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2015 (8) TMI 376 - DELHI HIGH COURT

2015 (8) TMI 376 - DELHI HIGH COURT - [2015] 378 ITR 107 (Del) - Reopening of assessment - conversion of a portion of the interest into shares - Deduction claimed under section 43B - Held that:- When pursuant to a settlement the creditor agrees to convert a portion of interest into shares, it must be treated as an extinguishment of liability to pay interest to that extent. In essence there will be no further outstanding interest to that extent. Consequently, the situation where an interest payab .....

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w that the plea of the Assessee, which was accepted by the CIT (A) and the ITAT, that the said conversion of a portion of interest into shares should be taken to be “actual payment” within the meaning of Section 43B of the Act, merits acceptance. In any event, on the facts of the case discussed above, there was no justification in seeking to reopen the assessment under Section 147 of the Act on a mere change of opinion. - Decided in favour of assessee. - ITA 780/2014, ITA 785/2014 - Dated:- 6-8- .....

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spect of the Respondent/Assessee, a rehabilitation scheme was sanctioned by the Board for Industrial and Financial Reconstruction ( BIFR ) on 1st November 2002. The scheme that was sanctioned was in fact prepared by the Industrial Development Bank of India ( IDBI ), one of the major lenders of the Respondent. On the loans borrowed by the Assessee from IDBI, there was outstanding interest as on 31st March 2001. It was decided in a series of meetings that the IDBI could be allotted 14,30,000 equit .....

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t paid to IDBI to the extent of ₹ 1.43 crores was claimed. The basis for this claim was the allotment of shares in the above manner to the IDBI. In the audited accounts for the year ended 31st March 2002, the following note was appended under the notes on accounts: IDBI has approved a negotiated settlement for the company. As per the terms of the rehabilitation based on the settlement, the company has issued 14,30,000 equity shares of ₹ 10/- each to IDBI towards 30% simple interest d .....

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2001 accepted 14,30,000 equity shares of ₹ 10/- each valued at 1,43,00,000/-. The above shares were accepted towards 30% simple interest due as on 31.03.2001. Pursuant to above, outstanding interest as at 31.03.2001 has been reduced to the interest of ₹ 1,43,00,000/-. The above payment of interest in kind had been added back by the Assessee in earlier years. Since interest to the extent of ₹ 1,43,00,000/- has been paid in the relevant previous years, therefore, the same has bee .....

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alled up and paid up capital was increased correspondingly. 6. During the course of the original assessment proceedings, the AO by an order dated 4th November 2004 raised a specific query regarding the shares issued to the IDBI. By a letter dated 22nd November 2004, the Assessee explained, inter alia, that pursuant to the settlement reached with the IDBI which was confirmed by IDBI by letter dated 22nd January 2002 , the shares as aforementioned were allotted. It was urged that the said allotmen .....

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years thereafter. The reasons for the reopening, as stated by the AO, was that it was noticed that the Assessee had claimed and was allowed a deduction of ₹ 1.43 crores towards the allotment of shares to the IDBI on conversion of 30% of the simple interest in equity share capital. It was noted that since the rehabilitation scheme was sanctioned by the BIFR on 1st November 2002, the said deduction was not allowable during the AY 2002-03. 8. The AO did not accept the contention of the Assess .....

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learly legible . Since the return of allotment in Form No.2 was filed with the Registrar of Companies ( ROC ) only on 29th April 2002, and was lying with the Assessee till that date, that by itself was not sufficient to prove that the shares were in fact allotted to IDBI on 30th March 2002. Consequently, the deduction of ₹ 1.43 crores was disallowed and added back to the income of the Assessee. 9. In the appeal filed by the Assessee, the CIT (Appeals) [ CIT (A) ] by order dated 25th April .....

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uring AY 2002-03. After going through the facts and examining the records, the ITAT noted that in the original assessment proceedings itself the AO had raised a query which had been explained satisfactorily by the Assessee and accepted by the AO. Therefore, the present case is not a change of statement of income and rather it is a case of change of opinion. 11. Mr. N.P. Sahni, learned Senior Standing counsel appearing for the Revenue, urged that this was not a case where the AO had examined an i .....

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tion 43 B of the Act. He referred to Explanation 3C to Section 43B which declares that where a deduction in respect of any amount being the interest payable has been converted into a loan or borrowing it shall not to be deemed to have been actually paid. He accordingly submitted that the AO was justified in seeking to reopen the assessment. Mr. Sahni further submitted that if in fact the conversion into shares took place only pursuant to the sanctioning of the scheme by the BIFR on 1st November .....

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by the AO in regard to conversion of a party of interest into shares. The Assessee s answer to the query was accepted by the AO and the assessment was finalized accordingly. 13. Mr. Sethi further pointed out that Explanation 3C to Section 43 B of the Act deals with the situation of conversion of interest into a loan or borrowing. Explanation 3C to Section 43B of the Act was introduced retrospectively with effect from 1st April 1989. There is no provision, much less with retrospective effect, by .....

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r 2004, reads as under: In the return, a deduction ofRs.1.43 Cr is claimed - share capital issued to IDBI. When the money is with you, how and on what basis the deduction has been claimed. -Give a detailed note in regard to the claim of deduction ofRs.1.43 Cr in the computation of income. How the deduction has been claimed under section 43B of the Act. 15. The Respondent Assessee replied to the above query on 29th November 2004. In its reply the Respondent explained that the allotment of shares .....

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