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TMI Blog2009 (6) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... f. It was held that deduction for tax, excise duty etc. is allowable u/s 43B on payment basis even before incurring liability to pay such amount. Since in the present case the amount is already paid by way of excise duty, though lying in PLA balance, yet the same is payment towards excise duty and hence allowable in terms of section 43B. Disallowance of prior period expenses - As per assessee liability has been crystallized settled during the year - assessee claimed miscellaneous expenses on account of tour and travel expenses of employees, internal audit fee, electrical repair fee etc. relating to preceding years that were not booked in earlier years - AO disallowed the expenses for the reason that since the assessee is maintaining its books of account on mercantile system and hence deduction in respect of expenses which do not pertain to the year cannot be allowed. CIT(A) noted that the expenses are in the nature of day-to-day running expenses pertaining to the business, the same are allowable only in the year in which the liability was incurred and hence not allowable for this year. HELD THAT:- We find that the assessee is a body corporate. It has a set system for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and not actual payment by way of legal tender. What is allowable under section 43B is in respect of deduction otherwise allowable under this Act. The deduction allowable under the Act is in respect of various sums referred to in sections 30 to 37 of the Act. Interest on any loan or borrowing is one such sum referred in section 36(1)( iii ) of the Act. Therefore, for the purpose of allowability, the amount should be in the nature of expenditure. The word expenditure is not defined under the Act Hon ble Supreme Court in the case of Indian Molasses Co. Ltd. v. CIT [ 1959 (5) TMI 5 - SUPREME COURT] held that expenditure is equal to expense and expense is money laid out by calculation and intention though in many uses of the word this element may not be present, as when one speaks of a joke of another s expense. But the idea of spending in the sense of paying out or away money is the primary meaning which is relevant. Expenditure is thus, what is paid out or away and is something which has gone irretrievably. It is seen that the liability was discharged by way of issuance of shares. When the assessee issues shares the assessee does not incur any expenditure as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the assessee company. - I.P. BANSAL AND DEEPAK R. SHAH, JJ. Ajay Vohra and Rohit Garg for the Appellant. V.K. Tiwari for the Respondent. ORDER Deepak R. Shah, Accountant Member. - This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-XII, New Delhi, dated 2-9-2002 for the Assessment Year 1995-96 in an appeal against assessment framed under section 143(3) of the Income-tax Act, 1961 ( the Act ). 2. The assessee is engaged in the business of manufacture and sale of nylon industrial yarn, tyre cord fabrics and fluorochemicals etc. at various units. 3. The first ground of appeal is against disallowance of rent, repairs and depreciation as per section 37(4) of the Act. 4. At the time of hearing, the learned counsel for the assessee Shri Ajay Vohra fairly submitted that the issue is decided against the assessee in view of the decision of Hon ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 and therefore, this ground is not pressed. This ground is dismissed for want of prosecution. 5. Ground No. 2 is as under : "That on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise duty, it is not necessary that liability to pay duty must be incurred first and only thereafter payment of such duty is to be made for the purpose of allowance thereof. It was held that deduction for tax, excise duty etc. is allowable under section 43B on payment basis even before incurring liability to pay such amount. Since in the present case the amount is already paid by way of excise duty, though lying in PLA balance, yet the same is payment towards excise duty and hence allowable in terms of section 43B of the Act. 9. Ground Nos. 3, 3.1 and 3.2 are as under : "3. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of sum of Rs. 29,60,806 as prior period expenses despite of the facts that liability has been crystallized settled during the year. 3.1 Without prejudice to the above, the CIT(A) erred in not allowing expenses debited under the head "Prior Period Expenses" in the year in which the expenses pertains. 3.2 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of Rs. 20,07,569 being expenditure incurred in previous year but not debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal No. 12.2. 12. The learned DR on the other hand, relied upon the appellate order. 13. We have considered the rival submissions. We find that the assessee is a body corporate. It has a set system for approving the payment of expenditure. The assessee therefore, accounts for the expenses when same is approved by prescribed authority within the organization. The fact being admitted by the learned CIT(A) is that the expenses pertaining to business for day-to-day running. Since the bills or claims were made during the year, it can be said that the liability became known for the first time when such claim was made. Accordingly, the same is allowable in the year in which the liability got crystallized. Similar view has been adopted by the Hon ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd. ( supra ). We therefore, direct the Assessing Officer to examine whether such expenses are incurred wholly and exclusively for the purpose of business and if so found, allow the same irrespective of the year in which it pertains as the liability in regard to these expenses got crystallized during the relevant previous year. As regards expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee amalgamated company by issue of shares, inter alia, on the following grounds : ( i )The claim was not made at the time of filing the return or by way of revised return. ( ii )The existing liability of the amalgamating company towards interest due to financial institutions was directed by BIFR to be discharged by issue of equity shares of the assessee company. In that view of the matter, the liability had not been taken over by the assessee company and no tax benefit could accrue with respect to settlement of dues of the amalgamating company as part of the package of amalgamation. The CIT(A) confirmed the disallowance made by the Assessing Officer on the aforesaid grounds. 18. The learned counsel for the assessee submitted that the claim for deduction of interest of Rs. 1,620 lakhs in terms of section 43B of the Act was raised for the first time before the Assessing Officer vide letter dated 12-9-1997 (pages 39 to 41 of the Paper Book). The Assessing Officer observed that since the claim was not made at the time of filing the return or by way of revised return, the claim could not be entertained. The Assessing Officer, however, proceeded with the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 43B( d ) of the Act. Explanation 3C to section 43B inserted by Finance Act, 2006 with retrospective effect from 1-4-1989 has no application to the present situation as further clarified by CBDT Circular No. 7, dated 17-7-2006 (Pages 74-76 of the Paper Book). Shri Vohra further submitted that the BIFR order which does not make available the tax benefit in the case of amalgamation under section 72A of the Act is only in respect of carried forward business loss and unabsorbed depreciation. Therefore, there is no bar for claiming unpaid interest in respect of amalgamating company discharged by amalgamated company which is the assessee herein. The procedure of amalgamation is different than taking over the business of other unit. It is a seamless transaction. Therefore, whatever was liability of erstwhile company becomes the liability of amalgamated company. In the hands of erstwhile company the interest liability was not allowed in view of section 43B of the Act for the reason that the said liability was not paid. However, since the assessee has paid such liability by way of issue of shares at premium, it amounts to discharge of liability and hence expenditure paid by way of iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, even under section 43B, the same is not allowable. He also submitted that the assessee has merely issued shares. By issue of shares the assessee does not incur any expenditure. Explanation 3C to section 43B was inserted by the Finance Act, 2006 with retrospective effect from 1-4-1989 which provides that deduction of any sum being interest payable shall be allowed if such interest has been actually paid and any interest which has been converted into a loan or borrowing shall not be deemed to have been actually paid. Thus issuance of shares does not amount to actual payment of interest liability and hence even under section 43B, the expenses are not allowable. Reliance was placed on the decision in the case of Belpahar Refractories Ltd. v. CIT [1994] 207 ITR 144 (Ori.). 20. We have considered the rival submissions. The claim is in respect of interest on amount borrowed by the erstwhile company namely Flowmore Polyesters Ltd., which amalgamated with the appellant company during the year. There is no dispute to the fact that interest payable by the erstwhile company was not claimed and allowed in terms of section 43B( d ) since the amount was not paid by the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he obligation by delivery of cash or property or by settlement of accounts, that there is expenditure. But expenditure does not necessarily involve actual delivery of or parting with money or property. If there are cross-claims-one by the assessee against a stranger and the other by the stranger against the assessee and as a result of accounting the balance due only is paid, the amount which is debited against the assessee in the settlement of accounts may appropriately be termed expenditure within the meaning of section 37(1). However, a mere forbearance to realize a claim is not expenditure . Hon ble Delhi High Court in the case of B.K. Khanna Co. (P.) Ltd. v. CIT [2001] 247 ITR 705 held that spending in the sense of paying out or away of money is the primary meaning of expenditure . The word expenditure means what is paid out or away and is something which is gone irretrievably. Hon ble Supreme Court in the case of Eimco K.C.P. Ltd. v. CIT [2000] 242 ITR 659, was considering the claim of assessee towards expenditure on technical know-how. In the said case the assessee was a joint venture between an American company and an Indian company. The authorized ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder no obliga-tion to make any payment in respect of such shares where shareholders accept payment of pro rata dividend when such dividend is declared. Thus by issuance of shares the assessee cannot be said to have incurred any expenditure and hence issuance of shares in lieu of interest liability cannot be considered to have been payment towards expenditure. Accordingly the interest liability discharged is not an allowable expenditure. This ground is accordingly dismissed. 21. Ground No. 4.2 reads as under : "That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of sum of Rs. 4,18,31,075 unabsorbed investment allowance of erstwhile Flowmore Polyesters Limited since merged with effect from 1-4-1994." 22. The facts that the assessee had in the return of income claimed carry forward and set off of unabsorbed investment allowance of the amalgamating company. The claim was disallowed by the Assessing Officer, inter alia, on the ground that the amalgamated company was entitled to set off of only unabsorbed depreciation and unabsorbed business losses of the amalgamating company in terms of section 72A of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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