Ita/118/2012 Of The Commissioner Of Income Tax-I v. The Fertilizers & Chemicals Travancore Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 03RD DAY OF JANUARY 2019 / 13TH POUSHA, 1940 ITA.No. 102 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 289/2010 ofI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE COMMISSIONER OF INCOME TAX-ICOCHIN. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/S: THE FERTILISERS AND CHEMICALS TRAVANCORE LTD. 111/793, ELOOR, UDYOGAMANDAL, KOCHI - 683 501. BY ADVS.SRI.P.GOPINATH (SR.)SMT.PREETHA S.NAIRSRI.K.JOHN MATHAISRI.M.GOPIKRISHNAN NAMBIARSRI.P.BENNY THOMAS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON03.01.2019, ALONG WITH ITA.118/2012, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 03RD DAY OF JANUARY 2019 / 13TH POUSHA, 1940 ITA.No. 118 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 106/2010 ofI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE COMMISSIONER OF INCOME TAX-ICOCHIN. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH SC FOR INCOME TAX RESPONDENT/S: THE FERTILIZERS & CHEMICALS TRAVANCORE LTD.111/793 ELOOR, UDYOGAMANDAL, KOCHI 683501 BY ADVS.SRI.P.GOPINATH (SR.)SMT.PREETHA S.NAIRSRI.K.JOHN MATHAISRI.M.GOPIKRISHNAN NAMBIARSRI.P.BENNY THOMAS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON03.01.2019, ALONG WITH ITA.102/2012, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: JUDGMENT [ ITA 102/2012, ITA.118/2012 ] Vinod Chandran, J. The Revenue is in appeal before us for theassessment years 2005-06 and 2006-07. Before framingthe question of law, we have to look at the facts asavailable in the two years, which are inter-connected.The assessee had availed of a loan from Government of India (for short “GOI”), the outstanding in which wasRs.574.46 crores as on 31.03.2004 and Rs.619.40 croresas on 31.03.2005. The assessee had applied for a waiver of interest on loan, as also partial/total conversion of the unsecured loans into equity, whichwas under consideration by GOI. 2.By order dated 31.03.2003 the GOI approved deferment of interest outstanding as on 31.03.2003. Hence, no provision for interest was made in theaccounts for the year ending 31.03.2004. For thefollowing year, ie., ending 31.03.2005, the assesseeprovided a provision for interest on Rs.50,97,23,074/-for the financial year 2004-05. Later, before the assessments for the two years were completed, the GOIhad permitted waiver of interest upto 31.03.2005(including the interest payable in the two assessmentyears, which is the subject matter of this appeal).The assessee hence filed a revised return in the firstyear 2005-06, deleting the provision made and adding itto the profit. The original return filed by theassessee showed a loss of Rs.100,43,93,711/- and anegative book profit of Rs.32,50,56,501/-. On the GOIpermitting waiver of the interest for the said year,the assessee added back the same to the profits andreduced it from the losses. The book profit as per therevised computation was negative at Rs.81,97,27,138/-.Hence, there was no tax payable even under Section115JB for the said year. The Commissioner by AnnexureB order produced in I.T.A.No.102/2012 interfered withthe assessment order under Section 263 of the IncomeTax Act, 1961 (for short “the Act”). The interferencewas on the specific ground that if the assessee isallowed to make the adjustment in the assessment year2005-06, then the assessee would effectively absolve itself from the liability to tax on Rs.40 crores in thesubsequent year being 2006-07. 3.I.T.A.No.102/2012 is from the order under itself from the liability to tax on Rs.40 crores in thesubsequent year being 2006-07. 3.I.T.A.No.102/2012 is from the order under Section 263. The order under Section 263 was not giveneffect to and the matter was pending before theTribunal. Even before the order under Section 263, when the revised order passed under Section 143(3) of theAct for the year 2005-06 was subsisting, the AssessingOfficer proceeded to assess the book profits underSection 115JB in the second year, ie., 2006-07 as ifthe revised assessment order had not been passed. Taxwas demanded on the book profit, under Section 115JBcoming to Rs.40,24,85,349/-. In fact the order undersection 263 was passed for the assessment year 2005-06,later to the assessment order for the next assessmentyear 2006-07. 4.The questions of law arising in the appeals forthe respective years are re-framed as under:- 1. Whether the assessee was entitled to revise thereturn for the year 2005-06 on the basis of thesubsequent waiver of interest granted by GOIwhen the interest had accrued in the financialyear and had to be treated as a liability for the said year, the assessee having followed themercantile system of accounting ? 2. Ought not the Tribunal have set aside the orderpassed under Section 263 on the ground of itbeing not legally sustainable ?5.The learned Counsel for the Revenue would relyon the decision of the Hon'ble Supreme Court in Keshav Mills Ltd. v. C.I.T., [1953] 33 ITR 230and C.I.T. v. Shiv Prakash Janak Raj & Co.Pvt.Ltd., [1996] 222 ITR583to contend that the assessee followed themercantile system of accounting and hence cannot escape from the interest liability which accrued in the year,merely on the basis of the subsequent waiver of suchliability. It is also contended that the Commissionerhad interfered with the assessment order for theearlier year under Section 263, which would enable thebook profit to be assessed under Section 115JB for thesecond year. 6.The learned Counsel for the assessee emphatically pointed out that the order under Section263 of the Act was dated 19.02.2010 while theassessment order for the subsequent year was prior anddated 30.12.2008. It is the contention of the assessee that the order under Section 263 was passed only tovalidate the earlier order for the assessment year2006-07. 7.We find that the assessment for the year 2006-07 was completed, after the assessment for the earlieryear, 2005-06, had been completed accepting the revisedreturn filed by the assessee. The revised return wasfiled by the assessee within the time provided for thesame and there is no contention taken regarding thelimitation having worked out against the assessee. Insuch circumstances on that basis alone the subsequentassessment passed in the year 2006-07 has to be foundto be without any authority. 8.Further, it is to be noticed that the issuearise only if there exists a book profit for the year2006-07; which would not be there if the revisedassessment for the assessment year 2005-06 is permittedto stand. Only if the adjustments for the earlier yearwere not permitted, the book profit would turn positiveby virtue of the credit made to the profit and lossaccount; of the provision for interest for the twoyears. We find that there is no question of accrual of interest, especially since the assessee had filedrevised return within the time provided for the same;after the interest was waived by the GOI. We, hence,answer the question of law in favour of the assesseeand against the Revenue. We uphold the order of theTribunal and reject the appeals, leaving the parties tosuffer their respective costs. Sd/- K.VINOD CHANDRANJUDGE dkr Sd/-ASHOK MENONJUDGE APPENDIX OF ITA 102/2012 APPELLANT'S/S ANNEXURES: ANNEXURE ACOPY OF ASST.ORDER U/S.143(3), DATED30/10/2007 FOR THE ASSESSMENT YEAR 2005-06. ANNEXURE B COPY OF THE ORDER U/S.263 DATED 19/02/2010OF THE COMMISSIONER OF INCOME TAX, KOCHI. ANNEXURE C interest, especially since the assessee had filedrevised return within the time provided for the same;after the interest was waived by the GOI. We, hence,answer the question of law in favour of the assesseeand against the Revenue. We uphold the order of theTribunal and reject the appeals, leaving the parties tosuffer their respective costs. Sd/- K.VINOD CHANDRANJUDGE dkr Sd/-ASHOK MENONJUDGE APPENDIX OF ITA 102/2012 APPELLANT'S/S ANNEXURES: ANNEXURE ACOPY OF ASST.ORDER U/S.143(3), DATED30/10/2007 FOR THE ASSESSMENT YEAR 2005-06. ANNEXURE B COPY OF THE ORDER U/S.263 DATED 19/02/2010OF THE COMMISSIONER OF INCOME TAX, KOCHI. ANNEXURE C COPY OF THE ORDER DATED 31/01/2012 OF THEINCOME TAX APPELLATE TRIBUNAL, COCHIN BENCHITA NO.289/COCH/2010. APPENDIX OF ITA 118/2012 APPELLANT'S/S ANNEXURES:ANNEXURE ACOPY OF ASST.ORDER U/S.143(3) DATED30/12/2008 FOR THE ASSESSMENT YEAR 2006-07. ANNEXURE B COPY OF THE ORDER NO.ITA-80/R-1/E/CIT-II/08-09 DATED 30/11/2009 OF THE CIT(APPEALS)-II, KOCHI. ANNEXURE C COPY OF THE ORDER DATED 31/01/2012 OF THEINCOME TAX APPELLATE TRIBUNAL, COCHIN BENCHITA NO.106/COCH/2010.