9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (4) TMI 182 - AT - Income TaxRevision u/s 263 - certain interest to financial institutions claimed by assessee should have been disallowed u/s.43B - Held that - As can be seen from the replies given by assessee during the course of scrutiny, the claim of allowance u/s.43B the amounts stated to have been converted to equity was examined by the Assessing Officer and allowed. The reliance of Ld.CIT on the Board circular is not correct as the Board circular refers to conversion of outstanding interest payable into loans or borrowings, but not to equity. The explanation 3C to Section 43B also refers conversion to loans and borrowings but not to equity. In view of this, the CIT's reliance on the Board circular so as to reject assessee's claims of constructive payment of above amounts cannot be approved. Since this issue was also examined by the Assessing Officer in the course of assessment proceedings and having accepted as a constructive payment, the opinion of the CIT can only be considered as change of opinion. Therefore, to that extent of direction of the CIT given to Assessing Officer for disallowing the amounts of ₹ 5,84,80,000/- on amount of interest payable to IDBI and on ₹ 985.39 Lakhs on amounts payable to IFCI, which were indeed converted into equity cannot be approved. Addition of liquidated damages - CIT gave a finding that an amount of ₹ 194.63 Lakhs representing liquidated damages were allowed in earlier years as a deduction and hence provisions of Section 41(1) applies to the above amount - Held that - we are unable to understand how Ld. CIT could give a finding that liquidated damages were allowed. Provisions of I.T.Act do not permit payment of interest or any penalty thereon in the form of liquidated damages, unless they are paid under the provisions of Section 43B. As seen from the computation of earlier years, out of total claim payable by assessee, assessee charged part amounts in the P&L A/c under the head 'Financial Expenses' and part of it was deferred. The amounts were disallowed in the computation of Income Tax as the amounts not paid . As seen from the order of CIT, he has not given any finding that the interest was allowed in earlier years. Therefore, we are of the opinion that his finding of liquidated damages were allowed is without any merit. However, we could not give any clear finding on this issue as assessee converted part interests into deferred revenue expenditure and claimed only part in the P&L A/c and disallowed the amounts. These amounts require reconciliation year-wise and as more than three years are involved, we cannot delete the same outrightly. Therefore, we modify the order of the CIT i.e., the direction to Assessing Officer to disallow the amount outright to a direction to the Assessing Officer to examine the amounts and to consider the amounts which were allowed as deduction earlier years as income u/s.41(1) in this year. Assessing Officer is directed to examine the amounts claimed in the P&L A/c and disallowed in the computation of income, then only arrive at any addition u/s.41(1) to the extent of amounts allowed in earlier years. To that extent, CIT's direction is modified and assessee's ground is allowed for statistical purposes Inclusion of prior period income under the provisions of Sec.115JB - Held that - Having approved the principles to be adopted while computing the book profits u/s.115JB, we however, could not understand the directions of the CIT in directing the Assessing Officer to adopt the amount at ₹ 37,78,82,427/-. Ld.Counsel also expressed surprise how this amount was arrived at by Ld.CIT. If one were to consider that amount of ₹ 28,28,29,474/- i.e., prior period income was added to the base figure of ₹ 17,05,76,352/-, the amount should come to ₹ 45,34,05,826/-. Surprisingly, CIT determined the amount at ₹ 37,78,82,427/- without any explanation. Even the Assessing Officer in consequential order has blindly followed the same. Since this amount is also not correct as per the provisions of law, we consequently modify the direction of the CIT and direct the Assessing Officer to recompute the book profits of the assessee-company, by following the provisions of 115JB, strictly after giving due opportunity to assessee. To that extent, CIT's order u/s.263 was upheld on the principle of computation of 115JB, but not the direction on computation which stands modified. Assessing Officer is directed to recompute the entire working as per the provisions of law. Assessee should be given due opportunity to make submissions, which should be examined and properly considered - Appeal decided party in favour of assessee for statistical purposes.
Issues Involved:
1. Jurisdiction to initiate proceedings under Section 263 of the Income Tax Act. 2. Addition of liquidated damages as a prior period item under Section 41(1). 3. Addition of prior period items to book profit under Section 115JB. 4. Disallowance of outstanding interest payable to IDBI and IFCI under Section 43B. Detailed Analysis: 1. Jurisdiction to Initiate Proceedings under Section 263: The assessee contested the jurisdiction of the Commissioner of Income Tax (CIT) to initiate proceedings under Section 263, arguing that the Assessing Officer (AO) had already examined the issues in detail, including a special audit. The CIT rejected these objections, citing the decision of the Gauhati High Court in CIT Vs. Shri Jawahar Bhattacharjee, which held that the objections against the assumption of jurisdiction were devoid of merit. 2. Addition of Liquidated Damages as a Prior Period Item under Section 41(1): The CIT directed that an amount of Rs. 194.63 Lakhs representing liquidated damages should be brought to tax under Section 41(1). The assessee argued that this amount was never claimed as a deduction in earlier years. The Tribunal found that the CIT's finding that liquidated damages were allowed in earlier years lacked merit. The Tribunal modified the CIT's direction, instructing the AO to examine the amounts claimed in the Profit & Loss Account and disallowed in the computation of income, and to consider only those amounts allowed in earlier years as income under Section 41(1). 3. Addition of Prior Period Items to Book Profit under Section 115JB: The CIT directed the AO to include the entire amount of prior period income for the purpose of Section 115JB computation, adopting a base figure of Rs. 37,78,82,427. The Tribunal upheld the principle that the computation for Section 115JB should start from the final balance in the Profit & Loss Account carried to the balance sheet. However, the Tribunal found the CIT's figure of Rs. 37,78,82,427 to be unexplained and directed the AO to recompute the book profits in accordance with the provisions of Section 115JB, giving the assessee due opportunity to make submissions. 4. Disallowance of Outstanding Interest Payable to IDBI and IFCI under Section 43B: The CIT directed the AO to disallow amounts payable to IDBI (Rs. 584.80 Lakhs) and IFCI (Rs. 985.39 Lakhs) under Section 43B, relying on a CBDT Circular. The assessee argued that these amounts were converted into equity and should be considered as 'actual payment' under Section 43B. The Tribunal found that the CIT's reliance on the Board circular was incorrect as it referred to conversion of outstanding interest into loans or borrowings, not equity. The Tribunal concluded that the CIT's direction for disallowance represented a change of opinion and set aside the directions regarding the amounts payable to IDBI and IFCI. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes, setting aside the CIT's directions on certain issues while upholding the principle of computation under Section 115JB. The AO was directed to recompute the book profits and examine the amounts claimed in the Profit & Loss Account, giving the assessee due opportunity to present their case.
|
