DCIT, CIR-11(2), KOLKATA, Kolkata V. M/s Westing House Sexby Farmer Ltd., Kolkata

ITA 1241/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1409 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 30-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAURABH KUMAR
• Section: 43B

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1241 / KOL / 2015 ASSESSMENT YEAR :2003-04 DCIT, CIRCLE-11(2), P-7, CHOWRINGHEE SQUARE, KOLKATA-69 V/S . M/S WESTING HOUSE SEXBY FARMER LTD., 17, CONVENT ROAD, KOLKATA-14 [ PAN NO.AAACW 2436 P ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SAURABH KUMAR, ADDL. CIT-DR /BY RESPONDENT SHRI SUBHADIP DAY, FCA /DATE OF HEARING 13-09-2017 !' /DATE OF PRONOUNCEMENT 22-09-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-21, KOLKATA DA TED 25.05.2015. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-2, KOLKATA U/ S 147/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 26.12.2007 FOR ASSESSMENT YEAR 2003-04. SHRI SAURABH KUMAR, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI SUBHADIP DEY, LD. AUTHORIZED RE PRESENTATIVE APPEARED ON BEHALF OF ASSESSEE. 2. SOLITARY ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER FOR 1,93,34,365/- U/S. 36(1)(III) OF THE ACT. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A LIMI TED COMPANY AND ENGAGED IN MANUFACTURING BUSINESS OF SIGNALING SYSTEM AND C IVIL CONSTRUCTION WORK. ITA NO.1241/KOL/2015 A.Y. 2003-04 DCIT CIR-11(2), KOL. VS. M/S WESTING HOUSE S EXBY FARMER LTD. PAGE 2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBS ERVED THAT ASSESSEE HAS BEEN CLAIMING THE INTEREST ON LOAN TAKEN FROM G OVERNMENT OF WEST BENGAL ON YEAR-TO-YEAR BASIS. HOWEVER, TILL DATE NO PAYMEN T HAS BEEN MADE FOR THE AMOUNT OF LOAN AS WELL AS INTEREST TO THE GOVT. OF W.BENGAL. IT WAS ALSO OBSERVED THAT GOVT. OF W. BENGAL HAS PROVIDED MORAT ORIUM PERIOD FOR MAKING THE PAYMENT OF PRINCIPAL AMOUNT AS WELL AS INTEREST AMOUNT. HOWEVER, ASSESSEE DURING THE YEAR HAS CLAIMED INTEREST EXPEN SE OF 1,93,34,365/- WHICH WAS SHOWN OUTSTANDING LIABILITY IN THE BALA NCE-SHEET. THE AO ALSO FOUND THAT THE AMOUNT OF INTEREST AS WELL AS LOAN W AS CONVERTED BY ASSESSEE AS EQUITY SHARE CAPITAL TO THE GOVT. OF W. BENGAL. IN VIEW OF ABOVE, AO OPINED THAT AMOUNT OF INTEREST CLAIMED BY ASSESSEE AND SHO WN LIABILITY IS ONLY TENTATIVE AND UNCERTAIN LIABILITY. ACCORDINGLY, HE MADE THE DISALLOWANCE OF INTEREST EXPENSE AND ADDED TO THE TOTAL INCOME OF A SSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT IT HAS TA KEN LOAN FROM GOVT. OF W. BENGAL FOR ITS BUSINESS ACTIVITY, BUT, THE AMOUNT O F LOAN AS WELL AS INTEREST WAS NOT PAID BY ASSESSEE DUE TO FINANCIAL CRUNCH. BUT I T IS UNDISPUTED FACT THAT LOAN WAS NEVER WAIVED OFF BY THE GOVT. OF W. BENGAL. IN FACT THE AMOUNT OF ACCUMULATED LIABILITY PAYABLE TO THE GOVT. OF W. BE NGAL WAS CONVERTED INTO EQUITY SHARES AFTER MUTUAL CONSENT WITH THE GOVT. O F W. BENGAL. ACCORDINGLY, THE ADJUSTMENT WAS MADE IN THE BOOKS OF ACCOUNT. TH E ASSESSEE FURTHER SUBMITTED THAT ON THE IDENTICAL ISSUE FOR THE AY 20 04-05 RELIEF WAS GRANTED BY LD. CIT U/S. 264 OF THE ACT IN THE OWN CASE OF ASSE SSEE. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 6. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLAN T AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE LOAN SANCTION O RDER ISSUED BY THE GOVERNMENT OF WEST BENGAL. ON PERUSAL OF LOAN SANCTION ORDER DATE D 09.11.2002, IT IS OBSERVED THAT THE LOAN WAS SANCTIONED BY THE GOVERNOR, WEST BENGA L BEING PAYMENT OF NON-PLAN LOAN TO THE ASSESSEE I.E. WESTINGHOUSE SAXBY FARMER LT. WHICH WAS RELEASED BY THE PUBLIC ENTERPRISES DEPARTMENT, GOVERNMENT OF WEST B ENGAL. AS PER THE TERM AND CONDITIONS, THE LOAN WOULD CARRY INTEREST @ 14.50% P.A. SUBJECT TO 2.50% P.A. REBATE FOR TIMELY REPAYMENT OF LOAN AND PAYMENT OF INTERES T. FURTHER, THE LOAN SANCTIONED AND INTEREST THEREON WOULD HAVE A MORATORIUM OF 5 Y EARS AND WOULD BE REPAYABLE IN 15 YEARS IN 10 EQUAL INSTALLMENTS FROM THE SIXTH AN NIVERSARY DATE OF DRAWL OF LOAN. ITA NO.1241/KOL/2015 A.Y. 2003-04 DCIT CIR-11(2), KOL. VS. M/S WESTING HOUSE S EXBY FARMER LTD. PAGE 3 THAT, THE INTEREST ON THE PERIOD OF MORATORIUM MIGH T BE SUB-DIVIDED IN 10 EQUAL INSTALLMENTS AND ADDED UP WITH EVERY INSTALLMENTS. THUS, IT IS APPARENT FROM THE SANCTIONED LETTER THAT THOUGH WAS THERE WAS MORATOR IUM PERIOD FOR REPAYMENT OF LOAN AND PAYMENT OF INTEREST BUT THERE WAS FIXED RATE OF INTEREST WHICH ACCRUED YEAR AFTER YEAR. THE LOAN SANCTIONED BY THE GOVERNMENT WAS NOT INTEREST FREE. SINCE, THE APPELLANT COMPANY COULD NOT REPAY THE LOAN AND PAID THE INTEREST ACCRUED, THEREFORE, IN THE LATER YEARS THE AMOUNT OF LOAN AND INTEREST ACCRUED WAS CONVERTED INTO EQUITY SHARES AND THE SHARES WERE ALLOTTED TO THE GOVERNME NT OF WEST BENGAL. ON CAREFUL CONSIDERATION OF THE FACTS, I AM OF THE OPINION THA T THE LIABILITY TO PAY THE INTEREST ON LOAN WAS NOT TENTATIVE LIABILITY OR UNASCERTAINED L IABILITY AS VIEWED BY THE AO IN THE ASSESSMENT ORDER TO MAKE THE DISALLOWANCE. THE LOAN WAS BEARING A FIXED RATE OF INTEREST SUBJECT TO SOME REBATE ON TIMELY REPAYMENT OF LOAN AND PAYMENT OF INTEREST. SINCE, THE APPELLANT HAS MAINTAINED ITS BOOKS OF AC COUNT ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING AND, HENCE, IT HAS TO PROVIDE FOR THE INTEREST ACCRUED ON THE GOVT. LOAN AT THE RATE PROVIDED IN THE SANCTIONED O RDER. THUS, IT WOULD NOT BE CORRECT TO SAY THAT THE LIABILITY OF INTEREST ON LOAN WAS A N UNASCERTAINED LIABILITY OR THE TENTATIVE LIABILITY. SINCE, THE APP IS FOLLOWING TH E MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, IT HAD RIGHTLY CLAIMED THE DEDUCTION ON ACCOUNT OF INTEREST ON LOAN. FURTHER, I AM OF THE OPINION THAT IN THIS CASE THE PROVISION S OF SECTION 43B ARE ALSO NOT APPLICABLE BECAUSE THE LOAN HAS NOT BEEN TAKEN FROM ANY FINANCIAL INSTITUTION. THE LOAN WAS DIRECTLY TAKEN FROM THE GOVERNMENT OF WEST BENGAL WHICH WAS SANCTIONED BY THE GOVERNOR OF THE WEST BENGAL. IT IS ALSO OBSE RVED THAT THE SIMILAR DISALLOWANCE IN THE IMMEDIATELY SUCCEEDING YEAR I.E. AY 2004-05. IN THAT YEAR, AGAINST THE ORDER OF THE AO, THE APPELLANT COMPANY HAD FILED AN APPLICAT ION U/S. 264 OF THE ACT BEFORE THE CIT, KOLKATA-I, KOLKATA CONTESTING THE DISALLOWANCE OF INTEREST ON GOVT. LOAN. THE CIT, KOLKATA-I, KOLKATA PASSED AN ORDER U/S. 264 OF THE ACT FOR THE A.Y 2004-05 ON 29.08.2008 WHEREIN AFTER CONSIDERING THE FACTS OF T HE CASE, HE DIRECTED THE AO TO ALLOW THE DEDUCTION OF INTEREST ON LOAN. IN VIEW OF ABOVE, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF INTEREST OF RS.1,93,34,365/-. HE IS DIRECTED TO DELETE THE DISALLOWANCE. THE GROUND NO. 6 IS ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE US. 5. BEFORE US BOTH PARTIES RELIED ON THE ORDER OF AU THORITIES BELOW AS FAVOURABLE TO THEM. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, AO MADE THE ADDITION OF INTEREST EXPENSE CLAIMED BY ASSESSEE ON THE GROUND THAT AMOUNT OF INTEREST IS TENTATIVE AND UNASCERTAINABLE. AS SUCH NO AMOUNT LO AN & INTEREST IS PAYABLE TO THE GOVT. OF W.BENGAL. THEREFORE, AO TREATED THE INTEREST AMOUNT AND ADDED TO THE TOTAL INCOME OF ASSESSEE. HOWEVER, LD. CIT(A) OBSERVED THAT THE AMOUNT OF INTEREST WAS VERY MUCH PAYABLE TO THE GOV T. OF W.BENGAL THOUGH THE SAME WAS NOT REPAID DUE TO FINANCIAL CRUNCH. HO WEVER, SUBSEQUENTLY THE GOVT. OF W.BENGAL WAS ALLOTTED EQUITY SHARES AGAINS T THE AMOUNT OF LOAN AS WELL AS INTEREST. NOW THE ISSUE BEFORE US ARISES WH ETHER THE INTEREST CLAIM BY ITA NO.1241/KOL/2015 A.Y. 2003-04 DCIT CIR-11(2), KOL. VS. M/S WESTING HOUSE S EXBY FARMER LTD. PAGE 4 THE ASSESSEE REPRESENTS ITS INCOME IN THE AFORESAID FACTS AND CIRCUMSTANCES. AT THE OUTSET, IT WAS OBSERVED THAT THE AO HIMSELF HAS ADMITTED THE FACT THAT THE ACCUMULATED AMOUNT OF LOAN WAS CONVERTED TO EQU ITY SHARES. THEREFORE, IN OUR CONSIDERED VIEW THERE REMAINS NO AMBIGUITY IN H OLDING THAT THE AMOUNT OF INTEREST IS NOT TENTATIVE AND UNASCERTAINABLE. THE ASSESSEE HAS DULY SETTLED THE AMOUNT OF ITS LIABILITY ARISEN ON ACCOUNT OF IN TEREST BY WAY OF ALLOTMENT OF SHARES TO THE GOVT. OF W.BENGAL. THUS, IT CANNOT BE CONCLUDED THAT THE LIABILITY OF INTEREST IS TENTATIVE AND UNASCERTAINABLE. IN VI EW OF ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). WE HOLD ACCOR DINGLY. HENCE, THIS GROUND OF REVENUE IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 22/ 10/2017 SD/- SD/- ($%&) ( %&) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (%)*- 22 / 09 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT CIRCLE-11(2), P-7, CHOWRINGHEE SQUA RE, KOLKATA-69 2. /RESPONDENT-M/S WESTING HOUSE SEXBY FARMER LTD., 17 , CONVENT RD. KOL-14 3.)2)3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5.789$$3 , 3 , / DR, ITAT, KOLKATA 6.9;<=> / GUARD FILE. BY ORDER/ %, /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3 ,