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TMI Blog2012 (12) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... e total interest to be received by the Appellant on the three Certificates of Deposit (hereinafter referred to as "CODs") placed by it was Rs.3,10,43,644/-; (ii) the above said CODs (which were of 92 days duration each) matured on 1st July, 1997 (which date fell in the Assessment Year 1998-99); (iii) the aforesaid CODs had been placed on 31st March 1997, which was the last day of the previous year relevant to the Assessment Year 1997-98 and, therefore, only one day of the entire period of the CODs fell in Assessment Year 1997-98; (iv) 91 days out of the 92 day duration of the CODs fell in Assessment Year 1998-99. 3. Whether the Income Tax Appellate Tribunal erred and acted contrary to the record and without any evidence, in alleging that the Appellant had exercised an option to allegedly receive discounted interest for the whole period of the CODs on 31st March, 1997? 4. Whether the Income Tax Appellate Tribunal erred in not holding that the directions of the Commissioner of Income Tax (Appeals) (hereinafter referred to as the "CIT(A)") regarding the allowability of the Appellant's claim for a deduction of interest of Rs.49,77,552/- were ille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As far as the interest payment claimed to the tune of Rs.49,77,552/- is concerned, the Assessing Officer accepted the assessee's claim for deduction under Section 37 of the Income Tax Act and the income was thereupon computed. Thus, the only question which was the subject matter of dispute before the Commissioner of Income Tax (Appeals) was relating to the assessment of interest amount to the tune of Rs.3,10,43,664/- as against the interest income offered by the assessee for a sum of Rs.3,37,431/- assessable for the assessment year 1997-98. A perusal of the grounds of appeal filed before the Commissioner of Income Tax (Appeals) shows that the assessee had grievance only on this part of the assessment. Apparently, when the assessee's claim for deduction on payment of interest was accepted, there could be no appeal on this issue. However, when the appeal was taken up for hearing, the Commissioner of Income Tax (Appeals) considered the payment of interest too as a subject matter for consideration and held that the claim on interest payment was not an admissible deduction. Referring to the letter written by the assessee on 24.1.2000, as regards its undertaking to pay interest at six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Bombay High Court decision reported in 260 ITR 102 TAPARIA TOOLS LIMITED v. JCIT and this Court's decision reported in 258 ITR 404 EID PARRY (I) LIMITED v. CIT, and held that as the assessee had received discounted interest in advance on 31.3.97, the assessee was not entitled to seek spreading over of the interest for two assessment years. Aggrieved by this, the assessee is before this Court. 6. Learned senior counsel appearing for the assessee attacked the order of the Tribunal on the ground that the Tribunal misdirected itself in holding that the Commissioner of Income Tax (Appeals) had remitted the matter to the Officer concerned for the purpose of de novo enquiry into the claim of expenditure and that as adequate opportunity was to be granted, there could be no grievance for the assessee. He pointed out to the assessment order wherein the Officer had considered the assessee's claim on the expenditure incurred by way of interest payment to the subscribers who were yet to be allotted equity shares. Thus, when the claim was considered by the Assessing Officer before granting the relief and as such, when there was no grievance before the first Appellate Authority, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income Tax (Appeals) as well as the Tribunal's order shows that there was no such compliance of sub Section (2) of Section 251 of the Act. As rightly pointed out by the learned senior counsel appearing for the assessee, the Commissioner of Income Tax (Appeals) had practically concluded the issue and that nothing is left for the Officer to make further enquiry on this. A reading of the order of the Commissioner of Income Tax (Appeals) shows the confusion in the order of the Commissioner in paragraph 1.2.4, wherein, the first two lines alone dealt with the question of deductibility of expenditure on the interest payment and the rest ten lines related to the claim by the assessee on the interest income, which was the subject matter of appeal before him. In the circumstances, we do not find any good reason to uphold the order of the Tribunal confirming the order of the Commissioner of Income Tax (Appeals). As such, the Tribunal's order on the enhancement of the assessment has to be necessarily set aside and the matter is restored to the file of the Commissioner of Income Tax (Appeals), who is hereby directed to issue notice to the assessee before considering any suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was deposited was the discounted value of the deposit, however, does not mean that the assessee had, in fact, deducted the interest in advance on the deposit amount made and the interest had to be assessed in the year 1997-98 itself. It is a matter of record that the deposited amount with interest was credited only on 1.7.97 and 3.7.97. Thus one cannot go by the mere reference to the letter referring to the deposit as the discounted value of the deposit. The Revenue does not deny that except the interest credited to the deposited amount, the assessee had not received any other sum on the deposited amount over and above the said interest. Thus, even though on principle, it is open to the assessee to offer the entire interest amount received on the principal amount credited only in the next year, yet, in the course of assessment year 1998-99, for reasons best known to the assessee, it offered a sum of Rs.3,37,431/- as interest income relatable to 31st March 1997. As the assessee had accepted this interest income for 1997-98, the assessment was also made by the Assessing Officer by accepting the offer made by it. In the background of this factual position, the consideration of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of discounted interest was received on July 9, 1991. The amount already received could not be spread over to the next two years proportionately as if the interest was yet to be received. 13. As far as the second decision of this Court reported in 258 ITR 404 EID PARRY (I) LIMITED v. CIT. , is concerned, this Court followed the earlier decision viz., 256 ITR 187 CIT v. A.R.SANTHANAKRISHNAN, and pointed out to the fact that since the assessee received the discounted interest for the whole period by exercising an option that had been given to it, the question of spreading over of interest to the following years does not arise. Both the decisions are distinguishable on facts and we hold that the Tribunal committed serious error in applying the law which are distinguishable on facts. 14. As already pointed out, when the findings of fact of the Tribunal are totally without any material and basis and contrary to records, the question of applicability of these two cases to the case on hand does not arise. Consequently, the order of the Tribunal is set aside on this aspect also. 15. If we look into the Apex Court's decision, relied on by the assessee before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no hesitation in setting aside the order of the Tribunal, holding that the question of assessing the entire interest income of Rs.3,10,43,664/- in the assessment year 1997-98 does not arise and that the Revenue would be entitled to assess a sum of Rs.3,37,431/- alone for the assessment year 1997-98 and the balance amount of Rs.3,07,06,233/- has to be assessed for the assessment year 1998-99.
17. In the light of the above discussion, the first question of law is answered in favour of the assessee. Since substantial questions of law 2 and 3 are of the same effect as question No.1, there is no necessity for us to deal with them separately and they also are answered in favour of the assessee. As far as the fourth question of law is concerned, as already stated, since the Commissioner of Income Tax (Appeals) had not complied with Section 251(2) of the Income Tax Act, without going into the merits of the claim, we have no hesitation in setting aside the order of the Tribunal and restore the matter back to the file of the Commissioner of Income Tax (Appeals) for a fresh hearing.
18. The above Tax Case (Appeal) is allowed. No costs. X X X X Extracts X X X X X X X X Extracts X X X X
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