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TMI Blog2019 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... verning such loan or borrowings when it was borrowed from the public financial institution or a State financial corporation or a State industrial investment corporation or a scheduled bank. However, in the present case, the Ld. AR has fairly conceded that the assessee has not paid interest on loan or borrowings made from such institutions and shown as income in the subsequent year on its waiver. According to the Ld. AR, it cannot be added in the assessment year under consideration. In our opinion, offering of income on waiver in the subsequent assessment year cannot be a reason to allow non-payment of interest as deduction when it was not paid in accordance with the provisions of section 43B. Hence, we are in full agreement with the finding of the CIT(A) and the same is confirmed. Thus, this ground of appeal of the assessee is dismissed. Disallowance of part of interest claimed - diversion of funds to sister concerns - HELD THAT:- In view of the judgment of the Jurisdictional High Court in the case of V.I. Baby Co. [ 2001 (10) TMI 58 - KERALA HIGH COURT] CIT(A) had confirmed the disallowance of the interest made by the AO. However, we make it clear that AO has to compute in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Especially noticing the long pendency, we request the Tribunal to dispose of the appeals within a period of six months from the date of receipt of a certified copy of this judgment. Hence, these appeals came up for hearing today for fresh consideration. 2. The Revenue has raised the following grounds of appeal: 1) The CIT(A) has wrongly held that the effective date of transfer of the Taloja property took place when the assessee took possession of the assets and made entries in the books of account on 31/03/1997 and hence, the holding period was more than 36 months when the assets finally sold on 10/05/2001 and therefore, the assessee is liable only to long term capital gains. 2) The CIT(A) ought to have seen that the deed of assignment by which the assessee took over the Taloja property was registered only on 05/08/1999 and the assessee sold the property on 10/05/2001 and therefore, the holding period was less than 36 months for which the assessee is liable to short term capital gains. 3) The CIT(A) ought to have seen that as per the decision of the Supreme Court in Alappattu Venkitaraman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of section 2 of section 42(C) r.w.s. 50B to treat the same as slump sales. 3.3 It was contended that the Taloja unit initially leased out from innovative Marine Foods Ltd., an associate concern of the assessee was taken possession by the assesseeon 31/03/1997, being the leasehold right for factory building and office building and plant and machinery and on these dates the assessee had passed an entry for consideration of purchase to the tune of ₹ 23.65 cores. The Department had granted depreciation from the subsequent year. Therefore, it was submitted that all these assets had been included as early as 31/03/1997 so much so it cannot be held to be a short term capital gain. Therefore, the assessee had rightly deducted the sale proceeds from the block of assets.. 4. On appeal, the CIT(A) decided the issue in favour of the assessee. 5. Against this, the Revenue is in appeal before us. 6. We have heard the rival submissions and perused the record. Admittedly, a similar issue was considered by the Jurisdictional High Court in assessee s own case in ITA Nos. 640 1470 of 2009 dated 06/10/2010 wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished as a precaution and assessee's contention is that the sale of industrial undertaking should be assessed for capital gains as sale of depreciable assets under Section 50.of the Income Tax Act. The Assessing Officer noticed that the sale is a slump sale falling within the definition of Section 2(42C) of the Act and he made the assessment for capital gain as provided under Section 50B of the Income Tax Act. The assessment was made by invoking powers under Section 147 of the Act which was also challenged by the assessee in appeal. In this case, the first appellate authority allowed the appeal on both the grounds that is by cancelling the income escaping assessment as passed without jurisdiction and on merits by holding that the sale of the industrial undertaking is not slump sale but is to be assessed as sale of depreciable asset under Section 50 of the Act. In the connected case, the CIT(Appeals) took an entirely different view by upholding the assessment of sale of Industry as a slump sale . In the second appeal filed by the revenue before the Tribunal in this case, the Tribunal upheld the CIT (Appeals) order on merits but did not consider the validity of reopening rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said terms as contained in the above provision of the Income Tax Act. ft is also to be taken note that the assessee knowing well the chance of transaction being treated as a slump sale for the purpose of assessment of capital gain furnished along with the return filed the chartered accountant's certificate in form 3EA prescribed under Rule 6H in terms of Section 50B(3) of the Income Tax Act. Even after annexing the Chartered Accountant's Certificate issued in the prescribed form for assessment under Section 50B of the Act, assessee claimed that capital gain is assessable on sale of the undertaking as sale of depreciable assets under Section 50 of the Act, The question now to be considered is whether the claim of the assessee is tenable or not. In this regard we have to consider the scope of Section 50 and Section 50B of the Act. In our view assessee's claim for assessment of capital gainn under Section 50 of the Act is not tenable because the said Section provides for assessment of capital gains in the case of sale of depreciable assets. This Section provides for assessment for capital gain of assets forming part of block of assets in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced by the value of liabilities of such undertaking or division as appearing in its books of account. What is clear from the above is that Section 50B is the only provision which provides for computation of capital gains in the case of slump sale, even though sale of business undertaking as a going concern will involve sale of assets forming block of assets on which depreciation was being allowed. Assessee's counsel contended that when depreciable assets are sold, provision to be applied for assessment of capital gain is Section 50. However we are of the view that Section 50 applies only when an independent asset or a block of asset are sold on which depreciation was allowed and not when the industrial undertaking with depreciable assets are sold as a whole. In fact, when Section 50B provides for computation of capital gain on the sale of the undertaking it covers capital gain payable on depreciable assets forming part of the industrial undertaking also. In other words the distinction between Section 50 and 50B is that while Section 50 provides for computation of capital gain on the sale of only depreciable assets Section 50B provides for computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation by any of the appellate authorities because issue happened to be decided in their favour by the first appellate authority and the Tribunal. We give one more opportunity to the assessee to raise this issue before the A.O. If the Tribunal upholds the income escaping assessments and remands the matter for revision of assessment in terms of our judgment. 6.1 Since the similar issue has already been decided against the assessee in assessee s own case by the above judgment of the Jurisdictional High Court, we allow the appeal of the Revenue. Thus, the appeal of the Revenue in ITA No. 714/Coch/2008 is allowed. ITA No. 1286/Coch/2005 : 2002-03 7. The assessee has raised the following grounds of appeal: 1. The Officers below are not justified in confirming the addition of ₹ 2,07,99,000/- u/s.43B being interest accrued on loans from Banks/Financial Institutions for the reason that this has not been paid before the due date of filing the return. 2) The Officers failed to appreciate the fact that such interest has been waived by the Bank/Financial Institutions shown as income in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to apply provisions of sec. 43B. Accordingly, the CIT(A) sustained the disallowance made by the Assessing Officer 8.3 Against this, the assessee is in appeal before us. 8.4 We have heard the rival submissions and perused the record. As per the provisions of section 43B(d) and (e) of the Act, the assessee has to pay the interest on any loan or borrowings in accordance with the terms and conditions of agreement governing such loan or borrowings when it was borrowed from the public financial institution or a State financial corporation or a State industrial investment corporation or a scheduled bank. However, in the present case, the Ld. AR has fairly conceded that the assessee has not paid interest on loan or borrowings made from such institutions and shown as income in the subsequent year on its waiver. According to the Ld. AR, it cannot be added in the assessment year under consideration. In our opinion, offering of income on waiver in the subsequent assessment year cannot be a reason to allow non-payment of interest as deduction when it was not paid in accordance with the provisions of section 43B of the Act. Hence, we are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it can give interest free advances to the partners and others and then borrow funds from the bank on interest for business purposes. Such borrowings will not be for business purposes, but for supplementing the cash diverted by the assessee without any benefit to it, 'Therefore, so long as the assessee is not the beneficiary of the investments made by the partners, their relatives and the sister concerns, and so long as the advances are interest free, the Assessing Officer is perfectly justified in disallowing the interest in proportion to the advances made. There is no dispute with regard to working out of the proportionate disallowance of interest. The decision relied on by the Tribunal and referred to above does not appear to be applicable to the facts of this case, becauSe-that was an individual-assessee advancing interest free loan to a firm engaged in a related business as the assessee and in which he is also a partner along with his wife and minor children. Whatever benefit accrued to that firm will also be treated as income of the assessee assessable in his individual capacity. Therefore such an advance also should be taken as for business purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount should not be disallowed. The assessee has stated as under: - The foreign exchange loss of ₹ 84,06,770/- debited to the Profit and Loss account is on account of the reinstatement of the External commercial Borrowing availed by the company from Sumitomo Mitsui Banking Corporation for working capital purposes. Accordingly, loss on reinstatement of the loan as per the exchange rate prevailing as on 31.3.2002 has been debited to the Profit and Loss account. In fact for the assessment years 2003-04 2004-05 the Company has earned profit on reinstatement of the External Commercial Borrowing which has been taken as revenue income. That apart, there is a difference in the fluctuation of the External Commercial Borrowing as between one borrowed for working capital and one borrowed for acquisition of fixed assets. The working capital loan is mainly availed to acquire stock in trade and for meeting other expenditure whereas term loan was availed for acquisition of fixed assets. Therefore, any fluctuation in the reinstatement of External commercial Borrowings as far as working capital is concerned could only be taken as revenue expenditure whereas in other case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayable undergoes a change on the basis of foreign exchange rate at the end of each year. Thus, the CIT(A) observed that restatement resulted in the assessee requiring a higher or lower amount to clear the loan liability. According to the CIT(A), the amount debited for ₹ 84.06 lakhs actually represented the excess amount of liability to clear the loan account as on 31.3.2002. The CIT(A) noted that the assessee had not made any payment on 31.3.2002 and the actual amount to be paid depended upon the exchange rate at the time of repayment. The CIT(A) observed that the source was the loan obtained from foreign banks/financial institutions and undoubtedly, the loan received was a capital receipt. Therefore, according to the CIT(A), the increase or decrease in the liability should also fall in the capital field. Therefore, the amount debited represented capital expenditure only. According to the CIT(A), even if it is to be held that the amount can be claimed u/s 37, still it is to be disallowed because the claim is purely contingent in nature. The additional liability, if any, would crystallize only on the date(s) of repayment of loan. Accordingly, the CIT(A) up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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