2019 (11) TMI 1303 - HC - Income Tax

Revision u/s 263 - allowability of rebate, de-compounding fee etc - HELD THAT - Liability of rebate, decompounding and waiver of interest etc has arisen due to the agreements executed by the assessee with its clients and it is certainly allowable liability as the assessee duly claimed the same and the Assessing Officer was not justified in rejecting the claim of the assessee that the assessee is now following the cash system of accounting and the rebate on interest etc meted to the period when the assessee was following the mercantile system of accounting. In light of the aforesaid, as the issue has already been decided by this court, the question of law framed on 12.3.2003, which has already been reproduced above, is answered in favour of the assessee. The ITAT was certainly justified in allowing the rebate, de-compounding fee etc and in quashing the order passed under Section 263 of the Income-Tax Act, 1961.

Summary

Issues:
1. Validity of the order passed under Section 263 by the CIT, Indore.
2. Allowance of rebate and compounding fee to the M.P. Financial Corporation Ltd.
3. Interpretation of the system of charging interest and rebate on repayment.
4. Admissibility of the appeal under Section 260-A of the Income Tax Act, 1961.
5. Applicability of the judgment in Commissioner of Income-Tax v/s. M.P. Financial Corporation Ltd.

Issue 1: Validity of the order passed under Section 263 by the CIT, Indore
The case involved a challenge to an order passed under Section 263 of the Income Tax Act, 1961 by the CIT, Indore, which was quashed by the Income Tax Appellate Tribunal, Indore. The Tribunal concluded that the Assessing Officer had properly allowed rebates and compounding fees after detailed examination. The Tribunal found no substance in the revisionary order by the CIT, Indore, and thus overturned it.

Issue 2: Allowance of rebate and compounding fee to the M.P. Financial Corporation Ltd.
The Assessing Officer had allowed a rebate and compounding fee amounting to ?3,48,11,357 to the M.P. Financial Corporation Ltd. The Income Tax Appellate Tribunal, Indore, upon review, determined that this allowance was justified based on the system of charging interest and rebate on repayment. The Department challenged this decision under Section 260-A of the Income Tax Act, 1961.

Issue 3: Interpretation of the system of charging interest and rebate on repayment
The Tribunal examined the system of charging interest and found that interest was initially charged at a higher rate, with rebates allowed later if repayments were made according to an agreed schedule. Detailed accounts of parties were reviewed to confirm that rebates and decompounding charges were claimed correctly by the assessee. The Tribunal concluded that the rebate and charges were properly claimed, supporting the decision to quash the order under Section 263.

Issue 4: Admissibility of the appeal under Section 260-A of the Income Tax Act, 1961
The Income Tax Department filed an appeal under Section 260-A challenging the decision of the Income Tax Appellate Tribunal, Indore. The appeal was admitted based on the substantial question of law regarding the justification of the Tribunal's decision on the allowance of rebate and de-compounding fee.

Issue 5: Applicability of the judgment in Commissioner of Income-Tax v/s. M.P. Financial Corporation Ltd.
The counsel for M.P. Financial Corporation Ltd argued that a previous judgment in a related case had already settled the issue, citing Commissioner of Income-Tax v/s. M.P. Financial Corporation Ltd. The judgment highlighted that the liability of rebate, decompounding, and waiver of interest arose from agreements with clients and was an allowable liability. The court upheld the Tribunal's decision to allow the rebate and quash the order under Section 263 based on the principles established in the previous judgment.

In conclusion, the High Court of Madhya Pradesh upheld the decision of the Income Tax Appellate Tribunal, Indore, regarding the allowance of rebate and compounding fee to M.P. Financial Corporation Ltd. The judgment emphasized the proper interpretation of the system of charging interest and rebate, along with the admissibility of the appeal under Section 260-A. Additionally, the court considered the applicability of a previous judgment in a related case to support its decision.