Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BANGALORE ‘C’ BENCH, BANGALORE
Before: SHRI ABRAHAM P GEORGE & SHRI VIJAY PAL RAO
assessee respectively directed against an order dated 17-07-2013 of CIT(A), Mysore. The appeal of the revenue is taken up first for disposal.
The revenue has raised seven grounds of appeal of which ground 1,7 &8 are general in nature needing no specific adjudication.
3. Vide its ground no.2 to 4, grievance of the revenue is that the CIT(A) deleted an addition of Rs.44,42,893/- made by the AO on interest paid on unsecured loans. As per the revenue, the CIT(A) had misinterpreted the judgment of Hon’ble Madras High Court in the case of Madras Fertilizers Ltd Vs CIT (1993) 209 ITR 174.
Facts apropos are that the assessee operating a Multiplex Theatre in Bharath Mall, had filed its return of income for the impugned assessment year on 01-10-2010 declaring a total income of Rs.95,59,410/-. During the course of assessment proceedings the AO noted that a sum of Rs.88,85,787/- was charged as interest in the P&L account. Since there was no similar charge of interest in the preceding assessment year, the assessee was required to explain. The explanation of the assessee read as under;
“ The following is the details of interest paid during the previous year interest @7%d on Unsecured loans Anand G Pai Rs.9,49,608.30 Anatha G Pai Rs.9,49,611.39 Subraya M Pai Rs.6,07,753.00 Sudhir M Pai Rs.6,99,263.00 Venkatesh M Pai Rs.6,07,754.00 Adlabs Films Ltd Rs.50,71,797.00 Rs.88,85,786.69
The tax was deducted at source on the interest paid, the same was paid on 07-06-2010. The copy of the challan is enclosed for your kind perusal”.
As per the assessee the unsecured loan creditors had issued a threat of withdrawing the money, unless the interest was paid. Further, as per the assessee though, the interest was calculated from an earlier period, the liability had crystallized only during the relevant previous year. Reliance was placed on the judgment of the Hon’ble Apex Court in the case of CIT Vs Swadeshi Cotton & Floor Mills (P) Ltd., 53 ITR 134(SC), Himachal Pradesh High Court in the case of CIT Vs Himachal Pradesh State Forest Corpn.320 ITR170(HP) and that of Allahabad High Court in the case of M/s Apollo Textiles Agency (2006) 283 ITR 591(All.)
However, the AO was not impressed by the above explanation.
According to him, the loans were given by assessee’s share holders and the interest payment was based on an inhouse arrangement. As per the learned AO, the assessee could not show any threat or dispute with the loan creditors. Further, as per the learned AO the judgment of the Apex Court in the case of Swadeshi Cotton & Floor Mills (P) Ltd., 53 ITR 134(Supra) was in relation to a liability arising on declaration of bonus and was entirely different on facts. Learned AO also noted that the question before Hon’ble Himachal Pradesh High Court in the case of CIT Vs Himachal Pradesh State Forest Corpn.320 ITR170(HP)(Supra) was liability to pay interest on belated payment of royalty, and therefore, the facts were entirely different. As for the judgment of Hon’ble Allahabad High Court in the case of M/s Apollo Textiles Agency(2006) 283 ITR 591(Supra), learned AO was of the opinion that the question there was the liability of expenditure u/s 43B of the IT Act, 1961 on payment basis and had no relevance. He thus, held that interest claimed by the assessee for the period prior to 01-04-2009 could not be considered for allowance. The interest for financial year 2008-09 came to Rs.44,42,893/-. Thus, out of the total Rs.88,85,787/- the AO disallowed Rs.44,42,893/-.
In its appeal before the CIT(A), the argument of the assessee was that whatever expenditure was incurred could be claimed. According to the assessee payment of interest on the unsecured loans was made pursuant to a decision of its Board of Directors in their meeting held on 25-03-2010. Assessee also submitted that lenders had claimed interest since 2007 and assessee was not in a position to pay since its business had just started. As per the assessee when threatened with withdrawal of the loans, its Board of Directors had decided to pay interest at the rate of 7% per annum w.e.f. 01-04-2008. Assessee also distinguished the facts vis-à-vis judgment of the Hon’ble Madras High Court in the case of Madras Fertilizers Ltd Vs CIT ( supra).
Learned CIT(A) after going through the submissions of the assessee was of the opinion that the assessee could produce letters from the share holders which proved that the interest expenditure were incurred during the relevant previous year though, it pertained to earlier periods also. As per the learned CIT(A) share holders who were the lenders were also in the highest tax bracket and therefore there was no revenue loss. It seems learned CIT(A) also went through the e-mail copies produced by the assessee. He held that the claim of interest even for the preceding year was allowable. He deleted the disallowance.
Now before us, learned DR strongly assailing the order of the CIT(A) submitted that it was not a contractual liability. Assessee had never produced any contract which it had with the loan creditors that could show that there was any accrual of any interest expenditure. The claim was based on choice. No doubt, as per the learned DR, assessee had obtained letters from the loan creditors threatening withdrawal of the amounts unless the interest was paid from the date of the investments. However, as per the learned DR, this would not show that there was any legal liability on the assessee to pay the interest. Further, as per the learned DR, the copies of letters which was relied on by the learned CIT(A) for giving relief to the assessee was never before the AO.
Reliance was placed on the decision of the Ahmedabad Bench of this Tribunal in the case of Cadila Pharmaceuticals Ltd Vs ACIT 25 Taxman.com 519(Ahd.)
Per contra, learned AR submitted that there was no fresh evidence produced by the assessee. According to her, the AO himself was present during the course of hearing before the learned CIT(A) and all the particulars were given to him for verification. Therefore, as per the learned AR, there was no merit in the contention of the revenue that any fresh documents were considered by the learned CIT(A). Further, as
per the learned AR, the minutes of Board of Directors meeting held on 25-03-2010 placed at paper book at page-29 read along with the letters sent by the various loan creditors placed at paper book pages-15 to 28 would show that it was a commercial decision taken by the assessee to avoid re-payment of huge loans at one go. Thus, according to her, the claim was correctly allowed by the learned CIT(A).
We have perused the orders and heard the rival contentions.
Learned CIT(A) had considered the letters issued by the creditors demanding interest and threatening withdrawal of money for coming to a conclusion that the interest payment was a genuine allowable, business expenditure. There is no dispute that 50% of the total interest outgo pertained to preceding year. Assessee has also not disputed the claim of the revenue that there was no contract with the creditors for payment of any interest. However, as per the assessee it had taken a decision during the relevant previous year, in the meeting of its Board of Directors held on 23-03-2010 to pay interest from 01-04-2008 at the rate of 7%.
Assessment order states that assessee could not produce any evidence regarding any dispute that share holders/directors on the question of interest. No doubt, assessee is relying on a resolution of its Board of Directors for payment of interest. Nevertheless, we are of the opinion, that at least some of the records produced by the assessee before the CIT(A) were not before the AO. Just because AO was present at the time of proceedings before the CIT(A), we cannot say that requirements of Rule 46A of IT Rules stood satisfied. We are of the opinion that the issue therefore, requires a fresh look by the AO for verifying the allowability of the claim in accordance with law. We therefore, set aside the orders of the authorities below with regard to the allowance of interest back to the file of the AO for consideration afresh in accordance with law. Needless to say assessee shall produce all documents in support of its claim before the AO. Ground no.2 to 4 of the revenue stands allowed for statistical purposes.
Vide its ground no.5 to 7, grievance raised by the revenue is that the CIT(A) held that a sum of Rs.10,07,484/-considered by the assessee as prior period items as an allowable expenditure for the relevant previous year and had violated the provisions of Rule 46A of the IT Rules.
Assessee had claimed a sum of Rs.10,07,484/- as prior period expenditure while computing its profits. The details of such prior period expenditure as furnished before the AO read as under;
“ Distributors share Rs. 7,304,00 CAM charges Rs. 9,89,139.46 Property tax Rs. 6,594.00 Short prvi. for Bonus 2008-09 Rs. 4,447.00 Total Rs.10,07,484.46 AO required the assessee how the common amenities and maintenance charges which related to an earlier year could be allowed in the relevant previous year. Assessee replied that it was an ascertained contractual liability which accrued and crystallized during the relevant previous year.
As per the assessee, there was a dispute with M/s Bharath Mall, whose premises it was using for running the theatre and such a dispute was resolved only during the relevant previous year leading to the payment of extra cam charges. However, the AO was of the opinion that no evidence was produced by the assessee with regard to dispute with M/s Bharth Mall or for resolution of such dispute. He held that prior period expenditure could not be allowed. Reliance was placed on the judgment of the Hon’ble Madras High Court in the case of M/s Madras Fertilizers Ltd (Supra).
In its appeal before the CIT(A), argument of the assessee was that assessee was a joint venture between one M/s Adlabs Films Ltd.,and partners of Bharath Builders. As per the assessee its multiplex was located in Bharath Mall. There was a dispute with Bharath Mall on cam charges. Though, there existed a claim in this regard preferred by Bharath Mall, as per the assessee, the dispute was settled during the relevant previous year.
13. Learned CIT(A) was appreciative of the above contentions.
According to him, the AO had not considered the evidence with regard to the dispute with M/s Bharath Mall, produced by the assessee. Learned CIT(A) also noted that assessee had produced evidence in the nature of e- mails before him. According to him, assessee was regularly paying cam charges of Rs.4.5 lakhs and the payment for the relevant previous year which pertained to an earlier period was only on account of difference arising out of the settlement of the dispute. According to him, it was not a prior period expenditure. He deleted the disallowance.
Now before us, learned DR strongly assailing the order of the CIT(A) made submissions similar to the one he raised in ground no2 to 4 of the revenue. Per contra, learned AR supporting the order of the CIT(A) replied on the same line.
We have perused the orders and heard the rival contentions.
Grievance of the revenue is that the evidence produced by the assesssee before the CIT(A) were not before the AO. In our opinion, the question whether there was any dispute with regard to cam charges between the assessee and M/s Bharath Mall and such dispute, if it existed, whether settled, require a detailed analysis before coming to a conclusion regarding the allowability of the claim made by the assessee. Unless and until such an exercise is carried out, it cannot be ascertained whether the claim is one of prior period expenditure or business expenditure incurred during the relevant previous year. In such circumstances, we are of the opinion that this issue also requires a fresh look by the AO. We therefore, set aside the orders of the authorities below and remit the issue regarding allowance of prior period expenditure of Rs.10,07,484/- also back to the file of the AO for consideration afresh in accordance with law. Ground no.5 to 6 of the revenue is treated as allowed for statistical purposes.
Cross Objection filed by the assessee in support of the order of the CIT(A), since we have allowed revenue’s appeal, the cross objection have become infructuous.
In the result, the appeal is allowed for statistical purposes, whereas the cross objection filed by the assessee is dismissed as infructuous.
Order pronounced in the open court on the 30th October, 2015.