TMI Blog2019 (1) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... to his file for fresh adjudication. The A.O shall in the course of the ‘set aside‘ proceedings readjudicate the claim of the assessee that the waiver of loan was not liable to be included while determining the ‘book profit‘ under Sec. 115JB after taking cognizance of the aforesaid qualifications of the auditors. Interest on delayed payment of TDS - Rejecting of claim in respect of deduction of interest paid to the income-tax department - Held that:- The provisions of imposition of penalty and interest are distinct from the provisions for imposition of tax. In the backdrop of the aforesaid settled position of law, we are of the considered view that the interest on delayed payment of TDS cannot be disallowed under Sec. 40(a)(ii) of the Act. In our considered view as the interest on delayed payment of TDS is not on the personal tax but is attributable to the tax which the assessee has deducted in respect of payment to others, therefore, the same would be allowable u/s 37. Thus conclude that interest on delayed payment of TDS would be allowed as a deduction while computing the income of the assessee under the head “Business or Profession”. However, as the said issue was never contes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax (Appeals) erred in not excluding waiver of principal and interest under one time settlement with lender amounting to ₹ 162,30,33,516/- while computing the book profit under section 115JB of the Act. 2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in rejecting the claim of the appellant in respect of deduction of interest paid to the income-tax department amounting to ₹ 6,223,304/- 3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not granting deduction of an amount of ₹ 111,810,595/- in respect of prior period adjustments (net) while computing the book profits under section 115JB of the Act. 2. Briefly stated, the assessee company which is engaged in the business of manufacturing, processing and trading of steel casting and Iron products, rendering of technical services etc. had filed its return of income for A.Y 2004-05 on 29.10.2004, declaring total income at Rs. NIL. The return of income filed by the assessee was processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 62,23,304/- that was paid by the assessee to the Income-tax department. The CIT(A) was of the view that the A.O had computed the income of the assessee by taking the figure as shown in the revised statement of computation of income, and the only additions which were made by him were in respect of prior period expenses (Rs. 1,29,41,824/-) and lease hold premium written off (Rs. 13,57,446/-). In the back drop of his aforesaid deliberations, the CIT(A) was of the view that now when the A.O had accepted the assesses computation, thus there was no reason for him to be aggrieved as regards the same. The CIT(A) on the basis of his aforesaid observations partly allowed the appeal. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Authorised Representative (for short A.R ) of the assessee Shri Arvind Sonde, Senior Counsel, at the very outset assailed the declining on the part of the lower authorities to exclude the amount of principal and interest of ₹ 162,30,33,516/- that was waived under OTS by the lender banks and was credited in the Profit loss account of the assessee, while computing the book profit u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior to the fulfilment of the conditions of the settlement. The auditors had further stated that taking of such credit which had not yet accrued to the company had translated the loss to the extent of ₹ 162,30,33,516/- into profit and the same had an equivalent effect to the reserves and surpluses of the company. The Ld. A.R further took us through the Auditing and Assurance Standard (AAS) 28 published in the Chartered Accountants journal, 2003. It was submitted by him that at Para 29 it was provided that an unqualified opinion should be expressed when the auditor concludes that the financial statements give true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the financial statements. The Ld. A.R further drew our attention to Para 31 of the AAS which contemplated the circumstances where an auditor s report is considered to be modified. The Ld. A.R taking support of Para 37 of the AAS submitted, that an auditor may not be able to express an unqualified opinion where there is a disagreement with the management regarding the acceptability of the accounting policies selected, the method of their application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 211 of the Companies Act,1956 the reference to the balance sheet or the profit loss account of a company shall include the Notes to the accounts giving information required under the said Act. In support of his aforesaid contention the Ld. A.R relied on the judgment of the Hon ble High Court of Delhi in the case of CIT Vs. Sain Processing and Waiving Mills (P) Ltd. (2010) 325 ITR 565 (Del). The Ld. AR taking us through the facts of the aforementioned case submitted, that the assessee in the case before the Hon ble High Court had not charged current year depreciation in its profit and loss account which was prepared in the form prescribed i.e Part II and III of Schedule VI of the Companies Act,1956, but had disclosed the fact along with the quantum of current year depreciation computed in accordance with Sec.205(2) of the Companies Act,1956 as per the mandate of Clause 3(iv) of Part II of Schedule VI to the Companies Act,1956 by way of a Note to the accounts. It was submitted by the ld. A.R, that the Hon ble High Court observed that as long as the depreciation which was though not charged to the profit loss account was disclosed in the Notes of the accounts, it would com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the same amounting to ₹ 390,76,03,999/- was waived. Accordingly, the entire sum of ₹ 390,76,03,999/- was credited by the assessee to its profit and loss account as an exceptional item on account of waiver of the principal and interest payable thereon, with a specific note in the accounts that the exceptional item represented waiver of dues on settlement with certain lenders and since the principal amount of borrowing of ₹ 228.46 crore was utilized to pay purchase price of the plant and machinery imported by the assessee for setting up steel plants, therefore, it amounted to a capital surplus and was not a trading liability. It was submitted by the Ld. A.R that the Tribunal after deliberating at length on the issue under consideration had concluded that as the assessee company was in receipt of a capital receipt which was not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income-tax Act, then the same cannot be treated as part of the net profit as per the profit loss account or reckoned as working result of the company of the relevant previous year and conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt II of Schedule VI to the Companies Act, 1956 referred to in Sub Sec. (2) of Sec 211 of the Companies Act, 1956, it was obligatory on the part of the assessee to disclose every material aspect, including credits or receipts, debits or expenses in respect of non-recurring transactions of an exceptional nature in its profit and loss account. It was submitted by the Ld. D.R that as waiver of loan was an exceptional item, thus it was obligatory on the part of the assessee as per Part II of Schedule VI to the Companies Act, 1956 to disclose the same in its profit and loss account for the year under consideration. The Ld. D.R submitted that the exempt incomes which were to be excluded for the purpose of computing the book profit u/s 115JB were specifically spelt out in Clause II of Explanation I to Sec. 115JB(2) of the Act. In order to buttress his aforesaid contention that the waiver of principal and interest under OTS with lenders were not liable to be excluded while computing the book profit of the assessee under Sec. 115JB of the Act, the Ld. D.R relied on the following judicial pronouncements: (i). B B Infratech Vs. ITO [2017] 396 ITR 420 (KAR). (ii). Duke Offshore L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Veekaylal Investment Company Pvt Ltd. [2001] 249 ITR 597 (Bom) was also considered by the Tribunal and was found to be distinguishable on facts. Insofar the claim of deduction of interest paid by the assessee to the Income tax department amounting to ₹ 62,23,304/-, it was submitted by the Ld. A.R that the revenue had wrongly stated that the said contention was not raised before the lower authorities, as the said contention was specifically raised before the CIT(A). In respect of the contention advanced by the assessee seeking deduction of an amount of ₹ 11,18,10,595/- in respect of prior period adjustment (net) while computing the book profit u/s 115JB of the Act, the Ld. A.R relied on the order of the ITAT Delhi Bench in the case of M/s Essar Projects (India) Ltd Vs. ACIT 5(1), Mumbai. 12. We have heard the authorized representatives for both the parties, perused the orders of the authorities below and the material available on record. Before adverting to the issue as to whether the CIT(A) was right in law and the facts of the case in declining to exclude the waiver of principal and interest under OTS of the assessee with its lenders amounting to ₹ 162 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (b) of that sub-section by way of writing off such liability in his accounts.] Thus, where an assessee had obtained some benefit by way of remission or cessation of a trading liability in respect of which an allowance or deduction has been made in the assessment for any year, the same shall be chargeable to tax as per Sec. 41(1) under the normal provisions of the Act. However, a similar treatment cannot be accorded for bringing to tax a remission or cessation of a liability arising on a capital account under the aforesaid statutory provision. We find that the issue that as to whether the waiver of a loan by a creditor is taxable either as a perquisite under Sec. 28(iv) of the IT Act or as a remission of liability under Sec. 41(1) of the IT Act, had recently been deliberated upon by the Hon ble Supreme Court in the case of Commissioner of Income-tax Vs. Mahindra and Mahindra Ltd. [Civil Appeal No. 6949-6950 of 2004; dated24.04.2018] . Insofar the provisions of Sec. 28(iv) were concerned, it was observed by the Hon ble Apex Court that as a cash receipt was involved in the waiver of loan, therefore, the very first condition envisaged in the said statutory provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be gathered that the same had been accepted by him. 13. We shall now advert to the contention of the ld. A.R that the lower authorities had erred in declining to allow the claim of the assessee for exclusion of the waiver of loans of ₹ 162,30,33,516/- (including Principal amount : ₹ 113,22,84,679/- Interest : ₹ 49,07,48,836/-) credited in the profit loss account while determining the book profit under Sec. 115JB of the Act. Insofar Sec. 115JB is concerned, the same as was then so available on the statute contemplated that if the income-tax payable on the total income as computed under the IT Act in respect of any previous year relevant to the assessment year is less than 7 % of the book profit , then such book profit shall be deemed to be the total income of the assessee, and the assessee shall pay tax on such book profit at the rate of 7 %. 14. Insofar the meaning of book profit is concerned, the same has been defined to mean the net profit as shown in the profit loss account prepared for the relevant previous year in accordance with the provisions of Part II and III of the Schedule VI of the Companies Act, 1956. It is further subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-s. (6) of s. 211 of the Companies Act, 1956, held as under: 4.8 Having said that, the issue still remains as to whether notes to accounts form part of the accounts, and whether the fact that the current year depreciation which has not been debited to the P L a/c would in any way deprive the assessee of its claim for the deduction from the 'net profit in arriving at the figure of book profit for the purposes of s. 115J of the Act. 4.9 The answer to this poser is found in sub-s. (6) of s. 211 of the Companies Act, which provides that except where the context otherwise requires any reference to a balance sheet or P L a/c shall include the notes thereon or documents annexed thereto, giving information required to be given and/or allowed to be given in the form of notes or documents by the Companies Act. As already noted it is obligatory under cl. 3(iv) of Part II of Sch. VI to Companies Act to give information with regard to depreciation, which has not been provided for along with the quantum of arrears. According to us, once this information is disclosed in the notes to the account it would clearly fall within the ambit of the Explanation to s. 115J of the Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 211 of the Companies Act, which were referred to by the Hon'ble Delhi High Court in the aforesaid judgment. Subsection (6) of section 211 provides that any reference to a Balance Sheet or Profit Loss account shall include any Notes thereon giving information required by this Act or is allowed by this Act to be so given. Therefore, in view of the aforesaid statutory provision contained in Companies Act 1956, the impact is that the net profit as shown in the Profit Loss account for the purposes of Explanation 1 to the second Proviso to section 115JB of the Act is to be understood with reference to the Notes to accounts accompanying the annual accounts also. In this view of the matter, the use of the expression 'net profit' in Explanation 1 to the second Proviso to section 115JB of the Act makes it clear that the impugned incremental liability towards leave encashment not debited to the Profit Loss account but otherwise disclosed in the Notes to Accounts will have to be taken into account while determining the book profits under section 115JB of the Act. In other words, the liability of ₹ 8,35,447/- towards leave encashment has to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. 1 is allowed for statistical purposes. 16. We shall now advert to the claim of the assessee that the CIT(A) had erred in rejecting its claim in respect of deduction of interest paid to the income-tax department of ₹ 62,23,304/-. It was the claim of the assessee before the CIT(A) that as the aforesaid interest was paid for the delay in depositing tax deducted at source, therefore, the same ought to have been treated at par with interest on delay in payment of sales-tax and was liable to be allowed as a deduction. On a perusal of the order of the CIT(A) it emerges that he had rejected the said claim of the assessee for the reason that as per his him no such disallowance was made by the A.O while framing the assessment. It was observed by the CIT(A) that the A.O had in the assessment order only made two additions/disallowances viz. (i). disallowance of prior period expenses (Rs. 1,29,41,824/-); and (ii). disallowance of leasehold premium written off (Rs. 13,57,446/-). In the backdrop of his aforesaid observations it was concluded by the CIT(A) that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid amount, specifically when the disallowance was suo motto made by the assessee in the return of income. Be that as it may, the assessee in the course of the appellate proceedings had assailed the validity of the disallowance of the interest paid to the income-tax department. We though are not oblivious of the trite law that as per the judgment of the Hon ble Apex Court in the case of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC) the A.O is not vested with the power to entertain a claim of deduction not made by the assessee in its return of income, except for in a case where a revised return of income is filed by the assessee. However, as observed by the Hon ble Apex Court the said restriction is only as regards the power of the A.O and the same in no way did impinge on the powers of the Tribunal under Sec. 254 of the Act. Rather, we are of the considered view that as the issue involved in the present case involves adjudication of a legal issue based on the facts available on record, therefore, the said claim of the assessee can be admitted for adjudication in the backdrop of the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Pruthvi Brokers Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the gamut of the definition of tax is fortified by the judgment of the Hon ble Apex Court in the case of Harshad Shantilal Mehta Vs. Custodian Ors. (1998) 231 ITR 871 (SC). In the aforesaid judgment it was observed by the Hon ble Apex Court that the definition of tax does not include penalty or interest. Further, it was observed by the Hon ble Apex Court that the provisions of imposition of penalty and interest are distinct from the provisions for imposition of tax. In the backdrop of the aforesaid settled position of law, we are of the considered view that the interest on delayed payment of TDS cannot be disallowed under Sec. 40(a)(ii) of the Act. In our considered view as the interest on delayed payment of TDS is not on the personal tax but is attributable to the tax which the assessee has deducted in respect of payment to others, therefore, the same would be allowable under Sec. 37 of the Act. Our aforesaid view is supported by an order of a coordinate bench of the Tribunal viz. ITAT, L Bench, Mumbai in the case of M/s Essar Projects (India) Ltd. Vs. ACIT, 5(1), Mumbai [ITA No. 1844 1845/Mum/2015]. We thus in terms of our aforesaid observations conclude that intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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