TaxTMI 
TaxTMI 
2018 (2) TMI 1903
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....l income before setting up of losses was determined at Rs. 1,88,19,97,609/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.19.03.2013 (in appeal No.Nsk/CIT(A)-II/429/11-12) granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : "1. Disallowance of premium of Rs. 4,94,72,088 on redemption of preference shares 1.1 The learned CIT (A) erred in' confirming the disallowance of premium' of Rs. ,94,72,088 on redemption of preference shares. On the facts and in the circumstances of the case, the disallowance of Rs. 4,94,72,088 be cancelled. 1.2 The learned CIT (A) failed to appreciate that in the facts of the case, the character of loan had not ceased on conversion into preference shares and as such so called premium must be taken as nothing but interest/fiance cost and consequently an admissible deduction u/s. 36 (i) (iii) or u/s. 28 or u/s. 37 (1) of the Act. 1.3 The sustaining of the disallowance of Rs. 4,94,72,088 without ap....
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....p; 4.2 The disallowance of Rs. 28,87,625 being the result of guess work and surmises, could not be sustained. 4.3 The learned CIT (A) failed to appreciate that deposit shad been given in the course of and for the purpose of business only and that in the year in which there were adequate owned funds and/or cost" of borrowing was hardly around 6%p.a. 5. Disallowance of depreciation on non compete fee 5.1 The learned CIT(A) erred in confirming disallowance of depreciation of Rs. 18,28,125 on compete fee. 5.2 The learned CIT (A) erroneously concluded that the on compete fee was not an intangible asset and as such not subject to depreciation. 5.3 The learned CIT (A) in fact ought to have held that the expenditure in the form of non compete fee was of revenue nature and therefore fully allowable. 5.4 Assuming two view are possible, the learned CIT (A) ought to have followed view favourable to the assessee. 6. Carry forward of losses 6.1 The learned CIT (A) on the facts and in the circumstances of th....
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....e Tribunal, while deciding the issue in A.Y. 2006-07 are as under : "4. Bringing attention to Ground No.2, where premium related issue is raised, Ld. Counsel fairly submitted that the said issue has to be decided in favour of the Revenue considering the fact that premium paid for redemption of preferential shares is of capital nature and therefore the same is not an allowable expenditure in view of the Hon'ble Calcutta High Court judgment in the case of Hindustan Gas & Industries Ltd. Vs. CIT 117 ITR 549 (Cal.). 5. On this issue, we heard both the parties and finally Ground No.2 relating to premium paid on redemption of preferential shares is dismissed for the reasons specified by the CIT(A) in his order dated 2506-2010. Relevant operational paragraph in this regard is extracted as under : "9.2 I have carefully considered the submissions of the appellant and assessment order of the A.O. It is an undisputed fact that the amount of Rs. 1,18,10,000/- was paid on account of premium at the rate of Rs. 47.24 per preference share. The emphasis of the appellant was that the said premium in respect of the preference shares is in th....
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....by creating Capital Redemption Reserve (CRR) out of the profits available for dividends. As against this for repayment of loan there is no such requirement. c. This CRR is treated as the paid-up share capital of the company and can be utilized only for issuing bonus shares. d. Such condition is laid down in order to restore the reduction in share capital caused due to redemption of preference shares. e. Therefore, though the preference shares are redeemable they assume nature of share capital only and not loans. A clear distinction has been made between a loan and redeemable preference shares by the Hon'ble Calcutta High Court in the case of Hindustan Gas and Industries Ltd. (117 ITR 549). The Hon'ble High Court categorically held that any expenses incurred for issue for redeemable preference shares cannot be allowed as they are in the nature of capital expenditure. The Hon'ble High Court held as under in this context: "On consideration of the provisions of the Companies Act, 1956 the contention of the assessee that when a company issues redeemable preference shares it is in fact....
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....i was taken from Atul Jain and other family members of Jain for the Officer's transit Hostel for which a total deposit of Rs. 9.60 crores was paid by assessee upto 15.02.2008 to various family members of Mr Jain. He noted that the flat was used by Mr. Anil Jain as director's residence and that no rent was paid by the assessee. He also noted that none of the family members had shown any income from the aforesaid flat and no perquisite was shown by Mr. Anil Jain. The assessee was asked to justify the payments to which assessee inter-alia submitted that the flat was taken on leave and licence basis and was used by the assessee for its officers, associates. It was submitted that assessee had given interest free deposits in earlier years and during the year additional deposit was given which was commensurate with the higher valuation of the flat and that deposit was not increased since 1995. It was submitted that since interest free deposit was given in lieu of rent, assessee had claimed notional interest @ 5.50% p.a. (i.e. average cost of funds for the year under consideration) as eligible business expenses. The submissions of the assessee were not found acceptable to the AO. AO noted ....
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....partial relief by observing as under: 12. With respect to disallowance of interest of Rs. 17,00,630/- Ld.CIT(A) noted as under : "4.5.2 I have carefully gone through the facts of the case. The appellant has failed to prove any nexus between the interest free funds and the interest free advances or security deposits. Moreover, the appellant had taken huge loans from banks on which it is required to pay margin money. Hence, appellant's contention suggesting that its interest free funds/own funds were kept aside and the interest free loans/security, deposits were given out of these kept aside funds is devoid of merit. A perusal of Audit report for AY. 2008-09 reveals that the appellant company has taken total secured loans and unsecured loans at Rs. 907.04 crore in AY. 2008-09 as against Rs. 739.73 crore in AY. 2007-08. Schedule 19 of the Audit report reveals that the appellant company had debited Rs. 83.77 crore in P & L account on account of interest and finance charges (excluding interest received at Rs. 3.04 crore). Besides, the appellant company has debited Rs. 29.63 crore on account of discounting charges, bank. commission and charges. T....
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....r interest bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non-business purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under Section 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the as....
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....diverted borrowed funds for nonbusiness purpose. A perusal of Audit report for A.Y. 2008-09 reveals that the appellant company has taken total secured loans and unsecured loans at Rs. 907.04 crore in A.Y. 2008-09 as against Rs. 739.73 crore in A.Y. 2007-08. Schedule 19 of the Audit report reveals that the appellant company had debited Rs. 83.77 crore in P & L account on account of interest and finance charges (excluding interest received at Rs. 3.04 crore). Besides, the appellant company has debited Rs. 29.63 crore on account of discounting charges, bank commission and charges. Taking into consideration the above stated figures, the cost of borrowing comes at 12.50%. As against this the AO has disallowed interest @ 12% on interest free loans/security deposits given by the appellant to its related concerns and directors. The appellant's calculation of cost of borrowing @ 5.3% is found contrary to the facts given above. In the facts and circumstances of the case, I am of the view that AO was justified in disallowing interest of Rs. 10,20,000/-. The same is confirmed. 14. With respect to disallowance of interest of Rs. 28,87,625/- Ld.CIT(A) noted as und....
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.... addition made by the AO be deleted. Ld DR on the other hand took us through the order of AO and Ld.CIT(A) and supported the order of lower authorities. 16. We have heard the rival submissions and perused the material on record. The issue in the present grounds is with respect to disallowance of interest by holding that the deposits paid to the respective parties are excessive. It is an undisputed fact that in most of the cases, the deposits have been given by the assessee to the various parties in earlier years and during the year under consideration to some of the parties, further deposits have been given. It is also an undisputed fact that in the assessments framed u/s 143(3) of the Act for AY 2006-07 and 2007-08, no disallowance of the interest on account of the deposits being excessive and unreasonable was made by the AO. The total deposit given by the assessee upto the year, as per the details as given on page 134 of the Paper Book is Rs. 13.26 crore as against which the availability of interest free funds in the form of Share capital and Reserves and Surplus as at the end of the financial year 31st March 2008 is in excess of Rs. 965 crores indicat....
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.... was allowed to the assessee in A.Y. 2006-07 by Ld.CIT(A). He submitted that in subsequent year i.e., A.Y.2007-08 AO had allowed depreciation of Rs. 24,37,500/- on WDV of Rs. 97,50,000/- but in appellate proceedings, Ld.CIT(A) by following the decision of Hon'ble Delhi High Court in the case of Sharp Business Systems (supra) held that non-compete fees was neither revenue expenditure nor an intangible asset and therefore not entitled to depreciation u/s 32(1)(iii) of the Act. Ld.CIT(A) therefore after giving enhancement notice, denied the claim of depreciation of Rs. 24,37,500/-. Aggrieved by the order of Ld.CIT(A), assessee carried the matter before ITAT. The Co-ordinate Bench of the Tribunal vide order dated 09.06.2017, decided the issue in favour of assessee. He therefore submitted that once an asset has entered in a block of asset, it loses it identity and has taken the shape of depreciable asset and thereafter the block of asset cannot be disturbed and the claim of depreciation on the WDV cannot be denied. He therefore relying on the decision of Co-ordinate Bench of the Tribunal, submitted that the claim of assessee of allowing depreciation b....
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....he assessee is in appeal with the said issue before us. 38. At the outset, Ld. Counsel for the assessee submitted that there are divergent decisions from 2 different High Courts, i.e. Delhi and Madras High Courts on the same issue. Considering the judgment in the case of CIT Vs. M/s. Vegetable Products 88 ITR 192 (SC) the judgment which is in favour of the assessee is required to be considered, i.e., the judgment in the case of Madras High Court in the facts of the present case. Further, elaborating the facts, Ld. Counsel for the assessee submitted that this is a case of second year of claim of depreciation. AO is not allowed to take out this depreciable asset out of the block of assets created in the Assessment Year 2006-07, Relying on the Pune Bench decision in the case of Finolex Cables Limited Vs. DCIT and vice versa in ITA Nos. 360 and 564 & 565/PN/2014 order dated 31-08-2015 Ld. Counsel for the assessee submitted that Revenue authorities are prevented restructuring the plot for any reasons of decisions. Bringing our attention to contents of Para Nos. 11 to 13 the assessee is found eligible for claim of depreciation on the written ....
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....ccount of delay in setup of plant. The appellant due to crash in prices and in order to keep the business relationship agreed to pay on account of unsupplied quantity of preforms and claims the same to be intangible asset by way of commercial right. This claim of the appellant is without any merit as no right has been acquired by the appellant and the same was paid merely to keep the purchase agreement alive and reduce the prices of preforms. Therefore, I do not find any infirmity in the order of Assessing Officer, The claim of the appellant that the amount was part of WDV brought down from earlier years is also unsustainable as wrongly brought down WDV cannot be accepted as sacrosanct. Therefore, I do not find any merit in the ground taken and therefore, the same is dismissed." ....