2019 (12) TMI 535

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....eady reference, relevant paragraphs-9 to 11 of the impugned order are reproduced hereunder: "9. We heard the rival submission and carefully considered the same along with the orders of tax authorities below. So far the technical issue relating to the power of the assessing officer in respect of addition made by disallowing compensation paid to the lenders for de-rating is concerned, we noted that in this case the assessing officer has made the addition in respect of the income for which reasons for escapement of assessment were recorded by him i.e. unabsorbed depreciation. Merely the additions so made stand deleted by the CIT (A) will not make the action of the assessing officer illegal if he has added any other income chargeable to tax ....

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....ur opinion, there is no illegality in this case as per the provision of section 147 of the Income Tax Act. We accordingly dismiss this technical plea of the ld. A.R. 10. Now, we will deal with the plea of the ld. A.R. whether the expenditure incurred by ICCL which got amalgamated in the assessee in respect of compensation paid to the lenders against the reduction of the de-rating. This is an undisputed fact that ICCL had borrowed money from its lenders i.e. with six bankers and two financial institutions. The ICCL was not able to make the payment or to fulfill its commitment towards the repayment of the long term debt. Therefore a debt restricting plan for ICCI was approved and the terms lenders had suggested in 2003 for derating of exis....

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....ld have been (ineligible) rated by 95%, the lenders would have got more shares in ICCL on conversion of part of the debt into equity. In consequence thereof on amalgamation, the lenders would have got more shares in IMFA in exchange of shares in ICCL. No person of ordinary prudence what to talk of lenders have agreed to such amendment until and unless they have been compensated for the loss arising due to the less value of the shares received by them. The expenditure so incurred cannot be regarded for facilitating the business of the assessee or liquidating the recurring claims as contended by the ld. A.R. The true nature of the expenditure is that the company was compensated the lenders as they agreed to take the shares in ICCL at a higher....

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....urt in the case of Empire Jute Co. Ltd vs CIT [1980] 124 ITR 455 (SC) in our opinion will not assist the assessee as the issue involved in that case does not relate for paying the compensation to the lender on conversion of the long term debt into equity share at a higher value as has been expected by the lender. The expenditure so incurred is not for facilitating the day-to-day trading operations of the assessee company and enabling the management and conduct of the assessee company's business to be carried on more efficiently. The decision of Hon'ble Supreme Court in the case of CIT vs Shantilal Pvt. Ltd, [1983] 144 ITR 57 (SC) deals with the award of compensation by an arbitration award on a dispute between the parties. The question invo....