07 Jul Fertilizer Corporation of India Ltd. v. ACIT
IT: Where in course of assessment, Assessing Officer made addition to assessee’s income under section 41(1) in respect of loan interest waiver by Government of India, in view of fact that assessee at no point of time had claimed waiver of interest on Government loan as expenditure and, moreover, said waiver was under Government policy, impugned addition deserved to deleted
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[2019] 104 taxmann.com 15 (Delhi – Trib.)
IN THE ITAT DELHI BENCH ‘G’
Fertilizer Corporation of India Ltd.
v.
Additional Commissioner of Income-tax (Appeals), New Delhi*MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
AND R.K. PANDA, ACCOUNTANT MEMBER
IT APPEAL NO. 7664 (DELHI) OF 2017
[ASSESSMENT YEAR 2013-14]
NOVEMBER 28, 2018
Section 41(1) of the Income-tax Act, 1961 – Remission or cessation of trading liability (Allowance as deduction) – Assessment year 2013-14 – Assessee was a Government of India Undertaking under Ministry of Chemicals and Fertilizers – It was engaged in business of manufacture and sale of fertilizers – Assessee started incurring losses and ultimately it was referred to BIFR due to erosion of its net worth – For relevant year, assessee filed its return declaring nil income – In course of assessment, Assessing Officer made addition to assessee’s income under section 41(1) in respect of loan interest waiver by Government of India, waiver of LIC guarantee fees and waiver of commitment fees – It was noted that assessee at no point of time had claimed waiver of interest on Government loan, guarantee fee and commitment fee as its expenditure – In fact, said waiver was under Government policy – Whether, on facts, impugned addition made under section 41(1) was to be set aside – Held, yes [Para 8] [In favour of assessee]
FACTS
| ■ | The assessee was a Government of India Undertaking under Ministry of Chemicals and Fertilizers. It was engaged in business of manufacture and sale of fertilizers. The assessee started incurring losses and ultimately it was referred to BIFR due to erosion of its net worth. | |
| ■ | For relevant year, the assessee filed its return declaring nil income. In course of assessment, the Assessing Officer made addition in respect of waiver of interest and commitment fee relating to loan interest waiver by Government of India, waiver of LIC Guarantee fees and waiver of commitment fees. | |
| ■ | The Commissioner (Appeals) confirmed said addition. | |
| ■ | On second appeal: |
HELD
| ■ | From the perusal of the assessment order, it can be seen that regarding cessation of liability, the Assessing Officer has not gone into the details of waiver in respect of Government giving a particular waiver benefit to specific industry which is again coming under the purview of Government of India, Ministry of Chemical & Fertilizers. The same was made for the purpose of reviving the industry. Thus, it can be seen that the assessee Company incurred a heavy loss and Government of India’s policy reflected that the PSU will be given FCI Inter-corporate Loan which will be settled by the Government of India. The assessee at no point of time has claimed waiver of interest on GoI Loan, Guarantee Fee and commitment fee as its expenditure. In fact, these were the Government Policies and will come under the purview of section 2(24)(xviii) as grant-in-aid. | |
| ■ | In the present case the assessee-company has not claimed waiver of interest on GoI Loan, Guarantee Fee and commitment fee as its expenditure. It is pertinent to note that the waiver of the Interest on loan by the Government of India as well as waiver of LIC guarantee fee along with waiver of Government of India loan was rightly indicated in the financial statements produced before the Assessing Officer and the same were reflected in the books of account. Therefore, addition on account of section 41(1) does not sustain. Thus, the Assessing Officer as well as the Commissioner (Appeals) are not correct in making and confirming the additions. [Para 8] |
CASE REVIEW
Rollatainers Ltd. v. CIT [2011] 15 taxmann.com 111/203 Taxman 31 (Mag.) (Delhi) (para 8) distinguished.
CASES REFERRED TO
Rollatainers Ltd. v. CIT [2011] 15 taxmann.com 111/203 Taxman 31 (Mag.)/339 ITR 54 (Delhi) (para 7).
S. Krishnan, Adv. for the Appellant. S.S. Rana, CIT DR for the Respondent.
ORDER
Ms. Suchitra Kamble, Judicial Member .- This appeal is filed by the assessee against the order dated 28/6/2017 passed by CIT(A)-9, New Delhi for Assessment Year 2013-14.
2. The grounds of appeal are as under: —
| (1) | “That the order of the learned Commissioner of Income Tax (Appeals)-39, New Delhi (hereinafter referred to as CIT (A)) is wrong on facts and bad in law. | |
| (2) | That on the facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the disallowance of Rs. 79,04,47,00,000/- in respect of waiver of interest on Government of India Loan and Rs. 9,69,00,000/- in respect of guarantee fee of LIC, u/s 41(1) of the Income Tax Act, 1961 and consequent tax liability approved by the Cabinet Committee on Economic Affairs, Government of India. | |
| (3) | That without prejudice to Ground No. 2 above, the learned CIT(A) has erred in not giving directions for adjustment of carry forward of losses and depreciation as per appellate orders in earlier years. | |
| (4) | That the Appellant craves leave to reserve to itself the right to add, alter and/or vary any ground(s) at or before the time of hearing.” |
3. The assessee is engaged in the business of manufacture and sell of fertilizers for Assessment Year 2013-14, the assessee filed its return of income on 20/9/2013 declaring NIL income. The case was taken up for scrutiny under CASS. Accordingly, statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued on 4/9/2014 and served upon the assessee company. In response to this notice, the assessee company filed a reply dated 10/9/2014. Thereafter, notices u/s 142(1) dated 3/7/2015, 19/8/2015, 26/10/2015 & 19/2/2016 along with questionnaire were issued to the assessee Company. In response to these notices, the Authorized Representative of the assessee attended the proceedings from time to time and field necessary details before the Assessing Officer. The Assessing Officer observed that during the previous year relevant to the Assessment Year under consideration, the assessee did not derive any business income due to various reasons like financial constraints and could not operate plants. In-fact, this position of no business operation continues for the last several years and the assessee was merely booking an expense accumulating losses. Due to heavy financial losses, the Company was referred to BIFR and after scrutiny, the BIFR recommended for winding up of the company vide order dated 17/5/2004. The Assessing Officer in the order made a disallowance of Rs.3,12,29,388/- in respect of claim of depreciation made by the assessee. The Assessing Officer further made an addition of Rs.1,06,53,43,00,000/- in respect of waiver of interest and commitment fee relating to loan interest waiver by the Government of India, waiver of LIC Guarantee fees and waiver of commitment fees.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. AR submitted that the assessee is a 100% Government of India Undertaking under the Ministry of Chemicals and Fertilizers. It started incurring losses and ultimately it was referred to the Board for Industrial & Financial Restructuing (BIFR) due to erosion of its Net Worth. The Government of India decided to restructure the corporation by inducting other Public sector undertakings such as Steel Authority of India, NTPC, Rashtriya Chemicals & Fertilizers for its different plants. For this purpose, the Net Worth was to be made positive. The matter was taken up by the Cabinet Committee on Economic Affairs (CCEA) headed by the Prime Minister and consisting of Finance Minister and others. In its meeting held on 09-05-2013, CCEA decided to approve the recommendations of the Empowered Committee of Secretaries whereby it granted the reliefs as under—
| Waiver of Government of India Loan | 2,739.27 cr |
| Waiver of Interest on Government of India Loan | 7,904.47 cr |
| Waiver of LIC Guarantee Fee | 9.69 cr |
| Waiver of Consequent Tax Liabilities |
Following this, the assessee wrote back the amounts in its books of account for the year ended 31.03.2013 and while filing the tax return claimed the same as deductions due to the waiver granted by the Government of India. The Assessing Officer has invoked the provisions of section 41(1) of the Income Tax Act, 1961 and brought to tax all the waivers granted to the assessee by the Government. The Assessing Officer has given wrong description and amounts in Para 5.1 of his order by mixing up various figures. Correct position is mentioned in Para 5.2. The Ld. AR submitted that the assessee being a 100% Government of India undertaking, the Government has a right and obligation to decide about the working of its undertaking including the concessions to be granted to it from time to time. This right and power has been exercised by the Government for waiver of principal, interest and also tax thereon. The Assessing Officer has totally erred in bringing to tax the waiver of principal amount of loan of Rs. 2,739.27 crores since it does not represent any loss, expenditure or trading liability and neither any allowance or deduction has been claimed and allowed for the same in any of its assessment. Loan amount is not revenue in nature. Similarly, Government gave guarantee to LIC for giving loan to the assessee for which Rs. 9.69 crore was payable. The assessee had treated this as liability and not claimed as an expenditure. The above two amounts are not covered u/s 41(1) and have been wrongly brought to tax. So far as the waiver of Interest on Government of India Loan is concerned, the stand of the department in earlier years is that the same is covered u/s 43B and therefore not allowable. In view of this stand, the department has filed appeals before the ITAT Delhi against the orders of CIT (A) allowing the relief to the assessee. The Department cannot take two different stands on the same issue. Moreover, the department has not given appeal effects to the orders of CIT (A) in earlier years and thereby the losses to be carried forward and set off have not been determined. However, the assessee is approaching the Government of India to clarify the waivers and benefits granted to it by the CCEA order.
6. The Ld. AR also relied upon the Office Memorandum dated 21/5/2013 as well as Government of India order dated 18/8/2015 and 6/3/2018. The Ld. AR further submitted that the income of the assessee Company vide order dated 26/9/2007 has been computed at Rs.66,55,06,61,110/- consequent upon the order of the CIT(A)-9, New Delhi. The Ld. AR submitted that the waiver of the Interest on loan by the Government of India as well as waiver of LIC guarantee fee along with waiver of Government of India loan has been rightly indicated in the financial statements produced before the Assessing Officer and the same were reflected in the books of accounts. Therefore, the Ld. AR submitted that addition on account of Section 41(1) does not sustain as cessation of liability.
7. The Ld. DR submitted that there was no waiver of interest and Section 41(1) is rightly attracted by the Assessing Officer. The Ld. DR relied upon the decision of the Hon’ble Delhi High Court in case of Rollatainers Ltd. v. CIT [2011] 15 taxmann.com 111/203 Taxman 31 (Mag.) 339 ITR 54 wherein it is held that wavier of loan taken in the course of carrying on business was recorded in the benefit of Revenue and accordingly addition made by the Assessing Officer was confirmed. Thus, the Ld. DR submitted that the assessment order as well as the CIT(A) order be sustained and no interference be called thereupon.
8. We have heard both the parties and perused the material available on record. From the perusal of the assessment order, it can be seen that regarding cessation of liability, the Assessing Officer has not gone into the details of waiver in respect of Government giving a particular waiver benefit to specific industry which is again coming under the purview of Government of India, Ministry of Chemical & Fertilizers. The same was made for the purpose of reviving the industry. Thus, it can be seen that the assessee Company incurred a heavy loss and Government of India’s policy reflected that the PSU will be given FCI Inter-corporate Loan which will be settled by the Government of India. The assessee at no point of time has claimed waiver of interest on GOI Loan, Guarantee Fee and commitment fee as its expenditure. In-fact, these were the Government Policies and will come under the purview of Section 2(XVIII) as grant in aid. The reliance of the Ld. DR on the Hon’ble Delhi High Court’s decision in case of Rollatainers Ltd. (supra) does not apply in the present case as the Hon’ble High Court therein held that wavier of loan taken in the course of carrying on business was recorded in the books of accounts. In the present case the assessee company has not claimed waiver of interest on GOI Loan, Guarantee Fee and commitment fee as its expenditure. It is pertinent to note that the waiver of the Interest on loan by the Government of India as well as waiver of LIC guarantee fee along with waiver of Government of India loan has been rightly indicated in the financial statements produced before the Assessing Officer and the same were reflected in the books of accounts. Therefore, addition on account of Section 41(1) does not sustain. Thus, the Assessing Officer as well as the CIT(A) are not correct in making and confirming the additions. Hence, Ground No. 2 is allowed. As regards to Ground No. 3, the CIT(A) has not given any direction for adjustment of carry forward of losses and depreciation as per appellate order in earlier years, for which, the issue needs to be adjudicated by the CIT(A). Therefore, we are remanding back this issue to the file of the CIT(A). Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 3 is accordingly allowed for statistical purpose.
9. In result, appeal of the assessee is partly allowed for statistical purpose.
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