2023 (8) TMI 818 - AT - Income Tax

Reopening of assessment u/s 147 - Disallowance u/s 43B - payment of interest on conversion of loan into equity shares - addition made as it is not an expense which has been actually paid and therefore same is not allowable u/s 43B - HELD THAT - It is an admitted fact as per the Return of Income filed by the assessee for the AY 2011-12 resulting in a loss under the normal provisions of the Act and Book Profit u/s. 115JB and the assessee paid the MAT tax. Pursuant to the Ld. CIT(A) order, against the above assessment order which has resulted in a revised loss and no change in the computation of Book Profit u/s. 115JB of the Act. When the re-assessment was done by the Assessing Officer there is no tax liability in the hands of the assessee since the MAT tax was higher than the normal computation of tax, thereby it appears the reassessment itself is invalid, since there is no income chargeable to tax has escaped assessment. This view of ours is supported by case of M/s. Motto Tiles (P.) Ltd. 2016 (6) TMI 381 - GUJARAT HIGH COURT which has followed M/s. India Gelatine and Chemicals Ltd. 2015 (2) TMI 808 - GUJARAT HIGH COURT Thus we are of the considered view that income chargeable to tax has not escaped assessment and the reopening of assessment by issuing notice u/s. 148 is not sustainable in law. Disallowance u/s. 43B deleted by CIT(A) by following case of Rathi Graphics Technologies Ltd 2015 (8) TMI 376 - DELHI HIGH COURT and held that it is not a case where the interest liability has been converted into a loan or borrowing or debenture, where the liability to pay is deferred to a future date. This is a case of complete extinguishment of liability. Therefore the said conversion of interest into shares should be taken as actual payment u/s. 43B and thereby Ld. CIT(A) deleted the additions correctly - Decided against revenue.

Summary

Issues Involved:
1. Reopening of Assessment
2. Disallowance under Section 40(a)(i)
3. Disallowance under Section 43B

Summary:

Reopening of Assessment:
The Revenue reopened the assessment for the Assessment Year 2011-12 on the grounds that the assessee failed to remit TDS amount received from NRI parties, making it disallowable under Section 40(a)(i) of the Income Tax Act, and that the payment of interest on the conversion of loan into equity shares is not an allowable expenditure under Section 43B of the Act. The assessee objected to the reopening, but the objections were overruled by the Assessing Officer (A.O.).

Disallowance under Section 40(a)(i):
The A.O. made an addition of Rs. 4,72,50,695/- under Section 40(a)(i) due to the non-remittance of TDS from NRI parties. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, which was upheld by the Income Tax Appellate Tribunal (ITAT).

Disallowance under Section 43B:
The A.O. also disallowed Rs. 7,60,75,000/- under Section 43B, arguing that the interest liability discharged by issuing equity shares does not constitute actual payment. The CIT(A) deleted this addition, citing the Delhi High Court's judgment in the case of Rathi Graphics Technologies Ltd., which held that the conversion of interest into equity shares should be considered as actual payment under Section 43B. The ITAT upheld this view, stating that the liability had been completely extinguished and was not deferred to a future date.

Application under Rule 27:
The assessee filed an application under Rule 27 of the ITAT Rules, arguing that even if the additions were sustained, the tax liability would not increase as they were already governed by the MAT provisions. The ITAT entertained this application, referencing the jurisdictional High Court's judgment in the case of Motto Tiles Pvt. Ltd. v. ACIT, which held that reassessment could not be initiated if the tax liability remains unchanged under the MAT provisions.

Conclusion:
The ITAT quashed the notice issued under Section 148 for reopening the assessment, deeming it invalid as there was no income chargeable to tax that had escaped assessment. On merits, the ITAT upheld the CIT(A)'s deletion of the disallowances under Sections 40(a)(i) and 43B, thereby dismissing the Revenue's appeal. The order was pronounced in the open court on 11-08-2023.