ACIT, CHENNAI V. M/s. Samudra Shoe Overseas Ltd., CHENNAI

ITA 1515/CHNY/2012

• Counselvise Citation: 151521714 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 31-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Capital asset; Revenue expenditure
• Section: 147; 148; 43B; 40A(3); 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1515/MDS/2012 & C.O. NO.189/MDS/2012 (IN I.T.A. NO.1515/MDS/2012) ( )( / ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(1), CHENNAI - 600 034. V. M/S SAMUDRA SHOE OVERSEAS LTD., NO.71, CENTURY PLAZA, 560-561, ANNA SALAI, CHENNAI - 600 018. PAN : AABCS 2263 E (+,/ APPELLANT) (-.+,/ RESPONDENT & CROSS- OBJECTOR) +, / 0 / APPELLANT BY : SH. PATHLAVATH PEERYA, CIT -.+, / 0 / RESPONDENT BY : SH. A.S. SRIRAMAN, ADVOCATE 1 / 2% / DATE OF HEARING : 08.04.2015 3') / 2% / DATE OF PRONOUNCEMENT : 29.05.2015 2 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE APPEAL OF THE REVENUE AND THE CROSS-OBJECTION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI, DATED 31.05.2012 A ND PERTAIN TO ASSESSMENT YEAR 2006-07. 2. THE FIRST GROUND OF APPEAL IS WITH REGARD TO ADD ITION OF ` 6,63,48,983/- TOWARDS INTEREST WAIVED BY THE FINANC IAL INSTITUTION. 3. SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT ASSESSEE-COMPANY DIS ALLOWED AN EXPENDITURE OF ` 6,63,48,983/-- UNDER SECTION 43B OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') TOWARDS INTEREST PAY ABLE TO FINANCIAL INSTITUTION WHICH WAS WRITTEN BACK. ACCORDING TO T HE LD. D.R., THE ABOVE SAID AMOUNT OF ` 6,63,48,983/- RELATES TO INTEREST DUE TO IDBI BANK FOR THE PERIOD RELATING TO ASSESSMENT YEARS 20 03-04 TO 2005- 06. THE IDBI AGREED TO THE PROPOSAL FOR PAYMENT OF ONE-TIME SETTLEMENT, AND ACCORDINGLY, WAIVED THE INTEREST TO THE EXTENT OF ` 6,63,48,983/-. HOWEVER, FOR THE YEAR UNDER CONSIDE RATION, THE ASSESSEE CLAIMED THE INTEREST OF ` 6,63,48,983/- AS DEDUCTION UNDER SECTION 43B OF THE ACT. THE LD. D.R. CONTENDED THA T UNDER SECTION 3 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 43B OF THE ACT, INTEREST WOULD BE ALLOWED IN THE CA SE WHERE THE SAME WAS PAID TO THE FINANCIAL INSTITUTION ON OR BE FORE FILING OF RETURN OF INCOME. ACCORDING TO THE LD. D.R., SINCE THE EN TIRE INTEREST WAS WAIVED BY IDBI BANK, THERE WAS NO ACTUAL PAYMENT. THEREFORE, THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 4 3B CANNOT BE ALLOWED. 4. ON THE CONTRARY, SHRI A.S. SIVARAMAN, THE LD.COU NSEL FOR THE ASSESSEE, SUBMITTED THAT THE INTEREST CLAIMED BY TH E ASSESSEE AS DEDUCTION FOR THE YEAR UNDER CONSIDERATION TO THE E XTENT OF ` 6,63,48,983/- RELATES TO THE PERIOD OF ASSESSMENT Y EARS 2003-04 TO 2005-06. DURING THOSE YEARS, THE ASSESSEE DISALLOW ED THE INTEREST UNDER SECTION 43B OF THE ACT, SINCE IT WAS NOT ACTU ALLY PAID. THEREFORE, FOR EARLIER YEARS, THE ASSESSEE ITSELF H AS TREATED THE ABOVE SAID AMOUNT OF ` 6,63,48,983/- AS ITS INCOME. DURING THE YEAR UNDER CONSIDERATION, THE IDBI BANK HAS WAIVED THE E NTIRE INTEREST OF ` 6,63,48,983/-. SINCE THE INTEREST WHICH WAS WAIVED BY THE IDBI BANK WAS ALREADY TAKEN AS INCOME FOR THE EARLIER YE ARS UNDER SECTION 43B OF THE ACT, THE SAME WAS CLAIMED AS DED UCTION UNDER SECTION 43B OF THE ACT DURING THE YEAR UNDER CONSID ERATION. THEREFORE, ACCORDING TO THE LD.COUNSEL, THE CIT(APP EALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 4 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. ADMITTEDL Y, THE ASSESSING OFFICER DISALLOWED THE INTEREST TO THE EXTENT OF ` 6,63,48,983/- UNDER SECTION 43B OF THE ACT, WHILE COMPUTING THE TAXABLE INCOME FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06. IN OTHER WORD S, THE INTEREST, WHICH IS OTHERWISE TO BE ALLOWABLE UNDER MERCANTILE SYSTEM OF ACCOUNTING, WAS TAKEN AS INCOME IN VIEW OF SECTION 43B OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE IDBI BANK WAIVED THE ENTIRE INTEREST PORTION TO THE EXTENT OF ` 6,63,48,983/-. THE ASSESSEE CLAIMED THIS AMOUNT AS DEDUCTION WHILE COMPUTING TH E TOTAL INCOME. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT THERE WAS NO ACTUAL PAYMENT OF INTEREST . HOWEVER, THE CIT(APPEALS) FOUND THAT THE ABOVE SUM OF ` 6,63,48,983/-, WHICH WAS DEBITED IN THE PROFIT & LOSS ACCOUNT IN THE ASS ESSMENT YEARS 1994-95 TO 2002-03, WAS DISALLOWED AND THE SAME WAS TAKEN AS INCOME OF THE ASSESSEE. THEREFORE, THERE IS NO QUE STION OF ANY DISALLOWANCE ONCE AGAIN DURING THE YEAR UNDER CONSI DERATION. IT IS NOT IN DISPUTE THAT THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO WAIVER OF INTEREST WAS TAKEN AS INCOME IN THE EARLI ER ASSESSMENT YEARS BY DISALLOWING THE CLAIM OF THE ASSESSEE UNDE R SECTION 40A(3) OF THE ACT. THEREFORE, AS RIGHTLY POINTED O UT BY THE 5 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 CIT(APPEALS), THERE IS NO NEED FOR DISALLOWING THE VERY SAME AMOUNT ONCE AGAIN. ACCORDINGLY, THIS TRIBUNAL DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS) AND ACCO RDINGLY, THE SAME IS CONFIRMED. 6. NEXT GROUND OF APPEAL IS WITH REGARD TO THE ADDI TION OF ` 1,98,92,271/- BEING THE PRINCIPAL AMOUNT WAIVED BY THE FINANCIAL INSTITUTION. 7. SH. A.S. SRIRAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED A S UM OF ` 1,98,92,271/- UNDER SECTION 43B OF THE ACT ON THE G ROUND THAT THE PRINCIPAL AMOUNT WAIVED BY THE FINANCIAL INSTITUTIO N REMAINED UNPAID. ACCORDING TO THE LD. COUNSEL, THE ABOVE SAID AMOUNT OF ` 1,98,92,271/- BEING THE PRINCIPAL AMOUNT WAIVED, WA S NOT CLAIMED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. THER EFORE, ACCORDING TO THE LD. COUNSEL, THE DISALLOWANCE MADE BY THE AS SESSING OFFICER UNDER SECTION 43B IS ERRONEOUS. 8. THE LD.COUNSEL FURTHER SUBMITTED THAT ON IDENTIC AL CIRCUMSTANCES, THE MADRAS HIGH COURT HAD AN OCCASIO N TO CONSIDER THE ISSUE IN ISKRAEMECO REGENT LTD. V. CIT (2011) 3 31 ITR 317 AND FOUND THAT THE GRANT OF BANK LOAN CANNOT BE TREATED AS TRADING 6 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 TRANSACTION. THEREFORE, BORROWAL OF LOAN FOR THE P URPOSE OF INVESTING IN THE CAPITAL ASSET WHEN THE PART OF THE LOAN AMOU NT ALONG WITH INTEREST WAIVED BY THE FINANCIAL INSTITUTION, THERE IS NO CHANGE IN THE CHARACTER WITH REGARD TO ORIGINAL RECEIPT WHICH WAS CAPITAL IN NATURE. THEREFORE, ON WAIVER OF PRINCIPAL AMOUNT BY THE FIN ANCIAL INSTITUTION, IT CANNOT BE TAKEN AS BENEFIT OR PERQUISITE UNDER S ECTION 28(IV) OF THE ACT. IN VIEW OF THE JUDGMENT OF THE MADRAS HIG H COURT, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 9. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. D.R. SUBMITTED THAT IT IS NOT KNOWN FROM THE ASSESSMENT ORDER WHETHER THE ASSESSEE BORROWED LOAN FOR INVESTING THE SAME I N CAPITAL ASSET OR FOR REVENUE EXPENDITURE/WORKING EXPENDITURE. RE FERRING TO JUDGMENT OF DELHI HIGH COURT IN ROLLATAINERS LTD. V . CIT (2011) 339 ITR 54, THE LD. D.R. SUBMITTED THAT REMISSION OR CE SSATION OF TRADING LIABILITY HAS TO BE TAKEN AS INCOME OF THE ASSESSEE . THE LD. D.R. ALSO PLACED RELIANCE ON THE JUDGMENT OF APEX COURT IN THE CASE OF CIT V. T.V. SUNDARAM IYENGAR & SONS LTD. (1996) 222 ITR 344. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. FROM THE ASSESSMENT ORDER, IT IS NOT KNOWN THE PURPOSE FOR WHICH THE LO AN WAS BORROWED. 7 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 IN OTHER WORDS, IT IS NOT KNOWN WHETHER THE ASSESSE E BORROWED LOAN FOR THE PURPOSE OF INVESTING THE SAME IN CAPITAL AS SET OR FOR THE PURPOSE OF WORKING CAPITAL. THE CIT(APPEALS), BY F OLLOWING THE JUDGMENT OF MADRAS HIGH COURT IN ISKRAEMECO REGEND LTD. (SUPRA), FOUND THAT THE PRINCIPAL AMOUNT, WHICH IS NOT CLAIM ED AS DEDUCTION, CANNOT BE DISALLOWED ON ITS WAIVER BY THE FINANCIAL INSTITUTION. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF MADRAS HIGH COURT IN ISKRAEMECO REGEND LTD. (SUPRA). IN THE CASE BEFORE THE MADRAS HIGH COURT, THE ASSESSEE BORROWED LOAN AND INVESTED THE SAME IN CAPITAL ASSET. A PART OF LOAN AMOUNT ALONGWITH ITS INTEREST WAS WAIVED BY THE FINANCIAL INSTITUTION. THE MADRAS HI GH COURT FOUND THAT WHEN THE LOAN WAS BORROWED FOR THE PURPOSE OF INVESTING IN THE CAPITAL ASSET, IT IS A CAPITAL ASSET, AND MERELY BE CAUSE THE PRINCIPAL AMOUNT WAS WAIVED BY THE FINANCIAL INSTITUTION, IT WILL NOT CHANGE THE CHARACTER OF THE ORIGINAL ASSET. IN OTHER WORDS, T HE MADRAS HIGH COURT FOUND THAT THE PURPOSE FOR WHICH THE LOAN BOR ROWED IS CAPITAL PURPOSE, THEREFORE, WHEN THE LOAN WAS WAIVED BY THE FINANCIAL INSTITUTION, IT WILL REMAIN AS CAPITAL IN NATURE. THE MADRAS HIGH COURT FURTHER FOUND THAT IT CANNOT BE TREATED AS BENEFIT ARISING IN THE COURSE OF BUSINESS UNDER SECTION 28(IV) OF THE ACT. IN THE CASE BEFORE US, IT IS NOT KNOWN WHETHER THE LOAN WAS BOR ROWED FOR THE PURPOSE OF INVESTING IN THE CAPITAL ASSET OR FOR TH E PURPOSE OF 8 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 MEETING THE REVENUE EXPENDITURE. IN THE ABSENCE OF ANY DETAILS ON RECORD, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO SHALL EXAMINE THE PURPOSE FOR WHICH TH E LOAN WAS BORROWED AND ITS UTILIZATION THEREOF. THEREAFTER, THE ASSESSING OFFICER HAS TO RECONSIDER THE MATTER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE ON THIS ISSUE AND T HE SAME IS REMITTED BACK TO THE ASSESSING OFFICER. THE ASSESS ING OFFICER SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE MAT ERIAL AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER CONSID ERING ALL THE JUDGMENTS REFERRED BY BOTH THE PARTIES BEFORE THE T RIBUNAL AND AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 11. NOW COMING TO THE CROSS-OBJECTION OF THE ASSESS EE, THE ASSESSEE HAS CHALLENGED ONLY THE REOPENING OF THE A SSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT. 12. AFTER HEARING BOTH THE PARTIES, THIS TRIBUNAL F INDS THAT THE ASSESSMENT WAS REOPENED WITHIN THE PERIOD OF LIMITA TION AND NO ASSESSMENT WAS MADE UNDER SECTION 143(3) OF THE ACT , EARLIER. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE AC T. THE CIT(APPEALS), REFERRING TO THE JUDGMENT OF APEX COU RT IN ACIT V. RAJESH JHAVERI STOCK BROKERS (P.) LTD. (2007) 291 I TR 500, FOUND 9 I.T.A. NO.1515/MDS/12 C.O. NO.189/MDS/2012 THAT THE CONDITIONS PRESCRIBED FOR REOPENING THE AS SESSMENT UNDER SECTION 147 OF THE ACT HAVE BEEN FULFILLED. THEREF ORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A PPEALS) AND ACCORDINGLY, THE SAME IS CONFIRMED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS-OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 29 TH MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !'# ! ) ( . . . ) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 29 TH MAY, 2015. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-V, CHENNAI-34 4. 1 92 /CIT, CHENNAI-III, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.