The Commissioner of Income-tax, Hyderabad v. N.C.L. Industries Limited
[Citation -2014-LL-1209-36]

Citation 2014-LL-1209-36
Appellant Name The Commissioner of Income-tax, Hyderabad
Respondent Name N.C.L. Industries Limited
Court HIGH COURT OF HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
Relevant Act Income-tax
Date of Order 09/12/2014
Assessment Year 1996-97
Judgment View Judgment
Keyword Tags interest on loan • deduction of interest • benefit of deduction • waiver of interest • accrual of income • filing of return • capital receipt • tax liability • book profit
Bot Summary: While passing the return for the year 1997-98, the Assessing Officer felt that the accrual of income of Rs.5.37 Crores is referable to the assessment year 1997-98, but was wrongly shown and dealt with in the returns for the assessment year 1996-97. On the same day, he passed an order in exercise of power under Section 154 of the I.T. Act, rectifying the order of assessment for the year 1996-97 to the extent of removing the sum of Rs.5.37 Crores from the purview of the assessment of that year. Learned Counsel submits that the very fact that the orders of assessment for the year 1996-97 as well as the order of rectification under Section 154 of the I.T. Act, in respect of the assessment year 1996-97, were passed on one and the same day, discloses the arbitrariness of exercise undertaken by the Assessing Officer. The respondent borrowed amount on interest, from a Bank and year after year it was deducting the component of interest towards expenditure. The returns for the assessment year 1997-98 were dealt with, sometime in the year 2000. The Assessing Officer felt that the amount of Rs.5.37 Crores ought to have been reflected in the returns of that year, because the benefit has accrued in the financial year relevant to the assessment year 1997-98. The manner in which the Assessing Officer has used such a power under Section 154 of the I.T. Act, in the instant case is evident from the fact that he has chosen that device, just to pick up the amount of Rs.5.37 Crores from the previous assessment year, and to put it in the subsequent assessment year, without even recording any findings as to whether the process has gone wrong at all.


*THE HON BLE SRI JUSTICE L.NARASIMHA REDDY AND HON BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A. No.317 of 2003 %Date: 09.12.2014 #The Commissioner of Income Tax, Hyderabad. Appellant. and $M/s. N.C.L. Industries Limited, Hyderabad. Respondent. ! Counsel for Appellant: Sri S.R.Ashok ^ Counsel for Respondent : Sri S.Ravi < GIST: > HEAD NOTE: ? Cases referred 1. AIR 2002 SC 2131 HONBLE SRI JUSTICE L.NARASIMHA REDDY AND HON BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No.317 of 2003 JUDGMENT: (Per Hon ble Sri Justice L.Narasimha Reddy) This appeal is by Revenue, challenging order, dated 30.08.2002, passed by Hyderabad Bench B of Income Tax Appellate Tribunal (for short Tribunal ) in I.T.A.No.247/Hyd/2001. facts, that gave rise to filing of appeal, are as under: respondent is Company incorporated under Companies Act and is assessee under Income Tax Act, 1961 (for short I.T. Act ). For purpose of its business, it borrowed quite large amount from Bank. By 31.03.1996, proposals for One Time Settlement (OTS) in respect of amount due, were in existence, but effort made by respondent in that behalf did not materialise. Another proposal was mooted on 30.05.1996. It was only on 08.07.1996, that proposal was accepted and Bank has agreed to waive interest to extent of Rs.5.37 Crores. respondent has been claiming deduction of amount representing interest on loan, year after year and same was permitted. In its returns for assessment year 1996-97, respondent has reflected amount of Rs.5.37 Crores, waived interest as its income, and same was dealt with, in accordance with law by Assessing Officer in order passed by him. In subsequent assessment year 1996-97, no component of waived interest was shown. While passing return for year 1997-98, Assessing Officer felt that accrual of income of Rs.5.37 Crores is referable to assessment year 1997-98, but was wrongly shown and dealt with in returns for assessment year 1996-97. On 29.03.2000, he passed order of assessment with reference to assessment year 1997-98 adding amount of Rs.5.37 Crores as income for that assessment year. On same day, he passed order in exercise of power under Section 154 of I.T. Act, rectifying order of assessment for year 1996-97 to extent of removing sum of Rs.5.37 Crores from purview of assessment of that year. respondent filed appeal before Commissioner of Income Tax (Appeals), feeling aggrieved by order of assessment, dated 29.03.2000. Commissioner dismissed appeal, through order, dated 27.02.2001. Feeling aggrieved by that, respondent filed I.T.A., raising following questions of law: 1. Whether Appellate Tribunal is justified in holding that profit and loss account prepared by assessee and certified by Chartered Accountant even in violation of accounting standards, is binding on Revenue in context of determining book profit U/s. 115JA(6) of I.T.Act? 2. Whether Appellate Tribunal is justified in not holding that benefit of waiver of interest as part of acceptance of OTS proposal by financial institutions accrues to assessee on acceptance and not on mere initiation and hence liable to be taken into account for determining book profit U/s.115JA(6) of I.T.Act? 3. Whether finding of Tribunal in this behalf that income, on account of acceptance of waiver of interest granted by financial institutions, does not accrue in year of acceptance is just and proper and is based on material on record? same was allowed by Tribunal. Sri S.R.Ashok, learned Senior Counsel for appellant, submits that though negotiations for OTS have been going on for quite sometime, it ultimately materialised only on 08.07.1996, and same could have been reflected only in returns for assessment year 1997-98. He contends that realising mistake in permitting that amount to be dealt with in assessment year 1996- 97, Assessing Officer has taken corrective steps and passed order of assessment for 1997-98, in accordance with law. He submits that Assessing Officer as well as Commissioner have taken correct view of matter and Tribunal has far exceeded scope of adjudication. He further submits that though once respondent was claiming deduction of interest, year after year, waiver thereof should have been treated as income simplicitor, but Tribunal treated it as capital receipt, contrary to law. Sri S.Ravi, learned counsel for respondent, on other hand, submits that though it is fact that decision as to waiver of interest was taken by Bank on 08.07.1996, benefit thereof has accrued to respondent for assessment year 1996-97, since it was following mercantile system of accounting. He submits that Assessing Officer did not raise any objection for inclusion of income of Rs.5.37 Crores, on account of waiver of interest, in returns for assessment year 1996-97, and facility created under Section 154 of I.T. Act was misused just to lift that amount for inclusion in subsequent assessment years. Learned Counsel submits that very fact that orders of assessment for year 1996-97 as well as order of rectification under Section 154 of I.T. Act, in respect of assessment year 1996-97, were passed on one and same day, discloses arbitrariness of exercise undertaken by Assessing Officer. He further submits that plea of respondent that sum of Rs.5.37 Crores deserves to be treated as capital receipt was only in context of accounts maintained under Companies Act, and it has nothing to do with assessment to be made under I.T. Act. Learned counsel submits that view taken by Tribunal accords with judgment of Hon ble Supreme Court in Apollo [1] Tyres Ltd. v. Commissioner of Income Tax, Kochi . entire discussion undertaken by Assessing Officer, Commissioner and Tribunal was about connecting waived interest of Rs.5.37 Crores to profit and loss accounts maintained under Companies Act, in context of Section 115JA of I.T. Act. It is too well-known that where assessee is company incorporated under Companies Act, and it maintains separate books of account as required under said Act, income of company under I.T. Act, can be treated as only 30%, of one reflected in books of account, in case income that is arrived at under I.T. Act is less than that figure. This naturally encourages or introduces assessee to ensure that income assessed under I.T. Act, referable to particular year, is less than 30% of what is posted in books of account, so that tax liability is restricted to that extent. endeavour of department, on other hand, would be to ensure that figures, that emerge as result of exercise under I.T. Act would far exceed 30% of those reflected in books of account maintained under Companies Act, so that higher liability can be fastened on assessee. This tussle is constant and one has to proceed by settled principles of law, in this behalf. respondent borrowed amount on interest, from Bank and year after year it was deducting component of interest towards expenditure. On 08.07.1996, benefit of OTS was extended to it and sum of Rs.5.37 Crores representing interest, was waived. Since appellant has availed benefit of deduction of amount, over years, it was under obligation to show that figure, as income. question was as to whether it should be posted in returns for year 1996-97, or subsequent year 1997-98. It is not as if returns for both assessment years, referred to above, were dealt with at one and same point of time. For assessment year 1996-97, in which amount of Rs.5.37 Crores was reflected, order of assessment was passed, on 30.03.1998. It is different matter that, it is in form of prima facie adjustment under Section 143(1) (a) of I.T. Act. It only connotes that Assessing Officer did not find anything wrong in such exercise and accorded his seal of approval. returns for assessment year 1997-98 were dealt with, sometime in year 2000. Assessing Officer felt that amount of Rs.5.37 Crores ought to have been reflected in returns of that year, because benefit has accrued in financial year relevant to assessment year 1997-98. He realised that, that very amount was dealt with under assessment year 1996-97. Therefore, he has taken recourse to Section 154 of I.T. Act for lifting that figure, so that it can be made part of subsequent assessment year. Tribunal has undertaken fairly extensive discussion on various points urged before it. One of views expressed by it was that though Section 154 of I.T. Act empowers Assessing Officer to rectify orders of assessment, it cannot be exercised in such way that one facet of it can be selectively lifted and in name of rectification, mater be left at that. It cannot be keenly said that filing of return is comprehensive exercise and that in turn is proceeded by fairly extensive accounting process. assessee bestows its attention in respect of each and every amount and once comprehensive return is filed, taking away of one facet would have its own cascading effect, on others. In given case it may disturb entire edifies of accountancy and may prove to be disastrous for assessee. Therefore, whenever power under Section 154 of I.T. Act is exercised, it should be done in such way that no violence is done to order of assessment passed in respect of different years. manner in which Assessing Officer has used such power under Section 154 of I.T. Act, in instant case is evident from fact that he has chosen that device, just to pick up amount of Rs.5.37 Crores from previous assessment year, and to put it in subsequent assessment year, without even recording any findings as to whether process has gone wrong at all. passing of orders of assessment for year 1996-97 and order of rectification for under Section 154 of I.T. Act for earlier assessment year, on one and same day, is clear indication of this. point urged by Revenue before Tribunal was that amount of Rs.5.37 Crores was being treated as capital receipt and that cannot be sustained, since assessee has availed benefit of deduction towards expenditure over years. contention could have been accepted, if only respondent intended to treat account of Rs.5.37 Crores as capital receipt under I.T. Act. That was not at all case. He has only posted that amount as capital receipt, in its accounts maintained under Companies Act. It is too well-known that Companies Act provides detailed mechanism of verification of accounts and there are also statutory auditors under that Act scrutinise them. Nobody pointed out any defect in exercise undertaken by respondent. Howsoever wider powers of Assessing Officer under I.T. Act, may be he does not have any power whatever, to touch or comment upon books of account, maintained under Companies Act. I n Apollo Tyres Ltd. s case (supra), Supreme Court explained power of Assessing Authority under I.T. Act vis-a-vis accounts maintained under Companies Act, in context of Section 115J of I.T. Act. Their Lordships observed at para 9 as under: Therefore, we are of opinion, assessing officer while computing income under Section 115J has only power of examining whether books of account are certifies by authorities under Companies Act as having been properly maintained in accordance with Companies Act. assessing officer thereafter has limited power of making increases and reductions as provided for in Explanation to said section. To put it differently, assessing officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to Section 115J. Tribunal took note of judgment of Hon ble Supreme Court and held that accounts referable to Section 115J of I.T. Act must be taken on their face value and once it becomes clear that income of assessee determined under I.T. Act is less than 30% of book profits reflected in books of account maintained under Companies Act, tax leviable would be only 30%. We do not find any basis to interfere with order passed by Tribunal. appeal is accordingly dismissed. There shall be no order as to costs. miscellaneous petitions filed in this appeal shall also stand disposed of. L.NARASIMHA REDDY, J. CHALLA KODANDA RAM, J. Date:09.12.2014 L.R. copy to be marked. GJ [1] AIR 2002 SC 2131 Commissioner of Income-tax, Hyderabad v. N.C.L. Industries Limited
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