TaxTMI 
TaxTMI 
2017 (1) TMI 769
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee. The Assessing Officer disallowed a sum of Rs. 1,48,10,695/- out of interest expenditure and telescoped the same against another interest disallowance of Rs. 13,62,536/-. The learned CIT(A) confirmed the disallowance of Rs. 13,62,536/- and deleted the disallowance of Rs. 1.48 crores referred above. Hence both the parties are in appeal before us on this issue. 4. Facts relating to the above said issue are stated in brief. During the year under consideration, the assessee has shown capital work-in-progress of Rs. 1.36 crores. The Assessing Officer took the view that interest expenditure relatable to the investment made in capital work-in-progress is required to be disallowed as per the proviso to section 36(1)(iii) of the Act. Accordingly, he worked out the interest attributable to the amount of capital work-in-progress at Rs. 13,62,536/- and disallowed the same. 5. The Assessing Officer also noticed that the assessee has given a sum of Rs. 25 crores to M/s. Pan India Infrastructure Pvt. Ltd. as Share application money. The Assessing Officer took the view that the assessee has diverted the interest bearing fund by giving interest f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....als and own funds. 10. Having heard the rival submissions on this issue, we find merit in the contentions of the assessee. We noticed that the assessee itself has admitted that loan funds have been used for giving share application money to its subsidiary. We also noticed that the own funds available with the assessee is in far excess of the capital work-in-progress. Hence, we are of the view that there is no requirement to make any disallowance out of interest expenditure on account of capital work-in-progress. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the disallowance of Rs. 13,62,536/-. 11. With regard to the disallowance of expenditure of Rs. 1.48 crores, we noticed that the learned CIT(A) has analysed the issue in detail and has observed that the investment made by the assessee in M/s. Pan India Infrastructure Pvt. Ltd., was in the course of carrying on its business and hence interest expenditure is not required to be disallowed. For the sake of convenience, we extract below relevant observations made by the learned CIT(A) :- "3.5 Regarding the advance of Rs. 25 crores to M/s. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....subsidiary would need to be disallowed as interest-bearing loans had been used for advancing Rs. 25 crores as share application money to gain control of the said subsidiary. Stating this, the AO proceeded to disallow the entire interest expenditure of Rs. 1,48,10,695/- debited in the P&L Account holding it to be capital in nature. In the submission made, it has been argued by the appellant that the AO has misunderstood the entire transactions. The submission of the appellant has been reproduced above in this order wherein it has been stated by the appellant that it is engaged in the business of infrastructure development management and finance in addition to its amusement park and water park. The wholly owned subsidiary to which these funds are provided to, take up the infrastructure project on behalf of the company. The finance provided to the wholly owned subsidiary by way of advance for share application money is for its business of infrastructure and is used for that purpose. In this case, the amount has been advanced to Pan India Infrastructure Pvt. Ltd. for development of MMKI toll road Project and the said concern further passed on the amount to its wholly owned subsidiary M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has increased during the year. When called for explanations, the assessee submitted that a fire has broken out in INS Prabal Ship (kept for public viewing in the park) and the assessee had incurred a sum of Rs. 78.97 lakhs in repairing the same. The AO noticed that the assessee had lodged insurance claim of Rs. 62 lakhs on account of fire and the claim was shown in the Balance Sheet under the head "Loans and advances". The AO took the view that the assessee has not credited the insurance claim amount in the Profit and loss account and accordingly assessed the same as income of the assessee. 14. The Ld CIT(A) noticed that the assessee has credited "Repairs and Maintenance A/c" with the amount of Rs. 62.00 lakhs, referred above, and the net figure has been debited to Profit and Loss account. Accordingly he deleted the assessment of Rs. 62.00 lakhs. 15. We heard the parties on this issue and perused the record. The ledger account copy of M/s Repairs & Maintenance account is placed at pages 147-148 of the paper book. A perusal of the same would show that the assessee has credited the sum of Rs. 62.00 lakhs to the above said account on 31.3.2006, i.e., the assessee has not s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7, the provisions of Rule 8D shall not apply to the year under consideration as per the decision rendered by Hon'ble jurisdictional Bombay High Court in the case of Godrej & Boyce Manufacturing Co Ltd (328 ITR 81). The Ld A.R submitted that the investment in M/s Zee Telefilms Ltd was made only on 28-03-2006, i.e., 3 days prior to the close of the year. We also notice that the assessee has held shares in two quoted companies, four unquoted companies, two subsidiaries and units in one mutual fund. The assessee has sold shares in two companies as discussed earlier and purchased shares in Zee Telefilms Ltd and other five companies. Besides the above, the assessee has received dividend income and earned Long term capital gains on sale of shares of two companies. Thus, we notice that the transactions carried on by the assessee company were limited during the year under consideration. We notice that the Ld CIT(A) had restricted the disallowance to 10% of the dividend income in the succeeding year and the same has been accepted by the assessee. Accordingly, considering the factual matrix available during the year under consideration, we are of the view that the disallowance u/s 14A of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7,118/-. Since the Income tax Act does not provide for writing off of 100% in respect of machineries costing less than Rs. 5000/- each, the AO disallowed the above said claim. The Ld CIT(A) also confirmed the same, since the Tax auditor has reported the same. 22. The contention of the assessee is that it had claimed 100% depreciation on machineries costing less than Rs. 5000/- each, only under the Companies Act for book purposes and it has disallowed the entire amount of book depreciation while computing total income. It was submitted that the depreciation has been claimed for income tax purposes as per applicable rates only. 23. We have heard Ld D.R on this issue and perused the record. The question of disallowing depreciation claimed at higher rate of 100% would arise only if such a claim has been made in the depreciation working made for income tax purposes. According to the assessee, it has claimed 100% only for book purposes under the Companies Act. It was submitted that the book depreciation of Rs. 3,63,34,199/- claimed in the profit and loss account has been disallowed fully and the depreciation for income tax purposes has been claimed at applicable rates only. We noti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....requires filing bids, tenders for getting work i. e. Roads, bridges, Airports, Ports etc to prove capabilities to execute such contract and price to be charged for the contract etc. These bids many times fail for any reason including technical or financial reasons and the lowest with technical capabilities wins the bid. For making bid or tender submission requires highly technical knowledge financial and commercial understanding and sometimes require help of outside consultants, JV Partners, etc. for technical and financial support all these require huge expenses to be incurred. The question arises in whether such expenses on the tenders, bids for getting business in the line of business of the assessee are in the nature of revenue or capital? Main Objects as per the Memorandum of Association are as under. To purchase, erect or otherwise acquire and equip, any other amusement center, public or private parks or other hotels in Bombay or elsewhere in India or in any other part of the world or to carry on the business of public amusements coach, cab, carriage, motor car, proprietors, livery stable keepers, importers and brokers of food live stock and hair dressers, perfumers,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to some other bidder, the expenses have been debited to Profit and Loss account for the year and grouped under Exceptional Items, as required by Accounting Standard. The Ld A.0. has altogether gone on wrong notion and misunderstanding of facts and hence he termed these expenses being pre-operative or precommencement hence capital in nature. He considered the project as new line of business hence capital in nature. It is proposal and in principle approval of Govt. etc makes it capital in nature as per the observations of the Ld A.0. and Company's proposal to take up the project through its WOS-Essel Airports Infrastructure Pvt. Ltd. Contrary to his understanding the business of the assessee is infrastructure development, management, etc hence all expenses relating to it from procurement of project, execution and managing are revenue in nature. There are always expenses incurred for getting project that pre- commencement but it is relating to its business hence revenue in nature, it is not the assessee setting up capital assets like factory etc. for running and earning income. He understood projects means capital account. Hence these are biding and tender related expenses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of operations can be clearly visible to the stakeholders. The exceptional item are exceptional including non-recurring, huge in volume amount which can distort company's operational results hence grouped and shown separately. While grouping the revenue and capital in one group does not change in nature of each other. Finally the way in which the accounting entries are made by an assessee does not decide the nature or allowability of expense. Hon 'ble Supreme Court in Badridas Daga (34 ITR 10) after referring to the decision in Chimavis case, Gresham Life Assurance Society vs Styles and Pondicherry Railways Cos case, their Lorships proceeded to observe: "The result in that when a claim is made for a deduction for which there is no specific provision in section 10 (2) whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed provided of course there is no prohibition against it, express or implied, in the Act." This view is also upheld by Apex Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id to acquire infrastructure projects. The impugned bidding expenses have been incurred by the assessee in connection to filing bids for infrastructure development and it could not succeed in the bidding. 27. The Ld CIT(A) has observed that the assessee has capitalized the expenses, which appears to be against the facts available on record. The AO himself has observed that the assessee has claimed the impugned expenses as deduction under the head "Exceptional items" in the Profit and Loss account. Thus, we notice that the Ld CIT(A) has proceeded to decide this issue on wrong appreciation of facts. 28. In our view, these expenses have been incurred by the assessee in the course of carrying on its business and hence the same has to be allowed as deduction, since it has been incurred in furtherance of the business activities of the assessee. Ld A.R relied upon the decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. Essar Oil Ltd (ITA (Lodg.) No.921 of 2006 dated 16.10.2008 to support the contentions of the assessee. We have gone through the said order. The assessee before Hon'ble High Court was engaged in the business of operation of rings for extraction of oil....