8/14/23, 3:07 PM Commissioner of Income-Tax Versus Lotte India Corporation Limited.

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2006 (9) TMI 141 - MADRAS HIGH COURT

Other Citation: [2007] 290 ITR 248, 212 CTR 543

COMMISSIONER OF INCOME-TAX VERSUS LOTTE INDIA CORPORATION LIMITED.

Dated: - 14-9-2006

Judgment / Order

Judge(s)  : P. D. DINAKARAN., P. P. S. JANARTHANA RAJA.

JUDGMENT

The judgment of the court was delivered by P. D. DINAKARAN J.- The above tax case appeal is directed against the order of the
Income-tax Appellate Tribunal dated October 12, 2005, made in I. T. A. No. 270/Mds/2001 for the assessment year 1997-98, setting
aside the order of the Commissioner of Income-tax (Appeals) dated November 10, 2000, and confirming the order of assessment
dated March 10, 2000 made by the Assessing Officer holding that interest on debentures and corporate borrowings is an allowable
deduction, relying on the decision of the apex court in India Cements Ltd. v. CIT [1966] 60 ITR 52.

The facts in a nutshell are that the Assessing Officer while completing the assessment for the assessment year 1997-98 allowed the
claim of the assessee with respect to Rs. 1,26,06,781 being the interest on debenture and intercorporate dividends, but disallowed
other claims of the assessee.

Aggrieved by the disallowed portion of the assessment order, the assessee preferred an appeal before the Commissioner of Income-
tax (Appeals), who, while partly allowing the appeal and remitting the matter to the Assessing Officer held that it was not clear as to
how the expenditure which had been capitalised in the books of account and claimed in the adjustment statement has been allowed
by the Assessing Officer and observed that this part of the case also needs to be examined.

On further appeal by the assessee to the Tribunal, the Tribunal by order dated October 12, 2005, held that the Commissioner of
Income-tax (Appeals) committed an error in law, as the power conferred under section 251(2) of the Income-tax Act, 1961 (for brevity,
"the Act") cannot be exercised by the Commissioner of Income-tax (Appeals) without giving a reasonable opportunity to the assessee
against such enhancement or reduction.

Hence, the present appeal by the Department raising the following substantial questions of law:

"(i) Whether, on the facts and circumstances of the case, the Tribunal was right in cancelling the direction of the Commissioner of
Income-tax (Appeals) to adjudicate the issue of interest on debenture and intercorporate dividends that was allowed by the Assessing
Officer, on the ground that no notice under section 251(2) was issued, even though the assessee had participated in the appeal
proceedings?

And

(ii) Whether, on the facts and circumstances of the case, the order of the Commissioner of Income-tax (Appeals) directing the
Assessing Officer to verify and pass orders is in the nature of enhancement is prejudicial to the assessee and notice under section
251(2) of the Act is mandatory?"

Before proceeding further, it is profitable to refer to the relevant statutory provision, viz., section 251 of the Act, which deals with the
powers of the Commissioner of Income-tax (Appeals):

"Section 251. Powers of the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals).- (l) In disposing
of an appeal, the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) shall have the following
powers(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; or he may set
aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the
directions given by the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) and after making such
further inquiry as may be necessary, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and
determine, where necessary, the amount of tax payable on the basis of such fresh assessment;

(b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to
reduce the penalty;

(c) in any other case, he may pass such orders in the appeal as he thinks fit.

(2) The Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) shall not enhance an assessment or
a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such
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8/14/23, 3:07 PM Commissioner of Income-Tax Versus Lotte India Corporation Limited.

enhancement or reduction.

Explanation.-In disposing of an appeal, the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals)
may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding
that such matter was not raised before the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) by
the appellant."

The finding of the Commissioner of Income-tax (Appeals) that it is not clear in the assessment order as to how the expenditure which
had been capitalised in the books of account and claimed in the adjustment statement has been allowed by the Assessing Officer and
that the said aspect also needs to be re-examined, certainly leads to the conclusion that there may be an enhancement of
assessment or a penalty or reduction of the amount of refund. If that be so, as contemplated under section 251(2) of the Act, referred
to above, the Commissioner of Income-tax (Appeals), as rightly held by the Tribunal, should not exercise the power conferred under
section 251(2) without giving a reasonable opportunity to the assessee showing against such enhancement or reduction, and to that
extent the Tribunal is right in coming to the conclusion that the Commissioner of Income-tax (Appeals) has committed an error in
rendering the finding that it is not clear in the assessment order as to how the expenditure which had been capitalised in the books of
account and claimed in the adjustment statement has been allowed by the Assessing Officer.

In any event, it is a settled law vide India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) that the loan obtained was not an asset or an
advantage for the enduring benefit of the business of the assessee.

Applying the said principle, we find that interest on debentures and corporate borrowings also cannot be treated as an asset or an
advantage for the enduring benefit of the business of the assessee and accordingly confirm the order of the Tribunal.

In the result, finding no substantial question of law, this appeal is dismissed. No costs.

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8/14/23, 3:07 PM Commissioner of Income-Tax Versus Lotte India Corporation Limited.

Citations: in 2006 (9) TMI 141 - MADRAS High Court

1. India Cements Limited Versus Commissioner Of Income-Tax, Madras - 1965 (12) TMI 22 - Supreme Court

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