TaxTMI 
TaxTMI 
2013 (11) TMI 773
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....ppellant submits that expenses incurred revenue in nature and same be allowed as claimed. It is to be held so and disallowance made by the AO be deleted." 2.2.1 Brief facts regarding this issue till the assessment stage are noted by Ld. CIT (A) in para 4 of his order which is reproduced below: "4. As regards Ground No.(1), the facts are that the appellant is a public limited company engaged in the business of manufacturing the caustic soda, soda ash and other chemical and, generation of power for captive consumption. During the year under consideration, it undertook Corporate Debt Restructuring (CDR) and claimed various expenses. It also obtained benefits in the form of restructuring of the debt repayment, more convenient and easy re-scheduled time frame for repayments and reduction in interest rates for a period of more .than six years in respect of all the debts. The Assessing Officer was of the view that CDR had resulted into advantage of enduring nature to the appellant for which he relied on the Supreme Court decision in the case of CIT v. Coal Shipments Pvt. Ltd. 82 ITR 902 and Devidas Vithaldas & Co. v. CIT 84 ITR 277. The appellant explained that the CDR was ....
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....ldas and Co. Vs CIT as reported in 84 ITR 277. He also submitted that as per page 15 of the paper book filed by the assessee, the benefit was available to the assessee for a period of 10 years, which is a very long period and, therefore, it has to be accepted that the assessee has received enduring benefit and so, the expenditure is capital expenditure as per these two judgements of Hon'ble Apex Court. In rejoinder, it was submitted by the Ld. A.R. that in fact, benefit for a period of 10 years was demanded by the assessee but actually not approved. 2.2.4 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgements cited by Ld. A.R. and also the judgement of Hon'ble Apex Court rendered in the case of Madras Industrial Development Corporation Ltd. (supra). We find that this issue was decided by Ld. CIT(A) against the assessee as per para 5 of his order and for the sake of ready reference, the same is reproduced below: "I have considered the rival submissions. It is observed that the expenditure in question is on account of the professional fees etc., paid to the consultants for the re....
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....nt is to derive advantage by eliminating the competition over some length of time and under these facts, it was held by Hon'ble Apex Court that such payment will be of capital nature if it was for eliminating the competition over some length of time but when there is no restraint of advantage or the same can be put to end at any time, it will be a revenue expenditure and it will depending on the circumstances of the facts of each case. In our considered opinion, this judgement is also not applicable in the present case because the facts are different. In the present case, there is no payment for avoiding any competition with rival and, therefore, it cannot be said that this judgment is applicable in the present case. 2.2.7 We are all aware that as per the judgement of Hon'ble Apex Court rendered in the case of India Cement as reported in 60 ITR 52 (S.C.), any expenditure incurred for borrowing is revenue expenditure. In the present case, the impugned expenditure was incurred not for any new borrowing but for restructuring of existing borrowings but the ultimate effect is the same because per the restructuring, the repayment period has gone up and interest rate has come down and to....
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....advance'. Your appellant submits that disallowance confirmed by Hon'ble CIT(A) is unjust and uncalled for. It be held so now and addition be deleted." 2.3.1 Brief facts till the assessment stage are noted by Ld. CIT(A) in para 8 of his order and the relevant portion of which is reproduced below: "As regards Ground No.(3), the Assessing Officer noted that the appellant had paid take or pay rental charges to GCPTCL which are not for actual material handling but for any shortfall in quantity payment which can be off set during five financial years against excess quantity handled by GCPTCL and would become final only after a period of five years. The Assessing Officer, therefore, treated it as advance. It has also been observed that the appellant had disputed this claim of GCPTCL and finally GCPTCL waived the liability by agreement dated 30-9-2005. The appellant also clarified that the provision made by it was written back in a.y. 2005-06 in view of the cancellation of demand by GCPTCL and offer for income. However, it claimed as a business expenditure. The Assessing Officer, however, held that at the end of five years if the company failed to set off the payment made du....
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....the nature of advance payment only and not an expenditure incurred. Under this factual position, we do not find any merit in the main contention of the assessee and therefore, the same is rejected. Regarding the alternative contention, we find force in the submission of the Ld. A.R. because once the liability is disallowed in the present year, no income is taxable in the subsequent year when the amount is credited in the P & L account by writing back the liability already disallowed. Hence, the A.O. is directed to verify this aspect in the next year and if it is found that on the write back of this liability in the next year, any amount was taxed then to this extent, income should be reduced in such next year. With these observations, this ground of the assessee is partly allowed for statistical purposes. 2.4 Ground No.4 is as under: "4. The learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs.1,52,92,991/- being provision for interest to Unit Trust of India treating the same as contingent liability not crystallized during the year. Your appellant submits that provisions for interest to UTI are made following mercantile system of ac....
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....ovisions of Section 43B because the payment was not made by the assessee. In the light of the retrospective amendment of Section 43B and as per the judgement of Hon'ble Apex Court cited by the Ld. A.R., this objection does not survive because the payment in question was made by the assessee before the due date of filing of return of income. The 2nd objection of the authorities below is this that deduction is not otherwise allowable also because CDR package has been accepted on implementation of which UTI was a party though it dissented and disagreed with regard to the payment of lower rate of interest and therefore, it cannot be said that liability had accrued during the present year and has crystallized. We find no force in these contentions of the authorities below and of the Ld. D.R. because when UTI has not agreed with the CDR package regarding payment of lower rate of interest ultimately, the assessee had to pay agreed rate of interest, without any benefit from the CDR package. Under these facts, it cannot be said that liability has not accrued and not crystallized. Hence, this disallowance is deleted. This ground of the assessee is allowed. 2.5 Ground No.5 is as under: &nbs....
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....st the assessee by the tribunal order in assessee's own case and the judgements cited by the Ld. A.R. are not rendering any help to the assessee. Therefore, we find no reason to interfere in the order of Ld. CIT(A) on this issue. This ground is rejected. 2.6 Ground No.6 is as under: "6. The learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs.1,77,00,000/- being contribution to GACL Employees Welfare Trust and Rs,3,15,960 being contribution to Benevolent Fund. It is submitted that contributions so made are allowable revenue expenditure u/s 37(1) of the Act. It be held now and disallowance made aggregating to Rs.1,80,15,960 be deleted." 2.6.1 It was fairly conceded by the Ld. A.R. that this issue is covered in favour of the revenue by the tribunal order in assessee's own case for the assessment year 2003-04 and in this regard, he drawn our attention to page 20 para 26 of this tribunal order in I.T.A.No. 4461/Ahd/2007 and accordingly, in the present year also, this issue is decided in favour of the revenue. This ground of the assessee is rejected. 2.7 Ground No.7 is as under: "7. The learned Commissioner of Income Tax ....
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....tted by him that the matter may be restored back to the file of the A.O. to check up the fact because Ld. CIT(A) has by mistake recorded that this ground was not pressed. In reply, it was submitted by the Ld. D.R. that when this ground was not pressed before Ld. CIT(A), this issue cannot be raised by the assessee before the tribunal. 2.9.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that in para 20 on page 12 of the impugned order, it is noted by Ld. CIT(A) that the ground regarding expenditure of right issue and water and service charges were not pressed because the same were decided against the assessee in earlier years. Now, before us, it is submitted by the Ld. A.R. that this is wrongly recorded by Ld. CIT(A) that this ground is not pressed. Nothing has been brought on record by the Ld. D.R. to show that this issue was decided against the assessee in earlier year which is the basis of Ld. CIT(A) of recording that assessee has not pressed this ground before him because this issue was decided against the assessee in earlier year. Be this as it may but we feel that no prejudice will be cau....
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....of reduction in rate of interest and this expenditure will be allowed to the assessee proportionately during that period. The A.O. should pass necessary order as per law as per above direction after providing reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 2.11 Ground No.11 is as under: "11. The learned Commissioner of Income Tax (Appeals) has erred in confirming book profit by adding back 'Provisions for Take or pay charges to GCPTL' of Rs.3,05,17,835. Your appellant submits that Assessing Officer is not justified in treating the above in the nature of unascertained liability and making addition to Book profit computed under section 115JB of the Act. The provisions made are in accordance with method of accounting regularly followed being 'mercantile' and such liabilities are ascertained. Further, final accounts has been prepared as per Accounting Standards prescribed by the Institute of Chartered Accountants of India and same are in accordance with Schedule VI to the Companies Act 1956 and hence further adjustments as above, to profit as per 'final accounts' are not permissible under section 115JB....
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....curred in relation to exempted income of dividend and tax-free interest, without taking note of the landmark decision in the case of CIT(A) vs Abhishek Industries Ltd. 286 ITR 01 (P&H), laying down that, in view of section 106 of the Indian Evidence Act, the facts being in the special knowledge of the assessee, it was up to him to adduce evidence that all the borrowings were used for the purposes of business and it is assessee's own surplus funds that were invested in the shares and deposits earning exempted income and, even in case of mixed funds, the disallowance of interest could be made. (b) The ld. CIT(A) erred in accepting the assessee's plea that the investment in shares and deposits being less than the assessee's own funds in the balance sheet, no disallowance of interest was called for, without appreciating that the assessee's own funds already stood invested in fixed assets or as working capital when the borrowings were made; otherwise, there was no need for such borrowings and hence it is these borrowings which were utilised to earn exempted income and the corelation between the borrowings and utilization can not be reflected in the balance sheet prepared o....
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....ubmissions, perused the material on record and have gone through the orders of authorities below. We find that since the own funds of the assessee are much more than the investment and there is no nexus established by the A.O. between the investment and interest bearing borrowed funds, it cannot be said that any interest expenditure is incurred by the assessee for earning exempt dividend income and hence, no disallowance can be made u/s 14A out of interest expenditure. Regarding other expenditure, it cannot be said that there is no expenditure incurred by the assessee at all for earning dividend income because admittedly, the assessee was holding these investments in Dmat account and, therefore, there must be some expenditure incurred in respect of such Dmat account. Normally, we restore this type of matter to the file of the A.O. for deciding the disallowance of expenditure on a reasonable basis but in the facts of the present case, considering the smallness of the mount, we feel that this will be a futile exercise and hence, we hold that a disallowance of Rs.50,000/- will meet the ends of justice. We, therefore, confirm the disallowance of Rs.50,000/- and decline to interfere in ....
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....ractual liability of interest was disputed and had not yet finally settled and hence constituted a contingent and unascertained liability as per law settled in the case of CIT vs Swadesi Cotton & Flour Mills Pvt. 53 ITR 134 (SC) and Alembic Chemical Works Ltd. vs DCIT 266 ITR 47 (Guj)." 3.2.1 Ld. D.R. supported the assessment order whereas the Ld. A.R. supported the order of Ld. CIT(A). He further submitted that there are 4 types of issues involved in these grounds. Regarding the first issue i.e. provision for bad debt of Rs.3,25,77,089/-, it is fairly conceded that the same has to be decided against the assessee as per clause (ii) of Explanation (1) to Section 115JB. Accordingly, this part of the ground is decided in favour of the revenue and against the assessee. Regarding contribution to gratuity fund of Rs.64,53,658/-, it was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the judgement of Hon'ble Delhi High Court rendered in the case of CIT Vs Hewlett Packard India (P) Ltd. as reported in 314 ITR 55 (Del.). It was also submitted that SLP was filed by the revenue against this judgment of Hon'ble Delhi High Court and the same was dismissed by t....
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....d in the letter as well as the scheme of the Act." 3.3.1 Ld. D.R. supported the assessment order whereas it is submitted by the Ld. A.R. that in the assessee's own case for the assessment year 2003-04 in I.T.A.No. 4553/Ahd/2007, this issue was restored to the file of the A.O. with the direction to consider all the case law. He submitted that in the present year also, this issue may be restored back to the file of the A.O. for a fresh decision and he should be directed to consider latest judgement of Hon'ble Apex Court rendered in the case of Ajanta Pharma Ld. vs CIT as reported in 327 ITR 305. 3.3.2 We have considered the rival submissions. Since in assessment year 2003-04 in the assessee's own case, this issue has been restored back to the file of the A.O. for a fresh decision after consider all the relevant case law, in the present year also, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision in the light of the direction of the tribunal in assessment year 2003-04 on this issue. Apart form those judgements which are referred to by the Tribunal in assessment year 2003-04, the A.O. should also consider appli....
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....cial lease, the lessee is entitled for deduction on account of interest expenditure i.e. lease rent (-) principle repayment whereas the lessor has to be taxed only for interest income i.e. lease rent received less principle repayment received and depreciation on leased asset is allowable to the lessee. He submitted that the matter may be restored back to the file of the A.O. for a fresh decision in the light of this decision of Special bench of the Tribunal. Ld. A.R. could not point out as to how this decision of Special bench of the Tribunal is not applicable in the present case and hence, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision in the light of this decision of Special bench of the Tribunal rendered in the case of Indusind Bank (supra). The assessee should be allowed deduction on account of interest payment out of lease rent paid and assessee should also be allowed deduction on account of deprecation if the assets in question are put to use. The allowability of interest also should be decided in the light of the proviso to Section 36(1)(iii) inserted by the Finance Act 2003 w.e.f. 01.04.2004. This ....
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....he assessee. 4.5 Regarding ground No.5 in assessment year 2005-06, it was submitted by the Ld. A.R. that the same is identical to ground No.9 in assessment year 2004- 05. While deciding this issue in assessment year 2004-05, this issue was restored back by us to the file of the A.O. for a fresh decision as per para 2.9.2 and accordingly, in assessment year 2005-06 also, this issue is restored back to the file of the A.O. for a fresh decision with the same direction. 4.6 Regarding ground No.3 raised by the assessee in assessment year 2007- 08, it was submitted that this disallowance has been made u/s 43B of the Income tax Act, 1961 and hence, the A.O. should be directed to allow such deduction in the year of payment. In this regard, we would like to observe that when the disallowance is made u/s 43B, no direction is required to the A.O. for allowing deduction in the year of payment because this is as per law. Hence, this ground is rejected with these observations. 4.7 It was further submitted that ground No.6 in assessment year 2005-06, ground No.4 in assessment year 2006-07 and ground No.4 in assessment year 2007-08 is regarding confirmation of enhancement of book profit on acco....
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....year 2005-06 and ground No.3 in assessment year 2007-08 are dismissed. 5.2 Ground No.3 in assessment year 2005-06 is regarding deletion of adjustment in book profit made by the A.O. u/s 115JB on account of the provisions for gratuity of Rs.108.77 lacs and provision for superannuation of Rs.246.58 lacs. It was agreed by both the sides that these issues are identical to ground no.3 of the revenue's appeal in assessment year 2004-05. While deciding the appeal for 2004-05, we have decided both these issues in favour of the assessee as per para 3.2.1 above and accordingly in assessment year 2005-06 also, these issues are decided in favour of the assessee and ground No.3 for the assessment year 2005-06 is rejected. 5.3 Ground No.4 in assessment year 2005-06 is regarding deletion of disallowance of Rs.1,59,92,991/- being interest payment to UTI. It was agreed by both the sides that this issue is consequential to ground No.4 as per assessee's appeal in assessment year 2004-05 and both the sides agreed that if this claim is allowed in assessment year 200-405 then the relief allowed by Ld. CIT(A) in the present year should be withdrawn. While deciding ground No.4 of the assessee's appeal i....