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TMI Blog2019 (1) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of imposition of penalty and interest are distinct from the provisions for imposition of tax. In the backdrop of the aforesaid settled position of law, we are of the considered view that the interest on delayed payment of TDS cannot be disallowed under Sec. 40(a)(ii) of the Act. In our considered view as the interest on delayed payment of TDS is not on the personal tax but is attributable to the tax which the assessee has deducted in respect of payment to others, therefore, the same would be allowable u/s 37. Thus conclude that interest on delayed payment of TDS would be allowed as a deduction while computing the income of the assessee under the head “Business or Profession”. However, as the said issue was never contested by the assessee before the A.O, therefore, we restore the matter to his file for verifying the veracity of the claim of the assessee that the amount was paid towards interest on delayed payment of TDS. In case the claim of the assessee is found to be in order, then the A.O shall give consequential effect in terms of our aforesaid directions. Non granting deduction in respect of prior period adjustments (net) while computing the ‘book profit‘ under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the Commissioner of Income-tax (Appeals) erred in not granting deduction of an amount of ₹ 111,810,595/- in respect of prior period adjustments (net) while computing the book profits under section 115JB of the Act." 2. Briefly stated, the assessee company which is engaged in the business of manufacturing, processing and trading of steel casting and Iron products, rendering of technical services etc. had filed its return of income for A.Y 2004-05 on 29.10.2004, declaring total income at Rs. NIL. The return of income filed by the assessee was processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. In the course of the assessment proceedings the A.O inter alia made the following additions/disallowances. (I). The A.O dislodged the claim of the assessee that the amount of principal and interest of ₹ 162,30,33,516/- which was waived under 'One time settlement' (for short 'OTS') with the lender banks was to be excluded while computing the 'book profit' u/s 115JB of the Act. (II). The claim of deduction of interest of ₹ 62,23,304/-paid by the assessee to the Income-tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r him to be aggrieved as regards the same. The CIT(A) on the basis of his aforesaid observations partly allowed the appeal. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Authorised Representative (for short 'A.R') of the assessee Shri Arvind Sonde, Senior Counsel, at the very outset assailed the declining on the part of the lower authorities to exclude the amount of principal and interest of ₹ 162,30,33,516/- that was waived under OTS by the lender banks and was credited in the 'Profit & loss account' of the assessee, while computing the 'book profit' u/s 115JB of the Act. It was submitted by the Ld. A.R that the assessee company had in its revised return of income categorically claimed that the waiver of principal and interest amount under OTS with lenders amounting to ₹ 162,30,33,516/- was not liable to be included in the total income for the purpose of computing the 'book profit' as per Sec. 115JB of the Act. In support of his aforesaid contention the Ld. A.R drew our attention to the statement of revised computation of 'book profit' as per Sec. 115JB of the Act at Page 19 of the assesses 'Paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the auditor concludes that the financial statements give true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the financial statements. The Ld. A.R further drew our attention to Para 31 of the 'AAS' which contemplated the circumstances where an auditor's report is considered to be modified. The Ld. A.R taking support of Para 37 of the 'AAS' submitted, that an auditor may not be able to express an unqualified opinion where there is a disagreement with the management regarding the acceptability of the accounting policies selected, the method of their application or the adequacy of financial statement disclosures, which in the auditors judgment would have a material bearing on the financial statements. It was submitted by the Ld. A.R that as per Para 38 of the 'AAS' a qualified opinion should be expressed as being "subject to" or "except for" the effects of the matter to which the qualification relates. In the backdrop of the aforesaid deliberations, it was submitted by the Ld. A.R that the case of the assessee was clearly subjected to the qualifications by the auditors in the audit report. The Ld. A.R in order to fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation' in its profit and loss account which was prepared in the form prescribed i.e Part II and III of Schedule VI of the Companies Act,1956, but had disclosed the fact along with the quantum of current year depreciation computed in accordance with Sec.205(2) of the Companies Act,1956 as per the mandate of Clause 3(iv) of Part II of Schedule VI to the Companies Act,1956 by way of a 'Note' to the accounts. It was submitted by the ld. A.R, that the Hon'ble High Court observed that as long as the depreciation which was though not charged to the profit & loss account was disclosed in the 'Notes' of the accounts, it would come within the expression of the 'shown' in the profit and loss account, as the notes to the accounts, form part of the profit & loss account by virtue of sub-sec (6) of Sec. 211 of the Companies Act, 1956. In the back drop of the aforesaid observations, it was held by the High Court that though the current year depreciation had not been debited by the assessee to the profit and loss account, however, as the 'notes'to accounts formed part of the accounts, thus the same would in no way deprive the assessee of its claim for deduction of the same from the 'net pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants, therefore, it amounted to a capital surplus and was not a trading liability. It was submitted by the Ld. A.R that the Tribunal after deliberating at length on the issue under consideration had concluded that as the assessee company was in receipt of a 'capital receipt' which was not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income-tax Act, then the same cannot be treated as part of the net profit as per the profit & loss account or reckoned as 'working result' of the company of the relevant previous year and consequently, cannot be held to be taxable as 'book profit' under MAT in terms of Sec. 11JB. On the basis of its aforesaid observations, the Tribunal had in the aforesaid case concluded that the capital surplus on waiver of dues is neither taxable nor can be included in the computation of the 'book profit' under Sec. 115JB of the Act. On the basis of the aforesaid submissions it was averred by the Ld. A.R that the amount of ₹ 162,30,33,516/- waived in respect of principal and interest under OTS with the lenders was rightly excluded by the assessee company for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account for the year under consideration. The Ld. D.R submitted that the exempt incomes which were to be excluded for the purpose of computing the 'book profit' u/s 115JB were specifically spelt out in Clause II of Explanation I to Sec. 115JB(2) of the Act. In order to buttress his aforesaid contention that the waiver of principal and interest under OTS with lenders were not liable to be excluded while computing the 'book profit' of the assessee under Sec. 115JB of the Act, the Ld. D.R relied on the following judicial pronouncements: (i). B & B Infratech Vs. ITO [2017] 396 ITR 420 (KAR). (ii). Duke Offshore Ltd. Vs. DCIT [2011] 45 SOT 399 (ITAT Mum) (iii). Hindustan Shipyard Pvt Ltd. Vs. DCIT [2011] 130 TTJ 213 (Vishakapatnam) 9. Insofar the claim of the assessee that the CIT(A) had erred in rejecting its claim in respect of deduction of interest paid to the income tax department amounting to ₹ 62,23,304/-, it was submitted by the Ld. D.R that no such contention was raised by the assessee before the lower authorities. Alternatively, it was submitted by the Ld. D.R that interest on TDS was not allowed as an expenditure under the normal provisions of the income tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95/- in respect of prior period adjustment (net) while computing the 'book profit' u/s 115JB of the Act, the Ld. A.R relied on the order of the ITAT Delhi Bench in the case of M/s Essar Projects (India) Ltd Vs. ACIT 5(1), Mumbai. 12. We have heard the authorized representatives for both the parties, perused the orders of the authorities below and the material available on record. Before adverting to the issue as to whether the CIT(A) was right in law and the facts of the case in declining to exclude the waiver of principal and interest under OTS of the assessee with its lenders amounting to ₹ 162,30,33,516/- while computing its 'book profit' u/s 115JB of the IT Act, we shall first deliberate upon the taxability of the same under the normal provisions of the IT Act. In our considered view the waiver or remission of a liability cannot be regarded as an income in the hands of the assessee, unless the same is in the nature of a 'trading liability'. However, in case if the waiver of the loan is on capital account then the same cannot be held as 'income' in the hands of the assessee. Our aforesaid view can be safely gathered from a perusal of Sec. 41(1) of the Act, which reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of a loan by a creditor is taxable either as a perquisite under Sec. 28(iv) of the IT Act or as a remission of liability under Sec. 41(1) of the IT Act, had recently been deliberated upon by the Hon'ble Supreme Court in the case of Commissioner of Income-tax Vs. Mahindra and Mahindra Ltd. [Civil Appeal No. 6949-6950 of 2004; dated24.04.2018]. Insofar the provisions of Sec. 28(iv) were concerned, it was observed by the Hon'ble Apex Court that as a cash receipt was involved in the waiver of loan, therefore, the very first condition envisaged in the said statutory provision that the benefit or perquisite arising from the business shall be in the form of a benefit or perquisite other than in the shape of money was not satisfied. In the backdrop of the aforesaid observations it was held by the Hon'ble Apex Court that the waiver of loan would not fall within the realm of the provisions of Sec. 28(iv) of the IT Act. Further, the Hon'ble Apex court deliberating on the scope and gamut of Sec. 41(1) of the IT Act observed that the same particularly dealt with the remission of a 'trading liability'. The Hon'ble Apex Court taking cognizance of the difference between a 'trading liability' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IT Act in respect of any previous year relevant to the assessment year is less than 7½% of the 'book profit', then such 'book profit' shall be deemed to be the 'total income' of the assessee, and the assessee shall pay tax on such 'book profit' at the rate of 7½%. 14. Insofar the meaning of 'book profit' is concerned, the same has been defined to mean the 'net profit' as shown in the profit & loss account prepared for the relevant previous year in accordance with the provisions of Part II and III of the Schedule VI of the Companies Act, 1956. It is further subjected to adjustments provided in the Explanation 1 to Sec. 115JB of the Act. Further, while preparing the annual accounts the profit & loss account, accounting policies, accounting standards shall be the same which had been adopted for the purpose of annual general meeting in accordance with the provisions of Sec. 210 of the Companies Act, 1956. 15. We find that in the case of the assessee before us the auditors had by way of 'notes' at Para 3(vi)(9) and Para 3(vi)(11) of Auditors Report qualified the financial statements and had specifically mentioned that the benefit of waiver of loan on OTS with the lend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to a balance sheet or P&L a/c shall include the notes thereon or documents annexed thereto, giving information required to be given and/or allowed to be given in the form of notes or documents by the Companies Act. As already noted it is obligatory under cl. 3(iv) of Part II of Sch. VI to Companies Act to give information with regard to depreciation, which has not been provided for along with the quantum of arrears. According to us, once this information is disclosed in the notes to the account it would clearly fall within the ambit of the Explanation to s. 115J of the Act which defines "book profit" to mean 'net profit' as 'shown' in the P&L a/c for the relevant assessment year. 4.10 To our minds, as long as the depreciation which is not charged to P&L a/c but is otherwise disclosed in the notes of the accounts, it would come within the ambit of the expression 'shown' in the P&L a/c, as notes to the account, form part of the P&L a/c by virtue of sub-s. (6) of s. 211 of the Companies Act, 1956. This is quite evident if the provisions of sub-s. (6) of s. 211 of the Companies Act, are read in conjunction with, sub-s. (1A), as well as, the Explanation to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood with reference to the Notes to accounts accompanying the annual accounts also. In this view of the matter, the use of the expression 'net profit' in Explanation 1 to the second Proviso to section 115JB of the Act makes it clear that the impugned incremental liability towards leave encashment not debited to the Profit & Loss account but otherwise disclosed in the Notes to Accounts will have to be taken into account while determining the "book profits" under section 115JB of the Act. In other words, the liability of ₹ 8,35,447/- towards leave encashment has to be considered to determine net profit as the information was disclosed in the Notes appended to accounts, which have been held to be part of the accounts of the assessee company. Therefore, we find ample force in the plea of the assessee which, in our opinion, is allowable having regard to the parity of reasoning laid down by the Hon'ble Delhi High Court in the case of Sain Processing & Weaving Mills P. Ltd (supra)." We thus in the backdrop of our aforesaid deliberations on the facts and the settled position of law, are of the considered view that the A.O while determining the 'book profit' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales-tax and was liable to be allowed as a deduction. On a perusal of the order of the CIT(A) it emerges that he had rejected the said claim of the assessee for the reason that as per his him no such disallowance was made by the A.O while framing the assessment. It was observed by the CIT(A) that the A.O had in the assessment order only made two additions/disallowances viz. (i). disallowance of prior period expenses (Rs. 1,29,41,824/-); and (ii). disallowance of leasehold premium written off (Rs. 13,57,446/-). In the backdrop of his aforesaid observations it was concluded by the CIT(A) that now when there was no such addition or disallowance and the A.O had accepted the assesses computation, therefore, there was no reason for the assessee to be aggrieved. 17. We have perused the revised 'computation of income' that was filed by the assessee alongwith its revised return of income. On a perusal of the same it is revealed that though the assessee had on his own added back the interest of ₹ 62,23,304/- for arriving at its 'business income' of ₹ 7,22,76,900/- (prior to set off of b/forward losses), but had by way of 'Note No. 3' in his revised computation of income had sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income is filed by the assessee. However, as observed by the Hon'ble Apex Court the said restriction is only as regards the power of the A.O and the same in no way did impinge on the powers of the Tribunal under Sec. 254 of the Act. Rather, we are of the considered view that as the issue involved in the present case involves adjudication of a legal issue based on the facts available on record, therefore, the said claim of the assessee can be admitted for adjudication in the backdrop of the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Pruthvi Brokers & Shareholders (P) Ltd. (2012) 349 ITR 336 (Bom). In the said case it was observed by the Hon'ble High Court of Bombay that the appellate authorities are vested with the power to consider the claim of the assessee, though not raised in the 'return of income'. Further, in our considered view if the assessee is able to show that a particular income was not taxable or an expenditure was not liable to be disallowed, then he can always demonstrate before the authorities that the same was returned under an erroneous impression. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be disallowed under Sec. 40(a)(ii) of the Act. In our considered view as the interest on delayed payment of TDS is not on the personal tax but is attributable to the tax which the assessee has deducted in respect of payment to others, therefore, the same would be allowable under Sec. 37 of the Act. Our aforesaid view is supported by an order of a coordinate bench of the Tribunal viz. ITAT, "L" Bench, Mumbai in the case of M/s Essar Projects (India) Ltd. Vs. ACIT, 5(1), Mumbai [ITA No. 1844 & 1845/Mum/2015]. We thus in terms of our aforesaid observations conclude that interest on delayed payment of TDS would be allowed as a deduction while computing the income of the assessee under the head "Business or Profession". However, as the said issue was never contesed by the assessee before the A.O, therefore, we restore the matter to his file for verifying the veracity of the claim of the assessee that the amount of ₹ 62,23,304/- was paid towards interest on delayed payment of TDS. In case the claim of the assessee is found to be in order, then the A.O shall give consequential effect in terms of our aforesaid directions. The Ground of appeal No. 2 is allowed for statistical pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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