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The Dy. Commissioner of Income Tax, Circle – 9, Pune Versus Hindustan Antibiotics Ltd.

2016 (5) TMI 1006 - ITAT PUNE

Addition on account of interest on loan accrued to subsidiary companies - Held that:- In view of the earlier decision of Co-ordinate Bench of ITAT on the identical issue, we find no merit in the grievance of the Revenue raised as in our considered opinion, the stand of the Revenue to the effect that interest accrued to the assessee cannot be upheld merely because the loan agreement with the subsidiary companies continued to exist. It is imperative that all the attendant facts, circumstances and .....

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alization of the interest income in question is highly suspect and therefore, there cannot be said to be any real accrual of income. Thus, having regard to the legal position and the facts and circumstances of the case, we are inclined to hold that the lower authorities have faulted in concluding that interest income accrued to the assessee-company during the year under consideration. Thus, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition - Decided in .....

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ce, expenditure incurred towards discharge of said obligation is business expenditure of the assessee company and is duly allowable in the hands of assessee. Further, the expenditure relatable to residential quarters is no doubt to be recovered from the employees or is to be included as perk in the hands of employees of the assessee company, but merely because no such exercise was carried on, does not merit the disallowance of expenditure in the hands of assessee - Decided in favour of assessee .....

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- 1. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) was justified in deleting the disallowance of ₹ 2,02,38,082/- being interest on loan accrued to subsidiary companies by not appreciating the fact that the assessee is following mercantile system of accounting and hence income has to be recognized on accrual basis? 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of ₹ 80,10,000/- be .....

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is a public sector enterprise engaged in the business of pharmaceuticals which has got two subsidiaries viz. Maharashtra Antibiotics and Pharmaceuticals Ltd. (MAPL) and Manipur State Drugs & Pharmaceuticals Ltd. (MSDPL). The Assessing Officer noticed that the assessee had not accounted for interest income from the two companies on the loans and advances given by it. The Assessing Officer confronted the assessee company on this issue. It was replied by the assessee that interest income on su .....

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egards to the transactions with one of the subsidiaries viz. MAPL, it was explained that the subsidiary had availed loan from SICOM and the assessee company was guarantor of the loan. There was a tripartite agreement with the assessee, SICOM and MAPL for the said loans in terms of which, the MAPL was liable to repay the loan as well as interest to SICOM. Since, assessee was a guarantor of the loan, interest charged by SICOM was routed through books of account of the assessee without affecting th .....

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routed through books of assessee company, interest should have been routed through Profit & Loss Account. The Assessing Officer after discussing the issue made addition of ₹ 2,02,38,082/-. Against the said action of the Assessing Officer, assessee carried the matter in appeal before the CIT(A). 3.2 The CIT(A) after considering the submissions of the assessee filed before him and following the earlier decision of the Pune Bench of the Tribunal in assessee s own case in ITA No.737/PN/20 .....

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e Tribunal in assessee s own case in ITA No.737/PN/2008, 878 to 880/PN/2008 & 306/PN/2009 relating to assessment years 2001-02 to 2005-06 respectively, order dated 31.01.2013 wherein the Tribunal decided impugned issue in favour of assessee. 3.5 The Ld. Departmental Representative placed reliance on the order of the Assessing Officer. 3.6 We have carefully considered the rival submission. We find that the identical issue has been decided by the Pune Bench of the Tribunal in assessee s own ca .....

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in question were advanced in the earlier assessment years and as per the Tabulation at page 1 of the Paper Book, it is seen that upto the preceding assessment year i.e. upto A.Y. 2000-01, assessee had recorded interest income on such loans in its books of account. For the assessment year 2001-02 and the subsequent years, assessee did not record in its books of account such interest income The assessee contended that there was no real accrual of such interest. With regard to MAPL it was pointed o .....

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est from the subsidiary and therefore, no interest was accounted for as it cannot be said to have accrued. Similarly, with regard to MSDPL it was also explained that the said subsidiary had become sick under the Sick Industrial companies (Special Provisions) Act, 1985. As per Note No. 12(x) of Schedule 24, being the Notes on Accounts annexed to and forming part of the audited financial statements for the year under consideration, a copy of which has also been placed in the Paper Book, the said s .....

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other hand, concluded that the interest income was assessable for the reason that assessee was maintaining its accounts on mercantile basis and the loan agreement with the two subsidiaries continued to exist and therefore, the interest income continued to accrue to the assessee, notwithstanding the facts and circumstances brought out by the assessee. 9. Ostensibly, the point to be seen in the present appeal is as to whether the income on account of impugned interest can be said to have really a .....

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mercantile system of accounting, and while computing its income it deducted certain sums from its total income in respect of sale of electrical energy on the ground that the said amount was not actually recovered by it from consumers due to litigation. The Revenue sought to tax such amount on the ground that such amount actually accrued to the assessee and the assessee had a legal right to recover such dues. As per the Revenue, assessee-company was following mercantile system of accounting and .....

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be cash system or the mercantile system. It referred to the following passage from its earlier decision in the case of CIT Vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC) wherein it had been stated as under: Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot .....

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conclusion, the Hon ble Supreme Court referred to its earlier judgment in the case of CIT Vs. Birla Gwalior (P) Ltd. (1973) 89 ITR 266, wherein reference was made to the judgment in the case of Morvi Industries Ltd. Vs. CIT (1971) 82 ITR 835 (SC). Pertinently, what the Hon ble supreme Court has emphasized is that irrespective of mercantile system of accounting being followed, the question to be decided is as to whether any income had really accrued or not, having regard to the facts and circums .....

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rual of income. In conclusion, the Hon ble Supreme Court held as follows:- The question whether there was real accrual of income to the assessee company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realization in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of ele .....

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which had really accrued to the assessee-company during the relevant previous years. The High Court in our opinion, was in error in upsetting the said view of the Tribunal. 11. On the basis of the aforesaid judgment of Hon ble Supreme Court, it is clear that even the mercantile system of accounting, does not envisage a hypothetical accrual of income, but what is to be seen is whether income can be said to have really accrued to the assessee. In examining whether any income had accrued in a given .....

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r proper commercial perspective before it can be evaluated as to whether interest income really accrued in the hands of the assessee. The facts noted by us in para 7 above, are not in dispute. It is also not in dispute that the assessee company has not recovered any dues from the two subsidiaries till now, as asserted by the learned Representative before us. After considering the entire gamut of facts and circumstances, it is an inescapable conclusion that the realization of the interest income .....

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7; 197.13 lakhs. 3.7 In view of the earlier decision of Co-ordinate Bench of ITAT on the identical issue, we find no merit in the grievance of the Revenue raised. In the result, Ground No.1 of the Revenue s appeal is dismissed. 4. The second and last Ground of the Revenue s appeal concerns the disallowance of ₹ 80,10,000/- being expenses on account of power and fuel expenses. 4.1 The facts concerning the issue are that the assessee claimed an amount of ₹ 370.79 lacs towards power and .....

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ture incurred in respect of residential colony of staff and non-business expenditure. 4.2 The CIT(A) granted relief to the assessee following its earlier order for the assessment years 2003-04, 2004-05 and 2005-06. 4.3 Aggrieved by the order of the CIT(A), the Revenue is in appeal before us. 4.4 The Ld. Departmental Representative placed reliance on the order of the Assessing Officer. 4.5 The Ld. Authorized Representative for the assessee placed reliance on the order of the CIT(A) and also relie .....

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ara of the order of the Tribunal dated 10.03.2016 (supra) is reproduced hereunder for reference :- 17. We have heard the rival contentions and perused the record. The first aspect of the issue is the determination of loss in the hands of assessee, which in turn, has been adjusted against the brought forward losses, which at the close of the year are also further available to the assessee for adjustment. Secondly, we find merit in the claim of the assessee vis-à-vis the deduction on accoun .....

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