ITO, Ward - 10(2), Kolkata, Kolkata V. Microsec Resources Pvt. Ltd., Kolkata

ITA 648/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48211 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 01-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PRAMANICK
• Assessee Lawyers: K K CHAPARIA
• Keywords: Business expenditure; Revenue expenditure

Judgement Text

, , , , , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [ . . . . . .. . , , ! ! ! ! , ] [BEFORE HONBLE SHRI S.V. MEHROTRA, AM & HONBLE SHRI MAHAVIR SINGH, JM !' !' !' !' / I.T.A. NOS. 648 & 649/KOL/2010 #$ %& #$ %& #$ %& #$ %&/ // / ASSESSMENT YEAR : 2003-04 & 2006-07 INCOME TAX OFFICER/WARD-10(2) -VS.- MICROSEC RESOURCES PVT. LIMITED KOLKATA. KOLKATA. [PAN : AABCG 2396 M] ()* /APPELLANT ) (,-)*/ RESPONDENT ) )* / FOR THE APPELLANT : . /SHRI A. K. PRAMANICK ,-)* / FOR THE RESPONDENT : . / SHRI K. K. CHAPARIA / /O R D E R [ . . . . . .. . , ] PER S.V. MEHROTRA, AM THESE TWO APPEALS HAVE BEEN FILED BY THE DEPARTMEN T AGAINST COMMON ORDER OF LD. CIT(A) BOTH DATED 28.01.2010 FOR ASSESSMENT YEARS 2 003-04 & 2006-07. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE-COMPANY, IN THE RELEVANT ASSESSMENT YEAR, CARRIED ON THE BUSINESS OF INVESTMENTS. THE ASSESSING OFFICER HAS OBSERVED IN THE ASSESSMENT ORDER THAT WHILE DOING ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005-06, ASSESSEE HAD MADE A WRONGFUL CLAIM OF EXPENDITURE TERMED AS DISCOUNT ON DEEP DISCOUNT DE BENTURES WRITTEN OFF. ON FURTHER INVESTIGATION, IT WAS SEEN THAT SUCH DISCOUNT, IF A NY AT ALL, WAS BASICALLY AND FUNDAMENTALLY ATTRIBUTED TO ACQUIRE OF CAPITAL FUND FOR THE ASSES SEE-COMPANY. THE FUND ACQUIRED WAS ALSO SAID TO BE UNSECURED LOAN, BUT IT WAS SEEN IN COURSE OF THE PROCEEDINGS THAT THE LIABILITY OF SUCH SO CALLED LOAN WAS ALSO GETTING DIMINISHED IN ASSESSEES HAND WITHOUT ACTUALLY PAYING. THEREFORE, THE EXPENDITURE/DISCOUNT RELATED TO IT COULD NOT BE ALL OWED AS AN EXPENSE. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD CLAIMED DISCOUNT TO THE TUNE OF RS.34,06,748/- IN THIS ASSESSMENT YEAR. [ ITA NO. 648 & 649/KOL/2010] 2 THE ASSESSING OFFICER DISALLOWED THE CLAIM AFTER C ONSIDERING IN DETAIL, THE ASSESSEES SUBMISSIONS AND OBSERVED AS UNDER :- FROM ALL THE ABOVE MENTIONED STATISTICS, FINDINGS AND ANALYSIS MADE THEREON IT STRONGLY GIVES A PICTURE THAT IT IS INDE ED A PLAY ADOPTED BY THE ASSESSEE COMPANY TO LESSEN OR TO UNDERSTATE ITS TAXABLE INCO ME BY WRONG COMPUTATION AND THEN PAYING LESS TAX. THE FULL AND REAL INCOME ARE NOT PROPERLY TAXED. WHICH IS SET TO GO ON. NOW, THIS PAYABLE INTEREST OBVIOUSLY TO HAVE BEEN TREATED AS INTEREST RECEIVABLE BY BMPL & MCL CORRESPONDINGLY IN THEIR BOOKS OF A CCOUNT AND DEFINITELY BE TREATED AS AN INCOME. WHEREAS, IT IS NOT TREATED AS INCOME IN ANYBODYS HAND. AS A RESULT, THIS VERY EXITING INCO ME HAS NOT BEEN OFFERED FOR TAXATION WHATSOEVER. IT HAS ESCAPED FROM BEING TAXE D. IT IS ALSO TO BE SEEN THAT IN THIS ENTIRE CHAIN OF OPERATION ADOPTED BY THE ASSES SEE COMPANY WITH ITS ASSOCIATED COMPANIES I.E. BMPL & MCL, IT IS INDEED THE ASSESSE E COMPANY TAKEN THE UNDUE ADVANTAGE BY CLAIMING THE AMOUNT AS AN EXPENSE. WHI CH IS ABSOLUTELY UNLAWFUL AND IMPRACTICAL AND NOT EXISTING. THIS OFFICE THEREFORE DISALLOW THE SAID AMOUNT OF RS.34,06,748/- AS AN EXPENSE AND ADD BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. SIMILARLY, FOR ASSESSMENT YEAR 2006-07, ASSESSING O FFICER DISALLOWED A SUM OF RS.49,73,463/-. THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL FOR BO TH THE YEARS FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION LIMITED 225 ITR 802 (SC). BEING AGGRIEVED, THE DEPARTMENT IS IN APP EAL BEFORE US. 3. AT THE TIME OF HEARING, BOTH THE PARTIES AGREED THAT THIS ISSUE IS COVERED BY THE DECISION OF I.T.A.T. IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 WHEREIN THE TRIBUNAL HAS HELD AS UNDER :- WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E LD. REPRESENTATIVES OF BOTH THE PARTIES AND THE AUTHORI TIES BELOW. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE-COMPANY HAS ISSUED DD DS AS PER THE DETAILS MENTIONED HEREINABOVE. THE ASSESSEE-COMPANY HAS WOR KED OUT AN AMORTIZATION TABLE OF DDDS WITH IMPLICIT INTEREST RATE, THE DETA ILS OF WHICH ARE GIVEN BY THE A.O. AT PAGE 3 OF THE ASSESSMENT ORDER. THE DEPARTM ENT HAS NOT DISPUTED THE SAID FACTS. ON THE BASIS OF THE SAID AMORTIZATION SCHEDU LE, THE ASSESSEE-COMPANY HAS SPREAD OVER THE DIFFERENCE IN THE REDEMPTION VALUE OF THE DEBENTURES AND THE ISSUE PRICE OF DEBENTURES OVER THE PERIOD OF TWENTY YEARS . WE OBSERVE THAT THE FUND RAISED BY THE ASSESSEE IS USED FOR ITS BUSINESS PUR POSES. THEREFORE, THE FUND RAISED BY THE ASSESSEE IS AN INTEGRAL PART OF PROFIT MAKIN G PROCESS AND ACCORDINGLY THE EXPENDITURE ON SUCH DEBENTURES ARE TO BE TREATED AS REVENUE EXPENDITURE. THUS SUCH AN EXPENDITURE IS AN ALLOWABLE EXPENDITURE. WI TH REGARD TO YEAR OF ALLOWABILITY, IT IS EVIDENT THAT THE PAYMENT OF THE PREMIUM PAYABLE BY THE ASSESSEE I.E. THE DIFFERENCE BETWEEN THE ISSUE PRIC E AND THE MATURITY PRICE IS THE BENEFIT TO HE DERIVED OVER A NUMBER OF YEARS I.E. O VER A PERIOD OF TWENTY YEARS, THE PERIOD FOR WHICH DEBENTURES HAVE BEEN ISSUED. W E ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL [ ITA NO. 648 & 649/KOL/2010] 3 INVESTMENT CORPORATION LTD. SQUARELY APPLIES TO THE FACTS OF THE EASE BEFORE US, THE HONBLE APEX COURT IN THE HEAD NOTE HAS MADE TH E FOLLOWING OBSERVATION WHEN A COMPANY ISSUES DEBENTURES AT A DISCOUNT, IT INCURS A LIABILITY TO PAY LARGER AMOUNT OVER AND ABOVE THE AMOUNT RECEIVE D FOR THE DEBENTURES, IS A LIABILITY WHICH HAS BEEN INCURRED BY THE COMPA NY FOR THE PURPOSE OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINES S ACTIVITIES. THE AMOUNTS SO OBTAINED BY ISSUE OF DEBENTURES ARE USED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS. THIS WOULD, THEREFORE, BE EXPENDITURE. FURTHER, THE ABOVE ISSUE HAS ALSO BEEN CONSIDERED B Y THE ITAT, DELHI BENCH IN THE CASE OF ESCORTS LTD. -VS- ACIT [104 ITD 427]. I N THE SAID CASE, THE ASSESSEE RAISED FUNDS BY WAY OF ISSUANCE OF SECURED PREMIUM NOTES (HEREINAFTER TO BE REFERRED TO IN SHORT SPNS) WHICH ARE REDEEMABLE AT A PREMIUM PARTLY AT THE END OF 4TH, 5TH, 6TH AND 7 TH YEAR. IT WAS, HELD THAT, THE LIABILITY TO PAY THE PREMIUM AMOUNT OVER AND ABOVE THE FACE VALUE OF SPNS ON RED EMPTION IS A LIABILITY INCURRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BU SINESS BY GENERATING FUNDS, WHICH WERE UTILIZED FOR ITS BUSINESS ACTIVITIES. TH US, SUCH AN EXPENDITURE IS AN ALLOWABLE EXPENDITURE. IT WAS HELD THAT WITH REGARD TO YEAR OF ALLOWABILITY, THE PAYMENT OF PREMIUM RESULTS IN SECURING OF BENEFIT O VER A NUMBER OF YEARS. THE BENEFIT IS SPREAD OVER THE, ENTIRE PERIOD OF SEVEN YEARS. THEREFORE, THE EXPENDITURE IS ALLOWABLE OVER THE ENTIRE PERIOD OF SPNS TILL REDEMPTION. IT WAS HELD THAT THE ASSESSEE HAS CORRECTLY CLAIMED DEDUCT ION ONLY IN RESPECT OF THE PROPORTIONATE PREMIUM RELATABLE TO THE YEAR IN QUES TION. FURTHER, THE SIMILAR ISSUE HAS ALSO BEEN CONSIDERED BY THE ITAT, BANGALORE BEN CH IN THE CASE OF DCIT -VS- INSOTEX (INDIA) LTD. [103 ITD 211]. IN THE SAID CAS E, IT WAS HELD THAT PROVISION FOR INTEREST ON DEEP DISCOUNT BONDS ISSUED BY THE ASSES SEE-COMPANY TENABLE FOR A PERIOD OF 25 YEARS, THE PROVISION MADE BY THE ASSES SEE ON SUCH INCREMENTAL VALUE IS AN ACCRUED LIABILITY AND THE SAME IS ALLOWABLE A S BUSINESS EXPENDITURE. RESPECTFULLY, FOLLOWING THE PRECEDENT, THE DEPARTME NTAL APPEALS ARE DISMISSED. 4. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED. / / / / 0 0 0 0 1 11 1 0# 0# 0# 0# 2 2 2 2 3 33 3 4 4 4 4 ORDER PRONOUNCED IN THE OPEN COURT ON 10. 0 6. 2011. SD/- SD/- [ ! , ] [ .. , ] [ MAHAVIR SINGH ] [ S.V. MEHROTRA ] JUDICIAL MEMBER ACCOUNTANT MEMBER 4 / DATED : 10TH JUNE, 2011. [ ITA NO. 648 & 649/KOL/2010] 4 / 5 , 6 76%8 - COPY OF THE ORDER FORWARDED TO: 1. /APPLICANT- INCOME TAX OFFICER/WARD-10(2), AAYAKA R BHAWAN, P-7, CHOWRINGHEE SQUARE , KOLKATA-700069. 2 ,-)* / RESPONDENT : MICROSEC RESOURCES (P) LTD., (PREVIO USLY KNOWN AS KESHAV RESOURCES PVT. LTD.), AZIMGANJ HOUSE, 7, CAMAC STEE T, 2 ND FLOOR, KOLKATA-700 017. 3. /# / CIT(E) 4. /# ( )/ CIT(A) 5. 2 , # / DR, KOLKATA BENCHES, KOLKATA [ -6 , / TRUE COPY] /#0 / BY ORDER 9 / !: /DEPUTY/ASSTT. REGISTRAR . [KKC ;< #=: > /SR.PS]