Rain Cements Limited (formerly Rain Industries Ltd), Hyderabad V. DCIT, Circle-3(1), Hyderabad

ITA 953/HYD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6160 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 15-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MO HARANA
• Keywords: Related party transaction; Depreciation; Transfer pricing; Business expenditure; International transaction; Retrospective amendment; Wholly owned subsidiary; Reasonable cause; Commercial expediency; Revised return; Capital expenditure
• Section: 143(3); 37

Judgement Text

1 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO. A.Y. APPELLANT RESPONDENT 988/H/2014 2006-07 DCIT, CIRCLE-3(1), HYDERABAD. M/S. RAIN COMMODITIES LIMITED, SECUNDERABAD 500 073. PAN AABCP2276K 989/H/2014 2007-08 ITA.NO. A.Y. APPELLANT RESPONDENT 1066/H/2014 2006 - 07 M/S. RAIN COMMODITIES LIMITED, SECUNDERABAD 500 073. PAN AABCP2276K DCIT, CIRCLE-3(1), HYDERABAD. 1067/H/2014 2007 - 08 ITA.NO. A.Y. APPELLANT RESPONDENT 953/H/2012 2007-08 RAIN CEMENTS LTD., (FORMERLY RAIN INDUSTRIES LIMITED) HYDERABAD. PAN AABCR8858F DCIT, CIRCLE-3(1), HYDERABAD. FOR REVENUE : MR. S. MOHARANA FOR ASSESSEE : MR. DEEPAK CHOPRA DATE OF HEARING : 07.12.2015 DATE OF PRONOUNCEMENT : 22.01.2016 2 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. ORDER PER SMT. P. MADHAVI DEVI, J.M. ITA.NOS.988 & 989/HYD/2014 ARE REVENUES APPEALS FOR THE A.Y. 2006-07 AND 2007-08 WHILE ITA.NOS.1066 AND 1067/HYD/2014 ARE THE ASSESSEES APPEALS FOR THE A.YS. 2006-07 AND 2007-08 IN THE CA SE OF RAIN COMMODITIES LTD. ITA.NO.953/HYD/2012 IS ASSESSEES APPEAL FOR THE A.Y. 2007-08 I.E., IN THE CASE OF RAIN COMMODITIES LTD. ITA.NO. 988/HYD/2014 (REVENUE APPEAL) A.Y. 2006- 07 ITA.NO.1066/HYD/2014 (ASSESSEE APPEAL) A.Y. 2 006-07 (IN THE CASE OF RAIN COMMODITIES LTD.,) 2. BRIEF FACTS RELATING TO THE ABOVE ASSESSEE ARE THAT RAIN INDUSTRIES LTD., (RIL) WAS A 100% SUBSI DIARY OF RAIN COMMODITIES LTD., THE ASSESSEE HEREIN, WHIC H WAS ENGAGED IN THE BUSINESS OF CEMENT. THE CEMENT BUSIN ESS WAS TRANSFERRED W.E.F. 1 ST APRIL, 2003 TO RIL I.E., THE ASSESSEES SUBSIDIARY. THEREAFTER, THE ASSESSEE HER EIN VIZ., RAIN COMMODITIES LTD., HAD MERGED WITH ITS GROUP COMPANY RAIN CALCINING LTD., W.E.F. 1 ST APRIL, 2007 AND THE CPC BUSINESS OF RAIN CALCINING LTD., WHICH WAS TRANSFERRED BY THE RAIN COMMODITIES I.E., RCOL BY V IRTUE OF MERGER, WAS TRANSFERRED TO RIL W.E.F. 1 ST APRIL, 2007. THE CEMENT BUSINESS WAS AGAIN RE-TRANSFERRED TO RAI N COMMODITIES LTD., I.E., THE ASSESSEE HEREIN W.E.F. 1 ST JULY, 2006 AND HENCE, FOR THE RELEVANT A.Y. 2006-07, THE ASSESSEES BUSINESS WAS CEMENT BUSINESS. DURING THE A.Y. 2006-07, THE ASSESSEE HAD FILED ITS RETURN OF INCOM E 3 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. ORIGINALLY ON 20.11.2006 DECLARING TOTAL LOSS OF RS .- 12,32,83,565. SUBSEQUENTLY ON 23.03.2007, THE ASSES SEE FILED REVISED RETURN DECLARING A TOTAL LOSS OF RS.- 15,50,69,761/-. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE I.T. ACT, THE A.O. OBSE RVED THAT THE ASSESSEE COMPANY HAS AGREED TO COMPENSATE ICICI BANK LTD., BY A SUM OF RS.12 CRORES WHICH WAS PAYAB LE BY ITS WHOLLY OWNED SUBSIDIARY I.E., RIL, CONSIDERI NG THE FOLLOWING : (I) TO IMPROVE THE FINANCIAL VIABILITY OF RIL (II) TO FACILITATE ONE TIME SETTLEMENT OF CERTAIN LOANS IN RIL; AND (III) TO COMPLETE SUBSCRIPTION OF NON-CONVERTIBLE DEBENTURES WITH FACE VALUE OF RS.112.78 CRORES IN RIL; WHICH IS CRITICAL FOR OPERATIONS OF THE RIL. 2.2. THE A.O. ASKED THE ASSESSEE TO JUSTIFY AND EXPLAIN AS TO WHY THE AMOUNT PAID TO ICICI BANK LTD ., ON BEHALF OF ITS SUBSIDIARY, SHOULD NOT BE DISALLOWED IN THE HANDS OF THE ASSESSEE. THE ASSESSEE EXPLAINED THAT THE PAYMENT WAS DONE TO ICICI BANK DUE TO BUSINESS/COMMERCIAL EXPEDIENCY AND THEREFORE, THE S AME IS ALLOWABLE. HOWEVER, THE A.O. HELD THAT THE ASSES SEE DID NOT SUBSTANTIATE SUCH BUSINESS EXPEDIENCY AND THAT THE LOAN WAS AVAILED BY THE SUBSIDIARY COMPANY FOR ITS BUSINESS PURPOSES AND THE PAYMENT BY THE ASSESSEE W AS ON ACCOUNT OF BANK ADVICE RATHER THAN ASSESSEES OW N BUSINESS EXPEDIENCY. HE, THEREFORE, DISALLOWED THE CLAIM OF EXPENDITURE OF RS. 12 CRORES AND BROUGHT IT TO T AX. 4 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE DISALLOWANCE AND FURTHER HELD THA T THE SAID EXPENDITURE, EVEN IF ALLOWABLE, WAS A CAPITAL EXPENDITURE AND THUS NOT ALLOWABLE AS BUSINESS EXPENDITURE. AGGRIEVED, ASSESSEE IS IN FURTHER APPE AL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUNDS 2(A) AND 2(B) ARE ON THE ALLOWABILITY OF THE EXPENDITURE OF RS.12 CRORES CLAIMED BY THE ASSESSEE WHILE GROUND NO.3 IS AN ALTERNATIVE GROUND THAT SINCE THE SAID AMOUNT OF RS.12 CRORES HAS ALREADY BEEN OFFERED TO TAX BY RIL FOR THE A.Y. 2006-07, DISALLOWING THE SAME IN T HE HANDS OF THE ASSESSEE AND ADDING TO THE ASSESSEES INCOME WOULD RESULT IN DOUBLE TAXATION OF THE SAME AMOUNT. IN ORDER TO DEMONSTRATE THAT THIS AMOUNT HA S ALREADY BEEN OFFERED BY THE RIL TO TAX AND THEREFOR E, IS OFFERED AS LIABILITY AS NO LONGER REQUIRED OF SUM OF RS.15,29,71,500, HE HAS DRAWN OUR ATTENTION TO THE PAGE NO. 68 OF THE PAPER BOOK WHICH IS THE CASH FLOW STA TEMENT FOR THE YEAR ENDED 31 ST MARCH, 2006 IN THE BOOKS OF ACCOUNT OF RIL. HE HAS ALSO DRAWN OUR ATTENTION TO PAGE 75 OF THE PAPER BOOK WHEREIN SCHEDULE-N TO THE P & L A/C DEPICTING OTHER INCOME INCLUDES LIABILITY NO LON GER REQUIRED WRITTEN BACK OF RS.15,29,71,500. THUS, HE HAS SOUGHT TO EXPLAIN THAT RIL HAD OFFERED THE SUM OF RS.15,29,71,500 AS ITS INCOME FOR THE RELEVANT ASSE SSMENT YEAR AND THAT THIS AMOUNT OF RS.15 CRORES INCLUDES SUM OF RS. 12 CRORE ALSO AND THEREFORE, BRINGING TO TAX A SUM OF 5 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. RS.12 CRORES IN THE HANDS OF THE ASSESSEE WOULD RES ULT IN DOUBLE TAXATION OF THE SAME AMOUNT. 3.1. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER DRAWN OUR ATTENTION TO THE PAGE NO.10 OF THE PAPER BOOK CONSISTING OF THE FINANCIALS OF THE ASSESSEE AND SC HEDULE- P THEREIN WHICH CONSISTS OF INTEREST AND FINANCE CHARGES WHEREIN INTEREST ON FIXED LOANS IS SHOWN AT RS.12 CRORES WHILE THE BANK CHARGES AND OTHER INTER EST WERE A NEGLIGIBLE AMOUNT OF RS.11,081. IN ORDER TO DEMONSTRATE THAT THE ASSESSEE WAS TRANSPARENT IN DISCLOSING ITS RELATED PARTY TRANSACTIONS, HE HAS D RAWN OUR ATTENTION TO PAGE-13 OF THE PAPER BOOK, WHEREIN RELATED PARTY DISCLOSURES ARE MADE, SHOWING THAT RI L HAS BEEN SHOWN AS SUBSIDIARY COMPANY OF THE ASSESSEE. H E HAS ALSO DRAWN OUR ATTENTION TO PAGE NOS. 9, 10 AND 14 OF THE PAPER BOOK TO DEMONSTRATE THAT THE SCHEME OF ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND RIL, A SUBSIDIARY COMPANY, WAS APPROVED BY THE HONBLE HIG H COURT OF A.P. AND ALSO BY THE LENDERS OF THE COMPAN Y THROUGH A CREDIT RE-STRUCTURING PACKAGE AND THAT TH E LIABILITY ACCEPTED BY THE COMPANY FOR RS.12 CRORES HAS BEEN CONSIDERED AS INTEREST AND FINANCE CHARGES. HE HAS ALSO DRAWN OUR ATTENTION TO THE ASSESSEES REPL Y AT PAGE-21 OF THE PAPER BOOK WHICH IS THE ASSESSEES L ETTER DATED 28 TH DECEMBER, 2008 ADDRESSED TO THE A.O. WHEREIN THE ASSESSEE HAS GIVEN THE DETAILS OF THE LOAN OF R S.12 CRORES INCURRED DURING THE YEAR ENDED 31 ST MARCH, 2006 AND IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD AGREED 6 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. TO TAKE-OVER LOAN OF RS. 12 CRORES FROM ICICI BANK LTD., EXTENDED TO RIL, AS PER THE LOAN LETTER RECEIVED FR OM ICICI BANK LTD., ON JUNE 12, 2005. IT WAS SUBMITTED THAT THE LOAN WAS TAKENOVER CONSIDERING THE COMMERCIAL OR BUSINESS EXPEDIENCY OF THE ASSESSEE. IT WAS STATED THEREIN THAT THE ASSESSEE HAS TAKENOVER LIABILITY OF RS. 12 CRORES PAYABLE TO ICICI BANK LTD., TO PROTECT ITS INVESTME NT OF RS.76.75 CRORES IN RIL AND THAT THE EXPENDITURE IS ALLOWABLE AS THE SAME IS INCURRED OUT OF COMMERCIAL EXPEDIENCY AND TO PROTECT THE COMMERCIAL INTEREST O F THE COMPANY IN ITS WHOLLY OWNED SUBSIDIARY. HE HAS ALSO DRAWN OUR ATTENTION TO PAGE NO.57 OF THE PAPER BOOK WHICH IS THE LETTER ADDRESSED BY ICICI BANK LTD., T O THE ASSESSEE, WHEREIN, IT IS STATED THAT THE ASSESSEE I S TAKING OVER THE LOAN TO THE EXTENT OF RS.12 CRORES OF RIL DUE TO ICICI BANK LTD., AS ON 31 ST MARCH, 2005 AND HAS SET OUT THE TERMS AND CONDITIONS FOR THE TAKEOVER. THUS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE FACTS ALREADY DEMONSTRATE THE COMMERCIAL EXPEDIENCY OF TA KING- OVER OF THE LOAN OF RIL DUE TO ICICI BANK LTD., AND THEREFORE, THE LOAN AMOUNT WAS ALLOWABLE AS AN EXPENDITURE UNDER SECTION 37 OF THE I.T. ACT AS IT WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE ASSESSEE. IN SUPPORT OF HIS CONTENT ION, HE HAS ALSO PLACED RELIANCE UPON THE FOLLOWING JUDGMEN TS : 1) CIT VS. DALMIA CEMENTS 330 ITR 595 2) JK INDUSTRIES LTD., VS. CIT (2011) 61 DTR 153 3) JK SYNTHESIS LTD. VS. CIT (2014) 369 ITR 310 7 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. 4) ACIT VS. WS INDUSTRIES INDIA LTD., (2011) 9 ITR 596. 5) DCIT VS. ALL INDIA REPORTERS (P) LTD., (2014) 40- CCH-163 (MUM.) (TRIBU.) 6) JUDGMENT OF HONBLE SUPREME COURT IN CIVIL APPEAL NO.514 OF 2008 DATE 05.11.2015 IN THE CASE OF HERO CYCLES P. LTD., 4. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LOAN TAKEN BY RIL I.E., SUBSIDIARY OF THE ASSESSEE COMPANY WAS FOR THE PURPOSES OF ITS BUSINESS AND DOES NOT P ERTAIN TO THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE BUSINESS EXPEDIENCY OF T AKING- OVER THE LOAN OF THE SUBSIDIARY COMPANY AND EVEN IF IT IS TO BE CONSIDERED AS THE LIABILITY OF THE ASSESSEE C OMPANY, THE LOAN BEING IN THE CAPITAL FIELD, THE LOSS ARISI NG IS A CAPITAL LOSS AND CANNOT BE ALLOWED AS AN EXPENDITUR E UNDER SECTION 37 OF THE I.T. ACT. HE HAS DRAWN OUR ATTENTION TO THE LETTER OF ICICI BANK LTD., PLACED AT PAGE NO.57 OF THE PAPER BOOK TO DEMONSTRATE THAT THE AMO UNT OF RS.12 CRORES SHOWN AS THE INTEREST AND FINANCE CHARGES BY THE ASSESSEE IS NOT IN FACT INTEREST BU T IS THE TERM LOAN WHICH HAS BEEN SHOWN AS SUCH BY THE ICICI BANK IN THE TERMS AND CONDITIONS STIPULATED BY IT. HE FURTHER SUBMITTED THAT THE JUDGMENTS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE ARE ON THE ALLOWABILIT Y OF EXPENDITURE UNDER SECTION 36(1)(III) OF THE I.T. AC T AND THEREFORE, ARE DISTINGUISHABLE ON FACTS AND ARE NOT APPLICABLE TO THE ASSESSEES CASE. 8 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, WE FIND THAT THE TAKING-OVER OF THE LOAN OR DISCHARGE OF THE LOAN OF RIL DUE TO ICICI B ANK IS ON ACCOUNT OF RE-STRUCTURING SCHEME BETWEEN THE ASS ESSEE AND RIL. IT IS ALSO NOT IN DISPUTE THAT RIL IS THE 100% WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY. TH E FACT THAT RIL HAS OFFERED A SUM OF RS.12 CRORES AS THE PROVISION NO LONGER REQUIRED WRITTEN BACK IS ALSO NOT IN DISPUTE. THE LD. D.R. HAD ARGUED THAT THE OFFERING OF RS. 12 CRORES AS THE INCOME OF THE RIL WOULD NOT MAKE A NY DIFFERENCE TO ITS TAXABILITY IN THE HANDS OF THE AS SESSEE BECAUSE THERE WERE HUGE BROUGHT FORWARD LOSS WHICH WOULD SET OFF THIS INCOME AND THEREFORE, TAX LIABIL ITY OF RIL WAS NIL. HOWEVER, WE ARE UNABLE TO ACCEPT THIS CONTENTION OF THE LD. D.R. BECAUSE THE BROUGHT FORW ARD LOSSES ARE FROM THE EARLIER ASSESSMENT YEARS AND TH E SAID COMPANY I.E., RIL IS ELIGIBLE TO SET OFF ANY INCOME ARISING DURING THE YEAR AGAINST SUCH BROUGHT FORWARD LOSSES AND THAT ALONE CANNOT BE A GOOD REASON TO DISALLOW THE SAME IN THE HANDS OF THE ASSESSEE. FURTHER, THE QUESTION BEFORE US IS THE ALLOWABILITY OF THE EXPENDITURE OF RS.12 CRORES CLAIMED BY THE ASSESSEE UNDER SECTION 37 OF THE I.T . ACT. TO ALLOW AN EXPENDITURE UNDER SECTION 37 OF THE I.T . ACT, IT MUST HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE ASSESSEE. THIS IS WHERE TH E TERM BUSINESS OR COMMERCIAL EXPEDIENCY WOULD ATTAIN IMPORTANCE. THE LD. COUNSEL FOR THE ASSESSEE HAD P LACED RELIANCE UPON THE JUDGMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF S.A. BUILDERS LTD., REPORTED IN 288 ITR 1 9 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. (SC) WHEREIN IT WAS HELD THAT ONCE IT IS ESTABLISHE D THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURP OSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSI NESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABL Y CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN A ND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. THEREFORE, IN THE CASE BEFORE US, IN ORDER TO EXAMINE THE BUSINESS OR COMMERCIAL EXPEDIENCY, THE PURPOSE OF TAKING-OVER OF THE LOAN IS TO BE EXAMINED. ACCORDIN G TO THE ASSESSEE, THE PURPOSE OF TAKING-OVER OF THE LOAN IS TO IMPROVE THE FINANCIAL VIABILITY OF RIL, TO FACILIT ATE ONE TIME SETTLEMENT OF CERTAIN LOANS IN RIL AND TO COMPLETE SUBSCRIPTION OF NON-CONVERTIBLE DEBENTURES WITH FAC E VALUE OF RS.112.78 CRORES IN RIL, WHICH IS CRITICAL FOR THE OPERATIONS OF RIL. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS INVESTED A SUM OF RS.76.75 CRORES IN T HE BUSINESS OF ITS SUBSIDIARY. FURTHER, IT IS NOTICED FROM PARA-9 TO THE NOTES TO ACCOUNTS OF THE ASSESSEE COM PANY THAT THERE WAS A SCHEME OF ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND ITS SUBSIDIARY WHICH WAS APPRO VED BY THE HONBLE HIGH COURT OF A.P., BY THE RESPECTIV E SHARE HOLDERS OF THE SAID COMPANIES; AND ALSO BY THE LEND ERS OF THE COMPANY THROUGH A CREDIT RESTRUCTURING PACKAGE BY VIRTUE OF WHICH, THE BUSINESS OF CEMENT MANUFACTURI NG WAS TRANSFERRED TO RIL W.E.F. 1 ST APRIL, 2003 AND THE EFFECTIVE DATE OF THE SCHEME WAS AUGUST 30, 2014 AN D ACCORDINGLY, THE SCHEME HAS BEEN GIVE EFFECT TO IN THE BOOKS OF ACCOUNT FOR THE 18 MONTHS PERIOD ENDED 30 TH 10 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. SEPTEMBER, 2003. FROM PARA-10 THEREOF, IT IS NOTICE D THAT ON THE BASIS OF THE DEBT RE-STRUCTURING PROPOSALS C LEARED BY THE BANKS AND THE FINANCIAL INSTITUTIONS AND OTH ER MEASURES INITIATED BY THE SUBSIDIARY, THE DIMINUTIO N IN THE VALUE OF INVESTMENTS IS TEMPORARY IN NATURE AND THEREFORE, NO PROVISION IS CONSIDERED AT THIS STAGE AND THE ALLOWABILITY OF RS.12 CRORES HAS BEEN ACCEPTED BY T HE COMPANY IN TERMS OF DEBT RE-STRUCTURING SCHEME AND THE SAID AMOUNT HAS BEEN CONSIDERED AS INTEREST AND FINANCE CHARGES. THUS, WE FIND THAT THE DEBT RE- STRUCTURING SCHEME IS PURSUANT TO THE TRANSFER OF T HE CEMENT BUSINESS FROM RIL TO THE ASSESSEE AND ANY TRANSFER OF THE LIABILITY IS ALSO TO BE CONSIDERED AS PART OF THE TRANSACTION OF TRANSFER OF THE BUSINESS TO THE ASSESSEE. 6. THE JUDGMENTS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, THOUGH ARE ALL ON THE ISSUE OF AL LOWABILITY OF EXPENDITURE UNDER SECTION 36(1)(III) OF THE I.T. ACT, WE FIND THAT THE RATIO DECIDED THEREIN IS VERY MUCH AP PLICABLE TO THE FACTS OF THE CASE BEFORE US FOR THE ALLOWABI LITY OF THE CLAIM OF DEDUCTION UNDER SECTION 37 OF THE I.T. ACT . IN ALL THESE DECISIONS, THE HONBLE COURTS HAVE CONSIDERED THE BUSINESS PURPOSE OR COMMERCIAL EXPEDIENCY OF THE ADVANCES GIVEN BY THE HOLDING COMPANIES TO THEIR SUBSIDIARIES AND IT HAS BEEN HELD THAT WHERE AN INT EREST FREE LOAN IS GIVEN BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY WITHOUT THERE BEING ANY PERSONAL BENEFIT TO ANY OF ITS DIRECTORS, THEN SUCH PORTION OF THE INTEREST PAID BY THE ASSESSEE ON ITS BORROWED FUNDS CANNOT BE DISALL OWED. 11 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. THE HONBLE SUPREME COURT IN THE CASE OF HERO CYCLE S P. LTD., (CITED SUPRA), WAS DEALING WITH THE CASE OF A N ASSESSEE WHICH HAD ADVANCED A SUM OF RS.1,16,26,128 TO ITS SUBSIDIARY COMPANY AND THIS ADVANCE DID NOT CAR RY ANY INTEREST AND THE ASSESSEE THEREIN HAD BORROWED MONEY FROM THE BANKS AND PAID THE INTEREST THEREON WHICH WAS CLAIMED AS BUSINESS EXPENDITURE. THE HON BLE SUPREME COURT, AFTER CONSIDERING VARIOUS DECISIONS INCLUDING ITS OWN DECISION IN THE CASE OF S.A. BUI LDERS (CITED SUPRA), HAS HELD THAT THE ASSESSEE COMPANY H AD ADVANCED THE LOAN TO M/S. HERO CYCLES P. LTD., AS A BUSINESS EXPEDIENCY IN VIEW OF THE UNDERTAKING GIVE N TO THE FINANCIAL INSTITUTIONS BY THE ASSESSEE TO THE E FFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO MEET THE WORK ING CAPITAL FOR MEETING ANY CASH LOSS. IN THE CASE BEFO RE US ALSO, WE FIND THAT THE LOAN FROM ICICI BANK LTD., T O RIL HAS BEEN ADVANCED AS A TERM LOAN FOR WORKING CAPITA L REQUIREMENTS OF RIL AND THE SAME HAS BEEN DISCHARGE D BY THE ASSESSEE IN VIEW OF THE DEBT RE-STRUCTURING SCH EME. THE DEBT RE-STRUCTURING SCHEME IS PURSUANT TO TRANS FER OF CEMENT BUSINESS FROM RIL TO THE ASSESSEE HEREIN. TH US THE BUSINESS EXPEDIENCY OF THE TRANSACTION IS ESTAB LISHED. FURTHER, AS REGARDS THE LD. CIT(A)S FINDING THAT T HE LOAN IS IN THE CAPITAL FIELD AND THEREFORE, THE RESULTAN T LOSS IS CAPITAL LOSS AND IS NOT ALLOWABLE UNDER SECTION 37( 1) OF THE I.T. ACT, WE FIND THAT THE SUM OF RS.12 CRORES IS N OT TOWARDS PAYMENT OF INTEREST BUT IT IS FOR THE REPAY MENT OF THE PRINCIPAL AS WELL AS THE INTEREST AS ON THE DAT E OF REPAYMENT OF THE LOAN. THE SUM OF RS.12 CRORES HAS BEEN 12 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. OFFERED BY RIL AS THE LIABILITY NO LONGER REQUIRED AND WRITTEN BACK BUT IN THE HANDS OF THE ASSESSEE, IT IS AN EXPENDITURE TO SAFEGUARD ITS INTERESTS OR ITS INVES TMENT IN THE SUBSIDIARY COMPANY. THEREFORE, IT IS FOR THE BU SINESS PURPOSE OF THE ASSESSEE AND HENCE REVENUE IN NATURE AND CANNOT BE TREATED AS A CAPITAL LOSS. ASSESSEES GRO UNDS OF APPEAL 2(A), 2(B) AND 3 ARE ACCORDINGLY ALLOWED. 7. AS REGARDS GROUND NO.4, THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY HAD ADVANCED INTEREST FRE E ADVANCE TO ITS SUBSIDIARY COMPANY IN USA. THE A.O. OBSERVED THAT THE ASSESSEE HAS NOT OFFERED ANY REAS ON FOR ADVANCEMENT OF SUCH LOAN TO ITS SUBSIDIARY AND HAS NOT FURNISHED ANY DETAILS OF INTEREST ON LOAN TO THE TU NE OF RS.12,11,08,000 EVEN THOUGH IT HAS OBTAINED A LOAN OF RS.22,67,33,000. THEREFORE, HE BROUGHT TO TAX THE I NTEREST ON THE FUNDS ADVANCED TO ITS SUBSIDIARY AT 12% P.A. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE SAME. AGAINST THE REL IEF GIVEN BY THE LD. CIT(A) HOLDING THAT THE INTEREST O N LOAN ADVANCED TO THE A.E. IS TO BE COMPUTED BY ADOPTING LIBOR +, THE REVENUE IS IN APPEAL BEFORE US AND AGA INST THE LD. CIT(A) ORDERS HOLDING THAT THE INTEREST IS TO BE COMPUTED ON THE ADVANCES GIVEN BY THE ASSESSEE TO I TS SUBSIDIARY IN USA, THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD OBTAINED 0% INTEREST LOAN FRO M SUJALA INVESTMENT P. LTD., FOR A PERIOD OF SIX MO NTHS 13 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. FROM THE DATE OF DISBURSEMENT I.E., 28 TH FEBRUARY, 2006 AND ON THE VERY SAME DAY, THE SAME WAS ADVANCED TO ITS SUBSIDIARY IN USA WITHOUT ANY INTEREST FOR THE BUSI NESS PURPOSES OF THE ASSESSEE. HE HAS ALSO DRAWN OUR ATTENTION TO PAGE-57 OF THE PAPER BOOK TO DEMONSTRA TE THAT EXCEPT FOR THE LOAN AMOUNT OF RS.12 CRORES WHI CH HAS BEEN SHOWN AS INTEREST IN FINANCE CHARGES, THERE IS NO OTHER INTEREST BURDEN ON THE ASSESSEE ON THIS LOAN OF RS.10,67,33,000. THE LD. COUNSEL FOR THE ASSESSEE H AS ALSO DRAWN OUR ATTENTION TO THE RESERVES AND SURPL US OF THE ASSESSEE WHICH WERE TO THE TUNE OF RS.42,14,32, 524 TO DEMONSTRATE THAT THE ASSESSEE HAD SUFFICIENT RESERV ES AND SURPLUS TO ADVANCE INTEREST FREE ADVANCES TO ITS SU BSIDIARY IN USA. HE SUBMITTED THAT THE NEXUS BETWEEN THE INT EREST FREE LOAN TAKEN BY THE ASSESSEE AND THE INTEREST FR EE ADVANCE GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY IN USA HAS BEEN CLEARLY DEMONSTRATED AND THEREFORE, NO ADD ITION ON THIS COUNT IS CALLED FOR. AS REGARDS THE BUSINES S EXPEDIENCY OF ADVANCING INTEREST FREE ADVANCE TO IT S SUBSIDIARY IN USA IS CONCERNED, HE PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF HERO CYCLES LTD., (CITED SUPRA). 9. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE LD. CIT(A) ON THE ISSUE OF BRINGING T O TAX THE INTEREST ON THE LOAN ADVANCED BY THE ASSESSEE TO IT S SUBSIDIARY, BUT AS FAR AS THE LD. CIT(A)S DIRECTIO N THAT THE INTEREST RATE SHOULD BE AT LIBOR+ IS CONCERNED, HE HAS SUBMITTED THAT THE INTEREST BEING ADVANCED FROM IND IA, 14 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. THE RATE OF INTEREST CHARGED BY THE BANKS IN INDIA SHOULD BE ADOPTED AS RIGHTLY DONE BY THE A.O. HE FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE ASSE SSEE RELATE TO DOMESTIC TRANSACTIONS WHEREAS, THE TRANSA CTION BETWEEN THE ASSESSEE AND ITS SUBSIDIARY IN USA IS A N INTERNATIONAL TRANSACTION AND THEREFORE, THEY ARE N OT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE TRANSACTION OF CAPITAL FINANCING INCLUDING ANY TYPE OF LONG TERM OR SHORT TERM BORROWING ETC., HAS BECOME AN INTERNATIONAL TRANSAC TION WITH RETROSPECTIVE EFFECT BY VIRTUE OF EXPLANATION TO CLAUSE (I) (C) W.E.F. 01.04.2002 AS INSERTED BY THE FINANC E ACT OF 2012. THEREFORE, DURING THE RELEVANT PERIOD I.E., F .Y. 2006-07, WHEN THE SAID TRANSACTION WAS NOT AN INTERNATIONAL TRANSACTION, NO SUCH IMPUTATION CAN B E MADE. AS FAR AS THE NEXUS BETWEEN THE INTEREST FREE LOAN AND THE INTEREST FREE ADVANCE IS CONCERNED, WE ARE SATISFIED THAT THE NEXUS HAS BEEN ESTABLISHED BY TH E ASSESSEE AND WHEN THERE IS NO INTEREST BURDEN ON TH E ASSESSEE BY VIRTUE OF THE LOAN ADVANCED TO ITS SUBS IDIARY, WE ARE OF THE OPINION THAT NO SUCH INTEREST INCOME CAN BE ATTRIBUTED IN THE HANDS OF THE ASSESSEE. IN VIEW OF THE SAME, GROUND NO.4 OF THE ASSESSEE IS ALLOWED. 11. AS REGARDS THE REVENUES APPEAL AGAINST THE ORDER OF THE LD. CIT(A) HOLDING THAT THE RATE OF IN TEREST SHOULD BE LIBOR+, WE FIND THAT IT REQUIRES NO 15 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. ADJUDICATION AT THIS STAGE AS WE HAVE ALREADY HELD THAT NO INTEREST IS CHARGEABLE ON THE INTEREST FREE ADVANCE S GIVEN TO ITS SUBSIDIARY IN USA. IN VIEW OF THE SAME, REVE NUES GROUND IS ALSO DISMISSED. 12. IN THE RESULT, ITA.NO.988/HYD/2014 OF THE REVENUE IS DISMISSED AND ITA.NO.1066/HYD/2014 OF TH E ASSESSEE IS ALLOWED. ITA.NO.1067/HYD/2014 (ASSESSEE APPEAL) A.Y. 200 7-08 ITA.NO. 989/HYD/2014 (REVENUE APPEAL) - A.Y. 2007-08. 13. BRIEF FACTS RELATING TO THESE APPEALS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y . 2007- 08 DECLARING NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE I.T. ACT, T HE A.O. OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.8,79,58,467 TOWARDS INTEREST ON SALES TAX DEFER MENT WHICH IS NOT ACTUALLY PAID. HE OBSERVED THAT THE S AID AMOUNT WAS INITIALLY ADDED BACK IN THE COMPUTATION OF INCOME AS DISALLOWANCE UNDER SECTION 43B, BUT HAS B EEN CLAIMED AS ADMISSIBLE EXPENSES WITH NOMENCLATURE INTEREST ON SALES TAX DEFERMENT ON DISCOUNTED FUTUR E LIABILITY AND CLAIMED AS AN EXPENDITURE UNDER SECTI ON 37 OF THE I.T. ACT. THE ASSESSEE ALSO FURNISHED A DEED OF AGREEMENT FOR DEFERRED SALES TAX PAYMENT WHEREIN IT WAS STATED THAT THE SALES TAX WAS DEFERRED WITHOUT ANY INTEREST. THEREFORE, HOLDING THAT THERE IS NO INTER EST AT ALL THAT IS DUE TO BE PAID ON SALES TAX DEFERMENT AND T HAT IT IS ONLY THE SALES TAX DEFERMENT THAT IS DEFERRED, THE PAYMENT 16 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. OF WHICH STARTS FROM 2012, HE HELD THAT THE INTERES T ON SUCH SALES TAX DEFERMENT IS NOT ALLOWABLE. HE ACCOR DINGLY, DISALLOWED A SUM OF RS.8,79,58,467 AND BROUGHT IT T O TAX. 14. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AGAINST THE DISALLOWANCE OF I NTEREST ON SALES TAX DEFERMENT WHICH WAS ALLOWED BY HIM. TH E ASSESSEE HAD ALSO RAISED AN ADDITIONAL GROUND OF AP PEAL BEFORE THE CIT(A) CLAIMING DEDUCTION OF DISCOUNT O N ISSUE OF DEBENTURES ON PROPORTIONATE BASIS CONSEQUENT TO THE ASSESSMENT ORDER IN THE CASE OF RIL. IT WAS SUBMITT ED THAT DURING THE A.Y. 2006-07, RIL HAD RAISED RS.112.78 C RORES FROM/BY ISSUANCE OF DEBENTURES AT A DISCOUNT OF RS. 12.78 CRORES WHICH WERE REDEEMABLE IN 10 ANNUAL INSTALLME NTS AND THAT RIL HAD DEBITED 1/5 TH OF THE DISCOUNT I.E., RS.2,55,60,000 IN ITS BOOKS AND CLAIMED THE BALANCE OF RS.10,22,40,000 WHILE COMPUTING THIS TOTAL INCOME A ND THAT THE A.O. HAD HELD THAT ONLY THE PROPORTIONATE AMOUNT WAS ALLOWABLE DURING THE YEAR. THE ASSESSEE ALSO SUBMITTED THAT THESE DEBENTURES ARE TRANSFERRED TO THE ASSESSEE IN A SCHEME OF ARRANGEMENT DURING THE YEAR IN APPEAL AND THAT SINCE THE A.O. HAD NOT ALLOWED PROPORTIONATE AMOUNT OF DISCOUNT ON DEBENTURES, THE APPELLANT SHOULD BE ALLOWED TO CLAIM DISCOUNT ON DEBENTURES FOR PROPORTIONATE PERIOD OF 9 MONTHS I.E ., RS.1,91,80,000 DUE TO THE SCHEME OF ARRANGEMENT WHI CH CAME INTO EFFECT FROM 01.07.2006. THE LD. CIT(A) HO WEVER, HELD THAT THE ASSESSEE HAD NOT MADE ANY CLAIM IN TH IS REGARD IN ITS RETURN OF INCOME AND THE A.O. HAS ALS O NOT 17 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. MADE ANY REFERENCE TO THIS ISSUE IN HIS ASSESSMENT ORDER. THEREFORE, HOLDING THAT THIS IS NOT THE ISSUE ARISI NG FROM THE ASSESSMENT ORDER, THE LD. CIT(A) DISMISSED THE SAME AS NOT MAINTAINABLE UNDER SECTION 246A OF THE I.T. ACT. AGAINST THE LD. CIT(A) ORDER IN NOT ADMITTING THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE , THE ASSESSEE IS IN APPEAL BEFORE US, WHILE THE REVENUE IS IN APPEAL AGAINST THE ORDER OF THE LD. CIT(A) IN DELET ING THE DISALLOWANCE MADE BY THE A.O. OF THE INTEREST ON SA LES TAX DEFERMENT. 15. AS REGARDS THE ASSESSEES APPEAL 1067/HYD/2014 IS CONCERNED, AND THE CLAIM OF DISCOU NT ON ISSUE OF DEBENTURES ON PROPORTIONATE BASIS, WE F IND THAT THE ISSUE OF ALLOWABILITY OF THE DISCOUNT ON I SSUE OF DEBENTURES HAD ARISEN IN THE CASE OF RAIN CEMENT LT D., FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED (RIL) DUR ING THE A.Y. 2006-07 AND THIS TRIBUNAL HAS HELD THAT TH E SAME IS NOT ALLOWABLE ENTIRELY IN THE YEAR OF ISSUE BUT HAS TO BE AMORTIZED OVER THE PERIOD OF DEBENTURES I.E., IN THIS CASE 5 YEARS. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN T HE CASE OF TAPARIA TOOLS LTD., IN CIVIL APPEALS NOS. 6 946- 6948 OF 2004 DATED 23.03.2015 TO CONTEND THAT THE E NTIRE EXPENDITURE IS TO BE ALLOWED IN THE YEAR OF ISSUE O F DEBENTURES. WE, HOWEVER, FIND THAT THIS JUDGMENT WA S CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL (TO WHICH ONE OF US I.E., THE J.M. IS A SIGNATORY) IN T HE ASSESSEES OWN CASE FOR A.Y. 2006-07 BEFORE HOLDING THAT 18 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. THE DISCOUNT HAS TO BE AMORTISED OVER THE PERIOD OF THE DEBENTURES. FURTHER, WE FIND THAT THE CEMENT BUSINE SS OF THE RAIN CEMENTS LTD., HAS BEEN TRANSFERRED TO THE ASSESSEE W.E.F. 1 ST JULY, 2006 AND THEREFORE, THE AMORTISATION OF DISCOUNT ON ISSUE OF DEBENTURES HAS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE IN PROPORTION TO THE PERIOD OF ITS HOLDING THE DEBENTURES DURING THE REL EVANT FINANCIAL YEAR. THEREFORE, WE ARE OF THE OPINION TH AT THE ASSESSEE WAS PREVENTED BY REASONABLE CAUSE IN NOT MAKING A CLAIM BEFORE THE A.O. DURING THE ASSESSMEN T PROCEEDINGS AND HAS ACCORDINGLY, RAISED AN ISSUE BE FORE THE LD. CIT(A) ON ACCOUNT OF THE ASSESSMENT ORDER P ASSED IN THE CASE OF RAIN CEMENTS LIMITED. IN VIEW OF THE SAME, WE ARE INCLINED TO ADMIT THE ADDITIONAL GROUND OF A PPEAL AND REMIT THE ISSUE TO THE FILE OF THE A.O. TO CONS IDER AND ALLOW THE DISCOUNT ON DEBENTURES ON PROPORTIONATE B ASIS IN ACCORDANCE WITH THE DECISION OF THIS TRIBUNAL IN THE CASE OF RAIN CEMENTS LIMITED IN ITA.NO.878/2014 DAT ED 24.09.2015. 16. IN THE RESULT, ITA.NO.1067/HYD/2014 OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 17. AS REGARDS THE REVENUES APPEAL ITA.NO. 989/HYD/2014 IS CONCERNED, WE FIND THAT THE GOVERNMENT OF ANDHRA PRADESH HAS ALLOWED THE DEFERMENT OF SALE S TAX IN THE CASE OF THE ASSESSEE AND THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A COPY OF THE SAID ORDER BEFORE US. HOWEVER, WE FIND THAT THE A.O. HAS DISALLOWED THE 19 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. INTEREST PAID ON SALES TAX DEFERMENT WHEREAS, IT I S THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS NOT PAID ANY INTEREST ON SALES TAX DEFERMENT NOR HAS IT CLAIMED IT TO BE DUE. IT IS STATED THAT THE CEMENT BUSINESS OF RAIN CEMENTS LTD., WAS TRANSFERRED TO THE ASSESSEE COMPA NY IN A SCHEME OF ARRANGEMENT APPROVED BY HONBLE A.P. HI GH COURT W.E.F. JULY 01, 2006 CONSEQUENT TO WHICH, ALL THE ASSETS AND LIABILITIES OF THE CEMENT BUSINESS WERE TRANSFERRED TO THE COMPANY AND THE LIABILITY OF SAL ES TAX AS RECORDED BY THE SUBSIDIARY WAS MUCH LOWER THAN THE ACTUAL LIABILITY AS COMPUTED BY THE VAT DEPARTMENT. A COPY OF THE VAT ASSESSMENT ORDER DATED AUGUST 30, 2 006 IS FILED BEFORE US TO DEMONSTRATE THAT THE ACTUAL S ALES TAX LIABILITY OF THE SUBSIDIARY WAS RS.38,25,48,170 WHE REAS IT WAS RS.29,45,89,703 AS RECORDED IN THE BOOKS OF THE SUBSIDIARY ON THE DATE OF TRANSFER OF BUSINESS I.E. , 01 ST JULY, 2006. IT WAS SUBMITTED THAT THE DIFFERENTIAL SALES TAX WAS DEBITED TO THE P & L A/C UNDER THE NOMENCLATURE INTEREST ON SALES TAX DEFERMENT. IT IS STATED THA T THE A.O. HAS VERIFIED THIS ASPECT AS RECORDED IN THE ASSESSMENT ORDER BUT HAS ERRONEOUSLY DISALLOWED THE SAME. HOWEVER, WE FIND THAT THOUGH THE A.O. HAS STA TED THAT NO INTEREST WAS DUE TO BE PAID ON SALES TAX DEFERMENT, HE HAS DISALLOWED ASSESSEES CLAIM AS AS SESSEE HAS CLAIMED IT AS INTEREST ON SALES TAX DEFERMENT . THE FACT THAT THERE IS A DIFFERENCE IN THE LIABILITY RE CORDED IN THE BOOKS OF THE SUBSIDIARY AND THE ACTUAL LIABILIT Y OF SALES TAX NEEDS VERIFICATION BY THE ASSESSING OFFICER. I N VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMIT THIS I SSUE 20 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. ALSO TO THE FILE OF THE A.O. FOR VERIFICATION AND A SSESSMENT IN ACCORDANCE WITH LAW. 18. IN THE RESULT, ITA.NO.989/HYD/2014 OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPO SES. ITA.NO.953/HYD/2012 A.Y. 2007-08 : 19. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2007-08 . IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE OR DER OF THE LD. CIT(A) IN NOT ALLOWING DEDUCTION FOR DISCOU NT ON ISSUE OF DEBENTURES IN THE HANDS OF THE ASSESSEE. 20. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD ISSUED CERTAIN DEBENTURES ON DISCOUNTED VALUE I N THE FINANCIAL YEAR RELEVANT TO THE A.Y. 2006-07. THE AS SESSEE HAD CLAIMED THE WHOLE OF THE DISCOUNT IN THE A.Y. 2 006-07 BUT THE A.O. DISALLOWED THE SAME AND ALLOWED 1/10 TH AMORTIZATION IN THE EARLIER YEAR. THE ISSUE TRAVELL ED UP TO THE ITAT AND THE TRIBUNAL HAS HELD THAT THE SAME CA NNOT BE ALLOWED IN ENTIRETY IN THE YEAR OF ISSUE BUT HAS TO BE AMORTIZED FOR THE PERIOD OF DEBENTURES AND IN THE C ASE OF THE ASSESSEE FOR A PERIOD OF 5 YEARS. FOLLOWING THE ORDER OF THE A.O. FOR THE EARLIER A.Y. 2006-07, THE A.O. FOR THE A.Y. 2007-08 ALSO DISALLOWED THE CLAIM OF THE ASSESSEE A ND BROUGHT IT TO TAX. AGGRIEVED, ASSESSEE PREFERRED AP PEAL BEFORE THE LD. CIT(A) WHO ALSO CONFIRMED THE DISALL OWANCE AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US STAT ING THAT THE ASSESSEE IS ENTITLED TO THE AMORTIZATION O F THE DISCOUNT ON DEBENTURES FROM THE A.Y. 2007-08 ONWARD S 21 ITA.NO.988, 989/HYD/2014, 1066 & 1067/HYD/2014, ITA.NO.953/HYD/2012 RAIN COMMODITIES LTD., HYDERABA D. AS DIRECTED BY THE HONBLE TRIBUNAL AND THAT PRAYED THAT SIMILAR DIRECTION BE GIVEN TO THE ASSESSING OFFICER . A COPY OF THE ORDER OF THIS TRIBUNAL IN ITA.NO.878/2014 DA TED 24.09.2015 HAS BEEN FILED BEFORE US. TAKING NOTE OF THE SAME, WE REMIT THE ISSUE TO THE FILE OF THE A.O. TO GIVE CONSEQUENTIAL RELIEF TO THE ASSESSEE PURSUANT TO TH E ORDER OF THIS TRIBUNAL IN ITA.NO.878/2014 DATED 24.09.201 5. 21. IN THE RESULT, ITA.NO.953/HYD/2012 OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 22. TO SUM-UP, ITA.NO.988/HYD/2014 OF THE REVENUE IS DISMISSED AND ITA.NO.989/HYD/2014 OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPO SES, ITA.NO.1066/HYD/2014 OF THE ASSESSEE IS ALLOWED, ITA.NO.1067/HYD/2014 AND ITA.NO.953/HYD/2012 OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PUR POSES ORDER PRONOUNCED IN THE OPEN COURT ON 22.01.2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 22 ND JANUARY, 2016 VBP/- COPY TO 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), 7 TH FLOOR, B BLOCK, I.T. TOWERS, HYDERABAD. 2. M/S. RAIN COMMODITIES LTD., RAIN CENTRE, 34, SRINAG AR COLONY, SECUNDERABAD 500 073. 3. RAIN CEMENTS LTD., (FORMERLY RAIN INDUSTRIES LIMITE D) 34, RAIN CENTER, SRINAGAR COLONY, HYDERABAD. 4. CIT(A) - IV, HYDERABAD 4. CIT-III, HYDERABAD. 5. D.R. I.T.A.T. B BENCH, HYDERABAD. 6. GUARD FILE