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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 ..... ld have claimed the relevant expenditure in the relevant assessment year.
In this regard, we rely on the decision of Dinesh Kumar Goel [2010 (10) TMI 287 - DELHI HIGH COURT] wherein it was held that if there is no loss to the Revenue, it cannot make much outcry for nothing. In this case, the above finding applies considering the factual matrix discussed above. Therefore, we are inclined to allow the claim of the assessee even though the assessee has sought for full waiver of interest even though it is not possible. However, the relevant liability was communicated to the assessee by the lender rejecting the proposals mooted by the assessee. Considering the peculiar facts in this case, we are inclined to allow the grounds raised by the assessee considering the fact that there is no loss to the Revenue. Accordingly, the appeal filed by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee has not furnished any evidence on the basis of which it can be proved that the liability as regards to such interest expenses is being crystallized in the concerned assessment year. Even the assessee itself is in a dilemma of facts which can easily be deducted from its admission wherein it was stated that if the expenses would not be allowed in the concerned assessment year then it was requested to provide the relief of such expenses in the relevant assessment years i.e. 2015-16 & 2016-17. From the above facts, the allowability of the expenditure is restricted to the assessment year for which the Assessing Officer has the jurisdiction and he rejected the submissions of the assessee that negotiated interest was only crystallized during the year and since the assessee is following the mercantile system, assessee should have claimed the relevant expenditure in the relevant assessment year. With the above observation, the claim of the extra-ordinary expenditure is disallowed and accordingly the loss declared by the assessee was reduced and assessed the same at Rs. 23,48,62,269/-. 4. Aggrieved assessee preferred an appeal before the ld. CIT (A). Assessee has filed detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 24. The appellant has regularly followed mercantile system of accounting and has offered income on due basis and has also claimed expenses on due basis. The claim of prior period expense has distorted the accounts of the year under consideration because the liability of the past years has been claimed as deduction in the current year. 25. Section 3 of the Act defines the previous years and the charging section 4 charges income-tax in respect of the total income of the previous year. Under section 4 of the Income-tax Act, the income that accrues or arises during the previous year alone is to be taken note of. There is therefore, a bar to include any income or expenditure that accrues or arises outside the previous year subject to the deeming provisions in the Act. 26. In the instant case of the appellant, the impugned liability of interest had accrued and crystallised during the F.Y 2014-15 & 2015-16 itself. Therefore, the same cannot be claimed as deduction for the previous year 2016-17 relevant to the A.Y 2017-18." 5. Aggrieved assessee is in appeal before us raising following grounds of appeal:- "A. General Grounds of Appeal 1. That the Assessment Order ["AO Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law in upholding the disallowance of a sum of Rs. 33,65,13,449/- made by the Ld. AO in assessment order u/s 143(3) towards interest payable, treating the same as expenditure pertaining to preceding financial years/prior period expenses. 5.1. The facts of the case have already been submitted in earlier paragraphs. Briefly, the facts of the case are that the appellant had taken loan from two parties in earlier years. Due to precarious financial condition, the appellant entered into negotiation with the lender about scaling down/waiving the interest. The details of correspondence between the appellant and the lender is summarised below: (i) The appellant wrote a letter dated 30.03.2015 to SREI (PB 2). It was inter-alia pointed out that the new management has taken over the appellant company from 01.01.2015 from ERA management who defaulted the loan payment. The new management is yet to formulate the market plan and resolve old issues. There is no revenue generation for payment of interest of previous loan availed by the old management. Therefore, the lender was requested to waive off interest on previous loans and all payment made today should be adjusted in principal amount. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) erred in holding that the negotiation for waiver of interest with the lender does not give rise to an event on which payment of interest is contingent. 6.1. It is submitted that the financial position of the appellant was precarious. Therefore, it entered into negotiation with the lender for waiver of interest on old loan and to reduce the interest from 12% to 8% on the new loan. The appellant also asked for moratorium on payment for a period of two years. The negotiation started on 30.03.2015 and ended on 25.03.2016. In this period, the appellant company was quite hopeful that some relief will become available as even for the lender, it would have been difficult to recover any money from the appellant. Therefore, the process of negotiation was a significant event having impact on the interest liability of the appellant. Thus, it is argued that the Ld. CIT(A) erred in holding that the negotiations did not have any impact on accrual / computation of interest liability. Therefore, it is requested that Ground No. 1.3 may be allowed. 7. Ground No. 1.5 is that the Ld. C1T(A) erred in observing that the correspondence between the appellant company and the lender was for reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this year. 9. Crystallization of expenditure in the current year The appellant relies on the following cases in this regard: (i) DCIT v. Enercon India Ltd. (2016) TaxPub (DT) 2867; (ii) DCM Limited v. DCIT 2015 TaxPub (DT) 4649; (iii) State Bank of Bikaner Jaipur v. ACIT 2014 TaxPub (DT) 4331 : 166 TTJ 244; (iv) DCIT v. Khurana Engineering Ltd. ITA No.571 (Ahd) of 2010; (v) DCIT (OSD), Circle 8, Ahmedabad vs. Zydus Welless Ltd. (2016) 76 taxmann.com 328; (vi) Union Bank of India vs. ACIT (2011) 16 taxmann.com 304 (Mumbai); (vii) Toyo Engg. India Ltd. vs. JCTI 110 (2005) 5 SOT 616 (Mum.); (viii) T and T Motors Ltd. v. Additional CIT (2015) 58 taxmann.com 295; (ix) Saurashtra Cement and Chemical Industries Ltd. vs. CIT 213 ITR 523; (x) Sutna Stone and Lime Co. Ltd. vs. CIT; (xi) Tata Communications Ltd. v. JCIT (2015) 58 taxmann.com 295; (xii) CIT, Delhi vs. Nav Sansar Agro Prodcuts (2017) 88 taxmann.com 480 (Delhi); (xiii) Pr. CIT vs. Escorts Ltd. (2018) 98 taxmann.com 291 (Delhi); The Mercantile system of accounting. 10. The Assessing Officer in his order dated 12/12/2019 contended that the appellant is following the mercantile system of accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenders have paid tax on the impugned amount of Rs. 33 ,65,13,449/-. On the other hand, the income of the appellant has been computed at a loss even after disallowance of the aforesaid amount. If this amount had been claimed in the respective years, the same would have been carried forward as loss. Therefore, there is no prejudice or injury caused to the revenue by claiming this amount in AY 2017-18. There is no implication of interest either. In such circumstances, the Ld. AO / Ld. CIT(A) ought to have allowed the interest. 12.2. Reliance is placed on the decision of Delhi High Court in the case or CIT vs. Dinesh Kumar Goel, [2011] 331 ITR 10 (Delhi), in which it has been held that if there is no loss to the revenue, the department should not make much outcry for nothing. He further relied on the following decisions :- (i) CIT vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681; (ii) CIT vs. Vishnu Industrial Gases (P.) Ltd. in ITR No.229 of 1988 dated 6.5.2008; (iii) CIT vs. Vishnu Industrial Gases P. Ltd. in ITR No.229/1988 dated 06.05.2008; and (iv) CIT vs. Vee Gee Industrial Enterprises in ITA No.187 of 2014 dated 28.07.2015. 12.5. Thus, it is argued that since there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the recording of expenses in those assessment years and recorded the total interest expenditure during the current assessment year and declared the interest expenditure relevant for AYs 2014-15 and 2015-16 as extra ordinary expenditure. The Assessing Officer and ld. CIT (A) disallowed the same by observing that the relevant expenditure claimed by the assessee is not relevant for the current assessment year and it can claim only in those relevant assessment years. After considering the factual matrix on record, we observed that assessee has declared loss of Rs. 27.82 crores in AY 2015-16, loss of Rs. 61.18 crores in AY 2016-17 and in current assessment year, before considering the exceptional item of interest claimed by the assessee, the loss declared was Rs. 23.49 crores. From the above, it is clear that even the assessee may have claimed the above interest loss would have been increased and assessee would have carried forward the loss. From the financial positions and profitability declared in the financial statement, it shows that it has no tax effect. The lower authorities argued that assessee has followed the mercantile system and assessee should have booked the relevant info ..... X X X X Extracts X X X X X X X X Extracts X X X X
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