Tamilnadu Small Industries Corporation Ltd., CHENNAI V. ACIT, CHENNAI

ITA 450/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77366 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B GOWTHAMAN
• Keywords: Depreciation
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 450/MDS/2013 ( / ASSESSMENT YEAR: 2007-08) TAMILNADU SMALL INDUSTRIES CORPORATION LTD. INDUSTRIAL ESTATE, GUINDY, CHENNAI-600 032. VS ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(1), NUNGAMBAKKAM HIGH ROAD, CHENNAI-600 034. PAN: AAACT1239K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. B.GOWTHAMAN, C.A /RESPONDENT BY : MR. SHAJI P.JACOB, ADDL. CIT / DATE OF HEARING : 8 TH MAY, 2014 /DATE OF PRONOUNCEMENT : 27 TH JUNE, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, CHENNA I DATED 20.12.2012. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS SUSTAINED THE ORDER PASSED BY THE ASSESSING OFFICER ERRED IN DISALLOWING OF ` 2 ITA NO. 450/MDS/20 13 5,09,22,000/- U/S.43B BEING INTEREST PAID TO GOVERNMENT OF TAMIL NADU. 2. THE APPELLANT COMPANY SUBMITS THAT DISALLOWANCE U/S.43B IS NOT APPLICABLE TO IT AS IT IS A GOVT. COMPANY. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS SUSTAINED THE ORDER PASSED BY THE ASSESSING OFFICER ERRED IN DISALLOWING OF ` 2,08,64,000/- U/S.43B BEING INTEREST PAID TO GOVERNMENT OF TAMIL NADU. 4. THE APPELLANT COMPANY SUBMITS THAT DISALLOWANCE U/S.43B IS NOT APPLICABLE TO IT AS IT IS A GOVERNMENT COMPANY. 5. THE APPELLANT COMPANY SUBMITS THAT THE AMOUNT SHOWN AS LOSS OF REVALUATION OF ` 2,08,000/- IS ACTUALLY DEPRECIATION ON LOOSE TOOLS LIKE DYES, BOOKS, LAB EQUIPMENTS ETC. HENCE THE SAME IS ALLOWABLE. 3. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE IS NOT PRESSING GROUND NO.5 OF GROUNDS OF APPEAL RELATING TO DISALLOWANCE OF DEPRECIATION ON LOOSE TOOLS. COUNS EL SUBMITS THAT THIS GROUND IS NOT PRESSED, AS THE COMMISSIONE R OF INCOME TAX (APPEALS) ALLOWED THE ISSUE BUT THE GROU ND WAS RAISED INADVERTENTLY. THEREFORE, GROUND NO.5 OF GRO UNDS OF APPEAL OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 3 ITA NO. 450/MDS/20 13 4. THE GROUNDS REMAINING FOR ADJUDICATION ARE GROUN D NO.1 AND 3. GROUND NO.1 OF THE GROUNDS OF APPEAL IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTA INING THE ORDER PASSED BY THE ASSESSING OFFICER IN DISALL OWING ` 5,09,22,000/- OUT OF PRIOR PERIOD EXPENSES UNDER SE CTION 43B BEING INTEREST PAID TO GOVERNMENT OF TAMIL NADU . 5. BRIEF FACTS ARE THAT ASSESSING OFFICER WHILE COM PLETING ASSESSMENT DISALLOWED ` 5,09,22,000/- OUT OF PRIOR PERIOD EXPENSES REPRESENTING PRIOR PERIOD INTEREST. ON AP PEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE OF PRIOR PERIOD EXPENSES BEING PRIOR P ERIOD INTEREST PAID BY THE ASSESSEE TO THE GOVERNMENT O F TAMIL NADU OBSERVING THAT LIABILITY CRYSTALLIZED ON 28.3. 2008 I.E. DURING FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSES SMENT YEAR 2008-09 WHEN THE ASSESSEE PAID INTEREST TO THE GOVERNMENT OF TAMIL NADU AND THEREFORE IF AT ALL IT IS ALLOWABLE IT IS ONLY ALLOWABLE IN THE FINANCIAL YEA R 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008-09 AND NOT DU RING THE ASSESSMENT YEAR 2007-08 WHERE THE ASSESSEE MADE A C LAIM. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OB SERVED 4 ITA NO. 450/MDS/20 13 THAT PRIOR PERIOD INTEREST EXPENSES OF ` 509.22 LAKHS ARE PAYABLE TO PUBLIC FINANCIAL INSTITUTIONS/ GOVERNMEN TAL BODIES AND HENCE ALLOWABILITY OF INTEREST PAYMENTS ARE GOV ERNED BY THE PROVISIONS OF SECTION 43B OF THE ACT. 6. COUNSEL FOR THE ASSESSEE SUBMITS THAT ENTIRE P RIOR PERIOD INTEREST OF ` 509.22 LAKHS WAS PAID TO GOVERNMENT OF TAMIL NADU AND SUCH PAYMENT IS NOT GOVERNED BY THE PROVISIONS OF SECTION 43B OF THE ACT AS IT WAS NOT PAID TO ANY PUBLIC FINANCIAL INSTITUTION OR GOVERNMENTAL BODIES . COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. THE KALLAKURICHI CO-OP. SUGAR MILLS PVT.LTD. IN ITA NO .1079 & 1081/MDS/2012 DATED 14.12.2012 SUBMITS THAT PAYMEN T OF INTEREST MADE TO GOVERNMENT OF TAMIL NADU GOVERNMEN T IS NOT HIT BY SECTION 43B OF THE ACT. COUNSEL FOR THE ASSESSEE SUBMITS THAT THOUGH THE GOVERNMENT HAD AGREED FOR WAIVER OF PART OF INTEREST DURING THE PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE G.O. COULD BE ISSUED ONLY AFTER THE PAYMENT OF BALANCE INTEREST O F ` 509.22 5 ITA NO. 450/MDS/20 13 LAKHS AND THEREFORE LIABILITY WAS CRYSTALLIZED IN T HE ASSESSMENT YEAR 2007-08 ITSELF. 7. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS) IN SUSTAINING THE DISALLOWANCE THIS YEAR. DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT ` 5,09,22,000/- IS PAYABLE TO PUBLIC FINANCIAL INSTITUTION / GOVERNMENTAL BODIES AND IS HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT AND THIS FACT IS TO BE VE RIFIED IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE THAT THIS INTEREST OF ` 509.22 LAKHS IS PAID ONLY TO THE GOVERNMENT OF TAMI L NADU. 8. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS INTER EST OF ` 509.22 LAKHS WAS PAID TO GOVERNMENT OF TAMIL NADU A ND THIS FACT IS ACCEPTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) HIMSELF. HOWEVER, HE HAS NO OBJECTION FOR VERIFICATION BY THE ASSESSING OFFICER AS TO WHETHER THE INTEREST WAS PAID TO GOVERNMENT OF TAMIL NADU AND I N WHICH CASE WHETHER THE PROVISIONS OF SECTION 43B ARE APPL ICABLE OR NOT? 6 ITA NO. 450/MDS/20 13 9. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT DISALLOWED ` 509.22 LAKHS OUT OF PRIOR PERIOD EXPENSES OF ` 1529.39 LAKHS DEBITED BY THE ASSESSEE DURING THIS ASSESSMENT YEAR. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT INTEREST EXPENSES BROUGHT F ORWARD FROM EARLIER YEARS ( PERIOD PRIOR TO 1.4.2006) AND DEBITED IN THE PROFIT AND LOSS ACCOUNT DURING THE FINANCIAL Y EAR 2006-07 ARE ` 1054.38 LAKHS. THE GOVERNMENT OF TAMIL NADU WAIVED ` 552.78 LAKHS PERTAINING TO THE PERIOD UPTO 2003-0 4 LEAVING BALANCE OF ` 509.22 LAKHS TO BE PAID BY THE ASSESSEE. THIS BALANCE INTEREST OF ` 509.22 LAKHS REPRESENTS INTEREST FOR THE FINANCIAL YEARS 2004-05 AND 2005-06 AND WAS DEBITE D TO THE PROFIT AND LOSS ACCOUNT IN THE FINANCIAL YEAR 2006- 07 AS PRIOR PERIOD INTEREST. THE COMMISSIONER OF INCOME TAX (A PPEALS) HELD THAT THE SAID EXPENSES ARE ALLOWABLE EITHER IN THE YEAR IN WHICH THE GOVERNMENT ISSUED G.O. OR IN THE YEAR IN WHICH PAYMENT WAS MADE BY THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT ASSESSEE HAS PAI D INTEREST ON 28.3.2008 AND BASED ON SUCH PAYMENT GOVERNMENT ISSUED G.O. FOR WAIVER OF INTEREST OF ` 552.78 7 ITA NO. 450/MDS/20 13 LAKHS PERTAINING TO FINANCIAL YEAR 2003-04 AND EARL IER YEARS. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED THAT PRIOR PERIOD INTEREST LIABILITIES HA VE BECOME CRYSTALLIZED AND PAID ON 28.3.2008 DURING THE FINA NCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008-09, T HOUGH THE G.O. WAS ISSUED ON 10.4.2008 WHICH FALLS IN THE NEXT FINANCIAL YEAR. THE COMMISSIONER OF INCOME TAX (APP EALS) THEREFORE CONCLUDED THAT IT IS RIGHT AND PROPER TO CLAIM THESE PRIOR PERIOD INTEREST EXPENSES IN THE FINANCIAL YEA R 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008-09. 10. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHE R OBSERVED THAT THESE PAYMENTS ARE PAYABLE TO THE PUB LIC FINANCIAL INSTITUTIONS / GOVERNMENTAL BODIES AND TH EY ARE GOVERNED BY THE PROVISIONS OF SECTION 43B OF THE AC T. THIS OBSERVATION OF THE COMMISSIONER OF INCOME TAX (APPE ALS) GOES CONTRARY TO THE FINDING THAT THE ASSESSEE PAID INTEREST TO THE GOVERNMENT OF TAMIL NADU. IN SO FAR AS THE OBSE RVATIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT TH ESE PAYMENTS ARE GOVERNED BY THE PROVISIONS OF SECTION 43B OF THE ACT ARE CONCERNED, WE ARE NOT IN AGREEMENT WITH THE COMMISSIONER OF INCOME TAX (APPEALS) AS PRIOR PERIO D 8 ITA NO. 450/MDS/20 13 INTEREST WAS PAID BY THE ASSESSEE TO THE GOVERNMEN T OF TAMIL NADU AND GOVERNMENT OF TAMIL NADU IS NOT A P UBLIC FINANCIAL INSTITUTION / GOVERNMENTAL BODY WHICH COM ES UNDER THE PROVISIONS OF SECTION 43B OF THE ACT. THE CO-OR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF THE KALLAKURI CHI CO-OP. SUGAR MILLS LTD. (SUPRA) OBSERVED THAT ANY AMOUNT P AYABLE TO A GOVERNMENT IS NOT HIT BY SECTION 43B OF THE ACT. THUS, THE OBSERVATION OF THE COMMISSIONER OF INCOME TAX (APPE ALS) THAT THESE INTEREST PAYMENTS MADE TO GOVERNMENT OF TAMIL NADU ARE HIT BY THE PROVISIONS OF SECTION 43B OF T HE ACT IS NOT CORRECT AND REVERSED. HOWEVER, WE AGREE WITH THE VI EW OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT PRIOR PER IOD INTEREST LIABILITY CRYSTALLIZED ON 28.3.2008 WHEN THE PAYMENT WAS MADE TO THE GOVERNMENT OF TAMIL NADU DURING THE FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT Y EAR 2008- 09 AND IS ALLOWABLE IN THE ASSESSMENT YEAR 2008-09 . 11. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN SUSTAINING THE ORDER PASSED BY THE ASSESSI NG OFFICER IN DISALLOWING ` 2,08,64,000/- UNDER SECTION 43B OF THE ACT BEING INTEREST PAID TO GOVERNMENT OF TAMIL NADU. TH E 9 ITA NO. 450/MDS/20 13 ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED ` 208.64 LAKHS OBSERVING THAT THE SAID AMOUNT WAS ONLY A PROVISION FOR PAYMENT AND AS PER THE PRO VISIONS OF SECTION 43B OF THE ACT ANY CLAIM OF INTEREST PAYMEN TS HAS TO BE ALLOWED ONLY ON ACTUAL PAYMENT EVEN THOUGH THE L OAN IS FROM PUBLIC SECTOR FINANCING BODIES, THEREFORE ASSE SSING OFFICER DISALLOWED THE SAID INTEREST AND ADDED BACK TO THE TOTAL INCOME. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ASSESSEE CONTENDED THAT OUT OF THE SAID INTEREST OF ` 208.64 LAKHS ` 24.74 LAKHS WAS ALREADY PAID DURING THE FINANCIAL YEAR 2006-07 ITSELF TO TUFIDCO AND NOTHI NG OUTSTANDING IN THE NAME OF TUFIDCO AS ON 31.3.2007 IN THE BALANCE SHEET. THE COMMISSIONER OF INCOME TAX (APPE ALS) CONSIDERING THE SUBMISSIONS DIRECTED THE ASSESSING OFFICER TO EXAMINE WHETHER THE SAID AMOUNT IS ALREADY PAID BY THE ASSESSEE TO TUFIDCO AND IF IT IS PAID BEFORE THE DU E DATE FOR FILING OF RETURN OF INCOME TO ALLOW THE SAID INTERE ST AS EXPENDITURE IN RESPECT OF THE BALANCE OF ` 183.90 LAKHS. 12. COUNSEL FOR THE ASSESSEE SUBMITS THAT COMMISSIO NER OF INCOME TAX (APPEALS) DISALLOWED THE SAID AMOUNT STA TING THAT 10 ITA NO. 450/MDS/2 013 PROVISIONS OF SECTION 43B OF THE ACT ARE ATTRACTED AND SINCE THE ASSESSEE HAS NOT PAID THE SAID AMOUNT BEFORE TH E DUE DATE FOR FILING OF RETURN, THE SAME IS TO BE DISALL OWED. COUNSEL SUBMITS THAT ` 183.90 LAKHS WAS PAID TO THE GOVERNMENT OF TAMIL NADU. SINCE THE INTEREST WAS PA ID TO GOVERNMENT OF TAMIL NADU, PROVISIONS OF SECTION 43B WERE NOT ATTRACTED. 13. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN SUSTAINING THE DISALLOWANCE. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT AS PER THE BREAK UP GIVEN BY THE COMMISSIONER OF INCOME TAX (APPEALS ) IN THE ORDER, THE SAID INTEREST WAS NOT ONLY PAID TO G OVERNMENT OF TAMIL NADU BUT EVEN TO OTHER FINANCIAL INSTITUTI ONS AND THEREFORE, THE FACT NEED TO BE VERIFIED BY THE ASSE SSING OFFICER. 14. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. WE HAVE ALREADY HELD THAT INTEREST PAID TO GOVERNME NT OF TAMIL NADU IS NOT HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT. IN THE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THIS MATTER SHOULD GO BACK TO THE ASSESSING OFFICER TO VERIFY 11 ITA NO. 450/MDS/2 013 AS TO WHETHER ASSESSEE PAID THE INTEREST OF ` 183.90 LAKHS TO GOVERNMENT OF TAMIL NADU OR TO ANY OTHER FINANCIAL INSTITUTION OR IT IS ONLY A PROVISION MADE. NEEDLES S TO SAY IF THIS AMOUNT IS PAID TO GOVERNMENT OF TAMIL NADU, TH E PROVISIONS OF SECTION 43B OF THE ACT HAVE NO APPLIC ATION TO SUCH PAYMENTS. THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY THE 27 TH DAY OF JUNE, 2014 AT CHENNAI. SD/- SD/- ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDR A PRASAD ) . ( ' )* ) ACCOUNTANT MEMBER / , JUDICIAL MEMBER/ ) , ) /CHENNAI, - /DATED, 27 TH JUNE, 2014 SOMU /0 10 /COPY TO: 1. APPELLANT 2. /RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .