Ita/16/2003 Of The Commissioner Of Income Tax Indore v. M.p. Financial Corporation Indore

HIGH COURT OF MADHYA PRADESH BENCH AT INDORE (D.B. HON'BLE JUSTICE S.C. SHARMA & HON'BLEJUSTICE SHRI SHAILENDRA SHUKLA) ITA. No.16/2003 The Commissioner of Income Tax, Indore v/s. Madhya Pradesh Financial Corporation, Finance House, Indore. ********** Parties through their counsel. ********** (ORDER) Indore Dt. 18.11.2019 The present appeal is arising out of order passed by theIncome Tax Appellate Tribunal in I.T.A.No.266/IND/2000dated 19.9.2002 for the assessment year 1995-96. 2.The facts of the case reveal that the assessment orderwas passed by the Assessing Officer, Special Range, Indoreon 25.2.1998 under Section 143(3) of the Income Tax Act,1961 and the Assessing Officer has allowed rebate andcompounding fee to the tune of Rs.3,48,11,357. Thereafter,order was passed under Section 263 by the CIT, Indore,which was challenged by the Assessee before the Income TaxAppellate Tribunal, Indore. The Tribunal has allowed theappeal of the Assessee by quashing the order passed underSection 263 of the Income Tax Act, 1961. The Income TaxAppellate Tribunal, Indore upon examination of the recordhas arrived at a conclusion that the Assessing Officer haswrongly allowed the rebate and the compounding fee to theM.P. Financial Corporation Ltd. This order of the Tribunal has been challenged by the Department under Section 260-Aof the Income Tax Act, 1961. Paragraph 4 of the order passedby the Income Tax Appellate Tribunal, Indore, reads asunder :- “4.We have considered the rival submissionscarefully and find force in the contention of theLd. AR. we find that this issue has beenexamined in detail by the AO. In his office note,he has recorded the full details how and whythese rebates were debited and has alsorecorded his satisfaction that same were verifiedby him and claim of the assessee was in order.We have also examined the system of charginginterest and on our specific direction copy of thedebit voucher was filed before us and it wasproved that originally interest is charged at ahigher rate and rebate is allowed later on onlyif repayment is made on the basis of agreedschedule. We have also gone through the copiesof accounts of six parties selected by us onrandom basis and details regarding which werefiled during the course of hearing. From theseaccounts, it is clear that whenever assesseeCropn. receives the amount same is allocatedtowards interest first and this allocated interestis credited to income on cash basis. When theaccount is squared up or settled at intermediatepoint, a rebate is allowed for timely paymentonly when such rebate is claimed. From these,we are fully satisfied that assessee Corpon. hasclaimed the rebates and decompoundingcharges etc. properly. In these circumstances,we find no substance in the revisionary orderpassed under Section 263 by the CIT, Indoreand thus quash the same.” 3.The Income Tax Department being aggrieved by the orderpassed by the Income Tax Appellate Tribunal has preferred thispresent appeal under Section 260-A of the Income Tax Act,1961. The appeal has been admitted on the following substantialquestion of law :- “Whether on the facts and the circumstances of thecase and in law, the ITAT was justified in holdingthat the assessment order on the issue of allowanceof rebate, de-compounding fee etc. to the tune ofRs.3,48,11,357/- is not erroneous and prejudicial tothe interest of Revenue and thereby quashing theorder u/S. 263 of the Act, 1961”. 4.Learned counsel appearing for the M.P. FinancialCorporation Ltd has argued before this court that thecontroversy involved in the present case stands concluded onaccount of the judgment delivered in another Income TaxAppeal, ie., Commissioner of Income-Taxv/s.M.P. FinancialCorporationLtd., (an organization owned and controlled byMadhya Pradesh) reported in 2008 299 ITR 297 MP.Paragraphs 3 to 6 of the aforesaid judgment reads as under :- “Whether on the facts and the circumstances of thecase and in law, the ITAT was justified in holdingthat the assessment order on the issue of allowanceof rebate, de-compounding fee etc. to the tune ofRs.3,48,11,357/- is not erroneous and prejudicial tothe interest of Revenue and thereby quashing theorder u/S. 263 of the Act, 1961”. 4.Learned counsel appearing for the M.P. FinancialCorporation Ltd has argued before this court that thecontroversy involved in the present case stands concluded onaccount of the judgment delivered in another Income TaxAppeal, ie., Commissioner of Income-Taxv/s.M.P. FinancialCorporationLtd., (an organization owned and controlled byMadhya Pradesh) reported in 2008 299 ITR 297 MP.Paragraphs 3 to 6 of the aforesaid judgment reads as under :- “3. The Tribunal repelled the contention of theRevenue that on shifting to the cash system ofaccounting the assessee was not entitled to whathe would have got, had he not changed the systemof accounting. The relevant observationscontained in the order of the Tribunal areextracted here-under:- 2.3.We have heard the contentions of both theparties. These appeals are against the orderpassed under Section 143(3) of the Income-TaxAct. It is an undisputed fact that the assssee hasswitched over the system of accounting frommercantile system to cash system with effect fromthe assessment year 1991-92. The change in thesystem of accounting was duly approved by theIDBI and accepted by the Department. Once theassessee has changed the system of accountingfrom mercantile to cash system, he is required tomake certain reverse entries of those amounts,which had been credited on due basis in earlieryears, but in fact, have not been received so far.The waiver, decompounding or rebate is a notionalpayment and has to be allowed as an expenditureincurred by the assessee. We are in agreement withlearned authorized representative that in case, it isnot allowed, then the same may be treated as baddebt/trading loss to arrive at the correct profit ofthe assessee. Though the amount is recoverable onthe settlement or under an agreement and as suchit is allowable in both the circumstances eitherexpenditure or bad debts. The learnedCommissioner of Income-tax (Appeals) has rightlyobserved that the liability of rebate,decompounding and waiver of interest, etc., hasarisen due to the agreements executed by theassessee with its clients and this is certainlyallowable liability as the assessee duly claimed thesame and the Assessing Officer was not justified inrejecting the claim of the assessee that he is nowfollowing the cash system of accounting and therebate on interest, etc., related to the period whenthe assessee was following the mercantile systemof accounting. SS/- 4.We have heard learned counsel for theRevenue and gone through the record.5.We find that there is no provision of law thatcreates an embargo against credit of the amount towhich the assessee is entitled after the system ofaccounting is changed. We are fully, in agreementwith the Tribunal that the change of the system ofaccounting does not divest the assessee fromreceiving the benefits which have already accruedto him in the previous years. 6.In view of the matter, we do not find anymerit in this appeal. The appeal is, summarily,dismissed. SS/- 4.We have heard learned counsel for theRevenue and gone through the record.5.We find that there is no provision of law thatcreates an embargo against credit of the amount towhich the assessee is entitled after the system ofaccounting is changed. We are fully, in agreementwith the Tribunal that the change of the system ofaccounting does not divest the assessee fromreceiving the benefits which have already accruedto him in the previous years. 6.In view of the matter, we do not find anymerit in this appeal. The appeal is, summarily,dismissed. 5.In the present case also, the liability of rebate, de-compounding and waiver of interest etc has arisen due to theagreements executed by the assessee with its clients and it iscertainly allowable liability as the assessee duly claimed thesame and the Assessing Officer was not justified in rejecting theclaim of the assessee that the assessee is now following the cashsystem of accounting and the rebate on interest etc meted to theperiod when the assessee was following the mercantile systemof accounting. In light of the aforesaid, as the issue has alreadybeen decided by this court, the question of law framed on12.3.2003, which has already been reproduced above, isanswered in favour of the assessee. The ITAT was certainlyjustified in allowing the rebate, de-compounding fee etc and inquashing the order passed under Section 263 of the Income-TaxAct, 1961. 6.With the aforesaid, the appeal stands dismissed. (S.C. SHARMA)(SHAILENDRA SHUKLA)JUDGEJUDGE Digitally signed by Shailesh Sukhdev DN: c=IN, o=High Court of Madhya Pradesh Bench Indore, postalCode=452001, Shailesh st=Madhya Pradesh, 2.5.4.20=b99d782efca3d28a06caddf3fa57b98c35054f3dd8638f2f98df0172d29e61c2, serialNumber=ffa0399242ca45066c1961743f4d307cfe601d3c99a4a61b38fcd08eaabe723Sukhdev7, cn=Shailesh Sukhdev Date: 2019.11.21 18:31:29 +05'30'