The DCIT, Circle-4, Ahmedabad V. Ideal Petro Products Ltd., Ahmedabad

ITA 4228/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6078 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 30-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Keywords: Business expenditure; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 13/05/2010 DRAFTED ON: 14/0 5/2010 ITA NO.4228/AHD/2007 ASSESSMENT YEAR : 2003-04 THE DCIT CIRCLE-4 AHMEDABAD VS. IDEAL PETRO PRODUCTS LTD. 105, ANAND MANGAL-1 BEHIND FEMINA TOWN CG ROAD, AHMEDABAD PAN/GIR NO. : AAACI 4562 Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SHELLEY JINDAL, CIT-D.R. RESPONDENT BY: -NONE- O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL OF THE REVENUE ARISING FROM THE ORDER OF THE LEARNED CIT(APPEALS)-VIII, AHMEDABAD DATED 24/09/20 07 AND THE SOLITARY GROUND READS AS FOLLOWS:- THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.1,21,10,000/-, BEIN G PREMIUM PAYABLE ON OPTIONAL FULLY CONVERTIBLE PREMIUM NOTES (OFCPN), WITHOUT EXAMINING THE NATURE AND TERMS AND CONDITIO NS OF THESE OPTIONAL FULLY CONVERTIBLE PREMIUM NOTES. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 06/03/2006 WERE THAT THE ASSESSEE-COMPANY WAS IN THE BUSINESS OF TRADING IN PLASTIC GRANULES. ITA NO.4228/AHD /2007 DCIT VS. IDEAL PETRO PRODUCTS LTD. ASST.YEAR 2003-04 - 2 - IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS DEALING IN STOCK AND SECURITIES. ABOUT THE CONTROVERSY IN H AND, IT WAS NOTED BY THE ASSESSING OFFICER THAT AN AMOUNT OF RS.1,21,10, 000/- WAS WRITTEN OFF TOWARDS PREMIUM ON OPTIONALLY FULLY CONVERTIBLE PRE MIUM BONDS (OFCPN). A QUERY WAS RAISED IN RESPECT OF THE ADMI SSIBILITY OF THE CLAIMED EXPENDITURE AND INCOMPLIANCE THE ASSESSEE H AS FURNISHED THE FOLLOWING REPLY:- DURING THE YEAR UNDER REVIEW, THE ASSESSEE COMPANY HAS WRITTEN OFF RS.1,21,10,000/- TOWARDS OFCPN BOND WRITTEN OFF . THE ASSESSEE COMPANY HAS ISSUED REDEEMABLE OFCPN BOND O F RS.17,30,00,000/- HAVING FACE VALUE OF EACH BOND RS .1,35,000/- AND ISSUED PRICE RS.1,00,000/-. THESE BONDS WAS IS SUED IN 2002 AND IT IS REDEEMABLE IN 2007 (I.E., AFTER 5 YEARS). THEREFORE, RS.35,000/- WAS PAYABLE TOWARDS PREMIUM OVER THE PE RIOD OF 5 YEARS AND COMPANY HAS WRITTEN OFF THESE PREMIUM OF RS.35000/- PER BOND OVER THE PERIOD OF 5 YEARS. THAT MEANS COMPANY HAS WRITTEN OFF RS.7000/- PER BOND EACH YEAR. DURING T HE YEAR UNDER REVIEW THE ASSESSEE COMPANY HAS WRITTEN OFF RS.1,21 ,10,000/- (TOTAL 1730 BONDS @ RS.7000/-) TOWARDS PREMIUM PAYA BLE AT THE TIME OF REDEMPTION OF BONDS. 2.1. IN ADDITION TO ABOVE QUERY, THE ASSESSING OFFI CER HAS ASKED THE ASSESSEE TO FURNISH THE NAMES AND ADDRESSES OF THE PERSONS TO WHOM THE REDEEMABLE BONDS WERE ISSUED. AN ANOTHER QUERY WA S ALSO RAISED IN RESPECT OF THE USE OF THE CAPITAL SO GENERATED BY I SSUING THE BONDS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSIN G OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS NOT FURNISHED THE REQUISITE DETAILS AND ALSO NO PROFIT WAS SHOWN ON THE INVESTMENT OF THE FUNDS SO RAISED, THEREFORE, THE CLAIM OF LOSS ON ACCOUNT OF PREMIUM WRITTEN OFF WAS ITA NO.4228/AHD /2007 DCIT VS. IDEAL PETRO PRODUCTS LTD. ASST.YEAR 2003-04 - 3 - INADMISSIBLE. ACCORDINGLY, THE CLAIM WAS DISALLOWE D AND THE ADDITION WAS MADE WHICH WAS CHALLENGED BEFORE THE FIRST APPE LLATE AUTHORITY. 3. THE LEARNED CIT(APPEALS) HAS EXAMINED THE FACTS OF THE CASE AND, THEREAFTER, RELYING UPON THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LT D. VS. CIT REPORTED AS 225 ITR 802 (SC) HAS ALLOWED THE CLAIM AS PER TH E FOLLOWING OBSERVATIONS:- 4.1. BEFORE ME THE AUTHORISED REPRESENTATIVE SUBMI TTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED THAT IN THE PAST THE APPELLANT HAD ISSUED 1730 OFCPN BON DS OF RS.1 LAC EACH IN THE YEAR 2002. IT WAS REDEEMABLE AT RS.1,35,000 BY 2007. THUS, THE PERIOD OF SUCH BOND WAS FIVE YE ARS. THEREFORE, THE PREMIUM PAYABLE @ RS.35,000 PER BOND WAS WRITTE N OFF PROPORTIONATELY DURING THE YEAR AS ALSO IN THE EARL IER YEAR. THE ASSESSING OFFICERS MAIN GRIEVANCE IS THAT THE PERS ON TO WHOM THE BONDS WERE ISSUED WERE NOT MENTIONED IN THE EXPLANA TION GIVEN BY HIM. HOWEVER, IT IS SUBMITTED THAT THESE BONDS WER E ISSUED IN THE PAST AND THE APPELLANT HAS WRITTEN OFF ONLY PREMIUM OVER THE PERIOD OF EXISTENCE OF BOND ON PROPORTIONATE BASIS. THUS, THIS QUERY OF THE ASSESSING OFFICER WAS NOT JUSTIFIED IN THIS YEAR. SO FAR AS THE USE OF SUCH FUNDS IS CONCERNED IT IS REF LECTED IN THE BALANCE SHEET BY WAY OF ASSETS OF THE APPELLANT COM PANY AND HENCE THERE IS NO JUSTIFICATION FOR HOLDING THAT TH E AMOUNT IS NOT ADMISSIBLE ON THIS GROUND. THE APPELLANT HAD ALREA DY EXPLAINED THAT IT WAS ENGAGED IN THE BUSINESS AND THIS BUSINE SS WAS ESTABLISHED IN THE PAST. THE DISALLOWANCE IS, THER EFORE, NOT JUSTIFIED. IT IS SUBMITTED THAT THE CLAIM OF DEDU CTION OF SUCH PREMIUM OVER THE PERIOD OF FIVE YEARS IS JUSTIFIED IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF MADRAS INDUST RIAL INVESTMENT CORPORATION LTD. 225 ITR 802. IT MAY AL SO BE APPRECIATED THAT THE PROPORTIONATE PREMIUM WRITTEN OF IN THE PAST HAS NOT BEEN DISALLOWED. CONSIDERING THE ABOVE FAC TS THE DISALLOWANCE MADE DESERVES TO BE DELETED. ITA NO.4228/AHD /2007 DCIT VS. IDEAL PETRO PRODUCTS LTD. ASST.YEAR 2003-04 - 4 - 4.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RISED REPRESENTATIVE CAREFULLY. RELYING ON THE DECISION OF SUPREME COURT DECISION IN THE CASE OF MADRAS INDUSTRIAL INV ESTMENT CORPORATION LTD. 225 ITR 802 THE PREMIUM PAYABLE HA S TO BE SPREAD OVER THE PERIOD OF BONDS. ACCORDINGLY THE A .O. IS DIRECTED TO ALLOW 1/5 TH OF PREMIUM BY SPREADING OVER THE PERIOD OF BONDS. THIS GROUND IS ALLOWED. 4. ON THE DATE OF HEARING, LEARNED DEPARTMENTAL REP RESENTATIVE HAS INFORMED THAT DUE TO THE CLOSURE OF THE BUSINESS, I T WAS DIFFICULT TO SERVE THE NOTICE BECAUSE THE WHEREABOUTS OF THE ASSESSEE COULD NOT BE TRACED. MAXIMUM THE REVENUE HAS IN THE PAST AFFIXED A NOTIC E ON THE LAST ADDRESS KNOWN TO THE DEPARTMENT. REQUISITE EVIDENCE IS ON RECORD. CONSIDERING THE CIRCUMSTANCES NARRATED BY THE REVENUE AND THE N ATURE OF THE DISPUTE AS RAISED IN THE GROUNDS OF APPEAL, WE DEEM IT JUST IFIABLE TO PROCEED WITH THE MATTER EX-PARTE QUA THE ASSESSEE, AFTER HEARING LEARNED DEPARTMENT AL REPRESENTATIVE. 5. ON HEARING LEARNED DEPARTMENTAL REPRESENTATIVE A S WELL AS ON CAREFUL PERUSAL OF THE ORDERS, WE ARE OF THE VIEW T HAT ONCE THE BONDS WERE ISSUED IN THE PAST, I.E. IN THE YEAR 2002, THEREFOR E, THE RELEVANCE OF THE QUERIES AS RAISED BY THE ASSESSING OFFICER WERE NOT SIGNIFICANT AS FAR AS THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E. ASSES SMENT YEAR 2003-04 WAS CONCERNED. THE ADMITTED POSITION IS THAT THE B ONDS IN QUESTION WERE REDEEMABLE IN THE YEAR 2007 AND THE PERIOD, THEREFO RE, WAS FIVE YEARS OF HOLDING. DUE TO THIS REASON, THE PREMIUM WHICH WAS PAYABLE BY THE ASSESSEE WAS WRITTEN OFF PROPORTIONATELY IN THE YEA RS OF HOLDING. WHETHER ITA NO.4228/AHD /2007 DCIT VS. IDEAL PETRO PRODUCTS LTD. ASST.YEAR 2003-04 - 5 - SUCH SPREAD OVER OF PREMIUM FOR THE PERIOD OF HOLDI NG WAS ALLOWABLE AS A BUSINESS EXPENDITURE HAS ALREADY BEEN DECIDED BY TH E HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION (1997) 225 ITR 802(SC), WHEREIN IT WAS HELD AS UNDER:- ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALL OWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT C ANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRI TTEN IT OFF IN HIS BOOKS, OVER A PERIOD OF YEARS. HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICUL AR YEAR TO SPREAD AND CLAIM IT OVER A PERIOD OF ENSUING YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT G IVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YE AR. ISSUING DEBENTURES IS AN INSTANCE WHERE, ALTHOUGH THE ASSES SEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN THE Y EAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO THE BUSINE SS OF THE COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOULD, THER EFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES. 5.1. THE ABOVE LANDMARK DECISION OF THE APEX COUR T HAS BEEN FOLLOWED SUBSEQUENTLY IN NUMBER OF DECISIONS, NAMELY, TAPARI A TOOLS LTD. VS. JT.CIT REPORTED AS 260 ITR 102 (BOM.). ACCORDING TO US, THE LEARNED CIT(APPEALS) HAS RIGHTLY FOLLOWED THE SAID DECISION OF THE HON'BLE ITA NO.4228/AHD /2007 DCIT VS. IDEAL PETRO PRODUCTS LTD. ASST.YEAR 2003-04 - 6 - SUPREME COURT. WE HEREBY AFFIRM THE VIEW TAKEN BY THE LEARNED CIT(APPEALS). THEREFORE, THE GROUND OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 31 ST MAY, 2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31 / 05 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD