT THE INCOME OF THE APPELLANT HE FURTHER STATED THAT THIS SYSTEM IS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPT ED BY THE REVENUE IN THE PAST YEARS. IN VIEW OF THIS HE SUBMITTED THAT THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT APPEAL IS ERRONEOUS. 11. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. ASSESSING OFFIC ER AND LD. CIT APPEAL AND STATED THAT WHEN THE AMOUNT OF INTEREST WHICH IS ACTUALLY RECEIVED BY THE ASSESSEE MAY NOT BE DUE DURING THE CURRENT YEAR BUT IT SHOULD BE TREATED AS AN INCOME BECAUSE IT IS NOT REQUIRED TO BE REPAID BY THE ASSESSEE TO THE BORROWE RS. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. ACCORDING TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE THE INTEREST BECOMES DUE ACCORDING TO THE TERMS OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH RESPECT TO VARIOUS BORROWERS. IT MAY H APPEN DURING THE COURSE OF THE BUSINESS THAT SOME OF THE PARTIES ARE REMITTING MONEY IN ADVANCE THAT IS BEFORE THE DUE DATE OF INTEREST AND INSTALLMENT BECOMES PAYABLE AND IT MAY HAPPEN THAT THE INTEREST IS NOT DUE AS ON THAT THE PARTICULAR DATE OR ARISE O N THE DATE OF THE CLOSING OF THE YEAR THEREFORE SUCH AMOUNT RECEIVED BY THE ASSESSEE IS SHOWN AS EXCESS INTEREST RECEIVED WHICH IS SUBSEQUENTLY ADJUSTED DURING THE NEXT YEAR WHEN THE INTEREST BECOMES DUE. ACCORDING TO US IT IS ADVANCE INTEREST RECEIVED FRO M THE BORROWER BY THE APPELLANT BEFORE THE INTEREST BECOMES DUE . I T IS A SIMPLE INSTANCE OF RECEIPT OF INCOME PRIOR TO IT BECOMING DUE AS INCOME. THE APPELLANT HAS SUBMITTED PAGE 13 OF 15 THE COMPLETE LIST OF SUCH EXCESS INTEREST RECEIVED FROM PAGE NO. 49 TO PAGE NO. 6 4 OF THE PAPER BOOK SUBMITTED. ACCORDING TO THAT STATEMENT THE ASSESSEE HAS SHOWN THAT WHAT IS THE AMOUNT OF INTEREST DUE AND WHAT IS THE AMOUNT OF INTEREST RECEIVED IF THE AMOUNT OF INTEREST RECEIVED IS HIGHER THAN THE AMOUNT OF INTEREST DUE IT IS TRANSFE RRED TO THE EXCESS INTEREST RECEIVED ACCOUNT AND IT IS ACCOUNTED FOR A S AN INCOME AS AND WHEN THAT PARTICULAR INTEREST BECOMES DUE. SUCH EXERCISE MAY FALL INTO NEXT FINANCIAL YEAR. IT IS NOT THE CASE OF THE REVENUE THAT EXCESS INTEREST SHOWN BY THE ASSESSE E HAS NOT BEEN SHOWN AS AN INCOME IN SUBSEQUENT YEARS WHEN IT HAS BECOME DUE. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE AMOUNT OF EXCESS INTEREST RECEIVED BY THE ASSESSEE WHICH HAS BECOME DUE IN THE SUBSEQUENT YEAR AND IN THE SUBSEQUENT YEAR THAT ASSE SSEE HAS RECORDED IT AS ITS INCOME THERE IS NO REASON THAT WHY THIS INCOME SHOULD BE CHARGEABLE TO TAX IN THIS YEAR WHEN IT HAS NOT BECOME DUE. FURTHER IT IS NOT BEEN DENIED BY THE REVENUE THAT THIS METHOD OF ACCOUNTING IS FOLLOWED BY THE ASSESSEE FROM YEA R TO YEAR AND REVENUE HAS ACCEPTED THIS METHOD IN THE PAST YEAR S AND NOT DISTURBED THE RETURNED INCOME OF THE ASSESSEE ON THIS ACCOUNT. IN VIEW OF THIS WE REVERSE THE FINDING OF THE LD. CIT APPEAL CONFIRMING THE ADDITION OF RS. 1.20 CRORES AS INCOME ON AC COUNT OF EXCESS INTEREST RECEIVED REDUCED FROM THE DEBTORS SUBJECT TO RECONCILIATION. 13. THE 3 RD GROUND OF APPEAL OF THE ASSESSEE IS AGAINST DISALLOWANCE OF RS. 15678 6815 ON ACCOUNT OF FINANCIAL CHARGES FOR DIFFERING EXPENDITURE ON ISSUE OF BONDS , PDS AND TERM LOAN HOLDING THE SAME TO BE CAPITAL EXPENDITURE . B EFORE THE ASSESSING OFFICER IT WAS SUBMITTED THAT THESE EXPENDITURE HAS NEVER BEEN CLAIMED BY THE ASSESSEE IS AN EXPENDITURE BUT IT IS CLAIMED AS A EXPENDITURE IN PAGE 14 OF 15 THE YEAR IN WHICH IT IS INCU RRED AND DEFERRED REVENUE EXPENDITURE WRITTEN OFF IN THE BOOKS OF ACCOUNTS HAS BEEN DISALLOWED . IT WAS SUBMITTED THAT ACCORDING TO THE COMPUTATION OF TOTAL INCOME AND ACCORDING TO THE METHOD OF THE CLAIMING OF THE DEDUCTION OF THE ASSESSEE IT IS SHOWN IN T HE MISCELLANEOUS EXPENDITURE TO THAT AMOUNT THAT ADDITIONAL FINANCIAL CHARGES PAID ON BONDS DURING THE YEAR IS REQUIRED TO BE ADDED AND SAME IS CLAIMED AS DEDUCTION IN THE COMPETITION OF TAXABLE INCOME WHEREAS THE FINANCIAL CHARGES WRITTEN OFF ARE ADDED BA CK IN THE COMPUTATION OF TAXABLE INCOME. HE REFERRED TO THE PAGE NO. 67 OF THE PAPER BOOK WHEREIN THE CLAIM OF THE ASSESSEE IS DEMONSTRATED. ON APPEAL BEFORE THE LEARNED CIT APPEAL HE SUSTAINED THE DISALLOWANCE OF RS. 92398164 RELYING ON THE ORDER OF THE L D. CIT APPEAL FOR ASSESSMENT YEAR 2004 - 2005. 14. BEFORE US THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH V IDE PARA NO. 8 OF THE DECISION DATED 09/02/2016. HE SPECIFICALLY REFERRED TO PARA NO. 8.2 OF THAT DECISION WHERE THE TRIBUNAL HAS SET ASIDE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2002 2003. HE THEREFORE SUBMITTED THAT THE ISSUE MAY BE RESTORED BACK TO THE FILE OF THE ASSE SSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW. 15. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BENCH IN THE CASE OF THE ASSESSEE FOR EARLIER YEARS WHEREIN THE ISSUE HAS BEEN SENT BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER AND THEREFORE HE DOES NOT HAVE ANY OBJECTION IF THE MATTER IS SENT BACK TO THE ASSESSING OFFICER FOLLOWING THE DECISION OF COORDINATE BENCH . PAGE 15 OF 15 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND WE HAVE ALSO PERU SED THE RELEVANT PARAGRAPH OF THE DECISION OF COORDINATE BENCH WHEREIN THEY HAVE SENT BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW IN TERMS OF THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2002 03 IN ITA NO. 686/DEL 2006 AND PARAGRAPH 10 OF THAT ORDER FOR THE ASSESSMENT YEAR 2003 04 IN ITA NO. 687/DEL/2006 IN THE ASSESSEES OWN CASE. THEREFORE FOLLOWING THE CONSISTENCY IN THE DECISION OF THE TRIBUNAL , GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS SET ASIDE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICATE THE MATTER AFRESH IN ACCORDANCE WITH THE LAW AFTER GRANTING ASSESSEE APPROPRIATE OPPORTUNITY OF HEARING. IN THE RESULT GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS AL LOWED ACCORDINGLY. 17. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 0 7 / 10 /2016. - S D / - - S D / - ( SUDHANSHU SRIVASTAVA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 7 / 10 /2016 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI