Income Tax Appellate Tribunal - Ahmedabad
Marwar Hotels Ltd., Ahmedabad vs Assessee on 24 July, 2015
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'D' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI G.D. AGRAWAL, VICE-PRESIDENT AND
SHRI RAJPAL YADAV, JUDICIAL MEMBER
आयकर अपील सं./ ITA No.890/Ahd/2011
नधा रण वष /Assessment Year: 2006-2007
Marwar Hotel Ltd. ACIT (OSD)-1
Nr.International Airport Circle Vs Range-4, Ahmedabad.
Hansol, Ahmedabad.
PAN : AAACM 8009 N
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : Shri P.M Mehta
Revenue by : Smt.Sonia Kumar, Sr.DR
सन
ु वाई क तार ख/ Dateof Hearing : 23/06/2015
घोषणा क तार ख / Date of Pronouncement: 24/07/2015
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
The assessee is in appeal before us against the order of learned CIT(A)-XX, Ahmedabad dated 23.11.2010 passed for the Asstt.Year 2006-07.
2. The grounds of appeal filed by the assessee, originally, were not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules. They are descriptive and argumentative in nature. The assessee has filed concise grounds of appeal, which are taken on record.
3. The ground no.1 is general ground of appeal, wherein, the assessee has pleaded that the ld.CIT(A) has passed order without ITA No.890/Ahd/2011 2 appreciating the facts and submissions of the assessee. No specific arguments were advanced on this issue, rather, it is an ancillary argument in support of other grounds. Therefore, no specific finding is required to be recorded.
4. The ground no.2 and 3 are inter-connected. In these grounds of appeal, the assessee has pleaded that the ld.CIT(A) has erred in confirming the disallowance of Rs.4,62,427/-.
5. Brief facts of the case are the assessee is a company engaged in the business of running hotels at Jodhpur, Udaipur and Ahmedabad. It has filed its return of income for the Asstt.Year 2006-07 on 30.12.2006 declaring loss of Rs.4,01,54,150/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act, 1961 was issued on 7.12.007. This notice was duly served upon the assessee.
6. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed a sum of Rs.4,62,427/- which includes Rs.3,00,621/- under the head "prior period expenses" and Rs.1,61,806/- under the head "prior period salary". The ld.AO has disallowed the claim of the assessee on the ground that the assessee failed to demonstrate, how the incurrence of this expenditure have been crystallized during the accounting period relevant to this assessment year. The appeal to the CIT(A) did not bring any relief to the assessee.
7. The ld.counsel for the assessee submitted that since the assessee had operation at various places, the expenses which pertained to earlier years, but claimed in this year, consisted of small amounts. Certain expenses remain to be debited to the profit & loss account of the relevant previous year. When this came to the notice of the assessee's accountant, these expenses were debited in this year. The learned ITA No.890/Ahd/2011 3 counsel for the assessee alternatively contended that these expenses be allowed as business loss. In support of his contentions, he relied upon the judgment of the Hon'ble Madras High Court in the case of Bank of Madura Ltd. CIT, 261 ITR 749. He also relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. M/s. Shree Ram Pistons and Rings Ltd., 220 CTR (Del) 404.
8. The learned DR, on the other hand, relied upon the orders of the Revenue authorities. She contended that the expenses can be claimed, if they are related to the relevant accounting year. She also emphasized that the expenses are crystallized in this year, then also they can be claimed. But the assessee failed to demonstrate that this expenditure have been crystallized in this year.
9. We have duly considered rival contentions and gone through the record carefully. As far as the admissibility of expenses are concerned, that has not been disputed. Similarly, the AO has not doubted genuineness of the expenditure. His grievance is that this cannot be claimed in this accounting year, on the ground that these were not incurred in the accounting year relevant to the present assessment year. The rate of tax applicable upon the assessee in this assessment year remains the same. It has been reporting loss in the earlier years and in subsequent years. As far as taxability part is concerned, there is no substantial effect upon the assessee in this year because it show losses. Only effect is that the assessee can be exposed to penalty on account of reduction of loss than the one returned in the income. The assessee could not demonstrate as to how loss has also been incurred in this year. The expenses do not pertain to this year, therefore, they are not allowable. We do not find any error in the findings of the Revenue authorities. The ground nos.2 and 3 of the appeal are rejected.
ITA No.890/Ahd/2011 410. In the ground no.4 the grievance of the Revenue is that the ld.CIT(A) has erred in confirming the addition of Rs.60,79,265/-.
11. Brief facts of the case are that the assessee had taken loan from IDBI and LIC. The initial rate of interest was 17.75%. Since the assessee was in the initial stage of business, it had suffered loss. It had re-negotiated the rate of interest which was reduced to 14% from F.Y.2002-03. Accordingly, the revised liability towards interest was worked, and these financial institutions agreed to get paid for this amount of interest by way of equity shares of the respondent company to the extent of debt liability. The assessee has liability of Rs.46,40,983/- towards IDBI and Rs.14,38,282/- towards LIC. The ld. AO did not allow the claim of the assessee on the ground that the alleged payment in the shape of issuance of equity shares of the assessee-company to these financial institutions, does not amount to actual payment as per section 43B of the Income Tax Act, and therefore, the assessee cannot claim deduction.
12. Appeal to the CIT(A) did not bring any relief to the assessee.
13. Before us, the issue is whether the issuance of equity shares of the assessee-company to the financial institutions amounts to actual payment of interest liability or not. According to the assessee the liability of Rs.60,79,265/- being the interest on term loan from IDBI and LIC has been shown as paid. It is no more outstanding in the accounts of the assessee. The amount is not due to IDBI and the LIC as per their account. The liability has not been waived by these institutions. The payment has been actually made by way of giving equity shares of the equal amount to these financial institutions. The payment is not by way of converting the interest liability in fresh loan, therefore, the Explanation-3C appended to Section 43B does not apply on the facts of the present case. The learned counsel for the assessee has relied upon ITA No.890/Ahd/2011 5 the judgment of the Hon'ble Supreme Court in the case of Raja Mohan Raja Bahaddur Vs. CIT, 66 ITR 378 (SC), CIT Vs. Maheshwari Saran Singh, 191 ITR 83 (Allh.), Ramji Lal Rais Vs. CIT, 49 ITR 50 (All.) In these judgments, the Hon'ble Courts have held that if a liability is discharged by way of money's worth, then it would tantamount to payment.
14. The learned DR, on the other hand, relied upon the order of the AO.
15. We find that the ld.AO has made reference to Explanation 3C attached to Section 43B of the Act and observed that conversion of interest into loan does not amount to payment of interest for the purpose of Section 43B. He also observed that issuance of equity shares for wavier of interest and conversion of interest into loan bear very close resemblance. In both the cases, the assessee owes amount to the lenders. In both the cases, the account of lender will have a credit balance of the same amount, may be in different kinds of accounts in the books of the assessee. The conversion of interest into loan, and issuance of equity shares in lieu of interest payment being very basic similarity, therefore, does not amount to actual payment. in our opinion, Explanation 3C only prohibits an assessee for recognizing the actual payment of interest by converting its interest into loan or borrowings. In other words, if an assessee has interest liability, and he converts that interest liability in further loan, then that will not amount to payment of interest under section 43B as per Explanation-3C. If an assessee has issued equity shares, which anyone can acquire, and it has a trading value, it would not construe that the interest liability has been converted into loan. The financial institutions can independently trade those equity. Therefore, the assessee has made payment of interest liability in money's worth. It has not re-negotiated in such a ITA No.890/Ahd/2011 6 way that its interest liability has been ceased. We allow this ground of appeal and delete the disallowance.
16. In ground no.5, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs.4,51,340/-.
17. Brief facts of the case are that in the Asstt.Year 2002-03, the assessee worked out a sum of Rs.22,56,699/- which was spent prior to the enhancement of the business. These expenses were amortized under section 35D of the Act and 1/5th of the expenses were claimed by the assessee starting from the Asstt.Year 2002-03. The assessee had claimed the expenses as under:
Asstt.Year 2002-03 Rs.3,38,505
Asstt.Year 2003-04 Rs.4,51,340
Asstt.Year 2004-05 Rs.4,51,340
Asstt.Year 2005-06 Rs.4,51,340
18. The ld. Revenue authorities have confirmed the disallowance on the ground that the assessee has failed to establish that a sum of Rs.22,56,699/- were claimed to have been spent before the Asstt.Year 2002-03. In our opinion, when in the first year no disallowance was made, and thereafter, in subsequent two years this 1/5th has been allowed, the AO is not justified to ask the assessee to establish its genuineness. Therefore, taking into consideration past history, we delete the disallowance.
19. In ground no.6, grievance of the assessee relates to charging of interest, under sections 234A, 234B and 234C of the Act. The charging of interest will be consequential in nature, and this ground is rejected.
20. In the ground no.7 the assessee has challenged initiation of penalty under section 271(1)(c) of the Act. To our mind, this is ITA No.890/Ahd/2011 7 premature to challenge the initiation. The assessee will get chance to rebut the penalty when penalty notice is served upon the assessee.
21. The ground no.8 is general in nature, and does not call for any specific findings to be recorded by us.
22. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 24th July, 2015 at Ahmedabad.
Sd/- Sd/- (G.D. AGRAWAL) (RAJPAL YADAV) VICE-PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 24/07/2015