- (1.) THIS appeal under Section 260 -A of the Income Tax Act, 1961 arises from a decision of the Lucknow Bench of the Income Tax Appellate Tribunal dated 12 November 2013. The Assessment Year to which the appeal relates is AY -2008 -09. Three questions have been framed by the Revenue in this appeal of which, the following two, as submitted by the learned counsel, would be sufficient to cover the controversy: "1. Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding the decision of CIT (A) in allowing the interest of Rs.1,72,78,000/ - of earlier years in the A.Y. 2008 -09 on the basis of a supplementary agreement without considering that liability for such payment flowed from the original agreement with NEL and as per the system of accounting followed by the assessee was payable in years in which it accrued. 3. Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding the decision of CIT(A) in deleting the disallowance of Rs.2,03,752/ - u/s. 14A ignoring the fact that there is difference of opinion of various courts on the view taken by the ITAT that in the absence of tax free income, no disallowance u/s 14A is permissible."
(2.) THE assessee is a dealer of Tata Motors for the territory of Bilaspur and surrounding districts. The vehicles of the Company were being supplied to the assessee on credit of 45 days. The assessee would make payment to the Company when the sale proceeds were realised. Eventually the balance due and outstanding remained unpaid. On 30 March 2000, an agreement was entered into by which a financial arrangement was made between the assessee, Tata Motors Ltd. (TML) and a Company by the name of Niskalp Investments and Trading Company Ltd. Under the arrangement, a loan of Rs.4.80 crores was provided to the assessee by Niskalp on an interest of 12% per annum. The loan was utilized by the assessee to pay the outstanding dues of TML. Under the financial arrangement, the assessee was to pay interest at 12% per annum. The assessee did not, at any point of time, pay the amount of interest under the agreement dated 30 March 2000. On the contrary, as the Tribunal noticed, the assessee was agitating the issue as regards the rate of interest. The notes of account to the balance -sheet contained a specific observation of the auditors of the assessee that no provision has been made in the accounts in respect of interest on dues relating to supply of vehicles which had been converted into a term loan from Niskalp, which had resulted in understating the loss by the same amount. The issue as regards the payment of interest by the assessee to Niskalp was eventually resolved by a supplementary agreement dated 12 April 2007. Under the supplementary agreement, the rate of interest was reduced from 12% to 6% on a reducing balance method with effect from 1 April 2000.
(3.) THE relevant part of the agreement which has been extracted in the order of the Tribunal reads as follows: "G. In or about March 2007, the Borrower approached the Lender and requested the Lender to grant additional concessions and reliefs in respect of the amounts payable in respect of the Loan Agreement. Accordingly, the Borrower has requested the Lender to grant relief and concessions as set out hereinunder: (i) to reduce interest rate @6% per annum on reducing balance method with effect from 1st April, 2000. (ii) All the payments made after 1st April 2000 against the Finance Facilities to adjust against principal amount. (iii) To waive penal/additional interest. (iv) To accept the repayment in Revised Monthly Installments ("RMIs") towards repayment of the outstanding dues in 36 monthly installments of Rs.10,94,000/ - each with effect from April 2007 till March 2010, and (v) The liability in respect of the accrued interest @6% p.a. due and payable on the revised principal amount of Rs.229.32 lacs for the period starting from 1st April, 2000 till repayment of the principal amount will be paid by the Borrower in three equal installments commencing from April 2010 to June 2010. The Revised Monthly Installment (RMI) include the part of amount to be adjusted against interest payment. Accordingly, the differential amount of interest liability arising out of computation of recovery of principal amount first against RMI determined on the basis of part payment of principal amount and interest will be computed at the end of tenure or in or about April 2010 when the appropriate amount of rebate may be considered on the basis of tract record of payment of RMI on stipulated dates till March 2010." ;