TaxTMI 
TaxTMI 
2019 (6) TMI 1433
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....al of the assessee in ITA No.837/Chd/2018. ITA No.837/Chd/2018(Assessee's Appeal): A.Y 2010-11) 2. The ground Nos. 1 and 2 raised by the assessee are legal grounds challenging the jurisdiction assumed by the A.O. in initiating proceedings u/s 147/148 of the Act and the same read as under: "1. That the learned CIT(A)-1 has erred in confirming the action of the AO in initiating proceedings u/s 147/148 of the Income Tax Act. 2. That all the facts stood disclosed and discussed during the course of regular assessment proceedings and there was no justification for the issue of notice u/s 147/148. 3. The said grounds were not pressed before us and, therefore, the same are dismissed as not pressed. 4. Ground No.3 raised by the assessee reads as under: "3. That the CIT(A) has erred in confirming premium of Rs. 1,75,72,704/--payable on redemption of FCCB Bonds wrongly holding the same to the in the nature of capital expenditure." 5. The above ground relates to the disallowance of the claim of the assessee of expenses being premium payable on redemption of Foreign Currency Convertible Bonds(in short referred to as 'FCCB') amounting to Rs. 1,75,72,704/....
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....3. Ground No.5 : Vide ground No.5, the assessee has agitated the action of the lower authorities in holding that the premium paid on redemption of Foreign Currency Convertible Bonds (FCCB) is capital receipt as against the claim of the assessee that the same is Revenue expenditure. The facts relevant to the issue are that the assessee issued Foreign Currency Convertible Bonds in the year 2006 and these were to be matured in February 2011. As the Bonds holders did not exercise their option to convert the bonds in equity shares, so FCCB were repaid along with premium / interest @ 6% per annum. The lower authorities treated the aforesaid payment as capital payment and denied the deduction of expenditure in this respect. 14. The Ld. Counsel for the assessee has invited our attention to the decision of the Tribunal in the own case of the assessee M/s Vardhman Textiles Ltd Vs. Addl. CIT Ludhiana in ITA no. 1429/Chd/2010 for the assessment year 2006-07 and in ITA No. 270/Chd/2011 for assessment year 2007-08 order dated 18.12.2018, wherein, on identical facts, the Tribunal after considering the relevant facts has held that the said expenditure is to be treated as Revenue expenditu....
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.... in the nature of revenue and is to be allowed in the year of payment of the same. Ground of appeal No.3 raised by the assessee is allowed in the above terms. 11. In effect, the appeal of the assessee is partly allowed. ITA No.1062/Chd/2016(Revenue's Appeal): 12. Ground No.1 raised by the Revenue reads as under: "1. Whether on facts and on circumstances of the case in law, Ld. CIT(A) was justified in deleting the addition amounting to Rs. 1,05,11,097/- made u/s 14A of Income-tax Act, 1961 read with rule 8D?" 13. The above ground relates to disallowance of expenses pertaining to exempt income earned by the assessee under the provision of section 14A of the Act. 14. Briefly stated, the A.O. on noticing that the assessee had made investment amounting to Rs. 13260.07 lacs and had incurred interest expenditure of Rs. 4792.33 lacs, asked the assessee why expenses incurred in relation to the same be not disallowed u/s 14A of the Act, since the assessee had earned dividend income from the same which were exempt from taxation. The assessee replied that it had earned dividend income of Rs. 11,57,390/- from the said investments like any other investor and submitted a d....
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....following terms : "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment." 9. In view of the above, no disallowance under section 14A of the Act with respect to interest expenditure can be made. As regards the administrative expenditure, we are in agreement with the submissions of the learned counsel for the assessee that in the case of CIT Vs. Deepak Mittal (supra), the Jurisdictional Punjab & Haryana High Court has held that in the absence of any satisfaction recorded by the Assessing Officer as to the claim of the assessee, the disallowance made by him on account of administrative expenses under Rule 8D of the Income Tax Rules is not as per law. In view ....
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....al & Reserves 17603.45 Income of the year 3585.22 Add depreciation 2731.77 Total 6316.99 Net increase in cash and cash equivalents 1092.46 18. The Ld.Counsel for the asssessee contended that the issue therefore stood covered in favour of the assessee by the order of the I.T.A.T. in the case of the assessee itself for the preceding years vide its order in ITA Nos.372, 396 & 397/Chd/2015 dated 19.4.2016. Copy of the order was placed before us. 19. The Ld. DR, on the other hand, relied upon the order of the A.O. 20. We have heard the rival contentions carefully. We have also gone through the order of the I.T.A.T. for the preceding years, as pointed out by the Ld.Counsel for the asssessee before us. On going through the same we find that the I.T.A.T. in the preceding years had deleted the disallowance of interest expenses made u/s 14A of the Act on finding that the assessee had sufficient own funds available for the purpose of making the impugned investment. The ITAT had also deleted the disallowance of administrative expenses, in the absence of any satisfaction recorded by the AO as to the claim of the assessee of not having....
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....ting disallowance made u/s 14A of the Act of interest amounting to Rs. 98,38,097/- is deleted while the issue relating to disallowance of administrative expenses of Rs. 6,73,000/- is restored back to the CIT(A) for adjudication afresh. Ground of appeal No.1 is partly allowed for statistical purposes. 24. Ground No.2 raised by the Revenue reads as under: "2. Whether on facts and on circumstances of the case in law, Ld. CIT(A) was justified in deleting the addition made on account of disallowance of interest on investments for non business purpose amounting to Rs. 9,74,00,000/- made u/s 36(l)(iii) of Income-tax Act, 1961?" 25. Brief facts relevant to the issue are that the A.O. disallowed interest expenditure on investments made to the tune of Rs. 13260.07 lacs from where exempt income would accrue to the assessee, for the reason that the investments were not for the business of the assessee. The AO worked out proportionate interest @ 8.14% on the impugned investments which came to Rs. 1079.37 lacs but restricted the same to Rs. 974.26 lacs after reducing therefrom the disallowance of interest made u/s 14A of the Act on the said investments, amounting to Rs. 105.11 ....
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..... 28,51,182/- u/s 36(1)(iii) of the Act. 31. The Ld.CIT(A) deleted the disallowance on finding that identical disallowance made in the preceding years i.e. A.Y. 2008-09 to 2010-11 had been deleted in appeal by the Ld.CIT(A). 32. Before us, the Ld.Counsel for the asssessee at the outset pointed out that the matter had travelled up to the I.T.A.T. in the preceding years since the Department had gone in appeal against the order of the CIT(A) in deleting the disallowance and the I.T.A.T. had in turn upheld the order of the Ld.CIT(A) on finding that there was sufficient own funds available with the assessee for the purpose of making the impugned investment calling for no disallowance of expenses u/s 14A of the Act. Our attention was drawn to the findings of the I.T.A.T. in this regard for assessment year 2008-09 in ITA Nos.372, 396 & 397/Chd/2015 dated 19.4.2016 at para Nos.17 & 18 of the order as under: "17. The learned counsel for the assessee brought to our notice that owned funds of the company are to the tune of Rs. 167,15,49,000/- while the investments in the share application money of subsidiary companies is amounting to Rs. 37,54,63,646/- in Oswal Retail Pvt. Ltd.....
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....nds for making the impugned investment as under: Availability of own funds 31.03.2011 Share capital & Reserves 17603.45 Income of the year 3585.22 Add depreciation 2731.77 Total 6316.99 Net increase in cash and cash equivalents 1092.46 35. The Ld.Counsel for the asssessee contended that the issue therefore stood covered in favour of the assessee by the order of the I.T.A.T. in the case of the assessee itself for the preceding years vide its order in ITA Nos.372, 396 & 397/Chd/2015 dated 19.4.2016. Copy of the order was placed before us. 36. The Ld. DR, on the other hand, relied upon the order of the A.O. 37. We have heard the rival contentions carefully. We have also gone through the order of the I.T.A.T. for the preceding years, as pointed out by the Ld.Counsel for the asssessee before us. On going through the same we are in agreement with the contention of the Ld.Counsel for the asssessee that the I.T.A.T. in the preceding years had deleted disallowance of interest expenses made u/s 36(1)(iii) of the Act on finding that the assessee had sufficient own funds available for the purpose of makin....
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....sessee and his entire findings were in relation to only the premium payable by the assessee on conversion of the bonds. The Ld.CIT(A) further held that the payment of interest was not a contingent liability as in the case of premium but was actual liability of the assessee being bound to pay the same semi-annually on the due date. Accordingly, the Ld.CIT(A) held that FCCB was in the nature of loans until converted into equity and the interest payment thereon was on a liability/loan and not equity. He, therefore, held that the assessee was entitled to claim the said expenses and relied upon the decision of the I.T.A.T., Mumbai Bench in the case of Mahindra & Mahindra Ltd., Vs. DCIT in ITA No.8597/Mum/2010 and on the decision of the I.T.A.T. Bangalore Bench in the case of M/s Crane Software International Ltd ITA Nos.774 & 775/Bang/2010. The relevant findings of the CIT(A) at para 6.5 of his order is as under: "6.5 I have carefully considered the facts of the case, the basis of the additions made and the arguments of the AR. The appellant has claimed interest paid on Foreign Currency Convertible Bond of Rs. 1,20,92,984/- besides premium payable on redemption of Rs. 1,76,13,97....
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....where interest has been paid to bondholders and TDS has been deducted; the interest expenditure is allowable. The appellant company has been paying interest on FCCB from A.Y.2009-10 after deduction of TDS and the same has been allowed u/s 143(3) for A.Y. 2009-10 and 2010-11. Therefore, the Assessing Officer was not justified in disallowing the interest paid on FCCB. Ground of appeal no.5 (a) is hereby allowed." 41. Before us the Ld. DR relied upon the order of the A.O., while the Ld.Counsel for the asssessee relied upon the order of the CIT(A). 42. We have heard the rival contentions and perused the orders of the authorities below. The issue before us relates to claim of the assessee of interest expenditure incurred on FCCB issued by it. The fact that the said bonds were issued at interest rate of 2% per annum to be paid semi-annually is not disputed. It is also not disputed that the interest was paid on the bonds and not on their conversion into equity. Therefore, the findings of the Ld.CIT(A) that the interest expenditure was the actual liability of the assessee on loans taken by it in the form of bonds, we find is correct. The Ld. DR has been unable to draw our attention t....
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....t of the said party. Since the assessee was unable to reconcile the difference in the accounts, the A.O. made an addition of Rs. 7,37,987/- in the income of the assessee. 48. Before the Ld.CIT(A) the assessee filed detailed submissions stating that M/s ACE Building Technologies Pvt. Ltd. was building construction contractor of the assessee with whom the assessee had been dealing since 2008 and the difference in he account statement as reflected in the books of both the parties was on account of the fact that the debit notes raised by the assessee on the said party had not been accounted for by it in its books though the other party had not disputed the same also and ultimately that all amount payable to M/s ACE Building Technologies Pvt. Ltd. (supra) had been settled. The assessee filed copy of the account of M/s ACE Building Technologies Pvt. Ltd. (supra) reflecting the debit notes raised and also copy of the bank statement as evidence of the above explanation. The submission made by the assessee in this regard as reproduced at para 8.1 of the CIT(A)'s order is as under: "1. Assessee company has awarded the contract of Rs. 6,66,430,31/- for construction of its building....