SOUTHERN PETROCHEMICAL INDUSTRIES CORPORATION LTD.,CHENNAI vs. ITO, CHENNAI

Aforesaid appeals by assessee were heard along with other appeals for various assessment years having common issues. ITA No.208/Chny/2023 arises out of an order passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 30.12.2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 17.12.2008. ITA No.209/Chny/2023 arises out of an order passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 30.12.2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 263 on 14.11.2011. 2. In an assessment framed by Ld. AO u/s 143(3) on 17.12.2008, the returned loss of Rs.216.71 Crores was determined at loss of Rs.209.23 Crores after certain adjustments and disallowances. In an assessment framed u/s 143(3) r.w.s. 263 on 14.11.2011 consequent to revisionary order dated 25.03.2011, the assessed loss of Rs.209.23 Crores was re- determined at Rs.190.05 Crores after more adjustments.

The assessee assailed both these orders before first appellate authority vide common order dated 30.12.2022 which is in further challenge before us. The assessment framed u/s 143(3) is subject matter of ITA No.208/Chny/2023 whereas assessment framed u/s 143(3) r.w.s. 263 is subject matter of ITA No.209/Chny/2023. 4. The grounds raised by the assessee in ITA No.208/Chny/2023 are as under: -

1 The CIT(A) / NFAC ought to have appreciated that the assessing officer while giving effect to the order of ITAT in ITA No.2252/mds/2004 dated 20.10.2004 for the assessment year 2000-01 has allowed the interest on advances given to SPIC Fertilizers and Chemicals (FZE), Dubai (SFCL) and Indo Jordon Chemicals Ltd., Jordon (IJC) as business expenditure and hence no disallowance on proportionate interest is called for.

2 The CIT(A) / NFAC ought to have appreciated that the appellant has enough reserve and surpluses to give advances to subsidiaries and group companies due to commercial exigency hence no disallowance on proportionate interest is called for.

3 The appellant relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Industries Ltd., reported in 307 CTR 121 (SC).

The CIT(A) / NFAC erred in confirming the disallowance of Bad Debts written-off amounting to Rs.34,11,331/-.

1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the amounts written off represents debts that became irrecoverable from the trade debtors and written off as bad debts in the books of accounts. The assessee relies on the decision of Supreme Court in the case of TRF Ltd. Vs. CIT reported in 323 ITR 397(SC).

2 Without prejudice to the above the Commissioner of Income Tax (Appeals) ought to have allowed the same as business loss.

The grounds raised by the assessee in ITA No.209/Chny/2023 are as under: -

1 The CIT(A) I NFAC ought to have appreciated that the appellant has claimed only net interest as revenue expenditure in the return of income. As the interest of Rs.131.27 Lacs has been offered as income by the appellant in its income tax return and in as much as the interest expenditure was not claimed to that extent, the interest disallowance was rightly computed by the assesseing officer based on the net interest while completing the assessment u/s 143(3).

2 In any event, the appellant has sufficient own funds to cover the advances to group companies and hence no disallowance of interest on borrowed funds can be made in relation to advances to group companies.

The CIT(A)/NFAC erred in treating the interest expenditure not claimed by the appellant to an extent of Rs.1567.60 Lacs as income arising from the business assessable u/s 28(iv) in the hand of the appellant.

1 The CIT(A) I NFAC ought to have appreciated that the observation of the appellant vide item 10(a) to Notes on Accounts annexed to the audited Annual Report (18 months period) for the assessment year 2006-07 and upheld the said disclosure was made only for statistical purposes and to quantify the interest expenditure not claimed by the appellants and as such amounts cannot be subjected to tax, since the interest expenditure already accounted for by the appellants was only at reduced rate of interest, Hence, the amount cannot form appellant’s income u/s 28(iv).

The CIT(A)/NFAC erred in confirming the disallowance of interest of Rs.21,06,591/- u/s 244A.

1 The CIT(A)/NFAC erred in not granting interest on TDS refunds u/s 244A from the 1st April of the AY to the date on which the refund was granted as contemplated by the IT Act.

The Ld. AR advanced arguments on impugned issues citing various judicial decisions and also filed written submissions to support the case of the assessee. The revenue also advanced arguments and filed written submissions in support of impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as given in succeeding paragraphs. The assessee being resident corporate assessee is stated to be engaged in manufacturing and marketing of fertilizers, pharma, biotech products and providing engineering services.

Disallowance of proportionate Interest Expenditure

1 The assessee claimed interest expenditure of Rs.21781.82 Lacs against loan liabilities of Rs.226983.85 Lacs. However, it was noted by Ld. AO that the assessee advanced various sums to group entities which are tabulated in para 5.1 of the assessment order as under: - No. Name of the Party Amount (In Lacs)

2 During appellate proceedings, the assessee assailed the impugned disallowance on the ground that all these investments had business nexus and also raised plea of sufficiency of own funds to make these investments. The assessee also relied on the decision of Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (18 Taxmann.com 137) to plead that only net interest expense was to be considered for the purpose of disallowance.

3 However, rejecting the submissions of the assessee, Ld. CIT(A) confirmed the impugned disallowance except disallowance made against advances given to M/s Tuticorin Alkali Chemicals and Fertilizers Ltd. (TAC). The plea to consider net interest was also rejected. The adjudication of Ld. CIT(A) reduced the impugned disallowance to Rs.488.78 Lacs against which the assessee is in further appeal before us.

4 We find that this issue has been decided by us in assessee’s favor in ITA No. 204-205/Chny/2023 for AY 2004-05 as under: -

From the facts, it emerges that impugned advances have been given by the assessee in the ordinary course of business to all these entities. The investments

Disallowance of bad-debts written-off.

1 It transpired that the assessee claimed bad debts written-off for Rs.34.11 Lacs. The assessee furnished party wise break-up of the same and submitted that write-off represents debts that have become irrecoverable from the trade debtors. However, Ld. AO denied the same on the ground that the assessee could not establish fulfillment of conditions of Sec.36(2). During appellate proceedings, the assessee relied on the decision of Hon’ble Supreme Court in the case of TRF Ltd. (323 ITR 397). However, Ld. CIT(A) upheld the disallowance against which the assessee is in further appeal before us.

2 From the fact, it emerges that trade debtors have been written-off by the assessee and ratio of decision of Hon’ble Supreme Court in the case of TRF Ltd. (323 ITR 397) would apply supporting the case of the assessee. Even otherwise, the advances made by the assessee has turned bad and the same would constitute business loss for the assessee as held by us in assessee’s appeal ITA No/207/Chny/2023 for AY 2005-06. Taking the same view, we direct Ld. AO to delete the impugned disallowance. The corresponding ground stand allowed accordingly. The appeal stand allowed.

1 The assessment so framed by Ld. AO u/s 143(3) was subjected to revision by revisionary authority u/s 263 vide order dated 25.03.2011. Consequently, another assessment was framed u/s 143(3) r.w.s. 263 on 14.11.2011 making some more additions / disallowances which are subject matter of ITA No.209/Chny/2023. 9.2 Pursuant to revisionary directions, Ld. AO enhanced interest disallowance by Rs.3.07 Lacs by considering gross interest expenditure instead of net interest expenditure. The Ld. CIT(A) confirmed the same. Since we have deleted interest disallowance in totality, this ground has is deemed to have been allowed. The Ld.AO is directed to delete impugned disallowance of Rs.3.07 Lacs.

3 The revisionary authority also directed Ld. AO to bring to tax interest relief availed by the assessee for Rs.1567.60 Lacs under Corporate Debt Restructuring (CDR) package. The Ld. AO added the same to the income of the assessee. During appellate proceedings, the assessee submitted that interest was accounted in the books at reduced rates only and therefore, the question of adding the same would not arise. Concurring with the same, Ld. CIT(A) directed Ld. AO as under: - Evidently, the appellant has not provided the required documents with respect to what was the original rate of interest and the interest relief in the CDR package, in the appeal proceedings. Granting further time in this appeal pending for almost 13 years is not possible. Therefore, the AO is directed to determine, what was the interest payable in the year concerned at that point of time (before 31/03/2006) in view of the CDR package approved and whether the appellant debited that amount only, as claimed. If the applicant has claimed interest beyond the amount in the CDR package, the same to be brought to tax u/s 36(1)(iii). Aggrieved as aforesaid, the assessee is in further appeal before us.

4 From the facts, it emerges that the assessee has accounted interest expenditure at reduced rates only and the separate reporting made by Auditor is part of statutory disclosure only. The Ld. CIT(A) has well appreciated the plea of the assessee and observed that the assessee did not provide the requisite documents and computations to support its stand. Accordingly, Ld. AO has been directed to verify the claim of the assessee. Therefore, no further directions are required in the matter. The directions given in the impugned order are quite apt and sufficient. No further directions are required in the matter. The grounds stand dismissed.

5 Another issue that arises in the appeal is computation of interest u/s 244A. The revisionary authority directed Ld. AO to re-compute interest u/s 244A on the ground that the assessee filed TDS certificates for Rs.191.50 Lacs at the time of filing the revised return of income on 25.02.2008. The Ld. AO held that since the delay in furnishing TDS certificates was attributable to the assessee, interest u/s 244A could be granted only from 25.02.2008 only. The excess interest of Rs.21.06 Lacs was computed and the same was disallowed. During appellate proceedings, the assessee submitted that as per Sec.244(1), where refund of any amount becomes due to the assessee, the assessee would be entitled for interest at prescribed rates starting from 1st day of April of the relevant assessment year to the date on which the refund is granted. The assessee also submitted that there was no delay in filing the TDS certificates. As per Rule 12(2), there was no requirement to attach these certificates along with the return of income. The Ld. CIT(A) held that if any proceedings are going on against an assessee which results into refund to the assessee and proceedings was delayed due

6 From the fact, it is quite clear that the assessee was found entitle to claim impugned TDS credit. The TDS was deducted against the assessee during the relevant financial year itself. The interest is being denied merely because TDS certificates were furnished late. Nevertheless, due TDS was deducted as well as deposited by the deductors during the financial year itself. Therefore, the assessee, in our considered opinion, would be entitled for interest on the same from 01st April onwards. The Ld. AO is directed to compute the impugned interest in accordance with law. The ground stand allowed for statistical purposes. The appeal stands partly allowed.

ITA No.208/Chny/2023 stand allowed whereas ITA No.209/Chny/2023 stand partly allowed. Order pronounced on 10th January, 2024 (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा45 / VICE PRESIDENT लेखा सद7 / ACCOUNTANT MEMBER चे9ई Chennai; िदनांक Dated :10-01-2024 DS