TMI Blog2017 (10) TMI 1523X X X X Extracts X X X X X X X X Extracts X X X X ..... h Centurion Bank; hence, the contention of learned DR is not applicable to the facts of the case. Even though assessee has not paid the interest to the bank but as per provisions of Section 145(1), assessee has to compute its income under the head Profit and Gains of business and profession or income from other sources subject to provisions of sub-section (2) in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Thus, the interest expenditure need not be paid in as much as the income chargeable to tax under business income or income from other sources shall be computed in accordance with cash or mercantile basis regularly employed by the assessee. Respectfully following the decision of Tribunal in assessee s own case [ 2016 (11) TMI 743 - ITAT MUMBAI] the interest claimed by assessee is to be allowed to the assessee primarily on the basis of consolidated order of the Tribunal for income-tax assessment years 208-09 and 2009-10. We direct accordingly. Disallowance of administrative expenses, depreciation against the other income being mark-to-market valuation of shares - HELD THAT:- We found that since during the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sources inspite of the fact that the impugned interest is not debited by the lending bank inasmuch as the appellants are contractually liable to pay the same. 2. The CIT(A) erred in upholding the disallowance made by the Assessing Officer in not allowing operating and administration expenses ₹ 1,95,604 and deprecation ₹ 1,79,143 against the income of ₹ 22,053, being write back of mark-to-market valuation of shares. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought to have allowed the impugned expenses. 3. The CIT(A) erred in upholding the action of the Assessing Officer in not allowing set-off of unabsorbed depreciation and business loss, including speculation loss, as claimed in the statement attached to the return of income. The appellants contend that on the facts and in the circumstances of the case and in law, the set-off of unabsorbed depreciation and business loss, including speculation loss, ought to have been allowed as claimed in the statement attached to the return of income. 4. The CIT(A) erred in upholding the action of the Assessing Officer in charging interest ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been expended as claimed by the assessee. The assessee had not invested the fund with NSE, but earned interest on fund due to invocation of Bank Guarantee by the NSE. Due to invocation of bank guarantee, the assessee had expended money and interest paid thereon out of necessity. Hence, the A.O. was of the view that assessee was not entitled to deduction claimed u/s. 57(iii) of ₹ 1,88,64,396/-. 6. The A.O. has not accepted the above said claim on the ground that the assessee was not entitled to claim deduction u/s.57(iii) of the Act. Further, the assessee company did not submit any documents in support of their contention except written submissions filed in the course of assessment proceedings. The A.O. has referred to the remand report submitted to the CIT(A) during the course of appeal proceedings for A.Y.2008-09, in light of the additional evidence filed and has concluded that the source of the various F.Ds. was out of assessee s own funds. Accordingly, the claim of the assessee company for deduction of interest expense against interest income has been rejected. 7.By the impugned order CIT(A) confirmed the action of the AO against which assessee is in further app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t yield to the higher wisdom of the Court above. Therefore, the decision of a High Court on a relevant issue must be followed in the absence of any contrary decision of any other High Court on the issue, because ignoring the decision of a High Court by a Tribunal would amount to demeaning the authority of law which is not correct, 13. With regard to obligations of the assessee to pay interest, reliance can be placed on the following decisions of co-ordinate Benches of the Tribunal at Mumbai, in the case of associate concerns of the assessee Name of the Company ITA Nos Chat Computers Pvt. Ltd 4818/Mum/2007 NH Securities Ltd 78/Mum/2009 Panther Fincap Management Services Pvt. Ltd 7278/Mum/2007 193and369/Mum/2008 14. We found that the banks have stopped providing the interest as they are governed by the NPA guidelines of the RBI and as the account of the assessee has turned NPA long back, the banks have stopped providing the interest, this should not come in the way of allowing the interest as the liability and oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the orders of authorities below and case laws relied upon by the parties. We find that the business of the assessee was discontinued following the order of SEBI which was upheld by the SAT and Apex Court also and thus the business of the assessee came to forced stand still. The assessee was doing business of security and stock broking and trading in shares. We find that following the discontinuance of business by the order of SEBI, the National Stock Exchange invoked the guarantees furnished by the assessee and also exercised the lien on FDRs and proceeds of FOR were also send to the National Stock Exchange by the various banks when the assessee was declared defaulter by the NSC resulting into accumulation of deposit to the tune of ₹ 24,35,12,8137- with National Stock Exchange on which the NSE allowed interest of ₹ 2,60,42,2977- during the financial year 2007-08 relevant to the assessment year under consideration. We find that these deposit of ₹ 24 crores accumulated out of various bank guarantee invoked and proceeds of FDRs given as security. The source of the said amounts of accumulated funds with the NSC are from the borrowed funds from banks. Now the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 59,85,0007- was incurred and on ₹ 3,00,00,000/- from Centurian Bank out of which ₹ 2,11,00,000/-were interest bearing and interest incurred was at ₹ 33,76,000/-. Likewise assessee incurred interest of ₹ 80,00,000/- on the amount of invoked bank guarantee of ₹ 5,00,00,000/- from ICICI Bank. Thus the total amount of interest incurred to various banks on the borrowings comes to ₹ 2,74,88,000/- 8. Considering the above facts and arguments of the rival parties we find clear cut nexus between the interest earned from NSE on deposits with National Stock Exchange out of bank guarantees invoked and proceeds of FDRs and interest incurred on the sources of funds which are from the various banks out of the interest bearing funds given to NSE in the form of the bank guarantees invoked in year 2002 and FDRs with lien in favour of NSE on which the lien was exercised in 2002. We find merit in the arguments of the Id.AR that the interest incurred to these banks namely Global Trust Bank and Centurion Bank , ICICI Bank should be allowed while assessing the interest income of the assessee from the deposits with NSE and we are not convinced with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on the ground that business has ceased and therefore no deprecation was allowable in the current year or in the subsequent years. Aggrieved by the order of Id. CIT(A) the assessee in appeal before us. 13. After hearing the rival contentions and on perusal of the record, we find that the assessee has discontinued the business following the order of SEBI and therefore there was no activity during the year and the claim of the depreciation o f ₹ 1,79,634/- cannot be allowed as the assessee did not carry out any business activity. However, the assessee is free to claim deprecation in the year in which the business is re-commenced on the basis of Written Down Value in the year in which the business was discontinued. 14. In the result, the appeal of the assessee is partly allowed. 15. Now, we shall take the appeal in ITA No. 7518/Mum/2013 relating to the assessment year 2009-10 16. We have already decided an identical issue in ITA No. 3225/Mum/2013 (AY-2008-09) and therefore, i our decision in ITA No.3225/Mum/2013 would mutatis mutandis would apply to these appeals as well. The AO is directed accordingly. 21. Respectfully following the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten by Centurion Bank. 29. During the course of assessment proceedings, the A.O. observed that the assessee company filed the same details which were filed before the Assessing Officer and various appellate forum. The assessee was requested to file the interest expenses ledger account appearing in the books of the assessee relating to the period A.Y.2001-02 to 2005-06 to which the amount of waiver pertained. However, not convinced with the assessee s reply, AO disallowed assessee s claim on account of loan written off by Centurian Bank. 30. By the impugned order CIT(A) confirmed the action of the AO against which assessee is in further appeal before us. 31. At the outset, learned AR placed on record the order of the Tribunal in assessee s own case for the A.Y.2005-06 dated 15/04/2012 wherein the matter was restored back to the file of the AO with the following direction:- 11. We have considered the rival submissions. While we agree in principal. that on the waiver of the principal amount due to the bank and the bene5c that accrues to assessee on waiver of such waiver provisions under section 41(1) cannot be applied, we are of the view that in the present case the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend. 12. The contention of the assessee is that the above said amount of ₹ 6.30 crores should be adjusted against the interest/charges liability, meaning thereby, the interest/charges liability has been fully settled by the assessee and the balance amount of ₹ 4.25 crores have been repaid towards principal portion of loan. Accordingly it has been contended that the remaining amount waived by the bank would represent only principal portion only. 13. In our view, the above said contention of the assessee cannot be found fault with. The Hon'ble Supreme Court has also in the case of Meghraj and others Vs. Mst. Bayabhai and others (supra) has expressed the view that the collections shall be first adjusted towards interest component. In the instant case, the total amount of collections was ₹ 6.37 crores as against interest/charges liability of ₹ 2.12 crorcs and hence there is merit in the contentions of the assessee that the same should be considered as fully collected. Over and above that, a portion of principal loan has also been collected by the bank. Hence, in the fact 'and circumstances of the case, we are of the view that the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation of the Tribunal order as to how the amount of ₹ 4,08,36,462, being the principal amount, which was deleted by the CIT(A) has been arrived at, the AR referred to point no 2 at page no 29, page nos 28 to 30 of the paper book were submitted to the Tribunal in the first round. 37. This we found that the direction of the Tribunal was limited to the extent of to identify what is the principal amount waived and the interest amount waived ...... It has also to be verified as to what is the interest expenditure thai was claimed by the Assessee as deduction in the past while computing its taxable income and what was the amount that was actually allowed as deduction in the past assessments,. , .We direct the AO to examine the issue with regard to the actual quantum of principal waived and the quantum of interest that was waived by the bank and restrict the addition to be made under section 41 (1) of the Act to the extent that the waiver relates to the interest liability of the assessee which had been claimed as deduction by the assessee while computing its income in the past 38. The Tribunal in the first round made it very clear that While we agree in principle that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier years Refer para 6.1 on page no 5 of CIT(A) order Interest-A.Y. 2004-05 2,02,61,611 } Section 43B Interest-A.Y. 2005-06 50,65,403 } TDS on FD interest 3,26,811 Bank guarantee 2,06,12,258 4,62,66,083 Thus, out of 14,45,48,419 4,62,66,083 - to be reduced 9,82,82,336 Balance 2. ₹ 9,82,82,336 includes interest as given below Pre-March, 2001 69,35,419 F.Y. 2001-02 (A.Y. 2002-03) 1,67,82,574 1,63,69,303 F.Y. 2002-03 (A.Y. 2003-04) 1,73,57,050 5,74,44,346 and the balance is ₹ 4,08,37,990 Waiver on principal account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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