COMMISSIONER OF INCOME TAX-I vs. CORE EMBALLAGE LIMITED

TAXAP/1440/2008HC GujaratGJHC24041319200821 January 2022Author: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MS. JUSTICE NISHA M. THAKORE12 pages
AI SummaryDismissed

What were the facts?

The assessee, Core Emballage Limited, filed its return of income for Assessment Year 2001-02 declaring a loss. During scrutiny, the Assessing Officer (AO) noted a deduction of Rs. 5,00,87,126 claimed for interest paid to ICICI Bank on a Term Loan. This included Rs. 2,70,00,000, representing equity shares issued to ICICI Ltd. in lieu of accumulated interest. The AO reopened the assessment under Section 148, contending that the issuance of shares did not constitute actual payment of interest under Section 43B, as no cash or cheque payment was made. The AO disallowed the Rs. 2.70 Crores and added it to the total income. The CIT(A) partly allowed the appeal, finding that issuing shares extinguished the liability. The Revenue appealed to the ITAT, which upheld the CIT(A)'s decision, agreeing that the shares issued discharged the interest liability. The Revenue has now filed this appeal before the High Court.

What did the High Court hold?

The High Court held that the issuance of fully paid-up shares to ICICI Ltd. in lieu of accumulated interest of Rs. 2,70,00,000 effectively extinguished the liability. The Court agreed with the concurrent findings of the CIT(A) and ITAT that this was not a case of converting outstanding interest into a loan, which would necessitate actual payment. Instead, the Court found that the liability was discharged in the year under consideration by offering shares, as acknowledged by ICICI Ltd. through a receipt. Therefore, Section 43B was held to be attracted. The Court concluded that the question of law raised by the department did not involve a substantial question of law, as the issue was no longer res integra and the concurrent findings of the lower authorities were based on facts. Consequently, the appeal was dismissed.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing to allow Rs.2.70 Crores being interest payable to ICICI Ltd. under Section 43B of the Income Tax Act, 1961? Assessee's Contentions: - Relied on the findings of the CIT(A) and ITAT. - Submitted that no error of fact or law was found, warranting interference. - Argued that there were concurrent findings of fact and law. - Contended that the appeal should not be entertained in the absence of substantial questions of law. Revenue's Contentions: - Argued that Section 43B requires 'actual payment by way of cash or cheque'. - Submitted that issuing shares against outstanding interest does not qualify as actual payment under Section 43B. - Claimed the AO rightly assumed jurisdiction for reopening under Section 148. - Referred to Explanation 3C to Section 43B, stating that conversion of interest into a loan or borrowing is not deemed to have been actually paid.

Which sections of the Income-tax Act were involved?

Section 260A,Section 43B,Section 148,Section 143(3),Section 145(3),Section 143(2),Section 142(1),Section 147,Section 52,Section 48

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/1440/2008 ORDER DATED: 21/01/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1440 of 2008 ============================================= COMMISSIONER OF INCOME TAX-I Versus CORE EMBALLAGE LIMITED ============================================= Appearance: M R BHATT & CO.(5953) for the Appellant(s) No. 1 DARSHAN R PATEL(8486) for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 21/01/2022

ORAL ORDER (PER : HONOURABLE MS. JUSTICE NISHA M. THAKORE)

1.

This is an appeal filed by the Revenue Department under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) challenging the order dated 20.02.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “C”, Ahmedabad in ITA No.2858/Ahd/2007 for the A.Y. 2001-02. 2. The substantial question of law which is raised by the Revenue department for our consideration, reads as under: “Whether the Appellate Tribunal is right in law and on facts in directing to allow Rs.2.70 Crores being interest payable

The order continues below.

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