1 ITA No. 7664/Del/2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `G' NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No. 7664/Del/2017 ( A.Y 2013-14)
The Fertilizer Corporation of India Ltd. Vs Addl. CIT(A)
PDIL Bhawan (5th Floor), Room No. 193B,
A-14, Sector-1 Noida C. R. Building,
AAACF1661P Special Range-9
New Delhi
(APPELLANT) (RESPONDENT)
Appellant by Sh. S. Krishnan, Adv
Respondent by Sh. S. S. Rana, CIT DR
Date of Hearing 06.09.2018
Date of Pronouncement 28.11.2018
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 28/6/2017
passed by CIT(A)-9, New Delhi for Assessment Year 2013-14.
2. The grounds of appeal are as under:-
1) "That the order of the learned Commissioner of Income Tax (Appeals)-39,
New Delhi (hereinafter referred to as CIT (A)) is wrong on facts and bad in
law.
2) That on the facts and in the circumstances of the case, the learned CIT(A)
has erred in upholding the disallowance of Rs. 79,04,47,00,000/- in respect
of waiver of interest on Government of India Loan and Rs. 9,69,00,000/- in
2 ITA No. 7664/Del/2017
respect of guarantee fee of LIC, u/s 41(1) of the Income Tax Act, 1961 and
consequent tax liability approved by the Cabinet Committee on Economic
Affairs, Government of India.
3) That without prejudice to Ground No. 2 above, the learned CIT(A) has
erred in not giving directions for adjustment of carry forward of losses and
depreciation as per appellate orders in earlier years.
4) That the Appellant craves leave to reserve to itself the right to add, alter
and/or vary any ground(s) at or before the time of hearing.
3. The assessee is engaged in the business of manufacture and sell of
fertilizers for Assessment Year 2013-14, the assessee filed its return of income
on 20/9/2013 declaring NIL income. The case was taken up for scrutiny
under CASS. Accordingly, statutory notice u/s 143(2) of the Income Tax Act,
1961 was issued on 4/9/2014 and served upon the assessee company. In
response to this notice, the assessee company filed a reply dated 10/9/2014.
Thereafter, notices u/s 142(1) dated 3/7/2015, 19/8/2015, 26/10/2015 &
19/2/2016 along with questionnaire were issued to the assessee Company. In
response to these notices, the Authorized Representative of the assessee
attended the proceedings from time to time and field necessary details before
the Assessing Officer. The Assessing Officer observed that during the previous
year relevant to the Assessment Year under consideration, the assessee did not
derive any business income due to various reasons like financial constraints
and could not operate plants. In-fact, this position of no business operation
continues for the last several years and the assessee was merely booking an
expense accumulating losses. Due to heavy financial losses, the Company was
referred to BIFR and after scrutiny, the BIFR recommended for winding up of
the company vide order dated 17/5/2004. The Assessing Officer in the order
made a disallowance of Rs.3,12,29,388/- in respect of claim of depreciation
made by the assessee. The Assessing Officer further made an addition of
Rs.1,06,53,43,00,000/- in respect of waiver of interest and commitment fee
3 ITA No. 7664/Del/2017
relating to loan interest waiver by the Government of India, waiver of LIC
Guarantee fees and waiver of commitment fees.
4. Being aggrieved by the assessment order, the assessee filed appeal before
the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. AR submitted that the assessee is a 100% Government of India
Undertaking under the Ministry of Chemicals and Fertilizers. It started
incurring losses and ultimately it was referred to the Board for Industrial &
Financial Restructuing (BIFR) due to erosion of its Net Worth. The Government
of India decided to restructure the corporation by inducting other Public sector
undertakings such as Steel Authority of India, NTPC, Rashtriya Chemicals &
Fertilizers for its different plants. For this purpose, the Net Worth was to be
made positive. The matter was taken up by the Cabinet Committee on
Economic Affairs (CCEA) headed by the Prime Minister and consisting of
Finance Minister and others. In its meeting held on 09-05-2013, CCEA decided
to approve the recommendations of the Empowered Committee of Secretaries
whereby it granted the reliefs as under-
Waiver of Government of India Loan 2,739.27 cr
Waiver of Interest on Government of India Loan 7,904.47 cr
Waiver of LIC Guarantee Fee 9.69 cr
Waiver of Consequent Tax Liabilities
Following this, the assessee wrote back the amounts in its books of account for
the year ended 31.03.2013 and while filing the tax return claimed the same as
deductions due to the waiver granted by the Government of India. The
Assessing Officer has invoked the provisions of section 41(1) of the Income Tax
Act, 1961 and brought to tax all the waivers granted to the assessee by the
Government. The Assessing Officer has given wrong description and amounts
in Para 5.1 of his order by mixing up various figures. Correct position is
mentioned in Para 5.2. The Ld. AR submitted that the assessee being a 100%
4 ITA No. 7664/Del/2017
Government of India undertaking, the Government has a right and obligation
to decide about the working of its undertaking including the concessions to be
granted to it from time to time. This right and power has been exercised by the
Government for waiver of principal, interest and also tax thereon. The
Assessing Officer has totally erred in bringing to tax the waiver of principal
amount of loan of Rs. 2,739.27 crores since it does not represent any loss,
expenditure or trading liability and neither any allowance or deduction has
been claimed and allowed for the same in any of its assessment. Loan amount
is not revenue in nature. Similarly, Government gave guarantee to LIC for
giving loan to the assessee for which Rs. 9.69 crore was payable. The assessee
had treated this as liability and not claimed as an expenditure. The above two
amounts are not covered u/s 41(1) and have been wrongly brought to tax. So
far as the waiver of Interest on Government of India Loan is concerned, the
stand of the department in earlier years is that the same is covered u/s 43B
and therefore not allowable. In view of this stand, the department has filed
appeals before the ITAT Delhi against the orders of CIT (A) allowing the relief to
the assessee. The Department cannot take two different stands on the same
issue. Moreover, the department has not given appeal effects to the orders of
CIT (A) in earlier years and thereby the losses to be carried forward and set off
have not been determined. However, the assessee is approaching the
Government of India to clarify the waivers and benefits granted to it by the
CCEA order.
6. The Ld. AR also relied upon the Office Memorandum dated 21/5/2013 as
well as Government of India order dated 18/8/2015 and 6/3/2018. The Ld.
AR further submitted that the income of the assessee Company vide order
dated 26/9/2007 has been computed at Rs.66,55,06,61,110/- consequent
upon the order of the CIT(A)-9, New Delhi. The Ld. AR submitted that the
waiver of the Interest on loan by the Government of India as well as waiver of
LIC guarantee fee along with waiver of Government of India loan has been
rightly indicated in the financial statements produced before the Assessing
5 ITA No. 7664/Del/2017
Officer and the same were reflected in the books of accounts. Therefore, the
Ld. AR submitted that addition on account of Section 41(1) does not sustain as
cessation of liability.
7. The Ld. DR submitted that there was no waiver of interest and Section
41(1) is rightly attracted by the Assessing Officer. The Ld. DR relied upon the
decision of the Hon'ble Delhi High Court in case of Rollatainers Ltd. Vs. CIT
(2011) 339 ITR 54(Delhi) wherein it is held that wavier of loan taken in the
course of carrying on business was recorded in the benefit of Revenue and
accordingly addition made by the Assessing Officer was confirmed. Thus, the
Ld. DR submitted that the assessment order as well as the CIT(A) order be
sustained and no interference be called thereupon.
8. We have heard both the parties and perused the material available on
record. From the perusal of the assessment order, it can be seen that
regarding cessation of liability, the Assessing Officer has not gone into the
details of waiver in respect of Government giving a particular waiver benefit to
specific industry which is again coming under the purview of Government of
India, Ministry of Chemical & Fertilizers. The same was made for the purpose
of reviving the industry. Thus, it can be seen that the assessee Company
incurred a heavy loss and Government of India's policy reflected that the PSU
will be given FCI Inter-corporate Loan which will be settled by the Government
of India. The assessee at no point of time has claimed waiver of interest on
GOI Loan, Guarantee Fee and commitment fee as its expenditure. In-fact, these
were the Government Policies and will come under the purview of Section
2(XVIII) as grant in aid. The reliance of the Ld. DR on the Hon'ble Delhi High
Court's decision in case of Rollatainers Ltd. Vs. CIT (2011) 339 ITR 54(Delhi)
does not apply in the present case as the Hon'ble High Court therein held that
wavier of loan taken in the course of carrying on business was recorded in the
books of accounts. In the present case the assessee company has not claimed
waiver of interest on GOI Loan, Guarantee Fee and commitment fee as its
6 ITA No. 7664/Del/2017
expenditure. It is pertinent to note that the waiver of the Interest on loan by the
Government of India as well as waiver of LIC guarantee fee along with waiver
of Government of India loan has been rightly indicated in the financial
statements produced before the Assessing Officer and the same were reflected
in the books of accounts. Therefore, addition on account of Section 41(1) does
not sustain. Thus, the Assessing Officer as well as the CIT(A) are not correct in
making and confirming the additions. Hence, Ground No. 2 is allowed. As
regards to Ground No. 3, the CIT(A) has not given any direction for adjustment
of carry forward of losses and depreciation as per appellate order in earlier
years, for which, the issue needs to be adjudicated by the CIT(A). Therefore, we
are remanding back this issue to the file of the CIT(A). Needless to say, the
assessee be given opportunity of hearing by following principles of natural
justice. Ground No. 3 is accordingly allowed for statistical purpose.
9. In result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the Open Court on 28 th November, 2018.
Sd/- Sd/-
(R. K. PANDA) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 28/11/2018
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
7 ITA No. 7664/Del/2017
Date of dictation 06.09.2018
Date on which the typed draft is placed before the 07.09.2018
dictating Member
Date on which the typed draft is placed before the
Other Member
Date on which the approved draft comes to the Sr.
PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
Date on which the fair order comes back to the Sr. 28.11.2018
PS/PS
Date on which the final order is uploaded on the 28.11.2018
website of ITAT
Date on which the file goes to the Bench Clerk 28.11.2018
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant
Registrar for signature on the order
Date of dispatch of the Order
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