CONTROL PRINT (I) LTD, MUMBAI V. ASST CIT RG 8(3)(OSD), MUMBAI

ITA 6128/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75522 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 05-09-2011
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: SHAILESH S SHAH
• Keywords: Earning of tax free income; Revenue expenditure
• Section: 43B; 14A

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI . . , ! ' #$. . %&. . ' , ' ! ( BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND DR S T M PAVLAN, JUDICIAL MEMBER . : 6128 / / 2011 A.Y. 2007-08 ITA NO. : 6128/MUM/2011 (ASSESSMENT YEAR: 2007-08) M/S CONTROL PRINT (INDIA) LTD., C-106, HIND SAURASHTRA INDUSTRIAL ESTATE, M V ROAD, MAROL NAKA, ANDHERI, MUMBAI -400 059 PAN: AAACC 5378 C VS ASST. COMMISSIONER OF INCOME TAX -8(3) OSD, AAYAKAR BHAVAN, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAILESH S SHAH RESPONDENT BY : SHRI M L PERUMAL /DATE OF HEARING : 10-02-2014 / DATE OF PRONOUNCEMENT : 10-02-2014 + O R D E R . . , . . : PER N K SAINI, AM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF CIT(A) 16, MUMBAI, DATED 08.06.2011. 2. GROUND NO. 1 OF THIS APPEAL RELATES TO THE CONFIRMATION OF DISALLOWANCE OF SUM OF RS. 60,41,165/- MADE BY THE AO BY HO LDING THE ASSESSEE HAD MADE REPAYMENT OF PRINCIPAL AMOUNT OF LOAN AND NOT THE INTEREST ALLOWABLE UNDER SECTION 36(1)(III) OR 37 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT IN SHORT). 3. FACTS REFERRED TO THIS ISSUE IN BRIEF ARE THAT THE ASS ESSEE FILED THE RETURN OF INCOME ON 28.10.2007 DECLARING TOTAL INCOME AT RS . CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 2 5,47,47,920/-. LATER ON, THE CASE WAS SELECTED FOR SCRUTIN Y. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASS ESSEE TO SHOW CAUSE AS TO WHY RS. 68,58,879/- CLAIMED AS EXTRA-ORDINARY ITEM BE NOT DISALLOWED AS THE SAME PERTAINED TO PRINCIPAL LOAN TAKEN FROM IDBI. 4. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT HAD OBT AINED CORPORATE LOAN OF RS. 400 LACS FROM IDBI DURING THE PREVIO US YEAR RELEVANT TO THE AY 2002-03 AND FULLY REPAID TOGETHER WIT H INTEREST DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2006-07 AS PER THEIR RECORDS/WORKING. IT WAS FURTHER SUBMITTED THAT THE ASS ESSEE HAD PAID QUARTERLY INSTALLMENT TOWARD REPAYMENT AND INTEREST TO IDBI AS PER TERMS AND CONDITIONS OF THE CORPORATE LOAN AND AS IDBI KEPT SILENT AN D NEVER OBJECTED TO THE ASSESSEES INTEREST CALCULATION, IT WAS PRESUMED THAT THE INTEREST WORKING AND ADJUSTMENT TOWARDS PRINC IPLE WERE CORRECT. HOWEVER, WHEN THE ASSESSEE ASKED FOR NO DUE S LETTER, THE IDBI HAD ASKED THE ASSESSEE TO PAY THE AMOUNT (WHICH BY THAT TIME HAD INCREASED TO RS. 68,58,879/-) AND THREATENED TO RECO VER THE AMOUNT BY SELLING SHARES PLEDGED WITH THEM AS COLLATERAL SECURITY. IT WAS STATED THAT THE IDBI SOLD THE PLEDGED SHARES IN DECEMBER, 2006 TO RECOVER THE INTEREST ON LOAN, INTEREST ON INTERE ST, PENAL INTEREST AND LIQUIDATED DAMAGES ETC., WHICH WERE REVENUE EXPENSES AND ELIGIBLE FOR DEDUCTION U/S 36(1)(III) OF THE INCOME-TAX ACT, SO, SAME CO ULD NOT BE HELD AS CAPITAL IN NATURE. IT WAS STATED THAT AS PER THE PROVISIONS OF SECTION 43B(D) OF THE ACT, ANY SUM PAYABLE BY THE ASSESS EE AS INTEREST ON LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTIONS ET C, SHALL BE ALLOWED IN THE PREVIOUS YEAR IN WHICH SUCH SUM WAS ACT UALLY PAID. IT WAS CLAIMED THAT THE AMOUNT OF RS. 68,58,879/- HAD BEE N ACTUALLY PAID IN THIS YEAR, SO IT COULD BE ALLOWABLE IN THIS YEAR ONL Y AS PER THE SPECIFIC PROVISIONS OF SECTION 43B OF THE ACT. THE AO, HOWEVE R, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BY OBSERVING AS UNDER: THE CONTENTION OF THE ASSESSEE HAS BEEN CONSIDERED B UT FOUND NOT ACCEPTABLE. THE FOLLOWING IS THE BREAKUP OF OUTSTANDING AMOUNTS PAID BY THE ASSESSEE IN RESPECT OF LOAN PROVIDED BY IDBI BANK: PRINCIPAL RS. 60,41,165 CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 3 INTEREST RS. 5,31,292 FII RS. 14,374 LIQUIDATED DAMAGES ON INTEREST RS. 1,916 LIQUIDATED DAMAGES ON PRINCIPAL, INSTALLMENTS RS. 20,496 TOTAL RS. 66,09.243 THE DETAILED BREAKUP CLEARLY SHOWS THAT RS. 60,41,165/ - WAS PENDING ON ACCOUNT OF PRINCIPAL WHICH CAN BE CLAIMED U/S 36(1)(III) O R SECTION 37 OF THE INCOME TAX ACT, 1961. HENCE, THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFOR E THE LD. CIT(A) AND SUBMITTED THAT THE IMPUGNED AMOUNT OF LOAN WAS CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR EN DED 31.03.2007. THE SAID DEDUCTION REPRESENTED AMOUNT APPRO PRIATED BY IDBI BY SELLING SHARES OF PROMOTERS PLEDGED AS SECURITY, TO RECOVER AMOUNT OUTSTANDING FROM THE ASSESSEE AS PER THEIR BOOK S OF ACCOUNT. IT WAS FURTHER STATED THAT THE SAID LOAN WAS REQUIRED T O BE REPAID IN 16 INSTALLMENTS OF RS. 25 LACS EACH AND EVERY TIME WHEN THE A SSESSEE USED TO SEND THE CHEQUES FOR QUARTERLY INSTALLMENT IT WA S CLEARLY MENTIONED THAT THE PRINCIPAL AMOUNT AND THE INTEREST WAS INVOLVED IN THE SAID INSTALLMENT, VIDE THE ACCOMPANYING LETTER ADDRESSE D TO IDBI. HOWEVER, NO OBJECTION WAS RAISED, WHATSOEVER ABOUT THE CALCULATION OF INTEREST AND PRINCIPAL AMOUNTS BY THE BANK, THEREFORE, THE ASSESSEE PRESUMED THAT THE INTEREST WORKING AND ADJUSTMENT TO WARDS PRINCIPAL AMOUNT MADE, WERE CORRECT. IT WAS POINTED OUT THAT TH E BREAK-UP OF AMOUNT PAID TOWARDS INTEREST AND PRINCIPAL OVER THE TEN URE OF LOAN AS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS G IVEN TO THE AO, WHICH SHOWED THAT THE LOAN AMOUNT HAD BEEN FULLY REPAID TOGETHER WITH INTEREST DURING THE PREVIOUS YEAR RELEVANT TO AY 20 06-07. IT WAS CONTENDED THAT THE ASSESSEE HAVING DISCHARGED THE LOA N OBLIGATION, ASKED FOR NO DUES CERTIFICATE FROM THE IDBI, IT WAS AT T HIS JUNCTURE, IDBI SHOCKINGLY AND SURPRISINGLY INFORMED THE ASSESSEE T HAT IT STILL OWED SUBSTANTIAL AMOUNT TO IDBI AND ASKED TO SETTLE THE SAME AND FAILING WHICH IDBI THREATENED THE ASSESSEE THAT IT WOULD RECOVER THE AMOUNT BY SELLING SHARES PLEDGED WITH THEM AS COLLATERAL SE CURITY. IT WAS FURTHER CONTENDED THAT THE ASSESSEE WHEN DEMANDE D EXPLANATION FROM IDBI, A DETAILED STATEMENT WAS FURNISHED TO THE ASSE SSEE TO SHOW CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 4 AS TO WHY A FURTHER SUM WAS DUE. IT WAS STATED THAT TH E SAID STATEMENT REVEALED THAT THE IDBI HAD ADJUSTED FIRST INSTALLMENT OF RS. 25 LACS PAID BY THE ASSESSEE AGAINST LOAN PROCESSING FEE/ MANAGE MENT FEE AND NOT AGAINST REPAYMENT OF LOAN AS SHOWN IN THE BOOKS OF THE ASSESSEE. BUT FOR SUCH FEES, THE ASSESSEE NEVER AGREED NOR THE I DBI COMMUNICATED THE SAME AND THIS WAS SPECIFIC REASON AS TO WHY THE FURTHER PAYMENT OF RS. 68,58,879/- WAS SHOWN AS DUE FROM THE ASSESSEE IN THE BOOKS OF THE IDBI. IT WAS STATED THAT THE ASSESSEE HAD DISPUTED THE DUES AND DID NOT MAKE THE PAYMENT AS DEM ANDED AND THE IDBI SOLD THE PLEDGED SHARES IN DECEMBER, 2006 TO R ECOVER THE AMOUNT. THUS, THE LIABILITY TO PAY THE ABOVE ADDITIONAL SUM O F RS. 68,58,879/- WAS QUANTIFIED AND CRYSTALLIZED IN THE CURRENT YEAR. IT WAS FURTHER STATED THAT THE UNWARRANTED ADJUSTMENT OF THE FIRST INSTALLMENT TOWARDS LOAN PROCESSING FEES BY IDBI HAS BROUGHT ABOUT COMPLETE MISMATCH OF THE PRINCIPAL AMOUNT AND INTEREST PAID AS PER THE BOOKS OF THE ASSESSEE AND BOOKS OF IDBI. HOWEVER, AS THE ASSE SSING OFFICER LOST SIGHT OF THE FACT THAT IN VIEW OF THIS MISMATCH THE PRIN CIPAL AMOUNT IN THE BOOKS OF THE ASSESSEE AND IDBI WOULD NEV ER TALLIES AND ALSO FAILED TO APPRECIATE THAT THE SUBSTANCE OF THE MATTE R IS ALLOWANCE OF THE REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE . THUS THE PRINCIPAL AMOUNT OF LOAN I.E. RS 4 CRORES IS DEDUCTED FROM TH E TOTAL PAYMENTS OF RS. 5,95,81,340/- MADE BY THE ASSESSEE TO ID BI (INCLUDING THE PAYMENT OF RS. 68,58,879/- APPROPRIATED BY ID BI BY SELLING SHARES OF PROMOTERS), THE RESULTANT FIGURE IS RS. 1,95,8 1,340/- WHICH REPRESENTE NOTHING BUT REVENUE EXPENDITURE IN THE FORM OF INTEREST, PENAL INTEREST, LIQUIDATED DAMAGES ETC. IT WAS ALSO STATED THAT THE ASSESSEE IN ITS BOOKS OF ACCOUNTS CLAIMED INTEREST ON LY TO THE TUNE OF RS. 1,27,22,461/- IN AGGREGATE DURING THE EARLIER PREVIOUS YEARS TILL FY 2005-06 IN WHICH IT HAD MADE PAYMENTS TO IDBI. THUS, THE BALANCE SUM OF RS. 68,58,879/- (RS.. 1,95,81,340/- MINUS RS. 1,27,22,461/ -) WHICH THE IDBI APPROPRIATED DURING THE CURRENT YEAR UN DER APPEAL CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 5 REPRESENTED BALANCE INTEREST, PENAL INTEREST, LIQUIDATED DAM AGES ETC CHARGED BY IDBI AND PAID BY THE ASSESSEE. 6. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE OBSERVED THAT THE ASSESSEE HAD GIVEN WORKING OF REPAYM ENT INDICATING THEREIN THE PRINCIPAL AMOUNT AND INTEREST THEREON. HOWEV ER, IDBI DID NOT RESPOND THE ASSESSEE AND AT A LATER STAGE, THE ID BI BANK THREATENED THE ASSESSEE TO RECOVER PRINCIPAL BY SELLING T HE SHARES PLEDGED BY IT WITH THE BANK AS COLLATERAL SECURITY AND ULTI MATELY SOLD THE PLEDGED SHARES IN DECEMBER 2006 AND RECOVERED TH E AMOUNT. THE LD. CIT(A) ALSO POINTED OUT THAT THE DETAILS OF THE BREAK-U P AND THE ADJUSTMENT MADE BY THE BANK CLEARLY REVEALED THAT RS. 60,41,165/- WAS TOWARDS PRINCIPAL AMOUNT AND NOT THE INTEREST AS CLA IMED BY THE ASSESSEE. HE, THEREFORE, CONFIRMED THE ADDITION MADE BY TH E AO ON THE BASIS OF THE INFORMATION RECEIVED FROM THE IDBI. NOW, THE ASSESSEE IS IN APPEAL. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED T HAT THE ASSESSEE REPAID THE INSTALLMENT AND INTEREST BY MAKING TH E ENTRIES IN ITS BOOKS OF ACCOUNTS AND THE AMOUNT IN QUESTION REPRES ENTED THE BALANCE INTEREST, PENAL INTEREST AND LIQUIDATED DAMAGES ETC , WHICH ARE REVENUE IN NATURE. THEREFORE, IT SHOULD HAVE BEEN ALLOWED B ECAUSE THE LIABILITY CRYSTALLIZED AND DISCHARGED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN HIS RIVAL SUBMISSIONS, THE LD. DR SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECOR D. IN THE PRESENT CASE, THE ONLY CONTROVERSY REVOLVES AROUND TH E PAYMENT MADE BY THE ASSESSEE TO THE IDBI. THE CLAIM OF THE ASSESSEE IS THAT THE TOTAL AMOUNT OF LOAN ALONG WITH THE INTEREST WAS REPAID IN FULL DUR ING THE CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 6 PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND THEREAFTER, NOTHING WAS ASKED BY THE IDBI, BUT WHEN THE ASSESSEE ASKED FOR NO DUES CERTIFICATE, FROM THE BANK, THE IDBI POINTED OUT THA T OUT OF THE FIRST INSTALLMENT RS. 25 LACS WAS ADJUSTED AGAINST LOAN PRO CESSING FEES/MANAGEMENT FEES AND NOT AGAINST REPAYMENT OF LOAN. I T APPEARS THAT THE AO MADE THIS ADDITION AND THE LD. CIT(A) CONFIRMED THE SAME ONLY ON THE BASIS OF ONE LETTER DATED OCTOBER 10, 2006, (COPY OF WHICH IS PLACED AT PAGE NO. 18 OF THE ASSESSEES PAPER BOOK) W HEREIN IT WAS STATED THAT THE OUTSTANDING PRINCIPAL AMOUNT OF THE LOAN WAS RS. 60,41,165/- AND INTEREST, PENAL INTEREST, LIQUIDATED DAMAGE S ETC. AGGREGATING TO RS. 5,68,078/-. ON THE CONTRARY, THE CLAIM OF THE ASSESSEE IS THAT THE MANAGEMENT FEES ETC. AMOUNTING TO RS. 25 LAKHS WAS PAID ON 27.7.2001, AS PER THE COPY OF THE BANK STATE MENT PLACED AT PAGE NO. 21 TO 23 OF THE ASSESSEES PAPER BOOK. IN THE PRESENT CASE, IT IS NOT CLEAR AS TO WHETHER THE SAID DOCUMENT, I.E. COPY OF THE BANK STATEMENT APPEARING AT PAGE NOS. 21 TO 23 WAS FURNISHED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND IF IT WAS FURNISH ED AS TO WHETHER THEY HAVE CONSIDERED THE SAME. THE ASSESSEE H AD ALSO FURNISHED THE DETAILS OF THE PAYMENTS, COPY OF WHICH IS PLA CED AT PAGE NO. 25 AND 26 OF THE ASSESSEES PAPER BOOK, SHOWING TH EREIN THE PAYMENT TOWARDS INTEREST, PROCESSING FEES, PRINCIPAL AMOUNT ETC. UP TO 13.9.2005 WERE PAID AND NOTHING WAS DUE AFTER THE SAID DA TE. HOWEVER, FROM THE FACTS ON RECORD, IT IS NOT CLEAR AS TO WHETHER THOSE DOCUMENTS CLAIMED TO HAVE BEEN FURNISHED BEFORE THE AUTH ORITIES BELOW, WERE CONSIDERED BY THEM OR NOT. WE, THEREFORE, DEEM IT APPROPRIATE TO REMAND THIS ISSUE B ACK TO THE FILE OF THE AO TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH THE LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 9. ANOTHER ISSUE AGITATED BY THE ASSESSEE VIDE GROUND N O. 2, RELATES TO DISALLOWANCE U/S 14A OF THE ACT. CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 7 10. FACTS IN BRIEF RELATING TO THIS ISSUE AS APPEARING IN THE ORDERS OF THE AUTHORITIES BELOW ARE THAT THE, AO MADE THE DISALLOWAN CE OF RS. 5,25,023/- U/S 14A OF THE ACT BY INVOKING THE PROVISIONS O F SECTION 14A OF THE ACT R.W. RULE 8D OF THE INCOME-TAX RULES, 196 2 AND BY FOLLOWING THE DECISION OF THE I.T.A.T. SPECIAL BENCH, MUMBAI IN THE CASE OF M/S. DAGA MANAGEMENT PVT LTD. 11. WHEN THE MATTER WAS TAKEN TO THE LD. CIT(A), THE ISS UE WAS REMANDED TO THE AO, SINCE THE ASSESSEE DID NOT MAKE AN Y APPORTIONMENT OF DIRECT AND INDIRECT EXPENSES ON ITS OWN. NOW, THE ASSESSEE IS IN APPEAL. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE DID NOT FURN ISH APPORTIONMENT OF DIRECT AND THE INDIRECT EXPENSES RELATIN G TO THE EXEMPT INCOME, THEREFORE, THE AO IN THE ABSENCE OF THE DE TAIL AND BY FOLLOWING THE AFORESAID DECISION IN THE CASE OF M/S DAGA MANA GEMENT PVT LTD MADE THE DISALLOWANCE. THE SAID DECISION RELIED BY THE AO HAS BEEN DISPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81. TH EREFORE, THIS ISSUE IS ALSO REMANDED BACK TO THE FILE OF THE AO TO B E DECIDED BY KEEPING IN VIEW THE JUDGMENT OF THE HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF GODREJ & BOYCEE MFG. CO. LTD. VS DCIT, REPO RTED IN 328 ITR 81, AS IMPLIEDLY MENTIONED IN THE IMPUGNED ORDER. 13. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF FEBRUARY 2014. SD/- SD/- ( #$. . %&. . ' ) ( . . ) ! ! (DR S T M PAVLAN) (N K SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE: 10 TH FEBRUARY, 2014 CONTROL PRINT (INDIA) LTD. ITA NO. 6128/MUM/2011 8 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) ! ! ' (#) - 16, %&' / THE CIT(A) -16, MUMBAI. 4) ! ! ' -8, %&' / THE CIT 8, MUMBAI, 5) #() * , ! * , %&' / THE D.R. C BENCH, MUMBAI. 6) ), - COPY TO GUARD FILE. !./0 / BY ORDER / / TRUE COPY / / [ 1/ 2 &3 ! * , %&' DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *562 .. * CHAVAN, SR. PS