ACIT, CHENNAI V. Tamil Nadu Power Finance & Infrastructure Development Corporation Ltd., CHENNAI

ITA 1261/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73749 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-03-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 07-06-2013
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 1261/MDS/2013 / ASSESSMENT YEAR : 1999-2000 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(1), CHENNAI 600 034 ( !% /APPELLANT) VS TAMIL NADU POWER FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., TUFIDCO POWERFIN TOWERS, NO.490/3-4, ANNA SALAI, NANDANAM, CHENNAI -600 035 [PAN: AAACT 2840 A] ( &'!% /RESPONDENT) / APPELLANT BY : SHRI T.N.BETGERI, JCIT / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA ADV / DATE OF HEARING : 03-03-2014 ! / DATE OF PRONOUNCEMENT : 03-03-2014 #( / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III, CHE NNAI DATED 07-02-2013 RELEVANT TO THE ASSESSMENT YEAR (AY) 199 9-2000. I.T.A. NO. 1261/MDS/2013 2 2. THE ASSESSEE IS A GOVERNMENT COMPANY AND A STATE FINANCIAL INVESTMENT CORPORATION. THE ASSESSEE FIL ED ITS RETURN OF INCOME FOR THE AY.1999-2000 ON 31-12-1999 ADMITTING A TOTAL INCOME OF ` 13,30,63,520/-. THE RETURN OF INCOME OF THE ASSESS EE WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 196 1 (HEREIN AFTER REFERRED TO AS THE ACT) ON 17-07-2000. SUB SEQUENTLY, RE-ASSESSMENT PROCEEDINGS WERE INITIATED AND ASSESS MENT U/S.143(3) R.W.S. 147 OF THE ACT WAS COMPLETED ON 1 8-03-2002. THE CASE OF THE ASSESSEE WAS REMITTED BACK BY THE T RIBUNAL TO VERIFY WHETHER THE BUSINESS ACTIVITIES OF THE ASSES SEE CLAIMED AS LONG TERM FINANCING ACTIVITIES WOULD COME UNDER EXP LANATION (E) OF SECTION 36(1)(VIII) OF THE ACT. THE SET ASIDE ASSE SSMENT WAS COMPLETED ON 29-12-2008. AGAIN THE CASE OF THE ASSESSEE WAS RE-OPENED VIDE N OTICE DATED 24-02-2010 U/S.148 ON THE GROUND THAT THE INT EREST OF ` 1,50,18,299/- DUE FROM M/S.NEPC MICON LTD., (HEREIN AFTER REFERRED TO AS NEPC) WAS NOT RECOGNIZED AS STATED IN THE NOTES ON ACCOUNTS. THE ASSESSEE HAD ADVANCED A SUM OF ` 300 LAKHS AS TERM LOAN TO NEPC DURING THE AY.1996-97 FOR INST ALLATION OF WIND MILL AT THE VILLAGE NALLURPALAYAM, DISTRICT CO IMBATORE. THE TERM LOAN WAS GIVEN BY THE ASSESSEE TO NEPC @ 17% F OR FIVE YEARS WITH A MORATORIUM PERIOD OF ONE YEAR. M/S.NE PC PAID I.T.A. NO. 1261/MDS/2013 3 INTEREST ON THE SAID LOAN UPTO 31-03-1997 AND THERE AFTER FAILED TO RE-PAY THE INSTALMENTS. THE ASSESSEE CLASSIFIED TH E SAID LOAN AS NON-PERFORMING ASSET (NPA) IN ACCORDANCE WITH RBI G UIDELINES. THE ASSESSING OFFICER VIDE ORDER DATED 10-08-2010 P ASSED U/S.143(3) R.W.S.147 OF THE ACT HELD THAT THE PROVI SIONS OF SECTION 43D ARE NOT APPLICABLE TO THE ASSESSEE, AS THE ASSE SSEE IS NEITHER A PUBLIC FINANCIAL INSTITUTION AS DEFINED IN SECTIO N 4A OF THE COMPANIES ACT, 1956 NOR A STATE FINANCIAL CORPORATI ON AS DEFINED IN SECTION 3 OR 3A OF THE STATE FINANCIAL CORPORATI ON ACT, 1951 OR NOTIFIED U/S.46 OF THE SAID ACT. THE ASSESSING OFF ICER HELD THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY (NBFC) AN D IS THUS NOT ENTITLED TO CLAIM BENEFIT UNDER THE PROVISIONS OF SECTION 43D OF THE ACT. 3. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE C IT(APPEALS) OBSERVED THAT SIMILAR ISSUE HAD COME UP IN AYS I.E. , AY.2000-01 TO 2003-04 AND 2005-06 AND THE SAME WAS DECIDED IN FAV OUR OF THE ASSESSEE. THE CIT(APPEALS) ACCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE. THE REVENUE HAS COME IN APPEAL BEFOR E THE TRIBUNAL. THE ONLY GROUND RAISED IN THE APPEAL IS, THAT THE I.T.A. NO. 1261/MDS/2013 4 ASSESSEE IS NOT A STATE FINANCIAL CORPORATION AND A S SUCH IS NOT ELIGIBLE FOR THE BENEFIT AS PROVIDED U/S.43D OF THE ACT. 4. SHRI T.N.BETGERI, APPEARING ON BEHALF OF THE REV ENUE VEHEMENTLY OPPOSED THE FINDINGS OF THE CIT(APPEALS) AND PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER. 5. ON THE OTHER HAND, SHRI SAROJ KUMAR PARIDA, APPE ARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL ON 21-03-2013 IN FAVOUR OF THE ASSESSEE IN ITA NOS.225 TO 233 & 2034/MDS/2011 FOR AYS.1996- 97 TO 2003-04, 2006-07 AND 2007-08. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDE R OF THE TRIBUNAL DATED 21-03-2013 RELIED ON BY THE LD.COUNSEL FOR TH E ASSESSEE. THE ONLY ISSUE IN APPEAL IS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM THE BENEFIT OF SECTION 43D OR NOT. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS A STATE GOVERNMENT COMPANY. ITS EN TIRE PAID-UP SHARE CAPITAL IS HELD BY THE GOVERNMENT OF TAMIL NA DU. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE IS PROVIDING LONG TE RM FINANCE FOR INDUSTRIAL PROJECTS. AS PER EXPLANATION (F) TO SEC TION 43D, STATE I.T.A. NO. 1261/MDS/2013 5 INDUSTRIAL INVESTMENT CORPORATION MEANS A GOVERNME NT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT 1956 ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINA NCE FOR INDUSTRIAL PROJECTS. SECTION 617 OF THE COMPANIES ACT, 1956 DEFINES A GOVERNMENT COMPANY AS UNDER: FOR THE PURPOSE OF THIS ACT, GOVERNMENT COMPANY MEANS ANY COMPANY IN WHICH NOT LESS THAN 51% OF THE PAID- UP SHARE CAPITAL IS HELD BY THE CENTRAL GOVERNMENT OR BY ANY STATE GOVERNMENT OR GOVERNMENTS, OR PARTLY BY THE C ENTRAL GOVERNMENT AND PARTLY BY ONE OR MORE STATE GOVERNME NTS AND INCLUDES A COMPANY WHICH IS A SUBSIDIARY OF A GOVERNMENT COMPANY AS THUS DEFINED FROM THE PERUSAL OF ABOVE DEFINITIONS, IT IS CLEAR THAT THE ASSESSEE QUALIFIES BOTH THE CONDITIONS TO FALL WITHIN THE ME ANING OF A STATE INDUSTRIAL INVESTMENT CORPORATION U/S.43D OF THE A CT. THE ASSESSEE IS A STATE GOVERNMENT COMPANY AND IS PROVI DING LONG TERM FINANCE FOR INDUSTRIAL PROJECTS. 7. WE FIND THAT AN IDENTICAL ISSUE HAD COME UP BEFO RE THE TRIBUNAL IN THE CASE OF ASSESSEE FOR AYS.1996-97 TO 2003-04, 2006-07 & 2007-08. THE TRIBUNAL VIDE ORDER DATED 2 1-03-2013 IN ITA NOS.225 TO 233 & 2034/MDS/2011 HELD AS UNDER: 17. FACTS APROPOS ARE THAT ASSESSEE HAD ADVANCED A SUM OF RS.300 LAKHS, AS TERM LOAN TO M/S.NEPC MICON LTD ., WHO HAD I.T.A. NO. 1261/MDS/2013 6 FAILED TO REPAY THE INSTALLMENTS DUE FROM 01.04.199 7. ASSESSEE HAD CLASSIFIED THE DUES AS NON-PERFORMING ASSET IN ITS BOOKS BASED ON RESERVE BANK OF INDIA GUIDELINES. ASSESSEE HAD NOT SHOWN ANY ACCRUAL OF INTEREST ON SUCH TERM LOAN IN ITS ACCOUN TS. ASSESSING OFFICER WAS OF THE OPINION THAT SINCE IT WAS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING, IT WAS MANDATORY TO SHOW THE ACCRUED INTEREST. AS PER THE ASSESSING OFFICER, RBI GUIDELI NES WERE ONLY FOR THE PURPOSE OF SUPERVISION, AND MANAGEMENT OF NON B ANKING FINANCIAL COMPANIES AND WAS NOT RELEVANT FOR ASCERT AINING INCOME UNDER THE INCOME TAX ACT. THOUGH ASSESSEE EXPLAINED THAT BY VIRTUE OF SEC.43D, IT WAS NECESSARY FOR IT TO OFFER SUCH INTEREST INCOME, ONLY WHEN INTEREST WAS REALIZED, ASSESSING OFFICER WAS NOT IMPRESSED. AN ADDITION WAS MADE. 18. IN ITS APPEAL BEFORE THE CIT(A), ARGUMENT OF AS SESSEE WAS THAT INTEREST WAS NOT AT ALL CREDITED TO THE PROFIT AND LOSS ACCOUNT. WHEN INTEREST WAS NOT AT ALL CREDITED, THERE WAS NO QUES TION OF ACCRUAL, ESPECIALLY SINCE THE ASSESSEE HAD CLASSIFIED THE LO AN AS NON PERFORMING ASSET. FURTHER, ACCORDING TO THE ASSESSE E, SEC.43D WAS APPLICABLE, SINCE GOVERNMENT OF TAMILNADU BY G.O. M S. NO.47 DATED 09.01.1991 HAD DECLARED IT AS A STATE FINANCI AL CORPORATION. LD. CIT(A) WAS APPRECIATIVE OF THESE CONTENTIONS AN D DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 19. NOW, BEFORE US, LD. D.R ASSAILING THE ORDER OF LD. CIT(A) SUBMITTED THAT ASSESSEE WAS FOLLOWING MERCANTILE AC COUNTING SYSTEM AND THEREFORE, IT WAS MANDATORY TO ACCOUNT T HE INCOME ACCRUED ON LOANS GIVEN BY IT. PARTIES WERE DUTY BOU ND TO PAY INTEREST TO THE ASSESSEE AND ASSESSEE WAS LAWFULLY ENTITLED FOR SUCH INTEREST. HENCE, IT COULD NOT SAY THAT THERE WAS NO ACCRUAL OF INCOME. PER CONTRA, LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). 20. WE HAVE PERUSED THE ORDERS OF THE LOWER AUTHORI TIES AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DOUBT THAT ASSES SEE HAD NOT I.T.A. NO. 1261/MDS/2013 7 CHARGED IN ITS BOOKS OF ACCOUNTS ANY INTEREST ON TH E LOANS CLASSIFIED BY IT AS NON PERFORMING ASSETS. IT IS NOT A CASE WH ERE ASSESSEE HAD CREDITED SUCH INTEREST AND THEN CLAIMED WRITE OFF., ASSESSEE MIGHT HAVE BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING . HOWEVER, THE PRUDENTIAL NORMS PRESCRIBED BY RBI, FOR NON BANKING FINANCIAL COMPANY UNDER SECTION 45 Q OF THE RBI ACT, MADE IT OBLIGATORY FOR THE ASSESSEE TO CLASSIFY THE LOANS ON WHICH INTERES T WAS NOT RECEIVED FOR A PERIOD EXCEEDING SIX MONTHS, AS NON- PERFORMING ASSETS. ONCE IT WAS SO CLASSIFIED, INTEREST COULD N OT BE CHARGED IN ITS ACCOUNTS AND TAKEN AS INCOME. JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD (293 ITR 357) HAS HELD THAT ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING INCOME FR OM NON PERFORMING ASSETS IN CONSONANCE WITH THE NOTIFICATI ON ISSUED BY RBI. WE ARE OF THE OPINION THAT THIS DECISION OF HO NBLE JURISDICTIONAL HIGH COURT GOES IN FAVOUR OF THE ASS ESSEE. WE THEREFORE, CANNOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. IN VIEW OF THE FACTS OF THE CASE AND THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE, THERE IS NO MERIT IN THE APPEA L OF THE REVENUE, HENCE THE SAME IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON MONDAY, THE 03 RD MARCH, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 03 RD MARCH, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR