The DCIT, Circle-4, Ahmedabad V. Gopala Polyplast Ltd., Ahmedabad

ITA 3005/AHD/2014

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3911 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 13-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASEEM L THAKAR
• Assessee Lawyers: SANTOSH KARNANI
• Keywords: Proportionate interest; Additional evidence; Tax effect

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD LOZJH LOZJH LOZJH LOZJH OLHE OLHE OLHE OLHE VGEN] YS[KK VGEN] YS[KK VGEN] YS[KK VGEN] YS[KK LNL; ,OA LNL; ,OA LNL; ,OA LNL; ,OA EK/KQFERK EK/KQFERK EK/KQFERK EK/KQFERK JKW;] U;KF;D JKW;] U;KF;D JKW;] U;KF;D JKW;] U;KF;D LNL; LNL; LNL; LNL; DS LE{KA DS LE{KA DS LE{KA DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NOS. 3005 & 3006/AHD/2014 ( / ASSESSMENT YEARS : 2005-06 & 2010-11) THE DCIT, CIRCLE 4, AHMEDABAD. / VS. GOPALA POLYPLAST LTD., 1-2, AKANSHA APPT., NR. SOLA RAILWAY CROSSING, SOLA ROAD, GHATLODIA, AHMEDABAD 380 061. ./ ./ PAN/GIR NO. : AABCG 1282 C ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI SANTOSH KARNANI, SR. D.R. REVENUE BY : SHRI ASEEM L. THAKAR, A.R. / DATE OF HEARING 20/07/2018 / DATE OF PRONOUNCEMENT 03/10/2018 !' / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- VIII, AHMEDABAD, DATED 19.08.2014 & 25.08.2014 FOR ASSESSMENT YEAR 2 005-06 & 2010- 11. 2. THE GROUNDS OF APPEAL RAISED THE BY THE REVENU E IN ITA NO.3005/AHD/2014 PERTAINING TO THE ASSESSMENT YEAR 2005-06 ARE AS UNDER:- ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 2 - 1. THAT LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION OF RS.55,90,000/- MADE U/S.41(1) OF THE AC T WITHOUT ASSESSEE ESTABLISHING THE TREATMENT OF OUTSTANDING INTEREST IN ASSESSEES BOOKS VIS--VIS THE CONVERSION INTO PREF ERENCE SHARE CAPITAL. 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS TO ADMIT AD DITIONAL EVIDENCE IN VIOLATION OF PROVISIONS OF RULE 46A OF IT RULES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS, THEREFORE, PRAYED THE ORDER OF THE LD.CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED T O THE ABOVE EXTENT. 3. THE SOLITARY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O FOR RS. 55.90 LACS U/S 41(1) OF THE ACT AFTER ADMITTING THE ADDITIONAL EVIDENCES IN CONTRAVENTION TO THE PROVISION OF RULE 46A OF THE I NCOME TAX RULE. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE MANUFACTURING OF BUSINESS OF HDPE/ P P BAGS AND JACQUARD WOVEN LABELS. THE ASSESSEE IS ALSO DEALING IN THE TRADING BUSINESS OF FABRICS AND LABELS. 4.1 THE ASSESSEE DURING THE YEAR HAS CLAIMED INTERE ST EXPENSES AMOUNTING TO RS. 2,47,93,508.00 ON THE TERM OF RS. 28,82,26,226.00 FROM THE IDBI. THE ASSESSEE DURING THE YEAR OUT OF THE T OTAL LOAN OF RS.28,82,26,226/- CONVERTED A SUM OF RS. 3.50 CRORE S AND 3 CRORES INTO REDEEMABLE PREFERENCE SHARES AND EQUITY SHARES. THU S, THE SHARES WERE ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 3 - ISSUED TO THE IDBI FOR THE AFORESAID AMOUNT OUT THE TERM LOAN AS DISCUSSED ABOVE. 4.2 THE AO DURING THE ASSESSMENT PROCEEDINGS WAS OF THE VIEW THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES ON THE A MOUNT OF RS.6.50 CRORES WHICH HAS BEEN CONVERTED INTO PREFERENCE SHA RES AND EQUITY SHARES. THEREFORE, THE AO DISALLOWED THE SAME BY WORKING OU T THE PROPORTIONATE INTEREST ON THE LOAN OF RS. 6.5 CRORES WHICH WORKS OUT TO RS. 55,90,000/- (8.6% OF RS.6.50 CRORES). THE AMOUNT OF INTEREST EX PENSES FOR RS. 55.90 LACS WAS DISALLOWED AND ADDED TO THE TOTAL INCOME O F THE ASSESSEE U/S 41(1) OF THE ACT. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT IT HAS TAKEN TWO KINDS OF LOANS FROM IDBI BANK, FIRSTLY FUNDED INTEREST TERM LOAN AND TERM LOAN. 5.1 THE ASSESSEE HAS CONVERTED THE AMOUNT OF RS.3.5 0 CRORES OUT OF FUNDED INTEREST TERM LOAN OF RS. 4,60,35,989/- DATE D 01.10.2004. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS CHARGED INTE REST ON THE TOTAL FUNDED INTEREST TERM LOAN TILL 30.09.2004. AS SUCH THERE W AS NO WAIVER OF INTEREST BY THE IDBI BANK ON THE CONVERSION OF LOAN INTO PRE FERENCE SHARES. 5.2 THE ASSESSEE ALSO SUBMITTED THAT IT HAS CONVERT ED AN AMOUNT OF RS. 3 CRORES OUT OF TOTAL TERM LOAN OF RS.23 CRORES DAT ED 01.10.2004. THE ASSESSEE ALSO SUBMITTED THAT IT HAS CHARGED INTERES T UP-TO 30.09.2004. ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 4 - THUS, AS SUCH IT WAS CLAIMED THAT THERE WAS NO INTE REST WAIVER BY THE BANK. ACCORDINGLY, THERE IS NO QUESTION OF CHARGING ANY INCOME UNDER THE PROVISION OF SECTION 41(1) OF THE ACT ON ACCOUN T OF WRITING BACK OF THE LIABILITY. 5.3 THE ASSESSEE FURTHER SUBMITTED THAT THE FINANCI AL POSITION OF THE COMPANY WAS VERY WEAK. THEREFORE THE APPROVAL WAS T AKEN FROM IDBI BANK FOR RESTRUCTURING ITS SHARE CAPITAL. 5.4 THE ASSESSEE ALSO FILED THE COPY OF FORM NO.2 W HICH WAS SUBMITTED TO THE REGISTRAR OF COMPANY FOR THE CONVERSION OF L OAN INTO SHARE. 5.5 THE ASSESSEE ALSO FILED A CHART DEPICTING THE A MOUNT OF INTEREST COST INCURRED BY IT, WHICH IS REPRODUCED AS UNDER: HDPE LABEL 7.50% 7.50% TOTAL FROM TO DAYS 14,00,00,000 9,00,00,000 23,00,00,000 01-APR-04 30-SEP-04 183 52,64,384 33,84,247 86,48,6 30 12,20,00,000 7,80,00,000 20,00,00,000 01-OCT-04 31-MARCH- 05 182 45,62,466 29,16,986 74,79,452 INTEREST AS PER CALCULATION INTEREST AS PER P & L 365 98,26,849 63,01,233 1,61,28,082 98,26,849 63,01,234 1,16,28,083 ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 5 - 5.6 THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 2.5 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. I HAVE ALSO CAREFULLY PERUSED AND EXAMINED THE REMAND REPORT SUBMITTED BY THE AO AND THE REJOINDER GIVEN ON THAT REPORT BY THE APPELLANT. TH E APPELLANT HAS RAISED THREE DIFFERENT GROUNDS OF APPEAL. ALL THE G ROUNDS ARE DISCUSSED AND DECIDED SEPARATELY HERE UNDER. 2.5.1 THE BASIC ISSUE INVOLVED IS THAT THE APPELLA NT HAD TAKEN LOAN FROM SOME BANKS AND IT WAS HAVING DIFFICULTY IN REP AYMENT OF THE SAME. ACCORDINGLY, PART OF THE LOAN WAS CONVERTED IN EQUI TY SHARES. THE AO WAS OF THE OPINION THAT THE APPELLANT HAS ALSO PAID INTEREST ON THE LOAN THAT HAS BEEN CONVERTED IN EQUITY SHARES. HE ACCORD INGLY HELD THAT SINCE THE INTEREST AMOUNT WAS ALSO PAID ON THE AMOUNT WHI CH HAD BEEN CONVERTED INTO EQUITY SHARES, THE PROPORTIONATE AMO UNT OF INTEREST OF RS. 55.90 LACS ON 6.5 CRORES AT THE RATE OF 8.6% SHOULD BE BROUGHT TO TAX UNDER SECTION 41(1) OF THE ACT. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT THE ACTION OF THE AO WAS WITHOUT ANY BASIS. IT HAS PAID ALL THE I NTEREST WHICH WAS DUE ON THE LOAN. THE PRINCIPAL AMOUNT OF LOAN WAS CONVE RTED INTO EQUITY SHARES AND NO INTEREST ON THOSE EQUITY SHARES, WHIC H WAS ISSUED TO THE BANKS AFTER THE LOAN WAS CONVERTED IN EQUITY AS A R ESULT OF NEGOTIATION WITH BANKS, WAS PAID. IT HAS GIVEN ALL THE DETAILS RELATED TO THE PAYMENT OF INTEREST CHARGES DEBITED BY IT IN THE P&L ACCOUN T WHICH WAS DULY AUDITED. ON A CAREFUL CONSIDERATION OF THE ENTIRE FACTS OF T HE CASE, IT IS NOTED THAT THE APPELLANT HAD TAKEN TWO TYPES OF LOA N FROM IDBI BANK. ONE WAS THE TERM LOAN WHICH HAD AN OUTSTANDING BALA NCE AS ON 31ST OF MARCH 2005 AMOUNTING TO RS. 23 CRORES ON ACCOUNT OF PRINCIPAL. ANOTHER LOAN OF FUNDED INTEREST TERM LOAN WAS ALSO THERE AND THE OUTSTANDING BALANCE IN THAT ACCOUNT WAS RS.46035989 /-. SINCE THE APPELLANT WAS NOT ABLE TO REPAY THE LOAN PROPERLY A ND IT WAS FACING FINANCIAL DIFFICULTY IT APPROACHED THE BANK FOR RES TRUCTURING OF THE DATE AND ACCORDINGLY OUT OF THE TERM LOAN OF 23 CRORES R S.3 CRORES WERE ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 6 - CONVERTED INTO ECO-THE SHARES AND THE CLOSING BALAN CE OF THE TERM LOAN AS ON 31/03/2005 REMAINED RS. 20 CRORES. SIMILARLY THE FITL (FUNDED INTEREST TERM LOAN) WAS ALSO RESTRUCTURED AND OUT O F RS. 4.60 CRORES THE BANKS WERE GIVEN PREFERENTIAL SHARES OF RS. 3.5 CRORES. THE BANK HAD GIVEN A REVISED SCHEDULE OF PAYMENT IN RESPECT OF B OTH THE LOANS SUBSEQUENT TO THE RESTRUCTURING. THE APPELLANT HAS SUBMITTED DETAILS OF INTEREST EXP ENSES SHOWN IN THE BOOKS OF ACCOUNTS FOR THE CURRENT YEAR AND IT HAS EXPLAINED THAT NO INTEREST HAS BEEN CHARGED ON THE AMOUNT OF RS. 6.50 CRORES WHICH HAS BEEN CONVERTED IN THE EQUITY SHARES. THE LOANS WERE CONVERTED IN EQUITY SHARES AS ON 30/09/2004. THE INTEREST PRIOR TO THAT PERIOD HAS BEEN COUNTED SEPARATELY AND THE INTEREST SUBSEQUENT TO R ESTRUCTURING THAT IS AFTER 01/10/2004 HAS ALSO BEEN CALCULATED SEPARATEL Y. THE FUNDED INTEREST TERM LOAN OF RS. 4.60 WAS SETTLED BY WAY O F ISSUING THE SHARES OF 3.50 CRORES AND BALANCE AMOUNT OF RS.1.10 WAS PA ID BY THE APPELLANT IN MARCH 2006. SIMILARLY THE OTHER LOAN OUT OF WHIC H EQUITY SHARES OF THREE CRORES WERE ISSUED AND BALANCE TERM LOAN OF 2 0 CRORE REMAINED AS ON 31ST OF MARCH 2005 THE INTEREST ON THAT LOAN HAS BEEN PAID SEPARATELY. IT IS NOTED THAT THE APPELLANT HAS NOT MADE ANY PAYMENT OF INTEREST ON THESE SHARES WHICH HAVE BEEN CONVERTED AS A RESULT OF RESTRUCTURING OF THE DEBT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE WOR KING GIVEN BY THE APPELLANT REGARDING PAYMENT OF INTEREST WAS FORWARDED TO AO VIDE THIS OFFICE LETTER DATED 16/01/2014. THE AO HAS NOT POINTED OUT ANY FACTUAL DISCREPANCY IN THE CLAIM MADE BY TH E APPELLANT. THE AO HAS POINTED OUT THAT THE APPELLANT HAD FAILED TO EXPLAIN THE TREATMENT OF INTEREST MADE IN THE BOOKS OF ACCOUNTS IN RELATION TO THE AMOUNT SO CONVERTED TO SHARES IN EARLIER YEARS AS W ELL AS THE YEAR UNDER CONSIDERATION. THE DENOVATION OF THE AO IS' NOT VA LID AND IS WITHOUT ANY BASIS. THE APPELLANT HAS GIVEN ALL THE DETAIL S EXPLAINING THE CONVERSION OF LOAN INTO EQUITY SHARES AND ALSO THE CALCULATION OF INTEREST PRIOR TO CONVERSION AND AFTER THAT. THE AO HAS AL SO STATED AND CLAIMED THAT THE EVIDENCE NOW GIVEN IS ADDITIONAL EVIDENCE AND SHOULD NOT BE ACCEPTED. THE OBJECTION OF THE AO IS NOT JUSTIFIED AS THE EVIDENCES AS SUCH. IN VIEW OF THE ABOVE FACTS, IT IS CLEAR THAT THE BA NKS HAVE NOT WAIVED ANY INTEREST WHICH HAS BEEN CLAIMED BY THE A PPELLANT IN EARLIER YEAR AS A RESULT OF RESTRUCTURING OF THE DEBT AS TH E OUTSTANDING AMOUNT ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 7 - HAS BEEN CONVERTED IN EQUITY SHARES DOES NOT CARRY ANY INTEREST AS, OBVIOUSLY IT IS IN THE FORM OF EQUITY. THEREFORE, T HE PRESUMPTION OF THE AO WAS WITHOUT ANY BASIS AND WAS FACTUALLY INCORREC T. THE DISALLOWANCE MADE IN ACCORDINGLY DIRECTED TO BE DEL ETED. THE RELATED GROUNDS OF APPEALS ARE ACCORDINGLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD CIT(A) REVENUE I S IN APPEAL BEFORE US. 6. THE LD DR BEFORE US VEHEMENTLY SUPPORTED THE ORD ER OF AO WHEREAS, THE LD AR BEFORE US FILED A PAPER BOOK WHI CH IS RUNNING FROM PAGES 1-76 AND SUBMITTED THAT IT HAS NOT WRITTEN BA CK ANY INTEREST ON ACCOUNT OF WAIVER OF LOAN FROM THE IDBI BANK. 7. THE LD. AR FURTHER SUBMITTED THAT PART OF THE LO AN TAKEN FROM IDBI BANK WAS CONVERTED INTO EQUITY SHARES AND PREF ERENTIAL SHARES. THUS, SHARES WERE ALLOTTED TO THE BANK ON 01.10.200 4. ACCORDINGLY, THE ASSESSEE ACCOUNTED FOR THE INTEREST TILL 30.09.2004 ONLY. THUS, IT IS CLEAR THAT THE INTEREST WAS CHARGED ON THE LOAN FROM IDBI BANK ON THE AMOUNT OF 6.50 CRORES OF RUPEES TILL 30.09.2004. THE LD. A R IN SUPPORT OF HIS CLAIM ALSO FILED A SANCTIONED LETTER OF THE BANK IS SUED ON 26.08.2004 WHICH IS PLACED ON PAGES 22 AND 23 OF THE PAPER BOO K. 7.1 THE LD AR ALSO FILED THE AUDITED FINANCIAL STAT EMENT WHICH IS PLACED ON PAGES 31 TO 47 OF THE PAPER BOOK. THE LD. AR ALSO FILED THE DETAILS OF THE INTEREST EXPENSES INCURRED BY IT BEF ORE THE CONVERSION OF LOAN INTO SHARES AND AFTER CONVERSION OF THE LOAN I NTO SHARES. SUCH DETAILS ARE PLACED ON PAGE 48 TO 59 OF THE PAPER BOOK. ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 8 - 7.2 LD AR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORI TIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, THE AO WA S OF THE VIEW THAT THE ASSESSEE HAS CHARGED INTEREST EXPENSE ON THE LOAN E VEN AFTER CONVERSION OF THE SAME INTO SHARES. ACCORDINGLY THE AO OPINED THAT ONCE THE LOAN HAS BEEN CONVERTED INTO SHARES THEN THE AMOUNT OF I NTEREST SHOULD HAVE BEEN WRITTEN BACK IN THE PROFIT AND LOSS ACCOUNT U/ S 41(1) OF THE ACT. THUS, THE ADDITION WAS MADE BY THE AO. 8.1 HOWEVER, THE LD. CIT(A) REVERSED THE ORDER OF A O BY OBSERVING THAT THERE WAS NO INTEREST WHICH WAS WRITTEN BACK B Y THE ASSESSEE ON ACCOUNT OF CONVERSION OF LOAN IN THE EQUITY SHARES. 8.2 FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE HAS CONVERTED ITS FUND INTEREST TERM LOAN INTO PREFEREN TIAL SHARES TO THE TUNE OF RS.3.50 CORES OUT OF TOTAL LOAN OF RS.4.60 CRORES. THE ASSESSEE HAS CHARGED THE INTEREST TILL 30.09.2004. THUS, IT IS C LEAR THAT NO INTEREST HAS BEEN CHARGED SUBSEQUENT TO THE CONVERSION OF LOAN I NTO PREFERENCE SHARES. IN THIS REGARD, WE FIND IMPORTANT TO REFER THE LETT ER ISSUED BY THE IDBI BANK DATED 26.08.2004. THE EXTRACT OF THE LETTER IS REPRODUCED AS UNDER: III) CONVERSION OF PART FITL INTO 1% CRPS OUT OF FITL OF RS.460 LAKH, THE COMPANY WOULD CONVE RT RS.350 LAKH OF FITL INTO 1% CRPS AND THE BALANCE AMOUNT OF RS.1 10 LAKH WOULD BE PAID BY THE COMPANY IN 2005-06. CRPS WOULD BE REDEEMABLE IN 3 ANNUAL TRANCHES COMME NCING FROM APRIL 2015. THE PROMOTERS WOULD BRING IN EQUIVALENT AMOUNT FOR REDEMPTION OF THE CRPS. ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 9 - IV) INTEREST DIFFERENTIAL INTEREST DIFFERENTIAL, AGGREGATING RS, 679 LAKH, AR ISING ON ACCOUNT OF EARLIER RATE REDUCTION HAS BEEN WAIVED AS A SPECIAL CASE. V) CLEARANCE OF PRESENT INTEREST OVERDUES THE COMPANY WOULD ARRANGE TO CLEAR THE INTEREST DUE S OF APRIL 1, 2004 BEFORE SEPT'04 AND THE PROMOTERS WOULD INFUSE FRESH FUNDS OF RS. 60 LAKH FOR CLEARING THE BALANCE OVERDUES IN TH E FOLLOWING QUARTER. VI) POST DATED CHEQUES AS A PART OF THE PRESENT PACKAGE, THE COMPANY WOULD IMMEDIATELY DEPOSIT POSTDATED CHEQUES WITH IDBI TOWARDS INTERES T AND PRINCIPAL INSTALLMENTS FALLING DURING THE CURRENT YEAR I.E. F ROM JULY 1, 2004 TO APRIL 1, 2005. THE GRANT OF THE AFORE-MENTIONED DEBT RESTRUCTURING PACKAGE IS ALSO SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN TH E APPENDIX. 8.3 SIMILARLY, WE FIND THAT THERE WAS NO WAIVER OF INTEREST IN RELATION TO THE TERM OF LOAN TAKEN BY THE ASSESSEE FOR RS.23 CR ORES IN CONSEQUENCES TO THE CONVERSION OF PART OF THE LOAN OF RS.3 CRORE S INTO EQUITY SHARES. IN THIS REGARD, WE FIND RELEVANT TO REFER THE LETTER I SSUED BY THE IDBI BANK DATED 26.08.2004. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: I) CONVERSATION OF PART OF THE OUTSTANDING TERM LOAN INTO EQUITY. OUT OF IDBLS TOTAL OUTSTANDING TERM LOANS OF RS.23 00 LAKH, THE COMPANY WOULD CONVERT RS.300 LAKH INTO EQUITY AT PAR. THE S HARES WOULD BE ALLOTTED IN DEMATERIALIZED FORM; THE COMPANY WOULD PAY THE I NTEREST ON THE ENTIRE LOAN AMOUNT TILL THE DATE OF ALLOTMENT. THE PROMOTERS WOULD UNDERTAKE TO BUY-BACK THE SHARE S AFTER A PERIOD OF 5 YEARS FROM THE DATE OF ALLOTMENT, AT THE RATE YIELD ING 10.25% SIMPLE RETURN TO IDBI ON THE EQUITY INVESTMENT OR THE BOOK VALUE OR THE PREVAILING MARKET PRICE, WHICHEVER IS HIGHEST. II) REDUCTION IN RATE OF INTEREST ON THE RESIDUAL TERM LOANS AGGREGATING TO RS.2000 LAKH AND REVISION IN ITS REPAYMENT SCHED ULE. THE INTEREST RATE ON BALANCE TERM LOAN OF RS.2000 L AKH HAS BEEN DEDUCED TO A STEPPED-UP STRUCTURE YIELDING 9% P.A ON IRR BASIS (7.5% P.A IN 1 ST & ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 10 - 2 ND YEARS, 8% P.A IN 3 RD AND 4 TH YEARS, 10% P.A IN 5 TH & 6 TH YEARS, 12.5% P.A IN 7 TH YEAR, 14% P.A IN THE NEXT 5 YEARS) THE LOAN WOULD BE REPAID IN 40 QUARTERLY INSTALLMEN TS COMMENCING FROM JULY 1, 2006 AND ENDING ON APRIL 1, 2016, I.E EXTEN SION OF 2 YEARS. THE INSTALLMENTS WOULD BE SMALLER INITIALLY AND STEPPED -UP IN THE LATER YEARS. THE EXISTING & PROPOSED REPAYMENT SCHEDULES ARE GIV EN IN ANNEXURE-I 8.4 WE ALSO FIND THAT THE ASSESSEE HAS PASSED GENER AL ENTRIES SHOWING THE CONVERSION OF FUND INTEREST TERM LOAN FOR RS.3. 50 CORES OUT OF THE TOTAL LOAN OF RS.4.60 CORES. THE RELEVANT DETAIL IS PLACE D ON PAGE 19 OF THE PAPER BOOK AND THE SAME IS REPRODUCED AS UNDER: GOPALA POLYPLAST LTD. LABEL DATE FROM : 01-04-04 TO 31-03-05 DATE VOUCHER PARTICULARS VOU.TYPE DR.AMT. CR.AMT CLOSING BALANCE 01-10- 04 JOU- 011004/042 GOPAL POLYPLAST LTD HDPE GOPAL POLYPLAST LTD. HDPE REF NO. ON ACCOUNT DATE 01-10- 04 AMOUNT 22363561 JOURNAL 22,363,561.00 46035989.00 CR JOU- 011004/403 1% QUT. RED PREF SHARES FUNDED INTEREST TERM LOAN REF. NO. JOU- 011004/043. DATE 01-10- 04 AMOUNT 35000000# JOURNAL 35,000,000.00 11035989.00 CR 35,000,000.00 22,363,561.00 ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 11 - 8.5 THE LD. DR BEFORE US HAS NOT BROUGHT ANYTHING O N RECORD CONTRARY TO THE FINDING OF LD. CIT-A. THUS, WE HAVE NO ALTER NATE EXCEPT TO CONFIRM THE ORDER OF THE LD. CIT-A. 8.6 BESIDES THE ABOVE WE ALSO NOTE THAT THE LD. DR HAS NOT POINTED OUT REFERRING TO ANY DOCUMENT IN THE NATURE OF ADDITION AL EVIDENCE ADMITTED BY THE LD. CIT-A IN CONTRAVENTION TO THE PROVISIONS OF RULE 46A OF INCOME TAX RULE. 8.7 IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A). HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. NOW WE TAKE UP GROUNDS OF APPEAL RAISED BY THE R EVENUE IN ITA NO.3006/AHD/2014 PERTAINING TO THE ASSESSMENT YEAR 2010-11 ARE AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RS.55,56,633/- MADE U/S.698 OF THE ACT, ON ACCOU NT OF DIFFERENCE IN QUANTITY AND VALUE OF THE STOCK AS SHOWN IN THE BOO KS VIS--VIS AS SHOWN TO THE BANK, WITHOUT PROPERLY APPRECIATING THE FACT S OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.C IT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED T O THE ABOVE EXTENT. 10. AT THE TIME OF THE HEARING, WE OBSERVE THAT THE TAX EFFECT IN THE APPEAL FILED BY THE REVENUE IS LESS THAN RS. 20 LAC S. AS PER THE CIRCULAR NO. 3 OF 2018 DATED 11/07/2018 ISSUED BY CBDT RECEN TLY ALL PENDING ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 12 - APPEALS FILED BY REVENUE ARE LIABLE TO BE DISMISSED / WITHDRAWN/ NOT PRESSED TO REDUCE THE LITIGATION WHERE THE TAX EFFE CT DOES NOT EXCEED THE PRESCRIBED MONETARY LIMIT, I.E., RS.20 LACS. THE R ELEVANT EXTRACT OF THE CIRCULAR IS REPRODUCED BELOW: 2. IN SUPERSESSION OF THE ABOVE CIRCULAR, IT HAS BEEN DECIDED BY THE BOARD THAT DEPARTMENTAL APPEALS MAY BE FILED ON MER ITS BEFORE INCOME TAX APPELLATE TRIBUNAL AND HIGH COURTS AND S LPS/ APPEALS BEFORE SUPREME COURT KEEPING IN VIEW THE MO NETARY LIMITS AND CONDITIONS SPECIFIED BELOW. 3. HENCEFORTH, APPEALS/ SLPS SHALL NOT BE FILED IN CASES WHERE THE TAX EFFECT DOES NOT EXCEED THE MONETARY LIMITS GIVE N HEREUNDER: S. NO. APPEALS/ SLPS IN INCOME-TAX MATTERS MONETARY LIMIT (RS.) 1. BEFORE APPELLATE TRIBUNAL 20,00,000 2. BEFORE HIGH COURT 50,00,000 3. BEFORE SUPREME COURT 1,00,00,000 THE MONETARY LIMIT FOR FILING THE APPEALS BY THE RE VENUE BEFORE THE TRIBUNAL HAS BEEN INCREASED TO RS. 20 LACS. IT IS A LSO CLARIFIED IN THE SAID CIRCULAR THAT THE SAID MONETARY LIMIT IS APPLICABLE RETROSPECTIVELY EVEN TO THE APPEALS PENDING BEFORE THE TRIBUNAL. THE CBDT H AS ALSO INSTRUCTED THAT SUCH PENDING APPEALS BELOW THIS SPECIFIED TAX LIMIT OF RS.20 LACS MAY BE WITHDRAWN / NOT PRESSED . IN THE CASE ON HAND, IT WAS NOTICED THAT THE TAX EF FECT ON THE DISPUTED ISSUE RAISED BY THE REVENUE IS CLAIMED TO BE LESS R S.20 LACS. THE WORKING OF THE DISPUTED TAX IS GIVEN BELOW: DATE : 20/07/2018. GOPALA POLYPLAST LTD. ITA NO.3006/AHD/2014 A.Y. 2010-11 ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 13 - NOTIONAL TAX EFFECT ON ADDITION OF RS.55,56,633/- 16,66,992/- DISPUTEED BY DEPT. IN VIEW OF ABOVE, THE APPEAL OF THE REVENUE IS REQU IRED TO BE DISMISSED IN LIMINE IN TERMS OF THE ABOVE CIRCULAR. 11. THE LD. DR FOR THE REVENUE FAIRLY AGREED ON THE APPLICABILITY OF THE CBDT CIRCULAR NO. 3 OF 2018. ACCORDINGLY, THE A PPEAL OF THE REVENUE IS DISMISSED AS NOT MAINTAINABLE. HOWEVER, THE REVENUE IS ON THE LIBERTY TO MOVE THE MISCELLANEOUS APPLICATION T O RECALL THE ORDER IF THE TAX EFFECT EXCEEDS THE THRESHOLD LIMIT OR THE CASE OF THE REVENUE FALLS IN ANY OF THE EXCEPTION PROVIDED IN THE AFORESAID CBDT CIRCULAR IN ANY MANNER. THE MA SHALL BE FILED WITHIN THE PRESCRIBED TIME. HENCE THE APPEAL OF THE REVENUE IS DISMISSED. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 03/10/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 03/10/2018 PRITI YADAV, SR.PS ITA NO.3005 & 3006/AHD/2014 DCIT VS. GOPALA POLYPLAST LTD. A.YS. 2005-06 & 2010- 11 - 14 - !' #' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ %& ' / CONCERNED CIT 4. ' () / THE CIT(A)-VIII, AHMEDABAD. 5. *+, --%& , %& , /0!$! / DR, ITAT, AHMEDABAD. 6. ,12 3 / GUARD FILE. $ % / BY ORDER, * - //TRUE COPY// &/% () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 08/08/2018 (DICTATION-PAD 5 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/09/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 01/10/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER