GANJAM TRADING CO. P.LTD, MAHARASHTRA V. ITO 6(3)-1, MUMBAI

ITA 5368/MUM/2011

• Counselvise Citation: 536819914 RSA 2011
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-11-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 15-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: FIROZE ANDHYARUJINA; B S SHARMA
• Keywords: Proportionate interest; Speculation loss; Notional interest
• Section: 43B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.5368/MUM/2011 ( ! ' # / ASSESSMENT YEAR :2004-05) GANJAM TRADING CO.PVT.LTD. NEW PRAKASH CINEMA BLDG, N M JOSHI MARG, LOWER PAREL, MUMBAI-400011 / VS. INCOME TAX OFFICER, 6(3)1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( $% / APPELLANT) .. ( &'$% / RESPONDENT) $ ./ ( ./ PAN/GIRNO.:AAACG3975H $% ) / APPELLANT BY : SHRI FIROZE ANDHYARUJINA AND SHRI B S SHARMA &'$% * ) /RESPONDENT BY : SHRI DURGA DUTT + , * - . / DATE OF HEARING : 15.7.2014 /0#' * - . /DATE OF PRONOUNCEMENT : 12.9.2014. / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 04- 02-2011 PASSED BY LD CIT(A)-VI, MUMBAI AND IT RELAT ES TO THE ASSESSMENT YEAR 2004-05. 2. AT THE TIME OF HEARING, THE LD A.R SUBMITTED THA T THE GROUND NO.1 RELATING TO SPECULATION LOSS WAS DECIDED AGAINST THE ASSESSE E BY THE TRIBUNAL IN ITS ORDER DATED 20-07-2012 PASSED FOR AYS 2001-02 TO 2003-04 RESPECTIVELY IN ITA NO. 3724/MUM/2005, 932/MUM/2006 AND 1382/MUM/2007. THE LD A.R ALSO FURNISHED A COPY OF THE ORDER PASSED BY THE TRIBUNA L. WE NOTICE THAT THE ISSUE I.T.A. NO.5368/MUM/2011 2 URGED IN GROUND NO.1 RELATES TO THE VIEW TAKEN BY T HE ASSESSING OFFICER TO TREAT THE FOLLOWING ITEMS AS FALLING UNDER THE CATEGORY O F SPECULATION LOSS:- FALL IN THE MARKET VALUE OF SHARES 64,025 PROFIT ON SALE OF SHARES 58,405 NOTIONAL INTEREST 3,00,59,387 (RESTRICTED TO RS.1,51,79,050/-) THE LD D.R ALSO ACCEPTED THE FACTUAL ASPECT SUBMITT ED BY LD A.R. HENCE, CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE B ENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE RELATING TO EARLIER YEARS (REFE RRED SUPRA), WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE AND ACCORDINGLY TH IS ISSUE IS DECIDED AGAINST THE ASSESSEE. 3. THE GROUND NO.2 RELATES TO THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS.3,24,09,653/- U/S 36(1)(III) OF THE ACT. THE GR OUND NO.3 RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. BOTH THE PART IES AGREED THAT IDENTICAL ISSUES WERE CONSIDERED BY THE CO-ORDINATE BENCH IN ITS ORDER, REFERRED SUPRA, AND BOTH THE ISSUES WERE SET ASIDE TO THE FILE OF THE A O FOR CONSIDERING THEM AFRESH. ACCORDINGLY, BOTH THE PARTIES AGREED THAT THESE ISS UES MAY BE SET ASIDE TO THE FILE OF THE AO IN THIS YEAR ALSO. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THE ABOVE SAID TWO ISSUES AND RESTORE THE M TO THE FILE OF THE AO FOR CONSIDERING THEM AFRESH IN THE LIGHT OF DISCUSSIONS MADE BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE EARLIER YEARS. 4. THE GROUND NO.4 RELATES TO THE DISALLOWANCE O F INTEREST CLAIM OF RS.1.74 CRORES UNDER SEC. 43B OF THE ACT R.W. EXPLANATION 3 C THERETO. THE FACTS RELATING TO THE SAME ARE DISCUSSED IN BRIEF. THE ASSESSEE H AD BORROWED FUNDS FROM TIME TO TIME FROM M/S ESSEL PROPACK LTD (FORMERLY KNOWN AS ESSEL PACKAGING LTD) AND I.T.A. NO.5368/MUM/2011 3 SUCH BORROWALS STOOD AT RS.9,18,74,719/- AS ON 1.4. 1997. IT APPEARS THAT M/S ESSEL PROPACK LTD HAD AVAILED SALES TAX DEFERRAL S CHEME ANNOUNCED BY THE GOVERNMENT OF MAHARASHTRA. ACCORDING TO THE ABOVE SAID SCHEME, THE SALES TAX COLLECTED BY THE BUSINESS ENTITIES DURING A PARTICU LAR PERIOD CAN BE RETAINED BY THEM AND THE AMOUNT SO RETAINED SHALL BE PAID TO TH E ACCOUNT OF GOVERNMENT IN ANNUAL INSTALLMENTS SUBSEQUENT TO THE EXPIRY OF PRE SCRIBED COOLING PERIOD. UNDER THE ABOVE SAID SCHEME FRAMED BY THE GOVERNMEN T OF MAHARASHTRA, M/S ESSEL PROPACK LTD WAS REQUIRED TO PAY A SUM OF RS.2 4,37,23,930/- IN YEARLY INSTALLMENTS BEGINNING FROM 2003 TO 2010. IT APPEA RS THAT AN ENTITY NAMED SICOM WAS DESIGNATED BY GOVT. OF MAHARASHTRA AS THE NODAL AGENCY FOR COLLECTING THE ABOVE SAID INSTALLMENTS. 5. IT APPEARS THAT THE ASSESSEE HEREIN AND M/S ES SEL PROPACK LTD ENTERED INTO AN AGREEMENT, AS PER WHICH THE ASSESSEE UNDERTOOK T O PAY THE SALES TAX LIABILITY OF M/S ESSEL PROPACK LTD WHICH WOULD BECOME PAYABLE FROM 2003 TO 2010. THE PRESENT VALUE OF RS.24,37,23,930/-, I.E., THE AGG REGATE AMOUNT PAYABLE FROM 2003 TO 2010, WAS DETERMINED AT RS.5.62 CRORES. WE HAD ALREADY NOTICED THAT THE ASSESSEE HEREIN HAD BORROWED FUNDS FROM M/S ESS ESL PROPACK LTD AND THE OUTSTANDING AMOUNT OF LOAN AS ON 1.4.1997 WAS RS.9, 18,74,719/-. IN VIEW OF THE AGREEMENT CITED ABOVE, THE ASSESSEE HEREIN TRANSFER RED A SUM OF RS.5.62 CRORES, OUT OF THE ABOVE SAID AMOUNT OF RS.9.18 CRORES, TO A SEPARATE LOAN ACCOUNT. THE ASSESSEE CONSIDERED THE ABOVE SAID AMOUNT OF RS .5.62 CRORES AS THE AMOUNT PAYABLE TO SICOM (GOVT. OF MAHARASHTRA). THE ASSE SSEE HAS PROVIDED FOR INTEREST PAYABLE ON THE ABOVE SAID LOAN ACCOUNT AND CLAIMED THE SAID INTEREST AMOUNT AS DEDUCTION AS INTEREST PAYABLE TO SICOM. I.T.A. NO.5368/MUM/2011 4 6. UNDER THE CONCEPT OF NET PRESENT VALUE, THE P RESENT VALUE OF A FUTURE AMOUNT IS ARRIVED AT. FOR EXAMPLE, RS.100/- DEPOSI TED TODAY IN A FIXED DEPOSIT SCHEME CARRYING SIMPLE INTEREST RATE OF 10%, WOULD HAVE A MATURITY VALUE OF RS.110/- AFTER EXPIRY OF ONE YEAR AND RS.120/- AFTE R THE EXPIRY OF TWO YEARS. HENCE THE NET PRESENT VALUE OF RS.110/- (AFTER ONE YEAR) OR RS.120/- (AFTER TWO YEARS) AS ON TODAY WOULD BE RS.100/-. THE ABOVE EX AMPLE CLARIFIES THAT THE PRESENT VALUE IS AKIN TO PRINCIPAL AMOUNT AND UPO N ADDING INTEREST ELEMENT EVERY YEAR, THE MATURITY AMOUNT WOULD BE EQUAL TO T HE AMOUNT PAYABLE IN FUTURE. IN THE INSTANT CASE ALSO, THE ASSESSEE HAS TO PROVIDE FOR INTEREST ON THE NET PRESENT VALUE OF RS.5.62 CRORES EVERY YEAR AND THEN ONLY IT WILL ACCUMULATE TO THE REQUIRED LEVEL SO THAT THE ASSESSEE WOULD BE IN A POSITION TO REPAY THE SALES TAX LIABILITY OF M/S ESSEL PROPACK LTD FROM 2 003 TO 2010. THE PAYMENT OF THE S.T LIABILITY OF M/S ESSEL PROPACK IS AKIN TO R EPAYMENT OF LOAN TAKEN FROM IT. THE ASSESSEE WOULD BE IN A POSITION TO DEMONSTRATE THE SAME BY FURNISHING NECESSARY WORKING PAPERS. 7. SINCE THE ASSESSEE HAS SHOWN THE INTEREST CL AIM AS INTEREST PAYABLE TO SICOM, THE AO TOOK THE VIEW THAT IT WOULD BE HIT B Y THE PROVISIONS OF SEC. 43B(D) OF THE ACT. SINCE THE INTEREST WAS NOT PAID DURING THE YEAR, HE DISALLOWED THE INTEREST CLAIMED BY THE ASSESSEE BY INVOKING TH E PROVISIONS OF SEC. 43B(D) OF THE ACT. SINCE THE AO HAD DISALLOWED THE ENTIRE IN TEREST CLAIMED BY THE ASSESSEE, THE AO DID NOT MAKE ANY SEPARATE DISALLOW ANCE WITH THE RIDER THAT THE SAME WOULD STAND, IF THE DISALLOWANCE OF ENTIRE INT EREST IS ALLOWED BY ANY APPELLATE AUTHORITY. I.T.A. NO.5368/MUM/2011 5 8. IT APPEARS THAT THERE IS SOME CONFUSION IN TH E MIND OF ASSESSEE ALSO. BEFORE US, THE LD A.R WAS INVITING OUT ATTENTION TO SALES TAX DEFERRAL SCHEME AND THE CIRCULAR ISSUED BY CBDT WITH REGARD TO THE SAME . ALTERNATIVELY, THE LD A.R ALSO SUBMITTED THAT THE PROVISIONS OF SEC. 43B(D) W OULD APPLY TO THE INTEREST PAYABLE ON LOAN TAKEN FROM ANY PUBLIC FINANCIAL INS TITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPOR ATION. HE SUBMITTED THAT THE SALES TAX DEFERRAL SCHEME CANNOT BE EQUATED TO THE LOAN REFERRED TO IN SEC. 43B(D) OF THE ACT. 9. HOWEVER, WE MAY CAUTION HERE THAT WE HAVE M ADE THE FOREGOING DISCUSSIONS ON THE BASIS OF SUBMISSIONS MADE BEFORE THE TAX AUTHORITIES AND ALSO BEFORE US. HOWEVER, ACTUAL NATURE OF AGREEMENT HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES. HENCE, IN OUR VIEW, THE ARRANGEME NT BETWEEN THE ASSESSEE AND M/S ESSEL PREPACK LTD NEEDS TO BE EXAMINED TO FIND OUT AS TO WHETHER THE OBSERVATIONS MADE ABOVE ARE CORRECT OR NOT. SUBJEC T TO SUCH VERIFICATION, IN OUR VIEW, THE ARRANGEMENT MADE BETWEEN THE ASSESSEE AND M/S ESSEL PROPACK LTD SHOULD BE TAKEN AS PURE FINANCE ARRANGEMENT. THE M ETHOD OF REPAYMENT IS PURELY A METHODOLOGY AGREED BETWEEN THEM TO SETTLE THE LOAN TAKEN BY THE ASSESSEE FROM M/S ESSEL PROPACK LTD. THOUGH THE AS SESSEE HAS SHOWN THE AMOUNT OF RS.5.62 CRORES AND INTEREST THEREON AS PA YABLE TO SICOM (GOVT OF MAHARASHTRA), IN EFFECT, IT IS A LOAN TAKEN BY THE ASSESSEE FROM M/S ESSEL PROPACK LTD. THE ASSESSEE WOULD REPAYING THE AMOUNT DIRECT LY TO SICOM (GOVT OF MAHARASHTRA) ON BEHALF OF M/S ESSEL PROPACK LTD. H ENCE, IN OUR VIEW, IT WOULD NOT BE CORRECT TO PRESUME THAT IT WAS A LOAN TAKEN FROM SICOM (GOVT. OF MAHARASHTRA) OR IT WAS FALLING UNDER SALES TAX DEFE RRAL SCHEME. I.T.A. NO.5368/MUM/2011 6 10. HENCE, IN OUR VIEW, THE ASSESSING OFFICER IS ALSO REQUIRED TO VERIFY AS TO WHETHER THE RATE OF INTEREST ADOPTED BY THE ASSESSE E TO WORK OUT THE INTEREST CLAIM IS REASONABLE OR NOT, IF HE IS SATISFIED ON V ERIFICATION OF THE ARRANGEMENT THAT IT WAS PURE FINANCE TRANSACTION. HE MAY ALSO VERIFY THAT THE INTEREST LIABILITY ACCUMULATED EVERY YEAR ALONG WITH THE PRINCIPAL AMO UNT OF RS.5.62 CRORES WOULD BE SUFFICIENT TO REPAY THE SALES TAX LIABILITY OF M /S ESSEL PROPACK LTD BEGINNING FROM THE YEAR 2003 TO 2010 AND SUCH VERIFICATION WO ULD HELP TO ASCERTAIN THE RATE OF INTEREST AGREED BETWEEN THE PARTIES AND ITS REAS ONABLENESS. 11. SUBJECT TO THE VERIFICATION OF THE AGREEMENT AND THE INTEREST WORKINGS REFERRED ABOVE, WE ARE OF THE VIEW THAT THE INTERES T LIABILITY CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED U/S 43B OF THE ACT, I F IT IS CONSIDERED AS PURE FINANCE ARRANGEMENT. ACCORDINGLY, WE SET ASIDE T HE ORDER OF LD CIT(A) AND RESTORE THIS MATTER TO HIS FILE WITH THE DIRECTION TO EXAMINE THE AGREEMENT AND ALSO THE REASONABLENESS OF THE INTEREST RATE IN THE LIGHT OF DISCUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISION IN ACCORDANCE W ITH THE LAW. 12. GROUND NO.5 RELATES TO DISALLOWANCE OF INTERE ST PAID U/S 201(1A) OF THE ACT. THE ASSESSEE CLAIMED INTEREST AMOUNT OF RS.8,76,221 /- PAID BY IT U/S 201(1A) OF THE ACT FOR THE DELAY IN PAYMENT OF TAX DEDUCTED AT SOURCE. THE ASSESSEE CLAIMED THE SAME AS DEDUCTION ON THE PLEA THAT IT W AS COMPENSATORY IN NATURE AND IS AKIN TO SALES TAX ETC. THE AO DID NOT ACCEP T THE SAID EXPLANATION AND HENCE DISALLOWED THE SAME. THE LD CIT(A) ALSO CONF IRMED THE SAID DISALLOWANCE. 13. BEFORE US, THE LD A.R PLACED RELIANCE ON TH E DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHENNAI PR OPERTIES & INVESTMENT LTD (1999)(105 TAXMAN 346) TO CONTEND THAT THE INTEREST PAID BY THE ASSESSEE U/S 201(1A) OF THE ACT IS ALLOWABLE AS DEDUCTION. HOWE VER, A CAREFUL PERUSAL OF THE I.T.A. NO.5368/MUM/2011 7 SAID DECISION WOULD SHOW THAT THE HONBLE MADRAS HI GH COURT HAS, IN CLEAR WORDS, HELD THAT THE INTEREST PAID U/S 201(1A) COULD NOT B E ALLOWED AS BUSINESS DEDUCTION. THE SAID DECISION HAS BEEN RENDERED BY THE HONBLE HIGH COURT BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE & INDUSTRIES LTD VS. CIT (1998)(230 ITR 73 3). HENCE, WE DO NOT FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE ON THIS IS SUE. ACCORDINGLY, WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN C OURT ON 12 TH SEPT, 2014 . /0#' + 1 2 3 12 TH SEPT , 2014 0 * , 4 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + , MUMBAI: 12 TH SEPT ,2014. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. + 9- ( ) / THE CIT(A)- CONCERNED 4. + 9- / CIT CONCERNED 5. 6. :; &- + / BY ORDER, TRUE COPY ? (ASSTT. REGISTRAR) .