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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh HkkxpUn] ys[kk lnL; ,oa Jh dqy Hkkjr] U;kf;d lnL; ds le{k BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM
vk;dj vihy la-@ITA No. 121/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2005-06 cuke ACIT Soni Hospitals Pvt. Ltd., Vs. Circle-05 11, Chetak Marg, J.L.N.Marg, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAGCS9508N vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 126/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2005-06 cuke Soni Hospitals Pvt. Ltd., ACIT Vs. 11, Chetak Marg, J.L.N.Marg, Circle-05 Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAAJJ0519R vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri A.K. Jain (CA) lquokbZ dh rkjh[k@ Date of Hearing : 19/05/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 26/05/2017 vkns'k@ ORDER PER: SHRI KUL BHARAT, J.M. These are the cross appeals one by the assessee and another by the revenue are directed against the order of ld. CIT (A)-5, Jaipur dated 21.11.2016 pertaining to A.Y. 2005-06. Both the appeals were taken up together for hearing and for the sake of convenience and brevity, are being disposed of by way of consolidated order. 2. First, we take up revenue’s appeal in ITA No. 121/JP/2016. The revenue has taken following grounds of appeal:-
2 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
“(i) Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 49,77,300/- out of Rs. 62,16,435/- on account of interest on term loan. (ii) The appellant craves the right to amend alter or add to any of the grounds of appeal given above.”
The only effective issue raised in the appeal is deletion of addition of Rs.
49,77,300/- out of Rs. 62,16,435/- on account of interest on term loan.
3A. Briefly stated facts are that in this case, the assessment was re-opened
u/s 148 on the ground that interest on term loan amounting to Rs. 62,16,435/-
was debited in ‘Profit & Loss a/c’. It was further noticed that the interest on
term loan was debited by Banks in term loan account and the outstanding
balances including interest was connected into fresh loan but not actually paid
in terms of section 43B(e) read with explanation 3D of the Act. Hence, as per
AO deduction was not allowable. Subsequently, the AO framed assessment u/s
143(3) read with section 147 of Income Tax Act, 1961 (hereinafter refer to as
the ‘Act’). Thereby, the AO made addition of Rs. 62,16,435/- on account of
disallowance of interest on term loan.
3B. Aggrieved by this, the assessee preferred an appeal before ld.CIT(A) who
after considering the material placed before his partly allowed the appeal. Ld.
CIT(A) reduced the addition, by deleting an amount of Rs. 49,77,300/- and
sustained the action of re-opening of assessment. Against this order both the
assessee and the revenue are in appeal before us.
The ld. DR vehemently argued that the ld. CIT(A) was not justified in
deleting the additions.
3 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
On the contrary, the ld. Counsel for the assessee supported the orders of
the ld. CIT(A) on this issue.
We have heard the rival contentions of both the parties, perused the
material available on record and also gone through the orders of the authorities
below. The ld. CIT(A) had given a finding on fact by observing as under:
“ I have considered the facts of the case, the assessment order and the submissions of the appellant. It is seen that out of total interest of Rs. 62,16,435/- a sum aggregating to Rs.49,77,300/- was actually paid out of balance available in the current accounts of the assessee viz. Account No. 1000014506 with State Bank of Bikaner and Jaipur and Account No. 01502050496 with State Bank of Saurashtra, as follows:”
DETAILS OF PAYMENT OF TERM LOAN INTEREST FROM CURRENT ACCOUNTS
“DATE CURRENT A/C WITH CURRENT A/C PARTICULARS OF TERM LOAN ACCOUNT SBBJ WITH SBS NUMBERS
04.01.2005 523130.00 SBBJ TERM LOAN A/C NO. 10000177927 04.01.2005 71477.00 SBBJ TERM LOAN A/C NO. 30000015730 04.01.2005 520480.00 569726.00 SBBJ TERM LOAN A/C NO. 01502050496 04.03.2005 SBBJ TERM LOAN A/C NO. 01502050496 11.03.2005 588939.00 SBBJ TERM LOAN A/C NO. 10000177927 11.03.2015 152686.00 SBBJ TERM LOAN A/C NO. 30000015730 23.03.2005 535794.00 SBBJ TERM LOAN A/C NO. 30000015730 31.03.2005 516209.00 SBBJ TERM LOAN A/C NO. 10000177927 31.03.2005 SBBJ TERM LOAN A/C NO. 01502050496 03.05.2005 164933.00 SBBJ TERM LOAN A/C NO. 30000015730 03.05.2005 587962.00 SBBJ TERM LOAN A/C NO. 10000177927 09.05.2005 578378.95 SBBJ TERM LOAN A/C NO. 01502050496 13.05.2005 3862.00 SBBJ TERM LOAN A/C NO. 30000015730 13.05.2005 13038.00 SBBJ TERM LOAN A/C NO. 10000177927
3355570.95 1621729.00”
4 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
Accordingly, the provisions of section 43B(e) do not apply to the interest amount of Rs. 49,77,300/- actually paid out of balance available in the current accounts. Therefore, addition to the extent of this amount of Rs. 49,77,300/- is directed to be deleted.”
The above finding on fact is not controverted by the revenue by placing
any contrary material. Hence, we do not see any reason to interfere into the
finding of ld. CIT same is hereby affirmed. This ground of appeal is dismissed.
Ground No.2 of the revenue’s appeal is general in nature and hence,
requires no specific adjudication.
In the result, appeal of the revenue is dismissed.
Now, we take up assessee’s appeal in ITA No. 126/JP/2017. The assessee
has raised the following grounds of appeal:-
“1. The learned Commissioner of Income-Tax (Appeals) has erred in law and on facts in upholding the Assessing Officer’s action of opening of the assessment u/s 147 of the Income Tax Act, 1961 which was previously concluded u/s 143(3) vide order dated 31.12.2007.
Without prejudice to above, the learned Commissioner of Income Tax (Appeals) has further erred in law and on facts in sustaining disallowance of Rs. 12,39,139/= u/s 43B(e) read with explanation 3D considering it as conversion of unpaid interest into Term Loan, whereas the amount represents unpaid accrued interest on term loans, paid out of proceeds of additional term loan of Rs. 221.50 lakhs granted and disbursed by SBBJ.
The appellant craves leave to add, alter/modify or withdraw all or any of the grounds of appeal on or before the hearing of appeal.” 11. The ld. Counsel for the assessee reiterated the submissions as made in
the written submissions. He submitted that the re-opening of assessment is not
justified under these facts of the present case.
On the contrary, the ld. DR supported the orders of the ld. CIT(A) on
sustaining the reopening of the assessment year.
5 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
We have heard rival contentions, perused the material available on record
and gone through the orders of the authorities below. He has decided in this
issue by observing as under:
“3.2 I have considered the facts of the case, the assessment order and the submissions of the appellant. The first contention of the appellant is that since the case has been reopened after expiry of 4 years, the AO was required to show that income had escaped assessment because the assessee had failed to disclose fully and truly all material facts. The assessee has stated that all material facts had already been submitted during the original assessment proceedings. In this regard, it is necessary to consider the reasons for issuing notice u/s 148 as recorded by the AO. The said grounds are as follows:
“The assessee filed its return of income for the A.Y 2005-06 declaring a loss of Rs. 2,82,73,070/- on 31.10.2005 which was processed on 31.03.2006 and assessed at a loss of Rs. 1,76,93,045/- on 31.12.2007, it is observed that interest on term loan amounting to Rs. 62,16,435/- was debited in P&L account in respect of SBBJ(ADTL) term loan Account No. 30000015730 of Rs. 6582335 SBBJ term loan Account No. 100001177927 of Rs. 28,22,911/- and SBS term loan Account No. 56229041512 of Rs. 27,35,289/-. From the perusal of assessment records the interest on term loan in respect of above accounts was debited by Banks in term loan account and further the outstanding balances including interest was converted in to fresh loan but not actually paid in terms of section 43B(e) read with explanation 3D. Hence deduction of above expenses was not allowable I have therefore, reason to believe that on account of failure on the part of the assessee to disclose fully and truly all material facts income amounting of Rs. 62,16,435/- has escaped assessment within the meaning of section 147.”
It emerges from the above grounds that the assessee had claimed interest in respect of term loans, which was debited in the term loan accounts but was not actually paid in terms of section 43B(e) read with Explanation 3D. The said amount was not allowable as found out by the AO subsequent to passing the original assessment order. It was also observed by the AO that all material facts relating to this aspect were not fully disclosed during the original assessment proceedings. Accordingly, the AO issued notice u/s 148 after duly recording the reasons including the fact that the escapement was on account of failure of the assessee to disclose the accounts in proper and transparent manner. The assessee has contended that it had given the copy of relevant bank statements and term loan accounts during the original assessment proceedings and had therefore made proper disclosure of all material facts. In this regard, it is firstly
6 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
observed from the record that during original assessment proceedings no querry was raised by the AO on the issue of allowability of interest on term loans under the provisions of section 43B(e). Consequently there is no discussion on this issue in the original assessment order. Secondly, mere submission of copy of accounts from which the facts could have been discovered on diligent application of mind does not amount to disclosure of all diligent application of mind, does not amount to disclosure of all material facts, as is obvious from Explanation 1 to section 147 which reads as follows:
“Production before the Assessing Officer of account books or other evidence from which material evidence could with the diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso”
It is therefore held that mere production/submission of accounts does not amount to full and true disclosure of all material facts necessary for assessment. Accordingly, there is no infirmity regarding the finding of the AO relating to absence of full disclosure of material facts. Further, no opinion had been formed by the AO in the original assessment order on the issue of allowability of interest on term loans under the provisions of section 43B(e). Thus there is no question of change of opinion while reopening the case. Therefore there is no error in issuing notice u/s 148. Accordingly, Ground No. 1 is dismissed.
We have heard rival contentions, perused the material available on record
and gone through the orders of the authorities below. The ld. CIT(A) has given
a finding on both the objection of the assessee. We are in agreement to
ld.CIT(A) that the AO had not decided the allowability of interest on term loan
in original assessment proceedings. Non consideration of this amount
tantamount to non application of mind. Therefore, we do not see any reason to
disturb the finding. This ground is dismissed.
Ground No. 2 is against sustaining the addition of Rs. 12,39,139/-. The ld.
Counsel for the assesse reiterated the submissions as made in the written brief
and submitted. Ld. CIT(A) was not justified in confirming the addition.
7 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
On the contrary, the ld. DR supported the orders of ld. CIT(A) on this
issue and submitted that the ld. CIT(A) has rightly sustained the addition in
view of the judgment of the Hon’ble M.P. High Court in the case of Eicher
Motors Ltd., and the judgment of the Hon’ble Delhi High Court in the case of
CIT vs. M.M.Aqua Technologies Ltd. (2015) 376 ITR 498.
We have heard rival contentions, perused the material available on record
and gone through the orders of the authorities below. The ld. CIT(A) followed
the judgment of the Hon’ble Delhi High Court in the case of CIT vs. M.M.Aqua
Technologies Ltd. (2015) 376 ITR 498 wherein the Hon’ble High Court has held
as under:
“Section 43B, to the extent relevant for the present case, now reads as follows:
“43B. Certain deductions to be only on actual paymen- Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of.....
(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or
(e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances, or ...
Explanation 3C.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid.
Explanation 3D.- For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually
8 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
paid any interest referred to in that clause which has been converted into a loan or advance shall not be deemed to have been actually paid.
Explanation 4.- For the purposes of this section,-
(a) Public financial institutions’ shall have the meaning assigned Explanations 3C and 3D quoted above, were introduced by the Finance Act, 2006, with retrospective effect from April 1, 1989 and April 1, 1997, respectively. Thus, these two Explanations were not present at the time the impugned order was passed.
From the Assessing Officer’s order, it is evident that the loans, in respect of which the assessee claims deduction of interest under section 43B, were taken from the ICICI, IDBI and IFCI. These entitles are included within the definition of “public financial institution” set out in section 4a of the Companies Act, 1956 (applicable for the purposes of the instant case as it relates to the assessment year 1996-97). Consequently, by virtue of Explanation 4(a) to section 43B, these entitles would also constitute public financial institutions for the purposes of section 43B and the interest on loan taken by the assessee from these entitles would fall within the purview of section 43B(d) of the Act.
Now, Explanation 3C, having retrospective effect with effect from April 1, 1989, would be applicable to the present case, as it relates to the assessment year 1996-97. Explanation 3C squarely covers the issue raised in this appeal, as it negates the assessee’s contention that interest which has been converted into a loan is deemed to be “actually paid”. In the light of the insertion of this Explanation, which, as mentioned earlier, was not present at the time the impugned order was passed, the assessee cannot claim deduction under section 43B of the Act.
In so concluding, this court is supported by the decision of the Madhya Pradesh High Court in Eicher Motors Ltd. Vs. CIT[2009] 315 ITR 312 (MP) and, subsequently, the judgment of the High Court of Telangana and Andhra Pradesh in CIT v. Pennar Profiles Ltd. (I.T.A. No. 289 of 2003, decided on February 11, 2015 [2015] 376 ITR 355 (T & AP). In Eicher Motors, the court noted (page 315 of 315 ITR):
“As observed supra, the Explanation 3C has now in clear terms provided that such conversion of interest amount into loan shall not be deemed to be regarded as ‘actually paid’ amount within the meaning of section 43B. In view of clear legislative mandate removing this doubt and making the intention of the Legislature clear in relation to such transaction, it is not now necessary for this court to interpresent the unamended section 43B in detail, nor it is necessary for this court to take note of facts in detail as also the
9 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
submissions urged in support of various contentions except to place reliance on Explanation 3C to section 43B and answer the questions against the assessee and in favour of Revenue.’’
The court in Pennar Profiles Ltd (supra) considered the decisions in Mahindra Nissan (supra), Vinir Engineering (supra) and Eicher Motors (supra) and held as follows (page 359 of 376 ITR):
“In this backdrop, we have perused the provisions contained in section 43B of the Act, in particular, Explanation 3C thereof, which was inserted by the Finance Act, 2006, with retrospective effect from April 1, 1989. This provision was inserted in 2006 and hence, this court in Mahindra Nissans case, had not occasion to deal with the case in the light of this provision. In so far as Karnataka High Court is concerned, though this provision was existing on the date of judgment, it appears that it was not brought to the notice of learned Judges and, hence, the Division Bench proceeded to consider and decide the appeal of the assessee without referring to Explanation 3C appended to section 43B of the Act.
As a matter of fact, from reading of Explanation 3C, in our opinion, the question as raised in the present appeals stands answered without further discussion. This provision was inserted for removal of doubts and it was declared that deduction of any sum, being interest payable under clause (d) of section 43B of the Act, shall be allowed if such interest has been ‘actually paid’ and any interest referred to in that clause, which has been converted into a loan or borrowing, shall not be deemed to have been ‘actually paid’. Thus, the doubt stands removed in view of Explanation 3C. This provision was considered by the Madhya Pradesh High Court in Eicher Motors Ltd. v. CIT(supra) to hold that in view of the Explanation 3C appended to section 43B with retrospective effect from April 1, 1989, conversion of interest amount into loan would not be deemed to be regarded as ‘actually paid’ amount within the meaning of section 43B of the Act.”
Since the ld. CIT(A) has followed the judgment of Hon’ble Delhi High
Court in the case CIT vs. M.M.Aqua Technologies Ltd. (supra).
We do not see any infirmity in the order of the Ld. CIT(A). Therefore, we
upheld the same.
Hence this ground raised in assessee in appeal is dismissed.
10 ITA Nos. 121 & 126/JP/2017 ACIT. Vs. Soni Hospitals Pvt. Ltd.,
In the result, both the appeals of the revenue and assessee i.e. ITA No.
121/JP/2016 and ITA No. 126/JP/2017 are dismissed.
Order pronounced in the open court on 26/05/2017.
Sd/- Sd/- (HkkxpUn½ (dqy Hkkjr) (BHAG CHAND) (KUL BHARAT) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Jaipur Dated:- 26/05/2017 Ganesh Kumar आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- ACIT, Jaipur 2. The Respondent – Soni Hospitals Pvt. Ltd., Jaipur 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 121 & 126/JP/2017) vkns'kkuqlkj@ By order
सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत