M/S NIRMA LIMITED, Ahmedabad v. THE ASSTT. CIT, CEN. CIRCLE-1(1), Ahmedabad

MA 37/AHD/2009 | 1999-2000
Pronouncement Date: 28-10-2016 | Result: Allowed

Appeal Details

RSA Number 3720524 RSA 2009
Assessee PAN LEDIN2009A
Bench Ahmedabad
Appeal Number MA 37/AHD/2009
Duration Of Justice 7 year(s) 8 month(s) 22 day(s)
Appellant M/S NIRMA LIMITED, Ahmedabad
Respondent THE ASSTT. CIT, CEN. CIRCLE-1(1), Ahmedabad
Appeal Type Miscellaneous Application
Pronouncement Date 28-10-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-10-2016
Date Of Final Hearing 03-08-2012
Next Hearing Date 03-08-2012
Assessment Year 1999-2000
Appeal Filed On 05-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI MANISH BORAD ACCOUNTANT MEMBER MA NO.37/AHD/2009 IN ./ ITA.NO.175/AHD/2003 / ASSTT. YEAR: 1999-2000 NIRMA LIMITED NIRMA HOUSE ASHRAM ROAD AHMEDABAD. VS DCIT CENT.CIR.1(1) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR AND SHRI HIMANSHU SHAH AR REVENUE BY : SHRI PRASOON KABRA SR.DR / DATE OF HEARING : 07/10/2016 / DATE OF PRONOUNCEMENT: 28/10/2016 $%/ O R D E R PER RAJPAL YADAV JUDICIAL MEMBER PRESENT MISC. APPLICATION IS DIRECTED AT THE INSTAN CE OF THE ASSESSEE UNDER SECTION 254(2) OF THE INCOME TAX ACT 1961 PO INTING OUT APPARENT ERROR IN THE ORDER OF THE TRIBUNAL DATED 31.7.2006 PASSED IN ITA NO.175/AHD/2003. 2. THE TRIBUNAL VIDE ITS ORDER DATED 31.7.2006 HAS DISPOSED OF CROSS APPEALS I.E. ITA NO.175/AHD/2003 (BY THE ASSESSEE) AND ITA NO.523/AHD/2003 (BY THE REVENUE) AND CO NO.9/AHD/20 03 IN ITA NO.523/AHD/2003 (BY THE ASSESSEE). THIS MA WAS FIL ED IN 2009 AGAINST ORDER MA NO.37/AHD/ 2009 2 OF THE TRIBUNAL. ASSESSEE HAS ALREADY FILED A TAX APPEAL BEARING NO.1220 OF 2006 BEFORE THE HONBLE COURT WHICH STANDS ADMITTE D. IT APPEARS THAT THE TRIBUNAL WAS OF THE OPINION THAT SINCE APPEAL HAS B EEN ADMITTED BY THE HONBLE HIGH COURT IT IS NOT EMPOWERED TO ADJUDICA TE THE MA. THUS THE ASSESSEE HAS FILED AN APPLICATION I.E. CIVIL APPLIC ATION(OJ) NO.657 OF 2015 IN TAX APPEAL NO.1220 OF 2006. THE HONBLE HIGH COURT HAS DECIDED THIS APPLICATION VIDE ORDER DATED 12.10.2015 AND DIRECTE D THE TRIBUNAL TO DISPOSE OF THIS MA WITHOUT GETTING INFLUENCED BY PENDENCY O F APPEAL BEFORE THE HONBLE HIGH COURT. CONCLUDING PARAGRAPHS OF THE O RDER OF THE HONBLE HIGH COURT READS AS UNDER: 4. IN THE AFORESAID PREMISES THE APPLICATION IS A LLOWED BY CLARIFYING THAT PENDENCY OF THE PRESENT APPEAL NAMELY TAX AP PEAL NO.1220 OF 2006 SHALL NOT PRECLUDE THE TRIBUNAL FROM HEARING A ND DECIDING MISCELLANEOUS APPLICATION NO.37 OF 2009 PENDING BEF ORE IT. ON THE CONTRARY THE TRIBUNAL IS EXPECTED TO DECIDE THE AP PLICATION AT THE EARLIEST. CONSIDERING THE FACT THAT THE MISCELLANEO US APPLICATION IS PENDING SINCE 2009 THE TRIBUNAL IS REQUESTED TO DI SPOSE OF THE SAME AS EXPEDITIOUSLY AS POSSIBLE. THE APPLICATION STAND S DISPOSED OF ACCORDINGLY. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING DETE RGENT POWDER DETERGENT CAKE TOILET SOAPS AND INTERMEDIATE INDUSTRIAL PROD UCTS SUCH AS SULFURIC ACID ACID SLURRY FATTY ACID ETC. IT HAS FILED ITS RET URN OF INCOME ON 31.12.1999 DECLARING TOTAL INCOME OF RS.64 29 37 960/- AFTER C LAIMING DEDUCTION UNDER SECTIONS 80I 80(IA) 80HHC 80HH AND 80G OF THE IN COME TAX ACT. ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE. IT IS PERTINENT TO OBSERVE T HAT PUBLIC ISSUE WAS OPENED BY THE ASSESSEE ON 21.8.1996 WHICH CLOSED ON 18.9.1996 . BY WAY OF THIS THE ASSESSEE HAS PROCURED FUNDS UNDER NCD/SPN. SCHEME HAS BEEN HIGHLIGHTED IN THE PROSPECTUS AND THE MAJOR TERMS AND CONDITION S OF INSTRUMENT READ AS UNDER: MA NO.37/AHD/ 2009 3 IN CASE ANY NCDS / SPNS OFFERED ON A RIGHTS BASIS T O THE SHAREHOLDERS OF THE COMPANY REMAIN UNSUBSCRIBED THE BOARD SHALL HAVE THE FULLY DISCRETION AND ABSOLUTE AUTHORITY TO DISPOSE OF SUC H UNSUBSCRIBED PORTION TO SUCH PERSONS AND IN SUCH A MANNER AS THE Y MAY DEEM FIT IN THE BEST INTEREST OF THE COMPANY AND THE DECISION O F THE BOARD SHALL BE FINAL AND BINDING. PRINICIPAL TERMS OF THE NCDS/SPNS. THE NCDS/SPNS NOW BEING OFFERED ARE SUBJECT TO THE PROVISIONS OF THE ACT AND THE TERMS AND CONDITIONS OF THIS LETTER OF OFFER THE CAF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPA NY AND THE LETTERS OF ALLOTMENT/NCD / SPN CERTIFICATES TO BE I SSUED. NCDS/SPNS SHALL ALSO BE SUBJECT TO SUCH OTHER TERMS AND CONDITIONS AS MAY BE CONTAINED IN THE TRUSTEE AGREEMENT AND OTHE R RELEVANT (DOCUMENTS). EACH SHAREHOLDER WILL HAVE A CHOICE TO APPLY FOR NCDS OR SPNS OR A COMBINATION OF BOTH. SUBJECT AS AFORES AID THE PRINCIPAL TERMS OF THE NCDS / SPNS ARE AS UNDER: TERMS OF THE INSTRUMENTS INSTRUMENT NCD OR SPN WITH WARRANTS ATTACHED (THE SHAREHOLDER WIL L HAVE AN OPTION TO CHOOSE EITHER NCD AND/OR SPN AS PER THEIR REQUIREMENT.) FACE VALUE (RS.) RS.200 INTEREST (P.A.) ON NCD 17% PAYABLE HALF YEARLY TERMS OF PAYMENT ON APPLICATION ON ALLOTMENT ON FIRST & FINAL CALL (WITHIN A PERIOD OF 12 MONTHS FROM THE DATE OF ISSUE) RS. 50 RS. 50 RS. 100 REDEMPTION RS. NCD AT THE END OF 4TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 5TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 6TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 7TH YEAR FROM DATE OF ALLOTMENT 50 50 50 50 PRINCIPAL (RS.) PREMIU M (RS.) MA NO.37/AHD/ 2009 4 SPN AT THE END OF 4TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 5TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 6TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 7TH YEAR FROM DALE OF ALLOTMENT 50 60 50 60 50 60 50 70 WARRANTS EACH NCD / SPN WILL CARRY 4 SEPERATE DETACHABLE TRADEABLE WARRANTS EACH WARRANT IS ELIGIBLE FOR ALLOTMENT OF ONE EQUITY SHARE IN THE RESPECTIVE YEAR AS FOLLOWS: AT THE END OF 4TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 5TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 6TH YEAR FROM DATE OF ALLOTMENT AT THE END OF 7TH YEAR FROM DATE OF ALLOTMENT 1ST WARRANT LLND WARRANT ILLRD WARRANT IVTH WARRANT EXERCISE PRICE (RS.) RS. 50/- PER SHARE (RS. 10 + 40) OPTION I OPTION II BY PAYING RS. SO/- EACH IN CASH ON EXERCISE OF SUCH W ARRANTS IN RESPECTIVE YEARS. BY SURRENDERING THAT PORTION OF THE PRINCIPAL OF THE NCD / SPN WHICH IS MATURING FOR PAYMENT AT THE END OF 4TH 5 TH 6TH AND 7TH YEARS RESPECTIVELY SO AS TO EXERCISE THE OPTION ATT ACHED TO THE RESPECTIVE WARRANTS IN LIEU OF PAYMENT BY CASH/CHEQ UE/DRAFT 4. THE LD.AO HAS DENIED INTEREST EXPENDITURE AND IN CURRED ON SPN. HIS CONCLUSIONS HAVE BEEN CONCURRED WITH BY THE TRIBUNA L ALSO. AT THIS STAGE BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS OF TH E PRESENT CASE IN ORDER TO FIND OUT WHETHER ANY APPARENT ERROR WAS COMMITTED B Y THE TRIBUNAL OR NOT WHILE PASSING IMPUGNED ORDER DATED 31.7.2006 WHICH IS IMPUGNED IN TAX APPEAL NO.1220 OF 2006 BEFORE THE HONBLE HIGH COUR T WE THINK IT APPROPRIATE TO BEAR IN MIND CERTAIN BASIC PRINCIPLE S FOR EXERCISING POWERS CONTEMPLATED IN SECTION 254(2) OF THE INCOME TAX AC T. THERE ARE SERIES OF DECISIONS AT THE END OF THE HONBLE SUPREME COURT A S WELL AS HONBLE HIGH COURT EXPOUNDING SCOPE OF EXERCISING POWERS UNDER S ECTION 254(2) OF THE ACT. WE DO NOT DEEM IT NECESSARY TO RECITE AND RECAPITUL ATE ALL OF THEM BUT SUFFICE TO SAY THAT CORE OF ALL THESE AUTHORITATIVE PRONOUN CEMENTS IS THAT POWER FOR RECTIFICATION UNDER SECTION 254(2) OF THE ACT CAN B E EXERCISED ONLY WHEN MISTAKE WHICH IS SOUGHT TO BE RECTIFIED IS AN OBV IOUS AND PATENT MISTAKE MA NO.37/AHD/ 2009 5 WHICH IS APPARENT FROM THE RECORD AND NOT A MISTAKE WHICH IS REQUIRED TO BE ESTABLISHED BY ARGUMENTS AND LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY CONCEIVABLY BE TWO OPINIONS. FOR F ORTIFYING THIS VIEW WE MAKE REFERENCE TO THE DECISION OF THE HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF ACIT VS. SAURASHTRA KUTCH STOCK EXCHANGE LD . 262 ITR 146 WHICH HAS BEEN UPHELD BY THE HONBLE SUPREME COURT REPORT ED IN 305 ITR 227. THE HONBLE COURT HAS LAID DOWN FOLLOWING PROPOSITION W HILE CONCLUDING THE JUDGMENT: '(A) THE TRIBUNAL HAS POWER TO RECTIFY A MISTAKE AP PARENT FROM THE RECORD ON ITS OWN MOTION OR ON AN APPLICATION BY A PARTY UNDER S. 254(2) OF THE ACT; (B) AN ORDER ON APPEAL WOULD CONSIST OF AN ORDER MA DE UNDER S. 254(1) OF THE ACT OR IT COULD BE AN ORDER MADE UNDER SUB-S . (1) AS AMENDED BY AN ORDER UNDER SUB-S. (2) OF S. 254 OF THE ACT; (C) THE POWER OF RECTIFICATION IS TO BE EXERCISED T O REMOVE AN ERROR OR CORRECT A MISTAKE AND NOT FOR DISTURBING FINALITY THE FUNDAMENTAL PRINCIPLE BEING THAT POWER OF RECTIFICATION IS FOR JUSTICE AND FAIR PLAY; (D) THAT POWER OF RECTIFICATION CAN BE EXERCISED EV EN IF A MISTAKE IS COMMITTED BY THE TRIBUNAL OR EVEN IF A MISTAKE HAS OCCURRED AT THE INSTANCE OF PARTY TO THE APPEAL; (E) A MISTAKE APPARENT FROM RECORD SHOULD BE SELF-E VIDENT SHOULD NOT BE A DEBATABLE ISSUE BUT THIS TEST MIGHT BREAK DOW N BECAUSE JUDICIAL OPINIONS DIFFER AND WHAT IS A MISTAKE APPARENT FROM THE RECORD CANNOT BE DEFINED PRECISELY AND MUST BE LEFT TO BE DETERMI NED JUDICIALLY ON THE FACTS OF EACH CASE; (F) NON-CONSIDERATION OF A JUDGMENT OF THE JURISDIC TIONAL HIGH COURT WOULD ALWAYS CONSTITUTE A MISTAKE APPARENT FROM THE RECORD REGARDLESS OF THE JUDGMENT BEING RENDERED PRIOR TO OR SUBSEQUE NT TO THE ORDER PROPOSED TO BE RECTIFIED; MA NO.37/AHD/ 2009 6 (G) AFTER THE MISTAKE IS CORRECTED CONSEQUENTIAL O RDER MUST FOLLOW AND THE TRIBUNAL HAS POWER TO PASS ALL NECESSARY CONSEQ UENTIAL ORDERS.' 5. IT IS PERTINENT TO OBSERVE THAT IN HIERARCHY OF APPELLATE JURISDICTION UNDER THE INCOME TAX ACT ITAT IS THE LAST FACT FINDING A PPELLATE AUTHORITY THEREAFTER APPEAL TO THE HONBLE HIGH COURT UNDER S ECTION 260A OF THE ACT IS PROVIDED ON POINT OF LAW INVOLVED THEREIN. OPERATI VE FORCE OF THE ARGUMENTS ADVANCED BY SHRI S.N. SOPARKAR ON BEHALF OF THE ASS ESSEE WAS THAT ITAT HAS CONCEIVED FACTS WRONGLY AND CUMULATIVE EFFECT OF TH IS CONCEIVMENT OF THESE WRONG FACTS WOULD BE THAT THEY WILL GOAD THE ADJUDI CATING AUTHORITY ON WRONG CONCLUSION. ASSIMILATION OF INCORRECT FACTS WOULD LAY FOUNDATION OF WRONG REASON AND RESULT IN AN INCORRECT ADJUDICATION. WE ARE CONSCIOUS OF THE FACT THAT ERROR OF FACT AND LAW IN APPRECIATING THE CIRC UMSTANCES SECTION AND PROVISION COULD FALL IN THE AMBIT OF APPARENT ERROR BUT NOT ERROR OF JUDGMENT REACHED AFTER APPLYING CORRECT FACT AND CORRECT LAW BECAUSE THAT WILL BE PROCESS OF ADJUDICATING THE CONTROVERSY AND THAT CA N LEAD TO DIFFERENCE OF OPINION QUA RESULT. BUT IF INCORRECT FACTS AND INCORRECT PROV ISIONS ARE CONSIDERED THEN THAT WOULD COME IN THE AMBIT OF AP PARENT ERROR. IN THE LIGHT OF THE ABOVE LET US EXAMINE THE FACTS OF THE PRESE NT CASE. A PERUSAL OF THE ASSESSMENT ORDER WOULD INDICATE THAT THE ASSESSEE-C OMPANY HAS CLAIMED SODA ASH PROJECT EXPENSES OF RS.41 59 05 200/- INCLUDING INTEREST EXPENSES OF RS.36 23 43 684/- AS REVENUE EXPENDITURE WHEREAS IN THE BOOKS OF ACCOUNTS THE SAME WAS TREATED AS CAPITAL EXPENDITURE. SIMIL ARLY FOR LAB FRONT END PROJECT EXPENSES OF RS.6 01 29 222/- HAVE BEEN CLAI MED AS REVENUE EXPENDITURE. THE BREAK-UP OF INTEREST EXPENSES OF RS.36 23 43 684/- OF SODA ASH ARE AS UNDER: INT. EXPS. 58 16 32 684 LESS INTT. INCOME I. F.D.NSC INTT. 19 47 884 MA NO.37/AHD/ 2009 7 II. INTT ON LATE RECEIPT OF ALLOTMENT MONEY III. OTHER INTT. INCOME 4 59 816 21 68 81 302 36 23 43 684 6. THE LD.AO DID NOT ALLOW DEDUCTION OF THIS EXPEND ITURE FOR TWO REASONS VIZ. IN ASSESSMENT YEAR 1997-98 SIMILAR DEDUCTION W AS NOT ALLOWED AND (B) ALTERNATIVELY HE HAS HELD THAT THE ALLEGED INTERES T EXPENDITURE INCURRED ON SPNS. IS A COLOURFUL DEVICE WHEREBY THE ASSESSEE HA S CLAIMED DEDUCTION OF INTEREST EXPENDITURE TO SPNS. TRANSACTION AND SPN H OLDERS HAVE NOT SHOWN SUCH INTEREST INCOME IN THEIR HANDS. ACCORDING TO THE AO THIS SCHEME WAS STRUCTURED IN SUCH A MANNER THAT MONEY WAS REMAINED IN THE HANDS OF THE PROMOTERS. ACCORDINGLY THE LD.AO AFTER POINTING O UT DIFFERENT FLAWS IN THE PUBLIC ISSUE OF SPNS ARRIVED AT A CONCLUSION THAT I T WAS A PRE-MEDIATE AND PRE- DETERMINED SERIES OF TRANSACTIONS DESIGNED TO DEFRA UD THE REVENUE. HE DISALLOWED INTEREST EXPENSES ON SPN OF RS.4 504 LAK HS I.E. RS.45.04 CORES. THE CONCLUSION MADE BY THE AO IN PARAGRAPH 4.22 REA DS AS UNDER: 4.22 THUS IN ITS SUBMISSIONS THE ASSESSEE COMPAN Y HAS NOT DENIED THE ABOVE NARRATED FACTUAL POSITION WHICH WA S BROUGHT BEFORE THE ASSESSEE COMPANY VIDE SHOW CAUSE NOTICE 28.3.20 02 BUT MERELY REITERATED THAT THE ISSUE OF SPN SHOULD ONLY BE LOO KED THAT THE LIMITED PERSPECTIVE OF THE ASSESSEE COMPANY WHEREAS THE SUP REME COURT HAS CLEARLY HELD IN THE DECISION IN THE CASE OF MCDOWEL L LTD. THAT IN THE CASE OF PRE-MEDIATED AND PRE-DETERMINED SERIES OF T RANSACTIONS DESIGNED TO DEFRAUD THE REVENUE THE SERIES OF TRANS ACTIONS SHOULD BE LOOK IN THEIR ENTIRETY. IN LIGHT OF THE ABOVE THE INTEREST EXPENSES ON SPNS OF RS.4504 LACS IS DISALLOWED IN THE ASSESSMEN T FOR THE AY 1999- 2000. WITHIN THIS DISALLOWANCE OF THE INTEREST EXP ENSES CAPITALIZED IN THE BOOKS IN THE SODA ASH DIVISION AND THE LAB FRON T END PROJECT ARE SUBSUMED. THE EXCESS DISALLOWANCE OF RS.279 LACS I S DONE IN THE MANDALI DIV. PENALTY PROCEEDINGS U/S.271(1)(C) INI TIATED. MA NO.37/AHD/ 2009 8 7. MA FILED BY THE ASSESSEE IS RUNNING INTO 11 PAGE S. IN ALL THESE PAGES THE ASSESSEE HAS DEMONSTRATED AS TO HOW THE TRIBUNA L HAS ERRED IN APPRECIATING THE FACTS. IN ALL THE ASSESSEE HAS POINTED OUT 19 INSTANCES. IT HAS NARRATED PAGE NUMBERS PARAGRAPHS NUMBERS OF THE TRIBUNALS ORDER AND THEREAFTER POINTED OUT BRIEF FINDING RECORDED BY THE TRIBUNAL AND HOW SUCH FINDING OR OBSERVATION OF THE TRIBUNAL IS FACTUALLY INCORRECT. THEREFORE IN ORDER TO APPRECIATE THE STAND OF THE ASSESSEE WE DEEM IT PE RTINENT TO TAKE NOTE OF THIS COMPARATIVE ANALYSIS MADE IN TABULAR FORM. IT READ S AS UNDER: SR. NO. PAGE NO. PARA NO. FINDINGS CORRECT FACTS 1 83 11.10 IT WAS DEFINITELY PREDETERMINED DECISION BY THE PROMOTERS TO KEEP THE GENERAL PUBLIC AWAY FROM SUBSCRIBING TO SPNS WHEN COMPARE TO NCDS AND IT IS THE REASONS GENERAL PUBLIC DID NOT SUBSCRIBE SPNS. IN THE OFFER DOCUMENTS EVERY SHAREHOLDER WAS GIVEN A CHOICE TO SUBSCRIBE EITHER NCD OR SPNS. IT IS TOTALLY INCORRECT TO SUGGEST THAT GENERAL PUBLIC WAS KEPT AWAY FROM SUCH SUBSCRIPTION OF SPNS. 2 84 11.10 THE MOST OF SPNS OUT OF 107 LAKH SPNS 102 LAKHS SPNS I.E. ABOUT 96% WERE TAKEN OVER BY THE PROMOTORS AND THEIR RELATIVES. THIS IS A MATTER OF FACT AND DOES NOT SHOW ANY DESIGN ON THE PART OF THE PROMOTORS TO ACQUIRE SPNS TO THE EXCLUSION OF OTHER SHAREHOLDERS. 3 84 11.10 AT THE TIME OF ISSUE OF SPNS OUTSIDER WERE KEPT IN DARK THAT SPNS WILL BE REDEEMED EVEN BEFORE THE YEAR FOR WHICH FIRST PREMIUM WAS TO BE PAID. THIS FACT WAS IN THE KNOWLEDGE OF PROMOTORS ONLY. THAT IS WHY THE AO ALLEGED THAT SPNS WERE ISSUED WITH PRE- MEDICATED AND PREDETERMINED. THERE IS NOTHING TO SHOW THAT AT THE TIME WHEN SPNS WERE ISSUED IT WAS DECIDED THAT THEY WERE TO BE REDEEMED EVEN BEFORE THE YEAR FOR WHICH FIRST PREMIUM WAS TO BE PAID. AS A MATTER OF FACT THE CASE OF REVENUE IS EXACTLY ON REVERSE. ACCORDING TO REVENUE IT IS ONLY BECAUSE THE LAW WAS AMENDED IN 1999-00 THAT ASSESSEE IN ORDER TO GIVE ADVANTAGE TO ITS SPN HOLDERS PREPONED THE DATE OF REDEMPTION. TO PUT IT DIFFERENTLY THE DECISION TO MA NO.37/AHD/ 2009 9 PREPONE ISSUE WAS TAKEN EVEN ACCORDING TO REVENUE SOMEWHERE IN THE YEAR 1999. TRIBUNAL HOLDS EXACTLY CONTRARY TO THIS. SR. NO. PAGE NO. PARA NO. FINDINGS CORRECT FACTS 4 84 11.10 FROM THE FACTS OF THE CASE ONE CAN SAFELY REACH TO A CONCLUSION THAT SCHEME OF SPNS WAS NOTHING BUT A SCHEME TO OBTAIN THE EQUITY SHARES OF ASSESSEE COMPANY BY PROMOTERS AND RELATIVES. THIS FACT IS SUPPORTED BY THE FACT THAT IN THE LETTER OF OFFER SPNS WERE ENTITLED TO SUBSCRIBE SHARE CAPITAL AND IN FACT ON ITS PREMATURITY THE SHARES WERE ALLOTTED THAT IS WHY THE CAPITAL OF ASSESSEE COMPANY HAS BEEN INCREASED FROM (BEFORE CONVERSION OF WARRANTS) RS.1 62 83 500 TO 7 93 82 284 (AFTER CONVERSION OF WARRANTS) THIS OBSERVATION IS ON ACCOUNT OF THOROUGH CONFUSION OF FACTS ON THE PART OF THE TRIBUNAL. HOLDERS OF SPNS AS ALSO HOLDERS OF NCDS WERE GIVEN THE SAME RIGHT OF SUBSCRIPTION OF SHARES THROUGH WARRANTS. IN OTHER WORDS RIGHT TO ACQUIRE ADDITIONAL SHARES WAS NOT ATTACHED ONLY TO SPNS; IT WAS ALSO ATTACHED TO NCD. THEREFORE THE ASSUMPTION THAT SPNS WERE ISSUED TO OBTAIN EQUITY SHARES OF THE COMPANY BY THE PROMOTERS AND RELATIVES IS PATENTLY INCORRECT. INCIDENTALLY THIS IS NOT EVEN THE CASE OF REVENUE. 5 84 11.10 THE FUNDS RECEIVED ON ACCOUNT OF SPNS IS NOTHING BUT FUNDS TOWARDS SHARE IN EQUITY CAPITAL BY PROMOTORS WHICH CANNOT BE CALLED AS BORROWED CAPITAL. SINCE THE PAYMENT OF ALLEGED INTEREST/PREMIUM ON SPNS IS NOT IN RESPECT OF CAPITAL BORROWED THEREFORE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE U/S.36(1)(III) OF THE I.T. ACT. HERE AGAIN TRIBUNAL HAS CONFUSED THE FACTS. THE FUNDS RECEIVED BY WAY OF SPNS WERE NEVER CONVERTED INTO CAPITAL. THESE FUNDS HAVE COME BACK TO SPN HOLDERS ON REDEMPTION. THEREFORE THESE FUNDS CAN NEVER BE EQUATED TO EQUITY CAPITAL OF THE COMPANY. MA NO.37/AHD/ 2009 10 6 84 11.10 THE FUNDS RECEIVED ON ACCOUNT OF SPN IS NOTHING BUT FUNDS TOWARDS SHARES IN EQUITY CAPITAL BY PROMOTERS WHICH CANNOT BE CALLED AS BORROWED CAPITAL. THE COMPANY ISSUED EQUITY SHARES AGAINST PAYMENT OF RS.50 ON SURRENDER OF THE WARRANTS. THE SHARES WERE GIVEN TO THE HOLDERS OF SPNS AS WELL AS NCD. HENCE IT CANNOT BE STATED THAT EQUITY SHARES WERE ISSUED AGAINST SPN. SR. NO. PAGE NO. PARA NO. FINDINGS CORRECT FACTS 7 85 11.10 WE FIND THAT INTENTION AND SUBSTANCES OF TRANSACTIONS BOTH ARE NOT IN RESPECT OF; OF BORROWED CAPITAL AND PAYMENT OF INTEREST OR ANY PREMIUM THEREON AS THE MAIN INTENTION AND SUBSTANCE OF THE TRANSACTIONS WERE TO OBTAIN SHARES BY THE PROMOTERS FOR RS.50 AGAINST MARKET VALUE OF RS.1000 PER SHARE OF THE ASSESSEE COMPANY. THIS CONCLUSION DRAWN BY THE TRIBUNAL IS PATENTLY INCORRECT. SHARES WERE ALLOTTED TO EVERY ONE WHO HAD SUBSCRIBED FOR SPNS OR NCDS. FURTHER THE TRIBUNAL HAS LOST THE SIGHT OF BASIC FACT I.E. COMPANY WANTED TO MAKE A RIGHT ISSUE IT COULD HAVE WITHOUT ANY DIFFICULTY DONE THE SAME. IN SUCH EVENT EVERY SHAREHOLDER INCLUDING PROMOTORS WOULD HAVE GOT THE SHARES. THE QUESTION HERE IS NOT ALLOTMENT OF SHARES. THE QUESTION HERE IS INTEREST ON THE FUNDS BORROWED BY WAY OF SPNS. TRIBUNAL HAS CONFUSED ITSELF WITH SPNS AND WARRANTS INCIDENTALLY ATTACHED TO IT. 8 86 11.12 THE JURISDICTIONAL HIGH COURT IN THE CASE OF TAX APPEAL NO. 157/AHD/2000 AND 328/AHD/2000 JUDGEMENT DATED 21.4.2005 HELD THAT PARTIES ARE BOUND BY THE TERMS OF THE CONTRACT AND IT IS NOT OPEN TO ANY PARTY TO REWRITE THE TERMS OF THE CONTRACT. THE TRIBUNAL HAS COMPLETELY MISQUOTED THE JUDGEMENT OF THE HIGH COURT. WHAT HIGH COURT HAS HELD IS THAT INCOME-TAX DEPARTMENT CANNOT RE-WRITE TERMS OF THE CONTRACT. IT IS THE RIGHT OF PARTIES TO CONTRACT WHO CAN ALWAYS MODIFY THE SAID TERMS. IF PARTIES TO THE CONTRACT HAVE MODIFIED THE TERMS THEN DEPARTMENT CANNOT INSIST THAT OLD TERMS MUST CONTINUE TO OPERATE. IN MA NO.37/AHD/ 2009 11 ANY CASE EVEN UNDER THE ORIGINAL TERMS AND CONDITIONS COMPANY HAD RIGHT TO PREPONE THE DATE OF REDEMPTION OF SPNS AND NCDS. INTERESTINGLY BOTH SPNS AND NCDS HAVE BEEN REDEEMED ON A DATE PRIOR TO ORIGINAL DATE OF REDEMPTION. SR. NO. PAGE NO. PARA NO. FINDINGS CORRECT FACTS 9 86 11.13 KEEPING IN VIEW THE ABOVE RULINGS FOR DECIDING THE MATTER UNDER CONSIDERATION TERMS OF LETTER OF OFFER ARE IMPORTANT. WE FIND THAT DATE OF REDEMPTIONS OF SPNS HAD BEEN PREPONED AND FIXED FOR 15.3.2000 AGAINST FIRST INSTALMENT DUE ON 18.9.2000 THEREFORE IN ACCORDANCE WITH ORIGINAL TERMS AND CONDITIONS STIPULATED IN LETTER OF OFFER THERE IS NO ACCRUAL OF INTEREST/PREMIUM. THUS WITHOUT ACCRUAL OF EXPENSES THE CLAIM OF THE ASSESSEE IS CONTINGENT CLAIM WHICH IS NEITHER ALLOWABLE U/S.36(1)(III) OR UNDER SECTION 37 OF INCOME-TAX ACT. LARGE NUMBER OF DECISIONS WERE CITED BEFORE THE TRIBUNAL THAT PREMIUM ON SUCH DEBENTURES HAS TO BE ALLOWED AS A DEDUCTION ON A PRO RATA BASIS. THE TRIBUNAL HAS ITSELF HAS NOTED THIS. DECISIONS ARE ON PAGE NOS.48 AND 49 OF ITS ORDER. THE TRIBUNAL REFERS TO NONE OF THESE JUDGEMENTS AND TAKES A VIEW THAT INTEREST/PREMIUM NOT ALLOWABLE. THE CONCLUSION IS PATENTLY WRONG NOT ONLY IN VIEW VARIOUS DECISIONS RELIED ON BY THE ASSESSEE BUT ALSO BECAUSE IN THE CURRENT YEAR AS A MATTER OF FACT WHEN PREMIUM IS PAID ON REDEMPTION OF DEBENTURES PRORATA DEDUCTION SHOULD BE ALLOWED OVER THE PERIOD OF BORROWING. 10 86 11.14 WE DOUBT WHETHER SUCH TRANSACTIONS ARE IN ACCORDANCE WITH COMPANIES ACT OR IN ACCORDANCE WITH SEBI GUIDELINES. IN PRESENT SCENARIO OF ECONOMY IT IS HIGHLY IMPROPER AND UNJUST IF A CORPORATE DOING SOMETHING ELSE THEN STATED IN THE LETTER OF OFFER ISSUE TO THE FINDINGS OF THE TRIBUNAL HERE ARE HIGHLY SPECULATIVE APART FROM BEING FACTUALLY INCORRECT. IF THE TRIBUNAL HAS DOUBT THEN IT CANNOT MAKE ASSUMPTION THAT TRANSACTIONS WERE CONTRARY TO THE SOME STATUTORY PROVISIONS. THE ALLEGATION ABOUT SIPHONING OF PUBLIC MONEY IS TO SAY LEAST MOST MA NO.37/AHD/ 2009 12 THE PUBLIC. PUBLIC MONEY CANNOT BE ALLOWED TO BE SIPHONED BY PROMOTORS BY ANY MODE. IN THE CASE UNDER CONSIDERATION THE PROMOTORS/ MANAGEMENT ARE THE ONLY PERSONS KNOWING THE ULTIMATE FATE OF SPNS I.E. TO GET THE SHARES FROM INDIRECT WAYS. THESE TRANSACTIONS IS IN NATURE OF A THING WHICH CANNOT BE ACHIEVED DIRECTLY BUT IS ACHIEVED INDIRECTLY. IMPROPER. IN THE PRESENT CASE COMPANY HAS PAID PREMIUM FOR BORROWING FUNDS WHICH IS NOT SUBJECT MATTER OF CONTROVERSY. IT IS NO ONES CASE THAT BOGUS EXPENDITURE IS DEBITED. 11 86 11.14 THE SCHEME OF SPNS HAS BEEN DESIGNED IN SUCH A WAY SO THAT ONLY PROMOTERS CAN SUBSCRIBE AND GENERAL PUBLIC CANNOT SUBSCRIBE. THIS ALLEGATION IS FACTUALLY INCORRECT. EVERY SHAREHOLDER WAS ENTITLED TO SUBSCRIBE TO SPNS IF HE SO WISHED. 12 86 11.14 FROM THE FACTS AND MATERIAL ON RECORD WE DO NOT FIND ANY CONVINCING REASONS WHY TWO TYPES OF NOTES WERE ISSUED. IF THE COMPANY IS IN NEED OF FUNDS SIMPLY IT CAN ISSUE NOTES LIKE 17% NCD. WE ARE AWARE THAT THE ASSESSEE-COMPANY IS ABSOLUTELY FREE TO DECIDE HOW ITS BUSINESS IS TO BE CONDUCTED BUT SIMULTANEOUSLY WE ARE OF THE STRONG VIEW THAT A COMPANY CANNOT DESIGN SUCH A SCHEME TO GIVE THE BENEFIT ONLY TO PROMOTER AND THEIR RELATIVES. THIS IS BEYOND THE PURVIEW OF REVENUE. WHY COMPANY ISSUED SPNS AS ALSO NCDS IS NOT THE QUESTION WHICH ASSESSEE WOULD HAVE TO SHOW. IN ANY CASE THE TRIBUNAL HAS ERRONEOUSLY ASSUMED THAT IT WAS A DESIGN TO GIVE BENEFIT ONLY TO PROMOTORS AND THE RELATIVES ASSUMPTION WHICH IS FACTUALLY INCORRECT. 13 87 11.14 IN THE LIGHT OF ABOVE DISCUSSION WE ARE OF THE CONSIDERED VIEW THAT BENEFITS TO PROMOTERS IN THE GARB OF PREMIUM/INTEREST PARTICULARLY UNDER THE CIRCUMSTANCES WHERE ON ONE HAND THE ASSESSEE COMPANY CLAIMED EXPENSES ON THE OTHER HAND THE TRIBUNAL HERE CONSIDERS THOROUGHLY IRRELEVANT FACT VIZ. THAT IN THE HANDS OF SUBSCRIBERS OF SPNS PREMIUM IS NOT OFFERED FOR TAXATION. IT IS WELL SETTLED LAW THAT ALLOWABILITY OF AN EXPENDITURE DOES NOT DEPEND UPON ITS TAXABILITY IN THE HANDS OF PAYEE. IN ANY CASE MA NO.37/AHD/ 2009 13 SUBSCRIBERS OF SPNS DID NOT SHOW CORRESPONDING INCOME IS NOT ALLOWABLE AS SUCH EXPENDITURE IS NEITHER CAN BE SAID IN ACCORDANCE WITH BUSINESS EXPEDIENCY NOR FOR SAID TO BE INCURRED FOR THE PURPOSE OF BUSINESS. THE TRIBUNAL EVIDENTLY FORGOT THAT REVENUE HAS TAXED THE VERY RECEIPT IN THE HANDS OF PAYEE ALSO. 14 87 11. 14 IN THIS REGARD WE FIND FORCE IN THE SUBMISSION OF LD.DR THAT EXPLANATION OF THE ASSESSEE THAT THE REDEMPTION OF SPN WAS MADE TO REPLACE IT WITH LOW COST DEBT IS NOTHING BUT BOGUS. THE ASSESSEE REPLACED SPN THE CAPITAL OF EQUAL AMOUNT IMMEDIATELY AFTER THE REDEMPTION. THE CONTENTION OF THE LD.DR SUPPORTED BY THE EXPLANATORY NOTE TO THE NOTICE CALLING EXTRA ORDINARY GENERAL MEETING DATED 24.1.2000 BY THE ASSESSEE COMPANY. THE RELEVANT MATTER IS REPRODUCED BELOW:- THE COMPANY HAS DECIDED TO REDEEM THE SAID NCD/SPN EARLIER THAN THE DATES STIPULATED IN THIS REGARD. IT IS THEREFORE THOUGH FIT TO PREPONE THE PERIOD FOR THE RIGHT EXERCISABLE BY THE WARRANT HOLDERS FOR SUBSCRIBING THE EQUITY SHARES OF THE COMPANY. THIS WOULD HELD THE COMPANY IN IMPROVING THE DEBT EQUITY RATIO AS WELL AS CREATING THE LIQUIDITY OF ITS EQUITY SHARES IN THE STOCK MARKET. THE TRIBUNAL HAS COMPLETELY MISUNDERSTOOD THE FACTS. THE ASSESSEE HAD DEMONSTRATED BY DOCUMENTS THAT COMPANY BORROWED FUNDS AT A CHEAPER RATE OF INTEREST THAN THE EFFECTIVE RETURN ON SPNS DETAILED CHART GIVEN IN THIS REGARD HAS BEEN INCOMPLETELY IGNORED. RELIANCE WAS PLACED ON THE EXPLANATORY NOTE IS COMPLETELY MISCONCEIVED. ONCE THE PRINCIPAL INSTRUMENT NAMELY NCD/SPNS FOR WHICH THE WARRANTS WERE ATTACHED WOULD STAND REDEEMED WARRANTS CANNOT BE KEPT FLOATING. THIS HAS HOWEVER NOTHING TO DO WITH FUNDS RAISED BY THE ASSESSEE FOR DISCHARGE OF SPNS AND ARE COMPLETELY UNCONNECTED FACTS AND ARE MIXED UP BY THE TRIBUNAL. MA NO.37/AHD/ 2009 14 15 88 11. 16 IF WE APPLY THE ABOVE DECISION OF ITAT AHMEDABAD SPECIAL BENCH TO THE FACTS OF THE CASE UNDER CONSIDERATION WE FIND THAT IN THE CASE UNDER CONSIDERATION SUBSTANCE OF THE TRANSACTION ISSUE OF SPNS DESIGNED ON PROMOTERS OWN SWEET WILL NOT COMPLIED WITH CONDITIONS STIPULATED IN THE LETTER OF OFFER AND MAJORITY OF WHICH SUBSCRIBED ONLY BY PROMOTERS/ DIRECTORS AND FACULTY MEMBERS IS ISSUE OF EQUITY CAPITAL. AS THE WARRANTS HAVE BEEN CONVERTED INTO EQUITY SHARE ON 19.6.2000. THUS THERE IS NO BORROWED CAPITAL CONSEQUENTLY NO INTEREST IN NAME OF PREMIUM AND EXTRA PREMIUM IS ALLOWABLE AS REVENUE EXPENSES. FOR THE REASONS STATED ABOVE CONCLUSION REACHED BY THE TRIBUNAL IS EXPLICITLY WRONG. THE TRIBUNAL IGNORED THE FACT THAT IN SPNS ADMITTEDLY HUGE AMOUNT HAS BEEN RECEIVED BY THE COMPANY AND UTILISED BY THE COMPANY. IT IS INCORRECT TO ASSUME THE CONDITIONS CONTAINED IN THE LETTER OF OFFER WERE NOT COMPLIED WITH. AS TO HOW MANY PERSONS SUBSCRIBED SUCH SPNS VIS A VIS NCDS IS NOT THE MATTER OF THE COMPANY TO DECIDE. THE FACT THAT WARRANTS WERE CONVERTED INTO EQUITY SHAREHOLDERS IS COMPLETELY IRRELEVANT TO THE PRESENT CONTROVERSY AND TO HOLD THAT THERE IS NO BORROWED CAPITAL IS TO SAY THE LEAST PERVERSE FINDING. 16 89 11. 17 (O) IN THE CASE UNDER CONSIDERATION THE CLAIM OF THE ASSESSEE COMPANY IS OF INTEREST/PREMIUM DIRECTLY CONNECTED/ RELATED TO THE EXPANSION OF THE CAPITAL OF THE COMPANY THEREFORE THE EXPENDITURE IS IN NATURE OF CAPITAL EXPENDITURE WHICH IS NOT ALLOWABLE U/S.37 OF THE I.T. ACT. THE TRIBUNAL HELD THAT INTEREST/ PREMIUM IS DIRECTLY CONNECTED TO THE EXPANSION OF THE CAPITAL. THIS FINDING IS INCORRECT. THE ASSESSEE HAS EVERY RIGHT TO GET DEDUCTION U/S.36(1)(III) OF THE ACT IN RELATION TO DEBENTURES WHICH ARE CONVERTED AT A FUTURE DATE INTO SHARES DURING THE PERIOD THAT SAID DEBENTURES WERE TREATED AS SUCH. 17 89 11. 19 THE JUDGEMENTS CITED AT THE TIME OF HEARING BY BOTH PARTIES ARE APPLICABLE TO THE FACTS OF THE RESPECTIVE CASE. SINCE THE MATTER UNDER CONSIDERATION HAS BEEN DECIDED ON ITS OWN FACTS AND WHICH WERE NOT IDENTICAL TO THE FACTS OF THE CASE CITED BY THE PARTIES. THUS THOSE JUDGEMENTS ARE DISTINGUISHABLE IN FACTS. THAT THE TRIBUNAL MAKES A GENERAL STATEMENT THAT JUDGEMENTS ARE DISTINGUISHABLE ON FACTS AND NOT A SINGLE ATTEMPT IS MADE IN THIS REGARD. 18 90 12 IN THE LIGHT OF ABOVE DISCUSSION WE FIND THAT LOWER AUTHORITIES THIS IS A REPETITION OF PARA 11.16 AND THEREFORE NO MA NO.37/AHD/ 2009 15 HAVE RIGHTLY DISALLOWED CLAIM OF THE ASSESSEE. AS THERE WERE NO BORROWED FUNDS NO ACCRUAL OF INTEREST; THE TRANSACTION WAS NOT IN ACCORDANCE WITH COMMERCIAL EXPEDIENCY. THE INTENTION AND SUBSTANCE OF THE TRANSACTION WAS TO TAKE SHARES BY PROMOTERS AND THEIR RELATIVE THROUGH UNUSUAL NOTE SECURED PREMIUM NOTES. A NOTE MONEY/FINANCIAL BENEFICIARY TO PROMOTERS AND THEIR RELATIVE. THE EXPENSES OF SUCH TRANSACTIONS ARE NOT ALLOWABLE AS BUSINESS EXPENSES UNDER THE PROVISIONS OF I.T. ACT IN CALCULATING PROFIT FROM BUSINESS. COMMENTS MADE HERE. COMMENTS MADE IN PARA 11.16 HOLD GOOD HERE ALSO. 19 90 12. 1 SO FAR AS THE CLAIM OF PAYMENT OF PREMIUM FOR THE 4 TH 5 TH 6 TH AND 7 TH YEAR AFTER THE YEAR OF SUBSCRIPTION IS CONCERNED; THE SPNS HAVING BEEN REDEEMED PRIOR TO THE END OF 4 TH YEAR ITSELF THE LIABILITY TO PAY PREMIUM FOR 4 TH OR 5 TH OR 6 TH OR 7 TH YEAR HAD NEITHER ACCRUED NOR THE ASSESSEE WAS UNDER OBLIGATION TO PAY SUCH LIABILITY AND THEREFORE THERE IS NO QUESTION OF ALLOWING DEDUCTION OF PAYMENT PAID BY THE ASSESSEE IN GARG OF PREMIUM ON SPNS FOR 4 TH 5 TH AND 6 TH & 7 TH YEARS. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY SERIES OF JUDGEMENTS OF THE HIGH COURTS AND S.C. AS MENTIONED IN PAGES 48 AND 49 OF THE ORDER. TRIBUNAL HAS NOT DISCUSSED ANY JUDGEMENT AND HELD AGAINST THE ASSESSEE. 8. IN THIS WAY THE LD.COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED HOW FACTUAL ERRORS HAVE BEEN COMMITTED BY THE TRIBUNAL. 9. SHRI PRASOON KABRA LD.DR APPEARING ON BEHALF OF THE REVENUE CONTENDED THAT WHILE EVALUATING FINDING OF THE TRI BUNAL IN ORDER TO FIND POINT OUT APPARENT ERROR INFERENCE DRAWN BY THE TRIBUNAL BASED UPON NUMBER OF FACTS SUPPORTED BY THE EVIDENCE AND CIRCUMSTANCES R EQUIRE CONSIDERATION WHETHER THAT IS SOUND OR NOT MUST BE DETERMINED NO T BY CONSIDERING WEIGHT TO MA NO.37/AHD/ 2009 16 BE ATTACHED TO EACH SINGLE FACT IN ISOLATION BUT B Y ASSESSING CUMULATIVE EFFECT OF ALL FACTS IN THEIR SETTING AS A WHOLE. HE POINT ED OUT THAT THERE MIGHT BE SOME ERROR HERE OR THERE IN FACTS BUT WHETHER CUMU LATIVE SETTING OF ALL THE FACTS GOAD THE TRIBUNAL TO ARRIVE AT A CORRECT DECI SION OR NOT. IN THIS CASE THE TRIBUNAL HAS APPRECIATED THE FACTS BROUGHT ON RECOR D BY THE AO AND THEREAFTER CONCUR WITH THE AO THAT SCHEME WAS DESI GNED BY THE ASSESSEE TO DEFRAUD THE REVENUE. 10 . ON DUE CONSIDERATIONS OF THE FACTUAL INACCURACY P OINTED OUT BY THE ASSESSEE IN ITS MA TABULATED ABOVE WE FIND THAT TH E TRIBUNAL HAS CONCEIVED MANY FACTS INCORRECTLY. AT THE COST OF REPETITION WE WOULD LIKE TO MENTION OBSERVATION OF THE TRIBUNAL IN PARA 11.14 OF THE IM PUGNED ORDER: 11.14 WE DOUBT WHETHER SUCH TRANSACTIONS ARE IN AC CORDANCE WITH COMPANIES ACT OR IN ACCORDANCE WITH SEBI GUIDELINES . IN PRESENT SCENARIO OF ECONOMY IT IS HIGHLY IMPROPER AND UNJUS T IF A CORPORATE DOING SOMETHING ELSE THAN STATED IN THE LETTER OF O FFER ISSUE TO THE PUBLIC. PUBLIC MONEY CANNOT BE ALLOWED TO BE SIPHON ED BY PROMOTERS BY ANY MODE. IN THE CASE UNDER CONSIDERATION THE PR OMOTERS/ MANAGEMENT ARE THE ONLY PERSONS KNOWING THE ULTIMAT E FATE OF SPNS I.E. TO GET THE SHARES FROM INDIRECT WAYS. THESE T RANSACTIONS IS IN NATURE OF A THING WHICH CANNOT BE ACHIEVED DIRECTLY BUT IS ACHIEVED INDIRECTLY. THE SCHEME OF SPNS HAS BEEN DESIGNED IN SUCH A WAY SO THAT ONLY PROMOTERS CAN SUBSCRIBE AND GENERAL PUBLI C CANNOT SUBSCRIBE. FROM THE FACTS AND MATERIAL ON RECORD WE DO NOT FI ND ANY CONVINCING REASONS WHY TWO TYPES OF NOTES WERE ISSUED. IF THE COMPANY IS IN NEED OF FUNDS SIMPLY IT CAN ISSUE NOTES LIKE 17% NCD. W E ARE AWARE THAT THE ASSESSEE-COMPANY IS ABSOLUTELY FREE TO DECIDE H OW ITS-BUSINESS IS TO BE CONDUCTED BUT SIMULTANEOUSLY WE ARE OF THE STRON G VIEW THAT CANNOT DESIGN SUCH A SCHEME TO GIVE THE BENEFIT ONLY TO PR OMOTER AND THEIR RELATIVES. IN SUCH CIRCUMSTANCES THE INCOME-TAX AUT HORITIES WERE ENTITLED TO PIERCE THE VEIL OF CORPORATE PERSONALIT Y AND LOOK AT THE REALITY OF THE TRANSACTION. THUS THE A.O. HAS CORRE CTLY EXAMINED THE TRANSACTIOAN WITH FIGURES OF TAX EVASION. THE RELEV ANT OBSERVATIONS OF THE A.O. ARE AT PAGE 7 & 8 OF HIS ORDER. IN THE LIG HT OF ABOVE DISCUSSION WE ARE OF THE CONSIDERED VIEW THAT BENEFITS TO PROM OTERS IN THE GARB OF MA NO.37/AHD/ 2009 17 PREMIUM/INTEREST PARTICULARLY UNDER THE CIRCUMSTANC ES WHERE ON ONE HAND THE ASSESSEE COMPANY CLAIMED EXPENSES ON THE OTHER HAND SUBSCRIBERS OF SPNS DID NOT SHOW CORRESPONDING INCO ME IS NOT ALLOWABLE AS SUCH EXPENDITURE IS NEITHER CAN BE SA ID IN ACCORDANCE WITH BUSINESS EXPEDIENCY NOR FOR SAID TO BE INCURRE D FOR THE PURPOSE OF BUSINESS. IN THIS REGARD WE FIND FORCE IN THE SUBMI SSION OF ID.DR THAT EXPLANATION OF THE ASSESSEE THAT THE REDEMPTION OF SPN WAS MADE TO REPLACE IT WITH LOW COST DEBT IS NOTHING BUT BOGUS. THE ASSESSEE REPLACED SPN THE CAPITAL OF EQUAL AMOUNT IMMEDIATEL Y AFTER THE REDEMPTION. THE CONTENTION OF THE ID.DR SUPPORTED B Y THE EXPLANATORY NOTE TO THE NOTICE CALLING EXTRA ORDINARY GENERAL M EETING DATED 24.1.2000 BY THE ASSESSEE-COMPANY. THE RELEVANT MAT TER IS REPRODUCED BELOW:- 'THE COMPANY HAS DECIDED TO REDEEM THE SAID NCD/SPN EARLIER THAN THE DATES STIPULATED IN THIS REGARD. IT IS THE REFORE THOUGH FIT TO PREPONE THE PERIOD FOR THE RIGHT EXERCISABLE BY THE WARRANT-HOLDERS FOR SUBSCRIBING THE EQUITY SHARES OF THE COMPANY. T HIS WOULD HELD THE COMPANY IN IMPROVING THE DEBT EQUITY RATIO AS W ELL AS CREATING THE LIQUIDITY OF ITS EQUITY SHARES IN THE STOCK MAR KET. ' (UNDERLINED BY US) 11. IN THIS PARAGRAPH THE TRIBUNAL HAS MADE AN OBSE RVATION THAT . THAT SCHEME OF SPNS HAS BEEN DESIGNED IN SUCH A WAY SO T HAT ONLY PROMOTERS CAN SUBSCRIBE AND GENERAL PUBLIC CANNOT SUBSCRIBE . THIS OBSERVATION OF THE TRIBUNAL IS FACTUALLY INCORRECT IF ONE MAY EVALUAT E THE PROSPECTUS. SCHEME WAS OPEN FOR ALL SHARE HOLDERS. THE ISSUE WAS OPEN ED ALONG WITH NCDS. THERE IS NO RESTRICTION THAT IT WAS MEANT FOR PROMO TERS ONLY. SIMILAR SCHEME WITH RESPECT TO NCD WAS NOT DOUBTED. SIMILARLY THE TRIBUNAL HAS OBSERVED THAT FROM THE FACTS AND MATERIAL ON RECORD WE DO NOT FI ND ANY CONVINCING REASONS WHY TWO TYPES OF NOTES WERE ISSUED . THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT THERE IS NO REASON GIVEN BY THE TR IBUNAL FOR THIS FINDING AND IT IS FOR THE ASSESSEE TO CONDUCT ITS BUSINESS. BY WAY OF THIS OBSERVATION THE TRIBUNAL HAS CONCURRED WITH THE AO AND INTERFERED I N THE MANNER OF MA NO.37/AHD/ 2009 18 CONDUCTING THE BUSINESS. IT WAS ALSO BROUGHT TO OU R NOTICE BY THE LD.COUNSEL FOR THE ASSESSEE THAT IN THIS PARAGRAPH THE TRIBUNA L HAS OBSERVED THAT COMPANY HAD CLAIMED EXPENSES AND ON THE OTHER HAND SUBSCRI BERS OF SPNS. DID NOT SHOW CORRESPONDING INCOME. HE DREW OUR ATTENTION T OWARDS THE FOLLOWING LINES. UNDER THE CIRCUMSTANCES WHERE ON ONE HAND THE ASSE SSEE COMPANY CLAIMED EXPENSES ON THE OTHER HAND SUBSCRIBERS OF S PNS DID NOT SHOW CORRESPONDING INCOME IS NOT ALLOWABLE AS SUCH EXP ENDITURE IS NEITHER CAN BE SAID IN ACCORDANCE WITH BUSINESS EXPEDIENCY NOR FOR SAID TO BE INCURRED FOR THE PURPOSE OF BUSINESS. CONTRARY TO THIS FINDING OF THE TRIBUNAL OUR ATTENTION WAS DRAWN TOWARDS THE FINDING OF THE AO I N PARA 4.8 OF THE ASSESSMENT ORDER. IT READS AS UNDER: 4.8 TOTAL AMOUNT OF ABOUT 163.57 CRORES AS PREMIUM AMOUNT HAS BEEN DEBITED IN ACCOUNTS AND CLAIMED AS EXPENSES IN RETU RNS OF INCOME IN THE FINANCIAL YEARS 1997-98 98-99 99-00 BY NIRMA LTD. BEFORE REDEMPTION THE PROMOTERS TRANSFERRED THE SPNS TO FINANCIAL INS TITUTIONS AND BANKS AND DISCLOSED LONG TERM CAPITAL GAINS ON ACCOUNT OF RECEIPT OF SALE PROCEEDS OUT OF TRANSFER OF SPNS. AT THE TIME OF REDEMPTION OF SPNS ON 15.3.2000 THE BANKS AND FINANCIAL INSTITUTIONS TREATED THE DI FFERENCE OF REDEMPTION PROCEEDS AT THE RATE OF RS.361 AND COST OF ACQUISIT ION OF SPNS PURCHASED FROM THE PROMOTERS AND NON-PROMOTERS OF NIRMA LTD. AS INCOME AND DISCLOSED THE SAME IN ACCOUNTS. 12. IN THIS FINDING THE AO HAS CATEGORICALLY OBSER VED THAT BEFORE REDEMPTION PROMOTERS TRANSFERRED THE SPNS. TO FINA NCIAL INSTITUTIONS AND BANKS AND DISCLOSED LONG TERM CAPITAL GAINS ON ACCO UNT OF RECEIPT OF SALE PROCEEDS OUT OF TRANSFER OF SPN. EMPHASIS WAS GIVE N THAT PROMOTERS HAVE OFFERED CAPITAL GAIN TAX. HOW THE TRIBUNAL CAN REC ORD A FINDING THAT PROMOTERS HAVE NOT PAID TAXES ? SIMILARLY IT WAS BROUGHT TO OUR NOTICE THAT FINANCIAL INSTITUTIONS TREATED DIFFERENCE OF REDEMP TION PROCEEDS AT THE RATE OF RS.361/- AND COST OF ACQUISITION OF SPNS. PURCHASED FROM THE PROMOTERS AND NON-PROMOTERS OF NIRMA LTD. AS INCOME AND DISCLOSE D THE SAME IN ACCOUNTS. THUS IT WAS DEMONSTRATED THAT EVEN THE FINANCIAL I NSTITUTIONS HAVE SHOWN THE MA NO.37/AHD/ 2009 19 INCOME FROM SPNS. ON THEIR REDEMPTION. THEN HOW I T CAN BE ALLEGED THAT NO CORRESPONDING INCOME WAS OFFERED FOR TAXATION ? AC CORDING TO THE LD.COUNSEL FOR THE ASSESSEE IT WAS NOT THE CASE OF THE AO. T HE QUANTUM MAY BE DIFFERENT AND NATURE MAY BE DIFFERENT BUT IT CANNOT BE ALLEG ED THAT INCOME WAS NOT OFFERED. APART FROM ABOVE WE HAVE BEEN APPRAISED WITH REGARD TO OTHER FACTUAL INACCURACY TABULATED IN THE MA. ON DUE CON SIDERATIONS OF ALL THESE FACTS WE ARE CONVINCED THAT THE TRIBUNAL HAS CONCE IVED THE FACTS IN ERRONEOUS MANNER WHICH HAS GOAD THE TRIBUNAL ON A WRONG CONCL USION THEREFORE TRIBUNAL HAS COMMITTED APPARENT ERROR. THE ORDER O F THE TRIBUNAL DESERVES TO BE RECALLED ON THIS ISSUE. ACCORDINGLY WE ALLOW THE MA AND PARTLY MODIFY THE ORDER OF THE TRIBUNAL. THE FINDING OF THE TRI BUNAL ON GROUND NO.7 IS RECALLED AND THIS GROUND IS RESTORED FOR RE-ADJUDIC ATION. 13. IN THE RESULT MA APPEAL OF THE ASSESSEE IS ALL OWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT ON 28 TH OCTOBER 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER