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Wednesday, 19 August 2015 13:08

Section 43B - Conversion of interest into shares is actual payment u/s 43B - Reassessment u/s 147 is unjustified on mere change of opinion - Delhi High Court Featured

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1. Conversion of a portion of interest into shares should be taken to be “actual payment” within the meaning of Section 43B of the Act

2. Reopening the assessment u/s 147 on mere change of opinion is unjustified


1. Assessee is a limited company and rehabilitation scheme was sanctioned by the Board for Industrial and Financial Reconstruction ("BIFR‟) on 1st November 2002

2. Scheme was prepared by IDBI, one of the major lenders of the assessee

3. It was decided that IDBI could be allotted 1430000/- equity shares of Rs. 10/- each valued at Rs. 1.43 Crores and the Interest to the extent would be taken as having been paid

4. Assessee filed return declaring loss of Rs. 2,04,58,365/- and in computing he returned loss, the unpaid interest to the IDBI of Rs.3,45,09,854 was added back to the net loss as per the Profit & Loss Account

5. Deduction of interest paid to IDBI to the extent of Rs.1.43 crores was claimed on the basis of allotment of shares

6. Assessment was completed u/s 143(3) and was reopened u/s 147

7. The reasons for the reopening, as stated by the AO, was that it was noticed that the Assessee had claimed and was allowed a deduction of Rs.1.43 crores towards the allotment of shares to the IDBI on conversion of 30% of the simple interest in equity share capital. It was noted that since the rehabilitation scheme was sanctioned by the BIFR on 1st November 2002, the said deduction was not allowable during the AY 2002-03

8. The AO was of the view that in terms of Section 43B of the Act, deduction is allowable on actual payment basis and allotment of equity shares in lieu of interest liability cannot be construed as actually paid as required under Section 43 B of the Act

9. Consequently, the deduction of Rs.1.43 crores was disallowed and added back to the income of the Assessee

10. CIT(A) held that the reopening u/s 147 was valid however on merits deleted the addition

11. Revenue moved to the Tribunal

12. ITAT held that in the original assessment proceedings itself the AO had raised a query which had been explained satisfactorily by the Assessee and accepted by the AO.Therefore, “the present case is not a change of statement of income and rather it is a case of change of opinion.”

13. Revenue moved to the High Court

14. High Court confirmed the view of CIT(A) and ITAT in the matter

15. Revenue's appeal dismissed


The Court is of the view that the plea of the Assessee, which was accepted by the CIT (A) and the ITAT, that the said conversion of a portion of interest into shares should be taken to be “actual payment” within the meaning of Section 43B of the Act, merits acceptance. In any event, on the facts of the case discussed above, there was no justification in seeking to reopen the assessment under Section 147 of the Act on a mere change of opinion.

In that view of the matter, the Court finds no legal infirmity in the impugned order of the ITAT. The Court declines to frame questions of law as urged by the Revenue

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Read 4211 times Last modified on Saturday, 13 February 2016 16:20

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1 comment

  • Comment Link Anil Wednesday, 19 August 2015 13:48 posted by Anil

    Its a welcome judgement by the Honb. High Court of Delhi. Once again it is proved that mere change of opinion does not become a valid reason to reopen the assessment u/s 147.

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