Marwar Hotels Ltd., Ahmedabad V. The ACIT, OSD-1,Range-4, Ahmedabad

ITA 890/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89788 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 24-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: P M MEHTA
• Section: 43B; 234B

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE-PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.890/AHD/2011 / ASSESSMENT YEAR: 2006-2007 MARWAR HOTEL LTD. NR.INTERNATIONAL AIRPORT CIRCLE HANSOL, AHMEDABAD. PAN : AAACM 8009 N VS ACIT (OSD) - 1 RANGE-4, AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI P.M MEHTA REVENUE BY : SMT.SONIA KUMAR, SR.DR / DATE OF HEARING : 23/06/2015 / DATE OF PRONOUNCEMENT: 24/07/2015 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT(A)-XX, AHMEDABAD DATED 23.11.2010 PASSED FOR TH E ASSTT.YEAR 2006-07. 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE, ORI GINALLY, WERE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (AP PELLATE TRIBUNAL) RULES. THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN N ATURE. THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEAL, WHICH ARE TAKE N ON RECORD. 3. THE GROUND NO.1 IS GENERAL GROUND OF APPEAL, WHE REIN, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS PASSED ORDER WITHOUT ITA NO.890/AHD/2011 2 APPRECIATING THE FACTS AND SUBMISSIONS OF THE ASSES SEE. NO SPECIFIC ARGUMENTS WERE ADVANCED ON THIS ISSUE, RATHER, IT I S AN ANCILLARY ARGUMENT IN SUPPORT OF OTHER GROUNDS. THEREFORE, N O SPECIFIC FINDING IS REQUIRED TO BE RECORDED. 4. THE GROUND NO.2 AND 3 ARE INTER-CONNECTED. IN T HESE GROUNDS OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,62,427/-. 5. BRIEF FACTS OF THE CASE ARE THE ASSESSEE IS A CO MPANY ENGAGED IN THE BUSINESS OF RUNNING HOTELS AT JODHPUR, UDAIPUR AND AHMEDABAD. IT HAS FILED ITS RETURN OF INCOME FOR THE ASSTT.YEAR 2 006-07 ON 30.12.2006 DECLARING LOSS OF RS.4,01,54,150/-. THE CASE OF TH E ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) OF THE INCOME TAX ACT, 1961 WAS ISSUED ON 7.12.007. THIS NOTICE WAS DULY SERVED UPON THE ASSESSEE. 6. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.4,62,427/- WHICH I NCLUDES RS.3,00,621/- UNDER THE HEAD PRIOR PERIOD EXPENSES AND RS.1,61,806/- UNDER THE HEAD PRIOR PERIOD SALARY. THE LD.AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO DEMONSTRATE, HOW THE INCURRENCE OF THIS E XPENDITURE HAVE BEEN CRYSTALLIZED DURING THE ACCOUNTING PERIOD RELEVANT TO THIS ASSESSMENT YEAR. THE APPEAL TO THE CIT(A) DID NOT BRING ANY R ELIEF TO THE ASSESSEE. 7. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT S INCE THE ASSESSEE HAD OPERATION AT VARIOUS PLACES, THE EXPENSES WHICH PERTAINED TO EARLIER YEARS, BUT CLAIMED IN THIS YEAR, CONSISTED OF SMALL AMOUNTS. CERTAIN EXPENSES REMAIN TO BE DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE RELEVANT PREVIOUS YEAR. WHEN THIS CAME TO THE NOTI CE OF THE ASSESSEES ACCOUNTANT, THESE EXPENSES WERE DEBITED IN THIS YEA R. THE LEARNED ITA NO.890/AHD/2011 3 COUNSEL FOR THE ASSESSEE ALTERNATIVELY CONTENDED TH AT THESE EXPENSES BE ALLOWED AS BUSINESS LOSS. IN SUPPORT OF HIS CONTEN TIONS, HE RELIED UPON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN TH E CASE OF BANK OF MADURA LTD. CIT, 261 ITR 749. HE ALSO RELIED UPON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S . SHREE RAM PISTONS AND RINGS LTD., 220 CTR (DEL) 404. 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE REVENUE AUTHORITIES. SHE CONTENDED THAT THE EXPENS ES CAN BE CLAIMED, IF THEY ARE RELATED TO THE RELEVANT ACCOUNTING YEAR . SHE ALSO EMPHASIZED THAT THE EXPENSES ARE CRYSTALLIZED IN TH IS YEAR, THEN ALSO THEY CAN BE CLAIMED. BUT THE ASSESSEE FAILED TO DE MONSTRATE THAT THIS EXPENDITURE HAVE BEEN CRYSTALLIZED IN THIS YEAR. 9. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. AS FAR AS THE ADMISSIBILITY OF E XPENSES ARE CONCERNED, THAT HAS NOT BEEN DISPUTED. SIMILARLY, THE AO HAS NOT DOUBTED GENUINENESS OF THE EXPENDITURE. HIS GRIEVANCE IS T HAT THIS CANNOT BE CLAIMED IN THIS ACCOUNTING YEAR, ON THE GROUND THAT THESE WERE NOT INCURRED IN THE ACCOUNTING YEAR RELEVANT TO THE PRE SENT ASSESSMENT YEAR. THE RATE OF TAX APPLICABLE UPON THE ASSESSEE IN THIS ASSESSMENT YEAR REMAINS THE SAME. IT HAS BEEN REPORTING LOSS IN THE EARLIER YEARS AND IN SUBSEQUENT YEARS. AS FAR AS TAXABILITY PART IS CONCERNED, THERE IS NO SUBSTANTIAL EFFECT UPON THE ASSESSEE IN THIS YEA R BECAUSE IT SHOW LOSSES. ONLY EFFECT IS THAT THE ASSESSEE CAN BE EX POSED TO PENALTY ON ACCOUNT OF REDUCTION OF LOSS THAN THE ONE RETURNED IN THE INCOME. THE ASSESSEE COULD NOT DEMONSTRATE AS TO HOW LOSS HAS A LSO BEEN INCURRED IN THIS YEAR. THE EXPENSES DO NOT PERTAIN TO THIS YEAR, THEREFORE, THEY ARE NOT ALLOWABLE. WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE REVENUE AUTHORITIES. THE GROUND NOS.2 AND 3 OF THE APPEAL ARE REJECTED. ITA NO.890/AHD/2011 4 10. IN THE GROUND NO.4 THE GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.60,79,265/-. 11. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AD TAKEN LOAN FROM IDBI AND LIC. THE INITIAL RATE OF INTEREST WAS 17. 75%. SINCE THE ASSESSEE WAS IN THE INITIAL STAGE OF BUSINESS, IT H AD SUFFERED LOSS. IT HAD RE-NEGOTIATED THE RATE OF INTEREST WHICH WAS REDUCE D TO 14% FROM F.Y.2002-03. ACCORDINGLY, THE REVISED LIABILITY TO WARDS INTEREST WAS WORKED, AND THESE FINANCIAL INSTITUTIONS AGREED TO GET PAID FOR THIS AMOUNT OF INTEREST BY WAY OF EQUITY SHARES OF THE R ESPONDENT COMPANY TO THE EXTENT OF DEBT LIABILITY. THE ASSESSEE HAS LIABILITY OF RS.46,40,983/- TOWARDS IDBI AND RS.14,38,282/- TOWA RDS LIC. THE LD. AO DID NOT ALLOW THE CLAIM OF THE ASSESSEE ON THE G ROUND THAT THE ALLEGED PAYMENT IN THE SHAPE OF ISSUANCE OF EQUITY SHARES OF THE ASSESSEE-COMPANY TO THESE FINANCIAL INSTITUTIONS, D OES NOT AMOUNT TO ACTUAL PAYMENT AS PER SECTION 43B OF THE INCOME TAX ACT, AND THEREFORE, THE ASSESSEE CANNOT CLAIM DEDUCTION. 12. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF T O THE ASSESSEE. 13. BEFORE US, THE ISSUE IS WHETHER THE ISSUANCE OF EQUITY SHARES OF THE ASSESSEE-COMPANY TO THE FINANCIAL INSTITUTIONS AMOUNTS TO ACTUAL PAYMENT OF INTEREST LIABILITY OR NOT. ACCORDING TO THE ASSESSEE THE LIABILITY OF RS.60,79,265/- BEING THE INTEREST ON T ERM LOAN FROM IDBI AND LIC HAS BEEN SHOWN AS PAID. IT IS NO MORE OUTSTAND ING IN THE ACCOUNTS OF THE ASSESSEE. THE AMOUNT IS NOT DUE TO IDBI AND THE LIC AS PER THEIR ACCOUNT. THE LIABILITY HAS NOT BEEN WAIVED BY THES E INSTITUTIONS. THE PAYMENT HAS BEEN ACTUALLY MADE BY WAY OF GIVING EQU ITY SHARES OF THE EQUAL AMOUNT TO THESE FINANCIAL INSTITUTIONS. THE PAYMENT IS NOT BY WAY OF CONVERTING THE INTEREST LIABILITY IN FRESH LOAN, THEREFORE, THE EXPLANATION -3C APPENDED TO SECTION 43B DOES NOT APPLY ON THE F ACTS OF THE PRESENT CASE. THE LEARNED COUNSEL FOR THE ASSE SSEE HAS RELIED UPON ITA NO.890/AHD/2011 5 THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF RAJA MOHAN RAJA BAHADDUR VS. CIT, 66 ITR 378 (SC), CIT VS. MAH ESHWARI SARAN SINGH, 191 ITR 83 (ALLH.), RAMJI LAL RAIS VS. CIT, 49 ITR 50 (ALL.) IN THESE JUDGMENTS, THE HONBLE COURTS HAVE HELD THAT IF A LIABILITY IS DISCHARGED BY WAY OF MONEYS WORTH, THEN IT WOULD T ANTAMOUNT TO PAYMENT. 14. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO. 15. WE FIND THAT THE LD.AO HAS MADE REFERENCE TO EXPLANATION 3C ATTACHED TO SECTION 43B OF THE ACT AND OBSERVED THA T CONVERSION OF INTEREST INTO LOAN DOES NOT AMOUNT TO PAYMENT OF IN TEREST FOR THE PURPOSE OF SECTION 43B. HE ALSO OBSERVED THAT ISSU ANCE OF EQUITY SHARES FOR WAVIER OF INTEREST AND CONVERSION OF INT EREST INTO LOAN BEAR VERY CLOSE RESEMBLANCE. IN BOTH THE CASES, THE ASS ESSEE OWES AMOUNT TO THE LENDERS. IN BOTH THE CASES, THE ACCOUNT OF LENDER WILL HAVE A CREDIT BALANCE OF THE SAME AMOUNT, MAY BE IN DIFFER ENT KINDS OF ACCOUNTS IN THE BOOKS OF THE ASSESSEE. THE CONVERS ION OF INTEREST INTO LOAN, AND ISSUANCE OF EQUITY SHARES IN LIEU OF INTE REST PAYMENT BEING VERY BASIC SIMILARITY, THEREFORE, DOES NOT AMOUNT T O ACTUAL PAYMENT. IN OUR OPINION, EXPLANATION 3C ONLY PROHIBITS AN ASSESSEE FOR RECOGNIZING THE ACTUAL PAYMENT OF INTEREST BY CONVERTING ITS IN TEREST INTO LOAN OR BORROWINGS. IN OTHER WORDS, IF AN ASSESSEE HAS INT EREST LIABILITY, AND HE CONVERTS THAT INTEREST LIABILITY IN FURTHER LOAN, T HEN THAT WILL NOT AMOUNT TO PAYMENT OF INTEREST UNDER SECTION 43B AS PER EXPLANATION -3C. IF AN ASSESSEE HAS ISSUED EQUITY SHARES, WHICH ANYONE CAN ACQUIRE, AND IT HAS A TRADING VALUE, IT WOULD NOT CONSTRUE THAT THE INTEREST LIABILITY HAS BEEN CONVERTED INTO LOAN. THE FINANCIAL INSTITUTIO NS CAN INDEPENDENTLY TRADE THOSE EQUITY. THEREFORE, THE ASSESSEE HAS MAD E PAYMENT OF INTEREST LIABILITY IN MONEYS WORTH. IT HAS NOT RE -NEGOTIATED IN SUCH A ITA NO.890/AHD/2011 6 WAY THAT ITS INTEREST LIABILITY HAS BEEN CEASED. W E ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE. 16. IN GROUND NO.5, THE GRIEVANCE OF THE ASSESSEE I S THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,51,340/-. 17. BRIEF FACTS OF THE CASE ARE THAT IN THE ASSTT.Y EAR 2002-03, THE ASSESSEE WORKED OUT A SUM OF RS.22,56,699/- WHICH W AS SPENT PRIOR TO THE ENHANCEMENT OF THE BUSINESS. THESE EXPENSES WE RE AMORTIZED UNDER SECTION 35D OF THE ACT AND 1/5 TH OF THE EXPENSES WERE CLAIMED BY THE ASSESSEE STARTING FROM THE ASSTT.YEAR 2002-03. THE ASSESSEE HAD CLAIMED THE EXPENSES AS UNDER: ASSTT.YEAR 2002-03 RS.3,38,505 ASSTT.YEAR 2003-04 RS.4,51,340 ASSTT.YEAR 2004-05 RS.4,51,340 ASSTT.YEAR 2005-06 RS.4,51,340 18. THE LD. REVENUE AUTHORITIES HAVE CONFIRMED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABLIS H THAT A SUM OF RS.22,56,699/- WERE CLAIMED TO HAVE BEEN SPENT BEFO RE THE ASSTT.YEAR 2002-03. IN OUR OPINION, WHEN IN THE FIRST YEAR NO DISALLOWANCE WAS MADE, AND THEREAFTER, IN SUBSEQUENT TWO YEARS THIS 1/5 TH HAS BEEN ALLOWED, THE AO IS NOT JUSTIFIED TO ASK THE ASSESSE E TO ESTABLISH ITS GENUINENESS. THEREFORE, TAKING INTO CONSIDERATION PAST HISTORY, WE DELETE THE DISALLOWANCE. 19. IN GROUND NO.6, GRIEVANCE OF THE ASSESSEE RELAT ES TO CHARGING OF INTEREST, UNDER SECTIONS 234A, 234B AND 234C OF THE ACT. THE CHARGING OF INTEREST WILL BE CONSEQUENTIAL IN NATURE, AND TH IS GROUND IS REJECTED. 20. IN THE GROUND NO.7 THE ASSESSEE HAS CHALLENGED INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. TO OUR MIND, THIS IS ITA NO.890/AHD/2011 7 PREMATURE TO CHALLENGE THE INITIATION. THE ASSESSE E WILL GET CHANCE TO REBUT THE PENALTY WHEN PENALTY NOTICE IS SERVED UPO N THE ASSESSEE. 21. THE GROUND NO.8 IS GENERAL IN NATURE, AND DOES NOT CALL FOR ANY SPECIFIC FINDINGS TO BE RECORDED BY US. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 24 TH JULY, 2015 AT AHMEDABAD. SD/- SD/- (G.D. AGRAWAL) VICE-PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 24/07/2015