Pelican Investment P.Ltd, Mumbai vs Department Of Income Tax

ITO-9(2)(4), Pelican Investment P. Ltd.

R. No. 216B, Aayakar Bhavan, बनाम/ 1, Santos House, Road No. 3, M. K. Road, Mumbai-400 020 Vs. Sahar Village, Vile Parle (E), Mumbai-99 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAACP 7857 K (अपीलाथ /Appellant) : ( यथ / Respondent)

अपीलाथ क ओर से / Appellant by : Shri Jeetendra Kumar यथ क ओर से/Respondent by : Shri Subhash Shetty

सनु वाई क तार ख / 01.04.2015 Date of Hearing : घोषणा क तार ख / : 29.06.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-20, Mumbai ('CIT(A)' for short) dated 08.10.2012, partly allowing the Assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2006-07 vide order dated 19.12.2008.

2 ITA No. 7751/Mum/2012 (A.Y. 2006-07) ITO vs. Pelican Investment P. Ltd.

2. The appeal raises a single issue i.e., the maintainability or otherwise in law of the disallowance of interest on deposits, effected by the Assessing Officer (AO) in the sum of Rs. 8,28,830/-, by the learned CIT(A), in the facts and circumstances of the case.

3. The brief facts of the case are that the assessee-company, in the business of leasing, investment and trading, took over on lease a shopping arcade at Hotel Venture, Mumbai and Goa, sub-letting the same to various shopkeepers on leave and licence basis, which Agreement provided for keeping of deposits by the sub-lessees with the assessee. Vide clause 5 of the said agreement, the assessee was liable to pay interest on the deposits @ 5% p.a. The assessee being a company, and even otherwise following mercantile system of accounting, provided for interest on the said deposits in the impugned sum, which was disallowed by the AO following the assessee's consistent stand in the matter. The liability in its view had not crystallized in-as-much as the interest was payable only on the termination of the lease, placing reliance of the decision in the case of New India Mining Corporation Ltd. vs. CIT [2000] 243 ITR 640 (SC). The assessee's case, on the other hand, is that the liability has accrued, so that it represents a liability in praesenti, even though payable on a future date. The Tribunal had in fact examined its case and allowed it for AYs 1991-92 and 1992-93, which decision/s had been followed by the first appellate authority, so that the Department being in appeal would be of little consequence, at least as far as the tribunal is concerned.

4. We have heard the parties, and perused the material on record.

In our clear view, the Revenue has no case whatsoever. Considering it from the stand point of precedence, the admitted position is of the tribunal having decided the issue in the assessee's favour. There is nothing on record to exhibit that the Revenue has appealed against the same before the hon'ble High Court, so that the presumption would be of the said order/s having attained finality. Even otherwise, mere contesting of a decision before a higher appellate forum would not detract from its precedence value, so that it shall continue to hold.

3 ITA No. 7751/Mum/2012 (A.Y. 2006-07) ITO vs. Pelican Investment P. Ltd.

On merits, it is the admitted position that the interest obligation is w.r.t. time. Interest is a function of time, representing the opportunity cost of funds (for the relevant period), accruing thus from year to year (refer: Rama Bai v. CIT [1990] 181 ITR 400 (SC)). That the liability is payable at a future date may only impact its valuation. The assessee has categorized the same as a current liability in its books, under the head 'Interest accrued but not due'. A current liability is by definition one which is likely and intended to be discharged in the following year. There is nothing on record which would justify the classification of the liability as a current liability. It is even not clear as to whether the date of payment, i.e., the discharge of the liability, is defined, as where the term of the agreement is fixed, or is uncertain inasmuch as it is liable to be renewed, condition in respect which would though have to be consistent with the principal lease agreement. In any case of the matter, it is only the discharge of the liability, since accrued, that is not certain or defined, i.e., on the basis of the material on record. As aforesaid, the same would only impact the valuation or the classification of the liability by the assessee in its books. The only question, therefore, could be of its valuation, qua which no case has been made out by the Revenue. Accounting Standard-1 (AS-1) issued by CBDT u/s. 145 of the Act, which is again in agreement with AS-1 issued by the ICAI, mandates for provision of all known liabilities. The law in the matter is trite, toward which we may refer to, inter alia, the decisions in Bharat Earth Mover vs. CIT [2000] 245 ITR 428 (SC) and Rotork Controls India P. Ltd. vs. CIT [2009] 314 ITR 62 (SC).

Further, the liability under reference has arisen only during the current year. The same, irrespective of its discharge date, would thus be deductible as a time cost u/s. 36(1)(iii) of the Act. This would meet the assessee's reliance on New India Mining Corporation Ltd. (supra), the basis of which decision, in contradiction, is the non- incurring of any expenditure on the restoration of land on the determination of the lease, during the relevant year. The said decision would thus has no application in the facts of the instant case.

We, in view of the foregoing, have no hesitation in confirming the impugned order on this ground, upholding the assessee's claim. We decide accordingly.

4 ITA No. 7751/Mum/2012 (A.Y. 2006-07) ITO vs. Pelican Investment P. Ltd.

5. In the result, the Revenue's appeal is dismissed.

प रणामतः राज व क अपील खा रज क जाती है ।

Order pronounced in the open court on June 29, 2015

(Sanjay Garg) (Sanjay Arora) या यक सद य / Judicial Member लेखा सद य / Accountant Member मुंबई Mumbai; दनांक Dated : 29.06.2015 आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आयु त(अपील) / The CIT(A) 4. आयकर आयु त / CIT - concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब ु ई / DR, ITAT, Mumbai 6. गाड फाईल / Guard File आदे शानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai