M/s. Rollatainers Ltd., New Delhi V. ACIT, New Delhi

ITA 3134/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96893 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-08-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 24-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Business income; Depreciation; Charitable institution; Audit objection; Retrospective amendment; Question of law; Wholly owned subsidiary; Difference of opinion; Assessment record; Tax effect; Change of opinion; Reassessment proceedings
• Section: 43B; 143(3); 37(1); 80G; 147; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.3134/DEL/2010 ASSESSMENT YEAR : 2003-04 ROLLATAINERS LTD., LOWER GROUND FLOOR, LOTUS TOWER, NEW FRIENDS COLONY, MATHURA ROAD, NEW DELHI. PAN: AAACR0344K VS. ACIT, CIRCLE 15(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAURAV JAIN, ADVOCATE DEPARTMENT BY : SHRI VIKRAM SAHAY, SR. DR DATE OF HEARING : 03.08.2015 DATE OF PRONOUNCEMENT : 06.08.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R PASSED BY THE CIT(A) ON 17.03.2010 IN RELATION TO THE ASSESSMENT YEAR 2003-04. ITA NO.3134/DEL/2010 2 2. THE FIRST GROUND IS AGAINST THE INITIATION OF RE ASSESSMENT PROCEEDINGS. SUCCINCTLY, THE FACTUAL MATRIX OF TH IS CASE IS THAT THE ASSESSEE FILED ITS RETURN DECLARING LOSS OF RS.12,4 8,92,067/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-T AX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) ON 24.03.2006 D ETERMINING LOSS AT RS.11,32,76,728/-. ON THE BASIS OF AUDIT OBJECTION REGARDING EXCESS ALLOWANCE OF DEDUCTION OF RS.2,45,01,117/- TOWARDS INTEREST PAID U/S 43B OF THE ACT, THE CASE WAS REOPENED BY MEANS OF NOTIC E U/S 148 OF THE ACT. THE AO HAS REPRODUCED THE GIST OF AUDIT OBJECTION O N PAGE 1 OF THE ASSESSMENT ORDER BY NOTICING THAT THERE WAS UNPAID INTEREST OF RS.5,01,38,035/- WHICH WAS NOT ALLOWED IN EARLIER A SSESSMENT YEARS, OUT OF WHICH THE ASSESSEE CLAIMED DEDUCTION FOR A SUM O F RS.3,61,75,597/- U/S 43B BY CLAIMING IT AS DISCHARGED/PAID. THIS AM OUNT OF RS.3.61 CRORE INCLUDED A SUM OF RS.2.45 CRORE WHICH WAS TRANSFERR ED TO A WHOLLY OWNED SUBSIDIARY COMPANY. SINCE SUCH INTEREST OF R S.2.45 CRORE WAS NOT ACTUALLY PAID, BUT, ONLY TRANSFERRED TO A SUBSIDIAR Y COMPANY, THE AO REOPENED THE ASSESSMENT BY NOTICING THAT THE SAME W AS NOT ALLOWABLE. AFTER ENTERTAINING OBJECTIONS FROM THE ASSESSEE, TH E AO DENIED ITA NO.3134/DEL/2010 3 DEDUCTION OF RS.2.45 CRORE. THE ASSESSEE OBJECTED TO THE INITIATION OF RE- ASSESSMENT PROCEEDINGS BEFORE THE LD. CIT(A) ON CER TAIN COUNTS BUT WITHOUT ANY SUCCESS. EVENTUALLY, THE ASSESSMENT ORD ER WAS UPHELD ON MERITS AS WELL. THE ASSESSEE IS NOW IN APPEAL BEFOR E US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FIRST ISSUE BEFORE US THRO UGH GROUND NO. 1 IS CHALLENGE TO THE INITIATION OF RE-ASSESSMENT PROCEE DINGS. THE LD. AR ASSAILED THE INITIATION OF RE-ASSESSMENT PROCEEDING S ON THREE COUNTS VIZ., CHANGE OF OPINION; REASONS NOT SUPPLIED BY THE AO; AND AUDIT OBJECTION CANNOT LEAD TO REASSESSMENT. WE SHALL DE AL WITH THESE OBJECTIONS, ONE BY ONE. CHANGE OF OPINION 4.1. THE LD. AR CONTENDED THAT THAT THE ANNUAL ACCO UNTS OF THE ASSESSEE THOROUGHLY ELABORATED ABOUT THE TRANSFER OF ITS PAP ER BOARD UNIT TO M/S RT PAPER BOARD LTD., AND, AS SUCH, THE PRESUMPTION SHOULD BE THAT THE AO DID CONSIDER AND APPLY HIS MIND ON THE DEDUCTI BILITY OF INTEREST OF ITA NO.3134/DEL/2010 4 RS.2.45 CRORE. INITIATION OF RE-ASSESSMENT PROCEED INGS ON THIS BASIS, IN THE OPINION OF THE AR, AMOUNTED TO CHANGE OF OPINIO N. 4.2. IN ORDER TO APPRECIATE THE RIVAL CONTENTIONS, IT IS FIRSTLY RELEVANT TO UNDERSTAND THE CONTROVERSY RAISED IN THIS APPEAL ON MERITS. THE ASSESSEE TRANSFERRED ONE OF ITS UNITS WITH ALL ASSETS AND LI ABILITIES TO M/S RT PAPER BOARD LTD., WHICH IS ITS WHOLLY OWNED SUBSIDIARY CO MPANY. APART FROM OTHER ASSETS AND LIABILITIES OF THIS UNIT TRANSFERR ED BY THE ASSESSEE, THERE WAS UNPAID INTEREST AMOUNTING TO RS.5.01 CRORE PAYA BLE TO BANKS AND FINANCIAL INSTITUTIONS COMING FROM THE EARLIER YEAR S WHICH WAS NOT PAID AND NO DEDUCTION WAS ALSO CLAIMED IN SUCH EARLIER Y EARS. OUT OF THIS INTEREST PAYABLE TO FINANCIAL INSTITUTIONS AMOUNTIN G TO RS.5.01 CRORE, THE ASSESSEE CLAIMED DEDUCTION FOR A SUM OF RS.3.65 CRO RE AGAINST THE INCOME FOR THE CURRENT YEAR. THIS SUM OF RS.3.65 C RORE HAS TWO COMPONENTS, VIZ., INTEREST OF RS.1.16 CRORE WHICH WAS WAIVED OFF BY THE BANKS/FINANCIAL INSTITUTIONS AND THE REMAINING INTE REST OF RS.2.45 CRORE WHICH WAS TRANSFERRED BY THE ASSESSEE TO M/S RT PAP ER BOARD LTD., WITHOUT THERE BEING ANY WAIVER. THAT IS HOW, THE ASSESSEE CLAIMED ITA NO.3134/DEL/2010 5 DEDUCTION FOR A SUM OF RS.3.65 CRORE ON THIS COUNT U/S 43B OF THE ACT. THERE IS NO DISPUTE BEFORE US ON THE DEDUCTIBILITY OF INTEREST OF RS.1.16 CRORE, WHICH WAS WAIVED OFF BY THE BANKS/FINANCIAL INSTITUTIONS AND ALLOWED BY THE AO IN THE ORIGINAL PROCEEDINGS. THE ONLY CONTROVERSY IS ABOUT THE REMAINING AMOUNT OF RS.2.45 CRORE, WHICH THE AO ALLOWED IN THE ORIGINAL ASSESSMENT PROCEEDINGS, FOR WHICH THE INSTANT REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED. THE CASE OF THE AS SESSEE IS THAT TRANSFER OF SUCH INTEREST TO M/S RT PAPER BOARD LTD. AMOUNTE D TO DISCHARGE OF INTEREST LIABILITY IN ITS HANDS AND HENCE IS RIGHTL Y DEDUCTIBLE. ON THE OTHER HAND, THE REVENUE IS CONTENDING THAT THIS IS NOT DE DUCTIBLE AS THE TRANSFER OF INTEREST TO ANOTHER COMPANY CANNOT CONSTITUTE PA YMENT OF INTEREST, SO AS TO BE ELIGIBLE FOR DEDUCTION. 4.3. COMING BACK TO THE QUESTION OF CHANGE OF OPINI ON, THE ASSESSEE HAS CANVASSED A VIEW THAT SINCE THE AO EXAMINED THIS IS SUE DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE INIT IATION OF REASSESSMENT PROCEEDINGS ON THE SAME COUNT AMOUNTS TO CHANGE OF OPINION, WHICH IS NOT PERMISSIBLE U/S 147. NOW THE PRIMARY QUESTION IS WHETHER THE AO ITA NO.3134/DEL/2010 6 FORMED ANY OPINION IN THE ORIGINAL ASSESSMENT PROCE EDINGS ON THE DEDUCTIBILITY OF THIS INTEREST AMOUNT. IT IS NOTIC ED THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THERE IS SOME D ISCUSSION IN THE ASSESSMENT ORDER ABOUT THE MISCELLANEOUS BALANCES WRITTEN BACK. ON PAGE 2 OF THE ASSESSMENT ORDER DATED 24.3.2006 PASS ED U/S 143(3) IN THE FIRST ROUND, THERE IS REFERENCE TO THE AMOUNT OF RS .1.16 CRORE, BEING THE AMOUNT OF INTEREST WAIVED OFF BY THE INSTITUTIONS. THERE IS NO DISCUSSION WHATSOEVER ON THE AMOUNT OF INTEREST OF RS.2.45 CRO RE CLAIMED AS DEDUCTION BY WAY OF ITS TRANSFER TO M/S RT PAPER BO ARD LTD. WHAT TO TALK OF DISCUSSING THIS ISSUE, THERE IS NOT EVEN A WHISPER ABOUT THE ENTIRE ISSUE OF TRANSFER OF UNPAID INTEREST OF RS.2.45 CRO RE TO M/S RT PAPER BOARD LTD., AND THE DEDUCTIBILITY OF THIS AMOUNT IN TERMS OF SECTION 43B OF THE ACT. UNDER SUCH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER A MERE DISCLOSURE OF THE FACTUAL ASPECTS OF TRANSFE R OF UNDERTAKING IN THE ANNUAL ACCOUNTS WOULD SATISFY THE CONDITION OF FORM ATION OF VIEW BY THE AO ON THE SUBJECT, SO AS TO ECLIPSE HIS POWER FROM INITIATING THE REASSESSMENT PROCEEDINGS. IN THIS REGARD, IT IS RE LEVANT TO NOTE EXPLANATION 2 TO SECTION 147, THE RELEVANT PART OF WHICH READS AS UNDER:- ITA NO.3134/DEL/2010 7 EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SH ALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT, NAMELY : . ( C ) WHERE AN ASSESSMENT HAS BEEN MADE, BUT ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED ; OR ( II ) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIV E RELIEF UNDER THIS ACT ; OR ( IV ) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY O THER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED; .. 4.4. CLAUSE (C) OF EXPLANATION 2 TO SECTION 147 C LEARLY STIPULATES THAT WHERE AN ASSESSMENT HAS BEEN MADE, BUT, INCOME CHAR GEABLE TO TAX HAS BEEN UNDER-ASSESSED OR EXCESSIVE ALLOWANCE HAS BEEN ALLOWED, IT WOULD BE DEEMED TO BE A CASE WHERE INCOME CHARGEABLE TO T AX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THIS EXPLANATION CLEARLY MANDATES THAT DESPITE THE ASSES SMENT HAVING BEEN ORIGINALLY COMPLETED, WHERE, INTER ALIA, SOME EXCESSIVE DEDUCTION HAS BEEN ALLOWED RESULTING INTO INCOME STILL REMAINING UNDER-ASSESSED, IT WILL BE DEEMED AS A CASE OF ESCAPEMENT OF INCOME. HOWEVER, IT IS ITA NO.3134/DEL/2010 8 PERTINENT TO MENTION THAT A MERE FACT OF UNDERASSES SMENT CANNOT CLOTHE THE AO WITH THE POWER TO INITIATE REASSESSMENT. IF IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE AO CONSIDERED AND EXAMI NED A PARTICULAR DEDUCTION AND THEN FORMED HIS VIEW ON ITS DEDUCTIBI LITY, HE CANNOT LATER ON TURN AROUND TO INITIATE REASSESSMENT PROCEEDINGS ON THE SAME ISSUE. THE CRUX OF THE MATTER IS THAT REASSESSMENT IS IMPE RMISSIBLE ON CHANGE OF OPINION EVEN IN THE LIGHT OF THE ABOVE EXPLANATI ON TO SECTION 147. HOWEVER, THE SIGNIFICANT THING IS THAT IN ORDER TO BRING A CASE WITHIN THE FOUR CORNERS OF CHANGE OF OPINION, IT IS FOREMOST IMPORTANT THAT THERE SHOULD BE SOME MATERIAL TO INDICATE THAT THE AO APP LIED HIS MIND ON THE DEDUCTIBILITY OF ANY ITEM OF EXPENSE AND THEN FORM ED OPINION ABOUT DEDUCTION. UNLESS SOME MATERIAL IS BROUGHT ON RECO RD TO DEMONSTRATE THE FORMATION OF OPINION, THE ASSESSEE CANNOT ARGUE IN THE REASSESSMENT PROCEEDINGS THAT IT IS A CASE OF INITIATION OF REAS SESSMENT ON CHANGE OF OPINION. THE HONBLE SUPREME COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS (2007) 291 ITR 500 (SC) HAS HELD THAT UNLESS THE FORMATION OF OPINION IS SHOWN, THERE CAN BE NO QUESTION OF ARGUI NG ABOUT THE CHANGE OF OPINION. SIMILAR VIEW HAS BEEN REITERATED BY TH E HONBLE SUPREME ITA NO.3134/DEL/2010 9 COURT IN THE CASE OF DCIT VS. ZUARI ASSET DEVELOPMENT AND INVESTMENT COMPANY LTD., (2015) 373 ITR 661 (SC). THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN CIT VS. USHA INTERNATIONAL LTD., (2012) 348 ITR 485 (DEL) HAS ALSO HELD THAT THERE IS NO SCOPE FOR ARGUING AB OUT THE CHANGE OF OPINION WHEN NO OPINION HAS BEEN FORMED. IT HAS BEEN LAID DOWN BY THEIR LORDSHIPS THAT : `THE EXPRESSION 'CH ANGE OF OPINION' POSTULATES FORMATION OF OPINION AND THEN A CHANGE T HEREOF. IN THE CONTEXT OF SECTION 147 OF THE ACT IT IMPLIES THAT THE ASSESSING OFFICER SHOULD HAVE FORMED AN OPINION AT THE FIRST INSTANCE, I.E., IN THE PROCEEDINGS UNDER SECTION 143(3) AND NOW BY INITIATION OF THE R EASSESSMENT PROCEEDING, THE ASSESSING OFFICER PROPOSES OR WANTS TO TAKE A DIFFERENT VIEW. ..... THE WORD 'OPINION' AS PER THE BLACKS LAW DICTIONARY MEANS A STATEMENT BY A JUDGE OR A COURT OF A DECISION REACH ED BY HIM INCORPORATING CAUSE TRIED OR ARGUED BEFORE THEM, EX POUNDING THE LAW AS APPLIED TO THE CASE AND, DETAILING THE REASONS UPON WHICH THE JUDGMENT IS BASED. IN THE CONTEXT OF ASSESSMENT PROCEEDINGS, IT MEANS FORMATION OF BELIEF BY AN ASSESSING OFFICER RESULTING FROM WHAT HE THINKS ON A PARTICULAR QUESTION. IT IS A RESULT OF UNDERSTANDING, EXPERIENCE AND ITA NO.3134/DEL/2010 10 REFLECTION TO USE THE WORDS IN LAW LEXICON BY P. RA MANATHA AIYAR. QUESTION OF CHANGE OF OPINION ARISES WHEN AN ASSESS ING OFFICER FORMS AN OPINION AND DECIDES NOT TO MAKE AN ADDITION OR H OLDS THAT THE ASSESSEE IS CORRECT AND ACCEPTS HIS POSITION OR STA ND. THOUGH THE HONBLE APEX COURT JUDGMENTS HAVE BEEN RENDERED IN THE CONTEXT OF INTIMATION U/S 143(1)(A), VIS--VIS FORMATION OF OPINION, THE SAME LOGIC APPLIES WHEN THE ASSESSMENT IS COMPLETED U/S 143(3) OF THE ACT WITHOUT ANY APPLICATION OF MIND BY THE AO ON A PARTICULAR A SPECT OF THE MATTER WHICH IS SOUGHT TO BE REOPENED BY WAY OF NOTICE U/S 148, AS HAS BEEN THE POSITION IN THE CASE OF USHA INTERNATIONAL (SUPRA) . THE NITTY GRITTY OF THE MATTER IS THAT THE ARGUMENT ABOUT THE CHANGE OF OPI NION CAN BE ENTERTAINED ONLY WHEN IT IS SHOWN THAT THE AO IN TH E FIRST INSTANCE FORMED HIS OPINION ON THE POINT. UNLESS THE FORMAT ION OF OPINION IS DISCERNIBLE FROM THE ASSESSMENT ORDER OR THE OTHER CONNECTED RECORDS OF ASSESSMENT, THE ASSESSEE CANNOT CONTEND THAT THE OP INION WAS FORMED BY THE AO ON A POINT WHICH IS SOUGHT TO BE REOPENED U/ S 148 OF THE ACT. ITA NO.3134/DEL/2010 11 4.5. ADVERTING TO THE FACTS OF THE INSTANT CASE , WE FIND THAT THERE IS NO DISCUSSION WORTH THE NAME IN THE ORIGINAL ASSESSMEN T ORDER ABOUT THE DEDUCTIBILITY OF INTEREST OF RS.2.45 CRORE OUT OF U NPAID INTEREST WHICH WAS TRANSFERRED TO A WHOLLY OWNED SUBSIDIARY COMPAN Y U/S 43B OF THE ACT. IN OUR CONSIDERED OPINION, IT IS FARFETCHED TO ARGUE THAT THE AO FORMED OPINION ON THIS ISSUE DURING THE COURSE OF O RIGINAL ASSESSMENT PROCEEDINGS AND, HENCE, HIS HANDS ARE TIED FOR INIT IATING RE-ASSESSMENT PROCEEDINGS. SINCE THE AO DID NOT FORM ANY OPINION ON THE DEDUCTIBILITY OF SUCH INTEREST IN THE ORIGINAL ASSESSMENT PROCEED INGS, THE CONTENTION OF THE LD. AR ABOUT THE CHANGE OF OPINION FALLS FLAT O N THE GROUND. THE SAME IS ERGO REPELLED. REASONS NOT SUPPLIED BY THE AO 5.1. THE LD. AR CONTENDED THAT THE AO DID NOT SUPPL Y REASONS FOR INITIATION OF RE-ASSESSMENT PROCEEDINGS AND, AS SUC H, THE REASSESSMENT ORDER BE DECLARED A NULLITY. TO BUTTRESS THIS CON TENTION, THE LD. AR RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ITA NO.3134/DEL/2010 12 GKN DRIVESHAFTS (INDIA) LTD. VS. ITO AND ORS. (2003 ) 259 ITR 90 (SC) . THE LD. DR STRONGLY OPPOSED THIS CONTENTION. 5.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT IT IS, NO DOUBT, T RUE THAT THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFT (INDIA) LTD. (SUPRA) HAS HELD THAT THE AO IS OBLIGED TO SUPPLY REASONS TO TH E ASSESSEE BEFORE TAKING UP THE REASSESSMENT PROCEEDINGS. THE LOGIC BEHIND THIS EXERCISE IS TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO RAISE OBJECTIONS BEFORE THE AO AGAINST THE INITIATION OF REASSESSMENT PROCEEDIN GS. WHEN SUCH OBJECTIONS ARE RAISED, IT BECOME OBLIGATORY ON THE PART OF THE AO TO FIRSTLY DEAL WITH AND PASS AN ORDER ON THE OBJECTIO NS RAISED BY THE ASSESSEE AGAINST THE INITIATION OF RE-ASSESSMENT PR OCEEDINGS. ONLY THEREAFTER, HE CAN PROCEED TO TAKE THE REASSESSMEN T ON MERITS. IF NO REASONS ARE DEMANDED BY THE ASSESSEE DURING THE COU RSE OF RE-ASSESSMENT PROCEEDINGS, THEN, THERE IS NO OBLIGATION NOR THERE CAN BE SUCH OBLIGATION ON THE PART OF THE AO TO SUPPLY THE REASONS. ADVER TING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THERE IS NO REFERENCE WH ATSOEVER IN THE ITA NO.3134/DEL/2010 13 ASSESSMENT ORDER ABOUT THE ASSESSEE SEEKING A COPY OF REASONS FOR REASSESSMENT. IN FACT, A GIST OF THE AUDIT OBJECTI ON, WHICH FORMED THE BEDROCK FOR THE INITIATION OF REASSESSMENT, HAS BEE N REPRODUCED IN THE ASSESSMENT ORDER ITSELF. FURTHER, NO SUCH ISSUE WA S TAKEN UP BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT DESPITE THE ASS ESSEES REQUEST FOR SUPPLY OF REASONS LEADING TO INITIATION OF REASSESS MENT PROCEEDINGS, THE AO DID NOT SUPPLY SUCH REASONS AND FRAMED THE ASSES SMENT U/S 147. NO SUCH GROUND WAS TAKEN BY THE ASSESSEE IN THE MEMORA NDUM OF APPEAL FILED BEFORE THE LD. CIT(A). 5.3. BE THAT AS IT MAY, WE FIND THAT THE EXTAN T FACTUAL POSITION IS SOMEWHAT CONTRARY TO WHAT HAS BEEN SOUGHT TO BE ARG UED BEFORE US. PAGE 13 OF THE IMPUGNED ORDER INDICATES THAT THE AS SESSEE IN ITS WRITTEN SUBMISSIONS DATED 30.10.09 HAS REFERRED TO THE REA SONS RECORDED BY THE AO FOR REOPENING OF THE ASSESSMENT WHICH WERE SUBMI TTED BEFORE THE LD. CIT(A) AND REPRODUCED ON THE SAME PAGE. THEREAFTER , THERE IS A MENTION ABOUT THE COPY OF REASONS CLAIMED BY THE ASSESSEE TO HAVE BEEN RECORDED BY THE AO FOR INITIATING THE REASSESSMENT PROCEEDINGS. THE ITA NO.3134/DEL/2010 14 ASSESSEE FILED A SCANNED COPY OF SUCH REASONS, WHIC H HAS BEEN REPRODUCED ON PAGE 14 OF THE IMPUGNED ORDER. ON PER USAL OF SUCH COPY OF REASONS FURNISHED BY THE ASSESSEE, THE LD. CIT( A) FOUND THAT THE SAID SCANNED COPY OF THE REASONS PURPORTEDLY RECORDED BY THE AO DID NOT CONTAIN ANY DATE OR NAME AND DESIGNATION OF THE AO AND HIS SIGNATURE. TO VERIFY THE MATTER FURTHER, THE LD. CIT(A) CALLED FOR THE ASSESSMENT RECORD. ON VERIFICATION, IT WAS FOUND THAT THE SO CALLED COPY OF THE REASONS FURNISHED BY THE LD. AR AS PART OF THE PAP ER BOOK BEFORE HIM DID NOT FORM PART OF THE ASSESSMENT RECORD. THE AC TUAL REASONS RECORDED BY THE AO ON 31.8.2007 FOUND IN THE ASSESSMENT FOLD ER WERE FOUND TO BE IN VARIANCE WITH THE SCANNED COPY OF THE REASONS FU RNISHED BY THE ASSESSEE. THE LD. CIT(A) THEN REPRODUCED A SCANNE D COPY OF THE ACTUAL REASONS RECORDED BY THE AO ON PAGE 15 OF HIS ORDER. THE ABOVE SEQUENCE OF EVENTS AMPLY DEMONSTRATES THAT THE ASSE SSEE ATTEMPTED TO DISTORT THE ACTUAL REASONS WITH THE ULTERIOR MOTIVE OF PLAYING FOUL WITH THE CIT(A). THIS COMPLETELY BELIES THE CONTENTION OF THE LD. AR THAT THE ASSESSEE WAS NOT SUPPLIED WITH THE REASONS. LEAVING THIS ISSUE AT THIS STAGE ONLY, IT SUFFICES TO SAY THAT THE ASSESSEE W AS PROMPTLY SUPPLIED THE ITA NO.3134/DEL/2010 15 REASONS LEADING TO THE INITIATION OF REASSESSMENT P ROCEEDINGS. THIS CONTENTION IS, THEREFORE, REJECTED. AUDIT OBJECTION CANNOT LEAD TO REASSESSMENT 6.1. THE LD. AR SUBMITTED THAT THE AO INITIATED REA SSESSMENT PROCEEDINGS SIMPLY ON THE BASIS OF AUDIT OBJECTION, WHICH IS NOT PERMISSIBLE UNDER THE LAW. HE RELIED ON CERTAIN JU DGMENTS INCLUDING THAT OF THE HONBLE SUPREME COURT IN INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT (1979)119 ITR 996 (SC) TO CLAIM THAT INITIATION OF RE- ASSESSMENT PROCEEDINGS ON THE BASIS OF INTERNAL AUD IT REPORT, WAS NOT SUSTAINABLE. ON THE CONTRARY, THE LD. DR RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. PVS BEEDIS PVT. LTD. (1999) 237 ITR 13 (SC) IN WHICH THE INITIATION OF RE-ASSESSMENT PROCEEDINGS ON THE BASIS OF AUDIT OBJECTION HAS BEE N HELD TO BE VALID. 6.2. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE POI NT IN THE LIGHT OF THE JUDGMENTS RELIED ON BY BOTH THE SIDES. IN VIEW OF T HE ABOVE REFERRED JUDGMENTS OF THE HON'BLE SUMMIT COURT ON THE POINT, WE NEED TO EXAMINE AS TO WHETHER THE ASSESSEE'S CASE FALLS WIT HIN THE RATIO LAID DOWN ITA NO.3134/DEL/2010 16 IN PVS BEEDIS PVT. LTD. (SUPRA) OR IN INDIAN AND EASTERN NEWSPAPERS SOCIETY (SUPRA) AND FURTHER CIT VS. LUCAS T.V.S. LTD. (1998) 249 ITR 306 (SC) 6.3. IN THE CASE OF INDIAN AND EASTERN NEWSPAPERS SOCIETY (SUPRA), THE ASSESSEE RECEIVED SOME AMOUNT ON ACCOUNT OF OCCUPAT ION OF ITS CONFERENCE HALL AND ROOMS WHICH WAS ASSESSED BY THE AO AS 'BUSINESS INCOME.' THE AUDIT PARTY OF THE DEPARTMENT FORMED A N OPINION THAT THE AMOUNT SHOULD HAVE BEEN TAXED UNDER THE HEAD 'INCOM E FROM HOUSE PROPERTY.' IT WAS IN THIS BACKDROP OF THE FACTS THA T THE HON'BLE SUPREME COURT HELD THAT THE OPINION OF THE INTERNAL AUDIT P ARTY ON A POINT OF LAW CANNOT BE A GROUND FOR INITIATION OF RE-ASSESSMENT PROCEEDINGS. SIMILAR IS THE POSITION IN THE CASE OF LUCAS TVS LTD. (SUPRA) . IN THAT CASE, THE ORIGINAL ASSESSMENT WAS COMPLETED BY ALLOWING DEDUC TION FOR A SUM OF RS.6,37,003/- U/S 37(2) OF THE ACT. THE AUDIT PARTY POINTED OUT THAT ONLY A SUM OF RS.2,95,131/- WAS INCURRED DURING THE YEAR AND THE BALANCE AMOUNT RELATED TO EARLIER YEARS AND HENCE COULD NOT BE ALLOWED. THE AO IN THE ASSESSMENT MADE U/S 147, RESTRICTED THE CLAI M OF DEDUCTION TO ITA NO.3134/DEL/2010 17 RS.2,95,135/-. IT IS ON THE BASIS OF SUCH FACTS THA T THE HON'BLE SUPREME COURT HELD THAT THE OPINION OF THE AUDIT PARTY ON A QUESTION OF LAW, COULD NOT CONSTITUTE AN INFORMATION JUSTIFYING THE INITIA TION OF RE-ASSESSMENT PROCEEDINGS. IN THE CASE OF PVS BEEDIS PVT. LTD. (SUPRA), THE ORIGINAL ASSESSMENT WAS COMPLETED ALLOWING DEDUCTION U/S 80G . THE AUDIT PARTY OBSERVED THAT THE PAYMENT MADE TO THE TRUST, FOR WH ICH DEDUCTION WAS ALLOWED, WAS NOT A RECOGNIZED CHARITABLE TRUST AS I TS RECOGNITION HAD EXPIRED AND, HENCE, NO DEDUCTION SHOULD BE ALLOWED U/S 80G. THE HON'BLE APEX COURT UPHELD THE INITIATION OF RE-ASSE SSMENT PROCEEDINGS ON THE BASIS OF FACTUAL ERROR POINTED OUT BY INTERN AL AUDIT PARTY. 6.4. THE LOGIC IN NOT SUSTAINING THE INITIATION OF REASSESSMENT ON THE BASIS OF INTERPRETATION OF LAW BY THE AUDIT PARTY I S THAT THE INTERNAL AUDITOR CANNOT BE ALLOWED TO PERFORM FUNCTIONS OF J UDICIAL SUPERVISION OVER THE INCOME-TAX AUTHORITIES BY SUGGESTING TO TH E ASSESSING OFFICER ABOUT HOW A PROVISION SHOULD BE INTERPRETED AND WHE THER THE INTERPRETATION SO GIVEN BY THE AO TO A PARTICULAR P ROVISION OF THE ACT IS RIGHT OR WRONG. AN INTERPRETATION TO A PROVISION GI VEN BY THE INTERNAL ITA NO.3134/DEL/2010 18 AUDIT PARTY CANNOT BE CONSTRUED AS A DECLARATION OF LAW BINDING ON THE AO. WHEN AN INTERNAL AUDIT PARTY OBJECTS TO THE INT ERPRETATION GIVEN BY THE AO TO A PROVISION AND PROPOSES SUBSTITUTION OF SUCH INTERPRETATION WITH THE ONE IT FEELS RIGHT, IT CROSSES ITS JURISDI CTION AND ENTERS INTO THE REALM OF JUDICIAL SUPERVISION, WHICH IT IS NOT AUTH ORIZED TO DO. IN SUCH CIRCUMSTANCES, THE INITIATION OF REASSESSMENT, BASE D ON THE SUBSTITUTED INTERPRETATION OF A PROVISION BY THE INTERNAL AUDIT PARTY, CANNOT BE SUSTAINED. IT HAS BEEN CATEGORICALLY HELD BY THE HO N'BLE SUPREME COURT IN INDIAN & EASTERN NEWSPAPER SOCIETY (SUPRA) THAT THE INTERNAL AUDIT PARTY OF THE IT DEPARTMENT 'PERFORMS ESSENTIALLY AD MINISTRATIVE OR EXECUTIVE FUNCTIONS AND CANNOT BE ATTRIBUTED THE PO WERS OF JUDICIAL SUPERVISION OVER THE QUASI-JUDICIAL ACTS OF IT AUTH ORITIES. THE IT ACT DOES NOT CONTEMPLATE SUCH POWER IN ANY INTERNAL AUD IT ORGANISATION OF THE IT DEPARTMENT .... THE STATUTE SUPPORTS THE CON CLUSION THAT AN AUDIT PARTY CAN'T PRONOUNCE ON THE LAW, AND THAT SUCH PRO NOUNCEMENT DOES NOT AMOUNT TO 'INFORMATION' WITHIN THE MEANING OF S. 14 7(B) OF THE IT ACT, 1961'. HAVING MADE THE ABOVE OBSERVATIONS IN PARA 6 OF ITS JUDGMENT, THE HON'BLE SUMMIT COURT THEN MADE AN EXCEPTION IN THE SAME PARA TO ITA NO.3134/DEL/2010 19 THE EFFECT THAT : ` BUT ALTHOUGH AN AUDIT PARTY DOES NOT POSSESS THE PO WER TO SO PRONOUNCE ON THE LAW, IT NEVERTHELESS MAY DRA W THE ATTENTION OF THE ITO TO IT. LAW IS ONE THING, AND ITS COMMUNICATION ANOTHER. IF THE DISTINCTION BETWEEN THE SOURCE OF THE LAW AND THE C OMMUNICATOR OF THE LAW IS CAREFULLY MAINTAINED, THE CONFUSION WHICH OF TEN RESULTS IN APPLYING S. 147(B) MAY BE AVOIDED. WHILE THE LAW MAY BE ENACTED OR LAID DOWN ONLY BY A PERSON OR BODY WITH AUTHORITY IN THA T BEHALF, THE KNOWLEDGE OR AWARENESS OF THE LAW MAY BE COMMUNICAT ED BY ANYONE. NO AUTHORITY IS REQUIRED FOR THE PURPOSE'. WHEN WE READ THE JUDGMENT IN INDIAN & EASTERN NEWSPAPER SOCIETY (SUPRA) IN ENTIRETY, WHAT UNFOLDS IS THAT ALBEIT THE AUDIT PARTY IS NOT ENTITLED TO JUDI CIALLY INTERPRET A PROVISION, BUT AT THE SAME TIME, IT CAN COMMUNICATE THE LAW TO THE AO, WHICH HE OMITTED TO CONSIDER. THIS POSITION HAS BEE N APTLY EXPLAINED IN CIT VS. FIRST LEASING CO. OF INDIA LTD. (2000) 241 ITR 248 (MAD) BY HOLDING THAT : `THE SUPREME COURT IN INDIAN AND EAS TERN (SUPRA), HAS MADE A DISTINCTION BETWEEN THE INTERPRETATION OF TH E LAW AND BRINGING TO THE ATTENTION OF THE ITO THE RELEVANT PROVISION OF LAW AND IF THE AUDIT PARTY INTERPRETED THE LAW, THEN THE REPORT BY THE A UDIT PARTY CANNOT BE ITA NO.3134/DEL/2010 20 REGARDED AS 'INFORMATION' FOR THE PURPOSE OF REOPEN ING AN ASSESSMENT UNDER S. 147(B) OF THE ACT. HOWEVER, IF THE AUDIT PARTY HAS MERELY DRAWN THE ATTENTION OF THE ITO TO THE EXISTENCE OF THE LA W, THE OPINION OF THE AUDIT PARTY WOULD BE REGARDED AS INFORMATION AND TH E SUPREME COURT HAS MADE A DISTINCTION BETWEEN THE COMMUNICATION OF LAW AND INTERPRETATION OF LAW.' THAT IS HOW, THE HON'BLE MADRAS HIGH COURT HELD THAT THE AUDIT REPORT SHOULD BE REGARDED AS A COMMU NICATION OF LAW AND THERE IS NO INTERPRETATION OF LAW INVOLVED IN THE M ATTER. THE TRIBUNAL ORDER, HOLDING THAT THE AUDIT PARTY HAD INTERPRETED THE RELEVANT PROVISIONS RELATING TO THE GRANTING OF EXTRA DEPRECIATION ALLO WANCE AND THUS THE AO HAD NO JURISDICTION UNDER S. 147(B) OF THE ACT TO R EOPEN THE ASSESSMENT, WAS SET ASIDE. 6.5. IT IS DISCERNIBLE FROM A CLOSE LOOK AT THE ABOVE THREE JUDGMENTS RENDERED BY THE HON'BLE APEX COURT THAT WHERE THE A UDIT PARTY INTERPRETS THE PROVISION OF LAW IN A MANNER CONTRARY TO WHAT T HE AO HAD DONE, IT DOES NOT LAY DOWN A VALID FOUNDATION FOR THE INITIA TION OF RE-ASSESSMENT PROCEEDINGS. IF HOWEVER, THE AUDIT PARTY DOES NOT O FFER ITS OWN ITA NO.3134/DEL/2010 21 INTERPRETATION TO THE PROVISIONS AND SIMPLY COMMUNI CATES THE EXISTENCE OF LAW TO THE AO OR ANY OTHER FACTUAL INACCURACY, T HEN THE INITIATION OF REASSESSMENT PROCEEDINGS ON SUCH BASIS CANNOT BE FA ULTED WITH. IT CAN BE SEEN THAT IN THE CASE OF INDIAN AND EASTERN NEWSPAPERS SOCIETY (SUPRA), THE OTHERWISE TAXABILITY OF RECEIPT FROM OCCUPATION OF CONFERENCE HALL AND ROOMS WAS NOT DISPUTED. WHEREAS THE AO HELD SUC H AMOUNT TO BE TAXABLE AS 'BUSINESS INCOME', THE AUDIT PARTY HELD IT TO BE TAXABLE AS 'INCOME FROM HOUSE PROPERTY.' IT WAS THIS ADOPTION OF A DIFFERENT INTERPRETATION BY THE INTERNAL AUDIT PARTY TO THE E XISTING FACTUAL POSITION, WHICH WAS NOT APPROVED BY THE HON'BLE SUPREME COURT AS A GOOD GROUND TO INITIATE A VALID RE-ASSESSMENT. SIMILARLY , IN THE CASE OF LUCAS TVS LTD. (SUPRA) , THE AO ALLOWED DEDUCTION U/S 35(2) FOR THE AMOUNT S SPENT IN THIS YEAR AS WELL AS THE EARLIER YEARS AND THE INTERNAL AUDIT PARTY OPINED THAT ONLY THE AMOUNT SPENT DURING THE YEAR W AS ALLOWABLE AS DEDUCTION U/S 35(2). IT IS OBVIOUS THAT IN BOTH THE SE CASES, THE AO'S OPINION ON THE INTERPRETATION OF THE RELEVANT PROVI SION WAS OVERRULED BY THE INTERNAL AUDIT PARTY. IN CONTRAST, IN THE CASE OF PVS BEEDIS PVT. LTD. (SUPRA), THE ASSESSEE CLAIMED DEDUCTION U/S 80G AND THE INT ERNAL AUDIT ITA NO.3134/DEL/2010 22 PARTY POINTED OUT THAT SUCH DEDUCTION WAS NOT PERMI SSIBLE BECAUSE THE REGISTRATION OF THE TRUST TO WHICH CONTRIBUTION WAS MADE, HAD ALREADY EXPIRED. IT IS MANIFEST THAT IN THE CASE OF PVS BEEDIS PVT. LTD. (SUPRA) , THE AUDIT PARTY DID NOT INTERPRET SECTION 80G IN A DIFFERENT MANNER, BUT, SIMPLY DREW THE ATTENTION OF THE AO TO THE EXISTENC E OF LAW. THE HON'BLE SUPREME COURT IN INDIAN AND EASTERN NEWSPAPERS SOCIETY (SUPRA) HAVING HELD THAT THE INTERPRETATION OF THE INTERNAL AUDIT PARTY ON A POINT OF LAW DOES NOT CONSTITUTE 'INFORMATION' U/S 147, D REW A LINE OF DISTINCTION BETWEEN THE CASES OF INTERPRETATION OF LAW AND COMMUNICATION OF EXISTENCE OF LAW. IF THE AUDIT PARTY MERELY DRAWS THE ATTENTION OF THE AO TO THE EXISTENCE OF LAW, THE OP INION OF THE AUDIT PARTY CAN BE REGARDED AS 'INFORMATION' LEADING TO A VALID INITIATION OF REASSESSMENT. IN A NUTSHELL, WHEREAS THE INITIATION OF RE-ASSESSMENT PROCEEDINGS ON THE BASIS OF AN INTERPRETATION TO TH E PROVISIONS OF LAW BY THE AUDIT PARTY IS FORBIDDEN, THE COMMUNICATION OF LAW OR THE FACTUAL INCONSISTENCIES BY THE INTERNAL AUDIT PARTY, DO NOT OPERATE AS A HINDRANCE IN THE INITIATION OF RE-ASSESSMENT PROCEEDINGS. ITA NO.3134/DEL/2010 23 6.6. NOW, LET US EXAMINE WHETHER THE FACTS OF INSTA NT CASE FALL ON THIS SIDE OR THAT SIDE OF THE DIVIDING LINE. AT THIS JUN CTURE, IT IS RELEVANT TO NOTE THE GIST OF AUDIT OBJECTION WHICH HAS BEEN REP RODUCED ON PAGE 1 OF THE ASSESSMENT ORDER, AS UNDER:- THE ASSESSMENT OF M/S ROLLATAINERS LTD. FOR THE AS SESSMENT YEAR 2003-04 WAS COMPLETED U/S 143(3) IN MARCH 2006 DETERMINING AT A LOSS OF RS.11,32,76,728. AUDIT SC RUTINY REVEALED THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS.361,75,597/- U/S 43B ON ACCOUNT OF INTEREST PAID OR SET OFF DURING PREVIOUS YEAR OUT OF UNPAID INTEREST OF RS.5 ,01,38,035 WHICH WAS NOT ALLOWED IN THE ASSESSMENT YEAR OF ANY PRECEDING PREVIOUS YEAR. THE INTEREST OF RS.2,45,0 1,117/- WAS TRANSFERRED TO A WHOLLY OWNED SUBSIDIARY COMPAN Y. AS THE INTEREST OF RS.2,45,01,117 WAS NOT ACTUALLY PAI D BUT ONLY TRANSFERRED TO A SUBSIDIARY COMPANY, IT SHOULD HAVE BEEN DISALLOWED. THE OMISSION RESULTED IN OVER ASSESSME NT OF LOSS OF RS.2,45,01,117/- INVOLVING POTENTIAL TAX EFFECT OF RS.90,01,60/-. 6.7. A CLOSE LOOK AT THE ABOVE AUDIT OBJECTION DIV ULGES THAT THE AUDIT PARTY SIMPLY SUGGESTED THAT THE INTEREST OF R S.2.54 CRORE WAS ITA NO.3134/DEL/2010 24 NOT ACTUALLY PAID, BUT, ONLY TRANSFERRED TO A SUBSI DIARY COMPANY AND THE SAME SHOULD HAVE BEEN DISALLOWED AND THIS OMISS ION ON THE PART OF THE AO RESULTED IN OVER ASSESSMENT OF LOSS OF RS .2.45 CRORE. THIS SHOWS THAT THE AO WAS SIMPLY INFORMED ABOUT THE FAC T WHICH HAD ESCAPED HIS ATTENTION DURING THE COURSE OF ASSESSME NT PROCEEDINGS TO THE EFFECT THAT A SUM OF RS.2.45 CRORE WAS NOT ALLO WABLE U/S 43B OF THE ACT WHICH IS NOTHING, BUT, A COMMUNICATION OF L AW TO THE AO. WE ARE NOT CONFRONTED WITH A SITUATION IN WHICH THE AO, AFTER DUE CONSIDERATION OF THE MATTER IN THE ORIGINAL ASSESSM ENT PROCEEDINGS INTERPRETED SECTION 43B AS ALLOWING DEDUCTION FOR A SUM OF RS.2.45 CRORE IN RESPECT OF INTEREST NOT PAID TO THE FINANC IAL INSTITUTIONS, BUT, TRANSFERRED TO THE ASSESSEES WHOLLY OWNED SUBSIDIA RY COMPANY, BUT, THE AUDIT PARTY INTERPRETED THIS PROVISION IN A DIF FERENT MANNER FROM THE WAY IN WHICH IT WAS INTERPRETED BY THE AO AND T HEN SUGGESTED THAT THE AMOUNT OUGHT TO HAVE BEEN CHARGED TO TAX. THE INSTANT CASE IS FULLY COVERED BY THE RATIO OF THE JUDGMENT IN THE CASE OF PVS BEEDIS PVT. LTD. (SUPRA) READ WITH THE EXCEPTION CARVED OUT BY THE HON'BLE SUPREME COURT IN INDIAN & EASTERN NEWSPAPERS SOCIETY ITA NO.3134/DEL/2010 25 (SUPRA) DRAWING A LINE OF DISTINCTION BETWEEN COMMUNICATION OF LAW AND INTERPRETATION OF LAW. THE ARGUMENT OF THE LD. AR ON THIS ISSUE, BEING DEVOID OF ANY MERIT, IS HEREBY JETTISONED. IT IS, THEREFORE, HELD THAT THE AUDIT OBJECTION IN THE INSTANT CASE CONSTI TUTED AN `INFORMATION ABOUT THE ESCAPEMENT OF INCOME TO TH E AO, THEREBY JUSTIFYING THE INITIATION OF REASSESSMENT. 7. GROUND NO. 2 IS ON THE MERITS OF SUSTENANCE OF A DDITION. THE LD. AR ARGUED THAT WHEN THE ASSESSEE TRANSFERRED ALL TH E ASSETS AND LIABILITIES OF ITS PAPER BOARD UNIT TO M/S RT PAPER BOARD LTD., AND THE LIABILITIES ALSO INCLUDED INTEREST PAYABLE TO FINANCIAL INSTITU TIONS AT RS.2.45 CRORE, SUCH TRANSFER OF INTEREST LIABILITY SHOULD BE CONSI DERED AS DISCHARGE OF THE INTEREST OBLIGATION. HE RELIED ON CERTAIN DECISION S TO CONTEND THAT EFFECTIVE DISCHARGE OF LIABILITY BE CONSTRUED AS PA YMENT U/S 43B OF THE ACT. HE MAINLY RELIED ON THE JUDGMENT OF THE HONBL E SUPREME COURT IN THE CASE OF W.T. SUREN & COMPANY LTD. VS. CIT (1998) 230 ITR 64 3 (SC) AND OTHER DECISIONS TO BUTTRESS HIS CONTENTION THA T THE TRANSFER OF INTEREST TO M/S RT PAPER BOARD LTD., IS NOTHING, BU T, AN EFFECTIVE ITA NO.3134/DEL/2010 26 DISCHARGE OF THE INTEREST OBLIGATION AND, HENCE, TH E AMOUNT IS ALLOWABLE U/S 43B OF THE ACT. AU CONTRAIRE, THE LD. DR STRONGLY RELIED ON THE IMPUGNED ORDER ON THIS SCORE. 8. IN ORDER TO APPRECIATE THE CONTROVERSY IN THE RIGHT PERSPECTIVE, IT WOULD BE FRUITFUL TO CONSIDER THE MANDATE OF THE RE LEVANT PART OF SECTION 43B, WHICH IS AS UNDER :- 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTH ER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THI S ACT IN RESPECT OF .. (D) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPOR ATION], IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVE RNING SUCH LOAN OR BORROWING, OR ( E ) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON AN Y LOAN OR ADVANCES FROM A SCHEDULED BANK IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR ADVANCES, OR SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORD ING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPU TING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : .. ITA NO.3134/DEL/2010 27 9. A BARE PERUSAL OF CLAUSES (D) & (E) OF SECTION 43B DIVULGES THAT A DEDUCTION FOR ANY SUM PAYABLE BY THE ASSESSEE AS IN TEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTIONS OR SCHEDULED BANKS ETC., IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME R EFERRED TO IN SECTION 28 ONLY OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. THIS MANDATE OF ALLOWING DEDUCTION IN THE YEAR IN W HICH SUCH INTEREST IS ACTUALLY PAID BY THE ASSESSEE IRRESPECTIVE OF THE Y EAR IN WHICH LIABILITY TO PAY SUCH INTEREST WAS INCURRED. WE ARE ACCENTUATIN G ON THE EXPRESSION ACTUALLY PAID FROM THE PRESCRIPTION OF SECTION 43B, WHICH LEAV ES NOTHING TO DOUBT THAT THE DEDUCTION ON ACCOUNT OF I NTEREST TO SCHEDULED BANKS AND FINANCIAL INSTITUTIONS, ETC., CAN BE ALLO WED ONLY IN THE YEAR IN WHICH IT IS ACTUALLY PAID. THE TERM ACTUALLY PAID IS TO BE SEEN IN CONTRADISTINCTION TO THE TERM CONSTRUCTIVE PAYMENT , WHICH HAS BEEN COINED BY THE LD. AR IN THE CONTEXT OF THIS PROVISI ON. WE FAIL TO APPRECIATE ANY LOGIC IN SUBSTITUTING ACTUAL PAYMENT WITH THE SO-CALLED CONSTRUCTIVE DELIVERY, WHEN THE LEGISLATURE HAS PRO VIDED IN UNAMBIGUOUS TERMS THAT INTEREST MUST BE ACTUALLY PAID. BY NO S TRETCH OF IMAGINATION THE ACTUAL PAYMENT OF INTEREST CAN BE EQUATED WITH THE SO-CALLED ITA NO.3134/DEL/2010 28 CONSTRUCTIVE PAYMENT OF INTEREST. FURTHER, WE ARE UNABLE TO COMPREHEND AS TO HOW THE TRANSFER OF INTEREST TO THE TRANSFER EE COMPANY, AT ALL, AMOUNTS TO CONSTRUCTIVE PAYMENT IN THE INSTANT CAS E. THE ASSESSEE HAS SIMPLY TRANSFERRED ALL ITS ASSETS AND LIABILITIES T O ITS WHOLLY OWNED SUBSIDIARY COMPANY AND ONE OF THE LIABILITIES IS IN TEREST PAYABLE. NOW, IT IS THE OBLIGATION OF THE TRANSFEREE COMPANY TO DISC HARGE THE INTEREST LIABILITY TO THIS EXTENT BY MAKING PAYMENT TO BANKS /FINANCIAL INSTITUTIONS. SIMPLY TRANSFERRING INTEREST LIABILITY BY THE ASSES SEE TO ITS SUBSIDIARY COMPANY CAN, UNDER NO CIRCUMSTANCES, BE CONSIDERED AS A SUBSTITUTE OF ACTUAL PAYMENT OF INTEREST. IF WE INTERPRET THE PR OVISIONS OF SECTION 43B IN THE MANNER AS SUGGESTED BY THE LD. AR, THEN, EVE RY TRANSFER OF LIABILITY BY THE ASSESSEE TO ANOTHER PERSON WOULD AMOUNT TO D ISCHARGE OF LIABILITY MAKING THE ASSESSEE ELIGIBLE FOR DEDUCTION, THEREBY THROWING TO WINDS THE VERY CONCEPT OF ACTUAL PAYMENT, WHICH IS THE ES SENCE OF SECTION 43B. IN NORMAL CIRCUMSTANCES, THE ACTUAL PAYMENT CAN BE MADE BY PAYMENT OF MONEY OR BY SOME OTHER CONSIDERATION. THE CRUX OF THE MATTER IS THAT AFTER SUCH DISCHARGE OF LIABILITY, THE AMOUNT OF IN TEREST RECEIVABLE BY THE BANKS OR FINANCIAL INSTITUTIONS ETC. SHOULD GET OBL ITERATED AS AN ITEM OF ITA NO.3134/DEL/2010 29 ASSET FROM THEIR BOOKS. TRANSFER OF LIABILITY BY T HE ASSESSEE TO ITS WHOLLY OWNED SUBSIDIARY COMPANY, TO WHOM THIS PAPER BOARD UNIT WAS TRANSFERRED, SIMPLY MEANS TRANSFER OF LIABILITY FR OM ONE ASSESSEE TO ANOTHER AND NOT THE DISCHARGE OF THIS LIABILITY TO THE BANKS/FINANCIAL INSTITUTIONS. IT IS SO FOR THE REASON THAT THE AMOU NT OF SUCH INTEREST IS STILL RECEIVABLE BY SUCH BANKS AND FINANCIAL INSTITUTION S ETC. AND THERE IS NO EROSION OF ASSET OF `INTEREST RECEIVABLE FROM T HEIR BOOKS OF ACCOUNT. 10. THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF W.T. SUREN (SUPRA) HAS NO SIGNIFICANCE INASMUCH AS THE ISSUE IN THAT CASE WAS ABOUT THE DEDUCTIBILITY OR OTHERWISE OF GRATUITY OF CERTAIN EMPLOYEES DEDUCTIBLE U/S 37(1) OF THE ACT. SECTION 37(1), U NLIKE SECTION 43B, DOES NOT CONTAIN ANY STIPULATION OF ACTUAL PAYMENT AS A CONDITION PRECEDENT FOR ALLOWING DEDUCTION. WE ARE CONCERNED WITH A CA SE IN WHICH SECTION 43B IS UNDER CONSIDERATION AND THE DEDUCTION CAN B E ALLOWED ONLY WHEN THE AMOUNT IS `ACTUALLY PAID TO THE BANKS/FINANCIA L INSTITUTIONS. IN OUR CONSIDERED OPINION, THIS JUDGMENT IS OF NO ASSISTAN CE TO THE ASSESSEE. ITA NO.3134/DEL/2010 30 11. IT IS FURTHER NOTICED THAT THE LEGISLATURE HAS PUT THE POSITION BEYOND ANY SHADOW OF DOUBT BY INSERTING EXPLANATIONS 3C AN D 3D BY THE FINANCE ACT, 2006 WITH RETROSPECTIVE EFFECT COVERIN G THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH READ AS UNDER : - EXPLANATION 3C. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT A DEDUCTION OF ANY SUM, BEING INTEREST PAYABLE UNDER CLAUSE ( D ) OF THIS SECTION, SHALL BE ALLOWED IF SUCH INTEREST HAS BEEN ACTUALLY PAID AND ANY INTEREST REFERRED TO IN THAT CLAUSE WHICH HAS BEEN CONVERTED INTO A LOAN OR BORROWING SHALL NOT BE DEEMED TO HAVE BEEN ACTUALLY PAID. EXPLANATION 3D. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT A DEDUCTION OF ANY SUM, BEING INTEREST PAYABLE UNDE R CLAUSE ( E ) OF THIS SECTION, SHALL BE ALLOWED IF SUCH INTEREST HAS BEEN ACTUALLY PAID AND ANY INTEREST REFERRED TO IN THAT CLAUSE WHICH HAS BEEN CONVERTED INTO A LOAN OR ADVANCE SHALL NOT BE DEEMED TO HAVE BEEN ACTUALL Y PAID. 12. TWO THINGS ARE PALPABLE FROM THE PRESCRIPTION OF EXPLANATIONS 3C AND 3D. FIRST IS THAT THE INTEREST PAYABLE TO BANKS AND OTHER FINANCIAL INSTITUTIONS CAN BE ALLOWED AS DEDUCTION ONLY IF S UCH INTEREST HAS BEEN ACTUALLY PAID AND SECOND IS THAT WHERE SUCH INTERE ST HAS BEEN CONVERTED INTO LOAN OR BORROWING/ADVANCE, (IT) SHALL NOT BE D EEMED TO HAVE BEEN ACTUALLY PAID. IN THE LIGHT OF THE MAIN PROVISION S OF SECTION 43B READ WITH EXPLANATIONS 3C AND 3D, IT IS CRYSTAL CLEAR TH AT DEDUCTION OF INTEREST U/S 43B CANNOT BE ALLOWED IN THE PRESENT CASE BECA USE SUCH INTEREST HAS ITA NO.3134/DEL/2010 31 NOT BEEN ACTUALLY PAID BY THE ASSESSEE TO THE BANKS /FINANCIAL INSTITUTIONS. THIS GROUND IS NOT ALLOWED. 13. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 06.08.201 5. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 06 TH AUGUST, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.