AMFORGE INDUSTRIES LTD, MUMBAI V. ITO 2(1)(1), MUMBAI

ITA 3470/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8099 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIMATI S PADMAJA
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income; Depreciation; Opportunity of being heard; Tax effect; Unabsorbed depreciation
• Section: 43B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A. NO.3470/MUM/2013 ( / ASSESSMENT YEAR: 2005-06) M/S AMFORGE INDUSTRIES LTD, 108,RAHEJA CHAMBERS, NARIMAN POINT, MUMBAI-400021 / VS. INCOME TAX OFFICER, 2(1)(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. :AAACA8756A ' / APPELLANT BY SHRI B V JHAVERI # ' /RESPONDENT BY SHRIMATI S PADMAJA $ % # &' / DATE OF HEARING : 11.8.2014 () # &' /DATE OF PRONOUNCEMENT : 17.10.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 24.1.2013 PASSED BY LD CIT(A)-5, MUMBAI AND IT RELA TES TO THE ASSESSMENT YEAR 2005-06. 2. AT THE TIME OF HEARING, THE LD. AR OF THE ASSESS EE DID NOT PRESS GROUNDS RELATING TO UNUTILIZED MODVAT , PRIOR PERIOD EXPENS ES, PRIOR PERIOD INCOME AND PROVISION FOR EXCISE DUTY. ACCORDINGLY, WE DISMISS THESE GROUNDS AS NOT PRESSED. 3. THE REMAINING GROUNDS ARE RELATING TO FOLLOWING TWO ISSUES : A) TAXABILITY OF RS.7.22 CRORES RELATING T O CONVERSION OF UNPAID INTEREST ON SBI LOAN INTO A F RESH TERM LOAN; AND B REJECTION OF CLAIM OF SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION CLAIMED AGAINST SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN I.T.A. NO.3470/MUM/2013 2 4. THE FACTS RELATING TO THE ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND ALSO IS UNDERTAKING JOB WORK OF MANUFACTURING AUTOMOBILE FORGINGS AND COMPONENTS. THE ASSESSEE HAD AVAILED LOAN FROM STATE BANK OF INDIA IN THE EA RLIER YEARS AND DEFAULTED IN PAYMENT OF LOAN INSTALLMENTS. SUBSEQUENT THERETO, T HE STATE BANK OF INDIA UNDERTOOK REHABILITATION PROGRAMME AND ACCORDINGLY RESTRUCTURED THE LOAN AMOUNT AND INTEREST AMOUNT DUE FROM THE ASSESSEE. ACCORDING TO THE RESTRUCTURING SCHEME A SUM OF RS.7.22 CRORES, OUT O F THE OUTSTANDING INTEREST BALANCE, WAS CONVERTED INTO A FRESH TERM LOAN. THE BANK CONVEYED THE DETAILS OF RESTRUCTURING OF LOANS TO THE ASSESSEE, VIDE THEIR SANCTION LETTER DATED 7.4.2004. IN PURSUANCE THERETO, THE ASSESSEE PASSED NECESSARY ENTRIES IN ITS BOOKS OF ACCOUNT ON 31.3.2004 FOR GIVING EFFECT TO THE RESTR UCTURING SCHEME SANCTIONED BY THE SBI. ACCORDINGLY, THE OUTSTANDING INTEREST LIA BILITY WAS CONVERTED TERM LOAN IN THE BOOKS OF THE ASSESSEE ON 31.3.2004 (I.E., IN TH E IMMEDIATELY PRECEDING YEAR). THE ASSESSEE APPEARS TO HAVE PASSED NECESSARY JOURN AL ENTRIES IN ITS BOOKS OF ACCOUNTS FOR THE YEAR ENDED ON 31.3.2004, APPARENTL Y ON THE REASONING THAT THE ISSUE RELATING TO RESTRUCTURING WAS PENDING ON 31.3 .2004 AND THE RESULT OF RESTRUCTURING CAME TO ITS KNOWLEDGE BEFORE FINALIZI NG THE ACCOUNTS RELATING TO THE FINANCIAL YEAR 2003-04. 5. HOWEVER, SINCE THE DETAILS OF RESTRUCTURING WAS CONVEYED TO THE ASSESSEE ONLY ON 7.4.2004, THE AO TOOK THE VIEW THAT THE EFFECT OF RESTRUCTURING NEEDS TO BE EXAMINED IN FINANCIAL YEAR 2004-05 RELEVANT TO T HE ASSESSMENT YEAR 2005-06. ACCORDINGLY, THE AO EXAMINED THE SAME AND TOOK THE VIEW THAT THE EXPLANATION 3A OF SECTION 43B SHALL APPLY TO THE IMPUGNED TRANS ACTIONS. ACCORDINGLY, HE HELD THAT THE CONVERSION OF UNPAID INTEREST LIABILITY IN TO TERM LOAN IS LIABLE TO BE DISALLOWED IN TERMS OF EXPLANATION 3A OF SECTION 43 B AND ACCORDINGLY ADDED THE SUM OF RS.7.22 CRORES TO THE TOTAL INCOME OF THE AS SESSEE. THE LD. CIT(A) ALSO CONFIRMED THE SAME AND BEING AGGRIEVED, THE ASSESSE E HAS FILED THIS APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE AO WAS NOT RIGHT IN EXAMINING THE DETAILS OF RESTRUCTURING DURING THE Y EAR UNDER CONSIDERATION, SINCE THE ASSESSEE HAD GIVEN EFFECT TO THE RESTRUCTURING PROGRAMME IN THE FINANCIAL YEAR 2003-04 RELATING TO THE ASSESSMENT YEAR 2004-0 5. THE LD. COUNSEL FOR THE I.T.A. NO.3470/MUM/2013 3 ASSESSEE SUBMITTED THAT THE ASSESSEE DID NOT MAKE A NY CLAIM FOR DEDUCTION U/S 43B OF THE ACT AND HENCE, THE QUESTION OF MAKING DI SALLOWANCE OF RS.7.22 CRORES DOES NOT ARISE. 7. ON THE CONTRARY, THE LD. DR SUBMITTED THAT DETAI LS OF RESTRUCTURING WERE CONVEYED TO THE ASSESSEE BY THE BANK ONLY ON 7.7.20 04. HENCE, THE AO WAS JUSTIFIED IN EXAMINING THE TAX EFFECT OF THE SAME D URING THE YEAR UNDER CONSIDERATION. THE LD. DR FURTHER SUBMITTED THAT T HE AO HAS MADE DISALLOWANCE IN ACCORDANCE WITH EXPLANATION 3A TO SECTION 43B OF THE ACT. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTICE THAT THE DETAILS O F RESTRUCTURING WERE CONVEYED TO THE ASSESSEE BY STATE BANK OF INDIA, VIDE ITS SA NCTION LETTER NO. CB:SCP:2004:9123 DATED 7.4.2004. A COPY OF THE SA ID LETTER IS PLACED AT PAGE 40 OF THE PAPER BOOK FILED BY THE ASSESSEE. ON A P ERUSAL OF THE SAME, WE NOTICE THAT CLAUSE 15 OF THE SAID LETTER IS MORE RELEVANT AND THE SAME IS EXTRACTED BELOW:- PLEASE RETURN TO US THE DUPLICATE COPY OF THIS LET TER, DULY SIGNED BY THE AUTHORIZED SIGNATORY OF THE COMPANY AND THE GUARANT ORS IN TOKEN OF ACCEPTANCE OF THE TERMS AND CONDITIONS GOVERNING TH E ADVANCE. THE ABOVE SAID CLAUSE STIPULATES THAT THE ASSESSEE IS REQUIRED TO RETURN THE DUPLICATE COPY OF THE SAID LETTER DULY SIGNED BY AU THORIZED SIGNATORY OF ASSESSEE AND ALSO BY THE GUARANTORS IN TOKEN OF ACCEPTANCE O F THE TERMS AND CONDITIONS GOVERNING THE ADVANCE. THUS, IT IS SEEN THAT THE B ANK HAS GIVEN OFFER TO THE ASSESSEE SPECIFYING THE TERMS AND CONDITIONS RELATI NG TO THE RESTRUCTURING PROGRAM AND THE SAME SHALL COME INTO EFFECT ONLY ON ITS ACCEPTANCE NOT ONLY BY THE ASSESSEE COMPANY, BUT ALSO BY ITS GUARANTORS. IN THE INSTANCE CASE, SINCE THE DETAILS OF RESTRUCTURING WERE CONVEYED BY THE B ANK TO THE ASSESSEE ON 7.4.2004, THE ASSESSEE AND THE GURANTORS COULD HAVE GIVEN THEIR CONSENT ONLY AFTER 7.4.2004, I.E., THE DATE OF SANCTION LETTER R EFERRED SUPRA. HENCE, EVEN THOUGH THE ASSESSEE HAS GIVEN EFFECT TO THE RESTRUC TURING SCHEME IN ITS BOOKS OF ACCOUNTS ON 31.3.2004 RELATING TO THE ASSESSMENT YE AR 2004-05, YET, IN OUR VIEW, THE SAID BOOKS OF ACCOUNT IS NOT BINDING ON THE AO, I.E., THE AO IS I.T.A. NO.3470/MUM/2013 4 EMPOWERED TO CONSIDER THE TAX IMPLICATIONS OF THE R ESTRUCTURING PROGRAM IN THE INSTANT YEAR, I.E., THE ASSESSMENT YEAR 2005-06. 9. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE FURNISHED THE BREAKUP DETAILS OF RS.7.22 CRORES, WHICH WAS CONVER TED INTO TERM LOAN: OUTSTANDING FOR THE YEAR ENDED ON 31.3.2002 RS.3.77 CRORES OUTSTANDING FOR THE YEAR ENDED ON 31.3.2003 RS.3.79 CRORES TOTAL RS.7.56 CROR ES THE LD. COUNSEL SUBMITTED THAT THE STATE BANK OF IN DIA HAS CONVERTED RS. 7.22 CRORES, OUT OF THE ABOVE SAID AMOUNT OF RS.7.56 CRO RES, INTO TERM LOAN AND THE BALANCE AMOUNT HAS BEEN WAIVED. THE LD. COUNSEL FU RTHER SUBMITTED THAT THE ASSESSEE HAS DULY OFFERED THE INTEREST SO WAIVED BY THE BANK AS ITS INCOME. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE DID NOT DISALLOW THE UNPAID INTEREST IN ASSESSMENT YEAR 2002-03 AS PER SEC. 43B OF THE ACT, BUT DISALLOWED THE UNPAID INTEREST IN ASSESSMENT YEAR 2003-04. TH E LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXPLANATION 3A SHALL APPLY IN RESPECT OF PAYMENTS MADE DURING THE YEAR PERTAINING TO A LIABILITY, ONL Y IF IT HAD BEEN ALLOWED AS DEDUCTION IN THE YEAR 1996-97 AND EARLIER YEARS ON ACCRUAL BASIS. SINCE THE ABOVE SAID AMOUNTS PERTAIN TO AY 2002-03 AND 2003-0 4, THE SAID EXPLANATION SHALL NOT HAVE APPLICATION TO THE FACTS OF THE INST ANT CASE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE QUESTION OF INVOKING EXPLANATION 3A OF SEC. 43B SHALL NOT ARISE, SINCE THE ASSESSEE DID NOT CLAIM DEDUCTION O F RS.7.22 CRORES DURING THE YEAR UNDER CONSIDERATION EVEN U/S 43B OF THE ACT. HENCE THE QUESTION OF MAKING ANY DISALLOWANCE U/S 43B DOES NOT ARISE. 10. WE NOTICE THAT THE LD. AR HAS FURNISHED MANY F ACTUAL DETAILS, WHICH HAVE NOT BEEN EXAMINED AT ALL BY THE TAX AUTHORITIES. F URTHER, THE LD. AR HAS RIGHTLY POINTED OUT THAT EXPLANATION 3A SHALL APPLY ONLY FO R THOSE PAYMENTS FOR WHICH THE DEDUCTION HAD BEEN ALLOWED IN ASSESSMENT YEAR 1996- 97 AND IN THE EARLIER YEARS ON ACCRUAL BASIS. HOWEVER, SINCE THE LD A.R HAS F URNISHED VARIOUS FACTUAL DETAILS AND SINCE THEY HAVE NOT BEEN EXAMINED BY T HE TAX AUTHORITIES, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH CONSIDERATI ON AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) ON THIS ISSUE AND RESTORE THE I.T.A. NO.3470/MUM/2013 5 SAME TO THE FILE OF AO FOR HIS FRESH EXAMINATION I N THE LIGHT OF DISCUSSION MADE SUPRA. THE AO IS DIRECTED TO EXAMINE THE FACTUAL D ETAILS FURNISHED BY THE LD. AR AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LA W AFTER PROVIDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. THE NEXT ISSUE RELATES TO CLAIM OF SET OFF OF B ROUGHT FORWARD UNABSORBED DEPRECATION AGAINST THE CURRENT YEARS CAPITAL GAIN . THE AO DISALLOWED THE SAID CLAIM ON THE REASONING THAT UNABSORBED DEPRECIATI ON, THOUGH GETS MERGED WITH THE CURRENT DEPRECIATION, CAN BE CARRIED FORWARD IN DEFINITELY AND CAN BE SET OFF ONLY AGAINST PROFIT AND GAINS AND NOT AGAINST A NY OTHER INCOME. THE LD. CIT(A) ALSO CONFIRMED THE VIEW SO TAKEN BY THE AO. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE F OLLOWING DECISIONS : A) SURESH INDUSTRIES (P) LTD V/S ACIT (2012) 54 S OT 450 (MUM) B) DCIT V/S AKAY FLAVOURS AND AROMATICS (P) LTD (2011) 130 ITD 41 (COCHIN) (TM ) IN BOTH THE CASES CITED ABOVE, IT HAS BEEN HELD THA T UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST THE BUSINESS INCOME OR AGAINST THE INCOME DERIVED FROM ANY OTHER SOURCE, ON THE REASONING THAT THE TREATMENT GIVEN TO CURRENT YEAR DEPRECIATION WOULD EQUALLY APPLY TO BROUGHT FORWARD DEPRECIATION ALSO. BY FOLLOWING THE DECISIONS RENDERED IN THE ABOVE SAID CASES, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO ALLOW THE SET O FF OF UNABSORBED DEPRECIATION AGAINST CAPITAL GAINS. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17TH OCT , 2014. () $ * +, 17TH OCT, 2014 ) # -% . SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER $ % MUMBAI: 17TH OCT,2014. . . ./ SRL , SR. PS I.T.A. NO.3470/MUM/2013 6 !'# $#%! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ /& ( ) / THE CIT(A)- CONCERNED 4. $ /& / CIT CONCERNED 5. 0- &1 , ' 1 , $ % / DR, ITAT, MUMBAI CONCERNED 6. -2 3% / GUARD FILE. 4 $ / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) ' 1 , $ % /ITAT, MUMBAI