Income Tax Appellate Tribunal - Delhi
Prestolite Of India Ltd. vs Commissioner Of Income-Tax on 1 September, 1988
Equivalent citations: [1989]28ITD542(DELHI)
ORDER
M.C. Agarwal, Judicial Member
1. This is an assessee's appeal arising out of its assessment for asst. year 1979-80. We have heard the learned Counsel for the assessee and the learned Departmental Representative. During the pendency of the appeal the assessee moved an application dated 31-7-1985 praying for admission of an additional ground as below :-
That the learned CIT(A) erred, by necessary implication of his decision, to confirm the inclusion of the sum of Rs. 11,67,051 as income of the assessee liable to tax for the asst. year 1979-80.
2. The learned Counsel for the assessee explained that this amount represents interest payable by the assessee in respect of earlier years and that in the accounting year in question the liability in respect of this amount was written off by the assessee and the amount was taken as income to the profit and loss account. According to the learned Counsel, the writing off of the liability and carrying this amount as income to the profit and loss account was erroneous and that this amount did not represent any actual income and should have been excluded from the assessee's income.
3. We find that before the authorities below the assessee did not raise any such contention. How the assessee brought the aforesaid amount to the profit and loss account, whether any liability on account of interest had actually ceased or not, are questions of fact and need investigation. This is, therefore, not a point which may be decided by us on the basis of admitted facts. Therefore, we find no justification for admitting this additional ground at this belated stage in the second appeal. The application is accordingly rejected.
4. Now we come to the appeal itself. The only contention raised in this appeal is about a sum of Rs. 22,15,707 which the assessee claimed was payable on account of interest on loans raised by the assessee from the Union Bank of India. This amount was not debited by the assessee to the profit and loss account as it was negotiating with the bank for the waiver or reduction of interest. This was claimed as a deduction in the computation of income and the ITO did not allow this deduction. The ITO's thinking was that the bank had more or less written off the amounts from the books as irrecoverable and the assessee had also not debited the amount in its accounts although it was maintaining the same on mercantile basis and, therefore, there was no actual expenditure on this account. This finding has been confirmed by the learned CIT(A) to whom the assessee had preferred appeal. The learned Commissioner observed as under :--
The facts as they are, to my mind show that the non-providing for all the interest liabilities in the accounts by the company was not merely because the company believed it to be not payable, but also because such conviction or belief in the mind of the company was induced because of a clear understanding between the bank and the company that it would be helped to tide over its financial crisis for certain period and to improve the liquidity of the company. In what specific terms such understanding had been arrived at is not a matter of record because no relevant document in this regard could be placed on record by the learned A.R. In his written submissions only he stated barely and further stated that the bank had at no stage given up its claim on the full amount of interest agreed by the company at certain rates and that the bank later demanded that full amount of interest which was kept in abeyance in a separate amount be paid to the bank. As against that the assessee's letter dated 20-12-1979 addressed to the bank, an extract of which has been given in an earlier para, states that the assessee-company had not accepted the rate of interest at which amounts of interest had been calculated and further reiterated its request for waiving of interest as also for reduction of interest to 9 per cent. In the bank's letter dated 28-12-1979 it was specifically stated that the interest right from 26-12-1976 had not been charged in the assessee's account but the same was recoverable. In other words till 25-12-1976 interest liability which accrued day-to-day was suspended by the bank though the bank did not give up its claim to recover the amount in the future. Pursuant to such understanding the bank never charged the interest in the statements sent to the assessee in the relevant previous year ended 30-6-1978. It is only in December 1979 when the bank for the first time asked for confirmation of the debit balances inclusive of interest. Therefore, the conduct of the appellant in not providing for interest liability for the asst. year under appeal was not because it held certain beliefs as to the payability of the amount, but because the bank had agreed to suspend the accrual of interest day-to-day from 26-12-1976. For that reason the company even reversed the entry for the interest provision of Rs. 11,67,051 for A.Y. 1978-79, in the profit and loss appropriation account of asst. year 1979-80 under appeal. I am, therefore, of the view that interest liability did not accrue during the relevant previous year.
As observed by the learned CIT(A) the bank never gave up its claim for interest. The assessee's claim for interest in the sum of Rs. 22,15,707 is in terms of its loan agreement with the Union Bank of India and this has never been disputed on behalf of the revenue. The assessee was facing adverse circumstances and, therefore, it appears to have approached the bank for waiver or reduction in the amount of interest and that the bank might have entertained the assessee's request for consideration. Nothing has been shown to us to indicate that the original agreements about the rate of interest payable on the loans raised by the assessee were revoked and interest was agreed to be charged at some other rates as and when agreed upon. The learned Departmental Representative pressed into service the line of argument raised by the authorities below that the assessee was requesting for waiver or reduction of the interest and for this reason the assessee did not debit the amount of interest in its accounts and similarly in the statements of amount clue sent by the bank to the assessee, the amount of interest due was not shown. (On this basis it is contended that the liability for interest had not accrued and it was merely a contingent liability, deduction for which could be claimed only on actual payment.) Reliance was placed on a judgment of Hon'ble the Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 in which the Hon'ble Supreme Court held that contingent liability do not constitute expenditure. Reliance was also placed on a judgment of Hon'ble the Allahabad High Court in Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 in which it was held that where there was a dispute about the contractual amount payable by the assessee, the amount could be claimed as expenditure only in the year in which the dispute is settled. In our view, none of these two rulings can help the revenue. The liability for consideration before us is not a contingent liability. It is an ascertained liability in terms of legal and binding agreements with the bank which agreements were in force during the relevant accounting year. We may mention that the bank ultimately filed a suit for the recovery of the principal as well as interest at the agreed rate against the assessee and the suit is pending before the District Judge, Faridabad. The liability of the assessee, therefore, did not depend on the occurrence of any contingency and the mere fact that the assessee was pleading for waiver or reduction could not make and otherwise accrued and definite liability a contingent one. As regards the ratio laid down by Hon'ble the Allahabad High Court in the case of Swadeshi Cotton Mill Co. Ltd. (supra), that too is not in favour of the revenue. In that case the assessee has claimed deduction for an expenditure in the accounting year in which the amount was actually paid. The payment was delayed because of some dispute and the Allahabad High Court held that the assessee could claim the expenditure in the year in which the payment had actually been made.
5. In the case before us, the assessee is maintaining accounts on mercantile basis and, in our view, the case is squarely covered by the ratio of the Supreme Court judgment in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. In that case also the assessee though maintaining accounts on mercantile system of accounting had not made any entries in the books of accounts. The Hon'ble Supreme Court held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights ; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. Assistance can also be derived from a recent judgment of Hon'ble the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 in which the Hon'ble Supreme Court had a converse case before it in which in somewhat similar circumstances the bank claimed that interest due on loans to defaulting debtors could not be treated as income accrued to the bank. The Hon'ble Supreme Court observed that the mere fact that the bank had taken the interest to the Interest Suspense Account did not mean that interest income had not accrued to the bank. On the same analogy in the case of a debtor the mere fact that he is in adverse circumstances and is pleading for concession would not prevent interest from becoming due to the bank. We are, therefore, of the opinion that the authorities below were in error in not allowing the assessee's claim for deduction of Rs. 22,15,707 on account of interest payable to the Union Bank of India. We hold that the said amount had become payable to the said bank and was, therefore, an expenditure deductible in determining the assessee's income for the year under consideration. Therefore, allowing the assessee's appeal we direct that a deduction be allowed to the assessee in respect of Rs.22,15,707 as expenditure on account of interest payable to the Union Bank of India.