TMI Blog2016 (2) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... y defined. That, in fact, is a basis on which we have opined of the interest suffered as being a statutory liability, unconnected with the earning of interest, so that it is not admissible as a deductible in the first place. However, even granting deductibility, the parameters of section 57(iii) do not admit of expenditure being incurred to sustain a predetermined loss, which again points to the expenditure being involuntary - another aspect of the matter emphasizing its’ non-deductibility. The deduction for interest paid would thus be limited to the quantum of interest received on the like (principal) amount for the same period, defined as from a particular date to a particular date. Subject to these two caveats, forming part of the application of the principle of deductibility of interest expenditure to Revenue against that received from it, accepted by us in principle respectfully following the decisions by the co-ordinate benches of this tribunal, we allow the assessee’s claim - Decided in favour of assessee - I.T.A. No. 4061/Mum/2011, I.T.A. No. 4338/Mum/2011 - - - Dated:- 17-2-2016 - Shri Joginder Singh, JM And Shri Sanjay Arora, AM For the Petitioner : Ms. Vasanti P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... darnath Jute Mfg. Co. Ltd. (supra); Bharat Earth Movers vs. CIT [2000] 245 ITR 428 (SC); Rotork Controls India (P) Ltd. vs. CIT [2009] 314 ITR 62 (SC), etc., to name some. The matter, given the settled law, is purely factual, with the assessee abysmally failing to prove its claim/s there being no whisper of any dispute. We, accordingly, uphold the disallowance, noting the Revenue to have rather acted reasonably in-as-much as the disallowance is at net of income, which (income) would, in any case, stand to be taxed, i.e., either in the year of accrual or, as the case may be, receipt. We decide accordingly. 3. Vide the second ground, the assessee assails the disallowance of provision of expenditure on leave encashment at ₹ 283.24 lacs on the ground that the Hon ble Calcutta in Exide Industries Ltd. vs. Union of India [2003] 292 ITR 470 (Cal) has held the provision of section 43B(f), invoked by the Revenue, as being ultra virus the Constitution (of India). The same did not find favour with the Revenue as the Hon ble Apex Court has, while admitting the Revenue s appeal against the said decision, stayed its operation, holding that during the pendency of the civil appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Birla General Finance (ITA No. 7530/Mum/2010 dated 23.01.2015/copy on record), as well as earlier decision in Essar Export and Production India Ltd. vs. Asst. CIT (ITA No. 6189/Mum/2011 dated 08.08.2012), the relevant part of which stands reproduced in the former order. In both the cases, as made abundantly clear, there was a concession by the Revenue, acting through the ld. DR, for the Tribunal to have restored the matter back to the file of the AO for a decision in agreement with that to be delivered by the hon ble apex court in the case of Exide Industries Ltd. (supra). The plea for a similar set-aside, in view of clear stand by the Revenue in the present case, is misplaced. It needs to be appreciated that inasmuch as the decision by the apex court, to follow which the restoration has been made by the tribunal, is yet to be delivered, i.e., is pending therewith, there is no adjudication by the tribunal per the said decisions, which, being based on a concession, do not even otherwise lay down any precedent (Lakshmi Shankar Srivastava AIR 1979 SC 451). Pending its final decision, which would be binding on all the authorities and courts, the only effective order is that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the Ld. CIT(A) erred in directing the A.O. to allow set off interest on income tax refund received from interest on income tax paid. The assessee paid interest at ₹ 103.61 lacs under different provisions of the Act to the Income-tax Department. The same was set off against the interest received by the assessee from the Revenue (at ₹ 264.13 lacs) during the year on different refunds due to it by the Department. While the A.O. denied the assessee s claim for the said set-off relying on the decision in the case of Seth R. Dalmia vs. CIT [1977] 101 ITR 644 (SC), clarifying of interest being allowable for set-off only in case of direct nexus, the ld. CIT(A) allowed the assessee s appeal in view of the two decisions by the tribunal directly on the point, viz. Cynamid India Ltd. vs. IAC, Asst. Range-V, Bombay (in ITA No. 4561/Bom(C)/1982 dated 23.5.1984) and Kvaerner Powergas India Pvt. Ltd. vs. Addl. CIT (in ITA No. 8914/Mum(B)/2004 dated 10.8.2007). Aggrieved, the Revenue is in appeal, while the assessee also places reliance on the decision in the case of DIT (IT) vs. Bank of America NT and SA (in Income Tax Appeal No. 177 of 2012 dated 03.7.2014/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be only, or the principal source of income of the assessee, is a debt to the assessee. The compensatory interest thereon is, accordingly, assessable as income from other source u/s. 56. Any expenditure, including on interest, incurred for earning the same, would stand to be allowed u/s. 57(iii). Now, could it be said that the amount due from the assessee, which is on account of tax or other liabilities under the Act (due to the Revenue), represent a borrowing from it, applied toward payment of excess tax (or other sums) to the Revenue? Surely not, the same only represent a statutory liability/s payable on account of tax or even interest or penalty, payable for offending any provision/s of the Act, or getting attracted in the facts of the case. There is, accordingly, no nexus and, rather, no question of it the two being distinct and disparate sums, occasioned by separate events, arising by the operation of law. The nexus, the expenditure being of interest, could in fact only be of funds, which is completely absent in the present case, the liabilities not representing any funds arising or received from the Revenue. The set off of interest results in the assessee not paying any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said period. Two, the interest rate paid to the Revenue is higher than the interest rate paid by it. Now, without question, interest as an expenditure u/s. 57(iii), i.e., under which provision deduction in its respect is claimed and allowed, could only be allowed to the extent of interest attributable to the rate at which interest is received from the Revenue. This is as nobody can be said to have borrowed funds at a rate (of interest) to earn interest income at a lower rate there being no scope for earning any income, which is only net of expenditure, under such an arrangement. It needs to be appreciated that it is only toward earning (net) interest that the expenditure is allowed u/s. 57(iii), presuming a nexus between the funds borrowed and lent. True, the interest rates are not in the control of the assessee, but statutorily defined. That, in fact, is a basis on which we have opined of the interest suffered as being a statutory liability, unconnected with the earning of interest, so that it is not admissible as a deductible in the first place. However, even granting deductibility, the parameters of section 57(iii) do not admit of expenditure being incurred to sustain a pred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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