ACIT, Trivandrum V. J.J.Holiday Resorts P. Ltd, Kottayam

ITA 276/COCH/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7263 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 16-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Section: 43B; 2

Judgement Text

1 ITA NO.276/COCH/2014 C.O. NO.29/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 276/COCH/2014 (ASSESSMENT YEAR 2008-09) ACIT, CIR.1(1) VS J.J. HOLIDAY RESORTS (P) LTD TRIVANDRUM MANARKATTU BLDG, PALA KOTTAYAM PAN : AABCJ6043N (APPELLANT) (RESPONDENT) C.O. NO.29/COCH/2014 (ARISING OUT OF I.T.A NO. 276/COCH/2014) (ASSESSMENT YEAR 2008-09) J.J. HOLIDAY RESORTS P LTD VS ACIT, CIR.1(1) PALA TRIVANDRUM (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MATHEW JOSEPH REVENUE BY : SHRI K.K. JOHN, SR DR DATE OF HEARING : 11-08-2014 DATE OF PRONOUNCEMENT : 28-08-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-V, KOCHI DATED 03-03-2014. THE ASSESSEE HAS FILED CRO SS OBJECTION. 2 ITA NO.276/COCH/2014 C.O. NO.29/COCH/2014 THEREFORE, WE HEARD THE APPEAL OF THE REVENUE AND T HE CROSS OBJECTION TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORD ER. 2. LET US FIRST TAKE THE REVENUES APPEAL. SHRI K. K. JOHN, THE LD.DR SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS DISALLOWANCE OF INTEREST AND PENAL INTEREST PAID BY THE ASSESSEE WH ICH PERTAINS TO PRIOR PERIOD. ACCORDING TO THE LD.DR, THE ASSESSEE DEBIT ED AN AMOUNT OF RS.1,44,63,408.23 TOWARDS INTEREST EXPENDITURE. TH IS INTEREST EXPENDITURE INCLUDES PENAL INTEREST ALSO. ACCORDING TO THE LD. DR, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND LIABI LITY TO PAY INTEREST HAD ALREADY ACCRUED IN THE EARLIER YEARS. THE DIFFICUL TY OF THE ASSESSEE TO PAY THE INTEREST DOES NOT ALTER THE ACCRUAL OF THE LIAB ILITY. ACCORDING TO THE LD.REPRESENTATIVE, ONCE THE EXPENDITURE, VIZ. THE I NTEREST IS RELATABLE TO THE PRIOR PERIOD, THE SAME CANNOT BE ALLOWED ON PAYMENT BASIS U/S 43B OF THE ACT. THE LD.DR FURTHER SUBMITTED THAT ATLEAST THE PENAL INTEREST CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE TOTAL IN COME. 3. ON THE CONTRARY, SHRI MATHEW JOSEPH, THE LD.REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS PAID INTER EST TO KERALA STATE CO-OPERATIVE BANK LTD WHICH IS A SCHEDULED BANK UND ER SECOND SCHEDULE TO RBI ACT. THEREFORE, THE PROVISIONS OF SECTION 4 3B(E) IS APPLICABLE. 3 ITA NO.276/COCH/2014 C.O. NO.29/COCH/2014 ACCORDING TO THE LD.REPRESENTATIVE, WHENEVER THE IN TEREST WAS PAID TO SCHEDULED BANK, IT HAS TO BE ALLOWED ONLY ON PAYMEN T BASIS. SINCE THE INTEREST WAS PAID DURING THE YEAR UNDER CONSIDERATI ON, ACCORDING TO THE LD.REPRESENTATIVE, IRRESPECTIVE OF THE METHOD OF AC COUNTING THAT MAY BE FOLLOWED BY THE ASSESSEE, IT HAS TO BE ALLOWED ONLY IN THE YEAR UNDER CONSIDERATION. THE LD.REPRESENTATIVE FURTHER SUBMI TTED THAT THE LOAN ACCOUNT OF THE ASSESSEE WAS CLASSIFIED AS NON PERFO RMING ASSET AND THE BANK WAS NOT ISSUING ANY STATEMENT NOR WAS DEBITING THE INTEREST. A COMPROMISE WAS ULTIMATELY REACHED AND THE ASSESSEE AGREED FOR ONE TIME SETTLEMENT. THE LD.REPRESENTATIVE FURTHER SUBMITTE D THAT THE PENAL INTEREST IS NOTHING BUT INTEREST ON THE AMOUNT OVERDUE FOR B REACH OF CONTRACT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 43B(E) CLEARLY SAYS THAT ANY INTEREST PAYABLE TO SCHEDULED BANK IS TO BE ALL OWED ONLY ON ACTUAL PAYMENT BASIS. THEREFORE, THE METHOD OF ACCOUNTING THAT MAY BE FOLLOWED BY THE ASSESSEE MAY BE IRRELEVANT. IRRESPECTIVE OF THE FACT WHETHER THE LIABILITY TO PAY INTEREST ACCRUED IN THE EARLIER AS SESSMENT YEARS, THE CLAIM OF THE ASSESSEE COULD BE ALLOWED ONLY ON ACTUAL PAYMEN T BASIS. IT IS NOT THE CASE OF THE REVENUE THAT THE SAME INTEREST WAS ALRE ADY CLAIMED BY THE ASSESSEE WHILE COMPUTING TAXABLE INCOME FOR ANY OF THE PREVIOUS YEARS. 4 ITA NO.276/COCH/2014 C.O. NO.29/COCH/2014 WHEN THE ASSESSEE HAS NOT CLAIMED THE SAME IN ANY O F THE EARLIER YEARS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IT HAS TO BE ALLOWED ONLY IN THE YEAR IN WHICH THE SAME WAS ACTUALLY PAID, IN VI EW OF SECTION 43B(E) OF THE ACT. SECTION 43B(E) WILL OVERRIDE NOT ONLY THE METHOD OF ACCOUNTING THAT MAY BE FOLLOWED BY THE ASSESSEE BUT ALSO THE O THER PROVISIONS IN THE INCOME-TAX ACT. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INTEREST PAID TO THE SCHEDULED BANK HAS TO BE A LLOWED IN THE YEAR IN WHICH IT IS ACTUALLY PAID IRRESPECTIVE OF THE YEAR IN WHICH THE LIABILITY ACCRUED. 5. NOW COMING TO THE PENAL INTEREST, ACTUALLY, IT I S A PAYMENT MADE TO THE BANK FOR OVERDUE PAYMENT. AT THE BEST, WE MAY SAY THAT THERE IS A BREACH OF CONTRACT. PAYMENT OF INTEREST IS ONLY TO COMPENSATE THE USAGE OF MONEY BY THE OTHER PARTY. THE PENAL INTEREST WAS L EVIED NOT FOR BREACH OF STATUTORY PROVISION, BUT FOR BREACH OF A CONTRACT B ETWEEN THE PARTIES. THEREFORE, IT HAS TO BE TREATED AS PART OF INTEREST . SINCE THE ASSESSEE ADMITTEDLY PAID THE INTEREST AND PENALTY ONLY DURIN G THE YEAR UNDER CONSIDERATION AND NO PART OF THE INTEREST AND PENAL INTEREST WAS ALLOWED IN ANY OF THE EARLIER YEARS, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSE E. THIS TRIBUNAL DO NOT 5 ITA NO.276/COCH/2014 C.O. NO.29/COCH/2014 FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHOR ITY. ACCORDINGLY, THE SAME IS UPHELD. 6. NOW COMING TO THE CROSS OBJECTION, SHRI MATHEW J OSEPH, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT I N THE ORIGINAL ASSESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED 50% OF VEHICLE EXPENSES TO THE EXTENT OF RS.5,46,440 ON THE GROUND THAT THE VEHICLE MIGHT HAVE BEEN USED FOR PERSONAL PURPOSE ALSO. THOUGH A SPECIFIC GROUND WAS RAISED BEFORE THE CIT(A), ACCORDING TO THE LD.REPRE SENTATIVE, THE CIT(A) HAS NOT DISPOSED OF THIS GROUND. THEREFORE, THE ASSESS EE HAS RAISED THE ISSUE BEFORE THIS TRIBUNAL. WE HEARD SHRI K.K. JOHN, THE LD.DR ALSO. 7. ADMITTEDLY, THE ASSESSEE HAS RAISED THE DISALLOW ANCE OF VEHICLE EXPENSES BEFORE THE CIT(A). HOWEVER, THE CIT(A) HA S NOT DISPOSED OF THE SAME WHILE DISPOSING OF THE APPEAL. THERE MAY BE A MISTAKE THROUGH OVERSIGHT. THIS TRIBUNAL IS OF THE CONSIDERED OPIN ION THAT WHEN THE ASSESSEE RAISED A SPECIFIC GROUND BEFORE CIT(A) IT OUGHT TO HAVE BEEN DISPOSED OF BY THE CIT(A). ACCORDINGLY, THE ISSUE OF DISALLOWANCE OF PART OF VEHICLE EXPENSES IS REMITTED BACK TO THE FILE OF THE CIT(A). THE CIT(A) SHALL CONSIDER THE SPECIFIC GROUND RAISED BY THE AS SESSEE IN THE APPEAL WITH REGARD TO DISALLOWANCE OF VEHICLE EXPENSES AND THEREAFTER DECIDE THE 6 ITA NO.276/COCH/2014 C.O. NO.29/COCH/2014 SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH AUGUST, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 28 TH AUGUST, 2014 PK/- COPY TO: 1. ACIT, CIR.1(1), TRIVNDRUM 2. J.J. HOLIDAY RESORTS (P) LTD, MANARKATTU BLDG, P ALA, KOTTAYAM 3. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 4. THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH