TaxTMI 
TaxTMI 
2009 (6) TMI 681
X X X X Extracts X X X X
X X X X Extracts X X X X
....[2005] 278 ITR 546 and therefore, this ground is not pressed. This ground is dismissed for want of prosecution. 5. Ground No. 2 is as under :- "That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of deduction under section 43B in respect of excise duty paid during the year represented PLA balance in respect of :- Particulars Amount/Rs. Industrial Synthetic Division 12,68,768 Industrial Fabrics Division 9,12,805 Flurochemicals Division 3,43,566 Total 25,25,139" 6. During the year, the assessee claimed deduction under section 43B of the Act on payment basis with respect to amount of Rs. 25,25,139 deposited through Personal Ledger Account (PLA), in accordance with rule 173G of the Central Excise Rules, 1944, which requires maintenance of sufficient balance in such current account as to cover the duty due on goods intended to be removed at any time. The Central Excise Rules further stipulate that the amount once deposited cannot be withdrawn without prior consent of CCE. The Assessing Officer has disallowed the deduction claimed by the assessee on the ground that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure incurred in previous year but not debited to the Profit and Loss Account." 10. During the year the assessee claimed miscellaneous expenses on account of tour and travel expenses of employees, internal audit fee, electrical repair fee etc. relating to preceding years that were not booked in earlier years. The particulars of the expenses claimed are given in Schedule 22 of the Tax Audit Report placed at pages 31-32 of the Paper Book. The Assessing Officer disallowed the expenses for the reason that since the assessee is maintaining its books of account on mercantile system and hence deduction in respect of expenses which do not pertain to the year cannot be allowed. The learned CIT(A) noted that the expenses are in the nature of day-to-day running expenses pertaining to the business, the same are allowable only in the year in which the liability was incurred and hence not allowable for this year. 11. The learned counsel for the assessee Shri Ajay Vohra submitted that the liability to pay these expenses crystallized only in the previous year relevant to the assessment year under consideration on receipt of bills, travel claims etc. The liability was incurred/accrued in the year....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rds expenses pertaining to the year under appeal but debited to the profit & loss account of subsequent assessment year i.e., assessment year 1996-97, the assessee has raised specific ground in this regard which has not been disposed of by the CIT(A). We, therefore, direct the CIT(A) to decide this ground after affording reasonable opportunity of being heard to the assessee. The assessee shall place necessary material as to when the liability got crystallized so that the expenses may be allowed in appropriate assessment year. 14. Ground Nos. 4 and 4.3 are as under :- "4. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the disallowance of set off/carry forward of sum of Rs. 1,954 lakhs being unabsorbed depreciation and business loss of erstwhile Flowmore Polyesters Limited, since merged with the appellant with effect from 1-4-1994. 4.3 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that in an amalgamation sanctioned by BIFR, benefits under section 72A have to be allowed in view of the decision of Hon'ble Supreme Court in the case of India Shaving Products v. BIFT 218 ITR 140 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the aforesaid objection. He further submitted that although the Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 has held that the Assessing Officer is not obliged to entertain claim not made through the revised return but by way of a letter, it has been clarified that the same does not impinge on the powers of the appellate authority to entertain an additional ground of appeal. The aforesaid decision rendered by the Apex Court has been explained in the following decisions :- 1.CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 ; 2.Jt. CIT v. Hero Honda Finlease Ltd. [2008] 115 TTJ (Delhi) (TM) 752; 3.SNC Lavalin/Acres Inc. v. Asstt. CIT [2007] 15 SOT 1 (Delhi). The learned counsel for the assessee further submitted that it has been specifically held in the case of Hero Honda Finlease Ltd. (supra) that where the Assessing Officer proceeded to deal with the claim on merits, the CIT(A) could not be precluded from adjudicating the issue, despite the claim having not been made by filing of valid revised return. The liability of the amalgamating company in respect of interest due to financial institutions was taken over by the assessee amalgamated compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovisions contained in section 36(1)(vii) read with section 36(2) in respect of allowance of the bad debts. He submitted that such amount which is written off should have been considered in the computation of income of the assessee for any earlier previous year. Hon'ble Supreme Court in the case of CIT v. T. Veerabhadra Rao, K. Koteswara Rao & Co. [1985] 155 ITR 152 have held that where the assessee takes over the predecessor's business with all its assets and liabilities and if the predecessor has accounted for such debt as income and if such debt has become bad which has been irrecoverable and written off is allowable in the successor's hand. He submitted that applying the analogy, since expenditure by way of interest on loans from financial institutions was not allowed in the hands of amalgamating company but since the same is discharged by the amalgamated company, the same is allowable. This will be a reasonable interpretation of section 43B as otherwise it will amount to non-allowability of expenses in the hands of either company though such liability has been discharged. The rules of equitable construction has been accepted by the Hon'ble Supreme Court in the case of CIT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee company. Therefore, if the assessee company discharges such liability of interest, it will amount to payment thereof and hence in terms of section 43B will be allowed in computing the income of that previous year in which such sum is actually paid. It is stated that the liability for payment of interest has been discharged by way of issuance of shares. As per Explanation 3C to section 43B, if any part of interest liability is converted into a loan or a borrowing, it will not amount to actual payment thereof. Explanation 3C to section 43B has been inserted with retrospective effect from 1-4-1989 and hence is applicable to the year in appeal also. Therefore, we primarily agree with the assessee if the amount is paid by the assessee, the same will be an allowable deduction. However, in the present case it is seen that the liability is discharged by way of issuance of shares and not actual payment by way of legal tender. What is allowable under section 43B is in respect of deduction otherwise allowable under this Act. The deduction allowable under the Act is in respect of various sums referred to in sections 30 to 37 of the Act. Interest on any loan or borrowing is one such sum r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would have to pay initially a sum of Rs. 2,80,000 towards its contribution. The share of American promoter was contributed by way of technical know-how valued at a sum of Rs. 2,35,000 and in lieu of which the assessee allotted equity shares. The same was considered as capital expenditure. The Hon'ble Supreme Court held- "That what in effect was done by the appellant in allotting equity shares of Rs. 2,80,000 to Eimco, was to reimburse the contribution by Eimco by way of know-how, which could never be treated as expenditure, much less an expenditure laid out wholly and exclusively for purposes of the business of the appellant. It was not a case where after the incorporation, the appellant-company in the course of carrying on its business, spent the said amount for acquiring any asset. The High Court had rightly concluded that allotment of equity shares by the appellant to Eimco, in the circumstances of the case, could not be termed as expenditure, much less revenue expenditure." [Emphasis supplied]. Similar view was held by the Hon'ble Delhi High Court in the case of CIT v. Reinz Talbros (P.) Ltd. [2001] 252 ITR 637 wherein the Hon'ble Delhi High Court speaking through Shri Ariji....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce of the amalgamating company could not have been claimed by the amalgamated company. The CIT(A) upheld the findings of the Assessing Officer. 23. The learned counsel for the assessee submitted that section 72A of the Act enables the amalgamated company to claim carry forward and set off of the unabsorbed business losses and unabsorbed depreciation of the amalgamating company, provided the amalgamation satisfies the conditions laid down in that section. The unabsorbed investment allowance of the amalgamating company is available to the amalgamated company in terms of section 32A(6) of the Act (and not in terms of section 72A). The lower authorities have not taken note of the statutory provisions of section 32A(6) of the Act, which enables the amalgamated company to claim carry forward and set off of unabsorbed investment allowance of the amalgamating company. Necessary directions may be issued in this regard. 24. The learned DR on the other hand, relied upon the appellate order. 25. We have considered the rival submissions. Section 72A contains the provision relating to carry forward and set off of accumulated loss and unabsorbed depreciation of allowance in a case of amalgamat....