9911796707
TMI Blog2023 (8) TMI 1510X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings does not survive. Therefore, the entire reassessment proceedings deserve to be quashed by the ld. CIT (A) himself. AO has erred in assuming jurisdiction u/s 148 of the Act. Notice issued u/s 148 of the Act is hereby set aside and the resultant assessment order is quashed. CIT (A) has enhanced the assessment in respect of Arrear of designated return - As decided in case of Sardari Lal and Company [ 2001 (9) TMI 1130 - DELHI HIGH COURT] whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the assessing officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfillled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, the decision in Union Tyres' case [ 1999 (9) TMI 81 - DELHI HIGH COURT] of this court expresses the correct view and does not need reconsideration - we have no hesitation to hold that the enhancement made by the ld. CIT (A) is bad in law and deserves to be set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT(A), for our detailed reasons therein, there is no capital subsidy to be reduced and there is no basis for recomputing the depreciation. The same is deleted. Disallowance of unpaid interest - assessee issued deep discount bonds to the public on which interest was payable on maturity - assessee had recognized the interest year on year as the liability accrues every year but however, is payable on maturity - HELD THAT:- Provisions of section 43B(e) of the Act apply only to loans/borrowings from any financial institutions. It does not apply to the deep discount bonds issued to the public. In our considered opinion, the amount over and above the face value which is payable on maturity is nothing but the interest amount which accrues to the assessee every year and recognized by the assessee in its books of account. Therefore, the interest payable on deep discount bonds is to be allowed on accrual basis and not on payment basis. The Assessing Officer is directed to delete the same. Reopening of assessment - disclosure within the meaning of Section 147 - whether in the mentioned Notes forming part of the Account amounts to disclosure - HELD THAT:- As relying on Sain Processing W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reasons shows that the reassessment proceedings were initiated only to disallow amortization interest on zero coupon bonds. 6. Facts on record show that the original assessment was framed u/s 143(3) of the Act vide order dated 31.12.2008. Therefore, the notice issued u/s 148 of the Act is beyond four years. Therefore, the provisions of the 1st proviso to section 147 of the Act squarely apply wherein it has been provided that there has to be a failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment and reasons recorded by the Assessing Officer should specifically record such failure based on a tangible material and non-recording of the same would render the entire reassessment null and void. 7. Our view is fortified by the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Haryana Acylic Manufacturing Company 308 ITR 38 wherein the Hon'ble High Court has held as under: 20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our considered view, if the item of disallowance for which the reopening was initiated is deleted, then the very basis of initiation of reassessment proceedings does not survive. Therefore, the entire reassessment proceedings deserve to be quashed by the ld. CIT (A) himself. 11. The ld. DR vehemently stated that the cases relied upon by the ld. counsel for the assessee are cases where addition has been deleted and the deletion has attained finality, whereas in the case in hand, though the addition was deleted in the earlier A.Y, but that very deletion is under challenge. Therefore, the decision relied upon by the ld. counsel for the assessee in the case of Adhunik Niryat Ispat Ltd 63 DTR 212 of the Hon'ble Delhi High Court is distinguishable. 12. We do not find any force in the contention of the ld. DR. Additions have been deleted and the Revenue has not filed any appeal. Therefore, it can be safely concluded that the deletion has attained finality and, therefore, the ratio laid down by the Hon'ble High Court of Delhi in the case of Adhunik Niryat Ispat Ltd [supra] squarely apply. 13. Ironically, we are somewhat shocked by the observations of the ld. CIT (A) that he does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cifically directed that once the assessing officer exercises jurisdiction u/s. 147 of I.T. Act, 1961 8 Issues notice u/s. 148 of LT. Act, 1961; after complying with the said notice u/s 148 of I.T Act, 1961 assessee is entitled to get a copy of the satisfaction recorded by the assessing officer for re-opening the assessment and after the same is provided by the A.O., the assessee can represent to the assessing officer regarding the correctness of the same and which the assessing officer must dispose off by passing a speaking order. 128. It is therefore clear that apart from seeking the copy of the satisfaction for re- opening the assessment as recorded by assessing officer and making a representation qua the correctness of the same before the assessing officer, an assessee whose assessments have been re-opened has no other remedy except approaching a writ Court under the extraordinary jurisdiction under Articles 226 and 227 of the Constitution of India. Contesting the correctness of the notice u/s. 148 of I.T. 'Act, 1961 resultant reopening of assessment before the office of the Commissioner (Appeals) is not the remedy permitted by the Hon'ble Apex Court. Otherwise also had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Assessing Officer has never considered the three issues mentioned hereinabove on which the ld. CIT (A) has made enhancement, nor they were part of the return of income. Therefore, in our considered opinion, enhancement is bad in law. 21. The Full Bench of the Hon'ble High Court of Delhi in the case of Sardari Lal and Company 251 ITR 864 had the occasion to consider an identical issue on the following facts: The question of first appellate authority's power to take into account a new source of income was referred for fresh adjudication. The revenue contended that proceedings before the first appellate authority cannot be restricted to only the matters considered and decided by the assessing authority. It has the power to enhance income which Assessing Officer had failed and neglected to consider certain aspects and it has the power to adjudicate and decide everything necessary to ascertain the true and correct income of the assessee. On the other hand, the assessee contended that if such a view was taken, the provisions for reopening in assessment available under section 147/148 and/or setting aside of the order on the ground that it was prejudicial to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d wholly nugatory. The controversy in this case is about his discovering new sources, not mentioned in the return and not considered by the Income-tax Officer. The High Court held following its earlier view in Narrondas Manordass v. Commissioner of Income-tax [1195] 31 ITR 909, that the Appellate Assistant Commissioner has revisional powers, but that they are confined to what was before the Income-tax Officer and considered by the latter. 24. Again, the Hon'ble Supreme Court in the case of Rai Bahadur Hardutroy Motilal Chamaria 66 ITR 443 had an occasion to adjudicate on similar grievance as under: The AAC has no jurisdiction, under s. 31(3) of the Act, to assess a source of income which has not been processed by the Income tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore. the Appellate Assistant Commissioner cannot travel beyond the subject matter of the assessment. In other words, the power of enhancement under s. 31 (3) of the Act is restricted to the subject-matter of assessment or the sources of income which have been considered expressly or by clear implication by the Income-tax Officer from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems of hundies. 26. The ld. DR further stated that the Hon'ble Supreme Court has categorically laid down that the AAC had jurisdiction or power to add the amount in the facts and circumstances in which he had added the same and has power to make addition not considered by ITO. 27. In further support, reliance was placed on the decision of the coordinate bench in the case of South Eastern Coalfields Ltd 85 ITD 608 and Metropolitan Trading Co. 89 ITD 662. 28. We have given thoughtful consideration to the submissions of the ld. DR. In our considered opinion, the Hon'ble High Court of Delhi in the case of Sardari Lal and Company [supra] has answered all the questions raised by the ld. DR. Relevant findings of the Hon'ble High Court read as under: 6. A similar question has been examined by the Apex Court as noted above, on several occasions. We do not think it necessary and appropriate to proliferate this judgment by making reference to all the decisions. A few of the important ones need to be noticed. One of the earliest decisions on the point was in CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC). The matter related to the corresponding provisions of the Indian In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a new source of income and granting a deduction on the admitted facts supported by the decision of the Apex Court. Relying on certain observations made by the Apex Court in CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), the Apex Court held that powers of the first appellate authority are coterminous with those of the assessing officer and the first appellate authority is vested with all the wide powers, which the subordinate authority may have in the matter. In Daluram's case (supra), the decisions of Kanpur Coal's case (supra) and Jute Corporation's case (supra) were also considered and it was observed by the Apex Court that the appellate powers conferred on the first appellate authority under section 251 of the Act were not confined to the matter, which had been considered by the Income Tax Officer, as the first appellate authority is vested with all the wide powers of the assessing officer may have while making the assessment, but the issue whether these wide powers also include the power to discover a new source of income was not commented upon. Consequently, the view expressed in Shapoorji's case (supra) and Chamaria's case (supra) still holds the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of taxability of income from a new source of income is concerned, which had not been considered by the assessing officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfillled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, the decision in Union Tyres' case (supra) of this court expresses the correct view and does not need reconsideration. This reference is accordingly disposed of. 29. Considering the facts of the enhancement in light of the aforementioned judicial decisions, we have no hesitation to hold that the enhancement made by the ld. CIT (A) is bad in law and deserves to be set aside. 30. For the sake of completeness, we will now address to each issue of enhancement. ADDITION ON ARREAR OF DESIGNATED RETURN Rs. 179.87 CRORES 31. The bone of contention is the following certificate by a Chartered Accountant: Mr. Harish Mathur Chief Executive Officer Noida Toll Bridge Company Limited, Toll Plaza, DND Flyway, Opposite Sector-15A, Noid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing finalization by the Independent Engineer as per Article 8.1(c) read with Article 10.2) wherein the costs incurred post commissioning date were not being considered. The last such certification (on the basis of provisional cost) was done for the year ending 31 March 2013. The management has now updated the project cost incurred upto the year ended 31 March 2013 by including the actual costs incurred, yearwise and re-computing the return in arrear an that basis. Accordingly, the Return in Arrears as at 31 March 2013 has been recompute on the basis of the updated cost. Further, the Independent Engineer has certified the project cost incurred up to 31 March 2013 vide his certificate dated 15 November 2013 The interest and other finance charges amounting to INR $30.01 million incurred till 31 March 2013, and included in the total project cost as mentioned above have not been considered for the purposes of computing the Return in Arrears in accordance with the formula mentioned in the Concession Agreement. 5. This certificate has been provided solely for the purpose stated in paragraph 1 above and may not be suitable for any other purpose. This certificate is not intended for general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Income arising out of the Development Rights that may be granted in accordance with the provisions of Article 4 herein; (viii) enter into private contracts with the Users for any use or any special use of Noida Bridge and to sell, distribute or issue, at various outlets as may be determined by the Concessionaire, coupons or tokens against payment of Fee in advance, thus providing the Users with ready access to Noida Bridge without the necessity of paying fee on each incidental use of the Noida Bridge; and (ix) appoint subcontractors or agents on its behalf to assist it in falling its obligation under this Agreement 34. Section 4.1 provides for Grant of Development Rights and the same read as under: Development Rights Section 4.1 Grant of Development Rights (a) In the event that the Independent Auditor, upon reference by the Concessionaire, determines that the Project is not generating sufficient revenue for the Concessionaire to recover the Total Cost of Project and the Returns thereon, or the Independent Engineer in its decision under Section 3.5(a) determines that the Concessionaire must be granted such development Rights as may be specified, the concessionaire may requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements is executed. All lease rental amounts payable pursuant to this subsection(e) shall be considered as part of the Project Cost. Any excess lease rental payments shall be refunded to the Concessionaire on the Transfer Date, NOIDA shall not increase the lease rental amounts payable in accordance with this Section 5.1(e). (c) All costs, expenses or charges incurred in making available the Bridge Site, including any compensation required to be paid for acquisition thereof or for the rehabilitation or resettlement of Persons in connection therewith or for the removal of structures, both above and underground, shall be borne and paid for by NOIDA or by the Concessionaire, upon written request in this regard by NOIDA, which request may be agreed to by the Concessionaire at its sole discretion. In the event that the said costs and expenses are completely or partially borne by the Concessionaire, they shall be included as part of the Project Cost. NOIDA shall bold the Concessionaire harmless from any costs or claims relating to any such acquisition and removal of such structures and all costs, expenses of charges incurred in relocating, rehabilitating or resettling persons in connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. In fact, the return of 20% is the projected return and was set as a benchmark for the assessee to recover over and above the actual project cost and if the assessee could not recover the said 20% return on investment by collection of user fee or toll fee from the users of the bridge, then the concession period is extended for a period of two years or till the time the project cost alongwith the projected return of 20% is recovered or the assessee gets development rights in respect of certain lands not utilized for the construction of the bridge. 43. Thus, nowhere did the agreement contemplate a guaranteed return @ 20% to the assessee. In fact, what we understand is that any shortfall in the recovery will not be compensated either by Noida or by the Government. Even in the certificate given by the auditor, nowhere there is any mention that the assessee is entitled to receive the shortfall in the recovery from the government. 44. A perusal of the aforementioned chart shows that the Chartered Accountant has only quantified the amount of returns on year to year basis. In our considered opinion, no right has accrued to the assessee nor there is any liability upon the payer in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;arising' in the sense of springing as a natural growth or result. The three Expressions accrues, I arises ' and I is received ' having been used in the section, strictly speaking 'accrues' should hot be taken as synonymous with I arises' but on the distinct sense of growing up by way of addition for increase or as an accession or advantage; while the word I arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks(1), [this part of the decision not having been affected by the reversal of the decision by the House of Lords(2)] that both the words are used in contradistinction to the word receive and indicate a right to receive. They represent a stage anteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him. The word earned even though it does not appear in section 4 of the Act has been very often used in the course of the judgments by learned Judges both in the High Courts as well as the Supreme Court. (Vide Commissioner of Income-tax, Bombay v. Ahmed Bhai Umarbhai Co., Bombay(6), and Commissioner of Income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty Co.(7). It has also been used by the Judicial Committee of the Privy Council in Commissioners of Taxation v. Kirk(1). The concept however cannot be divorced from that of income accruing to the assessee. If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , commissions on the net profits of each year's underwriting. The Agreements provided that accounts should be kept for the period ending 31st December in each year and that each such account shall be made up and balanced at the end of the second clear year from the expiration of the period or year to which it relates and the amount then remaining to the credit of the account shall be taken to represent the amount of the net profit of the period or year to which it relates and the commission payable to the Company shall be calculated and paid thereon. The accounts for the underwriting done in the calendar year 1936 were made up at the end of 1938 and the question that arose was whether the assessee was liable to additional assessment in respect of the commission on under writer's profits from the policies underwritten in the calendar year 1936 in the year in which the policies were underwritten or in the year when the accounts were thus made up. The assessee contended that the contracts into which it entered were executory contracts, under which its services were not completed or paid for, as regards commission, until the conclusion of the relevant account; that the profit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is postponed,' and is not merely postponed but depends on all the contingencies which, are inevitable in any insurance risk, losses which may or may not happen, returns of premium, premiums to be arranged for additional risks, reinsurance, and the whole catalogue of uncertain future factors. All these have to be brought into account according to ordinary commercial practice and understanding. But the delays and difficulties which there may be in any particular case, however they may affect the profit, do not affect the right for what it eventually proves to be worth. Lord Simonds in his speech at page 110 stated: It is clear to me that the commission is wholly earned in year 1 in respect of the profits of that year's underwriting. If so, I should have thought that it was not arguable that that commission did not accrue for income-tax- purposes in that same year though it was not ascertainable until later. The fact that the account of the commission could not be made up until later did not make any difference to the position that the commission had been wholly earned during the chargeable accounting period and the income had accrued to the assessee during that period. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, profits or gains are embedded in the sale proceeds as and when received by the Company also does not help the transferees, because the Managing Agents have no share or interest in the sale proceeds received as such. They are not co-sharers with the Company and no part of the sale proceeds belongs to them. Nor is there any ground for saying that the Company are the trustees for the business or any of the assets for the Managing Agents. The Managing Agents cannot therefore be said to have acquired a right to receive any commission unless and until the accounts are made up at the end of the year, the net profits ascertained and the amount of commission due by the Company to the Managing Agents thus determined. (See Commissioners of Inland Revenue v. Lebus(1) ). It is cleat therefore that no part of the Managing Agency commission had accrued to the Sasoons at the dates of the respecxtive transfers of the agencies to eth transferees. 46. In light of the ratio laid down by the Hon'ble Supreme Court [supra] we have no hesitation to hold that no right was accrued to the assessee to receive alleged designated return and, therefore, the entire addition is on notional basis in contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of depreciation was allowed to the assessee, as discussed in the aforementioned paras, the ld. CIT (A) treated the part market value of alleged transfer of land as capital receipt, he went on to reduce the written down value with the amount of capital subsidy and recomputed the depreciation and made the addition of Rs. 15.97 crores. 53. Since in the para above we have discarded the findings of the ld. CIT(A), for our detailed reasons therein, there is no capital subsidy to be reduced and there is no basis for recomputing the depreciation. The same is deleted. 54. In addition to the issues considered in A.Y 2006-07 ITA No. 4411/DEL/2018, in this year the assessee has challenged the disallowance of unpaid interest of Rs. 1,71,04,300/-. 55. The underlying facts in the issue are that the assessee issued deep discount bonds to the public on which interest was payable on maturity. The assessee had recognized the interest year on year as the liability accrues every year but however, is payable on maturity. During the year, the assessee debited such interest to the tune of Rs. 14.41 crores to the Profit and Loss account whereas it had paid Rs. 12.70 crores 56. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment is followed by the Assessing Officer while making the impugned addition. 61. We find force in the contention of the ld. counsel for the assessee. This Tribunal in ITA No. 925/DEL/2011 has considered the grievance of the Revenue as under: 9. Regarding 2nd issue as contained in ground No. 4, the challenge of the assessee is with regard to treating a sum of Rs. ,3,51,07,840/- being amortization of zero coupon bonds (series B) issued to lenders as a part of the package of relief and concessions granted by CDR empowered group of the Corporate Debt Restructuring Cell (CDR) of the banks and financial institutions, as capital expenditure whereas the assessee claimed it as revenue expenditure pertains to disallowance of Rs. 3,51,07,840/- being the amortization of zero coupon bonds (Series B) issued to leaders as a part of the package of relief and concessions granted by the CDR empowered group of the corporate debt restructuring cell (CDR) of the banks and financial institutions as capital expenditure as against the assessee s claim that it was a revenue expenditure. The A.O. was of the view that it was a capital expenditure. For the sake of convenience, the relevant findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the adequacy of the charge on a year to year basis to for the liability towards the ZCBs in the books. Accordingly, the P L account was debited with Rs. 5,16,01,434/- being the required amount of provision and the corresponding liability was recognized under the said secured loan. As this was expenditure pertaining to the period under consideration and it was claimed as revenue expenditure which liability to be allowed by making reference to various details as submitted before Ld. CIT (A) and incorporated in his order and by relying upon the decision of Hon ble Delhi High Court in case of CIT Vs Gujarat Guardian Ltd. as reported in 222 CTR 526 (Del.), it was pleaded for deletion of addition made by the A.O. and confirmed by Ld. CIT(A). 13. Ld. D.R. relied upon the orders of authorities below and pleaded for its confirmation. When specifically asked whether the case of the assessee covered by decision cited by Ld. Counsel for the assessee, he could not be able to give any denial. 14. After haring both the sides and considering the material on record as well as the precedent relied upon by the Ld. counsel for the assessee, we are of the view that addition made by the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall not be deemed to have been actually paid. 66. The ld. DR vehemently stated that these issues were never brought to the notice of the co-ordinate bench in A.Y 2004-05. Therefore, the decision laid down therein is not applicable for the year under consideration. 67. We have given thoughtful consideration to the issues raised by the ld. DR. In our considered view, the submission of the ld. counsel for the assessee that what is claimed is the interest year after year which is foregone for that particular year. In our considered opinion, it would be incorrect to say that the interest pertained to earlier years. In fact, interest upto A.Ys 2004-05 and 2005-06 have already been considered in those years and as the bonds are issued in A.Y 2004-05 as advance payment, the zero coupon bonds have been issued for liability accrued earlier, but paid in subsequent year. 68. We find that this aspect has been explained in the Financial Statement for F.Y. 2005-06 under the head Notes on Accounts . Clause (e) Debt Restructuring reads as under: Debt Restructuring: Pursuant to the approved Debt Restructuring package, the Company has issued Zero Coupon Bonds (ZCBs) (Series A) of face value of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning such loan [ or advances]. 70. Explanation 3C reads as under: For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable u/s (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing [or debentures or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid. 71. Applicability of this Explanation 3C to Section 43B of the Act has been explained by the Hon'ble Supreme Court in the case of M.M. Aqua Technologies Ltd 436 ITR 582. The relevant part reads as under: 18. As has been pointed out hereinabove, the Finance Act, 2006 inserted Explanation 3C w.e.f. 1st April, 1989. The scope and effect of this provision was explained by the Board in Circular No. 14/2006 dated 23rd December, 2006, as follows: 16.2 It has come to notice that certain assessees were claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a fresh loan on the ground that such conversion was a constructive discharge of interest liability a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest. This is also clear from the expression in lieu of used in the judgment of the learned CIT. That this is so is clear not only from the accounts produced by the assessee, but equally clear from the fact that in the assessment of ICICI Bank, for the assessment year in question, the accounts of the bank reflect the amount received by way of debentures as its business income. This being the fact-situation in the present case, it is clear that interest was actually paid by means of issuance of debentures, which extinguished the liability to pay interest. 21. Explanation 3C, which was introduced for the removal of doubts , only made it clear that interest that remained unpaid and has been converted into a loan or borrowing shall not be deemed to have been actually paid. As has been seen by us hereinabove, particularly with regard to the Circular explaining Explanation 3C, at the heart of the introduction of Explanation 3C is misuse of the provisions of Section 43B by not actually paying interest, but converting such interest into a fresh loan. On the facts found in the present case, the issue of debentures by the assessee was, under a rehabilitation plan, to extinguish the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut it differently, the consideration actually received by the assessee is more than what is declared or disclosed by him, sub-section (2) is immediately attracted, subject of course to the fulfilment of the condition of 15 per cent or more difference, and the Revenue is then not required to show what is the precise extent of the understatement or in other words, what is the consideration actually received by the assessee. That would in most cases be difficult, if not impossible, to show and hence sub-section (2) relieves the Revenue of all burden of proof regarding the extent of understatement or concealment and provides a statutory measure of the consideration received in respect of the transfer. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It merely provides a statutory best judgment assessment of the consideration actually received by the assessee and brings to tax capital gains on the footing that the fair market value of the capital asset represents the actual consideration received by the assessee as against the consideration untruly declared or disclosed by him. This approach in construction of sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared or for the removal of doubts . 18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word earned had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income arising or accruing in India . The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, income payable for service rendered in India . 19. When the Explanation seeks to give an artificial meaning to earned in India and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively. 23. This being the case, Explanation 3C is clarificatory-it explains Section 43B(d) as it originally stood and does not purport to ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 2001 on provisional basis pending certain payments, which would be effected on submission of the final bills by the contractor as per terms of the contract and clearance of the same by the Project Engineer designated under the Concession Agreement. The Independent Auditors have determined the amount to be recovered including 2()% return as designated under the Concession Agreement and due to the company till March 31, 2008 as Rs 12,841.30 million, The total amount to be recovered up to March 31, 2009 aggregates to Rs. 14,85.32 million as calculated by the Management and is subject to verification by the Independent Auditor . 81. Thus, it can be seen that there was a full disclosure in the account itself. The ld. DR has raised strong objections to such disclosure drawing full support from Explanation 1 to Section 147 of the Act wherein it has been provided that production before the Assessing Officer of Account Book or other evidence from which material evidence could, with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of Section 147 of the Act. 82. The issue which needs consideration is whether in the men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central government either generally or in any particular case and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading Notes at the end of that part: Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of company. (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirement of part II of Schedule VI, so far as they are applicable thereto. (6) For the purpose of this section, except where the context otherwise requires any refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown in the profit and loss account for the relevant assessment year. 4.10 To our minds, as long as the depreciation which is not charged to profit and loss account but is otherwise disclosed in the notes of the accounts, it would come within the ambit of the expression shown in the profit and loss account, as notes to the account, form part of the profit and loss account by virtue of a sub-section (6) of Section 211 of the Companies Act, 1956. This is quite evident if the provisions of sub- section (6) of the Section 211 of the Companies Act, are read in conjunction with, sub-section (1A), as well as, the explanation to Section 115J of the Act. 4.11 Another important aspect of the matter is that the expression used by legislature is net profit in contra distinction to the well-known accounting term cash profit . The net profit of a company cannot be determined till all items of income and expenses as recognized, as well as, depreciation are taken into account. Depreciation is nothing but loss of value of an asset arising from its use, efflux of time or obsolescence over a period of its useful life. Depreciation, undoubtedly has a major impact in determination of the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting Standard (AS-5) required prior period expenses/extraordinary items to be shown separately and the fact that these items were shown separately did not mean that they would not constitute part of the net profit. 4.14 The court also observed that the normal approach is to include prior period items in the determination of net profit or loss for the current period; however, the alternative approach was to show such items in the statement of profit and loss account after determination of current net profit or loss so as to indicate the effect of such items on the current profit and loss. 4.15 In our view, the ratio of the said judgment would apply notwithstanding the fact that there is no debit to the profit and loss account, in view of our discussion above that net profit cannot be determined without taking into account the information disclosed in the notes appended to the accounts which as observed by us hereinabove, form part of the accounts of the company/assessee. 5. The matter can be looked at from another angle. Under clause (iv) of the Explanation to Section 115J, the net profit as shown in the profit and loss account is to be reduced by, the amount of loss or depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer. 88. A similar issue was considered by the co-ordinate bench in ITA No. 5246/DEL/2012. The relevant findings read as under: 3. As regards ground no.1, the brief facts of the case as emanating from the order of the AO are reproduced hereinbelow. During the assessment proceedings assessee also filed concession Agreement. Perusal of concession agreement entered between NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY AND INFRASTRUCTURE LEASING FINANCIAL SERVICES LIMITED AND NOIDA TOLL BRIDGE PROJECT ITAs No. 5246, 5247, 5248, 5249, 5286/Del/2012 3 COMPANY LIMITED reveals that independent Engineer is sole Authority to determine whether to issue or not issue certificate of compliance or conditional certificate of compliance contingent upon satisfaction of conditions mentioned in the concession agreement within 365 days from the date of signing of this agreement on 12.11.1997. Independent Auditor is required to give a reasoned decision on the basis of various submission made to him by the concessionaire i.e. assessee and NOIDA on non fulfillment of conditions on the certificate. Hence the above clearly shows that the work of independent Auditor was related to setting up and commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the order of the learned CIT(A). 8. After perusing the record, we are of the view that learned CIT (A) has passed a reasoned order and has rightly observed that the Independent Auditor and the Independent Engineer were to be appointed by the Lenders, NOIDA and the assessee were required to be there for the entire concession period. The Concession Agreement clearly differentiated between the activities of these agents during the pre-construction, commissioning and post commissioning period. Since the project got commissioned in February, 2001, the activities of these agents during the post commissioning period is of relevance to determine their deductibility while computing the taxable income of the AY 2006-07. As per Section 85 of Article 8 of the Concession Agreement, the function of Independent Engineer, post commissioning of the project, was to monitor that the maintenance of the Noida Bridge was being carried on in conformity with the terms of the agreement and to certify the cost of such maintenance while the function of the Independent Auditor was to independently audit and certify the books of account of the assessee on a quarterly basis and also to certify the recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch speaks for inconsistency in the approach and also go to support the claim of the assessee that the expenses in question were allowable revenue expenditure. In view of the above, we are of the considered view that the ITAs No. 5246, 5247, 5248, 5249, 5286/Del/2012 6 services performed by these agents are revenue in nature and fulfills the conditions prescribed under section 37(1) of the Act. Therefore, the agency fees incurred by the assessee during the F.Y. 2005-06 are allowed as revenue expenditure and the addition made by the Assessing Officer has rightly been deleted by the ld. CIT (A) and we find no infirmity in his order. Accordingly, Ground No. 1 of Revenue is dismissed. 89. Respectfully following the decision of the co-ordinate bench (supra) we direct the Assessing Officer to delete the agency fee. This ground is accordingly allowed. 90. In the result, the appeals of the assessee are allowed. ITA No. 4973/DEL/2018 A.Y 2009-10 [Revenue s Appeal] ITA No. 4971/DEL/2018 A.Y 2010-11 [Revenue s Appeal] 91. Grievances of the revenue are identical to what has been considered by us in A.Y 2006-07. Identical issues have been elaborately discussed and decided by us hereinabove in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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