Karnataka High Court
M/S Vinir Engineering (P) Ltd vs The Deputy Commissioner Of Income Tax on 24 October, 2008
Bench: K.L.Manjunath, B.V.Nagarathna
ITPL.NO. 434.2004
IN THE HIGH coum' oF*I<:%IIiivAIAxA AT BANGALORE
DATED THIS THEa.§"bAY op' scream, 2008
PRESENT T T
THE HONBLE MR.JUS1'ICE . V
THE HON'BLE MRs.JUs'rIy:::E'
I.T.A.NQ.43;i:g2®_4V AA 'H V' A
32-rrwmmu: A Q
M13 VINIR E:II(IINEEI2.I.I§f(}v(P§'--.LTI:I.' -'
NO.1(}4, BOMI\¢$2&S_'xAN'DF§A IIIII)U€IfrR1AI."AtiEA
BANGALORE 56;» I "
REP." N-.::(3;.: C}UPTVAW V
59 I'§:AIIjs,.s;IQ;3_,'I;IGUPrA
.. APPELLANT
Sm s PAi?Tfi}iAS:.e&RATHI, ADV.)
7:';>vI:,'PU'I*Y COMMISSIONER 011' INCOME TAX
.{IN~V},I"CIRCLE 4(1), Iv FLOOR
KIIIIDRIYA SADAN
~ 'KORAMANGALA
BANGALORE 560 034
RESPONDENT
(By S11': M V SESHACHALA, ADV.) This I.'l'.A. fiktd 11/ s. 260A of the Income. Tax Act, 1961 arising out of order dated 27.2.2004 passed in I'I'(SS}A.No. 598/ Bang/2000 for the asse%cnt year 9'?-98 praying that this Hoxfble Court may be pleased to: a) formulate the substantial question of law statad thnmin and b) afiowv thtt ITA.N<3.43«'.3...20O4 ...2.....
appeal anti set aside the ordczr of the Income Tax etc. 'I'ribu11a1 bearing rm No. 698/Bang/2000 datg;§1_' 2?;2;§2{:=fiu4 This rm ha:v1n' g been hca1'd»~azId n this day, NAGARATHNA J, pxonotgneegl :. . Jungushgu % '%( This appeal is filed am challenv: ging the order of the A' beating No.I'l'A.N<>.698/ Bang]
2. The are that the assesses is a its return of income fer on 27.1 1. 1997 declaring nil income. xEz1_ViiI:u% of income the asacsaee had dVed11xc3tiox1__'___tcrwaaris intcmst to financial .A extent of Rs.8,97,756/- being the interest assessnuent years 1994-95 and 1995496 on".ii::>ocziz.1;:'i' §)f of a loan Rom the Karnafaka State Corpomtion. Ancnxrumwfi is the statement of the '.*§$ta}*"Aincomc farms' had akmg with the return. The said % -»vre}tu1n was proccssed under Section. 143(1)(a) of the income V' Tax Act and the intimation was issued by the assessing authority diswaflowizng the deduction by applying pmviso to Smtion 43(8) and a copy of the said imrixnation under /9"
ITA.No. 434 . 2004 _ 3 _ Secfion 143(1)(a) is produced as Annexure-C to this appeal. The assessee thereafter fified an aprpiication under __Section 154 of the Act explaining the reason for chiming of Rs.8,97,756/- in response to the said assessing authority by his order .13.'? . the applicafion by stating ' payment by means of a fi'ea__}_1 interest payment deductablex' V1_1x§1d.er 4L'§(C) of the Specific Repayment 3. of application and the older as Azmexure-D as E ;es§mee;:a1§jdss%k _
3. said order the assesses filed an appeal tiefgires of Income Tax (Appeals), but the ef the said assessing authority on the assessee thereafter filed an appeal before . the Appellate 'I'ribu13ai. Challenging the dis- name was not a prima facie adjustment as .. under Section 143(l)(a) of the Act and that the ' Vadjidistxluent as made was not permissible and accordingly 'dis-allmwance as made was required to he cancefied. The 'I'ribuna1 however, held that the disaficrwanoe wm proper and permissible under Section 143(l){aJ of the Act and /' I'.I'A.No.434..2004 ....4...
dismissed the appeal by order dated 27.2.2004. It is the said order which is challenged in the instant appeal.
4. We have heard Sri.S.Parthasarathy, for the appenam: and Sn'. J for the respondent.
5. It is submitted, on bg-3_~.aéfe»o£'eetr3;c etfipelkint that the related to the 1995-96 on the loan axivancettfby Kare Corporation Iespeet. repaid during the relevant year i.e., _a.sseeement_yeei*._b19§7~98 and thereby the outstanding A was into a flesh loan which woukl mean ' "eras deemed payment of intexest. Hence the ' émiuw to exam' deduction dam' g the relevant year. He further submits that whether the 2 V. x interest would amount to payment of interest was a tegiteliiatable issue and prima facie issue under the provim to 'utsection 143(1)(a) of the Act He therefore requests this court to allow the appeal of the assessee on the following substantial question of law: /Q /"
ITA.No. 434.2004 ..5..
'1. Whether on the fads and in ,x£:'2g"._V circemmsianoes of the case, the funded maid be said to be non-payment of in.ter*e$1"ir:f 'A _;. relevant year to invoke the pmviso of . of the Act to chsallow the deduction of claimedby theappeliwu? I V' . *
2. Whether an ' in circumstances of the, case,N.ihe._ "
jusfified in uphoidi.+ag'*-~.V the ..of Rs.8.9?', 766/- as by Assessing Autlwrity while issuing .._:'ntinuz£:"gn under Section 143]} izzziihqut the interest fa?-V.}?te~% eariier yams 1 994-95 as 1995-96__'imd §)een_fizn:1e"d by K.S.F.C during relevant' there was deemeari pc;_:5ymenz of"fmis:'e8i"::':t the relevant year :2_nd'§:wm'iso '43»-BV'of the Act was notapplidzlrléf?"
6. Per fii=t.Vis«.,§?.i>:!:;_1;s3.it;%:ci by the learned counsel for the the interest amounts were mat B3? and therefore, the dis-allowance " V. 5»-finder' 1)(a) of the Act is just and proper * macie cannot be sand' to be Therefore, the asaessec is not entitled to c}afi_t_ii.:£iuct:ior1. He thx:n=:fi>n:. submits that there is no A " in this appeal and that the same ought to be V' . ., A A " dismissed.
7. It is not in dispute that M/s. Karnataka State Financial Corporation to whom interest was payable by the assesses had rmscheduled the outstanding interest under a fig, l"I'A.No.434.2004 _ 5 ..
revival scheme and the same was sourced by means of a flesh loan which 13% a mpayment schedule all over three years. The assesses had claimed in its ietum deduction for an amount of Rs.8.97,756/-- _ due to financial institution despite of ., payment of interest by a fresh sought. However, the Assessing waeef * *' that 1e--sehedu1ement of bf pa}'il1£fit" of a fresh loan cannot be Apayzziefitiiviieductabie under Section 43-13 and -itigegeféizée, the application under Sectioyz oftime = N
8. fi.'-ommissioner of Income Tax the paye';h1eV:VVto financial institution is eligible for Section 413-3 of the act on the basis ef 1 since the assessee had net paid' the sand' iniieres-3.' could not china deduction on the said amount. ..He.ncc"'-the Assessing Oficer was justified in making the i' giatijzistment under Section 143 of the Act. The Tribunal is Vi V. of the opinion that the assesses, who had incurred the statutory liability eouki not get deduction fer the same without actually making the payment. Relying upon a decision of the Madras High Court in Kalpana Lamps as $4 I'1'A.No. 434 .2004
-53..
transacticn, but only consider the fact that ._nc actual repayment of the loan.
10. The decision of the Madms:1.}§fig3;- 11:37 the Tribunal is in the mum; Ta;:..'"1ieai§§i1ity'=:p'ei2ig° converted into loans by the the defermd scheme but of the Delhi High Court in the 9'3. than oflndia GI rgié 01 wherein it has been held? jg' in the said case in asgmance as capital mceipt Wat; in View of the fact that a similar cla1m 4 m.ieS§tcct"cf an earlier year had been accepted " V' A in a regular asaessment and that V of relief claimed by the asscssce under céizgi) against the commercial profits without taking i11tc c{msidcrafion depreciation for the current year fell " the ambit of Scction 14~3(1)(a) of the Act. The court further elaborated on the phrase prima facie for the purpose T of adjustments under clause (iii) of the proviso of Section 143(1)(a) to be a deduction claimed which must be inadmissibk: on the face of the return and documents and accounts accompanying it and that if the deduction or /' ITA.No. 434 .2004 -9- allowance or relief so ciaimed is capable of a requires further proof it cannot be made the pmv1so' to Section 143(1)(a) of .th;:_ Act; Awoxss' the Assessing Oficer to make income by dis-allowing any fof'ds<i:1cti:§jii Or: > relief must be satisfisd on " ifafozmafion availabie in the accounts accompanying it and of further debate of prima facic 143%; V of the Act has to be 1 date on which return of with mfexence to the events subsci-,quc1.{t Isa given east: the Assessing Ofiecer V' _ dQ11bt"sbb'i.'itv the allowability of deduction or claim' sssessec, it is open to ban' to issue a notice 2 of Section 143 and have $131': evidence in suppsrt thczeof and then considered' the matter on mezits. ;11. In the instant case the fact that the interest related to the assessment yeaxs 1994-95 and 1995-96 on the loans from the financial insfitution was not claimed in the earlier assessment years coupled with the fact that the asses-see had availed of a flesh ban during the assessment years /2,'/.
ITP:..NO. 434;.2C04 .... 13 ..
1997-98 by converting the outstanding intcxest, in our View must be treated as deemed payment of interest. Furmer the T question as to Whether outstanding interest funded by a fresh loan would amount to is a debatabke issue and prime K "
have been made by applying pmeiso 101' the Act in as much as tin' qt{eetio~nVVVwas a._* debatable one. Hence we holt'4t_»thet~e Ino 'reason to make a prima facie adjixetmexitt 143 of the Act by holding that the said to be non-
' year under proviso to Sectio:t'4V34E3Vof =thereby dis-allow the deduction of interest the assessee and that exercise of aby Aeeeseifig Oficer under the said section was V' 11ot"jt1$t
12. «$57: also supported in our View by a judgment in % of God Granites repoxted in 213 me 293 wherein it has been held that under the first V Sezctjlon 143(l)(a) of the Act, the Assessing Ofieer can make an adjustment by dis-allowing the deduction claimed in the return, only if it is prfima facie inadmissibke, on the basis of the inbrlrnation available in such return or aocounm /9"' ITA.Ne:>.43!§ .2004
-12....
there was no deemed payment of interest in the year without appreciating the intemst outstanding years 1994-95 and 1995-96 had been f1mdmi::j~h:y":§{.'S.F,:C" V' during the relevant year by a Sectiozzn 43-3 of the Actwas 1113t4_'appIAiL*e}':)Ie. ' A VV .
14. We aoooxdingly, aside the order of the Assessing power under Section 143(;a)(;§;_eo£ the outer dated 10.8.2000 of Income Tax (API)C£:5h;i$)';HIg :.:f".' A' order YFA.Ne§'698[ 27.2.2004 passed by the Income " and direct the Assessing . A_ re--cezis'id£:I\ethe return of the appellant relating the 1997438 "under Secfimn 143 of the Act in law. No costs.
Sd/-
Iudgse Sd/--A Judge KVHI.'