National Agricultural Cooperative Marketing Federation of India Ltd, V. JCIT Range-32,

ITA 1999/DEL/2008

• Counselvise Citation: 199920114 RSA 2008
• Duration Of Justice: 7 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 13-06-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 22-05-2008
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Assessee Lawyers: HIREN MEHTA; SANJEEV KWATRA CAS
• Keywords: Business income; Difference of opinion
• Section: 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI SPECIAL BENCH `F : NEW DELHI BEFORE JUSTICE (RETD.) DEV DARSHAN SUD, HONBLE PRESIDENT, SHRI G.C. GUPTA, VP AND SHRI R.S. SYAL AM ITA NOS.1999 & 2000/DEL/2008 ASSESSMENT YEARS : 2001-02 & 2002-03 M/S NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA LTD., NAFED HOUSE, ASHRAM CHOWK, NEW DELHI. PAN: AAACN0172F VS. JOINT COMMISSIONER OF INCOME TAX, RANGE-32, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIREN MEHTA & SHRI SANJEEV KWATRA, CAS DEPARTMENT BY : SMT. SULEKHA VERMA, CIT, DR DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 16.10.2015 ORD ER PER R.S. SYAL, AM : THE HONBLE PRESIDENT OF THE INCOME-TAX APPELLATE T RIBUNAL, ON A REFERENCE MADE BY A DIVISION BENCH, HAS CONSTITUTED THIS SPECIAL BENCH BY POSTING THE FOLLOWING QUESTION FOR OUR CONSIDERATIO N AND DECISION:- ITA NOS.1999 & 2000/DEL/2008 2 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , WHERE CLAIM OF DAMAGES AND INTEREST THEREON IS DISPUTED B Y THE ASSESSEE IN THE COURT OF LAW, DEDUCTION CAN BE ALLO WED FOR THE INTEREST CLAIMED ON SUCH DAMAGES WHILE COMPUTING BU SINESS INCOME? 2. THE ASSESSEE HAS RAISED SIMILAR GROUNDS IN BOTH THE CAPTIONED APPEALS AGAINST THE CONFIRMATION OF DISALLOWANCE OF INTERES T ON DAMAGES AMOUNTING TO RS.7,92,52,013 AND RS.8,44,34,983 FOR THE A.YS. 2001-02 AND 2002-03 RESPECTIVELY. SINCE THE FACTS AND CIR CUMSTANCES OF MAKING ADDITION BY THE ASSESSING OFFICER (AO) AND THEN ITS ECHOING BY THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)] ARE S IMILAR FOR BOTH THE YEARS, WE ARE ESPOUSING THE FACTUAL MATRIX RELEVANT TO THE A.Y. 2001-02 FOR CONSIDERATION AND DECISION, WHICH IS MUTATIS MUTANDIS SIMILAR TO THE OTHER YEAR AS WELL. 3.1. SUCCINCTLY, THE FACTS APROPOS THE ISSUE FOR THE ASSESSMENT YEAR 2001- 02 ARE THAT THE ASSESSEE FILED ITS RETURN AND THE A SSESSMENT WAS COMPLETED ON 27.2.2004 U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). DURING THE COURSE OF ASSESSMENT PROCEEDINGS PERTAINING TO THE A.Y. 2003-04, A SPECIAL AUDIT U/S 142(2A) W AS CARRIED OUT WHICH ITA NOS.1999 & 2000/DEL/2008 3 DIVULGED, INTER ALIA, THAT THE ASSESSEE HAD CLAIMED DEDUCTION FOR INTERE ST PAYABLE TO M/S ALIMENTA SA SWITZERLAND (HEREINAFTER CALLED ALIMENTA) ON ACCOUNT OF ARBITRATION AWARD, WHICH WAS STILL DI SPUTED BY IT. THE AO OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION OF INT EREST AMOUNTING TO RS.7.92 CRORE PAYABLE TO ALIMENTA FOR THE A.Y. 2001 -02. SUCH AMOUNT OF INTEREST WAS NOT FOUND TO HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT BUT DIRECTLY REDUCED IN THE COMPUTATION OF TOTAL IN COME. HE FURTHER OBSERVED THAT AS PER THE PROVISIONS OF SECTION 40(A )(I) OF THE ACT, THIS AMOUNT OF INTEREST WAS DEDUCTIBLE ONLY ON THE DEDUC TION OF TAX AT SOURCE AND PAYMENT THEREOF, WHICH WAS NOT DONE BY THE ASSE SSEE. IN A NUTSHELL, THE AO OPINED THAT SUCH INTEREST WAS NOT DEDUCTIBLE . NOTICE U/S 148 WAS ISSUED 22.9.2006, WHICH WAS DULY SERVED ON THE ASSE SSEE. 3.2. THE AO NOTICED DURING THE COURSE OF ASSESSME NT PROCEEDINGS THAT DEDUCTION FOR INTEREST WAS NOT BACKED BY ANY CORRES PONDING LIABILITY TO PAY; THE LIABILITY CLAIMED BY THE ASSESSEE AS DEDUC TION WAS NOT ACKNOWLEDGED DUE TO THE ONGOING LITIGATION AND PRO CEEDINGS FOR COMPROMISE; THE ASSESSEE WAS OF THE VIEW THAT THE PRINCIPAL AMOUNT SHOULD BE WIPED OFF AND INTEREST SHOULD EITHER BE N IL OR REDUCED ITA NOS.1999 & 2000/DEL/2008 4 DRASTICALLY; AND EVEN IF THE LIABILITY WAS TREATED AS CERTAIN AND OTHERWISE ELIGIBLE FOR DEDUCTION, NO DEDUCTION WAS ALLOWABLE DUE TO VIOLATION OF THE PROVISIONS OF SECTION 40(A)(I) INASMUCH AS NO TAX W AS DEDUCTED AT SOURCE. THE ASSESSEE SUBMITTED THAT THERE WAS A BREACH OF C ONTRACT ON ITS PART FOR WHICH THE HONBLE DELHI HIGH COURT HELD IT (NAFED) LIABLE FOR THE LOSS INCURRED BY ALIMENTA AND ALSO INTEREST @ 18% PER AN NUM FROM THE DATE OF AWARD TILL THE DATE OF REALIZATION; THE JUDGMENT DE LIVERED BY THE HONBLE HIGH COURT WAS BINDING; THE LIABILITY WAS DETERMINE D AND ASCERTAINED BECAUSE OF THE DECREE OF THE HONBLE DELHI HIGH COU RT NOTWITHSTANDING THE ASSESSEE FILING APPEAL AGAINST IT; AND THE TERM INTEREST USED IN SECTION 40(A)(I) OF THE ACT RELATES TO LOAN AND DOES NOT ME AN COMPENSATION AND, HENCE, SUCH PROVISION WAS NOT APPLICABLE. THE AO R EFUSED TO ACCEPT THE ASSESSEES CONTENTIONS BY FURTHER NOTICING THAT IT HAD TREATED THIS LIABILITY AS CONTINGENT BY NOT DEBITING IT TO THE PROFIT & LOSS ACCOUNT; THE PROVISIONS OF SECTION 40(A)(I) WERE SQUARELY APPLICABLE IN THI S CASE; AND THE CASES RELIED BY THE ASSESSEE WERE NOT APPLICABLE TO THE P REVAILING CIRCUMSTANCES. IN VIEW OF THESE REASONS, THE AO CAME TO HOLD THAT NO DEDUCTION WAS ITA NOS.1999 & 2000/DEL/2008 5 PERMISSIBLE FOR RS.7,92,52,013. HE, THEREFORE, MAD E AN ADDITION FOR THIS SUM. SIMILAR IS THE POSITION FOR THE SUCCEEDING YE AR AS WELL. 3.3. THE LD. CIT(A) OBSERVED THAT ON IDENTICAL IS SUE, THE ASSESSEE PREFERRED APPEALS BEFORE THE TRIBUNAL PERTAINING TO ASSESSMENT YEARS 1996-97 TO 1998-99 AND THE BENCH WAS PLEASED TO HO LD THAT THE LIABILITY FOR PAYMENT OF SUCH INTEREST CRYSTALISED ONLY IN TH E PERIOD RELEVANT TO ASSESSMENT YEAR 2000-01 AND HENCE NO DEDUCTION WAS ALLOWABLE IN SUCH YEARS BECAUSE THE CLAIM FOR INTEREST AT THE END OF SUCH YEARS WAS NOT AN ASCERTAINED LIABILITY. HE FURTHER TOOK NOTE OF THE VIEW TAKEN BY HIM FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 IN HOLDING THA T THE INTEREST WAS NOT DEDUCTIBLE. THE ASSESSEES CONTENTION ABOUT THE FI NDING OF THE TRIBUNAL FOR THE CRYSTALIZATION OF LIABILITY ON 28.1.2000 PURSUA NT TO THE PASSING OF THE DECREE BY THE HONBLE HIGH COURT AGAINST NAFED, WA S HELD BY THE LD. FIRST APPELLATE AUTHORITY TO BE ONLY AN OBITER DICTA . HE, THEREFORE, UPHELD THE VIEW TAKEN BY THE AO IN MAKING DISALLOWANCE OF INTEREST AMOUNTING FOR BOTH THE YEARS. ITA NOS.1999 & 2000/DEL/2008 6 3.4. THE ASSESSEE PREFERRED SECOND APPEALS CONT ENDING THAT SINCE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.YS. 2003- 04 AND 2004-05 HAD ALLOWED DEDUCTION OF INTEREST, THE SAME VIEW BE FOL LOWED FOR THE TWO A.YS. UNDER CONSIDERATION. THE DIVISION BENCH HEAR ING THE APPEALS FOR THE EXTANT YEARS WAS NOT CONVINCED WITH THE REASONI NG GIVEN BY THE TRIBUNAL IN ITS ORDER FOR THE A.YS. 2003-04 AND 200 4-05 IN DELETING THE DISALLOWANCE OF INTEREST AND, ACCORDINGLY, MADE A R EFERENCE FOR THE CONSTITUTION OF A SPECIAL BENCH IN TERMS OF SECTION 255(3) OF THE ACT. THAT IS HOW, THE INSTANT PROCEEDINGS HAVE COME UP BEFORE US FOR CONSIDERATION AND DECISION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS UNDISPUTED THAT THE ASSE SSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HAS NEITHER PAI D SUCH AMOUNT OF INTEREST NOR CLAIMED IT AS DEDUCTION IN ITS BOOKS O F ACCOUNT. DEDUCTION WAS CLAIMED DIRECTLY IN THE COMPUTATION OF INCOME. THE VIEW POINT OF THE ASSESSEE IS THAT SINCE IT IS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING, THE LIABILITY TO PAY INTEREST @ 18% P.A. BECAME DUE B Y THE ORDER OF THE LD. ITA NOS.1999 & 2000/DEL/2008 7 SINGLE JUDGE OF THE HONBLE DELHI HIGH COURT AND AC CORDINGLY DEDUCTION FOR THE SAME IS PERMISSIBLE. 5. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, AN ASSESSEE GETS DEDUCTION WHEN LIABILITY TO PAY AN EXPENSE ARISES, NOTWITHSTA NDING ITS ACTUAL QUANTIFICATION AND DISCHARGE TAKING PLACE SUBSEQUEN TLY. THE RELEVANT CRITERIA FOR THE GRANT OF A DEDUCTION IS THAT THE INCURRING OF LIABILITY MUST BE CERTAIN. IF THE LIABILITY ITSELF IS UNCERTAIN, I T ASSUMES THE CHARACTER OF A CONTINGENT LIABILITY AND CEASES TO BE DEDUCTIBLE. T HUS, A DEDUCTION CAN BE ALLOWED ONLY WHEN AN ASSESSEE INCURS LIABILITY TO P AY AN AMOUNT IN THE NATURE OF AN EXPENSE. THE ASPECT OF INCURRING A LIA BILITY NEEDS TO BE UNDERSTOOD IN A CORRECT PERSPECTIVE. IT IS HERE THA T A DISTINCTION BETWEEN A CONTRACTUAL AND A STATUTORY LIABILITY ASSUMES SIGNI FICANCE. A STATUTORY LIABILITY IS INCURRED ON A MERE ISSUANCE OF A DEMAN D NOTICE AGAINST THE ASSESSEE AND BECOMES DEDUCTIBLE AT THAT POINT OF TI ME. THE FACTUM OF THE ASSESSEE RAISING A DISPUTE AGAINST SUCH A DEMAND DO ES NOT RUIN THE INCURRING OF LIABILITY. ON THE CONTRARY, A CONTRAC TUAL LIABILITY IS NOT INCURRED ON A MERE RAISING OF DEMAND BY A CLAIMANT. IT ARISES ONLY WHEN SUCH A CLAIM IS EITHER ACKNOWLEDGED OR IN A CASE OF NON-ACCEPTANCE, WHEN ITA NOS.1999 & 2000/DEL/2008 8 A FINAL OBLIGATION TO PAY IS FASTENED COUPLED WITH THE CLAIMANT ACQUIRING A LEGAL RIGHT TO RECEIVE SUCH AN AMOUNT. UNLESS THE C LAIMANT ACQUIRES AN ENFORCEABLE RIGHT TO RECEIVE, IT CANNOT BE SAID THA T THE FIRST PERSON HAS INCURRED A LIABILITY TO PAY SUCH AN AMOUNT. TO PUT IT SIMPLY, IN THE CASE OF A CONTRACTUAL DISPUTE BETWEEN THE PARTIES, LIABILIT Y OF THE ASSESSEE TO PAY ARISES ONLY WHEN THE CLAIMANT AGAINST THE ASSESSEE ACQUIRES SOME LEGAL RIGHT TO RECEIVE THE AMOUNT. IN THE ABSENCE OF THE VESTING OF ANY SUCH RIGHT IN THE CLAIMANT, NEITHER HE EARNS ANY INCOME NOR TH E ASSESSEE INCURS A CORRESPONDING LIABILITY TO PAY, ENTITLING HIM TO CL AIM DEDUCTION FOR THE SAME. CRUX OF THE MATTER IS THAT EXCEPT FOR THE AS SESSEE ACCEPTING A CONTRACTUAL CLAIM, HIS LIABILITY TO PAY DOES NOT AR ISE UNTIL SOME LEGAL OBLIGATION TO PAY IS FIXED ON HIM. A LEGAL OBLIGAT ION TO PAY IS ATTACHED ON AN ASSESSEE WHEN A COMPETENT COURT PASSES ORDER AND A SUIT IS DECREED AGAINST HIM AND NOT DURING THE PENDENCY OF LITIGATI ON. THIS DIFFERENCE BETWEEN A CONTRACTUAL AND A STATUTORY LIABILITY HAS BEEN RECOGNIZED BY THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE SIN CE REPORTED AS NATIONAL AGRICULTURAL CO-OPERATIVE MARKETING FEDERA TION OF INDIA LTD. VS. CIT (2011) 338 ITR 36 (DEL). ITA NOS.1999 & 2000/DEL/2008 9 6. IN ORDER TO DECIDE THE QUESTION OF DEDUCTIBILI TY OR OTHERWISE OF INTEREST BY THE ASSESSEE TO ALIMENTA, WE NEED TO HAVE A LOOK AT THE RELEVANT FACTUAL DETAILS, WHICH ARE AS UNDER:- 1979-80 (EXPORT POLICY) NAFED WAS APPOINTED CA NALIZING AGENCY FOR EXPORT OF HPS GROUNDNUT. A QUOTA OF 50, 000 MTS EACH WAS RELEASED TO NAFED FOR 1979-80 AND 1980-81. 12.1.1980. AGREEMENT EXECUTED BETWEEN NAFED AND ALIMENTA FOR EXPORT OF 5,000 MTS HPS GN KERNELS JAW A VARIETY @ 765 USD PMT FOB FROM SAURASHTRA PORT DURING JANUA RY- MAY, 1980. ANOTHER AGREEMENT FOR SUPPLY OF 4000 MT S HPS GROUNDNUT KERNEL JAWA VARIETY @ USD 770 FOR SUPPLY DURING 1980-81 WAS EXECUTED ON 3.4.1980. 1900 MTS SHIPPED UP TO 31.5.1980. BALANCE COUL D NOT BE SHIPPED IN VIEW OF THE NON-DECLARATION OF VESSEL BY THE BUYER. ON 20.12.1980, NAFED INFORMED ALIMENTA ABOUT RE STRICTION IMPOSED BY THE GOVERNMENT OF INDIA ON EXPORT AND EX PRESSED INABILITY TO SHIP THE BALANCE QUANTITY OF 7100 MTS. 13.2.1981, ALIMENTA ASKED NAFED TO SUBMIT THE D ISPUTE FOR ARBITRATION TO FEDERATION OF OILS, SEEDS AND FATS A SSOCIATION LTD. (FOSFA) ARBITRATORS AT LONDON. ITA NOS.1999 & 2000/DEL/2008 10 AN AWARD WAS MADE AGAINST NAFED ON 14.11.89. A PPEAL WAS FILED BEFORE THE BOARD OF APPEAL OF FOSFA, WHIC H ALSO UPHELD THE AWARD, THE DETAILS OF WHICH ARE AS UNDER :- 45.26 LAKH USD PRINCIPAL AMOUNT + 48.81 LAKH USD (INTEREST @ 11.25% W.E.F. 13.2.1981 TO 14.9.1990, BEING THE D ATE OF AWARD) AUGUST 1993. ALIMENTA FILED THIS AWARD FOR ENF ORCEMENT UNDER FOREIGN AWARD (RECOGNITION AND ENFORCEMENT) A CT, 1961. THE LD. SINGLE JUDGE OF THE HONBLE DELHI HIGH COUR T VIDE ITS JUDGMENT DATED 28.1.2000 MADE THE AWARD A RULE OF T HE COURT AND FURTHER ORDERED THAT ALIMENTA SHALL BE ENTITLED TO INTEREST @ 18% P.A. FROM THE DATE OF THE AWARD TILL THE DATE OF RE ALIZATION. DECREE WAS ACCORDINGLY PASSED ON THE SAME DATE, THAT IS, 2 8.1.2000. NAFED FILED APPEAL AGAINST THE JUDGMENT AND DEC REE OF THE LD. SINGLE JUDGE. ON 28.2.2001, THE DIVISION BENCH STAYED THE EXECUTION OF JUDGMENT AND DECREE DATED 28.1.2000 ON FURNISHING OF BANK GUARANTEE OF EQUIVALENT AMOUNT. ALIMENTA FILED SLP AGAINST THE ORDER PASSED BY THE HONBLE DELHI HIGH COURT ON 28.2.2001 GRANTING FULL STAY. THE HONBLE SUPREME COURT, WITHOUT ENTERING INTO THE MERITS OF THE CONTENTIONS RAISED BEFORE IT AND WITHOUT EXPRESSING ANY OPINION AS TO THE MAINTAINABILITY OF APPEAL TO THE DIVISION BE NCH, VIDE ITS ORDER DATED 5.4.2002, MODIFIED THE STAY ORDER PASS ED BY THE ITA NOS.1999 & 2000/DEL/2008 11 DIVISION BENCH OF THE HONBLE DELHI HIGH COURT, DIR ECTING THE NAFED TO FURNISH EITHER BANK GUARANTEE OR PROPER SE CURITY FOR THE PRINCIPAL AMOUNT DECREED WITHIN EIGHT WEEKS, F AILING WHICH THE ORDER OF STAY GRANTED BY THE HONBLE DELHI HIGH COURT WAS TO BE VACATED. THIS ORDER OF THE HONBLE SUPREME COURT WAS LAT ER ON MODIFIED BY THE HONBLE SUPREME COURT ON 8.1.2003 M ANDATING THAT IN CASE THE ASSESSEE FURNISHES BANK GUARANTEE FOR THE ENTIRE PRINCIPAL AMOUNT WITHIN FOUR WEEKS, THE EXECUTION P ROCEEDINGS SHOULD REMAIN STAYED. IN THE MEAN TIME, THE ASSESSEES APPEAL AGAI NST THE LD. SINGLE JUDGES ORDER DATED 28.1.2000 CAME UP FOR H EARING BEFORE THE HONBLE DELHI HIGH COURT. PURSUANT TO DIFFERENC E OF OPINION, THE LD. THIRD HONBLE JUDGE VIDE HIS ORDER DATED 6. 9.2010 CAME TO HOLD THAT THAT A LETTERS PATENT APPEAL IS NOT MAINT AINABLE AGAINST THE JUDGMENT DT. 28.1.2000 OF THE LD. SINGLE JUDGE. THE ASSESSEE FILED SLP AGAINST THIS JUDGMENT O F THE HONBLE DELHI HIGH COURT. VIDE ITS ORDER DATED 25.10.2010, ISSUING NOTICE, AN INTERIM STAY WAS GRANTED AGAINST THE JUDGMENT DT . 6.9.2010 SUBJECT TO THE DEPOSIT OF THE AMOUNT DUE. A MODIFICATION APPLICATION WAS FILED BY THE AS SESSEE, WHICH WAS DISPOSED OF BY THE HONBLE SUPREME COURT ON 24. 1.2011. ITA NOS.1999 & 2000/DEL/2008 12 ONE MORE MODIFICATION APPLICATION WAS FILED, WHICH WAS ALSO DISPOSED OF BY THE HONBLE SUPREME COURT ON 7. 4.2011 STAYING THE EXECUTION OF DECREE. ON 17.1.2012, THE HONBLE SUPREME COURT REJEC TED THE PRAYER FOR INTERIM RELIEF AND GAVE LIBERTY TO THE R ESPONDENT TO ENFORCE DECREE DATED 28.1.2000 PASSED BY THE LD. SI NGLE JUDGE OF THE HONBLE DELHI HIGH COURT. IN THE MEAN TIME, ALIMENTA FILED PETITION FO R RECTIFICATION OF THE DECREE ORDER PASSED BY THE LD. SINGLE JUDGE DT. 28.1.2000. VIDE ITS ORDER DATED 21.08.2014, CERTAIN CLERICAL E RRORS WERE CORRECTED. 7. WE CAN SUMMARIZE THE POSITION GERMANE TO THE ISSUE BEFORE US FROM THE ABOVE EVENTS-CHART THAT THE LD. SINGLE JUDGE OF THE HONBLE DELHI HIGH COURT VIDE HIS JUDGMENT AND DECREE DATED 28.1.2000 DIRECTED, INTER ALIA, THE PAYMENT OF INTEREST TO ALIMENTA AT 11.25% UP TO THE DATE OF AWARD AS ALLOWED BY FOSFA AND AT 18% FROM THE DATE OF AWARD TILL THE DATE OF REALIZATION. IT IS UNDISPUTED THAT NO PAYMENT OF TH E PRINCIPAL AMOUNT OF DAMAGES OR INTEREST HAS SO FAR BEEN FINALLY MADE, E XCEPT FOR FURNISHING BANK GUARANTEES ETC. TO SOME EXTENT. THE ASSESSEE F ILED A LETTERS PATENT APPEAL AGAINST THE JUDGMENT AND DECREE OF THE LD. S INGLE JUDGE. THE ITA NOS.1999 & 2000/DEL/2008 13 DIVISION BENCH, DURING THE PENDENCY OF SUCH AN APPE AL, VIDE ITS INTERIM ORDER DATED 28.2.2001 STAYED THE EXECUTION OF THE J UDGMENT OF LD. SINGLE JUDGE. CERTAIN INTERIM ORDERS WERE PASSED BY THE HO NBLE SUPREME COURT AND THE HONBLE DELHI HIGH COURT, BUT THE STAY ON T HE ORDER AND DECREE OF THE LD. SINGLE JUDGE WAS NOT DISTURBED, WHICH CONTI NUED TILL THE LD. THIRD JUDGE (ON A DIFFERENCE OF OPINION BETWEEN THE TWO L D. JUDGES WHO HEARD THE APPEAL) FINALLY DECIDED THE APPEAL OF THE ASSES SEE VIDE ITS JUDGMENT DATED 6.9.2010 HOLDING THAT A LETTERS PATENT APPEAL IS NOT MAINTAINABLE AGAINST THE JUDGMENT DT. 28.1.2000 OF THE LD. SINGL E JUDGE. A CONSEQUENTIAL JUDGMENT WAS PASSED IN SEPTEMBER, 201 0. EFFECT OF THIS JUDGMENT IS THAT THE STAY ORDER OF THE DIVISION BEN CH PASSED ON 28.2.2001 GOT VACATED AND THE JUDGMENT AND DECREE OF LD. SING LE JUDGE DT. 28.1.2000 AGAIN CAME TO BE REVIVED. ON 17.1.2012, THE HONBLE SUPREME COURT REJECTED THE PRAYER OF THE ASSESSEE FOR INTERIM REL IEF AND GAVE LIBERTY TO ALIMENTA TO ENFORCE DECREE DATED. 28.1.2000 PASSED BY THE LD. SINGLE JUDGE OF THE HONBLE DELHI HIGH COURT. THIS SEQUENCE OF E VENTS TRANSPIRES THAT THE LEGALLY ENFORCEABLE LIABILITY AGAINST THE ASSES SEE TO PAY INTEREST AT THE RATE OF 18% TO ALIMENTA, WHICH WAS CREATED BY THE DECREE OF THE LD. SINGLE ITA NOS.1999 & 2000/DEL/2008 14 JUDGE DATED 28.1.2000, REMAINED SUSPENDED FROM THE DATE OF STAY GRANTED BY THE DIVISION BENCH OF THE HONBLE HIGH COURT ON 28.2.2001. IT IS ONLY ON THE PASSING OF THE CONSEQUENTIAL JUDGMENT AND DE CREE BY THE HONBLE DELHI HIGH COURT IN SEPTEMBER, 2010, SUBJECT TO CER TAIN STAYS ETC. GRANTED AGAINST THE OPERATION OF THIS JUDGMENT, THAT THE AS SESSEE INCURRED A LEGALLY ENFORCEABLE LIABILITY TO PAY SUCH INTEREST TO ALIME NTA. 8. NOW THE MOOT QUESTION IS WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION FOR INTEREST AT THE RATE OF 18% DECREED BY THE LD. SINGLE JUDGE OF THE DELHI HIGH COURT IN THE COMPUTATION OF INCOME FOR THE YEA RS UNDER CONSIDERATION. THE ANSWER WILL BE IN AFFIRMATIVE I F THE ASSESSEE HAD ANY LEGAL OBLIGATION TO PAY SUCH INTEREST DURING THE YE ARS IN QUESTION AND VICE VERSA . WE CAN DO THIS BY ASCERTAINING IF ANY LEGALLY ENF ORCEABLE LIABILITY EXISTED AGAINST THE ASSESSEE TO PAY INTEREST IN TH E YEARS UNDER CONSIDERATION. PER CONTRA, WAS ALIMENTA LEGALLY ENT ITLED TO RECEIVE SUCH INTEREST INCOME DURING THE YEARS IN QUESTION? IT IS PATENT THAT THE STAY ORDER AGAINST THE JUDGMENT AND DECREE OF THE LD. SINGLE J UDGE WAS PASSED BY THE DIVISION BENCH ON 28.2.2001, WHICH IS WELL WITHIN T HE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02 UNDER CONSI DERATION AND REMAINED ITA NOS.1999 & 2000/DEL/2008 15 OPERATIVE IN SUBSEQUENT YEARS INCLUDING THE IMMEDIA TELY SUCCEEDING YEAR IN APPEAL. THIS SHOWS THAT THE ASSESSEE DID NOT HAV E ANY LEGAL OBLIGATION TO PAY INTEREST DURING THESE TWO YEARS. THE HITHERTO O BLIGATION WHICH WAS CREATED BY THE JUDGMENT OF THE LD. SINGLE JUDGE AGA INST THE ASSESSEE WAS ECLIPSED AND FRUSTRATED BY THE LATER JUDGMENT OF TH E DIVISION BENCH AND SUCH OBLIGATION CEASED TO EXIST FOR THE TIME BEING. 9. AT THIS JUNCTURE, IT WILL BE APPOSITE TO CONS IDER THE JUDGMENT DATED 3.6.2011 RENDERED BY THE HONBLE DELHI HIGH COURT I N ASSESSEES OWN CASE FOR THE A.YS. 1996-97 TO 1998-99 AS REFERRED TO IN PARA 5 OF THIS ORDER SUPRA. THE ASSESSEE CLAIMED DEDUCTION FOR INTEREST IN THE SE THREE YEARS, WHICH THE AO REFUSED TO ALLOW. THE TRIBUNAL UPHELD THE VIEW OF THE AO. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE HIGH COURT, THEIR LORDSHIPS TOOK UP THE QUESTION WHETHER THE LIABILIT Y COULD BE SAID TO HAVE ACCRUED TO THE ASSESSEE TO PAY THIS INTEREST BEFORE THE PASSING OF THE ORDER BY THIS COURT ON 28TH JAN., 2000. REJECTING THE ASS ESSEES CONTENTION, IT WAS HELD THAT ON THE LAST DATE OF ALL THE THREE ASS ESSMENT YEARS, NAMELY, 1996-97, 1997-98 AND 1998-99, THERE WAS NO LEGAL LI ABILITY ON THE PART OF ITA NOS.1999 & 2000/DEL/2008 16 THE APPELLANT TO PAY INTEREST AND THAT LIABILITY WA S CRYSTALLIZED ONLY ON 28TH JAN., 2000 (I.E., ASST. YR. 2000-01) WHEN DECREE WA S PASSED BY THE DELHI HIGH COURT AND WAS HENCE DEDUCTIBLE ONLY WHEN IT GO T CRYSTALLIZED INTO A CERTAIN LIABILITY, WHICH EVENT TOOK PLACE ONLY ON T HE PASSING A DECREE AND AWARDING INTEREST AFTER THE DATE OF THE AWARD TILL THE DATE OF REALIZATION. 10. THIS JUDGMENT IN ASSESSEES OWN CASE HAS LA ID DOWN THAT LIABILITY TO PAY INTEREST AROSE ON THE LD. SINGLE JUDGE PASSING DECREE ON 28.1.2000 AND TILL THEN THERE WAS NO OBLIGATION TO PAY ANY INTERE ST AND HENCE THE ASSESSEE COULD NOT CLAIM DEDUCTION OF INTEREST IN THE COMPUT ATION OF INCOME FOR THE EARLIER YEARS. THE PRINCIPLE IS THAT DEDUCTION BECO MES AVAILABLE ONLY ON COMING INTO EXISTENCE OF A LIABILITY TO PAY AND THE LIABILITY TO PAY ARISES WHEN IT FLOWS FROM A LEGALLY ENFORCEABLE ORDER. IN SUCH A SITUATION, THE PERIOD TO WHICH THE EXPENSE ORIGINALLY PERTAINED, L OSES ITS RELEVANCE. SINCE THE DECREE IN THIS CASE WAS PASSED BY THE LD. SINGL E JUDGE ON 28.1.2000, WHICH ALSO COVERED INTEREST FOR THE PERIODS RELEVAN T TO THE A.YS. 1996-97 TO 1998-99, THE DEDUCTION OF INTEREST FOR SUCH THRE E YEARS WAS HELD TO BE AVAILABLE NOT IN THESE YEARS BUT ON CRYSTALLIZATION OF LIABILITY ON 28.1.2000. ITA NOS.1999 & 2000/DEL/2008 17 ALBEIT THIS JUDGMENT HAS BEEN RENDERED ON 3.6.2011, BUT THE FACT THAT THE ORDER AND DECREE DT. 28.1.2000, WHICH CREATED LIABI LITY TO PAY INTEREST AGAINST THE ASSESSEE, WAS STAYED ON 28.2.2001, APPE ARS NOT TO HAVE BEEN BROUGHT TO THE NOTICE OF THE HONBLE HIGH COURT AS IT DOES NOT FIND MENTION ANYWHERE IN THE JUDGMENT. THOUGH THIS FACT OR IS OTHERWISE CRUCIAL FOR OUR PURPOSE, BUT DOES NOT HAVE ANY MATE RIAL BEARING ON THE CONCLUSION ABOUT THE NON-DEDUCTIBILITY OF INTEREST FOR THE THREE YEARS BEFORE THE HONBLE HIGH COURT INASMUCH AS THE LIABILITY TO PAY SUCH INTEREST DID NOT CRYSTALLIZE AT THE END OF THOSE THREE YEARS DE HORS THE STAY ON THE JUDGMENT OF THE LD. SINGLE JUDGE DATED 28.1.2000. BE THAT AS IT MAY, THE RATIO DECIDENDI OF THE JUDGMENT, WHICH IS NOT MARRED EVEN BY NON- MENTIONING BY THE PARTIES ABOUT THE STAY OF THE LD. SINGLE JUDGES ORDER, IS THAT DEDUCTION FOR INTEREST CAN BE ALLOWED ONLY WHE N AN ENFORCEABLE LIABILITY TO PAY THE SAME ARISES IRRESPECTIVE OF T HE CONSIDERATION THAT IT RELATES TO EARLIER YEARS. 11. THIS VIEW OF THE HONBLE HIGH COURT ACCORDS WITH THE ONE TAKEN BY THE HONBLE SUPREME COURT IN CIT VS. A. GAJAPATHY NAIDU (1964) 53 ITR ITA NOS.1999 & 2000/DEL/2008 18 114 (SC) , LAYING DOWN THE LAW IN RELATION TO ACCRUAL OF INC OME IN THE FOLLOWING TERMS : 'WHEN AN ITO PROCEEDS TO INCLUDE A PARTICULAR INCOME IN THE ASSESSMENT, HE SHOULD ASK HIMSELF, INTER AL IA, TWO QUESTIONS, NAMELY : (I) WHAT IS THE SYSTEM OF ACCOUNTANCY ADOPTED BY THE ASSESSEE, AND (II) IF IT IS THE MERCANTILE SYSTEM, SUBJECT TO THE DEEMING PROVISIONS, WHEN HAS THE RIGHT TO RECEIVE ACCRUED ? IF HE COMES TO THE C ONCLUSION THAT SUCH A RIGHT ACCRUED OR AROSE TO THE ASSESSEE IN A PARTICU LAR ACCOUNTING YEAR, HE SHOULD INCLUDE THE SAID INCOME IN THE ASSESSMENT OF THE SUCCEEDING ASSESSMENT YEAR. NO POWER IS CONFERRED ON THE ITO UNDER THE ACT TO R ELATE BACK AN INCOME THAT ACCRUED OR AROSE IN A SUBSEQUEN T YEAR TO ANOTHER EARLIER YEAR, ON THE GROUND THAT THAT INCOME AROSE OUT OF AN EARLIER TRANSACTION. ' APPLYING THE SAME PRINCIPLE TO EXPENSES, A DEDUCT ION CAN BE ALLOWED ONLY IN THE YEAR IN WHICH THE LIABILITY TO PAY THEM FINALLY ARISES, IRRESPECTIVE OF THE YEAR TO WHICH THEY ACTUALLY REL ATE. 12. REVERTING TO THE POINT, UNLESS THERE IS A SP ECIFIC CONTRARY PROVISION, DEDUCTION FOR AN EXPENSE CAN BE ALLOWED IN THE YEAR IN WHICH LIABILITY TO PAY FINALLY ARISES. ONCE A PERSON HAS NOT VOLUNTAR ILY ACCEPTED A ITA NOS.1999 & 2000/DEL/2008 19 CONTRACTUAL OBLIGATION AND FURTHER THERE SUBSISTS N O LEGAL OBLIGATION TO PAY QUA SUCH CONTRACTUAL CLAIM AT A PARTICULAR TIME, IT CAN NOT BE SAID THAT THE PERSON INCURRED ANY LIABILITY TO PAY AT THAT POINT OF TIME SO AS TO MAKE HIM ELIGIBLE FOR DEDUCTION ON THAT COUNT. NOTWITHSTANDI NG THE FACT THAT OBLIGATION RELATES TO AN EARLIER YEAR, THE LIABILIT Y TO PAY ARISES ONLY IN THE LATER YEAR, WHEN A FINAL ENFORCEABLE OBLIGATION TO PAY IS SETTLED AGAINST THAT PERSON. IN OUR CONSIDERED OPINION, THERE IS NO QU ALITATIVE DIFFERENCE BETWEEN THE TWO SITUATIONS, VIZ., FIRST, IN WHICH NO ENFORCEABLE LIABILITY TO PAY IS CREATED IN THE FIRST INSTANCE, AND SECOND, I N WHICH THOUGH THE ENFORCEABLE LIABILITY WAS INITIALLY CREATED BUT TH E SAME STANDS WIPED OUT BY THE STAY ON THE OPERATION OF SUCH ENFORCEABLE LI ABILITY. IN BOTH THE SITUATIONS, CLAIMANT REMAINS WITHOUT ANY LEGAL RIGH T TO RECOVER THE AMOUNT AND EQUALLY THE OPPOSITE PARTY WITHOUT ANY LEGAL OB LIGATION TO PAY THE SAME. NEITHER ANY INCOME ACCRUES TO THE CLAIMANT, NOR ANY DEDUCTION IS EARNED BY THE OPPOSITE PARTY. WE ARE INSTANTLY CON FRONTED WITH THE SECOND TYPE OF SITUATION IN WHICH THE OBLIGATION CREATED A GAINST THE ASSESSEE BY THE JUDGMENT OF THE LD. SINGLE JUDGE ON 28.1.2000 WAS S TAYED BY THE JUDGMENT OF THE DIVISION BENCH ON 28.2.2001, WHICH POSITION CONTINUED TILL THE ITA NOS.1999 & 2000/DEL/2008 20 DECREE ON THE JUDGMENT DT. 6.9.2010 REVIVING THE JU DGMENT OF THE LD. SINGLE JUDGE, BECAME ENFORCEABLE. EVEN THOUGH THE C RYSTALLIZATION OF LIABILITY OF THE ASSESSEE TO PAY INTEREST PURSUANT TO THE DEVELOPMENTS AFTER 6.9.2010 ALSO COVERS EARLIER YEARS INCLUDING THE YE ARS UNDER CONSIDERATION, BUT SUCH LIABILITY OF THE ASSESSEE BECAME DUE ONLY ON THE ACQUISITION OF RIGHT BY ALIMENTA TO ENFORCE THE DECREE ISSUED ON T HE ADVENT OF THE JUDGMENT DATED 6.9.2010. CONSEQUENTLY, THE ASSESSE E CAN CLAIM DEDUCTION FOR SUCH INTEREST ONLY AT SUCH A LATER STAGE AND NO T DURING THE YEARS UNDER CONSIDERATION. 13. OUR VIEW ABOUT NON-AVAILABILITY OF DEDUCTION FO R THE YEARS IN QUESTION IS FURTHER FORTIFIED BY THE JUDGMENT OF TH E HONBLE SUPREME COURT IN THE CASE OF CIT VS. HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD. (1986) 161 ITR 524 (SC) . THE ASSESSEE IN THAT CASE WAS DEALING IN LAND AND MAINTAINED ITS ACCOUNTS ON MERCANTILE BASIS. S OME PLOTS OF THE ASSESSEE WERE REQUISITIONED BY THE GOVERNMENT AND, SUBSEQUENTLY, THE LAND WAS ACQUIRED. CERTAIN SUM WAS AWARDED AS COMP ENSATION. THE ASSESSEE PREFERRED APPEAL BEFORE THE ARBITRATOR, WH O MADE THE AWARD FIXING ITA NOS.1999 & 2000/DEL/2008 21 HIGHER AMOUNT OF COMPENSATION. THE STATE GOVERNMEN T APPEALED TO THE HIGH COURT AND, DURING THE PENDENCY OF THE APPEAL, THE ASSESSEE WAS PERMITTED TO WITHDRAW THE AMOUNT ON FURNISHING SECU RITY. THE AO BROUGHT TO TAX THE DIFFERENCE BETWEEN THE AMOUNT PAID TO TH E ASSESSEE IN TERMS OF THE AWARD AND THE AMOUNT ALREADY PAID. THIS AMOUNT WAS TREATED AS LIABLE TO TAX ON THE GROUND THAT THE INCOME ACCRUED TO THE ASSESSEE ON THE DATE OF THE AWARD. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE APEX COURT, THEIR LORDSHIPS HELD THAT NO INCOME ACCRUED TO THE ASSESSEE AS THERE WAS NO ABSOLUTE RIGHT TO RECEIVE THE AMOUNT A T THAT STAGE INASMUCH AS THE ARBITRATORS AWARD ENHANCING COMPENSATION FOR A CQUISITION OF THE ASSESSEES LAND WAS PUT IN JEOPARDY BY THE STATE GO VERNMENT ON FILING AN APPEAL AGAINST THAT VERY RIGHT AND NOTHING WOULD BE DUE IF THE APPEAL WAS DECIDED AGAINST THE ASSESSEE. NOTICING THAT THERE WAS NO ABSOLUTE RIGHT TO RECEIVE THE AMOUNT AT THAT STAGE, THE HONBLE SUMMI T COURT HELD THAT: `THERE IS A CLEAR DISTINCTION BETWEEN CASES SUCH AS THE PRESENT ONE, WHERE THE RIGHT TO RECEIVE PAYMENT IS IN DISPUTE AND IT I S NOT A QUESTION OF MERELY QUANTIFYING THE AMOUNT TO BE RECEIVED, AND CASES WH ERE THE RIGHT TO RECEIVE ITA NOS.1999 & 2000/DEL/2008 22 PAYMENT IS ADMITTED AND THE QUANTIFICATION ONLY OF THE AMOUNT PAYABLE IS LEFT TO BE DETERMINED IN ACCORDANCE WITH SETTLED OR ACCEPTED PRINCIPLES. 14. PRESENTLY, WE ARE ALSO DEALING WITH AN ALMOST SIMILAR SITUATION IN WHICH ALIMENTAS RIGHT TO RECEIVE INTEREST WAS IN S ERIOUS DISPUTE AT THE END OF THE YEARS UNDER CONSIDERATION BECAUSE THE CORRES PONDING LIABILITY OF THE ASSESSEE TO PAY STOOD STAYED BY THE ORDER OF THE DI VISION BENCH ON 28.2.2001. BY NO STANDARD, THE ASSESSEE CAN BE SAI D TO HAVE INCURRED ANY LIABILITY FOR PAYMENT OF INTEREST TO ALIMENTA AT T HE END OF THE THESE TWO YEARS. 15. THE LD. AR HAS VEHEMENTLY RELIED ON THE ORDER PASSED BY THE TRIBUNAL FOR THE A.Y. 2003-04 IN WHICH A VIEW IN ITS FAVOUR HAS BEEN TAKEN. IT IS THE SAME ORDER, WHICH THE SUCCEEDING BENCH COULD NOT AG REE WITH AND REFERRED THE MATTER FOR CONSTITUTION OF SPECIAL BENCH. WE HA VE GONE THROUGH THIS ORDER OF THE TRIBUNAL, A COPY OF WHICH HAS BEEN PLA CED IN THE PAPER BOOK. IT CAN BE OBSERVED THAT THE TRIBUNAL, IN DECIDING THIS ISSUE IN FAVOUR OF THE ASSESSEE, HAS BEEN SWAYED BY THE FACT THAT THE LD. SINGLE JUDGE PASSED THE ORDER/DECREE AGAINST THE ASSESSEE ON 28.1.2000. TH ERE IS NO REFERENCE ITA NOS.1999 & 2000/DEL/2008 23 WHATSOEVER IN THIS ORDER DATED 18.7.2008 TO THE LAT ER DEVELOPMENT, BEING THE ORDER PASSED BY THE DIVISION BENCH ON 28.2.2001 STAYING THE OPERATION OF THE EARLIER JUDGMENT AND DECREE OF THE LD. SINGL E JUDGE. THIS CRUCIAL FACT OF PARAMOUNT IMPORTANCE WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL AND IT IS ON THESE HALF PRESENTED FACTS THAT THE TR IBUNAL ALLOWED DEDUCTION OF INTEREST. 16. THE LD. AR HAS RELIED ON CERTAIN JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT TO BOLSTER THE DEDUCTIBIL ITY OF INTEREST. WE FIND SUCH RELIANCE AS COMPLETELY MISPLACED. THE FIRST J UDGMENT IS R.C. GUPTA VS. CIT (2008) 166 TAXMANN 191 (DEL). THE FACTS OF THE CASE ARE THAT THE ASSESSEE THEREIN MADE CERTAIN PURCHASES FROM COMPAN Y H IN THE YEAR 1975 AND THE AMOUNT WAS PAYABLE, BUT, THERE WAS DIS PUTE ON THE LIABILITY TO PAY. THE ASSESSEE CLAIMED DEDUCTION FOR THE SAID A MOUNT IN ITS COMPUTATION OF INCOME FOR THE A.Y. 1979-80. THE AO DISALLOWED IT ON THE GROUND THAT: THE SAID AMOUNT DID NOT RELATE TO ANY PURCHASES MADE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION. THE HONBLE HIGH COURT EVENTUALLY ALLOWED DEDUCTION FOR THE SAID AMOUNT. ITA NOS.1999 & 2000/DEL/2008 24 WE DO NOT FIND ANY PARALLEL BETWEEN THE FACTS OF TH AT CASE AND THE CASE UNDER CONSIDERATION. IN THAT CASE, AN UNDISPUTED FA CT PREVAILED THAT THE LIABILITY WAS INCURRED AS THE GOODS WERE IN FACT PU RCHASED BY THE ASSESSEE AND THE ONLY DISPUTE WAS OF THE TIMING OF DEDUCTIBI LITY. ON THE CONTRARY, WE ARE CONFRONTED WITH A SITUATION IN WHICH NO LIAB ILITY, AS SUCH, HAS BEEN INCURRED BY THE ASSESSEE, FOR WHICH A DEDUCTION IS SOUGHT. 17. THE NEXT CASE RELIED BY THE LD. AR IS JASJEET FILMS (P) LTD. VS. CIT (2007) 165 TAXMANN 599 (DEL). THE ASSESSEE IN THIS CASE CONSTRUCTED A CINEMA BUILDING ON A PLOT OF LAND ALLOTTED TO IT ON LEASE BY DELHI DEVELOPMENT AUTHORITY (DDA). CONSTRUCTION OF THE SA ID BUILDING WAS COMPLETED IN AUGUST, 1970. ON 9.9.1980, THE DDA IS SUED A LETTER TO THE ASSESSEE, WHEREIN DEMAND WAS RAISED FOR GROUND RENT AND ALSO TOWARDS INTEREST CHARGES FOR BELATED PAYMENT OF SUCH GROUND RENT. THE ASSESSEE DEBITED THE AMOUNT IN ITS PROFIT & LOSS ACCOUNT FOR THE ASSESSMENT YEAR 1981-82. THE AO DISALLOWED THE AMOUNT OF INTEREST PERTAINING TO EARLIER YEARS ON THE GROUND THAT THE SAID LIABILITY COULD N OT BE CONSTRUED TO HAVE ACCRUED DURING THE RELEVANT PREVIOUS YEAR. REVERSI NG THE VIEW TAKEN BY ITA NOS.1999 & 2000/DEL/2008 25 THE AO, THE HONBLE HIGH COURT HELD THAT SUCH AMOUN T OF INTEREST PERTAINING TO EARLIER YEARS WAS DEDUCTIBLE IN THE Y EAR IN QUESTION BECAUSE THE LIABILITY TO PAY SUCH INTEREST ACCRUED ON THE I SSUANCE OF LETTER BY THE DDA ON 9.9.1980. WE FAIL TO COMPREHEND AS TO HOW T HIS CASE SUPPORTS THE ASSESSEES CONTENTION. WE ARE DEALING WITH A SITUA TION IN WHICH THE LIABILITY TO PAY INTEREST DID NOT EXIST AT ALL AT T HE END OF THE YEARS IN QUESTION BECAUSE THE JUDGMENT AND DECREE OF THE LD. SINGLE JUDGE WAS STAYED BY THE DIVISION BENCH OF THE HONBLE DELHI H IGH COURT VIDE ITS ORDER DATED 28.1.2001. THIS JUDGMENT RATHER SUPPOR TS THE REVENUES CONTENTION THAT THE DEDUCTION CAN BE CLAIMED ONLY W HEN THE LIABILITY IS INCURRED. GOING BY THE RATIO DECIDENDI OF THE JUDGEMENT IN JASJEET FILMS (P) LTD. (SUPRA) , WE FIND THAT THE ASSESSEE CAN CLAIM DEDUCTION FOR INTEREST ONLY WHEN THE LIABILITY TO PAY SUCH INTEREST FINALL Y GOT CRYSTALLIZED ON THE PASSING OF DECREE BY THE HONBLE DELHI HIGH COURT I N SEPTEMBER, 2010, SUBJECT TO CERTAIN STAYS ETC. GRANTED AGAINST THE O PERATION OF THIS JUDGMENT AND NOT THE YEARS IN QUESTION WHEN SUCH LIABILITY T O PAY WAS ABSENT AT THE RESPECTIVE YEAR ENDINGS. ITA NOS.1999 & 2000/DEL/2008 26 18. SIMILARLY, WE FIND THAT THE CASE OF CIT VS. INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (2009) 185 TAXMANN 296 (D EL) , RELIED BY THE LD. AR IS NOT GERMANE TO THE ISSUE. IN THAT CASE, THE ASSESSEE ENTERED INTO A FORWARD CONTRACT FOR PURCHASE OF FOREIGN CURRENCY O N A FUTURE DATE AT A PRE- DETERMINED RATE AND THE DIFFERENCE BETWEEN FORWARD CONTRACT RATE AND EXCHANGE RATE ON THE DATE OF ENTERING INTO THE CONT RACT WAS RECOGNISED AS DEDUCTION, WHICH THE AO REFUSED TO ALLOW BY TREATIN G IT AS A CONTINGENT LIABILITY. THE HONBLE DELHI HIGH COURT OVERTURNED THE VIEW TAKEN BY THE AO AND FINALLY HELD THAT THIS IS AN ASCERTAINED AND DEFINITE LIABILITY IN TERMS OF CONTRACT AND, HENCE, ELIGIBLE FOR DEDUCTIO N. IN OUR CONSIDERED OPINION, THIS JUDGMENT HAS NO RELEVANCE TO THE FACT S UNDER CONSIDERATION. 19. WE CONSIDER IT PARAMOUNT TO MENTION THAT THE ASSESSEE HAS ADOPTED DIAGONALLY OPPOSITE STANDS IN CIVIL PROCEEDINGS AND INCOME-TAX PROCEEDINGS IN SO FAR AS THE QUESTION OF INTEREST L IABILITY IS CONCERNED. WHILE DEALING WITH ONE OF THE PETITIONS FILED BY TH E ASSESSEE ASSAILING ITS LIABILITY TO PAY INTEREST TO ALIMENTA, THE HONBLE HIGH COURT HAS RECORDED IN PARA 17 OF ITS ORDER DATED 16.4.2015, THAT THE A SSESSEE FILED AN ITA NOS.1999 & 2000/DEL/2008 27 APPLICATION FOR THE MODIFICATION OF THE ORDER DT. 2 5.10.2010 PASSED BY THE HONBLE SUPREME COURT, READING AS UNDER : - 17. NAFED FILED AN APPLICATION FOR MODIFICATION OF THE ORDER DATED 25 TH OCTOBER, 2010 PASSED BY THE SUPREME COURT OF INDIA IN SLP (CIVIL) NO.28325 OF 2010 AFFIRMING AS FOLLOWS:- THE APPLICANT SUBMITS THAT THE AFORESAID DIRECTIONS IN THE DECREE ARE NOT IN ACCORDANCE WITH AND IN FACT I N EXCESS OF THE AWARD AS WOULD BE SEEN FROM PAGE 117 OF THE SLP PAPER BOOK HAS ONLY DIRECTED PAYMENT OF US$ 11.25% P.A. FROM FEBRUARY 13, 1981 TO DATE OF AWARD I.E. SEPTEMBER 14, 1990 AND COSTS AND EXPENSES OF APPEAL AMOUNTING TO U.K. POUND 9344.55 AND NO OTHER AMOUNT. IT HAS NOT GRANTED ANY INTEREST FROM THE D ATE OF AWARD TILL PAYMENT. (EMPHASIS SUPPLIED) 20. THUS IT IS PALPABLE THAT WHILE ON ONE HAND T HE ASSESSEE IN CIVIL PROCEEDINGS IS SERIOUSLY CONTESTING ITS LIABILITY TO PAY INTEREST, ON THE OTHER HAND, WHEN THE SAME QUESTION COMES UP IN THE INCOME-TAX PROCEEDINGS, IT HAS TAKEN A TRANSVERSELY OPPOSITE S TAND THAT IT HAS INCURRED LIABILITY TOWARDS INTEREST PAYMENT AND THE SAME BE ALLOWED AS DEDUCTION. ITA NOS.1999 & 2000/DEL/2008 28 THERE IS AN ABSOLUTE MISMATCH BETWEEN THESE TWO INC ONSISTENT STANDS TAKEN BY THE ASSESSEE IN INCOME-TAX AND CIVIL PROCEEDINGS . SIMILAR POSITION IS PREVAILING INSOFAR AS THE ASSESSEES UNDERSTANDING AND REFLECTION OF SUCH INTEREST LIABILITY IN ITS ANNUAL ACCOUNTS IS CONCER NED. IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR THAT THE ASSESSEE IN ITS A NNUAL REPORT FOR THE YEAR 2012-13 HAS CLAIMED THE AMOUNT PAYABLE TO ALIMENTA AS A CONTINGENT LIABILITY ON THE GROUND OF THE SAME BEING SUB JUDICE . SIMILARLY, IN THE NOTES AND EXPLANATORY STATEMENTS, THE ASSESSEE HAS GIVEN THE REASON FOR NOT PROVIDING THIS CONTINGENT LIABILITY IN THE BOOK S OF ACCOUNT, ON PAGE 79 OF ITS ANNUAL REPORT, THAT THE AWARD IS UNDER CHALL ENGE BEFORE THE HONBLE APEX COURT AND BASED ON EXPERT LEGAL ADVICE, THE AS SESSEE CONSIDERS THE DISPUTED CASE LIKELY TO BE DECIDED IN ITS FAVOUR. THOUGH THE DEDUCTIBILITY OR OTHERWISE OF AN EXPENDITURE IN THE INCOME-TAX PR OCEEDINGS DEPENDS ON THE APPRECIATION OF THE CORRECT LEGAL POSITION UNDE R THE ACT AND NOT WHAT THE ASSESSEE CLAIMS UNDER ANY PROCEEDINGS OR ITS TR EATMENT AS CONTINGENT LIABILITY IN THE BOOKS OF ACCOUNT, THE IDEA BEHIND INCORPORATING THESE FACTS IN THE ORDER IS TO ACCENTUATE THE INCONGRUOUS STAND OF THE ASSESSEE ON THE SAME ISSUE. ITA NOS.1999 & 2000/DEL/2008 29 21. NOW, WE ESPOUSE THE ALTERNATIVE VIEW POINT C ANVASSED BY THE AO FOR DISALLOWING INTEREST, BEING THE MAKING OF CLAIM BY THE ASSESSEE DIRECTLY IN THE COMPUTATION OF INCOME WITHOUT ROUTING IT THROUG H ITS PROFIT AND LOSS ACCOUNT. IT IS TRITE THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT CONCLUSIVE OF ACCRUAL OF INCOME OR DEDUCTIBILITY OF EXPENSES. IF AN ENTRY IS PASSED IN THE BOOKS OF ACCOUNT FOR A DEDUCTION WHICH IS OTHER WISE NOT AVAILABLE AS PER LAW, IT DOES NOT MAKE THE CLAIM PER SE DEDUCTIBLE. IN THE LIKE MANNER, IF A CLAIM IS OTHERWISE DEDUCTIBLE, BUT NO ENTRY HAS B EEN PASSED IN THE BOOKS OF ACCOUNT, THEN THERE CAN BE NO DENIAL OF SUCH A C LAIM. ESSENCE OF THE MATTER IS THE DEDUCTIBILITY OR OTHERWISE AS PER LAW AND NOT THE PASSING OF ENTRIES IN THE BOOKS OF ACCOUNT. IN OUR CONSIDERED OPINION, ENTRIES IN BOOKS ARE NOT CONCLUSIVE OF ACCRUAL OF INCOME OR DEDUCTIB ILITY OF EXPENSES. ON THE CONTRARY, IT IS THE INCURRING OF LIABILITY OR A CCRUAL OF INCOME BY MEANS OF A LEGALLY ENFORCEABLE RIGHT, WHICH DECIDES ABOUT THE DEDUCTIBILITY OF AN EXPENSE OR EARNING OF INCOME. OUR VIEW GETS STRENGT H FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IN CIT VS. SMIFS SECURITIES LTD. (2012) 348 ITR 302 (SC), WHICH REITERATES SIMILAR VIEW TAKEN IN SEVERAL EA RLIER JUDGMENTS INCLUDING CIT VS. SHOORJI VALLABHDAS & CO. (1962) 46 ITR 144 ITA NOS.1999 & 2000/DEL/2008 30 (SC). AS SUCH, WE JETTISON THIS CONTENTION ADVANCED ON BE HALF OF THE REVENUE AS A REASON FOR SUSTAINING THE DISALLOWANCE OF INTEREST. 22. WE SUM UP OUR CONCLUSION ON THE POINT THAT TH E ASSESSEE DID NOT INCUR ANY LIABILITY FOR PAYMENT OF INTEREST TO ALIMENTA A S AT THE END OF THE YEARS UNDER CONSIDERATION. SINCE NO LEGALLY ENFORCEABLE LIABILITY EXISTED AGAINST THE ASSESSEE, THE DEDUCTION HAS BEEN RIGHTLY DENIE D. 23. NOW WE TAKE UP THE AOS ALTERNATIVE POINT OF VIEW THAT THE DEDUCTION, IF AT ALL PERMISSIBLE, IS ALSO HIT BY T HE PROVISION OF SECTION 40(A)(I). IN THIS REGARD, WE FIND THAT THIS PROVI SION WITH MARGINAL NOTE OF - `AMOUNTS NOT DEDUCTIBLE - APPLIES TO DISALLOW THE OTHERWISE ALLOWABLE DEDUCTIONS IN THE COMPUTATION OF INCOME OF THE PAYE R UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', IF ANY SUM CHARGEABLE TO TAX UNDER THE ACT IS PAYABLE OUTSIDE INDIA; OR IN INDI A TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YE AR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) ITA NOS.1999 & 2000/DEL/2008 31 OF SECTION 200. CONVERSELY, IF DEDUCTION IS OTHERW ISE NOT ALLOWABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSI ON, THEN THERE CANNOT BE ANY FURTHER DISALLOWANCE IN THE COMPUTATION OF INCO ME FOR WANT OF DEDUCTION OF TAX AT SOURCE ETC. IN VIEW OF OUR DECI SION AS TO THE NON- INCURRING OF LIABILITY FOR INTEREST BY THE ASSESSEE AND THE RESULTANT NON- AVAILABILITY OF DEDUCTION OF INTEREST IN THE COMPUT ATION OF INCOME FOR THE YEARS UNDER CONSIDERATION, SECTION 40(A)(I) OF THE ACT BECOMES INAPPLICABLE, AS THE UNDERLYING CONDITION FOR ITS A PPLICABILITY, BEING THE OTHERWISE ELIGIBILITY OF DEDUCTION FOR EXPENSE, BEC OMES WANTING. 24. IN VIEW OF THE FOREGOING REASONS, WE ANSWER THE QUESTION POSTED BEFORE THIS SPECIAL BENCH IN NEGATIVE BY HOLDING TH AT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHERE CLAIM OF DAMAGES A ND INTEREST THEREON IS DISPUTED BY THE ASSESSEE IN THE COURT OF LAW, DEDUC TION CANT BE ALLOWED FOR THE INTEREST CLAIMED ON SUCH DAMAGES IN THE COMPUTA TION OF BUSINESS INCOME. ITA NOS.1999 & 2000/DEL/2008 32 25. NOW THE INSTANT APPEALS ARE DIRECTED TO BE P LACED BEFORE THE DIVISION BENCH FOR DISPOSAL HAVING REGARD TO THE DECISION OF THE SPECIAL BENCH ON THE QUESTION RAISED BEFORE IT. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.10.201 5. SD/- SD/- SD/- [JUSTICE (RETD.) DEV DARSHAN SUD] [G.C. GUPTA] [R.S . SYAL] PRESIDENT VICE PRESIDENT ACCOUNTANT MEMBER DATED, 16 TH OCTOBER, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI. ITA NOS.1999 & 2000/DEL/2008 33 DATE INITIAL 1. DRAFT DICTATED ON 15.10.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 15.10.2015 SR.PS 3. DRAFT PROPOSED AND PLACED BEFORE THE HONBLE PRESIDENT 16.10.2015 4. DRAFT PROPOSED AND PLACED BEFORE THE HONBLE VICE PRESIDENT. 16.10.2015 5. DRAFT DISCUSSED/APPROVED BY HONBLE PRESIDENT 16.10.2015 6. DRAFT DISCUSSED/APPROVED BY HONBLE V.P. 16.10.20 15 JM/AM 7. APPROVED DRAFT COMES TO THE SR.PS/PS 16.10.2015 SR.PS/PS 8. KEPT FOR PRONOUNCEMENT ON 16.10.2015 SR.PS 9. FILE SENT TO THE BENCH CLERK SR.PS 10. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 11. DATE OF DISPATCH OF ORDER. *