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2016 (2) TMI 889 - ITAT MUMBAI

2016 (2) TMI 889 - ITAT MUMBAI - TMI - Set off interest on income tax refund received from interest on income tax paid - Held that:- The set off of interest paid against that received shall accordingly be subject to the two being for the same period, and to the extent of interest income for the 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 i .....

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), 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 predeter .....

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ted 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 Patel For the Respondent : Shri Mohammed Rizwan ORDER Per Sanjay Arora, A. M. These are cross Appeals by the Assessee and the Revenue directed against the Order by the Commiss .....

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ordingly, falls to be considered for deduction for, the current year only. The Revenue, however, disallowed the claim as the assessee failed to substantiate its claim of the corresponding liability crystallizing during the year (refer para 3.2 of the assessment order). On a perusal of the claim, the Assessing Officer (A.O.) in fact found that most of the invoices in respect of the said expenditure were from April, 2006 to March, 2007, i.e., falling during the relevant previous year itself. In fa .....

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dispute, that the liability, which is claimable on the basis of a provision - making a reasonable and best estimate (based on the information available), that could be claimed on the basis of the amount as finally settled between the parties in-as-much as the liability to that extent could be said to arise or crystallize only in that year. Each year is a separate and independent unit of assessment (refer: CIT vs. British Paints India Ltd. [1991] 188 ITR 44 (SC)). The law in the matter is also c .....

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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 Exi .....

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ved, the assessee is in second appeal. 4. We have heard the parties, and perused the material on record. We are completely unable to, with respect, understand the assessee s case, which centers on the provision of section 43B(f) having been struck down in Exide Industries Ltd. (supra). True, but then, the Hon ble Apex Court, admitting the Revenue s SLP (No. 22889 of 2008) against the said decision, vide its order dated 08.5.2009 (copy on record), clearly states that during the pendency of the ci .....

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diture and, therefore, qua leave encashment, where on a scientific, objective basis, is allowable as an expenditure (refer, inter alia, Calcutta Co. Limited (supra); Bharat Earth Movers (supra)). Section 43B of the Act, however, introduces a legal fiction whereby, notwithstanding the deductibility of any expenditure, specified vide clauses (a) to (f) thereof, it shall stand to be allowed as deduction in computing the business income only subject to actual payment. Clause (f) specifies a sum paya .....

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olding as under: 5. We have heard the parties, and perused the material on record. The first question …………. This leaves us with one argument, raised with reference to the constitutional validity to section 43B(f). We have for the purpose referred to the decision by the tribunal in the 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/M .....

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splaced. 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 ord .....

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in view of the provisions of section 43B(f) of the Income-tax Act, 1961? How, we wonder, the admission of a question of law by the hon ble court amount to either an acceptance of the tribunal s order, or even its negation by the hon ble court, to be of any assistance to the assessee. In fact, there is no dispute with regard to the import and the scope of the provision of section 43B(f). The only issue is whether the same shall continue to hold in view of the decision in Exide Industries Ltd. (s .....

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ase obtain. There is as such little merit in the contention of the ld. AR to restore the matter back to the file of the A.O. to decide in accordance with the final decision by the Hon ble Apex Court, an aspect also considered by the tribunal in Prembril Engineering P. Ltd. (supra). We, accordingly, find little merit in the assessee s case. We may though clarify that the Revenue relying on the admission of the appeal by it before the Apex Court in Exide Industries Ltd. (supra), it shall give effe .....

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und 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), clarifyin .....

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) vs. Bank of America NT and SA (in Income Tax Appeal No. 177 of 2012 dated 03.7.2014/copy on record). 6. We have heard the parties, and perused the material on record. The tribunal has allowed the assessee s claim in-as-much as, essentially and properly speaking, there could be only one account between two parties, being the assessee and the income-tax department in the instant case. Even the amount refunded to the assessee (on which interest is received/receivable) and that paid/to be paid, an .....

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y of interest. The refund of interest u/ss. 234A and 234B, in-as-much as the same forms part of the demand raised, is exigible for interest u/s.244A on its withdrawal or, as the case may be, reduction and, consequently, refunded with interest. There is further nothing to suggest of any withdrawal of interest u/s. 244A, neutralizing the interest received to that extent. That apart, the payment of tax and, accordingly, liability toward the same is, as stated by the Revenue, not a business expendit .....

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India Pharmaceutical Works vs. CIT [1997] 224 ITR 627 (SC). This would apply equally to the interest suffered on penalty as well. The interest receivable from the Revenue, on the other hand, is on the amount paid by way of tax (or qua any other liability under the Act), on account of it being paid in excess, i.e., than that in its respect as finally determined. The same, thus, assumes the nature of debt due to the assessee. The same being not a debt of the business, which appears to be only, or .....

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r 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 .....

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n its view, arises from the order of the tribunal, so that, it, in fact has refused to exercise its appellate jurisdiction in relation to the said order, which arises only on it finding the impugned order to raise a substantial question of law. No ratio, which alone has precedent value and is judicially binding, consequently, arises out of the said order, which we have carefully perused; the findings by the Hon ble Court being at para 5 of the said order. Be that as it may, the only course avail .....

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case - the larger principle involved being: Would the conditions of taxability and deductibility in relation to a particular sum (interest in the present case) obtain even where it becomes both - due from as well as due to, the same party, with we having expressed our clear view that the conditions of taxability and deductibility, being regulated by law - based on the nature of the payments, are paramount, and the identity of the person, whether same or different, is of little consequence in la .....

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two being for the same period, and to the extent of interest income for the 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 ra .....

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