Seshasayee Paper and Boards Ltd., Erode V. DCIT, CHENNAI

ITA 614/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7863 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 13-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: DR ANITHA SUMANTH
• Keywords: Revenue expenditure
• Section: 143(3); 244A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.614/MDS/2014 ( / ASSESSMENT YEAR: 2005-06) M/S. SESHASAYEE PAPER AND BOARDS LTD. PALLIPALAYAM, CAUVERY R.S. P.O ERODE-638 007. VS THE DEPUTY COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-II(1) CHENNAI-34 PAN:AACCS1192G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : DR.ANITHA SUMANTH, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 23 RD DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 24 TH FEBRUARY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS), SALEM DATED 24.12.2013 IN ITA NO.82/2009-10 PASSED UNDER SECTION 143(3) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL ELABORATE GROUND S IN ITS APPEAL. HOWEVER, THE CRUXES OF THE ISSUES ARE A S FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHEREIN THE LEARNED ASSESSING OFFICER HAD TREATED THE AMOUNT OF RS. 6,31,047/- (BEING THE INTEREST RECEIVED UNDER SECTION 244A IN REGARD TO 2 ITA NO.614 /MDS/2014 INTEREST ON REFUNDS DUE FROM THE REVENUE) AS THE INCOME OF THE ASSESSEE THOUGH THE DEPARTMENT WAS ON APPEAL BEFORE THE HONBLE HIGH COURT AGAINST GRANTING SUCH INTEREST BY THE TRIBUNAL TO THE ASSESSEE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER, WHEREIN THE LEARNED ASSESSING OFFICER HAD MADE ADDITION OF RS.1,77,43,075/- BEING THE DISALLOWANCE OF PRE- PAYMENT PREMIUM MADE TO IDBI FOR REDUCING THE FUTURE RATE OF INTEREST FROM 16% TO 10% ON THE TERM LOAN OBTAINED. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER, WHO HAD NOT ALLOWED THE DIVIDEND TAX PAID UNDER SECTION 115- O OF THE ACT AS ALLOWABLE EXPENDITURE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF PAPER AND BOARDS FILED ITS RETURN OF INCOME FOR THE ASSES SMENT YEAR 2005-06 ON 28.05.2009 RETURNING NIL INCOME. SUBSEQU ENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT W AS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 31.12. 2007 WHEREIN THE LEARNED ASSESSING OFFICER MADE SEVERAL ADDITIONS. 3 ITA NO.614 /MDS/2014 GROUND NO.1- INTEREST RECEIVED U/S.244A OF THE ACT FOR RS.6,31,047/-:- 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF RS.6,31,047/- BEING INTER EST RECEIVED ON ACCOUNT OF REFUNDS DUE FROM THE REVENUE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 244A OF T HE ACT. HOWEVER, THE ASSESSEE HAS NOT INCLUDED THIS AMOUNT IN ITS COMPUTATION OF INCOME. IT WAS SUBMITTED BY THE ASSE SSEE THAT THIS INTEREST WAS RECEIVED BY THE ASSESSEE DUE TO T HE REVISION OF ASSESSMENT ORDER PASSED PURSUANT TO THE ORDER OF THE APPELLATE AUTHORITIES, HOWEVER SINCE THE REVENUE WA S ON APPEAL BEFORE THE HONBLE HIGH COURT, THIS INCOME H AS NOT CRYSTALLIZED AND THEREFORE NOT CONSIDERED WHILE COM PUTING THE TAXABLE INCOME OF THE ASSESSEE FOLLOWING THE MERCAN TILE SYSTEM OF ACCOUNTING. THE LEARNED ASSESSING OFFICER DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND BROUGHT THE SAME UNDER THE AMBIT OF TAX. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARN ED ASSESSING OFFICER. 4 ITA NO.614 /MDS/2014 5. THE LEARNED AUTHORIZED REPRESENTATIVE CITED SEVE RAL DECISIONS AND ARGUED STATING THAT THE INTEREST RECE IVED HAS NOT CRYSTALLIZED AND THEREFORE IT CANNOT BE TREATED AS INCOME OF THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR . HOWEVER, WE FIND THE DECISIONS CITED BY THE LEARNED AUTHORIZED REPRESENTATIVE ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. IN THE CASE DECI DED BY THE HONBLE APEX COURT, GODHRA ELECTRICITY CO.LTD., VS . CIT REPORTED IN 225 ITR 746(SC) IT WAS HELD THAT EVEN T HOUGH THE ASSESSEE COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, NO REAL INCOME HAD OCCURRED DUE TO THE DIRECTIONS OF THE STATE GOVT., AND THEREFORE SUCH I NCOME CANNOT BE TAXED IN THE RELEVANT ASSESSMENT YEAR. HO WEVER, IN THE CASE OF THE ASSESSEE THERE ARE NO DIRECTIONS BY THE STATE GOVT., FOR STAYING ITS INCOME. THE FACT REMAI NS THAT BY VIRTUE OF ORDER OF THE TRIBUNAL, THE INCOME HAS CRY STALLIZED TO THE ASSESSEE IN ACCORDANCE WITH MERCANTILE SYSTEM O F ACCOUNTING. MERELY AN APPEAL FILED BY THE REVENUE B EFORE THE 5 ITA NO.614 /MDS/2014 HONBLE HIGH COURT WILL NOT RESULT IN STAYING OF SU CH INCOME/RECEIPT UNLESS AN ORDER IS PASSED BY THE HIG H COURT TO THAT EFFECT. THE OTHER CASES CITED BY THE LEARN ED AUTHORIZED REPRESENTATIVE ARE ALSO NOT RELEVANT TO THE FACTS IN THE CASE OF THE ASSESSEE. MOREOVER, THIS ISSUE IS DECIDED AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1619 DATED 18 TH MARCH, 2009 OF A BENCH OF CHENNAI. THEREFORE, WE HEREBY CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE. GROUND NO.2 - ADDITION OF RS.1,77,43,075/- TOWARDS DISALLOWANCE OF PRE-PAYMENT OF PREMIUM MADE TO IDBI PERTAINING TO SUCCEEDING YEARS:- 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD DEBITED IN ITS PROFIT AND LOSS ACCOUNT AN AMOUN T OF RS.3,80,56,306/- AS DEFERRED REVENUE EXPENDITURE. IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAD OBTAINED LOAN FROM IDBI, IFCI LIMITED AND UTI FOR ITS POWER PLANT PROJ ECT @ 16% PER ANNUM APPROXIMATELY BEING THE RATE PREVAILING A T THE TIME 6 ITA NO.614 /MDS/2014 OF DISBURSEMENT OF LOAN. SUBSEQUENTLY, THE RATE OF INTEREST STARTED DECLINING. THEREFORE, THE ASSESSEE APPROAC HED THE AFORESAID INSTITUTION SEEKING INTEREST RATE TO 10%. ALL THE AFORESAID FINANCIAL INSTITUTIONS ACCEDED TO THE REQ UEST OF THE ASSESSEE AND AGREED TO REDUCE THE INTEREST RATE @ 1 0% PER ANNUM AGAINST PAYMENT OF PREMIUM OF RS.3,80,56,306/ - UPFRONT WHICH THE ASSESSEE COMPLIED. IT WAS THEREFO RE SUBMITTED THAT THE EXPENSE OF RS.3,80,56,306/- HAS CRYSTALLIZED DURING THE RELEVANT ASSESSMENT YEAR AN D THEREFORE IT SHOULD BE ALLOWED AS DEDUCTION. HOWEVE R, THE LEARNED ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.1,77,45,075/- ON PROPORTIONATE BASIS BEING THE P REMIUM ATTRIBUTABLE TO THE BENEFIT OF REDUCTION IN INTERES T FOR THE BALANCE PERIOD OF TERM LOAN. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TAKING INTO CONSIDERATION OF THE MERCANTILE PRINCIPLES OF ACCOU NTING CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICE R. 8. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE US THAT THE ENTIRE PREMIUM PAID DURING THE R ELEVANT ASSESSMENT YEAR TOWARDS PRE-PAYMENT OF PREMIUM SHOU LD BE 7 ITA NO.614 /MDS/2014 ALLOWED AS DEDUCTION BECAUSE THE EXPENDITURE HAS CRYSTALLIZED IN THE RELEVANT ASSESSMENT YEAR. HENCE , IT WAS ARGUED THAT THE DISALLOWANCE MADE BY THE REVENUE MA Y BE DELETED. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE . 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS O F THE CASE, IT IS EVIDENT THAT THE ASSESSEE HAD PAID PREMIUM OF RS. RS.3,80,56,306/- IN ORDER TO REDUCE ITS INTEREST L IABILITY FROM THE RELEVANT ASSESSMENT YEARS TILL THE BALANCE PERI OD OF TERM LOAN. THEREFORE, IT IS NECESSARY TO LINK THIS EXPEN DITURE WITH THE BENEFIT OBTAINED BY THE ASSESSEE COMPANY FOR TH E BALANCE PERIOD OF TERM LOAN CONSIDERING THE MATCHIN G PRINCIPLE OF ACCOUNTANCY AND THE MERCANTILE SYSTEM OF ACCOUNTING IN ARRIVING AT THE CORRECT INCOME FOR TH E RELEVANT ASSESSMENT YEARS. MOREOVER IT IS PERTINENT TO MENT ION THAT THE BALANCE PERIOD OF THE TERM LOAN AND THE INCOME ATTRIBUTABLE TO THE SAVINGS IN INTEREST IS ASCERTAI NABLE UNLIKE IN 8 ITA NO.614 /MDS/2014 THE CASE OF DEFERRED REVENUE EXPENDITURES WHERE SUC H PERIOD AND THE BENEFIT DERIVED IN THE SUCCEEDING YEARS ARE NOT ASCERTAINABLE. THEREFORE, THE LEARNED ASSESSING OFF ICER IS RIGHT IN MAKING SUCH DISALLOWANCE WHICH IS FURTHER CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) . HOWEVER, WE HEREBY MODIFY THE ORDERS OF THE REVENUE , BY DIRECTING THE LEARNED ASSESSING OFFICER, TO ENSURE THAT THE ENTIRE AMOUNT OF RS.3,80,56,306/- BE PROPORTIONATEL Y APPORTIONED TO THE RELEVANT PERIOD FOR WHICH THE BE NEFIT IN QUANTUM OF REDUCTION OF INTEREST IS ENJOYED BY THE ASSESSEE COMPANY IN ORDER TO COMPLY WITH THE MATCHING CONCEP T AND MERCANTILE SYSTEM OF ACCOUNTANCY WHICH IS STIPULATE D IN ACCOUNTING STANDARD-I AND MANDATORY IN THE CASE OF THE ASSESSEE AS IT IS A LIMITED COMPANY AND THERE BY AL LOW THE DEDUCTIONS IN THE RELEVANT ASSESSMENT YEAR AND THE RELEVANT SUCCEEDING ASSESSMENT YEARS. HENCE, THIS ISSUE IS D ECIDED AGAINST THE ASSESSEE AS INDICATED HEREIN ABOVE. GROUND NO.3 - DISALLOWANCE OF DIVIDEND TAX PAID U/S.115-O OF THE ACT:- 11. THE ASSESSEE COMPANY HAD PAID RS.39,45,000/- BE ING TAX ON DIVIDEND DECLARED AND DISTRIBUTED. THE ASSES SEE 9 ITA NO.614 /MDS/2014 COMPANY HAD DEBITED THIS AMOUNT IN ITS PROFIT AND L OSS ACCOUNT. HOWEVER, THE LEARNED ASSESSING OFFICER DI D NOT CONSIDER THIS AMOUNT FOR ARRIVING AT THE BOOK PROFI T OF THE COMPANY FOR THE PURPOSE OF COMPUTING TAX UNDER SECT ION 115JB OF THE ACT. THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARNED A SSESSING OFFICER BY STATING THAT THERE IS NO PROVISION IN TH E ACT TO REDUCE THE PAYMENT MADE UNDER SECTION 115-O OF THE ACT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER SEC TION 115JB OF THE ACT. 12. THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED BE FORE US BY STATING THAT THE DIVIDEND TAX PAID BY THE ASS ESSEE COMPANY HAS TO BE DEBITED TO THE PROFIT AND LOSS AC COUNT OF THE COMPANY AND THE BOOK PROFIT SO ARRIVED AT SHOUL D BE CONSIDERED FOR THE PURPOSE OF COMPUTING TAX UNDER S ECTION 115JB OF THE ACT. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, RELIED ON THE ORDERS OF THE REVENUE. 10 ITA NO.614 /MDS/2014 14. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS PERT INENT TO MENTION THAT TAX PAID ON DIVIDEND DECLARED IS NOTHI NG BUT APPROPRIATION OF PROFIT AND THEREFORE THE SAME CANN OT BE CONSIDERED FOR ARRIVING AT THE BOOK PROFIT OF THE A SSESSEE COMPANY AS PER THE PROVISIONS OF THE COMPANYS ACT. THEREFORE FOR THE PURPOSE OF COMPUTING TAX UNDER TH E PROVISIONS OF 115JB OF THE ACT DIVIDEND TAX PAID SH OULD NOT BE REDUCED FROM THE BOOK PROFIT OF THE ASSESSEE COMPAN Y. MOREOVER FOR THE PURPOSE OF DETERMINING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT ALSO THE PAYMENT O F DIVIDEND TAX CANNOT BE CONSIDERED BECAUSE SECTION 115-O OF T HE ACT SPECIFICALLY PROVIDES THAT DIVIDEND TAX IS PAYABLE IN ADDITION TO THE INCOME TAX CHARGEABLE IN RESPECT OF THE TOTAL I NCOME OF A DOMESTIC COMPANY. FOR THE AFORESAID REASONS, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE RE VENUE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH FEBRUARY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER 11 ITA NO.614 /MDS/2014 # /CHENNAI, ( /DATED 24 TH FEBRUARY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF