TaxTMI 
TaxTMI 
2023 (5) TMI 1369
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....16 respectively. Facts are common in both the appeals only changes in figures. 4. The ld. A.R. narrated the facts as follows: That the assessee during the previous year has earned an interest income of Rs.85,14,48,065/- and incurred an interest expenditure of Rs.119,36,75,303/-. The total amount of loan outstanding as on 31.03.2013 is as under: Sl No. Name Amount outstanding as on 31.03.2013 Interest Received 1 Kingfisher Airlines Limited 1747,32,15,238 85,14,48,065 (till October 2012) 2 Margosa Consultancy Pvt Ltd 82,50,13,085 --- 3 Redect Consultancy Pvt Ltd 411,15,55,691 --- Total 2240,97,84,014 85,14,48,065 4.1 With respect to loan advanced to M/s. Kingfisher Airlines Limited (KFA), interest was charged till October 2012. Thereafter the company requested for waiver of interest on loans from the assessee in view of its suspended business operations of the airlines since October 2012. The request letters from KFA dated 12.10.2012 & 20.03.2023 are at PB-1 pages 8 to 10. The waiver of interest was communicated by the assessee to KFA vide letter dated 25.03.2013. Similarly, M/s.Margosa Consultancy request....
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....returned income. You are requested to submit your explanation or objection to this proposed disallowances and additions." We would like to inform you that interest to KFA was charged till October 2012 amounting to Rs.85.14 crs. There after KFA had requested for waiver of interest on loans (vide their letters dated 12.10.12 and 20.3.13- copies enclosed) in view of the suspension of operations of its airlines. After considering the same, in the Board Meeting of company dated 21.3.13, it was decided to waive the interest from October 2012 till KFA is recapitalized and resumes normal operations. Accordingly, interest from October 2012 has been waived. A copy of the letter dated 25.3.13 addressed to KFA intimating the waiver is enclosed. In view of the aforesaid, it is submitted that the company charged interest to KFA till October 2012 and did not use the interest bearing funds to provide interest free loans or low interest loans. The waiver took place only in October 2012 and it would be wrong to add interest chargeable on the loan given to KFA till 31.3.13, since the waiver was done based on business commitment. 3) Para 1.1.6 - Also since interest has been ....
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....the interest from BBL for FY 12-13.. Accordingly, interest for FY 12-13 has been waived by Bestride. A copy of the letter dated 21.3.13 addressed to BBL by Bestride intimating the waiver is enclosed. 4) "Para 1.1.7 - In this regard, you are requested to furnish the complete details of computation of interest charged on loans given and loans taken, detailed ledgers of all lenders and entities to whom loans had been advanced. Failing which interest will be computed on the closing balances available in the financial statements." As required we are enclosing the following - i) Ledger extract of KFA in the books of BBL ii) Ledger extract of Margosa in the books of BBL iii) Ledger extract of Redect in the books of BBL iv) Ledger extract of Bestride in the books of BBL v) Ledger extract of SWBL in the books of BBL vi) Ledger extract of Citicorp Finance India Ltd. in the books of BBL vii) Ledger extract of DNA Networks in the books of BBL viii) Ledger extract of Pinvest Investments & Enterprises Pvt. Ltd in the books of BBL ix) Ledger extract of Sunstar Hotels & Estates Pvt. Ltd. in ....
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.... of the AO to make disallowance is clearly erroneous. The appeal filed by the assessee before the CIT-A remained unsuccessful as the CIT-A largely relied on the assessment order and the version of the AO and rejected the written submissions filed by the assessee. The written submissions filed by the assessee before CIT-A dt. 09.10.2017 are extracted hereunder: ''The assessee during the previous year has earned an interest income of Rs.85,14,48,065/- and incurred an interest expenditure of Rs.119,36,75,303/-. The total amount of loan outstanding as on 31.03.2013 is as under: Sl No. Name Total Amount outstanding as on 31.03.2013 Interest Received 1 Kingfisher Airlines Limited 1747,32,15,238 85,14,48,065(till October 2012) 2 Margosa Consultancy Pvt Ltd 82,50,13,085 --- 3 Redect Consultancy Pvt Ltd 411,15,55,691 --- Total 2240,97,84,014 85,14,48,065 With respect to loan advanced to M/s. Kingfisher Airlines Limited (KFA), interest was charged till October 2012. Thereafter the company requested for waiver of interest on loans from the assessee in view of its suspended business operations of the airlines ....
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.... the decision to waive off loan or interest should be taken on the basis of commercial expediency and should be taken before the end of the accounting year. Both the conditions being met by the assessee, the arbitrary and high pitched addition made by the AO requires to be deleted. The explanation offered by the assessee is supported by the decisions of various courts mentioned hereunder: 1) CIT vs Neon Solutions Pvt Ltd - Bom HC - 387 ITR 667 (Annexure 3) '' Taxability-Notional Interest on debentures-Mercantile system of accounting- Assessee in 2003 subscribed to 2% nonconvertible unsecured debentures of Rs.42 crores issued by one of its group companies 'M'- 'M' in response to demand for interest from Assessee requested waiver of interest on debentures as it were facing financial difficulties-Waiver of interest on debentures was approved-Board of Directors of Assessee also passed Resolution to waive interest on debentures of 'M' and also duly informed same to 'M'-In two assessment years under ;consideration, AO made addition of Rs.84 lakhs each being 2% interest on Rs.42 crores of debentures by Assessment Orders passed U/s 143(3)-AO held that waiver of interest f....
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.... must be taken immediately after the previous year. In this case the decision to waive off the loan was taken at a much later stage. The resolution to waive off the loan was passed after the income had already accrued. Once the income had accrued the passing of resolution after the close of the accounting year would be of no consequence. The decision to waive off the interest should have been taken during the accounting year or prior thereto. The concept of real income would not apply in such a case. If the debt had become bad the deduction can be claimed only in compliance with the provisions of the Act and the rules. Once the provisions of the Act were applicable and the income had already accrued the concept of real income cannot be brought into use to defeat the provisions of the Act.'' 3) Madhu Sudan Dalmia vs. ACIT - ITA 524/Kol/2013 - Kolkata ITAT (Annexure 5) ''4......In view of the above proposition of law laid down by Hon'ble Calcutta high Court, the waiver of interest before the year end cannot be treated as income in the given facts and circumstances of the case. Accordingly, we delete the addition and allow this issue of assessee's appeal.'' ....
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....erest has been paid. Most of the transactions both in borrowing and lending are within the related parties. Hence there is no net impact on the assessee warranting interference from the revenue. Thus, the allegation that assessee has followed double/dual standards is factually incorrect since neither any interest is charged or nor paid. Further the objection of the ld. DR that efforts have not been made to recover is not a relevant objection as the assessee has not claimed write off of a bad debt and in this case it is only waiver of interest on borrowing and lending in view of the proven dismal financial situation which establishes even to a bare eye that nothing would be recoverable even if interest is charged and paid. Such an exercise would be an exercise in futility. Further she submitted that as per the law on the write off of debt as explained by the Supreme Court in T.R.F Ltd vs CIT (323 ITR 397), it is enough if the debt is written off in the books and it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. The AO cannot question once the write off of debt is established. The charging of interest and waiver thereof is a matter of c....
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....d Rs. 50.43 crore on which an amount of Rs. 149,36,75,303 interest has been (incurred and debited to the P&L Account) paid to related parties of the assessee. From the above facts, it is clear that the assessee has waived the interest on the advances made to Margosa Consultancy (P) Ltd and Redect Consultancy (P) Ltd., on the ground that the same were advanced to KFA Ltd., and not recognized the interest on direct advances to the KFA on the ground that KFA has gone bankrupt and thus not recognizing the interest on advances made directly or indirectly to KFA Ltd. However, at the same time while charging interest on loans received from the related parties, the whole of which has been lent to KFA Ltd directly or indirectly through related parties, it has not waived the interest payable by the assessee on the same borrowings. This is a double standard method adopted by the assessee. If at all going by the logic with which the assessee is arguing that there is a strong case for not recognizing the interest income, then, on the same logic it should not be paying the said interest on its borrowals from the related and unrelated parties as the entire amount has been advanced to the KFA Ltd.....
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.... loans of Rs.2188,38,61,563/- from various entities and has paid interest of Rs.119,36,75,303/-. The assessee company has advanced a sum of Rs.2240,97,84,014/- which is more than the amount of money borrowed by the assessee but charged only a sum of Rs.85,14,48,065/- which is much lesser than the amount of interest paid on borrowed funds. 6.3 The assessee company is into the business of financial services and as prudent businessman, it should charge higher rate of interest not only to cover its interest payouts on borrowed money but also to cover its expenses/overheads and above all, to make some profit. But, as seen from the above, the assessee has interest payouts of Rs.119,36,75,303/- against interest receipts of Rs.85,14,48,065/- and has incurred direct loss of Rs. 34,22,27,238/-. 6.4 Similarly, in the assessment year 2015-16 assessee has advanced loan as follows: Sl.No. Name Total amount outstanding as on 31.3.2013 Interest received Remarks 1 Kingfisher Airlines Ltd. 1747,32,15,238 85,14,48,065 Till October, 2012 2 Margosa Consultancy Pvt. Ltd. 82,50,13,085 Nil Nil 3 Redect Consultancy Pvt. Ltd. 411,15,55,....
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....ering of services under a contract is completed or substantially completed. 4.3 Proportionate completion method is a method of accounting which recognises revenue in the statement of profit and loss proportionately with the degree of completion of services under a contract. Explanation 5. Revenue recognition is mainly concerned with the timing of recognition of revenue in the statement of profit and loss of an enterprise. The amount of revenue arising on a transaction is usually determined by agreement between the parties involved in the transaction. When uncertainties exist regarding the determination of the amount, or its associated costs, these uncertainties may influence the timing of revenue recognition 7. Rendering of Services 7.1 Revenue from service transactions is usually recognised as the service is performed, either by the proportionate completion method or by the completed service contract method. (i) Proportionate completion method-Performance consists of the execution of more than one act. Revenue is recognised proportionately by reference to the performance of each act. The revenue recognised under this method would be det....
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.....5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised. 10. Revenue from sales or service transactions should be recognised when the requirements as to performance set out in paragraphs 11 and 12 are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been 135 fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. 12. 12. In a transaction involving the rendering of ser....
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....stem of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time Accounting standards to be followed by any class of assessees or in respect of any class of income. (0) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or Accounting Standards as notified under sub-section (2) have not been regularly followed by the Assessee, the Assessing Officer may make an assessment in the manner provided in section 144. 6.8. Vide Notification No. 9949, dated 25-1-1996 [(1996) 130 CTR (St) 33], Accounting Standard I relating to disclosure of accounting policies and Accounting Standard II relating to disclosure of prior period and extraordinary items and changes in accounting policies had alone been notified as Accounting Standards to be followed by an Assessee and no other accounting standard has been notified. 6.9 AS-9 has not been notified u/s 145 of the Act. There may be a contention of the assessee that AS-9 has not been notified u/s 145 of the Act, hence, does ....
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....id which was duly replied vide reply letter dt.22.03.2016 by the assessee. However, the AO chose to disallow the same for the reasons mentioned in the assessment order extracted as under: "5.1 It is observed that the assessee has debited a sum of Rs.60,00,000/- under the head "Consultancy Fees" in the profit and loss account for the year 2012 - 13. The assessee was asked to furnish the nature and details of this expenditure. The assessee has not responded to the show cause notice issued on 03/03/2016. However, the assessee has filed a reply dated 22/03/2016 wherein the assessee has failed to substantiate its claim of expenditure and merely stated that it is paid to SREI infrastructure Limited. The nature of consultancy, whether TDS has been done or not, invoice etc have not been submitted to establish genuineness of the expenditure. Therefore, the expenditure claim of Rs.60,00,000/- is treated as unexplained expenditure under section 69C of the Income Tax Act, 1961." 7.2 The ld. A.R. submitted that the said disallowance is unsustainable, arbitrary and ought not to have been done. Invoking section 69C of the Act is incorrect. In this case expenditure is already ref....