2019 (6) TMI 1433 - AT - Income Tax

Tribunal rulings: Assessee's appeal partly allowed, Revenue's appeal partly allowed, Cross Objection allowed.

The Tribunal partly allowed the appeal of the assessee, partly allowed the appeal of the Revenue for statistical purposes, and allowed the Cross Objection ... Premium payable on redemption of FCCB Bonds - revenue or capital expenditure - HELD THAT:- Since the issue involved in the present case is identical to that in the case of Vardhman Textiles Ltd. [2016 (4) TMI 1382 - ITAT CHANDIGARH] and the Ld. DR having not brought any distinguishing facts to our notice, nor having drawn our attention to the decision of the Hon'ble High Court or Higher Authority contrary to that rendered in the case of Vardhman Textiles Ltd. (supra) will apply to the present case also, following which, we hold that the premium on FCCB bonds is in the nature of revenue and is to be allowed in the year of payment of the same. Ground of appeal No.3 raised by the assessee is allowed in the above terms. Disallowance u/s 14A read with rule 8D - Sufficiency of own funds - HELD THAT:- Asssessee has demonstrated that the assessee had own funds in the form of share capital and reserves amounting to ₹ 17603.45 lacs and income of the year amounting to ₹ 3585.22 lacs, while the investments made amounted to ₹ 13260.07 lacs. The Ld. DR has been unable to draw our attention to any distinguishing facts as compared to that in the preceding years and has been unable to controvert the factual contention of the assessee. In view of the same, we hold that the issue stands squarely covered by the decision of the I.T.A.T. in the preceding years, following which we uphold the order of the Ld.CIT(A) in deleting the disallowance of interest expenses made u/s 14A of the Act . Administrative expenses disallowance CIT(A) has not mentioned any fact regarding satisfaction of the AO that there was connection between expenses incurred by the assessee and earning of exempt income. Even the ITAT, we find, had upheld the deletion of disallowance of administrative expenses on this account ,finding absence of satisfaction recorded by the AO vis a vis the incorrectness of the claim of the assessee of having incurred no expenses. We therefore hold that the issue of disallowance of administrative expenses cannot be treated as covered by the order of the ITAT in the preceding years in the case of the assessee, in the absence establishment of identity of facts with the preceding year. The issue is therefore restored back to the CIT(A) for adjudication afresh Disallowance of interest on investments for non business purpose made u/s 36(l)(iii) - HELD THAT:- Since we have held that no interest is to be disallowed u/s 14A of the Act , in the light of the fact that sufficient own funds were available with the assessee which raise the presumption that these interest free funds were used for making the investments, there remains no basis for making disallowance of interest expenses incurred for making the very same investments in any other section, which in the present case is section 36(1)(iii) of the Act. Order of the Ld. CIT(A), deleting the disallowance of interest made u/s 36(1)(iii) is therefore upheld. Disallowance of interest on loans and advances given for non business purposes amounting to ₹ 28,51,128/- made u/s 36(l)(iii) - HELD THAT:- Assessee demonstrated that the assessee had own funds in the form of share capital and reserves amounting to ₹ 17603.45 lacs and income of the year amounting to ₹ 3585.22 lacs, while the loans/advances made amounted to ₹ 377.85 lacs (161.73 lacs + 216.12 lacs) DR has been unable to controvert the factual contention of the assessee. In view of the proposition applied in the preceding years by the ITAT and considering the fact that sufficient own funds were demonstrated to exist by the assessee, we see no reason to uphold the disallowance of interest u/s 36(1)(iii) of the Act. We therefore uphold the order of the Ld.CIT(A) deleting the disallowance of interest expenses made u/s 36(1)(iii) Disallowance of interest expenditure incurred on Foreign Currency Convertible Bond (in short ‘FCCB’) - HELD THAT:- The fact that the said bonds were issued at interest rate of 2% per annum to be paid semi-annually is not disputed. It is also not disputed that the interest was paid on the bonds and not on their conversion into equity. Therefore, the findings of the Ld.CIT(A) that the interest expenditure was the actual liability of the assessee on loans taken by it in the form of bonds, we find is correct. The Ld. DR has been unable to draw our attention to any infirmity in the findings of the Ld.CIT(A) in this regard. Further the Ld. DR has been unable to draw our attention /point out, as to why the assessee’s claim of interest expenditure was disallowable. In view of the same, we have no hesitation in upholding the order of the CIT(A) in allowing the claim of interest expenses incurred on FCCB Addition on account of non reconciliation of the account of one M/s ACE Building Technologies Pvt. Ltd. - admission of additional evidence - HELD THAT:- Undoubtedly, the copy of the account of M/s ACE Building Technologies Pvt. Ltd. (supra) submitted by the assessee during assessment proceedings explained the reason for the difference in the balance reflected of the said party in the books of the assessee and as reflected in the books of M/s ACE Building Technologies Pvt. Ltd. (supra). Interest of justice demanded that the same be admitted and considered for adjudicating the issue. Moreover, we find that the books of accounts of the assessee in any case, were produced during assessment proceedings. Therefore, we fail to understand how a copy of the account of the party for the impugned year reflecting the debit notes issued to it, constituted additional evidence - restore the issue back to the Ld.CIT(A) with direction to adjudicate the same in the light of the evidence filed by the assessee. Issues Involved:1. Jurisdiction of the A.O. in initiating proceedings u/s 147/148.2. Disallowance of premium payable on redemption of FCCB Bonds.3. Disallowance of expenses under section 14A related to exempt income.4. Disallowance of interest on investments for non-business purposes u/s 36(1)(iii).5. Disallowance of interest on loans and advances given for non-business purposes u/s 36(1)(iii).6. Disallowance of interest payment on FCCB.7. Addition due to difference in account balance of M/s ACE Building Technologies Pvt. Ltd.Issue-wise Detailed Analysis:1. Jurisdiction of the A.O. in initiating proceedings u/s 147/148:The assessee raised legal grounds challenging the jurisdiction of the A.O. in initiating proceedings u/s 147/148. However, these grounds were not pressed before the Tribunal and were dismissed as not pressed.2. Disallowance of premium payable on redemption of FCCB Bonds:The assessee claimed a premium payable on the redemption of FCCB Bonds as revenue expenditure. The A.O. disallowed this claim, treating it as capital expenditure, which was upheld by the CIT(A). The Tribunal referred to its previous decision in the case of Vardhman Textiles Ltd., where it was held that the premium on FCCB bonds is revenue in nature and should be allowed in the year of payment. Consequently, the Tribunal allowed the assessee's appeal on this ground.3. Disallowance of expenses under section 14A related to exempt income:The A.O. disallowed expenses related to exempt income under section 14A, amounting to Rs. 1,05,11,097/-. The CIT(A) deleted the disallowance, citing that similar disallowances in preceding years were deleted in appeal. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds for making the investments, and there was no satisfaction recorded by the A.O. regarding the claim of the assessee of not having incurred any expenditure for earning exempt income. However, the issue of administrative expenses disallowance was restored to the CIT(A) for fresh adjudication.4. Disallowance of interest on investments for non-business purposes u/s 36(1)(iii):The A.O. disallowed interest expenditure on investments for non-business purposes. The CIT(A) deleted the disallowance, citing that similar disallowances in preceding years were deleted in appeal. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds for making the investments, and there was no basis for disallowing interest expenses under section 36(1)(iii).5. Disallowance of interest on loans and advances given for non-business purposes u/s 36(1)(iii):The A.O. disallowed interest expenditure on loans and advances given to subsidiary companies for non-business purposes. The CIT(A) deleted the disallowance, citing that similar disallowances in preceding years were deleted in appeal. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds for making the loans/advances, and there was no basis for disallowing interest expenses under section 36(1)(iii).6. Disallowance of interest payment on FCCB:The A.O. disallowed interest payment on FCCB, treating it as capital expenditure. The CIT(A) deleted the disallowance, noting that the interest payment was an actual liability of the assessee and not a contingent liability. The Tribunal upheld the CIT(A)'s decision, noting that the interest expenditure was on loans taken by the assessee in the form of bonds, and there was no basis for disallowing the interest expenses.7. Addition due to difference in account balance of M/s ACE Building Technologies Pvt. Ltd.:The A.O. made an addition due to a difference in the account balance of M/s ACE Building Technologies Pvt. Ltd. The assessee explained that the difference was due to debit notes raised by the assessee, which were not accounted for by the other party. The CIT(A) dismissed the assessee's contention, stating that the additional evidence was not admitted as per Rule 46A. The Tribunal restored the issue to the CIT(A) for fresh adjudication, considering the additional evidence submitted by the assessee.Conclusion:The Tribunal partly allowed the appeal of the assessee, partly allowed the appeal of the Revenue for statistical purposes, and allowed the Cross Objection filed by the assessee for statistical purposes.