Income Tax Appellate Tribunal - Mumbai
Lupin Ltd, Mumbai vs Assessee on 17 February, 2016
आयकर अपील य अ धकरण "ए" यायपीठ मब ुं ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI ी जो ग दर संह, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम ।
BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM आयकर अपील सं./I.T.A. No. 4061/Mum/2011 ( नधारण वष / Assessment Year: 2007-08) Lupin Limited Asst. CIT-LTU, 159, C. S. T. Road, Kalina, बनाम/ Centre No. 1, World Trade Centre, Santacruz (E), Mumbai-400 098 Vs. 28th Floor, Cuffe Parade, Mumbai -400 005 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAACL 1069 K ( नधा रती /Assessee ) : (राज व / Revenue) & आयकर अपील सं./I.T.A. No. 4338/Mum/2011 ( नधारण वष / Assessment Year: 2007-08) Asst. CIT-LTU, Lupin Limited Centre No. 1, World Trade Centre, बनाम/ 159, C. S. T. Road, Kalina, th 28 Floor, Cuffe Parade, Vs. Santacruz (E), Mumbai-400 098 Mumbai -400 005 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAACL 1069 K (राज व / Revenue) : ( नधा रती /Assessee ) नधा रती क ओर से / Assessee by : Ms. Vasanti Patel राज व क ओर से/Revenue by : Shri Mohammed Rizwan सनु वाई क तार ख / : 08.12.2015 Date of Hearing घोषणा क तार ख / : 17.02.2016 Date of Pronouncement आदे श / O R D E R Per Sanjay Arora, A. M.:
These are cross Appeals by the Assessee and the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-LTU, Mumbai ('CIT(A)' for 2 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU short) dated 16.3.2011, partly allowing the Assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2007-08 vide order dated 03.6.2010.
Assessee's Appeal (in ITA No. 4061/Mum/2011)
2. The first ground agitates the disallowance of prior period expenses in the sum of Rs.1,42,317/-. The basis of the assessee's claim is of the same crystallizing during and, accordingly, falls to be considered for deduction for, the current year only. The Revenue, however, disallowed the claim as the assessee failed to substantiate its' claim of the corresponding liability crystallizing during the year (refer para 3.2 of the assessment order). On a perusal of the claim, the Assessing Officer (A.O.) in fact found that most of the invoices in respect of the said expenditure were from April, 2006 to March, 2007, i.e., falling during the relevant previous year itself. In fact, even in cases where the invoices were received subsequent to the close of the year, where prior to the finalization of the accounts or, for that matter, the return of income, furnished on 30.10.2007, the same could be claimed for the current year, i.e., per the return of income, irrespective of whether the same had been booked in accounts or not (refer: Kedarnath Jute Mfg. Co. Ltd. vs. CIT [1971] 82 ITR 363 (SC)). It is only in respect of the disputed sums, and to the extent of the amount in dispute, that the liability, which is claimable on the basis of a provision - making a reasonable and best estimate (based on the information available), that could be claimed on the basis of the amount as finally settled between the parties in-as-much as the liability to that extent could be said to arise or crystallize only in that year. Each year is a separate and independent unit of assessment (refer: CIT vs. British Paints India Ltd. [1991] 188 ITR 44 (SC)). The law in the matter is also clear, and toward which reference may be made to the decisions in the case of Calcutta Co. Limited vs. CIT [1959] 37 ITR 1 (SC); Metal Box Company of India Ltd. vs. Their Workmen [1969] 73 ITR 53 (SC); Kedarnath Jute Mfg. Co. Ltd. (supra); Bharat Earth Movers vs. CIT [2000] 245 ITR 3 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU 428 (SC); Rotork Controls India (P) Ltd. vs. CIT [2009] 314 ITR 62 (SC), etc., to name some. The matter, given the settled law, is purely factual, with the assessee abysmally failing to prove its claim/s - there being no whisper of any dispute. We, accordingly, uphold the disallowance, noting the Revenue to have rather acted reasonably in-as-much as the disallowance is at net of income, which (income) would, in any case, stand to be taxed, i.e., either in the year of accrual or, as the case may be, receipt. We decide accordingly.
3. Vide the second ground, the assessee assails the disallowance of provision of expenditure on leave encashment at Rs.283.24 lacs on the ground that the Hon'ble Calcutta in Exide Industries Ltd. vs. Union of India [2003] 292 ITR 470 (Cal) has held the provision of section 43B(f), invoked by the Revenue, as being ultra virus the Constitution (of India). The same did not find favour with the Revenue as the Hon'ble Apex Court has, while admitting the Revenue's appeal against the said decision, stayed its operation, holding that during the pendency of the civil appeal before it, the assessee shall pay tax on the impugned sum as if section 43B(f) was on the statute. Aggrieved, the assessee is in second appeal.
4. We have heard the parties, and perused the material on record.
We are completely unable to, with respect, understand the assessee's case, which centers on the provision of section 43B(f) having been struck down in Exide Industries Ltd. (supra). True, but then, the Hon'ble Apex Court, admitting the Revenue's SLP (No. 22889 of 2008) against the said decision, vide its' order dated 08.5.2009 (copy on record), clearly states that during the pendency of the civil appeal the assessee shall pay tax as if section 43B(f) was on the statute-book, even as it may claim the same per its' return of income. That is, the operation of the decision in Exide Industries Ltd. (supra) is stayed during the pendency of the appeal before the Hon'ble Apex Court. In consequence, the Revenue is entitled and, rather, duty bound to 4 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU proceed in the matter as if section 43B(f) is on the statute-book, i.e., as a constitutionally valid provision of law. The provision for any expenditure and, therefore, qua leave encashment, where on a scientific, objective basis, is allowable as an expenditure (refer, inter alia, Calcutta Co. Limited (supra); Bharat Earth Movers (supra)). Section 43B of the Act, however, introduces a legal fiction whereby, notwithstanding the deductibility of any expenditure, specified vide clauses (a) to (f) thereof, it shall stand to be allowed as deduction in computing the business income only subject to actual payment. Clause (f) specifies a sum payable in lieu of any leave at the credit of the employee of the assessee. Giving effect to the provision implies that no deduction on account of a provision for leave standing to the credit of the employee/s would stand to be allowed. The matter is, in fact, simple, admitting of no two views. Reference in this context may be made to the decision in the case of Prembril Engineering P. Ltd. vs. Dy. CIT [2015] 155 ITD 72 (Mum), on which reliance stands placed before us by the assessee; the Tribunal holding as under:
'5. We have heard the parties, and perused the material on record.
The first question .............
This leaves us with one argument, raised with reference to the constitutional validity to section 43B(f). We have for the purpose referred to the decision by the tribunal in the case of Birla General Finance (ITA No. 7530/Mum/2010 dated 23.01.2015/copy on record), as well as earlier decision in Essar Export and Production India Ltd. vs. Asst. CIT (ITA No. 6189/Mum/2011 dated 08.08.2012), the relevant part of which stands reproduced in the former order. In both the cases, as made abundantly clear, there was a concession by the Revenue, acting through the ld. DR, for the Tribunal to have restored the matter back to the file of the AO for a decision in agreement with that to be delivered by the hon'ble apex court in the case of Exide Industries Ltd. (supra). The plea for a similar set-aside, in view of clear stand by the Revenue in the present case, is misplaced. It needs to be appreciated that inasmuch as the decision by the apex court, to follow which the restoration has been made by the tribunal, is yet to be delivered, i.e., is pending therewith, there is no adjudication by the tribunal per the said decisions, which, being based on a concession, do not even otherwise lay down any precedent (Lakshmi Shankar Srivastava AIR 1979 SC 5 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU
451). Pending its final decision, which would be binding on all the authorities and courts, the only effective order is that by the apex court, staying the operation of the decision of the Hon'ble Calcutta High Court, and shall obtain.' The ld. Authorized Representative (AR) before us would also rely on CIT vs. Universal Medicare Pvt. Ltd. [2010] 324 ITR 263 (Bom), where the Hon'ble Court has admitted the following question of law arising out of the order by the tribunal:
"Whether the Tribunal was justified in directing the Assessing Officer to allow the amount claimed by way of provision for leave encashment in view of the provisions of section 43B(f) of the Income-tax Act, 1961?' How, we wonder, the admission of a question of law by the hon'ble court amount to either an acceptance of the tribunal's order, or even its negation by the hon'ble court, to be of any assistance to the assessee. In fact, there is no dispute with regard to the import and the scope of the provision of section 43B(f). The only issue is whether the same shall continue to hold in view of the decision in Exide Industries Ltd. (supra) against which the Hon'ble Apex Court has admitted a SLP, directing the appellant to pay tax as if the provision was on the statute. The ld. AR would emphasize on the words 'interim orders', stated by the Hon'ble jurisdictional High Court in Universal Medicare Pvt. Ltd. (supra) in relation to the said SLP. Surely, a stay is an interim order, meant to regulate the affairs during the pendency of the appeal before an appellate court. After the decision by the apex court, the same shall in any case obtain. There is as such little merit in the contention of the ld. AR to restore the matter back to the file of the A.O. to decide in accordance with the final decision by the Hon'ble Apex Court, an aspect also considered by the tribunal in Prembril Engineering P. Ltd. (supra). We, accordingly, find little merit in the assessee's case. We may though clarify that the Revenue relying on the admission of the appeal by it before the Apex Court in Exide Industries Ltd. (supra), it shall give effect to the decision by the hon'ble court on the merits of the case, modifying the instant assessment accordingly, 6 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU and which in our view shall protect the interest of the assessee. We decide accordingly.
Revenue's Appeal (in ITA No. 4338/Mum/2011)
5. The only issue raised by the Revenue per its appeal is vide Ground 1 thereof, which reads as under:
'1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to allow set off interest on income tax refund received from interest on income tax paid.' The assessee paid interest at Rs.103.61 lacs under different provisions of the Act to the Income-tax Department. The same was set off against the interest received by the assessee from the Revenue (at Rs.264.13 lacs) during the year on different refunds due to it by the Department. While the A.O. denied the assessee's claim for the said set-off relying on the decision in the case of Seth R. Dalmia vs. CIT [1977] 101 ITR 644 (SC), clarifying of interest being allowable for set-off only in case of direct nexus, the ld. CIT(A) allowed the assessee's appeal in view of the two decisions by the tribunal directly on the point, viz. Cynamid India Ltd. vs. IAC, Asst. Range-V, Bombay (in ITA No. 4561/Bom(C)/1982 dated 23.5.1984) and Kvaerner Powergas India Pvt. Ltd. vs. Addl. CIT (in ITA No. 8914/Mum(B)/2004 dated 10.8.2007).
Aggrieved, the Revenue is in appeal, while the assessee also places reliance on the decision in the case of DIT (IT) vs. Bank of America NT and SA (in Income Tax Appeal No. 177 of 2012 dated 03.7.2014/copy on record).
6. We have heard the parties, and perused the material on record.
The tribunal has allowed the assessee's claim in-as-much as, essentially and properly speaking, there could be only one account between two parties, being the assessee and the income-tax department in the instant case. Even the amount refunded to the assessee (on which interest is received/receivable) and that paid/to be paid, and 7 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU on which interest is suffered on account of belated payment, is only of income-tax. In our considered opinion this view is, with respect, not in conformity with the provision of law and, thus, may not be in accordance with the law. There is, firstly, nothing on record to suggest that the principal amount on which the interest is paid and received is the same, in-as-much as the same could be, apart from income-tax, on account of penalty under the different provisions of the Act as well as by way of interest. The refund of interest u/ss. 234A and 234B, in-as-much as the same forms part of the demand raised, is exigible for interest u/s.244A on its withdrawal or, as the case may be, reduction and, consequently, refunded with interest. There is further nothing to suggest of any withdrawal of interest u/s. 244A, neutralizing the interest received to that extent. That apart, the payment of tax and, accordingly, liability toward the same is, as stated by the Revenue, not a business expenditure or a liability of the business, entitling deduction of expenditure, as well as of interest thereon, where discharged belatedly, being compensatory in character. Once income-tax is not deductible, any sum paid toward its delayed discharge cannot, consequently, be considered as business expenditure, howsoever financed. The matter is not res interga and stands clarified by the apex court, as in the case of Bharat Commerce & Industries Ltd. v. Union of India [1998] 230 ITR 733 (SC) and East India Pharmaceutical Works vs. CIT [1997] 224 ITR 627 (SC). This would apply equally to the interest suffered on penalty as well. The interest receivable from the Revenue, on the other hand, is on the amount paid by way of tax (or qua any other liability under the Act), on account of it being paid in excess, i.e., than that in its respect as finally determined. The same, thus, assumes the nature of debt due to the assessee. The same being not a debt of the business, which appears to be only, or the principal source of income of the assessee, is a debt to the assessee. The compensatory interest thereon is, accordingly, assessable as income from other source u/s. 56. Any expenditure, including on interest, incurred for earning the same, would stand to be allowed u/s. 57(iii). Now, could it be said that the amount due from the assessee, which is on account of tax or other liabilities under 8 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU the Act (due to the Revenue), represent a borrowing from it, applied toward payment of excess tax (or other sums) to the Revenue? Surely not, the same only represent a statutory liability/s payable on account of tax or even interest or penalty, payable for offending any provision/s of the Act, or getting attracted in the facts of the case. There is, accordingly, no nexus and, rather, no question of it - the two being distinct and disparate sums, occasioned by separate events, arising by the operation of law. The nexus, the expenditure being of interest, could in fact only be of funds, which is completely absent in the present case, the liabilities not representing any funds arising or received from the Revenue. The set off of interest results in the assessee not paying any tax on its interest income to that extent. The decision in the case of Bank of America NT and SA (supra) shall also, in our humble opinion, not be of any assistance to the assessee. This is as the only import of the said decision by the Hon'ble jurisdictional High Court is that no substantial question of law, in its' view, arises from the order of the tribunal, so that, it, in fact has refused to exercise its appellate jurisdiction in relation to the said order, which arises only on it finding the impugned order to raise a substantial question of law. No ratio, which alone has precedent value and is judicially binding, consequently, arises out of the said order, which we have carefully perused; the findings by the Hon'ble Court being at para 5 of the said order.
Be that as it may, the only course available to us under the circumstances is to refer the matter for the consideration by the larger bench of the tribunal, i.e., in view of the decisions by the co-ordinate benches of this tribunal. We are, in view of the matter being not of wide import, disinclined to do so, and shall accordingly adopt the said decisions by the tribunal. Our opinion in the matter, stated here-in-before, is only for the consideration by the Hon'ble jurisdictional High Court, if and where deemed fit in a particular case - the larger principle involved being: Would the conditions of taxability and deductibility in relation to a particular sum (interest in the present case) obtain even where it becomes both - due from as well as due to, the same party, with we having expressed our clear view that the conditions of taxability and deductibility, 9 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU being regulated by law - based on the nature of the payments, are paramount, and the identity of the person, whether same or different, is of little consequence in law.
So, however, and even as observed during hearing, the set-off of interest shall be subject to and regulated by two (factual) conditions incident thereon. The set-off is premised on a nexus inasmuch as the amount is deemed to and receivable from the same party, i.e., the Income-tax Department. Implicit therein is the notion of it being for or relating to the same period, which may or may not actually obtain. The set off of interest paid against that received shall accordingly be subject to the two being for the same period, and to the extent of interest income for the said period. Two, the interest rate paid to the Revenue is higher than the interest rate paid by it. Now, without question, interest as an expenditure u/s. 57(iii), i.e., under which provision deduction in its respect is claimed and allowed, could only be allowed to the extent of interest attributable to the rate at which interest is received from the Revenue. This is as nobody can be said to have borrowed funds at a rate (of interest) to earn interest income at a lower rate - there being no scope for earning any income, which is only net of expenditure, under such an arrangement. It needs to be appreciated that it is only toward earning (net) interest that the expenditure is allowed u/s. 57(iii), presuming a nexus between the 'funds' borrowed and lent. True, the interest rates are not in the control of the assessee, but statutorily defined. That, in fact, is a basis on which we have opined of the interest suffered as being a statutory liability, unconnected with the earning of interest, so that it is not admissible as a deductible in the first place. However, even granting deductibility, the parameters of section 57(iii) do not admit of expenditure being incurred to sustain a predetermined loss, which again points to the expenditure being involuntary - another aspect of the matter emphasizing its' non-deductibility. The deduction for interest paid would thus be limited to the quantum of interest received on the like (principal) amount for the same period, defined as from a particular date to a particular date. Subject to these two caveats, forming part of the application of the principle of deductibility of interest 10 ITA Nos. 4061 & 4338/Mum/2011 (A.Y. 2007-08) Lupin Limited vs. Asst. CIT-LTU expenditure to Revenue against that received from it, accepted by us in principle respectfully following the decisions by the co-ordinate benches of this tribunal, we allow the assessee's claim. The said restrictions, we may add, arise on the application of the settled law in the matter, as in the case of Seth R. Dalmia (supra). The Revenue's appeal is disposed of accordingly.
7. In the result, the assessee's appeal is dismissed and the Revenue's appeal is disposed of on the afore-stated terms.
Order pronounced in the open court on February 17, 2016
Sd/- Sd/-
(Joginder Singh) (Sanjay Arora)
या यक सद य / Judicial Member लेखा सद य / Accountant Member
मुंबई Mumbai; दनांक Dated : 17.02.2016
व. न.स./Roshani, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai