TaxTMI 
TaxTMI 
2013 (9) TMI 637
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....siness of infrastructure financing. The assessee filed its return of income for the assessment year 2003-04 on November 28, 2003. The Assessing Officer completed the assessment under section 143(3) on March 21, 2006. The Assessing Officer made certain disallowances/additions during the course of assessment in the return filed by the assessee. The Assessing Officer objected to certain exemptions/deductions and expenditure claimed by the assessee. The Assessing Officer, inter alia, made additions/dis-allowances on the following counts : (Rs.) (i) Disallowance of exemption claimed under section 10(23G) with reference to (a) Liquidated damages 21,28,296 (b) Penal interest 2,14,92,498 (c) Fees for monitoring 37,50,000 (d) Debt syndication fee 28,82,250 (ii) Disallowance of expenditure claimed under section 14A (iii) Disallowance under section 36(1)(viia)(c) 3,98,40,330 (iv) Disallowance under section 36(1)(viii) 15,48,32,719 (v) Disallowance of long-term capital loss 23,74,08,532 Restriction of deduction under section 80M 5,26,59,624 Aggrieved against the assessment order....
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.... total investment of Rs. 3,484.99 crores the assessee in the first instance made investments in infrastructure loans in the institutions approved under section 10(23G), thereafter, the assessee made investments in infrastructure equity under section 80 to get the benefit of provisions of section 80M and the balance amount of the own funds were invested in infrastructure loans eligible for deduction under section 36(1)(viii). The remaining investments were made by the assessee from the borrowed funds. In order to support his contentions, the authorised representative referred to page 83 of the paper book where the details of the average funds owned by the assessee during the financial year 2002-03 and deployment of funds during the relevant financial year is given. The authorised representative submitted that it should be left to the discretion of the assessee to adopt the method most favourable to the assessee. In order to support his contentions, the authorised representative relied on the judgment of the hon'ble Punjab and Haryana High Court in the case of Jaswant Rai v. CWT reported as [1977] 107 ITR 477 (P&H). The learned Departmental representative, on the other hand, submitt....
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.... investments from its own funds and the borrowed funds as per the details given at page 83 of the paper book. The assessee has made investment in certain order of preference, viz., infrastructure loans which are eligible for deduction under section 10(23G), thereafter in infrastructure equity for claiming benefit under section 80M and remaining amount of own funds in infrastructure loan for claiming exemption under section 36(1)(viii). For investment in taxable infrastructure loans the assessee utilised borrowed funds. The Commissioner of Income-tax (Appeals) discarded the aforementioned methodology of making investment/allocation of funds by the assessee. The Commissioner of Income-tax (Appeals) held that own funds in such cases have to be allocated in various categories of investments in shares, mutual funds and tax-free bonds on proportionate basis based on the own funds to total funds. To support his findings, the Commissioner of Incometax (Appeals) has relied on the judgment of the hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. reported as [2009] 313 ITR 340 (Bom). We are of the considered opinion that the Commissioner of Income-tax (App....
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.... other hand, the Departmental representative controverting the submissions made by the authorised representative submitted that this issue has already been decided against the assessee by the Tribunal in the assessee's own case for the assessment year 2002-03 in I. T. A. No. 1342/ Mds/2006 dated November 30, 2007 and I. T. A. No. 748/Mds/2005 dated March 29, 2007 relevant to the assessment year 2002-03 and 2001-02, respectively. On this issue, the Departmental representative relied on the order of the Commissioner of Income-tax (Appeals). We have heard the submissions of both parties on the issue. The order of the Tribunal in I. T. A. No. 748/Mds/2005 is at pages 104 to 134 of the paper book filed by the assessee. The order of the Tribunal in I. T. A. No. 1342/Mds/2006 is at pages 135 to 147 of the paper book relevant to the assessment year 2003-04. The Tribunal in I. T. A. No. 748/Mds/2005 relevant to the assessment year 2001-02 decided on March 29, 2007 with regard to liquidated damages has held in paragraph 22 that : "The assessee has received liquidated damages by way of compensation as stipulated in the agreement for default in payment of bills. The right to receive liquidat....
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....e deduction under section 36(1)(viia)(c) contrary to the provisions of the law and the Commissioner of Income-tax (Appeals) in a mechanical manner has upheld the same. On the other hand, the Departmental representative pointed out that this issue has been decided against the assessee in the assessee's own case by the Tribunal in I. T. A. No. 748/Mds/2005. We have examined the orders passed by the authorities below on this issue and we have also perused the order of the Tribunal dated March 29, 2007 in I. T. A. No. 748/Mds/2005. The co-ordinate Bench of the Tribunal in paragraph 31 of the order has held as under : "We have heard the rival submissions and perused the material on record. Section 36(1)(viii) speaks about the deduction of 40 percent of the profit derived from business of providing long-term finance. Section 36(1)(viia)(c) speaks about deduction of 5 percent of the total income. The profit derived from business is one of the components of the total income which consists of various heads of income like salaries, income from house property, profits and gains, capital gains, income from other sources, etc. The profit derived from business comes first and such deduction u....
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....urther submitted that when the investment was made, the Central Government had not approved the company for the benefit under section 10(23G) of the Act. At the time of investment the assessee had no intention to invest in a company to avail of any benefit under section 10(23G) nor it had claimed any benefit under the section up to the year of the disposal of shares. M/s. Hughes Telecom (India) Ltd. had received approval from the Government under section 10(23G) on September 17, 2002. The assessee had sold the shares of the said company during the relevant assessment year resulting into long-term capital loss. Therefore, the assessee is entitled to carry forward long-term capital loss arising out of sale of shares of the aforesaid company. On the other hand, the Departmental representative submitted that the Commissioner of Income-tax (Appeals) has rightly dismissed the claim of the assessee. The assessee cannot be allowed to take benefit both ways. Since, the company has been granted benefit of the provisions of section 10(23G), the assessee cannot carry forward loss arising from the sale of shares of the said company. On the issue under consideration, we agree with the fin....
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....oner of Income-tax (Appeals) on the issue, the assessee has also filed cross-objections. We are in consonance with the findings of the Commissioner of Income-tax (Appeals) on the issue. The Commissioner of Income-tax (Appeals) has rightly come to the conclusion that 3 percent of the tax-free income can be attributed to administrative expenses in connection with the earnings of the tax-free income. We do not find any reason to interfere with the findings of the Commissioner of Income-tax (Appeals) on this issue and dismiss this ground of appeal of the Revenue. The next issue raised by the Revenue in its grounds of appeal is that the Commissioner of Income-tax (Appeals) has directed the Assessing Officer to compute the profits for the purpose of deduction under section 36(1)(viii) by allocating expenditure in proportion to the interest bearing funds and interest-free funds. The Departmental representative submitted that the nature of business of the assessee is such that it does not permit bifurcation of income as income earned from interest-free funds and interest bearing funds. The learned authorised representative submitted that the assessee out of Rs. 1,468.86 crores of own f....
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....nses for earning dividend income under section 80M of the Act at 3 percent of the dividend income by the Commissioner of Income-tax (Appeals) is reasonable. The authorised representative, supporting the order of the Commissioner of Income-tax (Appeals) on the issue, submitted that no interference in the findings of the Commissioner of Income-tax (Appeals) on this issue is called for, as the findings of the Commissioner of Income-tax (Appeals) are well reasoned. In support of his contentions, the authorised representative relied on the order of the Special Bench of the Tribunal in the case of Punjab State Industrial Development Corporation Ltd. v. Deputy CIT reported as [2007] 292 ITR (AT) 268 (Chandigarh). The authorised representative further contended that this issue has already been decided by the co-ordinate Bench of the Tribunal in I. T. A. Nos. 747 and 748/Mds/2005 relevant to the assessment year 1999-2000 and 2000-01 vide order dated March 29, 2007 in the case of the assessee itself, wherein it has been held that only actual expenses incurred on tax-free income should be disallowed. As regards, administrative expenses, the Commissioner of Income-tax (Appeals) has direc....
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.....) (i) Liquidated damages 27,70,502 (ii) Fees for monitoring during pendency of debentures 36,71,786 (iii) Front end fees 7,97,71,250 As far as liquidated damages and fees for monitoring is concerned, the issue has already been decided against the assessee in paragraph 13 of I.T.A. No. 2065/Mds/2011 hereinabove. Accordingly, both these income do not qualify for exemption under section 10(23G) of the Act. As regards front end fees, the authorised representative submitted that in any transaction, the creditworthiness of the borrower has to be tested and verified before sanction of any loan. Front end fees is charged at the time of disbursement of loan which is akin to initial appraisal fee charged appraising the feasibility. The assessee charges certain percentage of the loan amount disbursed as front end fee to the borrower on signing of a letter of intent at the time of disbursement. The authorised representative referred to page 135 of the paper book relevant to the assessment year 2004-05 and submitted that front end fee charged by the assessee falls within the purview of term "interest" as defined under section 2(28A) of the Act. The term "interest" as defined ....
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....peal) : The Revenue has assailed the order of the Commissioner of Income-tax (Appeals) by taking as many as eight grounds of appeal. Ground Nos. 1 and 8 are general in nature and therefore require no adjudication. Ground No. 2 of the appeal of the Revenue is identical to ground No. 2 of its appeal relevant to the assessment year 2003-04. Therefore, this ground of appeal of the assessee is dismissed in the same terms. In ground No. 3, the Revenue has assailed the order of the Commissioner of Income-tax (Appeals) on the ground that the Commissioner of Income-tax (Appeals) has allowed exemption under section 10(23G) on the premium received in advance considering it to be interest under section 2(28A) of the Act. The Departmental representative submitted that premium was lump sum amount collected by the assessee for agreeing to certain conditions and is not in the nature of interest. The receipt is in the nature of advance which cannot partake the character of interest. The authorised representative, on the other hand, submitted that the premium is charged upfront for interest rate deduction/prepayment agreed with the borrower as against original terms. The authorised representativ....
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.... is to be computed without indexation, by following the same analogy which is applied on capital gains on listed securities. The Commissioner of Income-tax (Appeals) ought to have given opportunity to the Assessing Officer under rule 46A to verify and examine this issue. On the other hand, the authorised representative supported the order of the Commissioner of Income-tax (Appeals) on the issue. We have heard the submissions of both parties on this ground. The provisions of section 48 of the Act provides that the benefit of indexation is not available in case of certain specified long-term capital assets. Apart from the specified assets the benefit of indexation is available to all long-term capital assets. The provisions of section 112 provides for the tax on long term capital gains at the flat rate of 20 percent In case listed securities/ shares/units are transferred without the benefit of indexation, then the long-term capital gain is taxable at the rate of 10 percent We are in consonance with the findings of the Commissioner of Income-tax (Appeals). We uphold the view of the Commissioner of Income-tax (Appeals) and dismiss this ground of appeal of the Revenue. According....
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....ards front end fees, this issue has been dealt in detail in paragraph 49 of this order in I. T. A. No. 2066/Mds/2011 for the assessment year 200405. For the reasons recorded in paragraph 49 of this order on the similar issue, we allow this issue of the assessee. Therefore, this ground of appeal is partly allowed. The fourth ground of appeal raised by the assessee is with regard to method of computation of deduction under section 36(1)(viia)(c) of the Act. This issue has been dealt in detail in paragraph 18 of I. T. A. No. 2065/Mds/ 2011 relevant to the assessment year 2003-04. Accordingly, this ground of appeal of the assessee is dismissed. The fifth ground of appeal of the assessee relates to allocation of the expenditure in proportion to interest bearing funds and interest-free funds and deduction thereon claimed under section 36(1)(viii). This issue has been decided in paragraph 33 of this order in I. T. A. No. 2023/Mds/2011 filed by the Revenue, wherein the issue was remitted back to the Assessing Officer with a direction mentioned therein. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. The sixth ground of appeal of the assessee is ge....
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.... been dealt in detail in the earlier appeals filed by the assessee and the Revenue. We have upheld the findings of the Commissioner of Income-tax (Appeals). In the result, the cross-objections of the assessee relevant to the assessment year 2005-06 are dismissed as infructuous. I. T. A. No. 100/Mds/2012 (assessee) (assessment year : 2006-07) : The assessee has impugned the order of the Commissioner of Incometax (Appeals) dated October 12, 2011 relevant to the assessment year 200607 in the present appeal. Majority of the issues in this appeal have already been decided in the earlier appeals of the assessee relevant to the assessment years 2003-04 and 2004-05 hereinabove. For the sake of brevity only conclusion of the issue decided in the earlier years are mentioned in the present appeal. The only issues which are not adjudicated earlier are dealt with in detail. The first ground is with regard to disallowance of Rs. 2,17,77,37,949 as expenditure allegedly incurred for earning exempt income under section 10(23G). This issue has already been dealt with in detail in paragraph 4 hereinabove in I. T. A. No. 2065/Mds/2011 relevant to the assessment year 2003-04. Therefore, this ground....
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....see. As regards structuring fee, the authorised representative submitted that the structuring fee is collected towards conversion of a long-term facility into guarantee. He submitted that as per Explanation 1(f) of section 10(23G) of the Act, structuring fee is in the nature of fee or commission for giving guarantee to an enterprise. The Departmental representative has supported the order of the Com missioner of Income-tax (Appeals) on this issue. After hearing the submissions made by the respective parties and perusing the orders of the lower authorities, we are in consonance with the findings of the Commissioner of Income-tax (Appeals) and hold that structuring fee does not fall within the ambit of definition of "interest" as defined in clause (f) of Explanation 1 to section 10(23G). Therefore, this issue is dismissed. Accordingly, the third ground of appeal of the assessee is partly allowed. The fourth ground of appeal of the assessee relates to directions given by the Commissioner of Income-tax (Appeals) to the Assessing Officer to delete the addition made in the assessment year 2004-05 on account of interest income of Rs. 2,85,00,019 received from BPL Cellular Ltd. ....
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....ative expenses. This issue has already been decided in paragraph 29 in I. T. A. No. 2023/Mds/2011 relevant to the assessment year 2003-04. With regard to the issue of interest, the same has been adjudicated in paragraph 33 in I. T. A. No. 2023/Mds/2011. Therefore, this ground of appeal is disposed of accordingly. Ground No. 7 of the appeal is general in nature and thus requires no adjudication. In the result, the appeal of the assessee is partly allowed for statistical purposes. I. T. A. No. 87/Mds/2012 (Revenue) and C. O. No. 23/Mds/2012: The Revenue has assailed the order of the Commissioner of Income-tax (Appeals) dated October 12, 2011 relevant to the assessment year 2006-07. In the present appeal, the Revenue has raised as many as ten grounds of appeal. Ground Nos. 1 and 10 are general in nature and therefore do not require any adjudication. In the second ground of appeal, the Revenue has assailed the order of the Commissioner of Income-tax (Appeals) on the ground that exemption under section 10(23G) has been granted on the "premium" received in advance. This issue has already been decided in paragraph 57 of I. T. A. No. 2024/Mds/2011 relevant to the assessment year....
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....ion 10(23G) on the lenders agency fee. The Departmental representative submitted that it is in the nature of commission and thus do not constitute interest under section 2(28A) of the Act. A perusal of the orders passed by the lower authorities and documents on record do not substantiate the nature of lenders agency fee. The authorised representative also could not point out how the lenders agency fee falls within the definition of interest under section 2(28A) of the Act. Therefore, this ground of appeal of the Revenue is allowed. Ground No. 6 of the Revenue's appeal relates to apportionment of income under section 10(23G) in accordance with interest-free funds and interest bearing funds. This issue has already been decided in I. T. A. Nos. 2065 and 2023/Mds/2011 relevant to the assessment year 2003-04. This ground of appeal is disposed of in similar terms. Ground No. 7 of the Revenue's appeal relates to disallowing 3 percent of tax-free income towards administrative expenses in connection with earning of tax-free income. We have already accepted the findings of the Commissioner of Income-tax (Appeals) on this issue in I. T. A. No. 2023/ Mds/2011 with regard to disallowance to ....