TMI Blog2016 (10) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... t be alleged that income was not offered. Apart from above, we have been appraised with regard to other factual inaccuracy tabulated in the MA. On due considerations of all these facts, we are convinced that the Tribunal has conceived the facts in erroneous manner which has goad the Tribunal on a wrong conclusion, therefore, Tribunal has committed apparent error. The order of the Tribunal deserves to be recalled on this issue. Accordingly, we allow the MA and partly modify the order of the Tribunal. - MA No.37/Ahd/2009 IN ITA.No.175/Ahd/2003/Asstt. Year: 1999-2000 - - - Dated:- 28-10-2016 - RAJPAL YADAV, MANISH BORAD ORDER PER RAJPAL YADAV, JUDICIAL MEMBER Present Misc. Application is directed at the instance of the assessee under section 254(2) of the Income Tax Act, 1961 pointing out apparent error in the order of the Tribunal dated 31.7.2006 passed in ITA No.175/Ahd/2003. 2. The Tribunal vide its order dated 31.7.2006 has disposed of cross appeals i.e. ITA No.175/Ahd/2003 (by the assessee) and ITA No.523/Ahd/2003 (by the Revenue) and CO No.9/Ahd/2003 in ITA No.523/Ahd/2003 (by the assessee). This MA was filed in 2009 against order of the Tribunal. Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Board shall be final and binding. PRINICIPAL TERMS OF THE NCDs/SPNs. The NCDS/SPNs now being offered are subject to the provisions of the Act and the terms and conditions of this Letter of Offer, the , CAF, the Memorandum and Articles of Association of the Company and the Letters of Allotment/NCD / SPN Certificates to be issued. NCDs/SPNs shall also be subject to such other terms and conditions as may be contained in the Trustee Agreement, and other relevant (Documents). Each Shareholder will have a choice to apply for NCDs or SPNs or a combination of both. Subject as aforesaid the principal terms of the NCDs / SPNs are as under: TERMS OF THE INSTRUMENTS Instrument NCD or SPN with Warrants attached (The Shareholder will have an option to choose either NCD and/or SPN as per their requirement.) Face Value (Rs.) Rs.200 Interest (p.a.) on NCD 17% payable half yearly Terms of Payment On application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he option attached to the respective Warrants in lieu of payment by cash/cheque/draft 4. The ld.AO has denied interest expenditure and incurred on SPN. His conclusions have been concurred with by the Tribunal also. At this stage, before we embark upon an inquiry on the facts of the present case, in order to find out whether any apparent error was committed by the Tribunal or not while passing impugned order dated 31.7.2006, which is impugned in Tax Appeal No.1220 of 2006 before the Hon ble High Court, we think it appropriate to bear in mind certain basic principles for exercising powers contemplated in section 254(2) of the Income Tax Act. There are series of decisions at the end of the Hon ble Supreme Court as well as Hon ble High Court expounding scope of exercising powers under section 254(2) of the Act. We do not deem it necessary to recite and recapitulate all of them, but suffice to say that core of all these authoritative pronouncements is that power for rectification under section 254(2) of the Act can be exercised only when mistake, which is sought to be rectified, is an obvious and patent mistake, which is apparent from the record and not a mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will goad the adjudicating authority on wrong conclusion. Assimilation of incorrect facts would lay foundation of wrong reason and result in an incorrect adjudication. We are conscious of the fact that error of fact and law in appreciating the circumstances section and provision could fall in the ambit of apparent error but not error of judgment reached after applying correct fact and correct law, because that will be process of adjudicating the controversy and that can lead to difference of opinion qua result. But if incorrect facts and incorrect provisions are considered, then that would come in the ambit of apparent error. In the light of the above, let us examine the facts of the present case. A perusal of the assessment order would indicate that the assessee-company has claimed soda ash project expenses of ₹ 41,59,05,200/- including interest expenses of ₹ 36,23,43,684/- as revenue expenditure whereas in the books of accounts, the same was treated as capital expenditure. Similarly for LAB front end project expenses of ₹ 6,01,29,222/- have been claimed as revenue expenditure. The break-up of interest expenses of ₹ 36,23,43,684/- of soda ash are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries of transactions should be look in their entirety. In light of the above the interest expenses on SPNs of ₹ 4504 lacs is disallowed in the assessment for the AY 19992000. Within this disallowance of the interest expenses capitalized in the books in the Soda Ash Division and the LAB Front End Project are subsumed. The excess disallowance of ₹ 279 lacs is done in the Mandali Div. Penalty proceedings u/s.271(1)(c) initiated. 7. MA filed by the assessee is running into 11 pages. In all these pages, the assessee has demonstrated as to how the Tribunal has erred in appreciating the facts. In all, the assessee has pointed out 19 instances. It has narrated page numbers, paragraphs numbers of the Tribunal s order, and thereafter pointed out brief finding recorded by the Tribunal and how such finding or observation of the Tribunal is factually incorrect. Therefore, in order to appreciate the stand of the assessee, we deem it pertinent to take note of this comparative analysis made in tabular form. It reads as under: Sr. No. Page No. Para No. Findings Correct fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives. This fact is supported by the fact that in the letter of offer SPNs were entitled to subscribe share capital and in fact on its prematurity the shares were allotted, that is why the capital of assessee company has been increased from (before conversion of warrants) Rs.1,62,83,500 to 7,93,82,284 (after conversion of warrants) This observation is on account of thorough confusion of facts on the part of the Tribunal. Holders of SPNs as also holders of NCDs, were given the same right of subscription of shares through warrants. In other words, right to acquire additional shares was not attached only to SPNs; it was also attached to NCD. Therefore, the assumption, that SPNs were issued to obtain equity shares of the company by the promoters and relatives is patently incorrect. Incidentally, this is not even the case of revenue. 5 84 11.10 The funds received on account of SPNs is nothing but funds towards share in equity capital by promotors which cannot be called as borrowed capital. Since the payment of alleged interest/premium on SPNs is not in respect of capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal has completely misquoted the judgement of the High Court. What High Court has held is that Income-tax department cannot re-write terms of the contract. It is the right of parties to contract who can always modify the said terms. If parties to the contract have modified the terms, then department cannot insist that old terms must continue to operate. In any case, even under the original terms and conditions, company had right to prepone the date of redemption of SPNs and NCDs. Interestingly both SPNs and NCDs have been redeemed on a date prior to original date of redemption. Sr. No. Page No. Para No. Findings Correct facts 9 86 11.13 Keeping in view the above rulings, for deciding the matter under consideration terms of letter of offer are important. We find that date of redemptions of SPNs had been preponed and fixed for 15.3.2000 against first instalment due on 18.9.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that only promoters can subscribe and general public cannot subscribe. This allegation is factually incorrect. Every shareholder was entitled to subscribe to SPNs if he so wished. 12 86 11.14 From the facts and material on record, we do not find any convincing reasons why two types of notes were issued. If the company is in need of funds, simply it can issue notes like 17% NCD. We are aware that the assessee-company is absolutely free to decide how its business is to be conducted but simultaneously we are of the strong view that a company cannot design such a scheme to give the benefit only to promoter and their relatives. This is beyond the purview of revenue. Why company issued SPNs as also NCDs is not the question which Assessee would have to show. In any case, the Tribunal has erroneously assumed that it was a design to give benefit only to promotors and the relatives assumption which is factually incorrect. 13 87 11.14 In the light of above discussion, we are of the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing to do with funds raised by the Assessee for discharge of SPNs and are completely unconnected facts and are mixed up by the Tribunal. 15 88 11.16 If we apply the above decision of ITAT Ahmedabad Special Bench to the facts of the case under consideration, we find that in the case under consideration substance of the transaction issue of SPNs designed on promoters own sweet will, not complied with conditions stipulated in the letter of offer and majority of which subscribed only by promoters/ directors and faculty members, is issue of equity capital. As the warrants have been converted into equity share on 19.6.2000. Thus there is no borrowed capital consequently no interest in name of premium and extra premium is allowable as revenue expenses. For the reasons stated above, conclusion reached by the Tribunal is explicitly wrong. The Tribunal ignored the fact that in SPNs admittedly huge amount has been received by the company and utilised by the company. It is incorrect to assume the conditions contained in the letter of offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Act, in calculating profit from business. comments made here. Comments made in para 11.16 hold good here also. 19 90 12.1 So far as the claim of payment of premium for the 4 th , 5 th , 6 th and 7 th year after the year of subscription is concerned; the SPNs having been redeemed prior to the end of 4 th year itself, the liability to pay premium for 4 th or 5 th or 6 th or 7 th year had neither accrued nor the assessee was under obligation to pay such liability and therefore, there is no question of allowing deduction of payment paid by the assessee in garg of premium on SPNs for 4 th , 5 th and 6 th 7 th years. The issue is covered in favour of the Assessee by series of judgements of the High Courts and S.C. as mentioned in pages 48 and 49 of the order. Tribunal has not discussed any judgement and held against the Assessee. 8. In this way, the ld.counsel for the assessee has demonstrated how factual errors have been committed by the Tribunal. 9. Shri Prasoon Kabra, ld.DR appearing on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Thus the A.O. has correctly examined the transactioan with figures of tax evasion. The relevant observations of the A.O. are at page 7 8 of his order. In the light of above discussion, we are of the considered view that benefits to promoters in the garb of premium/interest particularly under the circumstances where on one hand the assessee company claimed expenses on the other hand subscribers of SPNs did not show corresponding income, is not allowable, as such expenditure is neither can be said in accordance with business expediency nor for said to be incurred for the purpose of business. In this regard we find force in the submission of Id.DR that Explanation of the assessee that the redemption of SPN was made to replace it with low cost debt is nothing but bogus. The assessee replaced SPN the capital of equal amount immediately after the redemption. The contention of the Id.DR supported by the Explanatory Note to the notice calling extra ordinary General Meeting dated 24.1.2000 by the assessee-company. The relevant matter is reproduced below:- The company has decided to redeem the said NCD/SPN earlier than the dates stipulated in this regard. It is therefore though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2000 the Banks and financial institutions treated the difference of redemption proceeds at the rate of ₹ 361 and cost of acquisition of SPNs purchased from the promoters and non-promoters of Nirma Ltd. as income and disclosed the same in accounts. 12. In this finding, the AO has categorically observed that before redemption, promoters transferred the SPNs. to financial institutions and banks and disclosed long term capital gains on account of receipt of sale proceeds out of transfer of SPN. Emphasis was given that promoters have offered capital gain tax. How the Tribunal can record a finding that promoters have not paid taxes ? Similarly, it was brought to our notice that financial institutions treated difference of redemption proceeds at the rate of ₹ 361/- and cost of acquisition of SPNs. purchased from the promoters and non-promoters of Nirma Ltd., as income and disclosed the same in accounts. Thus, it was demonstrated that even the financial institutions have shown the income from SPNs. on their redemption. Then, how it can be alleged that no corresponding income was offered for taxation ? According to the ld.counsel for the assessee, it was not the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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