CABLE CORPORATION OF INDIA LTD, MUMBAI V. DCIT 2(1), MUMBAI

ITA 7758/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84108 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: PEREY PARDIWALA
• Keywords: Difference of opinion; Assessment record; Revised return; Reason to believe; Change of opinion
• Section: 43B; 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 7758/MUM/2011 ASSESSMENT YEAR: 2005-06 M/S. CABLE CORPORATION OF INDIA LTD. LAXMI BUILDING, 6, SHOORJI VALLABHDAS MARG BALLARD ESTATE, MUMBAI- 400 001 PAN:AAACC 2936 J VS. DCIT 2(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : MR. PEREY PARDIWALA & SHRI NITESH JOSHI REVENUE BY : SHRI NEIL PHILIP DATE OF HEARING : 03 . 11 . 2014 DATE OF PRONOUNCEMENT : 12.11.2014 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AG AINST ORDER DATED 09.09.2011, PASSED BY THE LD.CIT(A) -4, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) READ WITH SECTION 147, FOR THE A.Y. 2005- 06, ON THE FOLLOWING GROUNDS:- THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (HEREINAFTER REFE RRED TO S THE ASSESSING OFFICER) IN REOPENING THE ASSESSMEN T UNDER SECTION 148. THE APPELLANT SUBMITS THAT THE ORDER P ASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT IS ILLEGAL, NU LL AND VOID AND BAD IN LAW AS THE APPELLANT HAS FILED FULL, CORRECT AND COMPLETE ITA NO. 7758/MUM/2011 M/S. CABLE CORPORATION OF INDIA LTD. ASSESSMENT YEAR: 2005-06 2 PARTICULARS OF ITS INCOME ALONG WITH THE RETURN OF INCOME AS WELL AS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT SUBMITS THAT THE REOPENING IS ILLEGAL AND CONTRARY TO PROVISIONS OF THE ACT AS THE APPELLANT HAS NOT CONCEALED THE PART ICULARS OF ITS INCOME NOR FILED ANY INACCURATE PARTICULARS THEREOF . THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS.2,16,00,000/- UN DER SECTION 43B BEING THE AMOUNT OF INTEREST ON LOAN CONVERTED INTO EQUITY SHARES OF THE APPELLANT PURSUANT TO ONE TIME SETTLE MENT WITH THE LENDER BANK. THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS.1,82,34,000/- (W RONGLY WRITTEN AS RS.1,82,32,000/- IN CIT(A)S ORDER) BEING RETREN CHMENT COMPENSATION ON THE GROUND THAT THE SAID EXPENDITUR E IS CAPITAL IN NATURE. WITHOUT PREJUDICE TO ITS CLAIM AS ABOVE, THE APPELL ANT SUBMITS THAT THE LD.CIT(A) ERRED IN REJECTING THE WITHOUT P REJUDICE OF THE APPELLANT IN NOT ALLOWING ONE-FIFTH OF THE EXPENDIT URE UNDER SECTION 35DDA I.E. RS.36,46,800/- OUT OF RS.1,82,34 ,000/- BEING AMORTIZATION OF EXPENDITURE INCURRED. THE APPELLANT SUBMITS THAT ASSESSING OFFICER BE DIR ECTED:- (A) TO DELETE THE DISALLOWANCE U/S 43B AMOUNTING TO RS.2,16,000,000/- IN RESPECT OF CONVERSION OF INTER EST INTO EQUITY SHARES OF THE APPELLANT; (B) TO DELETED THE DISALLOWANCE IN RESPECT OF RETRENC HMENT COMPENSATION AMOUNTING TO A SUM OF RS.1,82,34,000/- ; (C) WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, TO AL LOW ONE- FIFTH OF THE AMOUNT I.E. 36,46,800/- OUT OF RS.1,82,34,000/- U/S 35DDA BEING AMORTIZATION OF EXPENDITURE INCURRED; AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. ITA NO. 7758/MUM/2011 M/S. CABLE CORPORATION OF INDIA LTD. ASSESSMENT YEAR: 2005-06 3 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A P RIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF ELECTRICAL CABLE S, WIRES, CONDUCTORS, STRIPS OF ALL TYPES ETC. FOR THE A.Y. 2005-06, THE ASSESSEE HAS FILED IS RETURN OF INCOME ON 29.10.2005 DECLARING NIL INCO ME. SUBSEQUENTLY A REVISED RETURN WAS FILED ON 19.10.2006, OFFERING TA X ON INCOME TAX REFUND DURING THE YEAR. THIS INCOME WAS HOWEVER SET OFF AGAINST BROUGHT FORWARD BUSINESS LOSS AND THE INCOME WAS AG AIN SHOWN AT NIL INCOME. THE SAID RETURN OF INCOME WAS SUBJECTED TO SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3), VIDE ORDER DAT ED 31.12.2007 AT NIL INCOME. THEREAFTER THE ASSESSEES CASE WAS RE OPENED U/S 147, VIDE ISSUANCE OF NOTICE U/S 148 DATED 19.11.2009. IN RES PONSE, THE ASSESSEE SOUGHT REASONS RECORDED WHICH WAS MADE AVAILABLE BY THE AO VIDE LETTER DATED 03.06.2009, VIDE WHICH FOLLOWING REAS ONS WERE COMMUNICATED FOR REOPENING THE CASE U/S 147. ON VERIFICATION OF THE ASSESSMENT RECORDS OF A.Y. 2004- 05, IT WAS FOUND THAT INTEREST PAYABLE TO IDBI AMOU NTING OT RS.4,33,00,000/- DEBITED BY YOU IN P& L A/C WAS ADD ED BACK TO YOUR INCOME AS IT WAS NOT PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. IN THE A.Y. 2005-06, THE SAME AMOUNT WAS CLAIMED B Y YOU AS DEDUCTION. HOWEVER, IT IS SEEN THAT RS.4,33,00,0 00/- WAS NOT ACTUALLY PAID BY YOU TO IDBI BUT ALLOTTED 21,60,000 EQUITY SHARES (FACE VALUE OF RS. 10 EACH) BY YOU TO IDBI. SINCE T HE LIABILITY WAS NOT ACTUALLY PAID BY YOU, THEREFORE DEDUCTION CLAIM ED BY YOU IS NOT ALLOWABLE. I, THEREFORE, HAVE REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. YOURS FAITHFULLY SD/- (SARISH KUMAR) ASST. COMMISSIONER OF INCOME-TAX, RANGE-2(1), MUMBAI ITA NO. 7758/MUM/2011 M/S. CABLE CORPORATION OF INDIA LTD. ASSESSMENT YEAR: 2005-06 4 3. BEFORE US LEARNED SENIOR COUNSEL, SHRI PADIWALA SUBMITTED THAT THE REOPENING OF THE CASE U/S 147 ON SUCH REASONS REC ORDED BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW AND THE E NTIRE REASSESSMENT PROCEEDING IS LIABLE TO BE QUASHED. EXPLAINING THE FACTS HE SUBMITTED THAT THE ASSESSEE HAD BORROWED A CAPITAL FROM IDBI BANK FOR THE PURPOSE OF ITS BUSINESS. THE PRINCIPAL OUTSTANDING AMOUNT OF LOAN AS ON JANUARY, 2003 WAS RS.2128.28 LAKHS AND INTEREST PAY ABLE WAS AT RS.433 LAKHS. SINCE THE ASSESSEES FINANCIAL POSITION WAS NOT GOOD, THE ASSESSEE COULD NOT REGULARLY REPAY THE INTEREST AS WELL AS T HE PRINCIPAL AMOUNT, THEREFORE, THE ASSESSEE ENTERED INTO ONE TIME SETTL EMENT (OTS), WITH THE BANK FOR THE SETTLEMENT OF ITS DUES. AS PER THE PROPOSAL, THE ASSESSEE WAS REQUIRED TO SETTLE THE SET LIABILITIES BY PAYING:-(A) 100% OUTSTANDING PRINCIPAL AMOUNT OF RS.2128.28 LAKHS; ( B) 50% SIMPLE INTEREST OF RS.433 LAKHS; OUT OF THE INTEREST COMPO NENT, RS. 217 LAKHS TO BE PAID ALONG WITH THE ENTIRE PRINCIPAL AMOUNT AND THE BALANCE INTEREST OF RS.216 LAKHS WAS TO BE CONVERTED INTO EQUITY SHA RES OF RS.10/- PER SHARE OF THE ASSESSEES COMPANY. DURING THE RELEVAN T PREVIOUS YEAR, THE ASSESSEE CLAIM DEDUCTION OF RS.4,33,00,000/- U/S 43 B, BEING INTEREST PAID TO IDBI BANK UNDER OTS. HE SUBMITTED THAT FROM THE PERUSAL OF THE REASONS IT CAN BE SEEN THAT, FIRST OF ALL, NO TAN GIBLE MATERIAL HAS BECOME INTO RECORD SO AS TO SUGGEST THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE AO IS ONLY REFERRING TO THE RECORD WHICH WAS ALREADY THERE IN THE RECORD AT THE TIME OF THE ORIGINAL ASSESSMENT PROCEEDINGS. WITHOUT THERE BEING ANY NEW INFORMATIO N, REOPENING U/S 147 CANNOT BE DONE ON THE SAME SET OF RECORDS AS IT AMOUNTS TO CHANGE OF OPINION. IN SUPPORT OF HIS CONTENTION S TRONGLY RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. ITA NO. 7758/MUM/2011 M/S. CABLE CORPORATION OF INDIA LTD. ASSESSMENT YEAR: 2005-06 5 KELVINATOR REPORTED IN (2010) 320 ITR 561 AND BOMBA Y HIGH COURT DECISION IN THE CASE OF ASTEROIDS TRADING & INVESTM ENT (P) LTD. VS. DCIT (2009) 308 ITR 190. SECONDLY, HE SUBMITTED THAT THE ASSESSEE HAS PAID PART OF THE INTEREST BY ALLOTTING EQUITY SHARES TO THE BANK WHICH AMOUNTS TO PAYMENT ONLY WITHIN THE MEANING OF SECTION 43B. NOWHERE IN THE SECTION 43B PROVIDES THAT THE PAYMENT SHOULD BE MAD E IN CASH THAT IS, IN TERMS OF MONEY. EVEN EXPLANATION 3C TO SECTION 4 3B IS NOT APPLICABLE AS THE SAID EXPLANATION ONLY TALKS ABOUT CONVERSION OF INTEREST LIABILITY INTO LOAN OR BORROWING AND NOT THE CONVERSION OF IN TEREST INTO EQUITY SHARES. HENCE THERE IS AN ACTUAL PAYMENT OF INTERES T LIABILITY AND DEDUCTION HAS RIGHTLY BEEN CLAIMED U/S 43B. THUS, T HERE COULD NOT BE ANY REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 4. ON THE OTHER HAND LD. DR SUBMITTED THAT THE CONV ERSION OF INTEREST LIABILITY BY ALLOTTING EQUITY SHARES CANNO T BE TERMED AS SUM ACTUALLY PAID WITHIN MEANING OF SECTION 43B. HE ALS O REFERRED TO EXPLANATION 3C AND SUBMITTED THAT A SUM PAYABLE AS MENTIONED IN SECTION 43B HAS TO BE RECKONED WITH THE ACTUAL AMOU NT PAID AND NOT ANY CONVERSION OF EQUITY SHARES. HE THUS SUBMITTED THAT REOPENING U/S 147 ON SUCH REASONS RECORDED HAS RIGHTLY BEEN DONE AN D ALSO STRONGLY RELIED UPON THE ORDER OF THE AO AND LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS QUA THE ISSU E OF VALIDITY OF REOPENING THE ASSESSMENT U/S 147 AS RAISED IN GROUN D NO. 1. AS PER THE TERMS OF OTS, THE INTEREST LIABILITY ON LOAN OF 4.3 3 CRORES HAS BEEN DISCHARGED BY MAKING THE PAYMENT OF RS.2.17 CRORES AND THE BALANCE SUM OF RS.2.16 CRORES HAVE BEEN DISCHARGED BY ALLOT TING EQUITY SHARES WITH FACE VALUE OF RS.10/-. THE DISCHARGE OF THIS I NTEREST LIABILITY HAS ITA NO. 7758/MUM/2011 M/S. CABLE CORPORATION OF INDIA LTD. ASSESSMENT YEAR: 2005-06 6 BEEN MADE DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2005-06 WHICH HAS BEEN CLAIMED AS DEDUCTION U/S 43B. FROM THE PER USAL OF THE REASONS RECORDED IT IS SEEN THAT ASSESSING OFFICE R HAS ENTERTAINED THE REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON THE GROUND THAT THE PAYMENT THROUGH A LLOTMENT OF EQUITY SHARES TO IDBI IS NOT THE ACTUAL PAYMENT AND THEREF ORE, DEDUCTION CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE. SECTION 4 3B PER SE DOES NOT PROVIDE THE MANNER IN WHICH THE PAYMENT OF INTEREST IS TO BE MADE, IT ONLY PROVIDES THAT THE DEDUCTION IS ALLOWABLE ON TH E SUM PAYABLE MENTION IN CLAUSES (A) TO (F), IF SUCH SUM IS ACTUA LLY PAID BY THE ASSESSEE. THE SAID SECTION CREATES FICTION THAT CER TAIN LIABILITIES, IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED B Y THE ASSESSEE, WOULD BE ALLOWED AS DEDUCTION ONLY ON ACTUAL PAYMEN T. THE CLAUSE (D) OF THE SAID SECTION COVERS INTEREST PAYMENT TO THE BANKS. THE INTEREST PAYMENT HAS TO BE MADE IN CASH OR IN ACTUAL TERMS O F MONEY HAS NOT BEEN SPECIFIED. THE ONLY RIDER GIVEN IN EXPLANATION 3C IS THAT, INTEREST PAYABLE IS ALLOWABLE WHEN THE INTEREST IS ACTUALLY PAID AND IT SHOULD NOT BE CONVERTED INTO LOAN OR BORROWINGS. THERE IS NO P ROHIBITION OR EMBARGO THAT THE SUM ACTUALLY PAID WILL NOT COVER P AYMENTS THROUGH ALLOTMENT OF SHARES. THE SHARES ARE TRADABLE COMMOD ITY AND HAS A VALUE WHICH CAN BE SOLD IN THE MARKET AS PER THE VALUE OF THE SHARE ON THE DATE OF SALE. IT IS EASILY CONVERTIBLE INTO MONEY A S AND WHEN REQUIRED. ONCE THERE IS NO SUCH PROHIBITION U/S 43B FOR DISCH ARGING THE PAYMENT OF INTEREST LIABILITY AND CLAIMING OF DEDUCTION THEREO F, BY CONVERTING THE PAYMENT THROUGH ALLOTMENT OF SHARES, THEN HOW THE A SSESSING OFFICER SANS ANY LEGAL PROVISION OR ANY JUDICIAL AUTHORITY COULD HAVE ENTERTAINED REASON TO BE BELIEVE THAT SUCH A DEDUCTION IS NOT ALLOWABLE. ON THESE ITA NO. 7758/MUM/2011 M/S. CABLE CORPORATION OF INDIA LTD. ASSESSMENT YEAR: 2005-06 7 FACTS WE ARE OF THE OPINION THAT THE REASONS AS R ECORDED BY THE AO, DO NOT CLOTHE HIM WITH THE JURISDICTION U/S 147 TO REO PEN THE COMPLETED ASSESSMENT. NO LEGAL PROVISION OR LEGAL PROPOSITIO N HAS BEEN BROUGHT TO OUR NOTICE IN SUPPORT THE GROUND RAISED BY THE ASSE SSING OFFICER IN THE REASONS RECORDED FOR REOPENING THE CASE. THUS ON SUCH REASONS, WE HOLD THAT THE REOPENING U/S 147 CANNOT BE VALIDLY I NITIATED, AS PRIMA FACIE THERE IS NO REASON TO BELIEVE THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE VERY INITIATION OF PROC EEDING U/S 147 BY ISSUANCE OF NOTICE U/S 148 IS THUS BAD- IN- LAW AN D ACCORDINGLY THE SAME IS HELD AND NULL AND VOID. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 6. IN VIEW OF THE AFORESAID FINDINGS, WE ARE NOT AD JUDICATING THE OTHER GROUNDS RAISED BY THE ASSESSEE ON MERITS AS THEY HA VE BECOME PURELY ACADEMIC. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. 0 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2014. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.11.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.