ACIT, CHENNAI V. M/s. The India Cements Ltd., CHENNAI

ITA 1340/CHNY/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4655 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 29-03-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 16-08-2010
• Court: TRIBUNAL
• Department Lawyers: V M PRASAD
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Business income; Depreciation; Bad and doubtful debts; Difference of opinion; Notional interest; Revised return; Change of opinion
• Section: 43B; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . / ITA NOS. 1339, 1340, 1341 & 1342/MDS/2010 / ASSESSMENT YEARS : 2001-02, 2004-05 TO 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(3), CHENNAI. ( /APPELLANT) V. M/S. THE IN DIA CEMENTS LTD., DHUN BUILDINGS, NO.827, ANNA SALAI, CHENNAI 600 002. PAN AAACT1728P RESPONDENT) / APPELLANT BY : SHRI M.S.V.M. PRASAD, CIT / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE ! / DATE OF HEARING : 29.03.2017 '# ! / DATE OF PRONOUNCEMENT : 12.05.2017 % / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINS T THE DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX( APPEALS). SINCE CERTAIN COMMON ISSUES ARE INVOLVED IN THESE A PPEALS, - - ITA 1339 TO 1342/10 2 THESE ARE CLUBBED TOGETHER, HEARD TOGETHER AND DISP OSED OF BY THIS COMMON ORDER. 2. ITA 1339/MDS/2010 FOR ASST. YEAR 2001-02 : THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO FIN DING OF THE CIT(APPEALS) HOLDING THAT REOPENING IS BAD IN LAW. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER FOUND THAT THE PROFIT AS PER PROFIT AND LOSS ACCOUNT FILE D BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME AND AS PER THE ANNU AL ACCOUNTS STANDS AT 51,16,14,000/-, WHICH WAS REDUCED TO 27,50,39,369/- BY WAY OF ADJUSTMENTS ON ACCOUNT OR PRIOR PERIOD EX PENSES, PROVISIONS, RESERVES, DIVIDEND ETC. THE ASSESSEE H AD TAKEN THIS AMOUNT OF 27,50,39,369/- AS THE STARTING POINT AND HAS MADE CERTAIN ADJUSTMENTS FOR ARRIVING AT THE BOOK PROFIT U/S.115JB OF THE ACT AMOUNTING TO 48,41,17,030/-. ACCORDING TO THE AO, THE NET PROFIT SHOULD HAVE BEEN TAKEN AT 51,16,14,000/-. THEREFORE, THE AO OBSERVED THAT THE ASSESSEE FAILED TO DISCLOS E FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSME NT AND ACCORDINGLY INCOME CHARGEABLE TO TAX HAD ESCAPED AS SESSMENT WITHIN THE MEANING OF SEC.147 OF THE ACT. THE AO I SSUED NOTICE - - ITA 1339 TO 1342/10 3 U/S.148 OF THE ACT DATED 28.03.2008 AFTER OBTAINING APPROVAL OF THE CIT, CHENNAI-I. THE ASSESSMENT U/S.143(3) R.W. S.147 OF THE ACT WAS COMPLETED ON 26.12.2008, WHEREIN PROFIT AS PER THE PROFIT AND LOSS ACCOUNT WAS ADOPTED AT 5,16,14,000/-, WHICH WAS INCREASED BY THE AMOUNTS OF WEALTH-TAX, PROVISI ON FOR EXCESS INTEREST AND PROVISION FOR DOUBTFUL DEBTS AM OUNTING TO 4,28,89,085/-. THUS, THE BOOK PROFITS AS PER 115J B WAS DETERMINED AT 55,15,54,687/- AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO OBSERVED THAT T HE RE- ASSESSMENT PROCEEDINGS WERE NOT VALID AND THE GROUN D OF APPEAL IS ALLOWED. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OP INION THAT SIMILAR ISSUE CAME FOR CONSIDERATION IN ASSESSES O WN CASE FOR THE ASST. YEAR 2000-01 IN ITA NO.710/MDS/2009. THE TRIBUNAL VIDE ORDER DATED 18.2.2014, HELD HERE AS UNDER:- 37. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH TH E CASE FILE. THE JUDICIAL PRECEDENT QUOTED HEREINABOVE HA S ALSO BEEN PERUSED. AT THE COST OF REPETITION, WE RE-NARRATE THE FACTS. THE IMPUGNED ASSESSMENT YEAR IS 2000-01. ADMITTEDLY, T HE ASSESSING OFFICER HAD FRAMED SCRUTINY ASSESSMENT ON - - ITA 1339 TO 1342/10 4 31.3.2003. THEREAFTER, HE ISSUED REOPENING NOTICE TO THE ASSESSEE ON 27.12.2006 IE WELL AFTER A PERIOD OF FO UR YEARS FROM THE END OF THE IMPUGNED ASSESSMENT YEAR. IN T HESE CIRCUMSTANCES, FIRST PROVISO TO SECTION 147 STIPULA TES THAT IN CASE OF A REOPENING AFTER A PERIOD OF FOUR YEARS F ROM THE END OF THE ASSESSMENT YEAR, THE SAME CAN ONLY BE TAKEN REC OURSE TO IF THERE IS A FAILURE ON ASSESSEES PART IN DISCLOSI NG FULLY AND TRULY ALL PARTICULARS OF INCOME. UNDISPUTEDLY, IN THE LETTER ACCORDING APPROVAL FOR REOPENING IN QUESTION, WHOSE CONTENTS HAVE BEEN REPRODUCED HEREINABOVE, THE CIT HIMSELF O BSERVES THAT THE ASSESSING OFFICER COULD HAVE DETECTED THE ALLEGED WRONG COMPUTATION MADE BY THE ASSESSEE. IN THE OR DER UNDER CHALLENGE, THE CIT(A)S FINDINGS READ THAT THE ASS ESSEE HAD NOT ENCLOSED SCHEDULE 2 OF PRINTED ANNUAL REPORT. IN THE COURSE OF HEARING, IT IS EVIDENT TO US THAT IN SC RUTINY ASSESSMENT AND LOWER APPELLATE PROCEEDINGS, THE IS SUE IN QUESTION I.E DETERMINATION OF BOOK PROFITS U/S 115 JA HAS BEEN DECIDED WITHOUT ANY DOCUMENTARY EVIDENCE OVER AND A BOVE WHAT WAS ALREADY FILED BY THE ASSESSEE. THUS, WE CONCLUDE THAT THE DECISION TO REOPEN THE ASSESSMENT IS NOT S UPPORTED BY ANY FRESH MATERIAL. ONCE THAT IS SO, THE IMPUGNED REOPENING TURNS OUT TO BE A MERE CHANGE OF OPINION. IN OBSER VING SO, WE ARE ALSO CONSCIOUS OF THE FACT THAT IN LOWER APPELL ATE PROCEEDINGS, THE CIT(A) HAS ACCEPTED THE ASSESSEE S CONTENTIONS BY INTERPRETATION OF SECTION 115JA AND NOT ANY OTHER MATERIAL. IT IS IN THESE SPECIFIED CIRCUMST ANCES THAT WE ARE HOLDING THE REOPENING IN QUESTION TO BE A MERE CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN THE EYES OF LA W. IT IS A TRITE PROPOSITION OF LAW THAT A REOPENING AFTER FOUR YEAR S FROM THE END OF THE RELEVANT ASSESSMENT YEAR HAS TO BE BASED ON FRESH MATERIAL LEADING TO A CONCLUSION OF ESCAPEMENT OF I NCOME FROM - - ITA 1339 TO 1342/10 5 BEING ASSESSED. THERE IS HARDLY ANY QUARREL THAT N O SUCH CIRCUMSTANCES ARISE IN THE INSTANT CASE. SO, WE HO LD THAT ONCE THE REOPENING IN QUESTION TURNS OUT TO BE MERE CHAN GE OF OPINION, IT IS NOT SUSTAINABLE IN THE EYES OF LAW. THE ASSESSEES RULE 27 PETITION CHALLENGING VALIDITY O F THE REOPENING SUCCEEDS. AS A NECESSARY CONSEQUENCE, TH E REVENUES APPEAL FAILS. THE FINDINGS OF THE CIT(A ) UNDER CHALLENGE ARE CONFIRMED IN TUNE WITH RULE 27 OF TH E INCOME TAX (APPELLATE TRIBUNAL) RULES. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE T RIBUNAL, WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVEN UE ITA NOS. 1340, 1341, 1342/MDS/2010 FOR A.YS 2004-0 5, 2005-06, & 2006-07 5. THE COMMON GROUND RAISED IN THESE APPEALS RELATE S TO DELETION OF ADDITION OF THE AMOUNT TRANSFERRED FROM DEFERRED INCOME [RESERVES] TO PROFIT AND LOSS ACCOUNT. 6. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IMPORTE D WASTE HEAT RECOVERY PLANT, THE WHOLE COST OF WHICH WAS MET BY THE SUBSIDY GRANTED BY THE JAPANESE GOVT. THE GOVT . OF INDIA ON ITS PART PERMITTED THE IMPORT OF THE ASSETS BY P AYMENT OF CONCESSIONAL DUTY AT THE RATE OF 5 PERCENT ONLY AS PER EXPORT PROMOTION CAPITAL GOODS SCHEME, 2002-2007. THIS WA S - - ITA 1339 TO 1342/10 6 ALLOWED SUBJECT TO CONDITION THAT THE ASSESSEE FULF ILLS AN EXPORT OBLIGATION OF 212 CRORES (SUBSEQUENTLY REDUCED TO 180.78 CRORES) OF CLINKER OR CEMENT. HOWEVER, UPON THE IM PORT OF THE CAPITAL GOODS THE ASSESSEE HAS ACCOUNTED FOR THE FU LL OBLIGATION OF THE DUTY THAT WAS ALLOWED AS A CONCESSION. IT D EBITED THE ASSET ACCOUNT AND CREDITED THE RESERVE UNDER THE HE AD DEFERRED INCOME. AFTER FULFILLMENT OF THE EXPORT OBLIGATIO N, THE CONCESSION SO UTILIZED FOR THE IMPORT OF CAPITAL GOODS WAS REV ERSED FROM RESERVES ACCOUNT (DEFERRED INCOME) TO THE PROFIT AN D LOSS ACCOUNT. THIS REVERSAL OF RESERVES TO THE PROFIT A ND LOSS ACCOUNT IS THE AMOUNT WHICH WAS WITHDRAWN BY THE ASSESSEE I N THE STATEMENT OF COMPUTATION OF INCOME. THE AO, HAS, H OWEVER, DISALLOWED THE ABOVE ON THE GROUND THAT THE ASSESSE E IS NOT ALLOWED TO WITHDRAW THE AMOUNT OF 3,35,24,771/- FROM THE COMPUTATION OF INCOME, AS THE SAME IS CHARGEABLE TO INCOME-TAX AS BUSINESS INCOME AS PER THE PROVISIONS OF SEC.28( IV) OF THE ACT. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO ALLOWED THE GROUND OF APPEAL. AG AINST, THE REVENUE IS IN APPEAL BEFORE US. - - ITA 1339 TO 1342/10 7 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THE FIRST INSTANCE, IT IS SEEN THAT THE ASSESSEE HAD PASSED A NOTIONAL ENTRY DEBITING ITS FIXED ASSETS A ND CREDITING RESERVES UNDER THE HEAD DEFERRED INCOME. THE LD. AR AGUED THAT NO DEPRECIATION HAS BEEN CLAIMED ON THE INCREA SED COST OF FIXED ASSETS. ON FULFILLMENT OF THE EXPORT OBLIGAT ION, THE ASSESSEE HAD REVERSED THE RESERVE AND CREDITED ITS INCOME WH ICH WAS CLAIMED AS DEDUCTION IN THE COMPUTATION OF INCOME. THE NOTIONAL ENTRIES PASSED BY THE ASSESSEE CANNOT RESULT IN ANY INCOME OR EXPENDITURE. IN THIS REGARD, WE REFER THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. MOGUL LINES LTD. ( 46 ITR 590)(BOM), WHEREIN IT WAS OBSERVED THAT THE MATTER OF TAXABILITY COULD NOT BE DECIDED ON THE BASIS OF THE ENTRIES, W HICH THE ASSESSEE MIGHT CHOOSE TO MAKE IN HIS ACCOUNT, BUT H AD TO BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF LAW. WHAT WOULD DETERMINE TAXABILITY IS NOT WHETHER THE ASSESSEE HA S SHOWN A PARTICULAR ITEM AS A PROFIT OR LOSS IN THE ACCOUNTI NG YEAR, BUT WHETHER THE SAID ITEM COULD BE REGARDED EITHER AS A PROFIT OR LOSS UNDER THE PROVISION OF THE ACT. THE SUPREME COURT HAS ALSO - - ITA 1339 TO 1342/10 8 TAKEN A SIMILAR VIEW IN THE CASE OF CIT V. SHOORJI VALLABHDAS & CO. (46 ITR 144), WHEREIN IT WAS HELD AS UNDER : INCOME-TAX IS A LEVY ON INCOME. THOUGH THE INCOME -TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT, YET THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CA NNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE . WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GI VEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE IN COME CAN BE SAID NOT HAVE RESULTED AT ALL, THERE IS OBVI OUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCE S, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. SUBSEQUENTLY, THE SUPREME COURT IN THE CASE OF STAT E BANK OF INDIA V. CIT (157 ITR 67) HAS REFERRED TO THE DECIS ION OF MOGUAL LINES AND HAS HELD AS FOLLOWS : IT IS WELL SETTLED THAT THE WAY IN WHICH ENTRIES A RE MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAD EARNED ANY PROFIT OR SUFFERED ANY LOSS. SINCE THE IMPUGNED SUM HAS NEITHER ACCRUED NOR WAS RECEIVED BY THE ASSESSEE AND WAS BASED ONLY ON THE REVERSAL OF A NOTIONAL ENTRY PASSED EARLIER, THE AMOUNT OF 3,35,24,771/- CANNOT BE TREATED AS INCOME. - - ITA 1339 TO 1342/10 9 7.1 IN OUR OPINION, THE PROVISIONS OF SEC.28(IV) OF THE ACT ARE ALSO NOT ATTRACTED IN THIS CASE, SINCE THE ASSESSEE HAD NOT RECEIVED ANY BENEFIT OR PERQUISITE BUT HAD ONLY PAS SED NOTIONAL ENTRIES IN ITS BOOKS OF ACCOUNTS. WHEN THE ASSESSE E PAID CONCESSIONAL DUTY, IT IS THE DUTY PAYBLE AS PER THE RELEVANT STATUTE AND THERE WAS NO BENEFIT OR PERQUISITE ACCR UING TO THE ASSESSEE. STATUTORY LEVY WILL NOT RESULT IN A CONC ESSION OR BENEFIT TO THE ASSESSEE. FURTHER, IT WAS A CONDITIONAL CON CESSION INASMUCH IF THE ASSESSEE DID NOT ACHIEVE THE REQUIR ED EXPORTS, IT MAY HAVE TO PAY THE ENTIRE CUSTOMS DUTY. THE BENEF IT CONNECTED WITH THE ACQUISITION OF A CAPITAL ASSET CANNOT BE B ROUGHT TO TAX U/S.28(IV) OF THE ACT. IT IS TO BE NOTED THAT THE SUPREME COURT IN THE CASE OF CIT V. PONNI SUGARS AND CHEMICALS LTD. (306 ITR 392) HAS HELD THAT THE CHARACTER OF RECEIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE P URPOSE FOR WHICH THE SUBSIDY IS GRANTED. IN OTHER WORDS, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME AT WHICH SUBSI DY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. IF THE OB JECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINE SS MORE PROFITABLY THEN THE RECEIPT IS ON THE REVENUE ACCOU NT. ON THE - - ITA 1339 TO 1342/10 10 OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER T HE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO SET UP NEW UNIT OR TO EXPAND AN EXISTING UNIT THEN THE RECEIPT OF SUBSIDY WOULD BE ON CAPITAL ACCOUNT. APPLYING THE ABOVE PRINCIPLE LAID DOWN BY THE APEX COURT, IT MAY BE CONCLUDED THAT SINCE THE CONC ESSION WAS LINKED TO THE IMPORT OF CAPITAL GOODS, THOUGH CONDI TIONAL ON FULFILLING EXPORT OBLIGATION, IT WAS A CONCESSION O N THE CAPITAL ACCOUNT. THE ASSESSEE IS ALSO NOT ALLOWED TO USE T HE IMPORT ENTITLEMENT IN ANY MANNER OTHER THAN FOR IMPORT OF CAPITAL GOODS. WE AGREE WITH THE ARGUMENT OF THE LD. AR THAT THERE IS NO BENEFIT OR PERQUISITE THAT ACCRUED TO THE ASSESSEE ON ACCOU NT OF THIS TRANSACTION AND IT DOES NOT HAVE ANY COMPONENT OF R EVENUE NATURE AND HENCE, THE PROVISIONS OF SEC.28(IV) OF T HE ACT DOES NOT APPLY. FOR INVOKING SEC.28(IV) OF THE ACT, THE PRE-REQUISITE CONDITIONS ARE THAT THE BENEFIT / PRE-REQUISITE MUS T ARISE FROM THE BUSINESS OF AN ASSESSEE AND THAT THERE MUST BE A NE XUS OR CONNECTION BETWEEN THE BUSINESS OF AN ASSESSEE AND THE BENEFIT / PERQUISITE SOUGHT TO BE TAXED. IN THIS CASE, BOT H THE CONDITIONS ARE ABSENT. THEREFORE, WE FIND THAT THE CIT(APPEAL S) IS JUSTIFIED IN GIVING DIRECTION THE AO TO DELETE THE DISALLOWA NCE MADE. - - ITA 1339 TO 1342/10 11 FURTHER, IN OUR OPINION, IT IS A NOTIONAL ENTRY IN ITS BOOKS OF ACCOUNT AND NOT EFFECTING THE REAL PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THE PROVISIONS OF SEC.28(IV) HAVE NO A PPLICATION. THIS GROUND IS DISMISSED. 8. THE NEXT GROUND IN ITA NO.1340/MDS/2010, FOR THE ASST. YEAR 2004-05 IS WITH REGARD TO DELETION OF DISALLOW ANCE OF DEDUCTION U/S.43BOF THE ACT. 9. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS REDUCED FROM THE INTEREST DEBITS DURING THE YEAR, EXTRAORDI NARY ITEM OF 25,65,81,184/- AND ALSO ADDED AN AMOUNT OF 17,72,00,000/- (BEING AMOUNT WITHDRAWN FROM SHARE PREMIUM ACCOUNT) FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.43B OF THE ACT. ACCORDING TO THE AO, THE ADJUSTMENT OF EXTRAORDINAR Y ITEM IS PERMISSIBLE ONLY IF IT IS RELATED TO ANY REVERSAL O F INTEREST WHICH WAS OUTSTANDING OR WHICH HAD ACCRUED DURING THE YEA R. THE ASSESSEE HAS NOT FURNISHED THE NATURE OF THE EXTRAO RDINARY ITEM WHICH HAS BEEN OFFERED AS INCOME IN THE PROFIT AND LOSS ACCOUNT. THE AO OBSERVED THAT IT IS A PRIOR PERIOD INCOME. IN THE CASE OF THE DEBENTURE INTEREST AND PREMIUM DRAWN FROM SHARE PREMIUM - - ITA 1339 TO 1342/10 12 ACCOUNT, THIS HAS BEEN SHOWN AS BELOW THE LINE IT EM IN THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTION ONLY IN T HE COMPUTATION STATEMENT. THIS HAS ALSO BEEN MET OUT OF WITHDRAWAL FROM PREMIUM OF THE IDENTICAL AMOUNT AND THE NET DEBIT IS NIL. ACCORDING TO THE AO, THE ASSESSEE S CLAIM THAT IT HAS DISALLOWED THIS ITEM UNDER SEC.43B OF THE ACT, NEEDS TO BE EXAMINED. WITH REGARD TO PAYMENTS WHICH HAVE BEEN CLAIMED U/S.43B, THOUGH THE AMOUNT WAS OUTSTANDING AS ON 31 .3.2003 OR DEBITED TO INTEREST ACCOUNT DURING THE YEAR, THE SA ME CANNOT BE ALLOWED TO BE DEDUCTED. ACCORDING TO THE AO, THOUG H ONE MAY HAVE A MULTIPLE ACCOUNT WITH A BANK, ONLY THE INTER EST WHICH HAD ACCRUED ON A PARTICULAR ACCOUNT BEFORE 31.3.2004 AN D PAID BEFORE THE FILING OF THE RETURN, CAN BE ALLOWED. O UT OF INTEREST PAID OF 8,70,82,831/-, AFTER THE END OF THE ACCOUNTING YEA R BUT BEFORE FILING THE RETURN U/S.139(1) OF THE ACT, THE ASSESSEE THAT THE AMOUNT PERTAIN TO INTEREST ACCRUED DURING THE F Y 2003-04 AND ACCORDINGLY THE AMOUNT IS ALLOWED AS DEDUCTION U/S.43B OF THE ACT. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). - - ITA 1339 TO 1342/10 13 10. THE CIT(APPEALS) OBSERVED THAT THE ISSUE FOR CONSIDERATION IS RELATED TO WHETHER THE SUBSEQUENT PAYMENT OF INTEREST MADE BY THE ASSESSEE AFTER THE END OF THE YEAR BUT BEFORE THE DUE DATE OF EARLIER YEARS. THE CIT(APPE ASL) OBSERVED THAT IF THE LIABILITY PERTAINS TO EARLIER YEARS, T HE AMOUNT CANNOT BE ALLOWED DURING THIS ASST. YEAR BUT ONLY IN THE SUBS EQUENT YEAR, WHEN THE ACTUAL PAYMENT IS MADE. AFTER GOING THRO UGH THE DETAILS AVAILABLE ON RECORD, THE CIT(APPEALS) OBSER VED THAT THE AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT TOWARDS I NTEREST AMOUNTS TO 153,73,85,972/- OUT OF WHICH INTEREST TO INSTITUTIO NS FOR WHICH 43B IS NOT APPLICABLE AMOUNTS TO 24,97,13,458/- AS GIVEN IN THE ASSESSMENT ORDER. THEREFORE, ACCORDI NG TO THE CIT(APPEALS), THE NET DEBIT TO PROFIT AND LOSS ACCO UNT IS 128,76,72,519/- AND THE AMOUNT NOT PAID BEFORE DUE DATE OF FILING OF RETURN OF INCOME IS 88,91,95,993/-. OUT OF WHICH THE AMOUNTS PAID IS AS UNDER: AMOUNT PROVIDED DURING THE YEAR 128,76,72,519/- AMOUNT PAID: PAID DURING THE YEAR 31,13,93,695 PAID FROM APRIL 2004 TO SEPT. 04 8,70,82,831 39,84,76,526/- AMOUNT NOT PAID BEFORE DUE DATE OF FILING OF ROI 88,91,95,993/- - - ITA 1339 TO 1342/10 14 ACCORDINGLY, THE CIT(APPEALS) HELD THAT THE AMOUNT DISALLOWABLE U/S.43B OF THE ACT IS ONLY 88,91,95,993/- AND THE AO IS NOT CORRECT IN ENHANCING THE DISALLOWANCE BY A FURTHER AMOUNT OF 7,93,60,786/-. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE CAREFULLY GONE THROUGH THE FINDINGS OF THE CIT(APPEALS), WE DO NOT FIND THE BASIS FOR DISALL OWANCE COMPUTED BY THE CIT(APPEALS) AS ABOVE. HENCE, WE R EMIT THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFR ESH. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. 11. THE NEXT GROUND IN ITA NO.1341/MDS/10 FOR THE A SST. YEAR 2005-06 IS THAT THE CIT(APPEALS) HAS ERRED IN DELET ING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DEBENTU RE ISSUE EXPENSES OF 2,87,18,609/-. 12. THE FACTS OF THE ISSUE ARE THAT THE AO DISALLOWED T HE DEBENTURE ISSUE EXPENSES FOR THE REASON THAT IT PER TAINS TO THE ISSUANCE OF FULLY CONVERTIBLE DEBENTURES. AS THE D EBENTURES WILL NEVER GET REPAID AND WILL ONLY GET CONVERTED INTO E QUITY ON - - ITA 1339 TO 1342/10 15 CONVERSION WITHIN 18 MONTHS, HE TREATED THE ISSUE E XPENDITURE AS EXPENSES INCURRED FOR RAISING CAPITAL AND DISALLOWE D THE ABOVE AMOUNT AS INADMISSIBLE. AGGRIEVED, THE ASSESSEE WE NT IN APPEAL BEFORE THE CIT(APPEALS), WHO FOLLOWING THE D ECISION OF MADRAS HIGH COURT IN THE CASE OF CIT V. SOUTH INDIA CORPORATION (AGENCIES) LTD. 164 TAXMAN 249 (MAD), DIRECTED THE AO TO ALLOW THE ENTIRE DEBENTURE ISSUE EXPENSES AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE IS COVERED BY T HE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SOUTH INDIA AGENCY LTD. (290 ITR 217) WHEREIN IT WAS HELD THAT THE EXP ENDITURE TOWARDS ISSUANCE OF PARTLY CONVERTIBLE DEBENTURES A RE ALLOWABLE EXPENDITURE. ACCORDINGLY, THIS GROUND IS DISMISSED . 14. THE NEXT GROUND IN ITA NOS. 1341 & 1342/MDS/201 0 IS WITH REGARD TO ALLOWANCE OF DEEMED INTEREST ON LOAN S TO SUBSIDIARIES. - - ITA 1339 TO 1342/10 16 15. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HA S MADE HUGE INTEREST PAYMENT WHICH IT HAS BEEN NETTING THE INTEREST RECOGNIZED FROM ADVANCES MADE TO SUBSIDIARIES / ASS OCIATES. THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTIN G. THEREFORE, ACCORDING TO THE AO, THE INTEREST HAS TO BE RECOGNIZED. IN VIEW OF THE EXPLANATION GIVEN BY TH E ASSESSEE, RATE OF INTEREST TAKEN IS ONLY AT THE AVERAGE RATE FOR OTHER LOANS RECOGNIZED BY CORPORATE DEBT RESTRUCTURING CELL. M OREOVER, THE DEBTS ARE ALSO NOT WRITTEN OFF. THEREFORE, THE INT EREST ON ADVANCES AS WORKED OUT BY THE AO IS TREATED AS ACCR UED INCOME AND ASSESSED ACCORDINGLY. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 16. THE CIT(APPEALS) OBSERVED THAT THE FACTS ARE SI MILAR TO THE FACTS IN ASSESSEES OWN CASE FOR ASST. YEARS 2003-04 AND 2004-05. THEREFORE, THE CIT(APPEALS) FOLLOWED HIS PREDECESSORS ORDER IN ITA NOS.194/06-07/A.III AND 838/06- 07/A.III DATED 31.3.2008 FOR THE ASST. YEARS 2003-0 4 AND 2004- 05, WHICH WAS SUBSEQUENTLY AFFIRMED BY THE TRIBUNAL VIDE ITS ORDER DATED 15.7.2009 IN ITA NOS.778 & 779/MDS/2008 . - - ITA 1339 TO 1342/10 17 ACCORDINGLY, HE DELETED THE ADDITION MADE BY THE AO . AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 17. AFTER HEARING BOTH THE PARTIES, WE FIND THAT SI MILAR ISSUE CAME FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA N OS.778 & 779/2008 DATED 15.7.2009 FOR THE ASST. YEARS 2003-0 4 AND 2004- 05 AND IN ITA NO.1343/MDS/2010 & OTHERS FOR THE AS ST. YEAR 2007-08 VIDE ORDER DATED 01.01.2016 WHEREIN THE TRI BUNAL HELD AS UNDER :- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AS R IGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE EVEN IF THE BORRO WED FUNDS WERE DIVERTED FOR MAKING ADVANCES TO SUBSIDIARY COMPANIE S, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE A NY ADDITION OF NOTIONAL INTEREST SINCE IT IS NOT THE CASE OF THE R EVENUE THAT THE SUBSIDIARY COMPANIES HAD MISUSED THE FUNDS FOR ANY OTHER PURPOSE. IN OTHER WORDS, SINCE THE SUBSIDIARY COMPANIES USED THE FUNDS FOR THEIR BUSINESS THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN VIEW OF THE JUDGMENT OF THE APEX COURT IN S.A BUILDERS(S UPRA) THERE CANNOT BE ANY ADDITION IN THE HANDS OF THE ASSESSE E. A BARE READING OF THE ORDER OF THE CIT(A) SHOWS THAT SIMILAR ADDIT ION WAS MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEARS 2003-04 A ND 2004-05. THE CIT(A), HOWEVER, DELETED THE ADDITION. THIS TR IBUNAL IN I.T.A.NOS.778 & 779/MDS/2008 DATED 15.7.2009 HAS CO NFIRMED AN IDENTICAL ORDER OF THE CIT(A). IN FACT, THE CIT(A ), BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CAS E FOR THE - - ITA 1339 TO 1342/10 18 ASSESSMENT YEARS 2003-04 AND 2004-05 AND THE JUDGME NT OF THE APEX COURT IN S.A BUILDERS(SUPRA) ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONF IRMED. ACCORDINGLY, FOLLOWING THE AFORESAID ORDERS OF THE TRIBUNAL, THIS GROUND OF APPEAL IS DISMISSED. 18. IN THE RESULT, ITA NOS. 1339, 1341 & 1342/MDS/2010 ARE DISMISSED AND ITA NO.1340/MDS/2010 IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 12 TH MAY, 2017. SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 12 TH MAY, 2017. K S SUNDARAM ;D EFGF / COPY TO: 1 . / APPELLANT 3. H3 / CIT(A) 5. FIJ K / DR 2. / RESPONDENT 4. H / CIT 6. JLM / GF