JAMNAGAR INFRASTRUCTURE ENTEPRISES, MUMBAI V. JCIT (OSD) CIR 15(1), MUMBAI

ITA 3894/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87807 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 13-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA, AM & SHRI SANJAY GARG, JM ITA NO. 3894 / MUM/20 1 3 ( ASSESSMENT YEAR : 200 9 - 10 ) JAMNAGAR INFRASTRUCTURE ENTERPRISES, 1203 - 06, ARCADIA, 195 BACKBAY RECLAMATION, N. POINT, MUMBAI - 400 021 VS. JCIT(OSD), CIR.15(1), MUMBAI PAN/GIR NO. : A AATJ 4453 G ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI J.D.MISTRY /REVENUE BY : SHRI AKHILENDRA P. YADAV DATE OF HEARING : 13 TH NOV , 201 4 DATE OF PR ONOUNCEMENT : 09/01 /2015 O R D E R PER R.C.SHARMA ( A .M.) : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), DATED 22 - 3 - 2013 , FOR THE ASSESSMENT YEAR 200 9 - 10 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3 ) OF THE I.T. ACT. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF THAT ASSESSEE IS A PRIVATE TRUST CARRYING ON ITS ACTIVITIES UNDER THE NAME OF M/ S. JAMNAGAR INFRASTRUCTURE ENTERPRISES AND IS FORMED BY SETTLER RELIANCE CAPITAL LT D. (RCL) WITH THE OBJECT OF HOLDING THE TRUST AMOUNT AND CARRYING ON THE ACTIVITIES AND BUSINESS AS UNDERTAKEN BY RELIANCE CAPITA L LTD. BY VIRTUE OF DEBT DEFEACE NSING AGREEMENTS. M/ S. ITA NO. 3894 /20 1 3 2 APPOLLO EXIM PRIVATE LTD. HAS BEEN APPOINTED AS A TRUSTEE TO CARRY ON THE ACTIVITIES OF THE ASSESSEE. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO FOUND THAT THE ASSESSEE CLAIMED DISCOUNT ON ASSIGNED LIABILITY OF RS.4,07,80,324/ - . ON ENQUIRY BY THE AO, IT WAS EXPLAINED BY THE ASSESSEE THAT T HE CLAIM OF DISCOUNT ON THE AS SIGNED LIABILITY TAKEN OVER REPRESENT THE FINANCE COST OF THE LIABILITY TAKEN OVER, WHICH HAS BEEN WORKED OUT BY APPORTIONING THE DIFFERENCE BETWEEN THE AMOUNT RECEIVED FOR TAKING OVER PAYMENT OBLIGATION AND THE AMOUNT PAYABLE ON ACCOUNT OF PAYMENT OBLIGAT ION OVER THE PERIO D OF ASSIGNED LIABILITY AT PRE- DETERMINED RATE. HOWEVER, THE AO DID NOT ACCEPT ASSESSEES CONTENTION BY OBSERVING THAT IN THE ASSESSMENT YEARS 2007 - 08 & 2008 - 09, THE AO HAS DISALLOWED SUCH CLAIM OF THE ASSESSEE, ASSESEES CLAIM FOR THE YE AR UNDER CONSIDERATION WAS ALSO DISALLOWED. 3 . BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUNDS : - THE APPELLANT OBJECTS TO THE ORDER DATED 2 2.03.2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 26, MUMBAI FOR THE A.Y.2009 - 10 ON THE FOLLOWING AMONG OTHER GROUNDS : - 1. THE ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX(APPEALS) IS ILLEGAL, BAD IN LAW, ULTRA VIRES AND CONTRARY TO T HE PROVISIONS OF LAW AND FACTS OF THE CASE AND WITHOUT APPRECIATING THE FACTS OF THE CASE IN THEIR PROPER PERSPECTIVE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS. 4,07,80,324/ - BEING DISCOUNT ON ASSIGNED LIAB ILITIES CLAIMED AS DEDUCTIBLE U/S.37(1) OF THE INCOME TAX ACT. 3. IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BE CANCELLED AND DIRECTION BE ISSUED TO ALLOW THE APPEAL ON THE GROUNDS RAISED BEFORE HIM. ITA NO. 3894 /20 1 3 3 4 . SHRI J.D.MISTRY, LEARNE D SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE HAS CONTENDED THAT THERE WAS A FINANCE TRANSACTION BETWEEN THE PERSON ASSIGNING THE LIABILITY AND THE PERSON ACCEPTING THE LIABILITY I.E. THE ASSESSEE, WHEREBY THE PERSON ACCEPTING THE LIABILITY IN VIEW OF HAVING RECEIVED PRESENT VALUE OF THE LIABILITY AGREES TO PAY ON THE DUE DATES THE AMOUNT OF LIABILITY TO THE RESPECTIVE STATE GOVERNMENTS . LEARNED AR PLACED RELIANCE ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL CORPORATION L TD. VS. CIT, REPORTED IN 225 ITR 802 , WHEREIN ON THE SAME PRINCIPLE DISCOUNTED LIABILITY WERE SPREAD OVER THE PERIOD OF MATURITY AND ALLOWED. FURTHER, THE LEARNED AR BROUGHT TO OUR NOTICE THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE OF THE ASSESSMENT Y EARS 2007 - 08 & 2008 - 09, WHEREIN EXACTLY SIMILAR CLAIM OF THE ASSESSEE WAS ALLOWED BY THE TRIBUNAL . 5 . ON CONTRARY, LEARNED DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT IT WAS NOT AN ASCERTAINED LIABILITY, THEREFORE, THE AO WAS JUSTI FIED IN DECLINING THE CLAIM OF DEDUCTION. 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ASSESSEE - JAMNAGAR INFRASTRUCTURE ENTERPRISES (JIE) IS A TRUST, WHICH IS FORMED B Y THE SETTLER, RELIANCE CAPITAL LTD. (RCL) WITH THE OBJECT OF HOLDING THE TRUST AMOUNT AND CARRYING ON THE ACTIVITY AND BUSINESS AS UNDERTAKEN BY RCL BY VIRTUE OF DEBT DEFEACENSING AGREEMENT. APPOLLO EXIM PVT. LTD. IS THE TRUSTEE OF THE TRUST. RCL, SETTLER OF THE TRUST WAS ENGAGED IN VARIOUS FINANCIAL ACTIVITIES. THE TRUST IS FORMED WITH THE OBJECTIVE OF SECURING THE ITA NO. 3894 /20 1 3 4 FULFILLMENT OF OBLIGATIONS OF THE SETTLER IN RESPECT OF THE LOANS AS SET OUT IN THE SAID AGREEMENTS. JIE HAS TAKEN OVER THE PAYMENT OBLIGATION S TO GIIC FROM RCL AND THEREAFTER FROM RIL. THE TRUST HAS UTILIZED THE AMOUNT SO RECEIVED IN PURCHASING VARIOUS SECURITIES. ON SUCH SECURITIES, ASSESSEE HAS EARNED FOR THE YEAR ENDED 31.03.2009 INTEREST INCOME AND DIVIDEND INCOME. AGAINST THESE INCOMES, TH E ASSESSEE TRUST HAS CLAIMED DISCOUNT ON THE ASSIGNED LIABILITY TAKEN OVER WHICH REPRESENTS THE FINANCE COST OF THE LIABILITY TAKEN OVER. THIS IS WORKED OUT BY APPORTIONING THE DIFFERENCE BETWEEN THE AMOUNT RECEIVED FOR TAKING OVER PAYMENT OBLIGATIONS AND THE AMOUNTS PAYABLE ON ACCOUNT OF THE PAYMENT OBLIGATIONS OVER THE PERIOD OF THE A SSIGNED LIABILITY AT THE PREDETERMINED RATE. THUS , THE ASSESSEE HAD CLAIMED PROPORTIONAL DISCOU NT ON ASSIGNED LIABILITY OF RS. 4,07,80,324/ - AS A DEDUCTION WHILE COMPUTING THE INCOME. THUS, IT WAS IN THE NATURE OF FINANCE TRANSACTION BETWEEN THE PERSON ASSIGNING THE LIABILITY AND THE PERSON ACCEPTING THE LIABILITY I.E. THE ASSESSEE, WHEREBY THE PERSON ACCEPTING THE LIABILITY IN VIEW OF HAVING RECEIVED PRESENT VALUE OF THE LIABI LITY AGREE D TO PAY ON THE DUE DATE S THE AMOUNT OF LIABILITY TO THE RESPECTIVE STATE GOVERNMENTS. SINCE THIS IS A FINANCE TRANSACTION, THE AMOUNT RECEIVED FROM THE ASSIGNOR IS A LIABILITY WHICH HAS TO BE REPAID ALONGWITH INTEREST IN FUTURE AND HENCE IT HAS BEEN REFLECTED ALONGWITH ACCRUED DISCOUNT UNDER THE HEAD 'UNSECURED LOANS' IN SCHEDULE 'B' OF THE BALANCE SHEE T. FROM THE RECORD ALSO WE FOUND THAT THIS LIABILITY WAS ACCEPTED AT ITS PRESENT VALUE WORKED OUT AT TH E INTERNAL RATE OF RETURN (IRR) RANGING FRO M 6% TO 9%. THE NET PRESENT VALUE OF THE LIABILITY RECEIVED IF INVESTED CONTINUOUSLY @ 6% TO 9%.PER ANNUM WILL MAKE IT ITA NO. 3894 /20 1 3 5 POSSIBLE FOR THE ASSIGNEE TO REPAY THE LIABILITIES ON DUE DATES. THUS, IT WAS LIKE ANY OTHER FINANCE TRANSACTION WHERE EITHER THE ASSET I S PURCHASED AND GIVEN ON LEASE, THE L EASE RENTAL BEING WORKED OUT ON THE BASIS OF THE PREVAILING RATE AND THE IRR DESIRED BY THE LESSOR OR PURCHASING A DISTANT LIABILITY AT ITS PRESENT NET VALUE UTILISING THE FUNDS RECEIVED BY WAY OF PRESENT VALUE OF THE L IABILITY FOR EARNING BUSINESS INCOME IN THE FORM OF INTEREST, TRADING INCOME ETC. AND REPAYING THESE LIABILITIES ON DUE DATES . SINCE THIS ASSIGNMENT OF LIABILITY BEING IN THE NATURE OF FINANCE TRANSACTION SUCH TRANSACTIONS ARE PART OF NORMAL BUSINESS TRANS ACTIONS OF THE TRUST AND THE DISCOUNT ACCRUED ON THIS LIABILITY IS A PROPER CHARGE ON THE BUSINESS INCOME OF THE COMPANY AND IS THEREFORE ALLOWABLE AS A REVENUE DEDUCTI ON . 7 . WE ALSO FOUND FROM THE RECORD THAT DISCOUNT CLAIMED BY ASSESSEE WAS AN ACTUAL LI ABILITY ARISING IN TERMS OF THE CONTRACT UNDER WHICH THE ASSIGNED LIABILITY HAS BEEN ACCEPTED BY THE ASSESSEE AND IT IS NOT A CONTINGENT LIABILITY . AS PER THE TERMS OF THE CONTRACT, THE TRUST HAS UNDERTAKEN TO DISCHARGE LIABILITIES OF THE ASSIGNOR ON DUE D ATES AS MENTIONED IN THE CONTRACT AND IN LIEU THEREOF, HAS RECEIVED CERTAIN AMOUNTS. THE DIFFERENCE BETWEEN THE AMOUNT RECEIVED AND THE AMOUNT PAYABLE OVER A PERIOD OF TIME HAS BEEN CLAIMED AS DEDUCTION OVER THE PERIOD OF TIME DURING WHICH SUCH AMOUNTS ARE GOING TO BE UTILISED FOR THE PURPOSE OF BUSINESS OF THE TRUST. THUS, THE DIFFERENCE BETWEEN THE AMOUNT RECEIVED BY J IE AND TOTAL AMOUNT PAYABLE AT A FUTURE DATE, BEING A LOAN LIABILITY OF ASSIGNORS, REPRESENTS THE COST OF BORROWING WHICH HAS BEEN INCURRED BUT PAYABLE ON FUTURE DATE, AS PER AGREED TERMS, SUCH ITA NO. 3894 /20 1 3 6 ACCRUED LIABILITY IN PRAESENTI EVEN THOUGH PAYABLE IN FUTURE IS A DEDUCTIBLE EXPENDITURE OVER A PERIOD FOR WHICH THE AMOUNT RECEIVED INITIALLY HAS BEEN USED BY THE JIE, SOFAR AS SUCH LIABILITY HAS BEEN INCURRED FOR THE PURPOSE BUSINESS. 8 . THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL CORPORATION LTD. (SUPRA) , HAD DEALT WITH THE SIMILAR ISSUE AND HELD THAT DISCOUNT ON DEBENTURE IS A LIABILITY ACCRUED OR INCURRED IN PRAESENTI THOUGH TO BE DISCHARGED IN FUTURO AND COVER NOT ONLY A ONE TIME PAYMENT BUT A LIABILITY SPREAD OVER A NUMBER OF YEARS. THE PRECISE OBSERVATION S OF THE HON BLE SUPREME COURT ARE AS UNDER : - EXPENDITURE IS NOT NECESSARILY CONFINED TO THE MONEY WHICH HAS BEEN ACTUALLY PAID OUT. IT COVERS A LIABILITY WHICH HAS ACCRUED OR WHICH HAS BEEN INC URRED ALTHOUGH IT MAY HAVE TO BE DISCHARGED AT A FUTURE DATE. HOWEVER, A CONTINGENT LIABILITY WHICH MAY HAVE TO BE DISCHARGED IN FUTURE CANNOT BE CONSIDERED AS EXPENDITURE. ALTHOUGH EXP ENDITURE PRIMARILY DENOTES THE IDEA OF SPENDING OR PAYING OUT, IT MAY, IN GIVEN CIRCUMSTANCES, ALSO COVER AN AMOUNT OF LOSS WHICH HAS NOT GONE OUT OF THE ASSESSEE'S POCKET BUT WHICH IS ALL THE SAME, AN AMOUNT WHICH THE ASSESSEE HAS HAD TO GIVE UP. IT ALSO COVERS A LIABILITY WHICH THE ASSESSEE HAS INCURRED IN PRAESENTI ALTHOUGH IT IS PAYABLE IN FUTURO. A CONTINGENT LIABILITY THAT MAY ARISE IN FUTURE IS, HOWEVER, NOT 'EXPENDITURE'. IT WOULD ALSO COVER NOT JUST A ONE TIME PAYMENT BUT A LIABILITY SPREAD OUT OVE R A NUMBER OF YEARS. THEREFORE, WHEN A COMPANY ISSUES DEBENTURES AT A DISCOUNT, IT INCURS A LIABILITY TO PAY A LARGER AMOUNT THAN WHAT IT HAS BORROWED, AT A FUTURE DATE. ONE NEED NOT GO INTO THE QUESTION WHETHER THIS ADDITIONAL LIABILITY EQUIVALENT TO THE DISCOUNT, WHICH IS INCURRED IN PRAESENTI BUT IS PAYABLE IN FUTURE, REPRESENTS DEFERRED INTEREST OR NOT. THAT MAY DEPEND UPON THE TOTALITY OF CIRCUMSTANCES RELATING TO THE ISSUE OF DEBENTURES, INCLUDING ITS TERMS. THE LIABILITY, HOWEVER, TO PAY THE DISCOUNT ED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVED FOR THE DEBENTURES, IS A LIABILITY WHICH HAS BEEN INCURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES. THE AMOUNTS SO OBTAINED BY ISSUE OF DEBENTURES A RE USED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS. THIS WOULD, THEREFORE, BE EXPENDITURE. THE CHARACTER OF PAYMENT IN RELATION TO THE PAYER CAN BE DIFFERENT FROM THE CHARACTER OF THAT PAYMENT IN THE HANDS OF THE RECIPIENT. ANY LIABILITY INCURRED FOR THE PURPOSE OF OBTAINING THE LOAN WOULD BE REVENUE EXPENDITURE. ITA NO. 3894 /20 1 3 7 9 . APPLYING THE SAME PROPOSITION TO THE FACTS OF THE INSTANT CASE, WE FOUND THAT THE DIFFERENCE BETWEEN AMOUNT RECEIVED BY THE ASSESSEE AND TOTAL AMOUNT PAYABLE AT A FUTURE DATE REPRESENTS THE COST OF BORROWINGS WHICH IS DEDUCTIBLE EXPENDITURE OVER A PERIOD FOR WHICH THE AMOUNT RECEIVED INITIALLY HAS BEEN USED. EXACTLY SIMILAR ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE AND ALLOWED THE CLAIM AFTER HAVING THE FOLLOWING OBSERVA TIONS : - 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE BROUGHT ON RECORD. IT IS NOT IN DISPUTE THAT IN PREVIOUS FOUR ASSESSMENT YEARS, THREE ASSESSMENTS WERE DONE U/S.143(3) OF THE A CT. FOR A.Y.2004 - 05 A CLAIM OF RS.101,79,28,529/ - WAS ALLOWED, IN A.Y.2005 - 06, CLAIM OF RS.132,46,66,345/ - WAS ALLOWED AND SIMILARLY IN A.Y.2006 - 07 A CLAIM OF RS.110,05,21,488/ - WAS ALLOWED. THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL CORPN . LTD. (SUPRA) HAS HELD THAT THE LIABILITY TO PAY THE DISCOUNTED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVED FOR THE DEBENTURES WAS A LIABILITY INCURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES. I T WAS THEREFORE TAKEN AS EXPENDITURE. THE HONBLE SUPREME COURT DIRECTED AS TO ALLOW SUCH EXPENDITURE. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE HONBLE SUPREME COURT (SUPRA) AND ALSO THE FINDING THAT IN EARLIER THREE SCRU TINY ASSESSMENT IN THE CASE OF THE ASSESSEE, THE AO HAS ALLOWED SUCH DISCOUNT. IN OUR CONSIDERATE VIEW, FACTS BEING THE SAME, AND THE LAW HAS NOT CHANGED THEREFORE SIMILAR VIEW SHOULD BE FOLLOWED. ON THAT NOTE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) WHICH WE ACCORDINGLY CONFIRM. 10 . IN VIEW OF THE ABOVE DISCUSSION, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE VIS - - VIS REASONING GIVEN HEREINABOVE, WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LOWE R AUTHORITIES FOR DISALLOWING DISCOUNT ON ASCERTAINED LIABILITY U/S.37(1) OF THE I.T. ACT. 1 1 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 3894 /20 1 3 8 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH JANUARY . 201 5 . 9 TH JAN,201 5 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 09 / 01/201 5 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//