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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMIT SHUKLA
आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the revenue against impugned order dated 24.11.2010, passed by CIT(A)-2, Mumbai for the quantum of assessment passed u/s 143(3) for the assessment year 2005-06, on following grounds of appeal :- “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the claim of interest of Rs. 36,50,145/-. 1.1 The Ld. CIT(A) further erred in overlooking the fact that the claim of interest expenditure was disallowed in AY 2004-05 u/s 14A. Therefore, interest expenditure held not allowable cannot be allowed indirectly in another year.
2. The Ld. CIT(A) erred in directing to treat interest income as business income against income from other sources held by the AO.
2 M/s Nilkamal Builders P Ltd 2.1 The Ld. CIT(A) further erred in directing to allow set off of unabsorbed losses and allowances. 3. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal”.
2. The brief facts are that, assessee had shown income from interest income and dividend income. Besides this, the assessee had also shown profit on sale of shares under the head “capital gains”. The AO noted that the assessee company had made investment in shares since last more than 5 years and never carried out any business activity. Past records revealed that, assessee earned only interest income, dividend and miscellaneous income, from which loss for the assessment years 1998-99, 1999- 2000, 2000-01 & 2002-03 was sought to be set off against dividend income of the AY 2003-04. Thus he concluded that, since assessee is not carrying out any business activity, therefore, interest and dividend income are to be assessed under the head “income from other sources”. Accordingly, he disallowed the claim of set off brought forward business loss against the income of the current year.
3. Besides this, he further noted that assessee has made claim of deduction of Rs. 36,50,145/- made in the computation of income with the narration “provision for trading liability written back”, which was already disallowed in earlier year, that is, AY 2004-05. The relevant facts are that, assessee had issued debentures during financial year 2001-02 relevant to assessment year 2002-03. Interest on these debentures were payable on maturity after 7 years but debenture holders had put the option that they could exercise the option at any time during these 7 years. This option was exercised during the year i.e., relevant to the assessment year under consideration. To this time, the provision for interest made on amount was Rs.57,50,145/- against which the assessee had to pay only Rs. 21 lakhs consequent to exercise of option. Thus, the difference between the two figures, Rs.
3 M/s Nilkamal Builders P Ltd 36,50,145 has been written back in the books of account and credited to the profit and loss account. The assessee’s claim was that, out of the provision of Rs. 39,59,060/- made on account of interest on debentures, the amount of provision of discounting charges Rs.38,50,889 was not allowed in the computation of income of the assessee in the AY 2004-05. Out of this amount sum of Rs.36,50,145/- which was written back to the profit and loss account, (which figure is lower than the quantum of the interest not allowed), then the amount of interest written back cannot be brought to tax again. The AO, however, disallowed the assessee’s claim for deduction in the following manner:-
“3.5 It is seen that this contention of the assessee company is contrary to the remark in clause 20 of the tax audit report. In the said remark, the auditor has noted that an amount of Rs. 36,50,145 has been credited to Profit & Loss Account as “Excess Provision Written Back”. However, the said amount was disallowed while computing the Business Income of earlier year and hence does not fall within the scope of section 11. 3.6 Further the assessee company has submitted that for AY 2004-05, provision of discounting charges amounting to Rs. 38,50,889/-, out of the total provision made amounting to Rs. 39,59,060/-, was disallowed in view of the fact that this amount of expenditure was incurred for the purpose of earning exempt income. Hence as corollary it is contended by the assessee company that the said amount of expenditure was never been allowed while computing the income which is precondition for attracting section 41(1) is not satisfied and therefore the question of making addition to the returned income does not arise. Thus, according to assessee company for invoking the provision of sec. 41(1) what is required to be seen is, even if the disallowance has been made by applying provision of sec. 14A of the Act for the purpose of sec.41 (1) such expenditure cannot be said to have been allowed and consequently, any remission of such liability cannot be taxed. 3.7 The contention of the assessee company in support of its claim for allowance of deduction of Rs. 36,50,145/- is not acceptable. I have perused the facts of the case. I find that the assessee is trying to give two independent treatments to one transaction under the four corners of Income Tax Act. This dual treatment is not permissible. A single transaction cannot be covered by two sections of the Act to yield taxable profits on one hand and permissible loss on the other hand. This would be ridiculous situations and requires a thought on the correct position of law. Therefore, I am of the view that 4 M/s Nilkamal Builders P Ltd even if the disallowance has been made by applying provision of sec. 14A of the Act for the purpose of sec. 41(1) such expenditure cannot be said to have allowed and consequently any liability is taxed. Moreover, the assessee has incurred total expenditure on account of Financial charges towards deep discount bonds of aggregate amount of Rs. 21 lakhs only (refer para 2.4). Therefore, in view of the foregoing discussion, the assessee’s claim of deduction of amount of Rs.36,50,145/- is not allowed as claimed by the assessee company in its computation of income”.
In the first appeal, regarding treatment of interest income as “income from other sources”, the Ld. CIT(A) observed that right from earlier assessment years, interest income earned by the assessee has been offered to tax as ‘business income’ and same has been accepted by the Department year after year as business income, not only that, variety of expenses have also been allowed against such income. The Ld. CIT(A), after verifying the assessee’s contention from the material placed on record allowed assessee’s contention after observing and holding as under :-
“4. I have perused the facts of the case. A perusal of the assessments of earlier years of appellant clearly reveals that interest income was being offered to tax as business income and was being assessed as business income itself. Historically then, appellant has been carrying on an activity of business. Assessing Officer has not brought out any change in the facts of the case. He has not given any reasons why according to him interest income is required to be taxed as income from other sources. Also, reliance placed by assessing officer upon order of assessment of earlier year is a wrong conclusion because in that year there was never a finding that no business activity was being carried on. It is a simple case where there was no interest income and consequently there was no business income and only the set off of unabsorved losses and allowances was not granted. Therefore to my mind the finding of assessing officer that appellant is not carrying on any business activity is not justified. Consequently appellant is also entitled to set off of unabsorbed losses and allowances against business income. Assessing officer is directed to treat interest income earned by appellant as business income and to rework the computation of income in accordance with above findings”
Regarding second issue of disallowance of claim on treatment of Rs. 36,50,145/- the Ld. CIT(A) deleted said addition after observing and holding as under :-
5 M/s Nilkamal Builders P Ltd “7. I have perused the facts of the case. Section 41(1) is contemplating a situation where an expenditure has been claimed in any year and has been allowed as deduction in a particular year and subsequently the same item of expenditure is reversed resulting into the credit entry in the Profit and Loss account and, is dealing with taxability of such reversals. It is categorical that taxability in such situation shall be possible only when the amount under consideration had been claimed and allowed as deduction or expenditure in any of the earlier assessment years. If the deduction had not been allowed or the expenditure had not been allowed in computation of income, on reversals, it cannot be considered to have become income. In the instant case, it is an undisputed fact that the quantum under consideration had not been allowed in the computation of income as expenditure. The reasons could be any, in the instant case the interest was not allowed because the principal amount of funds have been diverted towards earning of income which would not chargeable to tax. Once this is the position, the reversal of the interest, sanctity of which has not been challenged, cannot result into taxable income. To my mind this is a categorical position of section 41(1). In the facts of the case there cannot be taxability of the interest reversed by appellant in the Profit and Loss account. The finding of assessing officer therefore cannot be upheld and the addition made is deleted”.
After considering rival contentions and perusal of the material placed on record, we find that, so far as the issue raised in ground no. 2 and 2.1, it is an admitted fact that in the earlier years, assessee’s interest income has been offered as ‘business income’ which has been accepted by the Department year after year. There being no material change in the facts, hence we do not find any reason to deviate from such precedence of the earlier years and accordingly, following the principles of consistency, we hold that the treatment of interest income as income from other sources by the AO is not correct and accordingly, the order of the CIT(A) on this score is affirmed.
Regarding issue of disallowance of claim of deduction of Rs. 36,50,145/-, the Ld. Counsel before us had submitted the following chart, wherein the interest expense debited to the profit and loss account, allowed in the Income-tax proceedings and amount disallowed as under :-
Interest Expense Amt. A.Y. Amt. debited Amt. allowed Disallowed to P&L A/c In assessment 2002-03 57,400 57,400 Nil 2003-04 17,33,685 17,33,685 Nil 2004-05 39,59,060 1,08,171 38,50,889 2005-06 Nil Nil Nil
Besides this, Ld. Counsel submitted that, during the previous year relevant to AY 2005-06, the assessee paid Rs. 21 lakhs and written back Rs. 36,50,145/- out of amount disallowed in the earlier years. Thus on this facts, he submitted that the assessee’s claim for deduction in the computation of income should be allowed.
On the other hand, Ld. DR strongly relied upon the reasoning of the AO.
On the perusal of the impugned order, it is amply clear that if the deduction or expenditure has not been allowed either in the computation or in the assessment then on reversal of such amount, it cannot be considered as “income”. There is no dispute that if the quantum under consideration had not been allowed in the computation of income as expenditure, then reversal of such amount cannot held to be taxable income. Thus, write back of the provision which has already been disallowed in the assessment year 2004-05, the same has to be allowed as deduction in this year. This is evident from the chart incorporated above. Accordingly, the finding of the CIT(A) is pure finding of fact and, therefore, we do not find any reason to deviate from such conclusion and accordingly the order of the CIT(A) on this score is confirmed and grounds raised by the revenue is dismissed.
In the result, appeal of the revenue stands dismissed.
7 M/s Nilkamal Builders P Ltd Order pronounced in the open court on 30th October, 2015.
Sd/- Sd/- (िड. क�नाकर राव) (अिमत शु�ला) लेखा सद�य �याईक सद�य (D. KARUNAKARA RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 30th October, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -2, Mumbai. 4) The CIT -1, Mumbai. 5) िवभागीय �ितिनिध “जी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “G” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /