Commissioner Of Income Tax Chennai v. Lotte India Corporation Ltd., (Formerly Parrys Confectionery Ltd)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 14.9.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A) No.2279 of 2006 Commissioner of Income TaxChennai. .. Appellant Vs.. Respondent Lotte India Corporation Ltd.,(Formerly Parrys Confectionery Ltd)234, NSC Bose Road, Chennai-1. PRAYER: Appeal under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, 'B'Bench, Chennai dated 12.10.2005 in I.T.A.No. 270/Mds/2001 for theassessment year 1997-98. For Appellant : Mr.T.Ravi KumarJ U D G M E N T (Delivered by P.D.DINAKARAN,J.) The above tax case appeal is directed against the order ofthe Income-tax Appellate Tribunal dated 12.10.2005 made inI.T.A.No.270/Mds/2001 for the assessment year 1997-98, settingaside the order of the Commissioner of Income Tax (Appeals) dated10.11.2000 and confirming the order of the assessment dated10.3.2000 made by the Assessing Officer holding that interest ondebentures and corporate borrowings is an allowable deduction,relying on the decision of the Apex Court in INDIA CEMENTS LTD.v. COMMISSIONER OF INCOME TAX, MADRAS, [1966] 60 ITR 52. https://hcservices.ecourts.gov.in/hcservices/ 2.1. The facts in a nutshell are that the Assessing Officerwhile completing assessment for the assessment year 1997-98 allowedthe claim of the assessee with respect of Rs.1,26,06,781/- being theinterest on debenture and inter corporate dividends, but disallowedother claims of the assessee. 2.2. Aggrieved by the disallowed portion of the assessmentorder, the assessee preferred an appeal before the Commissioner ofIncome Tax (Appeals), who, while partly allowing the appeal andremitting the matter to the Assessing Officer held that it was notclear as to how the expenditure which had been capitalised in thebooks of accounts and claimed in the adjustment statement has beenallowed by the Assessing Officer and observed that this part of thecase also needs to be examined. 2.3. On further appeal by the assessee to the Tribunal, theTribunal by order dated 12.10.2005 held that the Commissioner ofIncome Tax (Appeals) committed an error in law, as the powerconferred under Section 251(2) of the Income Tax Act (for brevity,"the Act") cannot be exercised by the Commissioner of Income Tax(Appeals) without giving a reasonable opportunity to the assesseeagainst such enhancement or reduction. 2.4. Hence, the present appeal by the Department raising thefollowing substantial questions of law: (i)Whether in the facts and circumstances of the case, theTribunal was right in cancelling the direction of the CIT(A) to adjudicate the issue of interest on debenture andinter corporate dividends that was allowed by the assessingofficer, on the ground that no notice under Section 251(2)was issued, even though the assessee had participated inthe appeal proceedings? and (ii)Whether in the facts and circumstances of the case, theorder of the CIT(A) directing the Assessing Officer toverify and pass orders is in the nature of enhancement isprejudicial to the assessee and notice under Section 251(2)of the Act is mandatory? 3. Before proceeding further, it is profitable to refer therelevant statutory provision, viz., Section 251 of the Act, whichdeals with the powers of the Commissioner of Income Tax (Appeals):"Section: 251. Powers of the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals).--(1) Indisposing of an appeal, the Appellate Assistant Commissioneror, as the case may be, the Commissioner (Appeals) shall havethe following powers-- https://hcservices.ecourts.gov.in/hcservices/ (ii)Whether in the facts and circumstances of the case, theorder of the CIT(A) directing the Assessing Officer toverify and pass orders is in the nature of enhancement isprejudicial to the assessee and notice under Section 251(2)of the Act is mandatory? 3. Before proceeding further, it is profitable to refer therelevant statutory provision, viz., Section 251 of the Act, whichdeals with the powers of the Commissioner of Income Tax (Appeals):"Section: 251. Powers of the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals).--(1) Indisposing of an appeal, the Appellate Assistant Commissioneror, as the case may be, the Commissioner (Appeals) shall havethe following powers-- https://hcservices.ecourts.gov.in/hcservices/ (a) in an appeal against an order of assessment, he mayconfirm, reduce, enhance or annul the assessment; or he mayset aside the assessment and refer the case back to theIncome-tax Officer for making a fresh assessment inaccordance with the directions given by the AppellateAssistant Commissioner or, as the case may be, theCommissioner (Appeals) and after making such further inquiryas may be necessary, and the Income-tax Officer shallthereupon proceed to make such fresh assessment anddetermine, where necessary, the amount of tax payable on thebasis of such fresh assessment; (b) in an appeal against an order imposing a penalty, hemay confirm or cancel such order or vary it so as either toenhance or to reduce the penalty; (c) in any other case, he may pass such orders in theappeal as he thinks fit. (2) The Appellate Assistant Commissioner or, as the case maybe, the Commissioner (Appeals) shall not enhance anassessment or a penalty or reduce the amount of refund unlessthe appellant has had a reasonable opportunity of showingcause against such enhancement or reduction. Explanation.--In disposing of an appeal, the AppellateAssistant Commissioner or, as the case may be, theCommissioner (Appeals) may consider and decide any matterarising out of the proceedings in which the order appealedagainst was passed, notwithstanding that such matter was notraised before the Appellate Assistant Commissioner or, as thecase may be, the Commissioner (Appeals) by the appellant." (Emphasis supplied) 4. The finding of the Commissioner of Income Tax (Appeals) thatit is not clear in the assessment order as to how the expenditurewhich had been capitalised in the books of accounts and claimed inthe adjustment statement has been allowed by the Assessing Officerand that the said aspect also needs to be reexamined, certainlyleads to the conclusion that there may be an enhancement ofassessment or a penalty or reduction of the amount of refund. Itthat be so, as contemplated under Section 251(2) of the Act,referred to above, the Commissioner of Income Tax (Appeals), asrightly held by the Tribunal, should not exercise the powerconferred under Section 251(2) without giving a reasonableopportunity to the assessee showing against such enhancement orreduction, and to that extent the Tribunal is right in coming to theconclusion that the Commissioner of Income Tax (Appeals) has https://hcservices.ecourts.gov.in/hcservices/ committed an error in rendering the finding that it is not clear inthe assessment order as to how the expenditure which had beencapitalised in the books of accounts and claimed in the adjustmentstatement has been allowed by the Assessing Officer. 5. In any event, it is a settled law vide INDIA CEMENTS LTD.v. COMMISSIONER OF INCOME TAX, MADRAS, [1966] 60 ITR 52 that theloan obtained was not an asset or an advantage for the enduringbenefit of the business of the assessee. https://hcservices.ecourts.gov.in/hcservices/ committed an error in rendering the finding that it is not clear inthe assessment order as to how the expenditure which had beencapitalised in the books of accounts and claimed in the adjustmentstatement has been allowed by the Assessing Officer. 5. In any event, it is a settled law vide INDIA CEMENTS LTD.v. COMMISSIONER OF INCOME TAX, MADRAS, [1966] 60 ITR 52 that theloan obtained was not an asset or an advantage for the enduringbenefit of the business of the assessee. 6. Applying the said principle, we find that interest ondebentures and corporate borrowings also cannot be treated as anasset or an advantage for the enduring benefit of the business ofthe assessee and accordingly confirm the order of the Tribunal. In the result, finding no substantial question of law, thisappeal is dismissed. No costs.sasiSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo:1. The Assistant Registrar, Income-tax Appellate Tribunal, B Bench Rajaji Bhavan, Besant Nagar, Chennai 600 090 (five copies with records)2. The Secretary, Central Board of Direct Taxes, New Delhi (3 copies) 3. The Commissioner of Income-tax (Appeals), Chennai. 4. The Commissioner of Income Tax Tamil Nadu-I, Chennai. + 1 cc to M/s. Pushya Sitaraman, Advocate SR No. 43324 GGK(CO)SR/11.10.2006