TaxTMI 
TaxTMI 
2013 (6) TMI 186
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....ppeals accordingly. ITA No.4715/Mum/2005 - AY 2001-02: 3. In this year assessee's cross appeal in ITA No.4962 was already decided by the ITAT on 16.05.2005 whereas the Revenue appeal is pending. Therefore, the Revenue appeal for this AY has come up for hearing before us now. The Revenue has raised the following four grounds: " i) On the facts and in the circumstances of the case and as per law the Ld.CIT(A) erred in deleting the addition of Rs.18,91,36,318/- made on account of expenses incurred on HRC division included in the capital workin- progress, ignoring the detailed reasoning given by the A.O. in his order." (ii) "On the facts and in the circumstances of the case and as per law, the Ld.CIT(A) erred in deleting the disallowance of fees paid to financial institution for loan of Rs.56,09,97,232/-, Floating Rate Note (FRN) restructuring expenses of Rs.61,79,26,937/- and HBI Plant repairs and maintenance of Rs.4,58,64,239/- shown under deferred revenue expenditure in the books of accounts, ignoring the detailed reasoning given by the A.O. in his order." (iii) "On the facts and in the circumstances of the case and as per law, t....
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....in ITA No.807/MDS/1999 dated 29.07.2010 and subsequently followed in AYs 1996-97 and 1998-99 in ITA Nos.1609/Ahd/2000 dated 11.03.2011 and 850/A/2002 dated 04.04.2012. ITAT Coordinate Bench in the last referred order has held as under: " 8. We have considered the rival submissions. Identical issue had come up for consideration before this Tribunal in A.Y. 1994-95 in ITA No.807/MDS/99 and this Tribunal held as follows: "2.1.1 Briefly stated the facts of the case are that the assessee who was in the business of production of hot briquetted sponge iron (HBI) had started a new project for production of HRC. During the year the assessee had claimed to have completed construction and erection of plant and machinery for the new project. In the return of income the assessee claimed deduction on account of the following expenses as revenue expenses. (i) Interest Rs.1,52,74,50,000 (ii) Debenture issue expenses Rs.16,48,90,000 (iii) General administrative expenses Rs.33,63,29,000 Rs.2,02,86,69,000 ....
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.... business would not depend upon the nature of products. He referred to the judgment of Hon'ble Supreme Court in case of Prithvi Insurance Co. Ltd. (63 ITR 632) and other judgments in which it was held that the two lines of businesses would constitute one and the same business if the following conditions were satisfied. (i) There should be unity of control (ii) There should be common management and administration. (iii) There should be common organization (iv) There should be common funds (v) There should be common place of business. 2.1.4 In this case, it was pointed out, there was a common administration and organization, common finance, personnel and security system. There were also common facilities such as common port, gas and water pipelines power supply, administrative building etc. Therefore the two businesses should be treated as one business. The assessee also referred to the judgment of Hon'ble Supreme Court in case of Vee Cumsees (220 ....
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....nting to Rs.17,11,000/- and the effective amount was only Rs.16,32,79,000/-. He therefore confirmed the disallowance to that extent. Aggrieved by the decision of the CIT(A) both the parties are in appeal. Whereas the assessee has challenged the decision of CIT(A) to confirm the disallowance on account of debenture issue expenses, the department is aggrieved by the relief given in respect of interest and general administrative expenses. 2.1.7 Before us the Learned AR for the assessee reiterated the submissions made before CIT(A) and the AO that the new project was a part of existing business as there was complete integration and interlacing of both the units. Therefore the expenditure incurred such as interest on borrowed funds and general administrative expense have to be allowed. As regards the debenture issue expenses it was submitted that the assessee was not pressing the claim in respect of sum of Rs.2,25,00,000 and Rs.9,62,745 being the marketing commission and other expenses relating to the NRI issue. It was argued that in respect of global depository receipts of Rs.11,49,96,700/- nothing had been converted in shares and therefore no di....
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....inding by the CIT(A) that there was integration, interlacing, interdependence and dovetailing of the two division which has not been controverted before us. Therefore we have to hold that HRC project has to be taken as part of the existing business. In view of the above position all expenditure incurred in connection with new project which is of revenue in nature has to be allowed. 2.1.9 As regards the debenture issue expenses CIT(A) has confirmed the disallowance on the ground that the debentures were convertible in shares and thus expenditure was for expanding the capital base. We find that out of total expenditure of Rs.16,48,90,000/- the assessee did not press the claim in respect of expenditure of Rs.2,25,00,000/- and Rs.9,62,745/- relating to the NRI issue and it has been pointed out that major expenditure was in relation to global depository receipts which had not been converted into shares at all. Therefore no disallowance could be made in respect of such expenses relating to debenture issue. The balance amount was only Rs.2,64,34,555/- which related to optionally convertible debentures. It has been argued that in such cases the expen....
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....ich are upheld by the ITAT, the Revenue grounds are dismissed. 8. Ground No.iii is regarding deleting the disallowance made on account of lease rent for equipment of Rs.25,87,90,254/-. Assessee changed its accounting policy in earlier years and deferred some part of lease charges payable. On the reason that the above amount was not charged in P&L Account, AO disallowed the same where as ld.CIT(A) allowed the same. At the outset it was stated that this issue is also covered in favour of assessee by the order of the Tribunal in assessee's own case for AY 1996-97 in ITA No.1069/Ahd/2000 dated 11.03.2011 subsequently followed in AY 1998-99 in ITA No.850/A/2002 dated 04.04.2012. ITAT Coordinate Bench in the last referred order has held as under vide Para Nos.10 to 12: "10. Ground No.3 raised by the revenue reads as follows: "(3) The learned CIT[A] has erred in deleting the disallowance of lease rent of Rs.25.15,95,039/- though the same was claim as a separate deduction instead of debiting the same to profit and loss account, in spite of the fact that no details were given to the Assessing Officer regarding deferment of expenditu....
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.... when it comes to claiming deduction while computing total income under the Act. We, therefore, dismiss Ground No.4 of the revenue." 12. The lease rent in question is the very same lease transaction considered by the Tribunal in AY 96-97 and the basis on which the AO made the disallowance is also identical. In view of the above, respectfully following the decision of the Tribunal referred to above, Ground No.3 raised by the revenue is dismissed". 9. Respectfully following the Coordinate Bench, we do not see any reason to differ from the findings of the CIT (A). Accordingly the ground No.iii is dismissed. 10. Ground No. iv pertains to the disallowance of an amount of Rs.11.94.crores. Assessee made a borrowal of USD 40 Million (working out to Indian Rs.143.46 crores) from abroad in March, 1997 by way of External Commercial Borrowing (ECB) from a consortium of foreign banks syndicated by Bearishch Landensbank, Singapore. Assessee had incurred interest expenditure of Rs.11,94,87,216 in the year under consideration on this loan. AO has disallowed the same under section 40(a)(ia) stating that no TDS has been made from this interest. Assessee has submitted that the i....
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....al (2) components and (3) capital plant and machinery since the amount has been received in Rupees which goes to show that foreign loan was converted into Rupees. Therefore, the assessee was asked as to why interest of Rs. 11,94,87,2161- should not be disallowed as per Sec. 40(a)(i) of the Income Tax Act. To the above, the assessee replied as under in its letter dated 01.03.2004 : The company has obtained the approval from the Government of India u/s. 10(15)(iv)(c) of the Income Tax Act, 1961 vide their letter dated 12.03.1997. As per the aforesaid section, interest received by the foreign bank is exempt from Indian Income Tax provided the company has obtained an approval from the Government of India u/s.10(15)(iv)(c). As the interest income is exempted from tax in the hands of recipient, the company had not deducted the TDS since no TDS can be deducted on a payment which is not taxable. Section 10(15)(iv) (c) reads as under: "10 In computing the total income of previous year, any income falling within any of the following clauses should not be included. 15(iv) interest p....
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.... Reliance was placed on CIT vs. Chunilal Rameshwarlal 70 ITR 167 (Patna) where the High Court had occasion to interpret the word "in respect of" as under: The expression "in respect of" is vital connotations that the word "in" or "on". Hence a clause of Municipal tax though not the tax of premise or building may nevertheless be taxed in respect of the premises or building used for the business. Thus tax paid to Municipalities for carrying on a profession made within the municipality under section 150(a) of the Bihar and Orissa Municipality Act was held to be taxed in respect of the terms in which the business was carried on and covered by this". 13. On similar issue the learned CIT (A) in AY 2000-01 (copy placed on record) has held as under: 7.3 Shri Ahmed argues that it will be unreasonable to interpret the law as requiring that, say, if a note with number X has been borrowed, the same note bearing number X should be paid out. As has been emphasised on behalf of the appellant, the pivotal words are "in respect of". If the monies have been borrowed/debt incurred in respect of purchase outside India o....
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....Act and by virtue of exemption granted by the Central Govt., the question of TDS on the above amount does not arise at all. Since there is no requirement of TDS, question of disallowance under section 40(a)(ia) for non deduction of tax also does not arise. Moreover, as seen from the correspondence with the Ministry of Finance by the assessee company way back in December, 1996 and February, 1997 it can be noticed that the CBDT also insisted on verifying the deployment of funds and assessee vide the letter dated 7.2.1997 enclosed the Auditor's certificate certifying the attached statement showing the deployment of funds equivalent to USD 40.22 million and corresponding invoices for import of capital goods for the hot rolled coils project of the company out of Euro Convertible Bonds issue of USD 75.00 million. They also placed on record the approval of the RBI for the purpose of financing the Put Option under Euro Convertible Bonds issue of USD 75 Million. After examining the relevant certificates the CBDT Foreign Tax Division vide letter dated 12.03.1997 granted the approval under section 10(15)(iv)(c). Therefore, the contention of assessee now made at the time of payment of interest....
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....HRC division and HBI division included in the capital work-inprogress. The brief facts are that assessee has two manufacturing divisions known as HBI and HRC divisions. The commercial production of HRC Unit was started from 1.4.1996. Prior to this date, this Unit was under trial production and the entire revenue expenditure was shown as capital work-in-progress in the earlier years. Subsequent to starting of commercial production the entire revenue expenditure is being debited to the Profit & Loss A/c except for a portion which was shown as capital work-in-progress as an allocation towards the additional plant and machinery under construction or installation included in capital work-in-progress. For Income Tax purposes, this has been claimed as revenue expenditure separately in the computation since the unit forms part of its existing business. The details of the expenses under consideration are as under: Interest on term loans 3,05,41,607 Interest on debentures 2,25,76,371 Interest on bank and other 2,36,58,968 Guarantee & Other bank charges 65,14,597 Rs.1.48 crores &nbs....
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....ings as not allowable under the provisions of section 40(a)(i) of the I. T. Act, 1961. 24. The facts are that the assessee had borrowed an amount of USD 40.00 million from abroad in March, 1997 by way of external commercial borrowing from a consortium of foreign bank. Assessee has incurred interest expenditure during the year under consideration on this loan. AO has disallowed the same under section 40(a)(ia) on the ground that since TDS has not been deducted the expenditure cannot be allowed. Assessee contented that the interest under consideration is exempt under section 10(15)(iv)(c) and thus no TDS is applicable on the interest and accordingly disallowance cannot be made. 25. The learned CIT (A) following his predecessor's orders in earlier years and also for AY 2001-02 allowed the claims as revenue expenditure as the facts in this year are the also same. This ground is similar to the ground no. iv raised in AY 2001-02. Since the issue is already covered in favour of assessee and the CIT (A) followed his own orders in earlier years which are upheld by the ITAT, for the reasons stated there in above in AY 2001-02, the Revenue ground is dismissed. 26. Ground No.5 pertain....
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....terest was payable by assessee to M/s High Grade pellets Ltd and so no disallowance is possible. In view of this finding and since the issue was already covered in favour of assessee in earlier year, we uphold the order of CIT(A). Revenue ground is dismissed. 28. In the result appeal in ITA No. 2838/Mum/2007 is dismissed. ITA No. 2954/Mum/2007 - AY 2003-04: 29. The Revenue has raised the following three grounds: "1. On the facts and in the circumstances of the case and as per law the learned CIT (A) erred in deleting the addition of Rs.1,48,00,000 made on account of expenses incurred on HRC Division and HB1 division included in the capital work-in-progress ignoring the detailed reasoning given by AO in his order. 2. On the facts and in the circumstances of the case and as per law the learned CIT (A) erred in deleting the disallowance made on account of lease rent on equipment of Rs.16,64,47,465 ignoring the detailed reasoning given by AO in his order. 3. On the facts and in the circumstances of the case and as per law the learned CIT (A) erred in deleting the disallowance of Rs.6,80,12,105 made on account of interest payable ....
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.... debited to the Profit & Loss A/c can be allowed as deduction. 34. The learned CIT (A) following his orders in earlier years allowed the claim as revenue expenditure, as the facts in this year are the also same. This issue was discussed in ground No. 3 in AY 2001-02 and as ground No.2 in AY 2002-03 above. Since the issue is already covered in favour of assessee and the CIT (A) followed his own orders in earlier years which are upheld by the ITAT, the Revenue ground No.2 is dismissed. 35. Ground No.3 pertains to the issue of disallowance of interest on external commercial borrowing amounting to Rs.6,80,12,105. 36. Briefly stated, assessee borrowed an amount of USD 40 million from abroad in March, 1997 by way of external commercial borrowing from a consortium of foreign bank. Assessee has incurred interest expenditure during the year under consideration on this loan. AO has disallowed the same under section 40(a)(ia) on the ground that since TDS has not been deducted the expenditure cannot be allowed. Assessee contented that the interest under consideration is exempt under section 10(15)(iv)(c) and thus no TDS is applicable on the interest and accordingly disallowance cannot....
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.... years allowed the claim. This issue was discussed in ground No. 4 in AY 2001-02 and as ground No.4 in AY 2002-03 above. Since the issue is already covered in favour of assessee and the CIT (A) followed his own orders in earlier years which are upheld by the ITAT, the Revenue ground No.1 is dismissed. 42. Ground No.2 pertains to the issue of deleting the disallowance of Rs.81,04,05,885 of depreciation consequent to adjustments made by AO reducing the cost of plant & machinery to the extent of waiver of amounts, since the borrowed fund was utilized for acquisition of plant and machinery. The facts are that the assessee company has taken long term advances from a foreign customer, CMC Trading AG, Switzerland in an earlier year. The advance was to be repaid through export of steel manufactured by the company and the outstanding advance was subject to interest payment by the company. These advances were funded by the foreign banks and therefore CMC has assigned all the rights arising out of the above contracts to these banks. Thus it represents an interest bearing debt payable by the company to these banks and the repayment on realization of the exports was made to these Banks. But ....
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.... appellant's case the disallowance of depreciation by reducing the WDV by the amount of principal loan waived is not justified. AO is accordingly directed to grant depreciation on the full value of WDV without reducing the waived principal amount of loan" The learned DR relied on the orders of AO whereas the learned Counsel submitted that the learned CIT (A) granted relief by relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Tata Iron & Steel Co. Ltd (1998) 231 ITR 285 (SC) and the decision of the Hon'ble Kerala High Court in the case of CIT vs. Cochin Co. (P) Ltd (1990) 184 ITR 230 (Ker.). He also relied on the decision of the Coordinate Bench decision of Akzo Nobel Coatings India (P) Ltd. vs. DCIT (LTU), Bangalore, 132 ITD 612 (Bang.). 47. We have considered the issue. As far as the facts and law are concerned, they were already elaborately stated above. The Coordinate Bench in the case of Akzo Nobel Coatings India (P.) Ltd. vs. DCIT (LTU), Bangalore (Supra) considered similar issue and held in that case as under:- "Factual recapitulation * It is not in dispute that in April, 1996 when the mac....
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....p; Waiver of loan cannot fall within scope of any of expressions 'subsidy or reimbursement' used in Explanation 10 to section 43(1) * The provisions of Explanation 10 will apply only when there is a subsidy or grant or reimbursement. In the instant case, there was no such subsidy or grant or reimbursement. There was only a waiver of the amounts due for purchase of machinery which cannot fall within the scope of any of the expressions used in Explanation 10. Even otherwise section 43(1) is applicable only in the year of purchase of machinery and in the instant case the purchase of the machinery in question was not in AY 01-02. Therefore, the actual cost which has already been recognized in the books in the Assessment year prior to assessment year 2001-02 cannot be disturbed in Assessment year 2001-02. There is a lacuna in law * In this regard there is a lacuna in the law and it is for the legislature to provide appropriate safeguards in this regard. It is true that the assessee on the one hand gets the waiver of monies payable on purchase of machinery and claims such receipt as not taxabl....