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TMI Blog2011 (2) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer made an addition of Rs. 19,56,645/- u/s 41)1 on the basis that the assessee had reduced a sum of Rs. 19,56,645/- which represents the liability for provision written back in the books of accounts claiming that provisions of Section 41(1) of the Act are not applicable in view of the order of the BIFR dated 13.05.1992. The Assessing Officer noted that in assessment years 2002-03 and 2003-04 also the assessee had made similar claim which was examined in detail and rejected after recording the reasons in the assessment order against which appeal of the Revenue is pending before the Hon'ble ITAT. According to him the order of the BIFR is time bound relief which cannot be stretched indefinitely and seems to be out of place after a lapse of 12 years when the company turned into profitable company and during the year under consideration, the company was not a 'sick company'. Aggrieved, assessee preferred appeal before CIT(A), who deleted addition made by Assessing Officer on the following grounds:- i) Similar issue was involved in the case of the assessee for A.Ys 2002-03, 2003-04 and 2004-05 and the same was decided by the CIT(A) in favour of the assessee. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and associates from provisions of MRTP Act, 1969 and Section 10BA,k 370, 372 and other applicable provisions of the Companies Act, 1956 for acquisition of shares in CPML or for advancing loans to CPML or for furnishing guarantee(s)' 13.2.4 Above is a beneficial circular and has been provided to reduce the furnish from the rigours of law. Hon'ble Supreme Court in UCO Bank vs. Commissioner of Income-tax & Tamil Nadu Industrial Investment Corporation Ltd. Vs. Commissioner of Income-tax (1999) 237 ITR 889 (SC) has held that the Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act. It is held therein as under: Under section 119(2)(a),however, the circulars as contemplated therein cannot be adverse to the assessee. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the statute in certain situations by applying a beneficial interpretation to the provision in question. 13.2.5 Thus the circular issued by the CBDT allowing tax payers not to be taxed under section 41(1) if they are BIFR Companies is a beneficial circular and is binding on the Income Tax Authorities. In view of the above, we do not find any case for sustaining the addition made by the A.O u/s.41(1). The learned CIT(A) is justified in deleting the same. This ground of Revenue is, therefore, rejected." 6. We find that the issue is exactly same and facts are identical in this year also. Here, admitted facts are that the assessee has written off the liabilities u/s.41(1) of the Act and it is not the case of the Revenue that he has introduced back this amounts in this very year. As the issue is squarely covered, we uphold the order of CIT(A) and this issue of Revenue's appeal is dismissed. 7. The next issue in this appeal or Revenue is against the order of CIT(A) in deleting the addition made by Assessing Officer on account of unexplained credits amounting to Rs. 2,73,501/-. 8. The brief facts leading to the above issue are that the Assessing Officer had made the addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the court was whether the deposit received in the course of business which were originally treated as capital receipt can be treated as trading receipt in the year in which the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. From the above, it can be seen that the decisions in the case of Ambica Mills Ltd. (supra) and T.V. Sundaram Iyengar & Sons Ltd. (supra) relied on by the CIT(A) are not applicable to the case of the assessee. 10. We have heard the rival contentions and gone through facts and circumstances of the case. We find that, admittedly, creditor are old and pertains to earlier years. In the eventuality of the creditor are bogus the same can be added only in the year of arisen not in any other year. We find the findings of CIT(A) quite reasonable and uphold the same. This issue of revenue's appeal is dismissed. 11. The next issue in this appeal of Revenue is against the order of CIT(A) in deleting the addition made by Assessing Officer on account of interest liability on 'term loan' amounting to Rs. 5.82 lakh. 12. The brief facts leading to the above issue are that A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated that the assesseecompany has created interest liability out of its own available funds and there is no new loan borrowed and there is a creation of additional burden in the form of 'interest' on term loan which is not an allowable deduction u/s.36(1)(iii) of the Act. 14. We have heard rival contentions and gone through facts and circumstances of the case. We find that the claim of the assessee is that entire financial restructuring pertains to converting 10% cumulative redeemable preference shares of Rs. 100/- face value to term loan/NCD and it was done for the purpose of business as it would substantially reduce liability of the company. The CIT(A) allowed the claim by holding that 10% preference shares also puts a liability on assessee company to give a fixed amount of dividend every year failing which, if the preference shareholders are not given fixed amount of dividend continuously for two years then preference shareholders get voting right equal to equity shares. That means the assessee had actually reduced its liability and this issue is covered by the decision of Hon'ble Apex Court in the case of India Cements Ltd. (supra), wherein it is held that if loans are used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of CIT(A) in confirming the disallowance of expense including depreciation. For this, assessee has raised the following ground No.2:- "2. Upholding the disallowance of Rs. 7147539 [including depreciation of Rs. 324285] and in not appreciating that the said expenditure was incurred wholly and exclusively for the purposes of business and that these were not related to agricultural activities." 18. At the outset Ld. counsel for assessee, Shri Soparkar stated that this issue arose for the first time in assessee's own case for assessment year 2002-03 and the Tribunal in its order dated 04-09-2009 after detailed discussion starting from para 8 held that expenses incurred on growing saplings on land on operations on growing saplings after their removal from land/growing saplings in pots and polythene bags after plucking them from ground and planting them in such pots is an integrated activity which is in conjunction with and in continuation of growing saplings on the land is agricultural expenses which has to be disallowed. These principles were followed in appeal for assessment year 2003-043 at para 18 and appeal for assessment year 2004-05 at para 28.Ld. counsel for assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs through clonal routes which has been treated as non-agricultural operation in our discussion made above. Thus the disallowance sis restricted to Rs. 17.17 lacs and accordingly assessee gets relief of Rs.(278.29 - 17.17) = 261.12 lacs." In view of the above decision of this Tribunal in assessee's own case (supra), we direct the Assessing Officer to disallow the expense relating to growing of saplings through clonal routes which are non-agricultural operation expenses. The assessee has also field details and as per him, the disallowance will be to the tune of Rs. 3.24 lakhs. The Assessing Officer will verify the details and restrict the disallowance to the same. Accordingly, this issue of the assessee is allowed partly but for statistical purposes. 20. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the action of Assessing Officer u/s.145A of the Act. For this, assessee has raised the following ground No.3:- "3. Upholding the addition of Rs. 10255663 which was made by the Assessing Officer by making reference to Sec. 145A and in not appreciating that the figure of Rs. 15787255 since represents Excise Duty on closing stock of raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess or fee actually paid or incurred on inputs should be added to the cost of inputs (raw materials, stores, etc.) if not already added in the books of account (b) Any tax, duty cess or fee actually paid or incurred on sale of goods should be added to the sales, if not already added in the books of account. (c) Any tax duty, cess or fee actually paid or incurred on the inventory (finished goods, work-in-progress, raw materials, etc.) should be added to the inventories, if not already added while valuing the inventory in the accounts. 23.13 It may be noted that when the adjustments are made in the valuation of inventories, this will affect both the opening as well as closing stock. Whatever adjustment is made in the valuation of closing stock, the same will be reflected I the opening stock also." 9.5 We accordingly uphold the addition made by the Assessing Officer, however with the observation that the assessment of subsequent years be revised din accordance with the provisions of Section 145A, and observation made above i.e. modified value of closing stock of this year be taken as opening stock of the next year." 22. We, respectfully following the Tribunal's order for assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own to the assessee and after confronting him the difference in quantities will be worked out. Stock in terms of quantity will be compared as o the same date. There after, the difference if any will be valued at cost or market price whichever is low as per accounting policy followed by the assessee for valuation of stock. With these remarks, we set aside this ground to the file of the A.O." 27. The Ld. counsel for the assessee stated that similar issue arose in assessee's appeal for assessment year 2004-05 and the Tribunal after laying down principle in para-31.5 restored the matter to the file of Assessing Officer for re-examination as noted above. We, taking a consistent view, as the facts of the present case are similar, we set aside this issue to the file of Assessing Officer as indicated above and this issue of assessee's appeal is allowed for statistical purposes. 28. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the payment made to UTI, various banks towards Syndicate, Upfront fees for replacement of high cost loans with low cost loans. For this, assessee has raised the following ground No.8:- "8. Holding that the expenditure of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of loan of IDBI Ltd., ICICI Ltd., from July 2000 to September 2004 to November 2004 for IFCI Ltd. from July 2000 to September 2004 for NIA, State Bank of India, General Insurance Corporation. This clearly shows that the interest pertains to earlier years. Further, admittedly it is a one time additional interest paid for restructuring the loan to derive a benefit over a very long period. The syndicate fee paid is in respect of this financial restructuring where the assessee has clearly derived benefit of enduring nature and hence this expenditure is a capital expenditure as the assessee has derived benefit of an enduring nature. Therefore, the disallowance made by the A.O is confirmed and this ground of appeal is dismissed." Aggrieved, assessee came in second appeal before us. 30. Before us the Ld. counsel, Shri Soparkar stated that a sum of Rs. 2,11,33,839/- was paid to UTI, Rs. 5 lakh to State Bank of Bikaner & Jaipur, Rs. 5 lakh to the Jammu & Kashmir Bank Ltd, Rs. 5 lakh to Syndicate Bank, Rs. 4 lakh to State Bank of Patiala, Rs. 3,.75 lakh State Bank of India and another Rs. 5 lakh to State Bank of India as upfront fees for coordinating with various banks for sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, is a capital expenditure or revenue expenditure, was long back decided by the apex court as well as by several other High Courts, including this Court, in favour of the assessee, holding that such." 32. We find from the facts of the present case that the syndicate fee is paid for the restructure of financial liabilities and this is one time additional payment of syndicate fee and upfront fee in connection replacement of high cost loans with low cost loan pertaining to earlier years and the assessee has not derived any benefit of enduring nature and even there is no capital asset came into existence, which give enduring benefit to the assessee. The upfront fee and syndicate fee paid by the assessee to the bank, as one time payment, is nothing but bank charges and same cannot be construed as 'capital expenditure'. Even the Hon'ble Madras High Court in the case of Sivakami Mills Ltd. vs. CIT (1979) 120 ITR 211 (Mad) held that the guarantee commission paid to the bank was a revenue expenditure and was allowable as deduction in computing the total income of the assessee and the same was affirmed by Hon'ble apex court in Revenue's appeal reported in (1997) 227 ITR 465 (SC). Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his cannot be reduced from the book profit as it does not effect the books of account. This adjustment entry has been passed to transfer the general reserve to meet out prior period extraordinary expenses and hence book profit cannot be allowed to set off against the profit of current year for the expenses of the earlier years. According to the assessee, the purpose of transfer for general reserve to meet out the extraordinary prior period related interest and the cost for restructuring and reorganization of loan amount as per the approval of the High Court. According to the assessee, the company has replaced Rs. 163.02 crores of high cost loans with lower cost loans and has paid one time additional interest of Rs. 20.66 crores to compensate the financial institutions and banks towards lower interest charged in the earlier years as per step-up interest schedule approved under this scheme. He assessee stated that in view of this reasons the one time additional interest of Rs. 20.66 crores has been charged to the profit and loss account as exceptional item and equivalent amount has been transferred from general reserve. According to AO, this expenditure is not at all related to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Financial Institutions/Banks for prepayment of loans as not only made in the current year but the consent of financial institutions and banks to the assessee's proposal was also received during the current year and therefore one time additional interest payment crystallized during the current year. The assessee contended that Assessing Officer was not write in holding that the claim of the assessee is not allowable being prior period expenses and the argument that the same capital in nature, the payment of Rs. 20.66 crores being one time additional time interest was made as one time settlement to compensate financial institutions and banks towards lower interest charged as per the restructuring and reconstruction schedule of interest. The assessee contended that there was no benefit of enduring nature as the prepayment amounts to benefit of concessional/lower interest rates enjoyed in earlier years. The payment of this interest, according to the assessee was for the purpose of business and there is no creation of any capital asset. The assessee relied on the decision of Hon'ble apex court in the case of Empire Jute Co. Ltd. v CIT (1980) 124 ITR 1 (SC) for the proposition that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed in one lump sum as claimed by the assessee or deferred over a period of time as sought to be done by the revenue. 17.1 According to us, as correctly held by the Tribunal, the assessee's claim for deduction had to be allowed, in one lump sum, keeping in view the provisions of section 43B)(d) which provides that any sum payable by the assessee as interest on any loan or borrowing from any financial institution shall be allowed to the assessee in the year in which the same is paid irrespective of the provisions in which the liability to pay such sum is incurred by the assessee according to the method of accounting regularly applied by the assessee. Since the authorities below have not disputed that pre-payment premium paid to IDBI, in the instant case, is nothing but 'interest' or that it was paid to a public financial institution i.e. IDBI then, in terms of; section 43B(d) the assessee's claim for deduction could only have been allowed in the year in which the payment had actually been made. It is not disputed that payment has been made in the previous year relevant to the assessment year under consideration i.e. assessment year 1996-97. Therefore, there is no scope for spread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is fully allowable u/s.37((1) it being a revenue expenditure incurred fully and exclusively for the purpose of appellant's business and not for creating any capital asset. Even though such expenditure results into a benefit which accrues to the assessee-company over a period exceeding the year under consideration, such benefit does not accrue in the capital field but the same accrues in the revenue field. The test of enduring benefit alone is not conclusive for treating any expenditure as capital expenditure and it is relevant to find out whether such expenditure results into an advantage of enduring nature of the assessee in the capital field or revenue field so as to decide the exact nature of the said expenditure and allowability of the same under the Income Tax Act. The expenditure in question was incurred towards improvement of profitability and was revenue in nature. For this proposition, Ld. Counsel for the assessee cited the case law of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR (SC) observed as under:- There maybe cases where expenditure even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other provisions of the Act also provide on the same point then what is provided in Section 11JB would be applicable and not the other provisions of the Act. In our considered view Section 115JB is a complete code in itself for the purposes of computing book profit. No additional item of adjustment is required to be borrowed even if it is so provided in other provisions of the Act. For the purposes of computing book profit only those adjustments which are specifically provided din Section 115JB are required to be made and no other. This is also the ratio of the judgment of the Hon'ble Supreme Court in Apollo Tyres Case (supra) and other judgments rendered following Apollo Tyres. In other words, what is to be computed under various heads of income as per section 14 to 59 is replaced by book profit as per Schedule-VI of the Companies Act. Therefore, no provision comprising between Section 14 to 59 and also other provision in the Act providing for addition into income will affect book profit except the statuary adjustments provided under Section115JB. The initial wordings in Section 115JB(1) also makes it clear. It starts with "notwithstanding anything contained in any other provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt and the claim of the assessee was that the deduction of Rs. 20,66,43,839/- was permissible under clause (i) under Explanation to Section 115JB(2) of the Act and the CIT(A) erred in upholding the disallowance after making incorrect observations with regard to Hon'ble High Court's directions and holding that both the debit/credit entries effecting profit and loss account should have been done in the appropriation account. We find from the facts of the case that scheme of computation of book profit which shall be deemed as total income of the assessee. The base for computation of book profit is taken as the profit determined in the profit and loss account prepared for the relevant previous year in accordance with the provisions of Part-II and III of Schedule-I of the Companies Act, 1956 and after taking into account the accounting policies, accounting standards and method and rates for calculating the depreciation provided them. Such book profit, being net profit as per profit and loss account would be adjusted by several items as provided in Explanation which is enumerated above in the section. The expenditure relating to exempted income as provided in Section 10, 11 and 12, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Sub-section (5) specifies that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company mentioned in that section. In other words, except for substitution of the tax payable under the provision and the manner of computation of book profits, all the provisions of the tax including the provision relating to charge, definitions, recoveries, payment, assessment, etc. would apply in respect of the provisions of this section and in view of the scheme of the Income-tax Act. Section 4 of the Act charges to tax the income at any rate or rates which may be prescribed by the Finance Act every year, section 207 deals with liability for payment of advance tax, section 209 deals with its computation based on the rates in force for the financial year, as are contained in the Finance Act and the first proviso to section 2(8) of the Finance Act, 2001, provides that the tax payable by way of advance tax in respect of income chargeable under section 115JB as introduced by the Finance Act, 2000, shall be increased by a surcharge of 2 per cent. Consequently the provisions of sections 234B and 234C for interest on defaults in payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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