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TMI Blog2025 (2) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... d to explain why the disallowance of prior period expenses to the tune of Rs. 33,65,13,449/- should not be made. In response, assessee submitted as under :- "The Amount of Rs. 336513449 shown as exceptional item in the Profit and loss accounts is interest payable by the assessee on the loan taken from SERI Infrastructure Finance Limited in earlier Years. Assessee company acquired ERA Infrastructure Pvt Ltd during the year 2014. The interest pertaining to FY 2014-15 and 2015-16 was not provided as the assessee was under negotiation to seek waiver of interest payable, which did not materialise. During the financial year under assessment the assessee claim the entire interest as an exceptional item due to failure of negotiation. In case your good self is not inclined to subscribe to the above views, the assessee. It is settled position that the expenditure is allowable in the year in which the liability to pay such an expenditure has crystallized. The assessee request you to kindly allow the expenditure in the AY 2017-18 as expenditure crystallised in this year. If your good self do not subscribe to this view, alternatively the assessee request your good self to allow such expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st on the loan was 12% and the appellant wanted a waiver of 4%. The amount of interest equal to 12% of the loan amount takes the character of accrued expense and the amount of interest equal to 4% takes the character of income (which cannot be recognized because it did not happen during the year). 21. At no point of time the lenders gave any indication to the appellant that there liability will be reduced in any manner. It was the appellant only who made a request to reduce the interest. Therefore, the outcome was pre determined. The lenders refused to reduce the liability of the appellant in any manner whatsoever. Further, the lenders have already accounted for as income the amount of interest due from the appellant. In this regard, the appellant has furnished a certificate from the lender that the receipts due from the appellant have been treated as income by the lenders in their return of income. Therefore, there was no way that the lenders could have reduced the amount of interest due from the appellant. 22. The nature of interest expense amounting to Rs. 336513449/- remained as prior period expenditure in the accounts for the F.Y 2016-17. As per the provisions of Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,449 made by the Assessing Officer in his assessment order u/s 143(3) towards interest payable u/s. 36(1)(iv) of the Act treating the same as expenditure pertaining to preceding financial years / prior period expenses. 1.2. The CIT (A)-23 erred on fact and in law in holding that the expenditure of Rs 33,65,13,449, crystalized during the F.Y. 2014-15 and F.Y. 2015-16 completely ignoring the discloser made by the appellant in its annual accounts for F.Y. 2014-15 and F.Y. 2015-16 1.3. The CIT (A)-23 erred on fact and in law in holding that the negotiation for wavier of interest with the lender does not give rise to an event on which the payment of interest is contingent. l.4. The CIT (A)-23 erred on fact and in law in holding that the nature of an expenditure Rs 33,65,13,449 remained prior period expenditure despite the correspondence between the appellant and the lender for wavier of interest. 1.5. The CIT (A)-23 erred on fact and in law in observing that the correspondence between the appellant and the lender was for reduction of interest. 1.6. The CIT (A)-23 erred on fact and in law in sustaining the disallowance made by the assessing officer despite the fact that the len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by letter dated 15.10.2015 (PB 90). It was informed that the request of the appellant is not acceptable as the SREI is facing losses in this loan account. It was suggested that the appellant may contact Shrishti, a group company, which may help the appellant to market the units in NCR. (iv) The appellant wrote one more letter dated 25.03.2016 (PB 91). In this letter, a reference was made to Shrishti which was expected to help the appellant to market its units. It was pointed out that after lapse of about 6 months, they have also failed to generate revenue from the market. The appellant was struggling to manage day to day activity at site due to fund crunch. In this worse situation, it was again requested that the interest on the old loan may be waived and interest on the current loan may be reduced from 12% to 8% per annum. A moratorium of 2 years for payment of interest was also sought. (v) The SREI responded by letter dated 13.06.2016. It was informed that the management of SREI has not accepted the request and asked the appellant to start paying interest in time so as to save this account from becoming non-performing asset. The appellant was also informed that interest per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year. This is in conformity with the note of the auditor. Thus, it is argued that the Ld. CIT(A) erred in observing that while the liability had accrued in the respective years, any remission from such liability would have become income in the year of remission. The point is that in view of negotiations, the quantification on the basis of agreed rate had become a theoretical exercise and to that extent the liability could not have been computed on exact basis for the respective years. Thus, it is prayed that Ground No. 1.5 may be allowed. 8. Ground No. 1.2 is that the Ld. CIT(A) erred that expenditure of Rs. 33,65,13,449/- crystallised during the financial years 2014-15 and 2015-16 completely ignoring the disclosure made by the appellant in its accounts for those years. 8.1. We have already reproduced the disclosure made in the accounts of financial years 2014-15, 2015-16 and 2016-17. The reasons for not providing for the liability were mentioned in these notes which are to the effect that due to financial constraint, the appellant company entered into negotiation with the lender for waiver and reduction of interest and therefore the liability cannot be determined till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gas Ltd (2014) 42 taxmann.com 40 (Bombay); (ii) Commissioner of Income-tax-I v. Indian Petrochemicals Corporation Ltd, (2016) 74 taxmann.com163 (Gujarat); 11. Ground No. 1.4 is that the Ld. CIT(A) erred in holding that the expenditure of Rs. 33,65,13,449/- remain prior period expenditure despite correspondence between the appellant and the lender for waiver of interest. 11.1. In discussing Ground No. 1.2, it has been pointed out that due to negotiations between the appellant and the lender, the liability for interest remained inchoate and it crystallized on 13.06.2016. Therefore, it is argued that the expenditure is not prior period expenditure but a liability accrued in this year. Therefore, it is requested that it may be held that the liability pertains to this year and this is not a prior period expenditure. Thus, Ground No. 1.4 may be allowed. 12. Ground No. 1.6 is that the Ld. CIT(A) erred in sustaining the disallowance despite the fact that lender had already considered the income in their returns and paid taxes and thus there was no injury caused to the revenue. 12.1. The undisputed facts are that the lenders had accounted for interest on accrual basis as seen from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the appellant that the amounts may be allowed in the respective years. There is no dispute about the admissibility of the expenditure and therefore, it is requested that in case the appeal is not allowed, a direction may be issued that the respective amounts may be allowed in the assessment of A Y s 2015-16 and 2016-17. 14. Thus, in result, it is requested that the appeal may be allowed." 7. On the other hand, ld. DR of the Revenue objected to the submissions of the ld. AR of the assessee and submitted that the loan was taken in the Financial Year 2010 and assessee was negotiating with the SREI Infrastructure Finance Ltd. (in short SREI) for reduction of interest and not complete waiver. From the record, it is clear that the interest rate was not reduced but assessee has not claimed any interest in the relevant assessment year. Therefore, he relied on the findings of the lower authorities. 8. Considered the rival submissions and material placed on record. We observed that assessee has taken loan from two parties and due to financial difficulties, it entered into negotiations with the SREI to scale down/waiver the interest. The ld. AR has brought to our notice various ..... X X X X Extracts X X X X X X X X Extracts X X X X
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