TMI Blog2022 (5) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... Consequently, there is no further outstanding interest to be paid by the assessee company in future as it stands extinguished in the year under consideration Section 43B is hereby held to be attracted in the facts of the case. In view of the above, concurrent findings recorded by the CIT(Appeals) and by the ITAT, the question of law raised by the department does not deserve any further consideration. The said question also being no more res-integra, it could not be said that the present appeal involves any question much less substantial question of law. - R/Tax Appeal No. 1440 of 2008 - - - Dated:- 21-1-2022 - Honourable Mr. Justice J.B.Pardiwala And Honourable Ms. Justice Nisha M. Thakore For the Appellant(s) : M R Bhatt And Co. For the Opponent(s) : Darshan R Patel ORAL ORDER (PER : HONOURABLE MS. JUSTICE NISHA M. THAKORE) 1. This is an appeal filed by the Revenue Department under Section 260A of the Income Tax Act, 1961 (for short, the Act ) challenging the order dated 20.02.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench C , Ahmedabad in ITA No.2858/Ahd/2007 for the A.Y. 2001-02. 2. The substantial question of law which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of payment by issuing shares to the company. Ultimately, the Assessing Officer rejected the objections raised by the respondent assessee company by disallowing the aforesaid amount and adding it into the total income of the assessee for taxation purpose. 3.4 Being aggrieved and dissatisfied with the aforesaid order of the Assessing Officer, the respondent assessee company preferred an appeal before the Commissioner of Income Tax (Appeals)- V, Ahmedabad, which was registered as Appeal No.CIT(A)-V/DCIT Cir.1/211/2006-07. The CIT(A) after carefully examining the issue and on perusal of the record arrived at a finding that this was a case where payment of interest has been made by issue of fully paid up shares to ICICI Ltd.. It further found that in case of issue shares, there can be no occasion to pay the amount again in any other manner and thus, agreed with the contention of the respondent assessee company regarding disallowance made by the Assessing Officer under Section 43B of the Act as incorrect and accordingly, partly allowed the appeal. 3.5 Being aggrieved and dissatisfied with the aforesaid order dated 29.04.2007 passed by the CIT(A), Ahmedabad, the Revenue d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment in terms of powers conferred under Section 148 of the Act. The learned Senior Counsel has further referred to Explanation 3C to Section 43B of the Act, which declares that any deduction in respect of any amount being the interest payable which has been converted into loan or borrowing, then the same shall not be deemed to have been actually paid . Accordingly, he submitted that the Assessing Officer was justified in seeking reopening of the original assessment of the respondent assessee company. 6. On the other hand, Mr. Darshan Patel, the learned counsel appearing for the respondent assessee company has referred to and relied upon the findings and reasons arrived at by the CIT(A) as well as the ITAT, Ahmedabad and has submitted that no error of fact or law is found, which calls for any interference of this Court in appeal under Section 260A of the Act. It is further submitted that there are concurrent findings of facts as well as law and in absence of any substantial questions of law being framed by the Revenue department, the present appeal is not required to be entertained and is required to be rejected summarily. 7. The learned Counsel for the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. 11. The Supreme Court in the case of M.M. Aqua Technologies Ltd. (Supra) had an occasion to deal with Section 43B more particularly, Explanation 3C of the Act. The relevant paragraphs are reproduced as under: 17. Section 43B was originally inserted by the Finance Act, 1983 w.e.f. 1st April, 1984. The scope and effect of the newly inserted provision, at that point, was explained by the Central Board of Direct Taxes [ Board ] in Circular No.372/1983 dated 8th December, 1983 as follows: 35.2 Several cases have come to notice where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: 16.2 It has come to notice that certain assessees were claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a fresh loan on the ground that such conversion was a constructive discharge of interest liability and, therefore, amounted to actual payment. Claim of deduction against conversion of interest into a fresh loan is a case of misuse of the provisions of section 43B. A new Explanation 3C has, therefore, been inserted to clarify that if any sum payable by the assessee as interest on any loan or borrowing, referred to in clause (d) of section 43B, is converted into a loan or borrowing, the interest so converted, shall not be deemed to be actual payment. 16.3 This amendment takes effect retrospectively from 1st April, 1989 i.e. the date from which clause (d) was inserted in section 43B and applies in relation to the assessment year 1989-90 and subsequent years. 19. The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non- obstante clause contained in the beginning of the provision, coupled with the deduction being allowed irres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the heart of the introduction of Explanation 3C is misuse of the provisions of Section 43B by not actually paying interest, but converting such interest into a fresh loan. On the facts found in the present case, the issue of debentures by the assessee was, under a rehabilitation plan, to extinguish the liability of interest altogether. No misuse of the provision of Section 43B was found as a matter of fact by either the CIT or the ITAT. Explanation 3C, which was meant to plug a loophole, cannot therefore be brought to the aid of Revenue on the facts of this case. Indeed, if there be any ambiguity in the retrospectively added Explanation 3C, at least three well established canons of interpretation come to the rescue of the assessee in this case. First, since Explanation 3C was added in 2006 with the object of plugging a loophole i.e. misusing Section 43B by not actually paying interest but converting interest into a fresh loan, bona fide transactions of actual payments are not meant to be affected. In similar circumstances, in K.P. Varghese v. ITO, (1981) 4 SCC 173, this Court construed Section 52 of the Income Tax Act as applying only to cases where understatement is be found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment of the consideration actually received by the assessee and brings to tax capital gains on the footing that the fair market value of the capital asset represents the actual consideration received by the assessee as against the consideration untruly declared or disclosed by him. This approach in construction of sub-section (2) falls in line with the scheme of the provisions relating to tax on capital gains. It may be noted that Section 52 is not a charging section but is a computation section. It has to be read along with Section 48 which provides the mode of computation and under which the starting point of computation is the full value of the consideration received or accruing . What in fact never accrued or was never received cannot be computed as capital gains under Section 48. Therefore sub-section (2) cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received by him and it must be confined to cases where the actual consideration received for the transfer is understated and since in such cases it is very difficult, if not impossible, to determine and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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