TaxTMI 
TaxTMI 
2013 (7) TMI 701
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.... 10% of the total income to Rs.5 lacs without appreciating that the assessee was maintaining mixed funds and failed either to furnish day today cash flow statement or to establish that it had its own surplus funds for investment in dividends? (II) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in directing to allow corporate debt restructuring expenses of 2.57 crores on payment to financial consultants in connection with waiver of loans, by spreading it over a period of 6 years disregarding the fact that such expenditure in relation to capital assets constitutes capital expenditure, which is specifically excluded in section 37(1) of the Act? (III) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in directing to exclude the waived amount of 60.13 crores out of the principal loans, from the total income, disregarding the inclusive definition of income u/s.2(24) and the profits and gains business in section 28 and the ratio settled in the landmark decision in the case of CIT v/s. T.V. Sundaram Iyengar & Sons Ltd., 222 ITR 344 (SC), holding that waiver of such loans received in the course of bu....
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....some expenditure was in fact incurred by the assessee to produce exempted income. Under sec.14A the Assessing Officer has no power to estimate the expenditure which the assessee would have, in the opinion of the Assessing Officer, incurred in relation to the exempted income. Further more it seems implicit in the expression "in relation to" used in the section the concept that the Assessing Officer should be in a position to pinpoint, with an acceptable degree of accuracy, the expenditure which was incurred by the assessee to produce non taxable income. The word "incurred" signifies that the expenditure must have been actually incurred, not notionally. The Hon'ble ITAT further held that it followed from this that it was the duty of the Assessing Officer to pinpoint such expenditure on the basis of the material on record. The language of the section does not relieve the Assessing Officer of the burden of proving, on the basis of evidence or material on record that the assessee has in fact incurred expenditure which has relation to the exempted income. Relying on the decision of the Hon'ble Delhi ITAT which squarely covers the facts of the appellant's case, it is held that....
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....t. When the Revenue carried it in appeal, the High Court dismissed it on the ground that the issues raised by the Revenue were factual in nature where findings of facts were recorded in favour of the assessee. The Court also held that the investment was made in the preceding year and no part of the investment was correlated with the borrowed funds. 3.4 The Delhi High Court in the case of Maxopp Investment Ltd. v. Commissioner of Income Tax, reported in (2012) 347 ITR 272, was examining the provision of Section 14A of the Act and subrule (2) of Rule 8D qua the method for determining the expenditure in relation to exempt income. It held thus : "Section 14A, even prior to the introduction of subsections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of subsection (2) of section 14A. Prior to that, the assessing was free to ....
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....(SC), which clarifies that the expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In absence of Section 14A, the expenditure incurred in respect of exempt income was also being claimed against taxable income and such practice since was to be curbed, Section 14A has been inserted. It is clarified that subsection (1) of Section 14A of the Act clearly stipulates that for the purpose of computing total income under Chapter IV, no deduction is permissible in respect of the expenditure incurred in relation to the income which does not form part of the total income under the said Act. 3.7 In the case of an income, like dividend income, which does not form part of the total income, any expenditure incurred by the assessee in relation to such nontaxable income, the claim of deduction of such expenses incurred cannot be allowed. 3.8 The moot question here is as to whether the CIT (Appeals) and the Tribunal were right in setting aside the order of Assessing Officer, whereby it disallowed the sum of Rs.91.80 lakh, applying the provisions of Section 14A of the Act on the ground that the assessee had used interest bearing borrowed funds....
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.... waiver of loans, the Assessing Officer noted that the respondent assessee paid the sum of Rs.2.57 crore to the financial consultant M/s. Brescon Corporate Advertisers Ltd., who provided their professional services in connection with the scheme of CDR by negotiating with the banks and financial institutions, which eventually helped the reduction of interest burden of the assessee. They were claimed to be the revenue expenditure aimed at reduction of recurring revenue expenditure of interest. The Assessing Officer held that the assessee would derive benefit of enduring nature as a result of CDR exercise and, therefore, it was of the opinion that all the expenses are to be treated as capital expenditure and the same were needed to be disallowed and added to the income of the assessee. The Assessing Officer relied upon the decision of the Supreme Court in the case of India Cements Ltd. v. CIT, reported in 60 ITR 52 and dismissed the plea of the assessee. In the case of India Cements Ltd. (supra), appellant had obtained a loan from Industrial Finance Corporation securing charge on its fixed assets. For doing so, it incurred expenses of registration fees, stamp duty, lawyer's fee....
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....tly held by both the CIT (Appeals) and the Tribunal as revenue in nature and the same has rightly not been held to be capital in nature. For the waiver of the loan, the payment has been made to the financial consultants. This was for the purpose of business and the same was held to be allowable under Section 37(1) of the Act. Having held the said amount to be revenue in nature applying the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd.(supra), when the amount has been spreaded over a period of six years, no error is committed by both the authorities. Once the expenditure is held to be revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. However, considering the decision in the case of Madras Industrial Investment Corporation Ltd. (supra), when the spreading is done for over a period of six years and as the assessee respondent has no objection to such revenue expenditure being spread out, though it could have insisted for this amount to be allowed in the year under consideration, with no such objection having been raised, the Revenue would not ....
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....d clause (iv) thereof says that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under head 'Profits & Gains of business or profession'." 5.2 As the assessee company was not found to be carrying on the business of obtaining loan, the Court held that the remission of such loan by the creditors was a benefit arising out of such business and, therefore, such remission of unsecured loan was not taxable at the ends of the assessee. 5.3 The CIT (Appeals) held in favour of the assessee by holding thus : "It is observed that it is not the Assessing Officer's case that any deduction has been allowed in respect of the loans in question in any earlier year. In the given facts and circumstances of the case it cannot also be said that the appellant was carrying on business of obtaining loans. Therefore, it could not be said that the remission of such loans was a benefit arising from such business. In view of these undisputed facts, the decision of the Gujarat High Court in the case of Chetan Chemicals Pvt. Ltd. (supra) squarely applies. Further, it is obse....