Triveni Engineering & Industries ... vs The Commissioner Of Income ...
2009 Latest Caselaw 3699 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   ITA No . 410/2004

                                      Reserved on : 6th August, 2009
                                     Pronounced on : 11th September, 2009


TRIVENI ENGINEERING & INDUSTRIES LTD.         ...Appellant
                  Through: Mr. Ajay Vohra, Ms. Kavita Jha,
                  Ms. Akansha Aggarwal, Mr. Sriram Krishna,
                  Advocates.
          VERSUS

THE COMMISSIONER OF INCOME TAX-XIX, NEW DELHI ..Respondent

Through: Mr. Sanjeev Sabharwal, Mr. M.P.Gupta, Mr. Arvind Kumar Verma, Advocates CORAM:

HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE VALMIKI J.MEHTA

1. Whether the Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in the Digest? Yes

%

VALMIKI J.MEHTA, J

1. Three issues are urged by the appellant M/s. Triveni Engineering &

Industries Ltd. in this appeal under Section 260-A of the Income Tax Act,

1961. The same are as under:

(i) The first issue pertains to the addition of Rs. 1,68,71,980/- on

account of valuation of closing stock by not accepting the change in the

W.P.(C) 410/2004 Page 1 method of valuation of closing stock of levy sugar to lower of cost or

average realisable value of levy and free sale sugar to lower of cost or

realizable value.

(ii) Disallowance of deduction with respect to interest payable

amounting to Rs. 21,15,615/- in terms of Section 36(1)(iii) and Section 43-

B(d) of the Act.

(iii) Whether the liability to pay interest on the excess realization for

levy sugar pursuant to the order of the Allahabad High Court was a

contingent liability or a crystallized liability?

2. Each of the aforesaid issues have been held against the appellant

concurrently by all the three authorities below, namely, the Assessing

Officer, CIT(Appeals) and the Income Tax Appellate Tribunal. The

relevant Assessment Year is 1991-92.

3. As regards the issue raised with regard to rejecting the method in

the change of valuation of closing stock, we find that the finding arrived

at by the three authorities below that the change in the valuation of

closing stock was not bona fide is a pure finding of fact and no question

of law arises much less a substantial question of law. We also agree that

the change in the method of valuation of the closing stock was not bona

fide because the authorities below have noted that for the assessment

year in question seeking of change in the method of valuation of the

W.P.(C) 410/2004 Page 2 closing stock was in the year where there were huge rise in the profits of

the assessee company and the change was adopted in order to reduce

profits in the relevant year. The fact that the change is not bona fide is

more than abundantly clear from the fact that the assessee once again

switched back to the old method of valuation of closing stock just one

year thereafter in the assessment year 1993-94. The contention of the

counsel for the appellant that assessee company was entitled to follow a

scientific basis for valuation of the closing stock is not in issue because no

doubt a company can adopt such a method for valuation of the closing

stock, but, such valuation of closing stock had to be adopted on a

consistent basis and cannot be changed to suit the convenience of the

assessee so as to deprive the revenue of legitimate tax. It is rightly been

found by all the authorities below that the change in the valuation stock

was not bona fide. Nothing further need be said on this aspect.

4. The second issue pertains to disallowance of the claim of interest.

As per the assessee company, it was entitled to claim of interest because

interest accrues daily and the same did accrue as per the mercantile

system of accounting adopted by the assessee with respect to the loan

obtained by it from the Industrial Finance Corporation of India(IFCI).

The repayment of the said loan along with the interest thereon was to be

made in five yearly instalments which were payable on 18.11.1996,

W.P.(C) 410/2004 Page 3 18.11.1997, 18.11.1998, 18.11.1999 and 18.11.2000. The Assessing Officer

made a disallowance of Rs. 21,15,615/- representing the aggregate

amount of interest accrued but not due upto 31.3.1991 holding that since

the interest was payable only on 18.11.1996 for the first time, no

deduction was admissible to the appellant. The CIT(Appeal) affirmed the

order of the Assessing Officer and further held that the claim of interest

was not allowable in terms of Section 43B(d) of the Act.

We do not find any error in the approach of the authorities below.

Merely because the interest was debited in the books of accounts

maintained on mercantile basis would not mean that the interest had

become due and accrued because admittedly the interest liability would

become due not during the relevant previous year but only for the first

time on 18.11.1996. Thus, interest cannot be said to have accrued to

become due and payable in the relevant previous year. The stand of the

assessee is incongruous because on the one hand it claims that interest

became due and accrued in the relevant previous year however in the

same breadth it admits that the same would be due and payable only

with effect from 18.11.1996. The concept of debiting the books

maintained on mercantile basis is on the principle that the payment has

become due and payable and since it has become payable it is therefore

debited in the books of accounts. Admittedly, in the present case the

W.P.(C) 410/2004 Page 4 interest was not due and payable from the relevant previous year.

Further, the provision of Section 43B(d) directly and categorically dis-

entitles the assessee company to claim benefit of interest deduction

because with respect to interest due and payable to a financial institution

such as the IFCI till the interest is actually paid, the same cannot be

allowed as a deduction. The relevant provision of Section 43B is

reproduced below:-

"43B. Certain deductions to be only on actual payment Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of--

           .....          ......     .....
           (d)      any sum payable by the assessee as interest on

any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing;

...... ...... ......

Shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:

...... ....... ......."

5. The aforesaid provision makes it more than abundantly clear that

interest can only be allowable when the same is actually paid and not

merely because the same is due as per the method of accounting adopted

W.P.(C) 410/2004 Page 5 by the assessee. Any other interpretation as suggested by the appellant

that the interest should be allowed even when not actually paid will

defeat the very purpose of Section 43B. The contention of the assessee

that it has received the loan from Sugar Development Fund administered

by the Ministry of Sugar, Government of India, is liable to be rejected at

the threshold because admittedly the loan is obtained from IFCI by the

assessee. It is the IFCI with whom the documentation for the loan has

been signed and to whom the loan along with the interest is repayable.

Merely because the Sugar Development Fund is under the overall control

and administration of the Ministry of Sugar, Government of India does

not mean that the loan is not given by the IFCI. The other contention

raised by the appellant relying upon the judgment of the Andhra Pradesh

High Court in the case Srikakollu Subba Rao & Co. and Ors. Vs. Union of

India and Other, 173 ITR 708 that where the amount is not due for

payment before the end of the relevant previous year such amount

though having accrued could not be disallowed under Section 43B(d) of

the Act, cannot be accepted by this Court because the same would negate

the intention of existence of Section 43B(d) and would render otiose the

expression "actually paid" occurring in the provision. Further we feel

that in view of the categorical language used in the relevant provision,

W.P.(C) 410/2004 Page 6 we need not refer to the other sub-sections and exceptions of Section

43B.

6. The last issue which has been urged by the appellant is with respect

to its liability on account of interest paid for excess realisation of the price

for levy sugar on account of orders obtained in the legal proceedings filed

by it before the Allahabad High Court. The appellant had filed a writ

petition before the Hon'ble Allahabad High Court challenging the

fixation of levy price of sugar of Western U.P. Zones. The Allahabad

High Court vide an interim order had allowed the appellant to supply

levy sugar at a price claimed by the appellant company subject to the

following conditions:

(i) that the appellant would furnish advance bank guarantee for the

excess realization along with interest, and

(ii) that in the event of the ultimate orders of the High Court going

against the appellant, the appellant would have to refund the excess

realization along with interest @ 12 ½% per annum.

7. Pursuant to the interim order the appellant had realized an excess

price of levy sugar of Rs. 158 lakhs. When the Writ Petition filed by the

appellant had dismissed by the Allahabad High Court, the excess amount

realized by the appellant company due to the price of levy sugar became

repayable along with interest in terms of interim orders of the Allahabad

W.P.(C) 410/2004 Page 7 High Court. However, the appellant preferred a Special Leave Petition

before the Hon'ble Supreme Court against the final judgment of the

Allahabad High Court dismissing its Writ Petition. The contention of the

assessee company is that since no interim orders were passed by the

Supreme Court which directed the payment of the amount in instalments,

the liability of payment under the orders of the Allahabad High Court

stood crystallized and cannot be said to have been contingent. We

clearly feel that the argument of the appellant company is misconceived

because could it not be that it would have succeeded in its claim before

the Supreme Court for setting aside the order of the Allahabad High

Court? Once this issue was alive and pending and the appellant company

could have succeeded in the Special Leave Petition in the Hon'ble

Supreme Court, clearly, the liability remained contingent and could not

be said to have been crystallized because had the assessee succeeded

before the Supreme Court, the interest would not have been payable. Of

course, the position would have been different had the judgment of the

Allahabad High Court reached finality either by the appellant not

challenging the same before the Supreme Court or the Supreme Court

having dismissed the SLP, and which is not the position in the present

case. It was because of the fact that assessee was hopeful in succeeding

that SLP was filed, and surely then it does not lie in its mouth to say that

W.P.(C) 410/2004 Page 8 the liability was still not a contingent liability. There is no merit in this

ground either as urged by the appellant company.

8. In view of the above, we dismiss the present appeal with costs

which are quantified at Rs. 25,000/- keeping in view the fact that all the

three authorities below have concurrently and validly disagreed with the

contentions of the appellant company giving adequate reasons and this

fourth attempt of the appellant company has also been dismissed by us

for the reasons above stated.

VALMIKI J. MEHTA JUDGE

A.K. SIKRI, J JUDGE September 11, 2009 dkg

W.P.(C) 410/2004 Page 9