TaxTMI 
TaxTMI 
2016 (10) TMI 1149
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.... filed an application i.e. Civil Application(OJ) No.657 of 2015 in Tax Appeal No.1220 of 2006. The Hon'ble High Court has decided this application vide order dated 12.10.2015 and directed the Tribunal to dispose of this MA without getting influenced by pendency of appeal before the Hon'ble High Court. Concluding paragraphs of the order of the Hon'ble High Court reads as under: "4. In the aforesaid premises, the application is allowed by clarifying that pendency of the present appeal, namely, Tax Appeal No.1220 of 2006 shall not preclude the Tribunal from hearing and deciding Miscellaneous Application No.37 of 2009 pending before it. On the contrary, the Tribunal is expected to decide the application at the earliest. Considering the fact that the miscellaneous application is pending since 2009, the Tribunal is requested to dispose of the same as expeditiously as possible. The application stands disposed of accordingly." 3. Brief facts of the case are that the assessee is a public limited company. It is engaged in the business of manufacturing detergent powder, detergent cake, toilet soaps and intermediate industrial products such as sulfuric acid, acid ....
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....; Rs. NCD at the end of 4th year from date of allotment at the end of 5th year from date of allotment at the end of 6th year from date of allotment at the end of 7th year from date of allotment 50 50 50 50 Principal (Rs.) Premium (Rs.) SPN at the end of 4th year from date of allotment at the end of 5th year from date of allotment at the end of 6th year from date of allotment at the end of 7th year from dale of allotment 50 60 50 &nb....
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....rcise the 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 a....
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....s conceived facts wrongly and cumulative effect of this conceivment of these wrong facts would be that they 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 Rs. 41,59,05,200/- including interest expenses of Rs. 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 Rs. 6,01,29,22....
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....p; iii. Other intt. Income 21,68,81,302  ....
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....LAB Front End Project are subsumed. The excess disallowance of Rs. 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 facts 1 83 11.10 It was definitely predetermined decision by the promoters to keep the general public away from subscribing to SPNs, when compare to NCDs and it is the reasons general public did not subscribe SPNs. In the offer documents every shareholder was given a choice to subscribe either NCD or SPNs. It is tota....
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....ny 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 capital borrowed, therefore claim of the assessee is not allowable u/s.36(1)(iii) of the I.T. Act. Here again Tribunal has confused the facts. The funds received by way of SPNs were never converted into capital. These funds have come back to SPN holders on redemption. Therefore, these funds can never be equated to equity capital of the company. 6 84 11.10 The funds received on account of SPN is nothing but funds towards shares in equity capital by promoters which cannot be called as borrowed capital. The company issued equity shares against payment of Rs. 50 on surrender of the warrants. The shares were given to the holders of SPNs as well as NCD. Hence, it cannot be stated that equity shares were issued against SPN. Sr. No. Page No. Para No. Findings ....
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....r of offer there is no accrual of interest/premium. Thus without accrual of expenses the claim of the assessee is contingent claim which is neither allowable u/s.36(1)(iii) or under section 37 of Income-tax Act. Large number of decisions were cited before the Tribunal that premium on such debentures has to be allowed as a deduction on a pro rata basis. The Tribunal has itself has noted this. Decisions are on page Nos.48 and 49 of its order. The Tribunal refers to none of these judgements and takes a view that interest/premium not allowable. The conclusion is patently wrong not only in view various decisions relied on by the Assessee but also because in the current year as a matter of fact when premium is paid on redemption of debentures, prorata deduction should be allowed over the period of borrowing. 10 86 11.14 We doubt whether such transactions are in accordance with Companies Act or in accordance with SEBI guidelines. In present scenario of economy it is highly improper and unjust if a corporate doing something else then stated in the letter of offer issue to The findings of the Tribunal here are highly speculative....
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....epend upon its taxability in the hands of payee. In any case, 14 87 11.14 In this regard, we find force in the submission of ld.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 ld.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 fit to prepone the period for the right exercisable by the warrant holders for subscribing the equity shares of the company. This would held the company in improving the debt equity ratio as well as creating the liquidity of its equity shares in the stock market." The Tribunal has completely misunderstood the facts. The Assessee had demonstrated by documents that company borrowed fun....
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....h are converted at a future date into shares during the period that said debentures were treated as such. 17 89 11.19 The judgements cited at the time of hearing by both parties are applicable to the facts of the respective case. Since the matter under consideration has been decided on its own facts and which were not identical to the facts of the case cited by the parties. Thus, those judgements are distinguishable in facts. That the Tribunal makes a general statement that judgements are distinguishable on facts and not a single attempt is made in this regard. 18 90 12 In the light of above discussion, we find that lower authorities This is a repetition of para 11.16 and therefore, no have rightly disallowed claim of the assessee. As there were no borrowed funds, no accrual of interest; the transaction was not in accordance with commercial expediency. The intention and substance of the transaction was to take shares by promoters and their relative through unusual note "secured premium notes". A note money/financial beneficiary to promoters and their relative. The expenses of such transacti....
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....t or in accordance with SEBI guidelines. In present scenario of economy it is highly improper and unjust if a corporate doing something else than stated in the letter of offer issue to the public. Public money cannot be allowed to be siphoned by promoters by any mode. In the case under consideration the promoters/ management are the only persons knowing the ultimate fate of SPNS, i.e., to get the shares from indirect ways. These transactions is in nature of a thing which cannot be achieved directly but is achieved indirectly. The scheme of SPNS has been designed in such a way so that only promoters can subscribe and general public cannot subscribe. 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 cannot design such a scheme to give the benefit only to promoter and their relatives. In such circumstances the income-tax authorities were entitled to pierce the veil of corporate personality and loo....
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....this observation, the Tribunal has concurred with the AO and interfered in the manner of conducting the business. It was also brought to our notice by the ld.counsel for the assessee that in this paragraph the Tribunal has observed that company had claimed expenses, and on the other hand subscribers of SPNs. did not show corresponding income. He drew our attention towards the following lines. "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." Contrary to this finding of the Tribunal, our attention was drawn towards the finding of the AO in para 4.8 of the assessment order. It reads as under: "4.8 Total amount of about 163.57 crores as premium amount has been debited in accounts and claimed as expenses in returns of income in the financial years 1997-98, 98-99, 99-00 by Nirma Ltd. Before redemption the promoters transferred the SPNs to financial institutions and Banks and disc....