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TMI Blog1994 (6) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... Inv. 78-79 2,81,048 1,58,300 51,848 1,22,748 . 79-80 7,97,329 -- 5,06,715 2,90,614 . 80-81 5,22,682 -- 3,28,593 1,94,089 Sarabhai Sons Pvt. Ltd. 78-79 6,52,871 4,09,186 3,500 2,40,225 Nilgiri Inv. 78-79 4,72,454 3,22,446 -- 1,50,008 . 79-80 10,05,548 -- 6,49,166 3,56,482 Arvalli Inv. 79-80 10,28,130 -- 7,01,698 3,26,432 . 80-81 7,73,853 -- 5,04,344 2,69,509 Malbar Inv. 78-79 1,76,341 86,691 -- 89,650 . 79-80 4,77,490 -- 2,91,072 1,67,778 Dhaulgiri Inv. 78-79 3,49,599 -- 1,93,329 1,56,270 Himalaya Inv. 78-79 10,58,020 -- 6,55,139 4,02,881 Before the Assessment Officer all these companies contended that the P L a/c of the respective companies declared a loss. The distributable income has been computed by ignoring certain expenditure debited in the P L a/c. The common items of disallowance in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /c. is of capital account. The debit in question was not a trade debit. The loss claimed by way of commutation charges according to the Assessing Officer is a result of mode of tax planning practised by these assessees. It has been held in the quantum proceedings that such a deduction is not admissible either under s. 28 to 37 or under s. 57(iii). It also cannot be regarded as a capital loss under s. 57(iii). It also cannot be regarded as a capital loss under s. 45. He distinguished facts of the present cases with the facts of the case CIT vs. Minor Bababhai alias Lavkumar Kantilal (1981) 128 ITR 1 (Guj) 5.1 As regards interest payable under the IT Act claimed as deduction in the case of certain companies as indicated in the above chart, the Assessing Officer observed that the amount of interest did not even become payable during the concerned year nor that amount was paid in the concerned year. Such a liability, therefore, cannot be treated as covered under s. 109 of the IT Act, 1961. 5.2 As regards addition made on account of interest receivable, such as in the case of Dhaulgiri Inv., the Assessing Officer observed that interest income was added on accrual basis. The additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the concerned financial year nor it was possible to pay arrears of dividend on the preference shares. Such a decision of the directors was a bona fide decision and ought to have been accepted as a sufficient cause due to which the company decided not to declare and pay dividends. 7.2 The learned counsel submitted that in the quantum proceedings this matter was decided against the assessee. The main discussion in relation to disallowance of commutation charges was made by the Tribunal in the quantum appeal of Kaliash Investments Pvt. Ltd. in ITA No. 933/Ahd/82 for asst. yr. 1978-79. In the cases of other companies, the Tribunal followed the said order with regard to confirmation of disallowance of commutation charges. He submitted that the Tribunal has itself granted reference under s. 256(1) in the case of these companies in relation to disallowance of commutation charges confirmed by the Tribunal. Therefore, confirmation of the said disallowance by the Tribunal is still provisional and tentative, subject to the opinion which may be rendered by the Hon'ble High Court on the question of law already referred by the Tribunal to the High Court under s. 256(1). 7.3 The learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the years under consideration. He, therefore, urged that levy of additional tax deserves to be cancelled. 7.6 As regards the other item of debit in the P L a/c in the cases of some of the companies, namely, interest payable under the IT Act debited in the P L a/c, such as in ITA No. 4 of 84, the learned counsel for the assessee submitted that amount of interest under s. 139 was debited on the basis of order dt. 31st March, 1978 amounting to Rs. 30,168. Likewise interest under s. 220(2) amounting to Rs. 1,79,808 was debited in the P L a/c for the year ended on 31st March, 1978 on the basis of an order dt. 13th Feb., 1979. The learned counsel also relied upon the decision of the Tribunal in the case of ITO vs. Ranoli Investments Pvt. Ltd. ITA No. 2575/Ahd/87 dt. 7-10-1990 and decision in the case of Dhaulgiri Inv. P. Ltd. vs. ITO in ITA No. 2515/Ahd/87 dt. 27th Feb., 1991. Pursuant to a query from the Bench, the learned counsel admitted that in both these cases the amount of interest under the I.T. Act had actually been paid in the year under consideration while in the present cases, the interest was merely provided for in the books of account on the basis of above referred orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athetic and objective approach. Similar observations were made by the Hon'ble Supreme Court in the case of CIT vs. Asiatic Textiles 1973 CTR (SC) 463 : (1971) 82 ITR 816 (SC) holding that whether in a particular year dividend should be declared or not is a matter primarily for the directors of a company to decide. These provisions have to be construed and worked out not from the standpoint of the tax collector but from that of a businessman. Capital loss, if established, is one of the matters relevant to the question whether the payment of a larger dividend than that declared by the company would be not reasonable. The various other Court decisions relied upon by the learned counsel, brief synopsis of which were submitted in the compilation, supports the aforesaid principles of law relating to proceedings under s. 104. The ITAT, Ahmedabad Bench, in the case of Pavagadh Inv. P. Ltd. also elaborately considered the nature of proceedings under s. 104. It has been held in para 22 of the said order that proceedings under s. 104 is penal in nature and the ratio of Hon'ble Supreme Court in the cases of Anwar Ali and Hindustan Steel Ltd. would be applicable in relation to such proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement of case to the Hon'ble High Court in the case of the recipient companies at the instance of the Revenue in relation to taxability or otherwise of the amount of benefit received due to such commutation/remission of debt in the hands of those companies prove that this matter is highly debatable and controversial. Apart from this, the Bench required the learned representatives of both the parties to state as to whether the Department has levied penalty under s. 271(1)(c) in the cases of all these companies for the various years under consideration in relation to disallowance of commutation charges debited in the P L a/c. The learned representative of the appellant companies submitted a letter dt. 8th June, 1994 stating that no proceedings under s. 271(1)(c) were initiated in relation to commutation charges in the case of any of the assessee companies for asst. yr. 1978-79/79-80 whose appeals against orders under s. 104 of the Act have been heard on 8th June, 1994. Only in two cases namely, Nilgiri Inv. (P) Ltd. and Dhaulgiri Inv. (P) Ltd. proceedings under s. 271(1)(c) were initiated in respect of interest receivable on the commuted amount in asst. yr. 1978-79 but offered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was actually paid in the years under consideration while in the present cases it was admitted by the learned counsel that amount of interest levied under s. 139 and 220 were not in fact paid nor those amounts became payable as per the demand notices. The levy of interest under s. 139(8) has been adjusted as per demand notice dt. 31st March, 1978. The accounting year also ended on 31st March, 1978. The demand became payable within next 35 days and the same was not actually paid also. Similarly the amount of interest under s. 220 of Rs. 1,79,808 is as per an order dated 13th Feb., 1979 i.e. more than 10 months after the end of the accounting year. The amount of interest levied under the IT Act is not one of the permissible deductions under s. 109 nor it can be regarded as any expenditure actually incurred for the purposes of the business or for the purposes of making or earning any income. The amount of such interest levied under the various provisions of the IT Act is also not allowable for computing the taxable income. There is no debate with regard to the disallowable nature of such levy of interest under the IT Act for computing the assessable income. We, therefore, do not find a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective companies and the respective years under consideration, the additional tax charged under s. 104 for such subsequent years will also be cancelled or will be appropriately reduced. The Assessing Officer is directed to grant relief to the appellant companies in the light of aforesaid findings. 10. We will now consider Revenue's appeal in the case of Dhaulgiri Inv. P. Ltd. in ITA No. 1047/Ahd/85 in relation to cancellation of penalty under s. 271(1)(c) for asst. yr. 1978-79. 11. The ITO levied penalty of Rs. 20,000 in relation to addition made on account of interest receivable of Rs. 29,200. He has observed that the assessee kept the accounts on mercantile method. It should have accounted for all the amount of interest receivable from Sharabhai Chemicals in interest account. The assessee has not explained the circumstances for not showing such interest income on accrual basis. The assessee has thereby deliberately concealed interest income of Rs. 29,200. Accordingly the penalty of Rs. 20,000 was levied. 12. The CIT(A) after elaborately considering the submissions made by the assessee came to the conclusion that there is no justification for the levy of penalty under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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