ACIT, Cuttack V. Orissa Industries Corporation Ltd, Cuttack

ITA 175/CTK/2014

• Counselvise Citation: 17522114 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-05-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 16-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUVENDU DUTTA
• Assessee Lawyers: P K HARICHANDAN
• Section: 147; 263; 12; 43B; 143(3); 194C

Judgement Text

INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( BEFORE SHRI P. M. JAGTAP , A.M. AND SHRI P. S. CHAUDHURY, J .M . ) ITA NO S . 175 , 53, 327 & 131/ CTK /201 4 ASSESSMENT YEARS : 2005 - 06 , 20 07 - 08, 2009 - 10 & 2010 - 11 ACIT, C IRCLE - 2(2), CUTTACK - VS - M/S. ODIS HA SMALL INDUSTRIES CORPORATION LTD. (APPELLANT) (RESPONDENT) PAN : AAACO 2101M C.O. NO.33 , 16,44 & 29 /CTK /2014 (ARISING OUT OF ITA NO.175 ,53,327 & 131 /CTK/201 4 ) ASSESSMENT YEARS : 2005 - 06, 2007 - 08, 2009 - 10 & 2010 - 11 M/S. ODIS HA SMALL INDUSTRIES CORPORATION LTD. - VS - ACIT, CIRCLE - 2(2), CUTTACK (CROSS OBJECTOR S ) (RESPONDENT) DEPARTMENT BY : SHRI SUVENDU DUTTA, D.R. ASSESSEE BY : SHRI P.K. HARICHANDAN , A.R. DATE OF CONCLUDING THE HEARING : 29.10.2015 DATE OF PRONOUNCEMENT OF THE ORDER : 30.10.2015 : O R D E R : PER SHRI P.M.JAGTAP , AM THESE FOUR APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST FOUR SEPARATE ORDERS PASSED BY THE LD. CIT(A), CUTTACK FOR ASSESSMENT YEARS 2005 - 06, 2007 - 08, 2009 - 10 AND 2010 - 11 AND SINCE SOME OF THE ISSUES INVOLVED THEREIN ARE COMMON, THE SAME HAVE BEEN HEARD TOGE THER AND ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER ALONG WITH THE CORRESPONDING CROSS OBJECTIONS FILED BY THE ASSESSEE. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2005 - 06 IN ITA NO. 175/CTK/2014, WHICH IS DIRECTED AG AINST THE ORDER OF THE LD. CIT(A), CUTTACK DATED 05.02.2014. 2 3. IN THE SOLITARY GROUND RAISED IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.16,54,584/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF GR OUP GRATUITY INSURANCE PREMIUM PAID BY THE ASSESSEE TO LICI. 4. THE ASSESSEE IN THE PRESENT CASE IS A GOVERNMENT OF ODISHA UNDERTAKING, WHICH IS ENGAGED IN THE BUSINESS OF PROCUREMENT AND SUPPLY OF RAW MATERIALS SUCH AS IRON AND STEEL, WIRE ROD, COAL, BIT UMEN, ETC. IN THE ASSESSMENT ORIGINALLY COMPLETED FOR TH E YEAR UNDER CONSIDERATION VIDE AN ORDER DATED 31.12.2007 PAS SED UNDER SECTION 143(3), A LOSS OF RS.2,46,43,590/ - RETURNED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS ACCEPTED BY THE AO. THE SAID ASSESSMENT HOWEVER WAS SUBSEQUENTLY REOPENED AND IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147 VIDE AN ORDER DATED 20.12.2011, A DDITION INTER ALIA OF RS.16,54,584/ - WAS MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE BY DI SALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PAYMENT MADE TO LICI UNDER GROUP GRATUITY INSURANCE PREMIUM ON THE GROUND THAT THE SAID PAYMENT WAS NOT ROUTED BY THE ASSESSEE THROUGH AN APPROVED GRATUITY FUND CREATED FOR THIS PURPOSE. 5. T HE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF GROUP GRATUITY INSURANCE PREMIUM PAID TO LICI WAS CHALLENGED BY THE ASSESSEE IN APPEAL FILED BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT(A) DELETED THE SAID DISALLOWANCE FOR THE FOLLOWING REASONS GIVEN IN HIS ORDER. THE APPELLANT SUBMITTED THAT UNDER THE APPROVAL OF BOARD THE GROUP GRATUITY FUND UNDER LIC GROUP GRATUITY SCHEME WAS ESTABLISHED IN THE YEAR 1985 - 86. THE SC HEME WAS RENEWED BY LIC AND THE APPELLANT HAS REGULARLY DEPOSITED THE RENEWAL PREMIUM IN EACH YEAR THROUGH CHEQUE TILL THE CURRENT ASSESSMENT YEAR. THE AO HAVE NEVER DISALLOWED THE SAID DEDUCTIONS WHILE PASSING THE ASSESSMENT ORDERS UNDER SCRUTINY ASSESSME NT IN ANY OF THE EARLIER YEARS. THE APPELLANT HAS APPLIED FOR GRATUITY SCHEME BEFORE THE ACIT, CIRCLE - 2(2), CUTTACK WHICH IS PENDING FOR APPROVAL. 3 THE APPELLANT CITED THE RATIO OF THE CASE OF CIT V. TEXTOOL CO. LTD. (2002) 174 CTR 458 (MAD) WHERE IT IS HE LD THAT THE PAYMENTS CAN DIRECTLY BE MADE TO THE LIC AND IF THE SAME WERE FOUND TO HAVE BEEN PAID TOWARDS THE GROUP GRATUITY FUND BENEFIT OF SECTION 36(L)(V) CANNOT BE DENIED TO THE ASSESSEE. IN RESPONSE TO THE APPEAL BY THE REVENUE THE APEX COURT IN THE O RDER OF CIVIL APPEAL NO.437/2003 OPINED THAT SINCE THE ASSESSEE HAD ABSOLUTELY NO CONTROL OVER THE FUND CREATED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID FUND ULTIMATELY CA ME BACK TO THE EMPLOYEES GRATUITY FUND OF THE ASSESSEE APPROVED BY THE COMMISSIONER/THE CONDITIONS STIPUL ATED IN SECTION 36(1) (V) OF THE ACT WERE SATISFIED. IN THE CASE OF CIT V. PREMIER COTTON SPG ... MILLS LTD. (2002) 258 ITR 253 (MAD) IT WAS HELD THAT 'THOUGH THE QUESTION REGARDING ALLOWABILITY U/S.36(1 )(V) OF THE ACT IS RAISED WE HOLD THAT THE ENTIRE AMOUNT WOULD BE ALLOWED EITHER U/S.36(L)(V) OR U/S.37 OF THE ACT......WE HOLD THAT THE ACTUAL PAYMENT MADE TO THE GRATUITY FUND SHOULD BE ALLOWABLE AS BU SINESS EXPENDITURE. FROM THE RATIOS OF THE ABOVE CASE LAWS IT IS EVIDENT THAT PAYMENT TO LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE WHERE THE ASSESSEE DOES NOT HAVE ANY CONTROL OF THE FUND CAN BE ALLOWABLE EITHER U/S.36(L)(V) OR AS BUSINESS EXPE NDITURE U/S.37 OF THE ACT. FROM THE RECORDS OF THE APPELLANT IT IS EVIDENT THAT THE APPELLANT IS FOLLOWING THE SAME METHOD OF ACCOUNTING FOR SUCH EXPENSES IN GROUP GRATUITY FUND FOR PAST 20 YEARS. THERE HAVE BEEN SCRUTINY ASSESSMENTS FOR SEVERAL YEARS AND THE SAME EXPENDITURE CLAIMED BY THE APPELLANT WERE APPROVED. 5 .1 AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6 . AT THE TIME OF HEARING BEFORE US, T HE LD. DR RELIED ON THE ORDER OF THE AO IN SUPPO RT OF THE REVENUES CASE ON THE ISSUE UNDER CONSIDERATION WHILE THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THE ISSUE BY SUBMITTING THAT THIS ISSUE NOW STANDS SQUARELY 4 COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT - VS - TEXTOOL CO. LTD. (CIVIL APPEAL NO. 447 OF 2003). 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSE RVED THAT THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF GROUP GRATUITY INSURANCE PREMIUM PAID BY THE ASSESSEE TO LICI HAS BEEN DELETED BY THE LD. CIT(A) RELYING INTER ALIA ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT - VS - TEXTOOL COMP ANY LTD. ( SUPRA ). AGAINST THE SAID DECISION OF THE HONBLE MADRAS HIGH COURT, A CIVIL APPEAL WAS PREFERRED BY THE REVENUE BEFORE THE HONBLE SUPREME COURT AND THE SAME HAS BEEN DISMISSED BY THE HONBLE APEX COURT AFTER RECORDING THE FOLLOWING OBSERVATIONS: HAVING CONSIDERED THE MATTER IN THE LIGHT OF THE BACKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUED STRICTLY AND NOTHING SHOULD BE .ADDED OR SUBTRACTED TO THE LANGUAGE EMPLOYED IN T HE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT RULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRUCTION TO GIVE EFFECT TO THE PURPOSE AND INTENTION OF ANY PAR TICULAR PROVISION OF THE ACT. (SEE : SHRI SAJJAN MILLS LTD. VS. COMMIS SIONER OF INCOME TAX, M.P. & ANR. (1985) 156 ITR 585) . FROM A BARE READING OF SECTION 36 (1) ( V) OF THE ACT, IT IS MANIFEST THAT THE REAL INTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOYEES. IN THE INSTANT CASE, IT IS EVIDENT FROM THE FINDINGS RECORDED BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE HAD ABSOLUTELY NO CONTROL OVER THE .FUND CREATED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID FUND ULTIMATELY CAME BACK TO THE TEXTOOL EMPLOYEES GRATUITY FUND, APPROVED BY THE COMMISSIONER WITH EFFECT FROM THE FOLLOWING PREVIOUS YEAR. THU S, THE CONDITIONS STIPULATED IN SECTION 36(1) (V) OF THE ACT WERE SATISFIED. HAVING REGARD TO THE FACTS FOUND BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL, NO FAULT, CAN BE FOUND WITH THE OPINION EXPRESSED BY THE HIGH.COURT, WARRANTING OUR INTERFERENCE . 7.1 AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS THUS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TEXTOOL CO. LTD. ( SUPRA ) AND RESPECTFULLY FOLLOWING THE 5 SAME , WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE ADDITION OF RS.16,54,584/ - MADE BY THE AO ON ACCOUNT OF GROUP GRATUITY INSURANCE PREMIUM PAID TO LIC OF INDIA. THIS APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 8 . IN IT S CROSS - OBJECTIO N NO.33/CTK /2014 , THE ASSESSEE HAS SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A), WHEREBY HE DELET ED THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF GROUP GRATUITY INSURANCE PREMIUM PAID TO LICI. AS W E HAVE UPHELD THE IMPUGNED ORDER OF THE LD. C IT(A) ON THIS ISSUE WHILE DISPOSI NG OF THE APPEAL OF THE REVENUE, T HE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS. T HE SAME IS THEREFORE DISMISSED. 9. THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2007 - 08 BEING ITA NO.53/CTK/2014 IS DIREC TED AGAINST THE ORDER OF THE LD. CIT(A), CUTTACK DATED 27.11.2013. 10. THE SOLITARY ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE RELATES TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS.2,76,57,560/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INT EREST PAYABLE ON BONDS. 11. IN THE ASSESSMENT ORIGINALLY COMPLETED UNDER SECTION 143(3) VIDE ORDER DATED 21.12.2009 FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2007 - 08, THE LOSS OF THE ASSESSEE WAS DETERMINED BY THE AO AT RS.1,99,22,693/ - . THE SAID ASSESSMENT HOWEVER WAS SUBSEQUENTLY SET ASIDE BY THE LD. CIT(A) VIDE ORDER DATED 16.03.2012 PASSED UNDER SECTION 263 WITH THE DIRECTION TO THE AO TO MAKE THE SAME DE NOVO ON CERTAIN ISSUES INCLUDING THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF INTEREST ON BOND AMOUNTING TO RS.2,76,57,560/ - . A S PER THE DIRECTION OF THE LD. CIT(A), A FRESH ORDER UNDER SECTION 143(3) READ WITH SECTION 263 WAS PASSED BY THE AO ON 04.01.2013 WHEREIN HE DISALLOWED THE DEDUCTION OF RS.2,76,57,560/ - CLAIMED BY THE ASSES SEE ON ACCOUNT OF INTEREST PAYABLE ON BONDS ON THE GROUND THAT THE SAID INTEREST WAS NOT PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF THE RETURN. ON APPEAL, 6 THE LD. CIT(A) DELETED THE SAID DISALLOWANCE MADE BY THE AO BY OBSERVING THAT THE LIABILIT Y FOR INTEREST HAD BEEN ACCRUED FOR THE YEAR UNDER CONSIDERATION AND THE SAID INTEREST BEING PAYABLE ON BONDS AND NOT ON ANY LOAN OR ADVANCES TAKEN FROM THE FINANCIAL INSTITUTION , THE PROVISIONS OF SECTION 43B WERE NOT ATTRACTED. 11,1 AGGRIEVED BY THE OR DER OF THE LD. CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 12. THE LD. DR CONTENDED THAT THE AMOUNT RAISED BY ISSUE OF BONDS BEING IN THE NATURE OF LOANS AND ADVANCES, THE PROVISIONS OF SECTION 43B ARE CLEARLY ATTRACTED IN THE CASE OF THE ASSESSEE AND THE INTEREST ON SUCH BONDS HAVING BEEN ADMITTEDLY NOT PAID BY THE ASSESSEE ON OR BEFORE THE DATE OF FILING OF RETURN FOR THE YEAR UNDER CONSIDERATION, THE DISALLOWANCE MADE BY THE AO BY INVOLING THE PROVISIONS OF SECTION 43B ON ACCOUNT OF SU CH INTEREST IS FULLY JUSTIFIED . 13. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, RELIED ON THE DECISION OF AHMEDABAD BENCH C OF THIS TRIBUNAL IN THE CASE OF GUJARAT TOLL ROAD INVESTMENT CO. LTD. VS - ACIT (ITA NO.2901/AHD/2006 DATED 15.05.2 009) TO CONTEND THAT THE INTEREST ON BONDS BEING PAYABLE BY THE ASSESSEE ON THE MATURITY AS PER THE TERMS OF THE ISSUE OF BONDS AND NOT DURING THE YEAR UNDER CONSIDERATION, THE PROVISIONS OF SECTION 43B CANNOT BE INVOKED TO DISALLOW THE SAID INTEREST. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE INVOLVING ALMOST IDENTICAL FACTS AND CIRCUMSTANCES HAD COME UP FOR CONSIDERATION BEFORE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF GUJARAT TOLL ROAD INVESTMENT CO. LTD. AND THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF INTEREST PAYABLE ON BONDS WAS DELETED BY THE TRIBUNAL FOR THE FOLLOWING REASONS IN PARAGRAPH NO.25 OF ITS ORDER. 7 25. WE HAVE HEAR D THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS ON RECORD. IN THIS CASE THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROVIDING INFRASTRUCTURE FACILITY. FORMERLY THE ASSESSEE COMPANY WAS KNOWN AS VADODRA HALOL TOLL RO AD COMPANY LIMITED NOW MERGED WITH GUJARAT TOLL ROAD INVESTMENT COMPANY LIMITED. ASSESSEE HAS ISSUED DEEP DISCOUNT BONDS OF RS30 CRORES IN THE YEAR 2000 WHICH WERE SUBSCRIBED BY THREE - CLASSES OF PERSONS NAMELY MUTUAL FUNDS, PUBLIC FINANCIAL INSTITUTIONS AND SCHEDULED BANKS. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.6,08,03,230/ - AS INTEREST ACCRUED ON THE ABOVE BONDS FOR A.Y. 2003 - 04. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS THIS INTEREST WAS PAYABLE ONLY ON COMPLETION OF FULL D URATION OF DEEP DISCOUNT BONDS AND AS NO INTE REST., IN FACT, WAS PAID DURING THE YEAR, THEREFORE PROV ISIONS OF SECTION 43B OF THE LT ACT, 1961 WAS ATTRACTED IN THE INSTANT CASE AND IN THIS VIEW OF THE MATTER INTEREST OF RS.6,08,03,230/ - CLAIMED BY THE ASSE SSEE IS NOT ALLOWABLE U/S.43B OF THE INCOME TAX ACT, 1961. THE LD. CIT(APPEALS) CONFIRMED THE ABOVE DISALLOWANCE, HOWEVER, ON A DIFFERENT GROUND, I.E. IN HIS OPINION, AS_THE INTEREST WAS DUE JOTYJJAMIJEMTONLY ON MATURITY OF THE BONDS, NO INTERE ST EXPENDITURE ACCRUED DURING THE YEAR AND, THEREFORE, THE SAME IS NOT ALLOWABLE TO THE ASSESSEE. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, IN OUR CONSIDERED OPINION, IF ANY EX PENDITURE HAS NOT FALLEN DUE FOR PAYMENT, BUT FOR WHICH A LIABILITY HAS BEEN ACCRUED IS TO BE ALLOWED IN COMPUTING THE INCOME .OF THE ASSESSEE. IN THE INSTANT CASE, IT IS NOT IN. DISPUTE THAT DEEP DISCOUNT BONDS WERE ISSUED FOR A PERIOD OF MORE THAN ONE YE AR THE DIFFERENCE AMOUNT PAYABLE ON MATURITY IS NOTHING BUT INTEREST FOR THE FULL PERIOD, I.E. FROM THE DATE OF THE ISSUE OF THE BOND TO THE DATE OF THE MATURITY OF THE BOND, ABOVE VIEW ALSO FINDS SUPPORT FROM THE VIEW EXPRESSED BY THE CBDT IN AS CIRCULAR NO.2/2002 DATED 16/02/2002. THUS, IT CANNOT BE HELD THAT NO INTEREST WAS ACCRUED FOR THE YEAR UNDER CONSIDERATION ON BONDS AS THE YEAR UNDER CONSIDERATION IS A YEAR BETWEEN THE DATE OF THE ISSUE OF THE BONDS AND THE DATE OF THE MATURITY OF THE BONDS. THUS, THE INTEREST WHICH, HAS BEEN ACCRUED FOR THE YEAR UNDER CONSIDERATION, EVEN THOUGH IS NOT PAYABLE DURING THE YEAR UNDER CONSIDERATION , BUT IS PAYABLE ON SOME LATER DATE, BUT IS STILL ALLOWABLE TO THE ASSESSEE IN VIEW OF THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWING BY THE ASSESSEE. FURTHER, WE ALSO FIND THAT PROVISIONS OF SECTION 43B ACT, 1961 ARE NOT ATTRACTED IN THE INSTANCE CASE. FIRSTLY, SECTION 43B OF THE INCOME TAX ACT, 1961 IS NOT APPLICABLE IN TH E CASE OF ANY INTEREST PAYABLE. FURTHER, IN CASE OF FINANCIAL INSTITUTION SEC TION 43B (D) OF THE INCOME TAX ACT, 1961 GETS ATTRACTED ONLY WHEN SUCH INTEREST IS PAYABLE ON ANY LOANS OR BORR OWINGS. IN THE INSTANT CASE, THE INTEREST IS PAYABLE IN R ESPECT OF AMOUNTS DEPOSITED BY FINANCIAL INSTITUTIONS WITH THE ASSESSEE BY 8 SUBSCRIBING TO TH E BONDS ISSUED BY THE ASSESSEE. THE I INTEREST IS PAYABLE IN RESPECT OF CERTAIN DEPOSITS RECEIVED BY THE ASSESSEE AND NOT IN RESPECT OF ANY LOANS, ADVANCES OR BORROWINGS MADE BY THE ASSESSEE. FOR THE SAME REASON, CLAUSE(E) OF S ECTION 43B RELATING TO LOANS AND ADVANCES FROM A SCHEDULED BAN K IS ALSO NOT APPLICABLE IN THE INSTANCE CASE. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, NEITHER THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE DEDUCTIO N CLAIMED FOR PROVISION MADE IN RESPECT OF INTEREST ACCRUED, BUT NOT DUE ON THE DEEP DISCOUNT BONDS ISSUED BY THE ASSESSEE NOR THE L D. CLT(APPEALS) WAS JUSTIFIED IN CONFIRMING SUCH DISALLOWANCE. IT IS OBSERVED THAT THE AMOUNT OF PROVISION MADE BY THE A SSES SEE IN RESPECT, OF INTEREST ACCRUED ON BONDS IS NOT IN DISPUTE AS EXCESSIVE OR NOT RELATING TO THE YEAR UNDER CONSIDERATION. WE, THEREFORE, D ELETE THE DISALLOWANCE OF RS.6,0 8,03,230/ - IN RESPECT OF PROVISIONS MADE FOR INTEREST IN RESPECT OF DEEP DISCOUNT BONDS. HENCE, THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 14.1 AS THE ISSUE INVOLVED IN THE PRESENT C ASE AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF GUJARAT TOLL ROAD INVESTMENT CO. LTD. ( SUPRA ), W E RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE SAID CASE AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST PAYABLE BY THE ASSESSEE ON BONDS. THIS APP EAL OF THE REVENUE IS DISMISSED. 15. IN ITS CROSS - OBJECTION NO.16/CTK/2014, THE ASSESSEE HAS SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A), WHEREBY HE DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF GROUP GRATUITY INSURANCE PREMIUM PAI D TO LICI. AS WE HAVE UPHELD THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE WHILE DISPOSING OF THE APPEAL OF THE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS. THE SAME IS THEREFORE DISMISSED. 16. NOW WE SHALL TAKE UP THE A PPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009 - 10 WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), CUTTACK DATED 05.05.2014. 9 17. AS REGARDS THE ISSUE RAISED IN GROUND NO.1 OF THIS APPEAL RELATING TO THE DELETION BY THE LD. CIT(A) OF THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF GROUP GRATUITY INSURANCE PAID BY THE ASSESSEE TO LICI, IT IS OBSERVED THAT THE SAME IS SIMILAR TO ONE INVOLVED IN THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2 005 - 06 WHICH HAS ALREADY BEEN DECIDED BY US IN FOREGOING PORTION O F THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN THE APPEAL FOR ASSESSMENT YEAR 2005 - 06, WE UPHOLD THE ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.1 OF THE REVENUE S APPEAL . 18. AS REGARDS THE ISSUE RAISED BY THE REVENUE IN GROUND NO.2 RELATING TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS.10 LAKHS MADE BY THE AO ON ACCOUNT OF PROVISION MADE BY THE ASSESSEE FOR UNUTILIZED LEAVE SALARY, IT IS OBSERVED THAT THE PROVISION MADE BY THE ASSESSEE ON ACCOUNT OF UNUTILIZED LEAVE SALARY WAS DISALLOWED BY THE AO MAINLY ON THE GROUND THAT IT WAS ONLY A PROVISION. THE LD. CIT(A) HOWEVER FOUND THAT THE PROVISION FOR UNUTILIZED LEAVE SALARY WAS BEING MADE BY THE ASSESSEE EACH YEAR AND THE SAME WAS ALSO SUBSEQUENTLY P AID BY THE ASSESSEE TO THE RESPECTIVE EMPLOYEES. HE ALSO FOUND THAT THE PROVISION OF RS.10 LAKHS MADE BY THE ASSESSEE FOR UNUTILIZED LEAVE SALARY WAS PERTAINING TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2009 - 10 AND THE SAME WAS DULY PAID BY THE ASSESSEE DURING THE IMMEDIATELY SUCCEEDING YEAR BEFORE THE DUE DATE OF FILING OF THE RETURN. ON THE BASIS OF THESE FINDING S OF FACT S , THE LD. CIT(A) DELETED THE ADDITION OF RS.10 LAKHS MADE BY THE AO ON ACCOUNT OF PROVISION MADE BY THE ASSESSEE FOR UNUTILI ZED LEAVE SALARY. 19. AT THE TIME OF HEARING BEFORE US, THE LD. DR HAS NOT BEEN ABLE TO REBUT OR CONTROVERT THESE FINDING S OF FACT RECORDED BY THE LD. CIT(A). WE, THEREFORE FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND UPHOLDING THE SAME , WE DISMISS GROUND NO.2 OF REVENUES APPEAL. 10 20. IN THE CROSS OBJECTION FILED FOR ASSESSMENT YEAR 2009 - 10 BEING C.O. NO.44/CTK/2014, THE ASSESSEE , BESIDES SUPPORTING THE IMPUGNED ORDER OF THE LD. CIT(A) ON THE ISSUES DECIDED IN ITS FAVOUR, HAS RAISED ONE MORE ISSUE IN GROUND NO.3 DISPUTING THE DISALLOWANCE OF RS.12,51,502/ - MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ADVERTISEMENT EXPENSES BY INVOLING THE PROVISIONS OF SECTION 40(A)(IA). 21. AT THE TI ME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THERE BEING NO CONTRACT , EITHER WRITTEN OR ORAL , WITH THE CONCERNED ADVERTISERS, THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE AND CONSEQUENTLY, THE DISALLOWANCE MADE UNDER SE CTION 40(A)(IA) IS UNSUSTAINABLE. AS RIGHTLY POINTED OUT BY THE LD. DR, THIS STAND HOWEVER IS BEING TAKEN BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL AND THE SAME HAVING NOT BEEN RAISED BY THE ASSESSEE EITHER BEFORE THE AO OR BEFORE T HE LD. CIT( A), THERE WAS NO OCCASION FOR THEM TO VERIFY THE SAME. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER VERIFYING THE CLAIM OF THE ASSESSEE THAT THERE WAS NO CONTRACT EITHER WRITTEN OR ORAL WITH THE C ONCERNED ADVERTISERS TO WHOM THE IMPUGNED PAYMENTS ARE MADE. GROUND NO.3 OF ASSESSEES CROSS OBJECTION FOR ASSESSMENT YEAR 2009 - 10 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES . 22. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2010 - 11 WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), CUTTACK DATED 27.01.2014. 23. AS REGARDS THE ISSUE RAISED IN GROUND NO.1 OF THE REVENUES APPEAL FOR ASSESSMENT YEAR 2010 - 11 RELATING TO DELETION BY THE LD. CIT(A) OF THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST PAYABLE ON BONDS, IT IS OBSERVED THAT A SIMILAR ISSUE HAS ALREADY BEEN DECIDED BY US WHILE DISPOSING OF THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2007 - 08 IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN THE APPEAL FOR ASSESSMENT YEAR 2007 - 08, WE UPHOLD THE ORDER OF 11 THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST PAYABLE ON BONDS. GROUND NO.1 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 24. THE ISSUE RAISED IN GROUND NO .2 RELATES TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS.2.86 CRORES MADE BY THE AO ON ACCOUNT OF WAIVER OF INTEREST ON BONDS. 24.1 IN THE COMMENTS GIVEN IN ANNUAL REPORT ON ACCOUNTS, THE FOLLOWING NOTE WAS GIVEN : - REFERENCE IS INVITED TO PARA NO.4, ANNEXURE - II, OF THE AUDITORS REPORT, WHEREIN IT HAS BEEN STATED THAT THE CURRENT LIABILITIES ARE UNDERSTATED AND THE UNSECURED LOANS ARE OVERSTATED BY RS.18.25 CRORE. HOWEVER, THE COMPANY SETTLED TWO BONDS AT PRINCIPAL AMOUNT WITH COMPLETE WAIVER OF INTEREST OF RS.0.27 CRORE AND ONE BOND WITH AN AMOUNT OF RS.3.40 CRORE (PRINCIPAL RS.3 CRORE AND INTEREST RS.0.40 CRORE AGAINST THE ACCRUED INTEREST OF RS.2.29 CRORE) TILL FINALIZATION OF ACCOUNT FOR THE YEAR 2009 - 10. THE ACCRUED INTEREST ON THE THREE B ONDS FOR RS.2.86 CRORE SHOULD HAVE BEEN WRITTEN BACK IN THE YEAR 2009 - 10. AS THESE FACTS WERE KNOWN TO THE AUDITOR AT THE TIME OF CERTIFICATION OF ACCOUNTS, SAME SHOULD HAVE BEEN SUITABLY INCORPORATED IN THE STATUTORY AUDITORS REPORT. 24.2 ON THE BASIS O F ABOVE NOTE, THE AMOUNT OF RS.2.86 CRORE ON ACCOUNT OF WAIVER OF INTEREST WAS TREATED BY THE AO AS INCOME OF THE ASSESSEE FROM OTHER SOURCES AND ADDITION TO THAT EXTENT WAS MADE BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) DELETED THE SAID ADDITION FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER. IT IS EVIDENT FROM THE DETAILS SUBMITTED BY THE APPELLANT THAT THE PAYABLE AMOUNT OF INTEREST ON BONDS AS CLAIMED BY THE APPELLANT IS A DEFINITE LIABILITY WHICH HAS BEEN ACCRUED DUR ING THE FINANCIAL YEAR. THE APPELLANT HAS BEEN DEBITING SUCH LIABILITY TO THE P & L A/C. IN THE EARLIER FINANCIAL YEARS ALSO. AGAIN AS PER P ROVISIONS OF SECTION 43B( D) OF THE ACT, THE SAID PROVISIONS GETS ATTRACTED WHEN INTEREST IS PAYABLE ON ANY LOANS OR BORROWINGS FROM THE FINANCIAL INSTITUTIONS AND SUCH INTEREST HAS NOT BEEN PAID. INTEREST PAYABLE IN RESPECT OF AMOUNTS DEPOSITED BY THE FINANCIAL INSTITUTIONS WITH THE APPELLANT BY SUBSCRIBING TO THE BONDS ISSUED BY THE APPELLANT DOES NOT FALL IN THE AMBIT 12 OF THE SECTION 43B OF THE ACT. THE DISALLOWANCE IN THIS REGARD MADE BY THE AO IS NOT PLACED PROPERLY AND I THEREFORE DIRECT HIM TO ALLOW THIS INTEREST ON BONDS PAYABLE AMOUNTING TO RS.1 ,23,88,900/ - TO THE APPELLANT AS CLAIMED BY IT. THE APPELLANT HAS EXP LAINED AND SUBMITTED DETAILS THAT WAIVER OF INTEREST HAS BEEN RECOGNIZED AS INCOM E UNDER THE HEAD INTEREST INCOM E IN SCHEDULE - 03 AMOUNTING TO RS.5,73,60,285/ - IN ACCOUNTS OF FINANCIAL YEAR 2010 - 11. ACCORDINGLY THE SAME HAS BEEN ADDED BY THE APPELLANT UNDER THE HEADING OF PRIOR PERIOD ADJUSTMENT. THE APPELLANT HAD FURNISHED THE DETAILS OF SUCH ACCOUNTS. THE APPELLANT FURTHER STATED THAT AS THERE WAS NO SETTLEMENT OF BONDS IN THE FINANCIAL YEAR 2009 - 10 THERE WAS NO SCOPE OF WAIVER OF INTEREST, WHICH COULD BE RECOGNIZED AS INCOME. THE AO WITHOUT PROPERLY APPRECIATING THE FACTS AND UNDERSTANDING THE ACCOUNTS WRONGLY ADDED RS.2.86 CRORE TO THE DECLARED INCOME FOR AY 2010 - 11. DURING THE FINANCIAL YEAR THE APPELLANT HAD SETTLED TWO BONDS AND WAIVED INTEREST AMOUNTI NG TO RS.2,84,56,849/ - AND RS.2,62,38,425/ - RESPECTIVELY. THE SAME WERE ADDED AS INCOME UNDER THE HEAD OF PRIOR PERIOD EXPENSES FOR THE ASSESSMENT YEAR 2011 - 12. THE APPELLANT SUBMITTED DETAILS OF STATEMENT EXPLAINING THE ISSUE. 24.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT THE SETTLEMENT OF BONDS HAD TAKEN PLACE IN FINANCIAL YEAR 2010 - 11 AND NOT IN THE FINANCIAL YEAR 2009 - 10 RELATING TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2010 - 11. ACCORDINGLY, THE INCOME ON ACCOUNT OF WAIVER OF INTEREST WAS RECOGNIZED AND OFFERED BY THE ASSESSEE IN ASSESSMENT YEAR 2011 - 12 AND THERE BEING NO SETTLEMENT OF BONDS AND CONSEQUENTLY WAIVER OF INTEREST DURING THE YEAR UNDER CONSIDERATION, WE FIND OURSELVES IN AGREEMENT WITH THE LD. CIT(A) THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF WAIVER OF INTEREST IN THE YEAR UNDER CONSIDERATION WAS NOT SUSTAINABLE. THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE IS ACCORDINGLY UPHELD DISMISSING GROUN D NO.2 OF THE REVENUES APPEAL. 25. AS REGARDS GROUND NO.3 OF THE REVENUES APPEAL RELATING TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION MADE BY THE AO ON ACCOUNT OF GROUP GRATUITY INSURANCE PREMIUM, IT IS OBSERVED THAT A SIMILAR ISSUE HAS ALREADY B EEN DECIDED BY US WHILE DISPOSING OF THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2005 - 06 IN THE FOREGOING 13 PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN THE APPEAL FOR ASSESSMENT YEAR 2005 - 06 , WE UPHOLD THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF GROUP GRATUITY INSURANCE PREMIUM. GROUND NO.3 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 26. IN THE CROSS OBJECTION NO. 29/CTK/2014, THE ASSESSEE HAS SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A), WHEREBY HE DELETED THE ADDITION S MADE BY THE AO. AS WE HAVE ALREADY UPHELD THE IMPUGNED ORDER OF THE LD. CIT(A) WHILE DISPOSING OF THE APPEAL OF THE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS. THE SAME IS THEREFORE DISMISSED. 27 . I N THE RESULT , ALL THE FOUR AP PEAL S OF THE REVENUE AND THREE CROSS OBJECTION S FILED BY THE ASSESSEE ARE DISMISSED WHILE ONE C.O. OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUN CED IN THE COUR T ON 30 TH OCTOBER, 2015 SD/ - SD/ - ( P.S.CHAUDHURY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 /10/2015 TALUKDAR,SR.PS COPY TO : 1. M/S. ODISHA SMALL INDUSTRIES CORPORATION LTD., OSI BUILDING, INDUSTR IAL ESTATE, KHAPURIA, CUTTACK 2. ACIT, CIRCLE - 2(2), CUTTACK 3. CIT(A) CUTTACK 4. CIT CUTTACK 5. D. R., ITAT, CUTTACK TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T., CUTTACK 14