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Income Tax Appellate Tribunal, BANGALORE BENCH B, BANGALORE
Before: SMT. P. MADHAVI DEVI
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
These are cross appeals filed by assessee and Revenue respectively, directed against the order dt.29.08.2013, of the CIT (A), Hubli, for the assessment year 2008-09.
ITA.1417 & 1693/Bang/2015 Page - 2
2. Assessee’s appeal is taken up first. Assessee has filed revised set of grounds and as per this revised set of grounds it is assailing an addition of Rs.66.85,373/- made by the AO, which was confirmed by the CIT (A).
Facts apropos are that assessee, a manufacturer of chemicals and fertilizers, had filed return for impugned assessment year declaring nil income under normal provisions of the Act and book profit of Rs.1,81,55,129/-, u/s.115JB of the Act. During the course of assessment proceedings, it was noted by the AO that assessee had restructured its loans by converting accrued interests as loan, based on a BIFR sanctioned scheme. As per the AO this scheme was sanctioned by BIFR on 17.10.2007, based on which Canara Bank had vide its letter dt. 08.02.2008, restructured the loans treating the interest on working capital and term loan, up to 08.02.2008, as part of term loan. As per the AO, assessee had in its balance sheet as on 31.03.2008 shown the restructuredbalances of principal loans, as per the above letter. However, it did not account the gain arising out of reduction of interest liability as its income.
Assessee was put on notice as to why interest reduction should not be added back to its income. Reply of the assessee read as under :
"This has reference to your letter No.DCIT C-1/2010-11 dt. 15.09.2010 on the captioned subject inviting details/information/clarification etc for the Assessment Year 2008-09. We are Sick Industrial Company registered with BIFR under Case No.83/2003. We are enjoying working capital facilities as well as term loan facilities from Canara Bank, Naupada, Thane. Our Monitoring Agency under BIFR is Canara Bank, Bangalore. The BIFR has sanctioned Revival Scheme vide Order of Honourable Bench dt 17.10.2007 and the Canara Bank has implemented the Scheme in the month of June, 2008.
ITA.1417 & 1693/Bang/2015 Page - 3 We would like to inform you that there was no amount waived by the Bank towards principal amount and interest thereon under BIFR sanctioned scheme. The irregularity in payment of principal liability as well as interest has been converted into Working Capital Term Loan (WCTL) and Funded interest Term Loan (FITL) as per RBI parameters. Our point-wise submission are as under.
The .outstanding against bank Term Loan and Working Capital Loan as on 0l.04.2007 was as under ;_ 1. 2.
3. Canara Bank Term Loan - Rs. 33,66,000 Unpaid Interest en Term Loan - Rs. 55,27,782 Canara Bank OCC - Mumbai -Rs. 11,75,434 Irregularity & Accrued Interest thereon - Rs. 6,44,84,158”
Argument of the assessee was that Canara Bank had implemented the scheme only in the month of June, 2008 and gain arising out of interest liability which came to Rs.65,92,146/- was accounted by it during the financial year 2008-09, relevant to A. Y. 2009-10. However, AO was not impressed by the above reply. According to him, its liability had reduced from Rs.7,72,13,331/- to Rs.6,78,68,000/-, which included accrued interest of Rs.4,74,84,760/-. As per the AO interest liability was reduced by a sum of Rs.93,45,331/-. Though the assessee stated that the sum of Rs.7,72,13,331/- included interest of Rs.26,59,958/- relating to F. Y. 2007-08 which was paid in June, 2008, as per the AO, this explanation given by assessee did not fit with its earlier reply. AO noted that assessee had in its lettter dt.27.10.2010 to him stated as under :
"We are Sick Industrial Company registered with BIFR under Case No.83/2003. The BIFR has sanctioned Revival Scheme vide Order of Honourable Bench dt. 17.10.2007 and the Canara Bank has implemented the Scheme in the month of June 2008. We would like to submit the book position as on 01/04/2007 with regard to principal outstanding and interest thereon under BIFR sanctioned scheme.
ITA.1417 & 1693/Bang/2015 Page - 4
1.Canara Bank rrerm Loan (Priniclpal) .. Rs. 33,66,000 2.Accrued Interest on Term Loan .. Rs. 55,27,782 3.Canara Bank DCC -1977 .. Rs. 11,75,433 4.Canara Bank ODBD - 2041 .. Rs.1,15,66,906 5.cenara Bank Bill Discounting .. Rs.1,36,17,276 6.Accrued Interest - working capital .. Rs.3,92,99,976 Rs.7,45,53,373
The above irregularity converted into following loans as per BIFR sanctioned scheme. 5.Working Capital Term Loan (WCTL) .. Rs.1,64,59,000 6.Funded Interest-Term Loan (FITL-WC) .. Rs.4,12,95,000 7.Term Loan (Principal) .. Rs. 56,48,000 8.Funded Interest Term Lpan .. Rs. 44,66,000 Rs.6,78,68,000
Gain on BIFR Sanction Scheme .. Rs.66,85,373
The above Gain on BIFR scheme has been considered as Income from re- structuring during F .Y. 2008-09 as the Canara Bank has implemented the scheme in the month of June 2008., During the F.Y. 2007-08 we have debited Rs.7659958/- against interest on various loan of Bank, and payment made before 31st March 2008 was Rs.5000600/- (Rupees Fifty Laks only). Balance payment of interest were made in the month of June 2008."
Thus according to the AO, sum of Rs.66,85,373/- though considered by the assessee in its books in June, 2008 was actually the income for the impugned assessment year. Addition was made accordingly.
Assessee in its appeal before the CIT (A) argued that the scheme sanctioned by BIFR was implemented by Canara Bank only in June, 2008. As per the assessee, the documentation required for implementation of the scheme set-out by Canara Bank in its letter dt.08.02.2008, were executed only on 28.05.2008 and this was clear from letter dt.07.06.2008 from the said Bank.
ITA.1417 & 1693/Bang/2015 Page - 5 Thus according to the assessee it had rightly included the sum as income for A.
Y. 2009-10. However, CIT (A) was not impressed. According to him, Canara Bank had restructured the loan for the year ended 31.03.2008 and such restructuring was reflected in the audited balance sheet of the assessee for the year 31.03.2008. Hence, he held that addition was rightly made by the AO in the impugned assessment order.
Now before us, Ld. AR strongly assailing the order of authorities below stated that though the settlement happened in February, 2008, the condition for fructifying the settlement came about only in F. Y. 2008-09. Relying on Annexure-2 of his paper book which is the copy of the letter dt.08.02.2008 of M/s. Canara Bank, Ld. AR submitted that restructuring was allowed by the said bank based on certain conditions. One was that assessee was to pay the dues to Canara Bank on WCTL/FITL/TEL at the time of implementation of the package. According to the Ld. AR, Canara Bank in its letter dt.7.06.2008 had specifically mentioned that the necessary documents as required under the scheme were executed by the assessee on 28.05.2008. Therefore, according to him, the implementation of the BIFR scheme happened only in the F. Y. 2008-
9. In its return for A. Y. 2009-10, as per the Ld. AR, a sum of Rs.66,85,373/- was shown as part of other income. As per the Ld. AR, income if it it is taxed again in the impugned year, it would result in double taxation.
ITA.1417 & 1693/Bang/2015 Page - 6
6. Per contra, Ld. DR submitted that assessee itself had restructured its loan in the balance sheet as on 31.03.2008 as such and cannot say that interest reduced would not be accounted by it in that year, but in a later year.
We have perused the orders and heard the rival contentions. Letter dt.08.02.2008, placed as annexure -2 of the paper book clearly mentions that Head Office of the said bank had permitted restructuring under BIFR scheme dt.17.10.2007. The nature of restructuring allowed by Canara Bank, forming a part of the above letter read as under :
Nature of limit WCTL Amount Rs.164.59 lacs (Rs.One crore sixty four lacs and fifty nine thousand only) Purpose To segregate the deficit in the WC limits Rate of interest 9.75% p. A from 01.10.2005 Repayment In 27 quarterly instalments of Rs.5.89 lacs each commencing from 01.04.2006 and last instalment of Rs.5.56 lacs
Nature of limit FITL (WC) Amount Rs.412.95 lacs (Rs. Four crore twelve lacs ninety five thousand only) Purpose To segregate unrecovered interest in the working capital limits of company Purpose 8.75% p. A from 01.10.2005 Repayment In 27 quarterly instalments of Rs.14.75 lacs each commending from 01.04.2006 and last instalment (28th of Rs.14.70 lacs
Nature Term loan (principal) Amount Rs.56.48 lacs (Rs.fifty six lacs and forty eight thousand only) ROI 13% p. A from 01.10.2005 Repayment In 27 quaterly instalments of Rs.2.02 lacs each commencing from 01.04.2006 and last instalment (28th) of Rs.1.94 lacs.
ITA.1417 & 1693/Bang/2015 Page - 7
Nature of limit FITL (TL) Amount Rs.44.66 lacs (Rs.forty four lacs sixty six thousand only) Purpose To appropriate the proceeds towards unrecovered interest in the term loan liability of the company. Rate of interest 8.75% p.a from 01.10.2050 Repayment In 27 quarterly instalments of Rs.1.60 lacs each commencing from 01.04.2006 and last instalment (28th) of Rs.1.46 lacs.
It is clear from the above that restructuring had completely changed the complexion of the loans taken by the assessee. Case of the AO is that such restructuring was reflected by the assessee in its balance sheet as on 31.03.2008 and therefore, remision of interest could not have been postponed for taxation to a succeeding year. No doubt in the letter for restructuring there are two conditions mentioned, which reads as under :
“1. Company to pay the dues to us on WCTL/ FITL / TL being interest / instalments w.e.f. 01.10.2005 at the time of implementation of the package (Rs.169.82 lacs towards WCTL / FITL instalments + applicable interest from 01.10.200 at package ROI on redcing balance) up-to-date interest and instalments in respect of all accounts due to us to be recovered at the time of implementation of the package.
Company to pay the interest on the regular portion of WC limits from 01.10.2005 onwards.”
Canara Bank in its letter dt.07.06.2008, (copy placed at Annexure 3) had stated that necessary documents were executed by the assessee on 28.05.2008, and payments were effected on 04.06.2008, for giving effect to the settlement scheme. The contradiction that arises in the argument canvassed by the assessee is that if the restructuring was effected by the assessee in its books ITA.1417 & 1693/Bang/2015 Page - 8 during the F. Y. 2007-08, reduction of interest also should have been shown in the said year itself. It could not have postponed reduction of interest alone to the succeeding year. No matter what Canara Bank stated in the letter dt.07.06.2008, it remains a fact that assessee had given effect to the settlement in F. Y. 2007-08 itself. However,none of the authorities below had gone into whether and how assessee had accounted the reduction of interest in its books, which necessarily had to happen when the loans were shown in the restructured manner in its balance sheet as on 31.03.2008. The issue is not free from doubt.
We are of the opinion that a fresh look is required to verify as to how the reduction of interest was accounted by the assessee while restructuring its loans in its balance sheet as on 31.03.2008. We are in full agreement with the Ld. AR that the same income cannot be taxed twice. However, once assessee had effected the restructuring of its loan in F. Y. 2007-08 and shown balances of the loans in Balance-sheet as on 31.03.2008, based on post-restructured scenario, then remission of interest also had to happen in that year. We, therefore, set aside the orders of the authorities below, and remit this issue back to the AO for consideration afresh after verifying the facts thoroughly and the AO shall thereafter proceed in accordance with law. Assessee has to cooperate and furnish necessary information called by the AO in this regard.
In the result, assessee’s appeal is treated as allowed for statistical purposes.
ITA.1417 & 1693/Bang/2015 Page - 9
Now we take up appeal of the Revenue. Revenue is in cross appeal being aggrieved that CIT (A) deleted the disallowance made u/s.40(a)(ia) of the Act, for a reason that such disallowance was made on paid amounts and Section 40(a)(ia) was attracted only on payable amounts.
Ld. DR sought to rely on judgment of Hon’ble Calcutta High Court in the case of CIT v. Crescent Export Syndicate [(2013) 94 DTR (Cal) 81], which is decided in favour of Revenue.
We find that on the contrary, there is one another judgment of Hon’ble High Court of Allahabad in the case of CIT v. Vector Shipping Services (P) Ltd [(2013) 357 ITR 642], wherein the Ho’ble High Court had held the issue in favour of the assessee. Hon’ble Allahabad High Court had held that Section 40(a)(ia) of the Act stood attracted only on amounts which remain payable during the previous year and not on the paid amounts. SLP filed by the Revenue against this judgment was dismissed by the Hon’ble Apex Court.
There being conflicting judgments of non-jurisdictional High Courts on this issue, we are of the opinion that assessee can place reliance on the judgment which went in its favour. We, therefore, do not find any reason to interfere with the order of CIT (A) in this regard. Revenue’s appeal stands dismissed.
ITA.1417 & 1693/Bang/2015 Page - 10
In the result, appeal of the assessee is treated as allowed for statistical purposes, whereas appeal of the Revenue is dismissed.
Order pronounced in the open court on 03rd day of July, 2015.