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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
The first issue in the assessment year 2002-03 in of assessee’s appeal is as regards to the order of the learned CIT (A) confirming the addition of compensation received.
2 & 1675/Mum/2014 3. At the outset, the learned Counsel for the assessee took us through the assessment order Para 4.1 wherein the compensation received amounting to Rs.1,00,00,000/- was included as other income. Before the AO the assessee claimed that this income has been offered before the Settlement Commission as additional income in statement of facts. Similar plea was raised before the learned CIT (A) also. The learned Counsel for the assessee finally before us drew our attention to pages 69 to 71 of the order of the Income Tax Settlement Commission dated 28-03-2014 passed u/s 245D(4) of the Act wherein this income of Rs.1,00,00,000/- has been considered as under:- “It is stated by the learned AR that in a letter dated 07.10.1998, the applicant had explained the nature of transaction with M/s. Beacon Advertising. The transaction related to the purchase of tenancy rights for the office premises, which was debited in the books of account under the head „advertisement expenditure‟ and it was proposed to be claimed in ten equal annual installments as „deferred revenue expenditure‟ u/s 35D. It is further stated that Beacon Advertising was the tenant and RCCT was the landlord. However, the tenancy could not be effected in the name of the Company due to the rent laws in force at the relevant time and hence the tenancy rights were taken in the names of the individual family members of Agarwal family. The amount of Rs.1,00,00,000/- was shown as advance deposit to the individual members towards allowing the use of their office premises. Having regard to the above substantial deposit of Rs.1,00,00,000/-, no compensation was charged by the individual members of the family for the use of the premises by the applicant company. The Assessing Officer has held that the applicant has utilized interest-bearing funds for making payment for non-business purposes. Accordingly, the Assessing Officer has made the above disallowance of interest @20% per annum, though the interest rate has been mentioned as 21% in the assessment order. It is stated by the learned AR that in the revised computation of total loss for the block period filed before the Assessing Officer, the applicant had surrendered a sum of Rs.1,00,00,000/- in the above matter, which has, however, not been taken into account by the Assessing Officer while framing the block period assessment order in this case. Accordingly, the above amount of Rs.1,00,00,000/- has already been offered by the applicant in the SOF (Vide page no.118 of the SOF).
3 & 1675/Mum/2014 We have carefully considered the above facts and circumstances of the case. Having regard to the fact that the applicant has surrendered the above amount of Rs.1,00,00,000/- in the SOF, there is no question of making any disallowance on account of interest. Further, we would also like to hold that the Assessing Officer‟s action in treating the above payment as utilization of interest- bearing funds for non-business purposes is prima-facie incorrect, as the applicant company has not paid any compensation to the individual members of the Agarwal family for making use of the tenanted premises for their office purpose. The CIT (DR) is also agreeable to the above view point. Accordingly, the above issue gets settled”. Since the income was considered by the Settlement Commission and declared by the assessee in statement of facts, the learned Sr. DR fairly conceded the position. In view of the above facts, that the assessee has declared the income before the Settlement Commission and which was eventually accepted, the addition made by the AO and confirmed by the learned CIT (A) is deleted.
The next issue in the appeal of the assessee for assessment year 2002-03 in is as regards to the order of the learned CIT (A) confirming the disallowance of cash payment made u/s 40A(3) of the Act read with Rule 6DD of the Income Tax Rules, 1962 amounting to Rs.20,25,000/-.
At the outset, the learned Counsel for the assessee has not pressed this issue under the instructions from the assessee. Accordingly, the same is dismissed as not pressed.
The next issue in & 1675/Mum/2014 for assessment years 2002-03 and 2003-04 is as regards to the order of the learned CIT
4 & 1675/Mum/2014 (A) confirming the disallowance of interest on non-convertible debentures amounting to Rs.11,82,53,631/- and Rs.11,31,49,195/- in assessment years 2002-03 and 2003-04 respectively.
At the outset, the learned Counsel for the assessee drew our attention to the Settlement Commission Order dated 28-03-02014 passed u/s 245D(4) of the Act pages 179 to 180 wherein similar addition was deleted by the Settlement Commission by observing as under:- “It is submitted by the learned AR that the A. O. has rejected the applicant‟s claim for provision of interest payable on NCD amounting to Rs.63,90,789/- on the ground that the above amount was not debited in the P&L account and it was claimed in the computation of total income only. It is stated by the learned AR that the liability for payment of interest on the NCD for the period ending 31.03.1999 had accrued under the mercantile system of accounting followed by the applicant and hence the deduction for the above liability should have been considered. It is admitted by the learned AR that the applicant company had not provided the interest on NCD in its books of accounts. However, such non-provisioning in t he books of account does not affect the right of the applicant company to claim the same as allowable revenue expenditure for the year under consideration. In this connection, the learned AR has relied upon the decision of the Hon‟ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT 82 ITR 363 (SC). The CIT (DR) has not contradicted the applicant‟s claim in the above matter. We have considered the issue and have also heard the learned AR. Having regard to the mercantile system of accounting followed by the applicant, we find that the applicant is entitled to claim deduction for the above amount. Accordingly, the addition made by the A. O. in this regard is hereby deleted”. The learned Counsel for the assessee stated that the Settlement Commission for assessment year 1999-2000 has allowed the claim of the assessee in respect of non-convertible debentures emerging out of OFCD issued by the assessee in earlier years. The interest expenditure, according to the learned Counsel for the assessee was claimed on such 5 & 1675/Mum/2014 NCDs based on the decision of the Hon’ble Supreme Court in the case of Rakesh Shantilal Mardia Vs DCIT [210 Taxman 565 (SC)] and also based on the decision of the Hon’ble Bombay High Court in the case of Taparaia Tools Ltd. Vs. JCIT [260 ITR 102 (Bom.)]. According to the learned Counsel for the assessee interest has to be allowed during the year under consideration since it is genuine and is relatable to the debentures/loans. The learned Counsel for the assessee also argued that the assessee Company has not provided the interest of NCD in its books of account and as such non-provisioning of the same in the books of account does not affect the rights of the assessee Company to claim the same as allowable revenue expenditure as and when paid. On query from the Bench the learned Sr. DR fairly conceded that the issue on identical facts is covered by the order of the Income Tax Settlement Commission.
After hearing both the sides and going through the facts of the case we find that exactly identical issue in assessment year 1999-2000 was adjudicated by the Settlement Commission whereby the claim of discount was allowed in favour of the assessee and also interest expenditure claim on such NCDs were allowed. However, we have noted that in October 2000, the assessee Company was taken over and lock-out by the Court Receiver, and thereafter, the assessee Company has not been carrying on any business activity. We are therefore, setting aside this issue to the file of the AO to decide de-novo on merits the above issue for both the years keeping in view the factual matrix of the case in accordance with law in light of our observation as set-out above.
The next issue in and 1675/Mum/2014 is as regards to the order of the learned CIT (A) confirming disallowance of preliminary expenses amounting to Rs.31,43,475/- and Rs.31,43,475/- for assessment year 2002-03 and 2003-04 respectively.
At the outset, the learned Counsel for the assessee stated that since the preliminary expenses is offered to tax before the Settlement Commission and hence he has not insisted in pursuing the same under the instructions of the assessee. Accordingly, this common issue in both the years is dismissed as not pressed.
The next issue in and 1675/Mum/2014 is as regards to the order of the learned CIT (A) confirming the disallowance of depreciation of Rs.31,17,39,933/- and Rs.24,62,55,268/- for assessment year 2002-03 and 2003-04 respectively.
At the outset, the learned Counsel for the assessee took us through the order of the Settlement Commission dated 28-03-2014 u/s 245D(4) of the Act pages 64 to 69 wherein the Settlement Commission has partly allowed the claim of depreciation to the assessee up to assessment year 2000-01. The learned Counsel for the assessee drew our attention to page 68 of the Settlement Commission Order, wherein following finding is recorded:- “We have carefully considered the submissions made by the learned AR and have also taken into account the factual aspects of the case in the above matter. Having regard to the above discussion, we would like to mention that the disallowance of depreciation in this 7 & 1675/Mum/2014 case is required to be made in the regular assessments for the A.Yr(s) 1995-96 and 1997-1998 amounting to Rs.25,51,128/- and Rs.47,54,940/- respectively, as against the entire deletion of the disallowance made for Rs.14,30,08,662/- in the block period assessment order by the Assessing Officer. The CIT (DR) has also verified the correctness of the applicant‟s contentions and computation in the above matter and has confirmed the same to be correct during the course of the present proceedings before us. Accordingly, the above issue gets settled”.
We have gone through the above order of the Income Tax Settlement Commission and noted that the Commission has partly allowed the claim of the assessee up to assessment year 2000-2001. The same WDV as computed in assessment year 2000-01 has to be carried forwarded, plus any addition, if made by the assessee. However, we have noted that in October 2000, the assessee Company was taken over and locked out by Court Receiver, and thereafter, the assessee Company has not been carrying on any business activity. We are therefore, setting aside this issue to the file of the AO to decide de-novo on merits the above issue for both the years keeping in view the factual matrix of the case in accordance with law in light of our observations as set-out above.
In the result, both the appeals of the assessee are allowed partly for statistical purposes (as indicated above). Order pronounced in the open court on 17/06/2016.