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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
.. , ,
./I.T.A. No.5368/Mum/2011
( / Assessment Year :2004-05)
Ganjam Trading Co.Pvt.Ltd. / Income Tax Officer, 6(3)1),
New Prakash Cinema Bldg, Vs. Aayakar Bhavan,
N M Joshi Marg, M.K.Road,
Lower Parel, Mumbai-400020
Mumbai-400011
( /Appellant) .. ( / Respondent)
. / . / PAN/G IRNo.:AAACG3975H
/ Appellant by : Shri Firoze Andhyarujina and
Shri B S Sharma
/Respondent by : Shri Durga Dutt
/ Date of Hearing
: 15.7.2014
/Date of Pronouncement : 12.9.2014.
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal filed by the assessee is directed against the order dated 04-
02-2011 passed by Ld CIT(A)-VI, Mumbai and it relates to the assessment year
2004-05.
2. At the time of hearing, the Ld A.R submitted that the Ground No.1 relating
to Speculation loss was decided against the assessee by the Tribunal in its order
dated 20-07-2012 passed for AYs 2001-02 to 2003-04 respectively in ITA No.
3724/Mum/2005, 932/Mum/2006 and 1382/Mum/2007. The Ld A.R also
furnished a copy of the order passed by the Tribunal. We notice that the issue
I.T.A. No.5368/Mum/2011
2
urged in Ground No.1 relates to the view taken by the assessing officer to treat
the following items as falling under the category of "Speculation loss":-
Fall in the market value of shares 64,025
Profit on sale of shares 58,405
Notional interest 3,00,59,387
(restricted to Rs.1,51,79,050/-)
The Ld D.R also accepted the factual aspect submitted by Ld A.R. Hence,
consistent with the view taken by the co-ordinate bench of Tribunal in the
assessee's own case relating to earlier years (referred supra), we confirm the
order of Ld CIT(A) on this issue and accordingly this issue is decided against the
assessee.
3. The Ground No.2 relates to the disallowance of proportionate interest of
Rs.3,24,09,653/- u/s 36(1)(iii) of the Act. The Ground No.3 relates to the
disallowance made u/s 14A of the Act. Both the parties agreed that identical
issues were considered by the co-ordinate bench in its order, referred supra, and
both the issues were set aside to the file of the AO for considering them afresh.
Accordingly, both the parties agreed that these issues may be set aside to the
file of the AO in this year also. Accordingly, we set aside the order passed by Ld
CIT(A) on the above said two issues and restore them to the file of the AO for
considering them afresh in the light of discussions made by the co-ordinate
bench of Tribunal in the earlier years.
4. The Ground No.4 relates to the disallowance of interest claim of Rs.1.74
crores under sec. 43B of the Act r.w. Explanation 3C thereto. The facts relating
to the same are discussed in brief. The assessee had borrowed funds from time
to time from M/s Essel Propack Ltd (formerly known as Essel Packaging Ltd) and
I.T.A. No.5368/Mum/2011
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such borrowals stood at Rs.9,18,74,719/- as on 1.4.1997. It appears that M/s
Essel propack Ltd had availed "Sales tax Deferral Scheme" announced by the
Government of Maharashtra. According to the above said scheme, the sales tax
collected by the business entities during a particular period can be retained by
them and the amount so retained shall be paid to the account of Government in
annual installments subsequent to the expiry of prescribed cooling period.
Under the above said Scheme framed by the Government of Maharashtra, M/s
Essel Propack Ltd was required to pay a sum of Rs.24,37,23,930/- in yearly
installments beginning from 2003 to 2010. It appears that an entity named
SICOM was designated by Govt. of Maharashtra as the nodal agency for
collecting the above said installments.
5. It appears that the assessee herein and M/s Essel Propack Ltd entered into
an agreement, as per which the assessee undertook to pay the Sales tax liability
of M/s Essel Propack Ltd which would become payable from 2003 to 2010. The
"Present value" of Rs.24,37,23,930/-, i.e., the aggregate amount payable from
2003 to 2010, was determined at Rs.5.62 crores. We had already noticed that
the assessee herein had borrowed funds from M/s Essesl Propack Ltd and the
outstanding amount of loan as on 1.4.1997 was Rs.9,18,74,719/-. In view of the
agreement cited above, the assessee herein transferred a sum of Rs.5.62 crores,
out of the above said amount of Rs.9.18 crores, to a separate Loan account.
The assessee considered the above said amount of Rs.5.62 crores as the amount
payable to SICOM (Govt. of Maharashtra). The assessee has provided for
interest payable on the above said loan account and claimed the said interest
amount as deduction as "Interest payable to SICOM".
I.T.A. No.5368/Mum/2011
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6. Under the concept of Net Present Value, the present value of a future
amount is arrived at. For example, Rs.100/- deposited today in a fixed deposit
scheme carrying simple interest rate of 10%, would have a maturity value of
Rs.110/- after expiry of one year and Rs.120/- after the expiry of two years.
Hence the Net present Value of Rs.110/- (after one year) or Rs.120/- (after two
years) as on today would be Rs.100/-. The above example clarifies that the
"Present value" is akin to Principal amount and upon adding interest element
every year, the maturity amount would be equal to the amount payable in
future. In the instant case also, the assessee has to provide for interest on the
Net Present value of Rs.5.62 crores every year and then only it will accumulate
to the required level so that the assessee would be in a position to repay the
Sales tax liability of M/s Essel Propack Ltd from 2003 to 2010. The payment of
the S.T liability of M/s Essel propack is akin to repayment of loan taken from it.
The assessee would be in a position to demonstrate the same by furnishing
necessary working papers.
7. Since the assessee has shown the interest claim as "Interest payable to
SICOM", the AO took the view that it would be hit by the provisions of sec.
43B(d) of the Act. Since the interest was not paid during the year, he disallowed
the interest claimed by the assessee by invoking the provisions of sec. 43B(d) of
the Act. Since the AO had disallowed the entire interest claimed by the
assessee, the AO did not make any separate disallowance with the rider that the
same would stand, if the disallowance of entire interest is allowed by any
appellate authority.
I.T.A. No.5368/Mum/2011
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8. It appears that there is some confusion in the mind of assessee also.
Before us, the Ld A.R was inviting out attention to Sales tax deferral Scheme and
the circular issued by CBDT with regard to the same. Alternatively, the Ld A.R
also submitted that the provisions of sec. 43B(d) would apply to the interest
payable on loan taken from any public financial institution or a state financial
corporation or a state industrial investment corporation. He submitted that the
sales tax deferral scheme cannot be equated to the loan referred to in sec.
43B(d) of the Act.
9. However, we may caution here that we have made the foregoing
discussions on the basis of submissions made before the tax authorities and also
before us. However, actual nature of agreement has not been examined by the
tax authorities. Hence, in our view, the arrangement between the assessee and
M/s Essel Prepack Ltd needs to be examined to find out as to whether the
observations made above are correct or not. Subject to such verification, in our
view, the arrangement made between the assessee and M/s Essel Propack Ltd
should be taken as pure finance arrangement. The method of repayment is
purely a methodology agreed between them to settle the loan taken by the
assessee from M/s Essel Propack Ltd. Though the assessee has shown the
amount of Rs.5.62 crores and interest thereon as payable to SICOM (Govt of
Maharashtra), in effect, it is a loan taken by the assessee from M/s Essel Propack
Ltd. The assessee would repaying the amount directly to SICOM (Govt of
Maharashtra) on behalf of M/s Essel Propack Ltd. Hence, in our view, it would
not be correct to presume that it was a loan taken from SICOM (Govt. of
Maharashtra) or it was falling under Sales tax deferral Scheme.
I.T.A. No.5368/Mum/2011
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10. Hence, in our view, the assessing officer is also required to verify as to
whether the rate of interest adopted by the assessee to work out the interest
claim is reasonable or not, if he is satisfied on verification of the arrangement
that it was pure finance transaction. He may also verify that the interest liability
accumulated every year along with the principal amount of Rs.5.62 crores would
be sufficient to repay the sales tax liability of M/s Essel Propack Ltd beginning
from the year 2003 to 2010 and such verification would help to ascertain the rate
of interest agreed between the parties and its reasonableness.
11. Subject to the verification of the agreement and the interest workings
referred above, we are of the view that the interest liability claimed by the
assessee cannot be disallowed u/s 43B of the Act, if it is considered as pure
finance arrangement. Accordingly, we set aside the order of Ld CIT(A) and
restore this matter to his file with the direction to examine the agreement and
also the reasonableness of the interest rate in the light of discussions made
supra and take appropriate decision in accordance with the law.
12. Ground No.5 relates to disallowance of interest paid u/s 201(1A) of the Act.
The assessee claimed interest amount of Rs.8,76,221/- paid by it u/s 201(1A) of
the Act for the delay in payment of Tax deducted at source. The assessee
claimed the same as deduction on the plea that it was compensatory in nature
and is akin to Sales tax etc. The AO did not accept the said explanation and
hence disallowed the same. The Ld CIT(A) also confirmed the said disallowance.
13. Before us, the Ld A.R placed reliance on the decision rendered by Hon'ble
Madras High Court in the case of CIT Vs. Chennai Properties & Investment Ltd
(1999)(105 Taxman 346) to contend that the interest paid by the assessee u/s
201(1A) of the Act is allowable as deduction. However, a careful perusal of the
I.T.A. No.5368/Mum/2011
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said decision would show that the Hon'ble Madras High Court has, in clear words,
held that the interest paid u/s 201(1A) could not be allowed as business
deduction. The said decision has been rendered by the Hon'ble High Court by
placing reliance on the decision of Hon'ble Supreme Court in the case of Bharat
Commerce & Industries Ltd Vs. CIT (1998)(230 ITR 733). Hence, we do not find
merit in the contentions of the assessee on this issue. Accordingly, we confirm
the order passed by Ld CIT(A) on this issue.
14. In the result, the appeal filed by the assessee is treated as partly allowed
for statistical purposes.
The above order was pronounced in the open court on 12th Sept, 2014.
12th Sept , 2014
Sd sd
( /SANJAY GARG) (.. / B.R. BASKARAN)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai: 12 Sept ,2014.
th
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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