TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 1440
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.... assessing officer to disallow the appellant's claim of deduction towards Electricity and Power Generation Tax u/s.43B. 4. The Commissioner of Income Tax erred in directing the assessing officer to examine the appellant's claim of deduction u/s.35(2AB) afresh. 5. The Commissioner of Income Tax erred in directing the assessing Officer to assess the relief obtained by the assessee under Corporate Debt Restructuring (CDR) Mechanism under the appropriate provisions of the Act." 3. The facts of the case as narrated for the assessment year are that the assessee company is engaged in the business of manufacture and sale of chemical fertilizers, urea, DAP and chemicals, execution of turnkey projects and electrification contracts, manufacture of bulk drugs and formulations and production of tissue culture plants and enzymes. It filed its return of income for the A.Y. 2005-06 on 27.10.2005 declaring a net loss of Rs. 17,020.02 lakhs. Assessment in this case was completed on 12.12.2008 on a total income of 'nil' after adjusting brought forward losses to the extent of Rs. 139,87,79,554/-. 3.1 The CIT noticed certain discrepancies in the assessment order which is as follows : "(a).....
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....ion of interest bearing funds to group concerns, it was noticed that the amount debited to the interest paid account was net of interest received. The total interest income received during the year was Rs. 164.51 lakhs. Therefore, according to the CIT, the order of the AO, was therefore, erroneous to this extent that the interest disallowance was made with reference to the net interest debited and not the gross interest payment of Rs. 18,227.86 lakhs. It was submitted by the ld. AR that the formula adopted by the AO in the assessment order is a scientific one and should not be interfered with, since, only net interest liability was debited to the profit and loss account. The assessee company has also relied on the decision of the Supreme Court in the case of S.A.Builders v. CIT (288 ITR 1). Further, it was submitted that the decision to disallow the interest payment has been taken up before the CIT(A) and if the entire disallowance is deleted by the CIT(A), then this issue would be of academic interest. 4.1 The CIT observed that the contention of the assessee that the formula adopted by the AO to compute interest disallowance is a scientific one, since, only net interest liabilit....
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....ile deciding to disallow a portion of interest paid, the AO had considered the aforesaid Supreme Court's decision and concluded that the advances made to the group concerns had no direct nexus with the business activities of the assessee company. Besides, there is also a question of basic principle involved on this issue. The interest receipts have come through deposits and investments made. On the other hand, the advances to the sister concerns have been made out of borrowed funds carrying interest liability. Therefore, according to the CIT, there is no nexus between the interest received and the interest paid. Due to this, the AO should have disallowed a portion of the interest paid out of the gross interest liability in proportion to the interest free loans extended to the group concerns, which works out of to Rs. 14,13,22,330/- and directed the AO to rework the disallowance taking into account the gross interest paid on borrowals. 5. With regard to "Electricity Tax" and "Power Generation Tax", the assessee had claimed electricity tax and power generation tax at Rs. 1,93,03,614/- and Rs.69,97,512/- respectively, in the profit and loss account. It was seen that both the above s....
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....ult in the liability being classified as a "contingent liability", which is not an allowable deduction under the scheme of the Act. Thus, according to the CIT, either way, the assessee's claim of deduction on "Electricity Tax" and "Power Generation Tax" ought to have disallowed and, therefore, he directed the AO to disallow the assessee's claim of deduction towards "Electricity Tax" and "Power Generation Tax". 6. In respect of deduction u/s.35(2AB) of the Act, the assessee claimed a total deduction of Rs. 4,11,16,605/- u/s.35(2AB). The deduction is at the rate of 150% of the expenditure incurred on the in-house research and development facility. The claim was allowed by the AO. From the records, it is seen by the CIT that no evidence was furnished to establish that the assessee company had entered into an agreement with the Department of Scientific and Industrial Research for co-operation in carrying out such research and development activity and for audit of the accounts maintained for that facility. Further, it is seen that no evidence has also been filed to establish that the expenditure was incurred on in-house research and development facility. The ld. AR, contended that the....
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....tion to restructure all the parameters of the loans advanced and the repayment schedule and terms, to arrive at new terms which includes downward revision of interest rate, the purpose being to bail out the assessee company from its financial crisis. Thus, this exercise has been carried out by the Financial Institutions and the assessee company based on an understanding between them. Therefore, according to the CIT, the assessee's submission that it has not received the approval from two of the corporate Banks for the reduction in the rate of interest is fundamentally flawed. Further, the assessee has not brought on record any evidence to show that these two Banks have subsequently objected to the CDR exercise. Thus, the submission of the assessee company that the CDR exercise has not reached finality does not hold water. The CIT observed that it was admitted by the assessee company that the confirmation from the two Banks which are yet to be received, is only with reference to the arithmetical accuracy of the amount which was quantified by the CDR and not the question of reduction. Thus, the intention of the CDR exercise is not an issue. Therefore, the interest relating to earlier....
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....itted that the disallowance of interest cannot be dealt by the ld. CIT in his order passed u/s.263 of the Act. 9. On the other hand, ld.D.R submitted that interest received cannot be set off with the interest paid by the assessee and interest paid separately to be shown, which used for the purpose of business. Interest received is an income to be assessed separately. Further, he submitted that a portion of fund was advanced to the sister concern free of interest that interest on that advances to its sister concern to be computed and to be allowed which is worked out at Rs. 513.44 crores. He relied on the order of ld. CIT. 10. We have heard both the parties and perused the material on record. Admittedly the interest paid by the assessee on borrowings used for the purpose of the business to be allowed as deduction while computing the income of assessee. The interest received by the assessee cannot be set off against the interest paid by the assessee. The interest paid and claimed as a deduction in the computation of profits and gains of the business, cannot be set off against interest received under the head "income from other sources". So that while computing the disallowance of....