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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI AMARJIT SINGH, JM
This appeal is filed by Maharashtra State Road Development Corporation Limited (assessee/ appellant) against the order of Commissioner of Income-tax (Appeals)—9, Mumbai [the learned CIT(A)] dated 14th February, 2014 for Assessment Year 2009-10.
Assessee has raised the following grounds of appeal:-
“1. The Commissioner of Income tax (Appeals) 9, Mumbai (Hereinafter referred to as "Ld CIT (A)") has erred in law, on facts and in the circumstances of the case, in confirming the disallowance of Rs.680.30
2. The Ld CIT(A) erred in law, on facts and in the circumstances of the case in confirming the disallowance of Prior Period Expenses of Rs.92,83.00 lacs, as detailed in page 11 para 5.3 of the appellate order and para 4 of Page No.2 of the Asst order, being conversion of guarantee fee payable for sovereign guarantee for Bonds issued, into share capital payable to the Government of Maharashtra.”
Assessee is a company engaged in the business of infrastructure development such as construction of flyovers, bridges, roads etc. It is fully owned by Govt. of Maharashtra.
It filed its return of income on 30th September, 2009, 04. declaring income of ₹382,61,28,565/- which was subsequently revised on 30th March, 2011 at a loss of ₹518,51,54,960/-. The case of the assessee was picked up for scrutiny. Assessment order u/s 143 (3) of the income tax act, 1961 (the act) was passed on 23/12/2011 at a total loss of Rs 418,88,24,900/–.
The learned assessing officer has made following additions/disallowances to the total income:- a. addition on account of excess interest paid of ₹ 68,030,000/–
Assessee preferred an appeal before the learned CIT – A on both these counts which were confirmed. Therefore assessee is in appeal before us
First ground of appeal is with respect to the disallowance of ₹ 68,030,000/–. The fact shows that as per note number 4.6 of schedule forming part of the accounts it is mentioned that as per exercise undertaken by the Corporation there have been instances of excess recovery of interest are different banks to the extent of an identified sum of ₹ 680.30 lakhs. The steps are taken with respective banks and reconcile the accounts. The learned assessing officer noted that since the company is following mercantile system of accounting any payment should be treated as an advance and only the interest allowable should be provided in the books of accounts of therefore the assessee was questioned that why above sum should not be disallowed. Assessee explained that as per the exercise undertaken by the assessee there have been instances of excess recovery of interest by different banks to the extent of ₹ 680.30 lakhs. The assessee has been taking steps to recover the matter with respective banks and reconcile the accounts since recovery is confirmed by the bankers no accounting action for the same has been taken. Further subsequent years if any amount is
8. Learned authorised representative submitted that Both lower Authorities have ignored the fact that the said note 4.6 was merely a general note given in the Financial Statements and the appellant had merely put the objection to the Bank for excess interest charged which was neither reversed nor confirmed by the Bank as the same was under the review of the banker. Therefore, the disallowance of said Rs. 6.80 Crores needs to be deleted. It is submitted that both lower authorities have ignored the fact that any recovery in subsequent years would be offered for tax and the very fact that the appellant has offered reversal of Interest claimed of earlier years amounting to Rs. 1.53 Crores during A.Y. 2009-10. Therefore, any notional interest cannot be disallowed based on a general observations in the Financial Statement. Without Prejudice, it is submitted that both
The learned departmental representative vehemently supported the orders of the lower authorities. He submitted that when the interest has been excess charge by the bankers to the assessee and identified by the assessee itself, there is no question of granting deduction of such interest expenditure as according to assessee itself it was not an expenditure incurred.
We have carefully considered the rival contention and perused the orders of the lower authorities. We find that assessee has made an exercise and found that there are several banks which has charged excess interest amounting to ₹ 68,029,972/–. This working is placed at page number 10 of the paper book. The reason to list of approximately 17 banks wherein for different years it was found that the interest has been charged excessively by those banks. Such excessive charged interest up to accounting year 2006 – 07 is ₹ 50,503,714/–, for accounting year 2007 – 08 of Rs 1,48,96,609 and for accounting year 2008 – 09 relevant to assessment year 2009 – 10 is ₹ 2,629,649/–. In fact, such interest expenditure, which is excess charge by the bank, has been
Ground number 2 is with respect to the disallowance of ₹ 9283 lakhs being guarantee charges recovered by government of Maharashtra. The fact shows that the assessee is a company owned by government of Maharashtra. Government of Maharashtra had taken a decision in its meeting held on 20 October 1997 to provide government guarantee to the assessee by charging a guarantee fee at the rate of 0.25% for the projects. Further, on seventh of November 2002, the government of Maharashtra in a cabinet meeting decided to charge guarantee fee and subsequently to convert guarantee fee
Contesting the above addition, the learned authorised representative made following submissions The appellant is wholly owned undertaking of the State Government of Maharashtra. The appellant charged additional Guarantee fees payable to the State Government of Maharashtra as Guarantor to the Bonds issued by the Appellant in earlier years which was confirmed on issuance of GR by the State Government after 31.03.2009 and therefore was shown as Prior Period expenses in the Financial Statement in pursuance of AS-5 issued by the ICAI. The appellant settled part of the said Guarantee Fees by issue of Equity Shares to the State Government of Maharashtra who owns the Appellant.
2.2. A.O: Para 4 The AO disallowed this expenditure on the ground that it is a scheme of arrangement wherein the State Government is not contributing any fund to the capital and the Appellant pay the due Guarantee Commission in the form of Equity Capital So this arrangement is nothing but increase in losses and equity share capital of the Appellant.
The CIT(A) confirmed the addition on flimsy ground that it is a prior period expenses and paper transaction between State Government and the Appellant.
2.4. Submissions 2.4.1. The date wise events for increased rate of Guarantee Commission is mentioned In Para 4.1 of CIT(A) order on Page 3 to 4.
2.4.2. Details of the Prior Period expenses are in the Financial Statements at Note 4.8 to Notes to Accounts (Refer Page 104 & Schedule 18 on Page 94 of the P/B.).
2.4.3. Both the lower authorities have ignored the fact that the said Guarantee Commission was claim as "Prior Period Expenses" as the same was crystalized & accrued based on the GR issued by the State Government of Maharashtra on 23.03.2010.i.e. after the Balance sheet period of 31.03.2009 but before signing of the Balance sheet on 21.2.2011. (Copy of GR at Pg 49 of P/B)
2.4.4. It is submitted that the same is allowable business expenditure U/sec. 37 as under the Income tax Act there is no prohibition that expenditure can not be paid in the form of equity share.
2.4.5. The appellant has relied upon following judicial decisions: ii) CIT V/S Karnataka Power Corpn. Ltd 281 Taxman 600 (Karnatak)
(iii)Saurashtra Cement & Chemical Ind Ltd 80 Taxman 61 (Guj) iv) Tata Communications Ltd V/S JCIT 32 taxmann.com 199 (Mum)
(v) DCIT V/S Motech Software (P) Ltd. 63 SOT 17 (Mum)
The learned departmental representative vehemently supported the orders of the lower authorities.
We have carefully considered the rival contention and perused the orders of the lower authorities. Fact shows that government of Maharashtra in view of guarantee given for the funding of the various projects of the assessee, is charging guarantee commission. Such guarantee commission is never paid by the assessee to the government of Maharashtra but is converted into equity capital by government of Maharashtra. Now the question that arises is whether the government guarantees charges recovered by the government of Maharashtra from assessee is an allowable expenditure or not. The lower authorities have stated that this is a circular transaction is no amount is paid by the assessee but it is converted by government of Maharashtra into equity capital. The assessee has claimed deduction of the above sum stating that it has accrued before the due date
Accordingly, appeal of the assessee is partly allowed.