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TMI Blog2015 (8) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest into “a loan or borrowing”. In the latter instance, the liability continues, although in a different form. However, where the interest or a part thereof is converted into equity shares, the said interest amount for which the conversion is taking place is no longer a liability. The Court is of the view that the plea of the Assessee, which was accepted by the CIT (A) and the ITAT, that the said conversion of a portion of interest into shares should be taken to be “actual payment” within the meaning of Section 43B of the Act, merits acceptance. In any event, on the facts of the case discussed above, there was no justification in seeking to reopen the assessment under Section 147 of the Act on a mere change of opinion. - Decided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as added back to the net loss as per the Profit Loss Account. Thereafter, deduction of interest paid to IDBI to the extent of ₹ 1.43 crores was claimed. The basis for this claim was the allotment of shares in the above manner to the IDBI. In the audited accounts for the year ended 31st March 2002, the following note was appended under the notes on accounts: IDBI has approved a negotiated settlement for the company. As per the terms of the rehabilitation based on the settlement, the company has issued 14,30,000 equity shares of ₹ 10/- each to IDBI towards 30% simple interest due as on 31/03/2001. The interest outstanding as at 31/03/2002 has been reduced to that extent.The other relief of the negotiated settlement would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an order dated 4th November 2004 raised a specific query regarding the shares issued to the IDBI. By a letter dated 22nd November 2004, the Assessee explained, inter alia, that pursuant to the settlement reached with the IDBI which was confirmed by IDBI by letter dated 22nd January 2002 , the shares as aforementioned were allotted. It was urged that the said allotment of shares should be taken to be against the interest amount actually paid within the meaning of Section 43B of the Act. It was explained that by order dated 1st November 2002 the BIFR was only approving the scheme already prepared by IDBI and acted upon by the Assessee and IDBI. 7. It appears that after the assessment was completed under Section 143 (3) of the Act on 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck to the income of the Assessee. 9. In the appeal filed by the Assessee, the CIT (Appeals) [ CIT (A) ] by order dated 25th April 2011 held that the re-opening of the case under Section 147 of the Act was valid. However, on merits the CIT (A) deleted the addition. Aggrieved by the aforementioned order, the Revenue went in appeal before the ITAT and the Assessee filed its cross objections. 10. In the impugned order dated 17th January 2014, the ITAT noted that the only reason for the re-opening was that the rehabilitation scheme was sanctioned by the BIFR on 1st November 2002 and, therefore, the deduction was not allowable during AY 2002-03. After going through the facts and examining the records, the ITAT noted that in the original ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel appearing for the Assessee, has produced before the Court the computation of income which was placed before the AO. It contains the explanatory note extracted hereinbefore. He submitted that the full facts of the case were already available with the AO in the original assessment proceedings. This was a case of mere change of opinion particularly since a specific query has been raised by the AO in regard to conversion of a party of interest into shares. The Assessee s answer to the query was accepted by the AO and the assessment was finalized accordingly. 13. Mr. Sethi further pointed out that Explanation 3C to Section 43 B of the Act deals with the situation of conversion of interest into a loan or borrowing. Explanation 3C t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ROC only on 29th April 2002 or that the BIFR may have sanctioned the scheme only on 1st November 2002, would not change the actual date on which the shares stood allotted i.e. 30th March 2002. 16. When pursuant to a settlement the creditor agrees to convert a portion of interest into shares, it must be treated as an extinguishment of liability to pay interest to that extent. In essence there will be no further outstanding interest to that extent. Consequently, the situation where an interest payable on a loan is converted into shares in the name of the lender/creditor is different from the situation envisaged in Explanation 3C to Section 43B of the Act viz., conversion of interest into a loan or borrowing . In the latter instance, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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