M/s. Progressive Extraction & Export Ltd., Bhopal V. The ITO 2(3), Bhopal

ITA 52/IND/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6077 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 15-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S DESHPANDE
• Keywords: Reopening of assessment; Recovery proceedings; Business income; Depreciation; Business expenditure; Additional depreciation; Question of law; Non-deduction of tax; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 43B; 143(3); 142(1); 10B; 147; 148; 54; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO.52/IND/2014 A.Y. : 2004-05 PROGRESSIVE EXTRACTION & EXPORT LIMITED, ITO, 2(3), BHOPAL BHOPAL VS APPELLANT RESPONDENT I.T.A.NO. 71 & 169/IND/2014 A.Y. : 2004-05 ITO, 2(3), BHOPAL PROGRESSIVE EXTRACTION & EXPORT LIMITED, VS BHOPAL APPELLANT RESPONDENT PAN NO. AABCP8141P ASSESSEE BY : SHRI S.S.DESHPANDE, C. A. DEPARTMENT BY : SHRI R. A. VERMA, DR DATE OF HEARING : 04 . 0 4 .2016 DATE OF PRONOUNCEMENT : 20 . 0 5 .2016 I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 2 2 O R D E R PER D.T.GARASIA, J.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF CIT(A)-I, BHOPAL, DATED 29.11.2013 FOR THE ASSESSM ENT YEAR 2004-05. REVENUE IS ALSO IN APPEAL AGAINST THE ORDE R OF CIT(A)- I, BHOPAL, DATED 16.12.2013 AGAINST CANCELLATION OF PENALTY OF RS. 70,00,000/- BY THE LD. CIT(A) U/S 271(1)(C) OF THE INCOME- TAX ACT, 1961. 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE I S A LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXTRACTI ON OF SOYA OIL. THE ASSESSEE FILED ITS RETURN OF INCOME F OR ASSESSMENT YEAR 2004-05 ON 29.10.2004 DECLARING LOSS INCOME OF (-) RS. 18,38,060/-. THE CASE WAS REOPENED U/S 147 BY ISSUI NG NOTICE U/S 148 AND REASSESSMENT U/S 147 R.W.S. 143(3) WAS COMPLETED ON 31.12.2009 DETERMINING TOTAL INCOME AT RS. 14,03,200/-. SUBSEQUENTLY, THE AO NOTICED THAT THE ASSESSEE COMPANY HAD NOT FURNISHED THE DETAILS OF INTEREST P AYABLE TO STATE AND PUBLIC FINANCIAL INSTITUTIONS OR STATE IN DUSTRIAL DEVELOPMENT CORPORATION, WHEREAS THE ASSESSEE HAD DE BITED INTEREST AND FINANCIAL CHARGES OF RS. 1,94,39,019/- IN PROFIT AND LOSS ACCOUNT WHICH HAD NOT BEEN PAID AND REQUIRE D TO BE I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 3 3 DISALLOWED U/S 43B. THEREFORE, IN VIEW OF THE FAILUR E ON THE PART OF THE ASSESSEE TO DISCLOSED FULLY AND TRULY A LL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT, THE AO RECORDED THE REASONS THAT HE HAD REASON TO BELIEVE THAT INCOME C HARGEABLE TO TAX AMOUNTING TO RS. 1,94,39,019/- HAD ESCAPED ASSESSMENT. ACCORDINGLY, THE AO REOPENED ASSESSMEN T BY ISSUING NOTICE U/S 148 DATED 31.03.2011, WHICH WAS DU LY SERVED UPON THE ASSESSEE. THE ASSESSEE HAD NOT FURN ISHED ANY REPLY TO THE NOTICE U/S 148. SUBSEQUENTLY, THE AO H AD ALSO ISSUED NOTICES U/S 142(1) OF THE ACT, WHICH WERE SER VED ON THE ASSESSEE ON THE LAST KNOWN ADDRESS BY AFFIXTURE. IT WAS SPECIFICALLY POINTED OUT IN THE NOTICE THAT IN CASE OF NON- COMPLIANCE, EX-PARTE ASSESSMENT U/S 144 OF THE ACT SHALL BE MADE IN ITS CASE. THE ASSESSEE DID NOT COMPLY TO TH E NOTICES ISSUED. THEREFORE, THE AO COMPLETED THE ASSESSMENT EX-PARTE U/S 144 R.W.S 147 ORDER DATED 29.12.2011 MAKING AN A DDITION OF RS. 1,94,39,019/- ON ACCOUNT OF DISALLOWANCE OF I NTEREST PAYABLE U/S 43B TO THE FINANCIAL INSTITUTIONS. 3. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CI T(A) HAS HELD THAT INTEREST PAID AND BANK CHARGES OF RS. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 4 4 77,94,658/- WAS DELETED AND RS. 1,16,44,361/- WAS CON FIRMED BY THE LD. CIT(A) BY OBSERVING AS UNDER :- 4.6 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT, REMAND REPORT OF THE AO AND REJOINDE R OF THE APPELLANT. THE AO HAD MADE DISALLOWANCE U/S 43B OF THE TOTAL AMOUNT OF INTEREST AND FINANCIAL CHARGES AMOUNTING TO RS. 1,94,39,019/- DEBITED IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF NON- PAYMENT OF THESE EXPENSES DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 UNDER CONSIDERATION. FROM THE SUBMISSION OF THE APPELLANT , IT IS CLEAR THAT THE APPELLANT HAD PAID INTEREST AN D BANK CHARGES OF RS. 77,94,658/- DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, NO DISALLOWANCE U/S 43B CAN BE MADE ON INTEREST PAID TO MPFC, RELATED PARTIES AND ON VEHICLE LOAN AS WELL AS BANK CHARGES, WHICH WERE DULY PAID DURING THE YEAR UNDER CONSIDERATION. HENCE, THE DISALLOWANCE TO THE EXTEN T OF RS 77,94,658/- U/S 43B CANNOT BE SUSTAINED. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 5 5 THUS, THE DISALLOWANCE TO THE EXTENT OF RS. 77,94,658/- IS DELETED. IN REGARD TO THE BALANCE AMOUNT OF RS. 1,16,44,361/ - ( RS. 1,94,39,019 RS. 77,94,658), THE APPELLANT CLAIMED THAT THIS INTEREST WAS INCURRED FOR THE YEA R UNDER CONSIDERATION ON THE INTER CORPORATE DEPOSIT S OF RS. 675 LAKHS RECEIVED FROM MADHYA PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORATION (MPSIDC). IT WAS THE CONTENTION OF THE APPELLANT THAT THIS INTEREST WAS PAYABLE ON INTER CORPORATE DEPOSITS AN D THE TERMS DEPOSIT AND LOAN OR BORROWING CANNOT BE INTERCHANGED WITH EACH OTHER AND HAVE THEIR OWN DISTINCT MEANING AND, THEREFORE, INTEREST PAYABLE O N INTER CORPORATE DEPOSITS DOES NOT COME UNDER THE PURVIEW OF SECTION 43B. IN THIS REGARD, THE APPELLA NT ALSO REFERRED TO THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. STI PRODUCTS INDI A LIMITED IN I.T.A.NO. 1188/2006, 1193/2006 & 1073/2006 DATED 6.8.2012. BUT THIS SUBMISSION OF THE APPELLANT IS NOT FOUND TENABLE. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 6 6 4. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT SECTION 43B IS NOT APPLICABLE SINCE THE ASSESSEE HA S NOT OBTAINED ANY LOAN OR BORROWINGS. THIS IS ONLY A DEPO SIT AND SECTION 43B IS NOT ATTRACTED. THE LD.AUTHORIZED REP RESENTATIVE FOR THE ASSESSEE HAS ALSO FILED WRITTEN SUBMISSION, WHICH READS AS UNDER :- SOME BRIEF FACTS OF THE CASE ARE STATED HEREUNDER . THE APPELLANT IS A LIMITED COMPANY DERIVING INCOME FROM EXTRACTION OF SOYA OIL. THE RETURN OF INCOME W AS FILED DECLARING THE LOSS OF RS. 18,38,036/-. THE ORIGINAL ASSESSMENT WAS COMPLETED ON 26.12.2006 U/S 143(3) ON THE TOTAL INCOME OF RS NIL AFTER THE SET OFF OF EAR LIER LOSSES. SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED U/S 147 AND A FRESH ASSESSMENT WAS MADE ON 31/12/2009 DISALLOWING THE ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE, THE ASSESSMENT WAS AGAIN REOPENED ON 31.03.2001 ON THE GROUND THAT THERE IS AN ESCAPEMENT OF THE INCOME U/S 43B SINCE THE INTEREST HAS NOT BEEN PAID DURING THE YEAR. THE LD. AO MADE THE I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 7 7 ADDITION OF RS 1,94,39,019/-. THE LD AO ISSUED THE NOTICES BUT THE SAME COULD NOT BE SERVED AND ATTEND ED, SINCE THE ASSESSEE HAD CLOSED ITS BUSINESS AND THE LAST NOTICE WAS SERVED BY AFFIXTURE. THE ASSESSMENT THEREAFTER WAS COMPLETED U/S 144. THE REASONS FOR ISSUING THE SECOND REOPENING NOTICE WAS THAT THE ASSESSEE DID NOT MAKE THE INTEREST PAYMENT WITHIN T HE STIPULATED PERIOD AND AS SUCH SEC 43B IS APPLICABLE . THIS WAS DONE ON THE BASIS OF TAX AUDIT REPORT ITEM NO. XI, WHICH WAS FILED AT THE TIME OF THE ORIGINAL ASSESSMENT. THE LD AO OBSERVED THAT IT IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS AND AS SUCH THE ASSESSMENT IS REOPEN ED. IT IS HUMBLY SUBMITTED THAT THE SAID NOTE WAS ALREA DY THERE IN THE TAX AUDIT REPORT. THE SAID NOTE WAS AL SO FORMS PART OF THE NOTES AND ACCOUNTS. THUS, IT IS SUBMITTED THAT ALL NECESSARY MATERIAL REQUIRED FOR THE PURPOSE OF ASSESSMENT WAS TRULY AND FULLY DISCLOSED BY THE ASSESSEE AND AS SUCH THE REOPENING IS BAD IN LAW. NO FRESH INFORMATION WAS RECEIVED BY THE AO AN D I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 8 8 ON THE BASIS OF THE INFORMATION ALREADY IN EXISTENC E IN THE FILE THE ASSESSMENT HAS BEEN REOPENED. THE MATERIAL ON THE RECORD HAS BEEN MADE THE REASON FOR REOPENING THE ASSESSMENT. THIS WAS MERELY A CHANGE OF OPINION. ATTENTION IS DRAWN TO THE FOLLOWING JUDGMENTS: CIT V/S KELVINATOR, 320 ITR P 561 (SC) CIT V/S TRIMURTI BUILDERS 246 CTR 308 RABO INDIA V/S DCIT 346 ITR P 528 (BOM) SOME OTHER JUDGMENTS ARE AS UNDER: RUBAMIN LTD. VIS. LOVE KUMAR (253 ITR 432) (GUJ.) THE ASSESSING OFFICER DISALLOWED EXPORT COMMISSION MADE BY THE ASSESSEE FOR THE A.Y. 2005-06. THE DISALLOWANCE WAS MADE U/S. 40A(2)(B). THE TRIBUNAL ALLOWED IT. THE DEPARTMENT HAD ISSUED CERTIFICATE U/S. 197(1) FOR NON-DEDUCTION OF TAX. THE A.O. REOPENED THE ASSESSMENT IN SEPT. 2009 FOR DISALLOWING COMMISSION U/S. 40(A)(IA). HELD, THE REOPENING OF ASSESSMENT IS BAD IN LAW. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 9 9 ASHWAMEGH CO-OPERATIVE HOUSING SOCIETY V/S. DCIT (353 ITR PAGE 413) (GUJ.) THE ASSESSEE SHOWED THE CAPITAL GAIN ON SALE OF LAN DED PROPERTIES FOR THE A.Y. 2007-08. ASSESSMENT WAS FRAMED U/S. 143(3) ACCEPTING THE INCOME OF THE ASSESSEE AS CAPITAL GAIN. THE NOTICE WAS ISSUED TO REOPEN THE ASSESSMENT ON 29.03.2012 FOR TREATING TH IS INCOME AS BUSINESS INCOME. IT WAS HELD THAT REOPENI NG EVEN WITHIN FOUR YEARS WOULD NOT BE PERMISSIBLE ON A MERE CHANGE OF OPINION. THE ASSESSING OFFICER HAD EXAMINED THE ENTIRE CLAIM AND FRAMED THE ASSESSMENT . DEVIATION FROM HIS DECISION AMOUNTED TO A CHANGE OF OPINION. CIT V/S. TRIMURTI BUILDERS (M.P.) (246 CTR PAGE 308 ) THE RETURN FOR THE A.Y. 2001-02 WAS FILED CLAIMING THE BUSINESS EXPENSES WHICH WAS ACCEPTED U/S. 143(1). THE ASSESSMENT WAS REOPENED WITHIN FOUR YEARS ON TH E GROUND THAT THE BUSINESS EXPENSES COULD NOT BE ALLOWED AS NO BUSINESS WAS CARRIED ON. IN THE EARLI ER YEAR AND SUBSEQUENT YEAR SUCH EXPENSES WERE CLAIMED I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 10 10 AND ALLOWED. THERE IS NO FRESH MATERIAL AVAILABLE BEFORE THE A.O. AND AS SUCH REOPENING IS BAD IN LAW - NO QUESTION OF LAW ARISES. METAL ALLOYS CORPORATION V/S. ACIT (350 ITR 245) (G UJ.) FOR THE A.Y. 2007-08, THE ASSESSEE FILED RETURN CLAIMING THE DEDUCTION U/S. 10 B. THIS WAS PROCESSED U/S. 143(1). ON NOVEMBER 9, 2011, NOTICE U/S. 148 WAS ISSUED ON THE GROUND THAT THE DEDUCTION U/S. 10B WAS ALLOWED WRONGLY IN VIEW OF PROVISIONS OF SECTIO N 10B(2). IT WAS HELD THAT IT IS MERE CHANGE OF OPINI ON AND THE REOPENING IS BAD IN LAW. MRS. PARVEEN P. BHARUCHA V/S. CIT (348 ITR PAGE 325 ) (MUMBAI) : REASSESSMENT- NOTICE- BENEFIT OF SECTION 54 EC GRAN TED TAKING INTO ACCOUNT INVESTMENT OF EARNEST MONEY BEF ORE DATE OF TRANSFER OF ASSETS FOR THE A.Y. 2006-07. ASSESSMENT WAS COMPLETED U/S. 143(3) ALLOWING THE CLAIM OF THE ASSESSEE. REOPENING OF ASSESSMENT TO D ENY BENEFIT ON 31.03.2011. HELD, THAT THE REOPENING I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 11 11 AMOUNTS TO CHANGE OF OPINION ON SAME FACTS AND IS N OT PERMISSIBLE. CIT V/S. USHA INTERNATIONAL (348 ITR PAGE 485) (DEL . FB) REASSESSMENT - VALIDITY - CHANGE OF OPINION - MEANI NG OF - APPLICABILITY OF SECTION 114(E) OF EVIDENCE AC T- INCOME-TAX ACT, 1961, SECTION 147 EVIDENCE ACT, 187 2, SECTION 114. NDT SYSTEMS V/S. ITO (255 CTR PAGE 113) (BORN.) REASSESSMENT - CHANGE OF OPINION - ABSENCE OF TANGI BLE MATERIAL - EVEN IN CASE OF REOPENING OF ASSESSMENT WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE AO HAS TO HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON THE BASIS OF TANGIBLE MATERIAL. ASSESSMENT FOR THE A.Y. 2007-08 WAS COMPLETED U/S. 143(3). ON 20.03.2012, THE ASSESSMENT WAS REOPENED ON THE GROUND THAT THE ASSESSEE DID NOT DEDUCT TDS ON LABOUR CHARGES AND AS SUCH THE SAME ARE DISALLOWABL E U/S. 40(A)(IA). HELD - THE ASSESSEE DISCLOSED ALL MATERI AL I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 12 12 FACTS NECESSARY FOR DETERMINATION OF THE INCOME AND THE ASSESSMENT ORDER WAS PASSED. THERE IS NO FRESH TANGIBLE MATERIAL WHICH WOULD WARRANT TAKING A VIEW DIFFERENT FROM THE ONE TAKEN DURING THE REGULAR ASSESSMENT PROCEEDINGS. THAT APART, REASONS FOR REOPENING CANNOT BE SUPPLEMENTED IMPROVED UPON LATE R. IT WAS A MERE CHANGE OF OPINION AND THE REOPENING W AS NOT THEREFORE SUSTAINABLE. VISHWANATH ENGINEERS V/S. ACIT (354 ITR PAGE 211) (GUJ.) FOR THE A.Y. 2006-7, ASSESSMENT WAS FRAMED U/S. 143(3). THEREAFTER, ON 19.04.2010, NOTICE U/S. 148 WAS ISSUED ON THE GROUND THAT THE EXPENDITURE OF RS. 7,50,771/- FOR MAINTENANCE CONTRIBUTION WAS NOT RELATING TO THE BUSINESS OF THE ASSESSEE AND HENCE, NOT ALLOWABLE. HELD - THAT IT IS NOT OPEN TO THE ASSESS ING OFFICER TO RE-EXAMINE THE QUESTION. ANY ATTEMPT TO DO SO WOULD BE BASED ONLY ON A CHANGE OF OPINION. REOPENI NG OF ASSESSMENT EVEN WITHIN FOUR YEARS WOULD NOT BE PERMISSIBLE. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 13 13 MARUTI SUZUKI V/S. DCIT (356 ITR PAGE 2 09) BAD DEBT ALLOWED IN ORIGINAL ASSESSMENT BY RAISING A SPECIFIC QUERY ABOUT ADVANCES. SUBSEQUENTLY, NOTICE U/S. 148 WAS ISSUED WITHIN FOUR YEARS ON THE GROUND THAT THE SAME IS NOT ALLOWABLE. HELD - THIS WAS MER E A CHANGE OF OPINION. THE NOTICE OF REASSESSMENT IS NO T VALID. IN VIEW OF THE ABOVE IT IS PRAYED THAT THE REOPENIN G OF THE ASSESSMENT IS BAD IN LAW AND DESERVES TO BE ANNULLED. EVEN ON MERITS IT IS SUBMITTED THAT SEC 43B IS NOT APPLICABLE SINCE THE ASSESSEE HAS NOT OBTAINED ANY LOAN OR BORROWINGS. THIS IS A DEPOSIT AND THE PROVISIONS OF SEC 43B ARE NOT ATTRACTED. ATTENTION IS DRAWN TO THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V/S STI PRODUCT (PAGE 61 OF PB) WHEREIN THE COU RT HAS HELD THAT ON THE INTEREST ON ICD NO DISALLOWANC E CAN BE MADE. THE ASSESSEE' HAS TAKEN A DEPOSIT WHICH IS EVIDENT FROM THE NOTE AT PAGE 43 AND THE LETTERS FR OM THE M.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION AT PA GE I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 14 14 58 TO 60 OF PB IN VIEW OF THE ABOVE THE ADDITIONS MADE MAY PLEASE BE DELETED. 5. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO RELIED U PON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. STI PRODUCT, WHEREIN THE COURT HAS HELD THAT ON THE INTEREST ON ICD NO DISALLOWANCE CAN BE MADE. THE ASS ESSEE HAS TAKEN A DEPOSIT, WHICH CAN BE GATHERED FROM THE LETTERS FROM M.P.STATE INDUSTRIAL DEVELPMENT CORPORATION AT PAGE 58 TO 60 OF THE PAPER BOOK. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON TH E ORDER OF AO. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE AO WAS OF THE VIEW THAT THE ASSESSEE C OMPANY HAS DEBITED INTEREST AND FINANCIAL CHARGES TO THE T UNE OF RS. 1,94,39,019/- IN THE PROFIT AND LOSS ACCOUNT, WHICH HAS NOT BEEN ACTUALLY PAID WHICH WAS REPORTED IN ITS TAX AUDI T REPORT ANNEXURE TO THE AUDIT REPORT ITEM (XI). THE UNP AID FINANCIAL I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 15 15 CHARGES ARE COVERED UNDER PROVISIONS OF SECTION 43B OF THE INCOME-TAX ACT ARE ALLOWABLE ONLY ON PAYMENT BASIS. 8. THE LD. CIT(A) HAS CONSIDERED THIS AMOUNT AS LOAN O N THE GROUND THAT THE ASSESSEE HAD RECEIVED THE INTER CORPORATE DEPOSIT FROM MPSIDC, BUT THE ASSESSEE HAD NOT REPAI D THIS AMOUNT ON MATURITY PAYMENT OF THIS INTER CORPORATE DEPOSIT, WHICH IS EVIDENT FROM PARA (IX) OF ANNEXURE TO AUDIT ORS REPORT, WHICH CLEARLY STATES THAT DUE DATE FOR PAYME NT OF INTER CORPORATE DEPOSIT WAS 31 ST MARCH, 2011, AND ALL THE PAYMENTS ON ACCOUNT OF THESE INTER CORPORATE DEPOSITS HAD BE COME OVERDUE AND ON MATURITY OF PERIOD OF INTER CORPORAT E DEPOSITS, THE AMOUNT BORROWED BECOMES A NORMAL OVERDUE AND ON MATURITY OF PERIOD OF INTER-CORPORATE DEPOSIT, THE AMOUNT BORROWED BECOME A NORMAL DEBT. THE PERSON LENDING T HE LOAN CAN DEMAND THE SAME AT ANY TIME IT BECOMES CURRENT LIABILITY. IN THIS CASE, THE INTER CORPORATE DEPOSIT HAS BECOM E A NORMAL DEBT AS A LOAN FROM MPSIDC, WHICH IS CLEAR FROM THE FACTS THAT MPSIDC HAD REGISTERED A CASE AGAINST THE ASSESSEE C OMPANY FOR RECOVERY OF INTER CORPORATE DEPOSIT AND IT IS E VIDENT FROM I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 16 16 PARA (3) & (4) OF THE NOTES TO ACCOUNTS OF SCHEDULE -N OF FINAL ACCOUNTS, WHICH READ AS UNDER :- 3. MADHYA PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED (MPSIDC) HAD GOT A REVENUE RECOVERY CERTIFICATE ISSUED THROUGH THE TEHSILDAR O N 27.4.2004 AND THE COLLECTOR, RAISEN HAD REGISTERED A CASE AGAINST THE COMPANY INITIATING RECOVERY PROCEEDINGS FOR RECOVERY OF INTER CORPORATE DEPOSIT S PLACED WITH THE COMPANY BY MPSIDC. ON PETITION BY THE COMPANY BEFORE THE REVENUE BOARD, GWALIOR, UNDER SECTION 50 READ WITH SECTION 8 OF MPLR CODE, THE BOARD HAS QUASHED THE RJFRC ON 7.7.2004 SINCE THE SAME HAS BEEN INCORRECTLY REGISTERED AGAINST TH E COMPANY UNDER THE PROVISIONS OF THE M.P. LOK DHAN (SHODHYA RASHIYON KI VASULI) ADHINIYAM,1987. 4. THE STATE ECONOMIC OFFENCE INVESTIGATION BUREAU OF MADHYA PRADESH HAS FILED A FIRST INFORMATION REPORT ON 25.07.2004 AGAINST VARIOUS OFFICERS OF MPSIDC AND DIRECTORS OF THE COMPANY AMONG VARIOUS OTHER COMPANIES ALLEGING I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 17 17 ADMINISTRATIVE AND FINANCIAL IRREGULARITIES IN THE PLACEMENT OF INTER-CORPORATE DEPOSITS BY MPSIDC WITH THE COMPANIES. THE COMPANY HAS FILED A PETITION FOR QUASHING OF THE CRIMINAL PROCEEDINGS. 9. MADHYA PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED HAD GOT A REVENUE RECOVERY CERT IFICATE THROUGH TEHSILDAR AND COLLECTOR, RAISEN, HAD REGIST ERED A CASE AGAINST THE COMPANY FOR INITIATING THE RECOVERY PRO CEEDINGS FOR RECOVERY OF INTER CORPORATE DEPOSIT PLACED WITH THE COMPANY BY MPSIDC. ON PETITION BY THE COMPANY BEFORE THE R EVENUE BOARD, GWALIOR, THE BOARD HAS QUASHED RRC ON 7.7.20 04. SAME HAS BEEN INCORRECTLY REGISTERED AGAINST THE CO MPANY UNDER THE PROVISIONS OF M.P. LOK DHAN (SHODHYA RASH IYON KI VASULI) ADHINIYAM,1987. THE STATE ECONOMIC OFFENCE INVESTIGATION BUREAU OF MADHYA PRADESH HAS FILED TH E FIR AGAINST VARIOUS OFFICERS OF MPSIDC AND DIRECTORS OF THE COMPANY AMONG VARIOUS OTHER COMPANIES ALLEGING ADMINISTRATIVE AND FINANCIAL IRREGULARITIES IN THE PLACEMENT OF INTER-CORPORATE DEPOSITS BY MPSIDC WITH THE COMPANI ES. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 18 18 FROM THE ABOVE FACTS, THE LD. CIT(A) WAS OF THE VIEW THAT CHARACTER OF THE TRANSACTION WHICH WAS EARLIER INTER CORPORATE DEPOSIT HAS CHANGED TO LOAN AFTER IT BECOMES DUE ON MATURITY. IT BECAME A DEBT AND LIABILITY INCURRED TO REPAY TH E AMOUNT FORM THE DEBT WHEN THE PERIOD FOR WHICH THE MONEY HAS BEEN DEPOSITED HAS EXPIRED. SINCE THE AMOUNT OF RS. 675 LAKHS TAKEN FROM MPSIDC HAS INTER CORPORATE DEPOSIT BECAM E A DEBT AFTER THE MATURITY PERIOD, IT FALLS WITHIN THE PURVI EW OF EXPRESSION LOAN OR BORROWING AS ENVISAGED IN SECTI ON 43B. THEREFORE, THE LD. CIT(A) WAS OF THE VIEW THAT INTERE ST INCURRED ON THE LOAN TOWARDS MPSIDC WHICH WAS NOT PAID BEFORE THE DUE DATE WAS LIABLE FOR DISALLOWANCE U/S 43B FOR ASS ESSMENT YEAR 2004-05 AND SAME WAS NOT PAID BY THE ASSESSEE AND THE SAME INTEREST EXPENSES ON LOANS AND BORROWINGS WAS N OT PAID BY THE ASSESSEE COMPANY ON OR BEFORE THE DUE DATE A S SPECIFIED IN SECTION 43B. HENCE, THE DISALLOWANCE TO THE EXTENT OF RS. 1,16,44,361 WAS CONFIRMED. THIS FACT IS BROUG HT BY THE LD. CIT(A) BY CALLING A REMAND REPORT FORM THE AO. THE LD.AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIE D UPON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 19 19 VS. STI PRODUCTS INDIA LIMITED IN I.T.A.NO. 1188/20 06, 1193/2006 & 1073/2006 DATED 6.8.2012, WHEREIN THE FA CTS OF THIS CASE ARE ENTIRELY DIFFERENT AND WHEREIN THE HON 'BLE COURT HAS HELD THAT INTER CORPORATE DEPOSITS GIVEN BY MPS IDC ARE IN THE NATURE OF DEPOSIT AND CANNOT BE CALLED AS LOANS AND BORROWINGS AND HENCE INTEREST ON SUCH DEPOSITS CANNO T BE DISALLOWED U/S 43B. IN THE CASE ON HAND, THE STATE ECONOMIC OFFENCE INVESTIGATION BUREAU OF MADHYA PRADESH HAS FILED FIR AGAINST VARIOUS OFFICERS OF MPSIDC AND DIRECTORS OF THE COMPANY FOR ALLEGING FINANCIAL IRREGULARITIES. THER EFORE, MADHYA PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORA TION LIMITED GOT A REVENUE RECOVERY CERTIFICATE ISSUED T HROUGH TEHSILDAR ON 27.04.2004 AND COLLECTOR, RAISEN, HAD REGISTERED A CASE AGAINST THE COMPANY AND INITIATED THE RECOVE RY PROCEEDINGS OF INTER CORPORATE DEPOSIT PLACED WITH T HE COMPANY BY MPSIDC. THEREFORE, THESE FACTS ARE NOT B EFORE THE HON'BLE KARNATAKA HIGH COURT. THEREFORE, THE DECISI ON OF HON'BLE KARNATAKA HIGH COURT WILL NOT BE HELPFUL TO THE ASSESSEE. MOREOVER, WE FIND THAT THE LD. CIT(A) HAS CONSIDERED I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 20 20 THE A NEW CLAUSE (D), WHICH WAS INSERTED IN SECTION 43 B BY THE FINANCE ACT, 1988, WHICH READS AS UNDER :- CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. 43B NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A). (B). (C). (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 S TATE INDUSTRIAL INVESTMENT CORPORATION, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING OR (E). . . (F). . .. SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 21 21 THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS Y EAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM: IT MAY ALSO BE RELEVANT TO REPRODUCE THE RELEVANT PORTION OF EXPLANATORY CIRCULAR NO. 528 DATED 16.12.1988 ISSUED BY THE BOARD EXPLAINING THE AMENDMENT MADE BY THE FINANCE ACT, 2008, WHICH, INTER-ALIA, EXPLAINED THE INTENT AND OBJECT OF INSE RTING OF CLAUSE (D) IN SECTION 43B AS UNDER :- 21.3 A MARKED TENDENCY HAS BEEN NOTICED THAT ON ONE PRETEXT OR THE OTHER SOME TAXPAYERS POSTPONE THE PAYMENT OF INTEREST ON LOANS PROVIDED BY THE VARIOUS FINANCIAL INSTITUTIONS AND THUS THE MONEY RECOVERABLE BY THESE INSTITUTIONS IS USED FOR BUSIN ESS PURPOSES EVEN THOUGH IT HAS BEEN CLAIMED AS A DEDUCTION FROM THE INCOME. WITH A VIEW TO IMPROVE THE LIQUIDITY POSITION OF THE PUBLIC FINANCIAL INSTITUTIONS AND TO PREVENT MISUSE OF THE LIMITED RESOURCES OF FINANCE AVAILABLE TO TRADE AND INDUST RY, I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 22 22 SECTION 43B OF THE ACT HAS BEEN AMENDED TO PROVIDE THAT ANY SUM PAYABLE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTIONS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING, SHALL NOT BE ALLOWED AS A DEDUCTION IF THE SAME IS NOT ACTUALLY PAID BEFORE THE DUE DATE APPLICABLE IN THI S CASE FOR FURNISHING THE RETURN OF INCOME. AS PER TH E NEW EXPLANATION 3 TO SECTION 43B OF THE INCOME-TAX ACT, 1961, THE TERM PUBLIC FINANCIAL INSTITUTION SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN SECTION 4A OF THE COMPANIES ACT, 1956. 21.4 THESE AMENDMENTS WILL COME INTO FORCE WITH EFFECT FROM 1 ST APRIL, 19890, AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 1989-90 AND SUBSEQUENT YEAR. 10. THEREFORE, THIS INTRODUCTION OF CLAUSE (D) WITH A V IEW TO IMPROVE THE LIQUIDITY POSITION OF THE PUBLIC FIN ANCIAL INSTITUTIONS AND TO PREVENT MISUSE OF THE LIMITED R ESOURCE OF FINANCE AVAILABLE TO TRADE AND INDUSTRY. IT WAS PROV IDED THAT I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 23 23 ANY SUM PAYABLE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTIONS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING, SHALL NOT BE ALLOWED AS A DEDUCTION IF TH E SAME IS NOT ACTUALLY PAID BEFORE THE DUE DATE. WE FIND THAT WHETHER ANY TRANSACTION IS A LOAN OR DEPOSIT, WHICH DEPENDS UPON SURROUNDING CIRCUMSTANCES, RELATION AND CHARACTER O F TRANSACTION. NOW CONSIDERING THIS PROPOSITION, THE LD. CIT(A) WAS OF THE VIEW THAT AUDITORS REPORT CLEARLY STATES THAT DUE DATE FOR PAYMENT OF CORPORATE DEPOSITS HAD BECOME O VERDUE AND AFTER THE MATURITY PERIOD OF INTER CORPORATE DE POSIT, THE AMOUNT BECOMES A NORMAL DEBTS AND LENDING THE SAME CAN BE DEMANDED AT THE TIME AS IT BECOMES A CURRENT LIABIL ITY OF THE BORROWER. THEREFORE, CONSIDERING THESE FACTS, THE L D. CIT(A) IS JUSTIFIED IN HIS ACTION. THE LD. CIT(A) HAS ALLOWED THE BANK CHARGES OF RS. 77,94,658/-, WHICH HAS BEEN PAID DURI NG THE YEAR UNDER CONSIDERATION. THEREFORE, WE ARE OF THE V IEW THAT THE LD. CIT(A) IS JUSTIFIED IN HIS ACTION AND DEPAR TMENT HAS NO CASE. THEREFORE, THE DEPARTMENTS APPEAL IS DISMISS ED AND ASSESSEES APPEAL IS ALSO DISMISSED. I.T.A.NOS. 52, 71 & 169/IND/2014 A.YS.2004-05 M/ S.PROGRESSIVE EXTRACTION & EXPORT PVT.LTD., BHOPAL VS. ITO, 2(3), BHOPAL 24 24 11. SINCE WE HAVE DISMISSED THE QUANTUM APPEAL OF THE ASSESSEE, THE REVENUES APPEAL FILED AGAINST THE CA NCELLATION OF THE PENALTY HAS BECOME INFRUCTUOUS. CONSEQUENTLY, T HE APPEAL FILED BY THE DEPARTMENT IN I.T.A.NO. 169/IND/2014 IS ALSO DISMISSED. 12. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.52/IND/2014 AND REVENUES APPEAL IN I.T.A. NO. 71/IND/2014 BOTH ARE DISMISSED. REVENUES APPEAL FI LED IN I.T.A.NO. 169/IND/2014 IS ALSO DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 20 TH MAY, 2016. CPU*