Delhi High Court
Cit vs Brahmaputra Capital & Financial ... on 3 September, 2012
Author: R.V. Easwar
$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 3rd September, 2012.
+ ITA No.107/2012
CIT ..... Appellant
Through : Mr.Deepak Chopra, Sr.Standing Counsel with
Mr.Harpreet Singh Ajmani, Advocate.
versus
BRAHMAPUTRA CAPITAL & FINANCIAL
SERVICES LTD. ..... Respondent
Through: None
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
R.V. EASWAR, J: (OPEN COURT)
This is an appeal by the Revenue under Section 260A of the Income Tax Act,
1961 („Act‟ for short) and the following substantial questions of law are sought to be
raised:-
"(A) Whether the order of the Tribunal is perverse since it fails to take
note of the changed facts for the year under consideration?
(B) Whether the Tribunal erred in not appreciating that the whole basis
of the assessee not recognizing interest income from such loans was that
the borrowers were in a weak financial position whereas in the year
under consideration the AO found that the borrowers had made huge
profits and as such these loans could not be treated as non-performing
assets?"
ITA No.107/2012 Page 1 of 5
2. The assessee is a non-banking finance company registered with the Reserve
Bank of India. In the return of income filed for the assessment year 2007-08, it
claimed that it was not assessable in respect of any interest on the loans advanced by it
in the previous years relevant to the assessment years 1996-97 and 1998-99, on
accrual basis, since there was a resolution of the Board of Directors dated 4th March,
2004 not to charge interest in respect of those loans having regard to the financial
difficulties in which the debtor-companies were placed. It was also claimed before the
Assessing Officer that the claim of the assessee was accepted by the Income Tax
Appellate Tribunal („Tribunal‟ for short) in the assessment years 2003-04 to 2006-07.
The Assessing Officer examined the facts for the year under appeal and found that the
companies to whom the assessee advanced loans were financially well off. He noticed
from the balance sheets of the companies that they were making profits for the year
under appeal and, therefore, the assessee was no longer justified in not charging
interest on the loans to them. The details of the loans and the amount of interest on
them for the year under appeal are as under:-
S.No. Name of the Party Amount of loan Rate of Amount of
interest interest not
declared
1. Jindal Equipment Leasing 7,32,72,000 16% 1,17,23,520
& Consultancy Services
Ltd.
2. Mansarovar Investment 5,10,17,630 16% 81,62,820
Ltd.
3. Goswamis Credits & Inv. 1,14,97,427 14.5% 16,67,126
Ltd.
Total Interest 2,15,53,466
ITA No.107/2012 Page 2 of 5
In the aforesaid view of the matter, the Assessing Officer added the sum of
Rs.2,15,53,466/- as interest on the loans.
3. The CIT(Appeals), before whom the assessee filed an appeal noticed that the
debtor-companies were not loss making companies in the relevant previous years, that
they were actually making profits and in this view of the matter, he held that the
Assessing Officer was justified in charging interest. He accordingly dismissed the
assessee‟s appeal. In his order, the CIT(Appeals) also noted that the Tribunal had
decided the dispute in favour of the assessee for the assessment years 1997-98 and
1998-99 because in those years the borrowing companies were in a bad financial
position making it impossible to realize any interest from them, whereas that fact-
situation does not obtain in the year under appeal in which the borrowing companies
were making handsome profits. He noted that the following are the details of the
profits earned by the borrowing companies in the year ended 31st March, 2007;
(1) Jindal Equipments Leasing and Consultancy Services Ltd. Rs. 8,92,006/-
(2) M/s Mansarovar Investment Ltd. Rs. 4,30,73,328/-
These companies also had reserves and surplus amount to Rs. 73.23 crores and
Rs.23.95 crores respectively as on 31st March, 2007. In this view of the matter, the
CIT(Appeals) confirmed the addition of the interest and dismissed the appeal.
4. The further appeal filed by the assessee before the Tribunal was, however,
allowed. The Tribunal reiterated its earlier view taken in respect of the assessment
years 2003-04 to 2006-07. The Tribunal, in doing so, adverted to the contention of the
Revenue that the facts for the year under appeal were distinguishable. Nevertheless it
proceeded to observe that " it has not been disputed that the facts and circumstances
in the present year and earlier years are same. In view thereof, we are unable to
accept the plea of the Ld. DR that facts are distinguishable in this year and a view
ITA No.107/2012 Page 3 of 5
different from the one taken by the Hon'ble Delhi High Court should be adopted. The
facts and circumstances being similar, Hon'ble Delhi High Court having clearly held
that the impugned interest income in this case cannot be recognized for these years,
respectfully following and the addition made on this account is deleted."
It may be noted from the above observations of the Tribunal that the order of the
Tribunal for the earlier years was confirmed by the judgment of this Court dated 18th
May, 2011.
5. The Revenue is in appeal before us to contend that the Tribunal overlooked the
contention of the department that the facts for the year under appeal are
distinguishable from those obtaining in the years in which the High Court had held in
favour of the assessee. It is submitted by Mr.Deepak Chopra, the learned Standing
Counsel for the Revenue, that despite adverting to the submission of the department,
the Tribunal erroneously proceeded to hold that there was no dispute that the facts and
circumstances in the present year were the same as in the earlier years. This
observation of the Tribunal, according to Mr.Chopra, vitiated the finding of the
Tribunal and its decision is liable to be struck down as perverse.
6. There is no appearance on behalf of the assessee, despite service of notice.
7. The point urged by the Revenue deserves to be accepted. The Assessing
Officer as well as the CIT(Appeals) have brought on record the facts to show that the
financial condition of the borrowing companies was sound which was not the case in
the assessment years 2003-04 to 2006-07 in which years the Tribunal and the High
Court had held that the assessee was justified in not taking credit for any interest from
these companies, despite following the mercantile system of accounting, because of
the poor financial position of those companies. The factual position for the year under
appeal is different and this has been brought out well both in the assessment order and
in the first appellate order. The Tribunal ought to have paused to consider the
ITA No.107/2012 Page 4 of 5
statement of the department before it to the effect that the facts for the year under
appeal were distinguishable and, therefore, the earlier orders of the Tribunal and the
judgment of the High Court, though in the assessee‟s own case, cannot be
mechanically applied. Unfortunately this aspect was completely missed by the
Tribunal. We, therefore, answer both the substantial questions of law raised by the
Revenue in the affirmative and in its favour. There shall be no order as to costs.
R.V. EASWAR, J.
S. RAVINDRA BHAT, J.
September 03, 2012
Bisht
