2015 (11) TMI 926 - AT - Income Tax

Disallowance of relief u/s 43B - interest on term loan paid to ICICI during the previous year relevant to the assessment year 2001-02 - Held that - It is clear that the AO does not dispute the fact that an amount was interest on term loan which was paid to ICICI during the previous year relevant to A.Y.2001-02. It is also not in dispute that the provision of section 43B of the Act will apply to such interest payment and therefore the interest expenditure in question cannot be claimed by the assessee as deduction in any other assessment year in view of the specific bar contained in section 43B(d) of the Act. In other words irrespective of the method of accounting following by the assessee, interest, expenses of the nature referred to section 43B(d) of the Act can be allowed as a deduction only in the year in which such interest are actually paid. The debit to the profit and loss account of an amount which is claimed as deduction u/s 43B of the Act is not a requirement and the decision of the Hon ble Calcutta High Court in the case of Associated Pigments Ltd. Vs CIT (1998 (9) TMI 78 - CALCUTTA High Court) supports the plea of the assessee in this regard. The only objection which remains for consideration is as to whether in the absence of a revised return of income filed by the assessee making claim for deduction on account of interest expenses the deduction can be allowed. The reliance placed by the revenue in this regard is on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd. (2006 (3) TMI 75 - SUPREME Court ) wherein it has laid down that the AO cannot consider a claim made by an Assessee before him, in the absence of such claim being made in the return of income or a revised return of income. As rightly contended by the ld. Counsel for the assessee, such a bar does not extend to the appellate authorities under the Act. The decisions referred to by the ld. Counsel for the assessee squarely support the stand of the assessee in this regard. We, therefore, hold that a sum should be allowed as deduction. - Decided in favour of assessee. Addition of interest on account of non-provision of interest on Non-performing Asset (NPA) - CIT(A) deleted the addition - Held that - In the instant case due to uncertainty in collection there was no accrual of income having regard to the real income theory which is engrained in the RBI s prudential norms for recognition of revenue as held by the Hon ble Delhi High Court in Vasisth Chay Vyapar Ltd. 2010 (11) TMI 88 - Delhi High Court . As such, the assessee did not account for such interest. The judgment of the Hon ble Supreme Court in State Bank of Travancore s case (1986 (1) TMI 1 - SUPREME Court) actually supports the assessee. In that case, it was held that the concept of real income was certainly applicable in judging whether there had been income or not. Thus hold that the concept of real income cannot be employed so as to defeat the provisions of the Act and the Rules. Further there can be no dispute with regard to the proposition laid down in Tuticorin Alkali s case (1997 (7) TMI 4 - SUPREME Court) but the fact is that there is no accrual of income in so far as the assessee is concerned. CIT(A) was justified in coming to the conclusion that interest on NPA need not be recognized as income by the Assessee. - Decided in favour of assessee. Addition on account of interest on Recurring Deposits made on accrual basis - CIT(A) deleted the addition - Held that - Accrual of interest is only upon maturity and there is no question of any income escaping assessment on accrual basis. On behalf of the revenue, it was also submitted that the three decisions relied upon in connection with non- provision of interest on NP A were also relevant for deciding the ground relating to interest on recurring deposits. We are of the view that none of the said decisions is of any assistance to the revenue since there is no accrual of interest prior to maturity. - Decided in favour of assessee. Write off under section 36(1)(vii) on interest income - Held that - The facts show that there was a debit to the profit and loss account of a sum of ₹ 26,43,24,776 because the credit side of interest income shown in the profit and loss account was reduced to this extent and this has the effect of a debit to the profit and loss account. However as to whether the debtors account was reduced to the extent of ₹ 26,43,24,776 by way of write off of interest to that extent is a matter which requires verification by the AO and if factually it is found that there was such a write off than the deduction claimed by the Assessee had to be allowed as deduction as the conditions for allowability of such deduction laid down u/s.36(1)(vii) of the Act are satisfied. The decision referred to by the CIT(A) in the case of State Bank of Hyderabad (2005 (3) TMI 403 - ITAT HYDERABAD-B ) is a case where factually there was no write off as bad debts in the books of accounts. The said decision will not apply to the facts of the present case. We therefore allow ground of assessee subject to verification of the write off in the debtors account as stated above. Computation of interest under section 234C - Held that - The plea of the Assessee that the charging of interest u/s.234C of the Act should be with reference to the tax on total income declared in a revised computation of income filed and not on the tax payable on the total income declared in the original return of income is contrary to the provisions of explanation to Sec.234C(1) of the Act. Charging of interest is mandatory and if there are good ground waive interest than it is for the Assessee to seek appropriate remedies open to it in law. The CIT(A) s order in our view is contrary to the provisions of law and cannot be sustained. Accordingly, the appeal of the revenue is allowed. - Decided against assessee Disallowance u/s 14A r.w.r. 8D - Held that - We are however of the view that the disallowance under Sec.14A of the Act cannot be in excess of the tax free income earned by the Assessee during the previous year. We therefore hold that the disallowance u/s.14A of the Act be restricted to the tax free income earned by the Assessee. The direction given above will result in relief to the Assessee than what was given by the CIT(A). - Decided against revenue Disallowance u/s.35D - Registration Fees for change in object clause - same was debited under the head Miscellaneous Expenditure and 1/10th of the said amount as amortised every year - Held that - In Gujarat Narmada Valley Fertilizers Ltd. (2013 (8) TMI 300 - GUJARAT HIGH COURT) held on identical facts that the disallowance of expenses u/s.35D of the Act which is to be allowed over a period of 10 years cannot be disallowed in the 7th year. In that case, Preliminary expenses were amortized claimed as deduction u/s. 35D. The same was allowed in the first year and thereafter for the following 6 AYs. In the 7th AY, the AO restricted deduction on ground that only eligible expenses were allowed to be spread over u/s. 35D and therefore, expenses only to extent that had nexus to eligible projects were admissibl. However, Tribunal, noted that in last seven years, no such disallowances were made and directed such benefit to be granted. On appeal by the Revenue, the Hon ble Gujarat High Court held, since last several years, AO had granted such claim on same consideration. The Hon ble High Court held that following rule of consistency, Tribunal therefore, correctly held that such claim could not have been suddenly disallowed and the Revenues appeal was dismissed. In the present case also the allowance of expenses has been made in the past and it was sought to be disturbed for the first time in AY 07-08. Such action cannot be sustained. Respectfully following the decision of the Hon ble Gujarat High Court we hold that the disallowance u/s.,35D of the Act be deleted. - Decided in favour of assessee.

Summary

Issues Involved:

1. Deduction under Section 43B of the Income Tax Act, 1961.
2. Non-recognition of interest on Non-Performing Assets (NPA).
3. Interest on Recurring Deposits.
4. Accrual of interest on deposits with Pay and Accounts Office, Government of West Bengal.
5. Reversal of interest income on loans following RBI Prudential Norms.
6. Deduction under Section 36(1)(viia)(c) of the Income Tax Act, 1961.
7. Computation of interest under Section 234C.
8. Disallowance of prior period expenses.
9. Disallowance under Section 14A read with Rule 8D.
10. Amortization of registration fee for change in object clause.

Detailed Analysis:

1. Deduction under Section 43B:
The assessee claimed a deduction under Section 43B for interest paid on a term loan to ICICI Bank, which was not claimed earlier due to an inadvertent mistake. The Tribunal allowed the deduction, emphasizing that the bar on the Assessing Officer (AO) considering claims without a revised return does not extend to appellate authorities. The Tribunal relied on the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. and other relevant case laws.

2. Non-recognition of Interest on NPA:
The assessee did not recognize interest income on loans classified as NPA as per RBI Prudential Norms. The AO added this interest to the income, but the CIT(A) deleted the addition, following the Tribunal's earlier decision in the assessee's case. The Tribunal upheld this view, citing the real income theory and Section 43D of the Act, which allows interest on NPA to be taxed only when credited to the profit and loss account or actually received.

3. Interest on Recurring Deposits:
The AO added interest on recurring deposits on an accrual basis, but the CIT(A) deleted the addition, following the Tribunal's earlier decision. The Tribunal upheld this, noting that interest on recurring deposits is payable only on maturity, and there is no accrual of income before that. The Tribunal also referenced the Hon'ble Kerala High Court's decision in CIT v. Federal Bank Ltd.

4. Accrual of Interest on Deposits with Pay and Accounts Office:
The AO added interest on deposits with the Pay and Accounts Office, Government of West Bengal, based on a letter from the Principal Secretary. The CIT(A) upheld this addition. However, the Tribunal reversed this, noting that the interest income crystallized only when the State Government sanctioned it in February 2005. The Tribunal directed the deletion of the addition.

5. Reversal of Interest Income on Loans:
The assessee reversed interest income on loans following RBI Prudential Norms when the loans became NPA. The CIT(A) denied the deduction, but the Tribunal allowed it, subject to verification of the write-off in the debtors' account. The Tribunal emphasized that the conditions for allowability under Section 36(1)(vii) were satisfied.

6. Deduction under Section 36(1)(viia)(c):
The assessee claimed a deduction for a provision for bad and doubtful debts under Section 36(1)(viia)(c). The AO denied this, but the Tribunal allowed the deduction, noting that the assessee met the conditions as a State Industrial Investment Corporation. The Tribunal also noted that the provision was written back and offered to tax in a subsequent year.

7. Computation of Interest under Section 234C:
The AO computed interest under Section 234C based on the original return, ignoring the revised computation filed during the assessment proceedings. The CIT(A) directed the AO to compute interest based on the revised computation. The Tribunal reversed this, noting that interest under Section 234C should be computed based on the original return as per the statutory provisions.

8. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses identified in the audited accounts submitted during the assessment proceedings. The CIT(A) deleted the disallowance, but the Tribunal set aside the order and directed the AO to make a de novo assessment based on the audited statements.

9. Disallowance under Section 14A read with Rule 8D:
The AO recomputed the disallowance under Section 14A read with Rule 8D, which the CIT(A) partly upheld. The Tribunal held that the disallowance under Section 14A cannot exceed the tax-free income earned by the assessee and directed the AO to restrict the disallowance accordingly.

10. Amortization of Registration Fee for Change in Object Clause:
The assessee claimed amortization of registration fees for change in the object clause under Section 35D. The AO disallowed this, treating it as capital expenditure. The CIT(A) upheld the disallowance. The Tribunal allowed the deduction, following the Hon'ble Gujarat High Court's decision in Gujarat Narmada Valley Fertilizers Ltd., which emphasized consistency in allowing such claims over multiple years.

Conclusion:
The Tribunal's detailed analysis and decisions across various issues reflect a thorough application of legal principles and precedents, ensuring that the assessee's claims were adjudicated fairly and in accordance with the law.