TaxTMI 
TaxTMI 
2020 (8) TMI 125
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....er accepted accounting practices and decision of various authorities including decision of Hon'ble Supreme Court in the case of CIT Vs. Bokaro Steels Ltd. 336 ITR Page 315, as this amount pertains to prior to commercial operation of the road for which the amount was borrowed. 3. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in making disallowance of Rs. 1,00,000/- under Section 14A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at Rs. 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 4. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in considering Rs. 1,50,35,287/- as Share Issue Expenses instead of Rs. 1,30,88,710/- and accordingly further erred in considering Rs. 97,95,483/- as Professional and Legal fees for IPO instead of Rs. 1,17,42,030/- 5. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in disallowing Share Issue Expenses of Rs. 1,50,35,287/- and adding back to the income, considering the same as capital expenditure and has also erred in not considering ....
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....n in the earlier assessment years, an amount of Rs. 1,05,246/- was brought to tax under the head "income from other sources". On appeal, the same has been confirmed by the ld. CIT(A) and against the said finding, the assessee is in appeal before us. 6. During the course of hearing, the ld. AR submitted that the assessee had entered into a concessionaire agreement for development of different road stretches popularly known as "Mega Highway" connecting various national highways. Earlier seven road stretches were completed and the assessee is in the process of completing the remaining seven stretches during the year. It is submitted that once the appellant commenced commercial operations of a partial road stretch, the interest expenses on relatable borrowings and interest income on linked STR were taken to the Profit & Loss account and offered under the head income from business and profession. In respect of remaining road stretches which were under construction and upto the date of commercial operations, the total expenditure including the interest paid on borrowed funds net of interest income earned on STR inextricable linked to project cost is capitalized under the head Project wo....
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....Per contra, the ld. DR has relied on the findings of the lower authorities and submitted that the matter is squarely covered by the decision of the Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals & fertilizers Ltd. vs. CIT and further in absence of any evidence to show that interest was pertaining to the period prior to the period during which commercial production has commenced, the same has rightly been brought to tax by the AO. He accordingly supported the order of the lower authorities. 10. We have considered the rival submissions and perused the material available on record. During the year under consideration, the assessee has shown interest receipt of Rs. 5,06,71,786/- from FDRs place with its banks, out of the same, interest receipt of Rs. 5,05,66,540/- has been offered to tax by the assessee under the head "Other Income", however, an amount of Rs. 1,05,246/- has been capitalized by the assessee thereby reducing the cost of fixed assets. Therefore, it is not a case where the whole of the interest receipt has been capitalized by way of reducing from the cost of the fixed assets. The issue is thus limited to interest receipt of Rs. 1,05,246/-. The claim of the as....
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....re and not accretion of capital Whether the company raised the capital by issue of shares or debentures or by borrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilising the borrowed funds as its income. The company was at liberty to use the interest income as it liked it was under no obligation to utilise this interest income to reduce its liability to pay interest to its creditors. It could re-invest the interest income in land or shares, it could purchase securities, it could buy house property, it could also setup another line of business, it might even pay dividends out of this incom....
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....cility not been provided by the assessee, the contractors would have had to make their own arrangements and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee had provided these facilities. The same was true of the hire charges for plant and machinery which was given by the assessee to the contractor for the assessee's construction work. The receipts in this connection also went to compensate the assessee for the wear and tear on the machinery. The advances which the assessee made to the contractor to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitches as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the asses....
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....r the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set-up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd. v. CIT & EPT [1958] 34 ITR 368 (SC), and Na....
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....ective from which the present issue can be examined. Under section 208 of the Companies Act, 1956 a company can pay interest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in subsections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 7. In view of the discussion above, in our opinion the ....
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....C. As noticed above, Revenue has not challenged and has accepted the order of the tribunal deleting addition of Rs. 1,35,81,234/-paid by the respondent-assessee to PFC for preparation of tender documents. In view of the factual matrix, the tribunal has rightly followed the ratio in Indian Oil Panipat power Consortium Ltd.'s case (supra)." 11. Thereafter, the aforesaid decision of the Coordinate Bench was followed in subsequent decision in assessee's own case by the Coordinate Bench in ITA No. 963/JP/12 & 282/JP/15 dated 19.12.2016 wherein the relevant findings read as under: "4. We have heard the rival contentions and perused the material available on record. The issue under consideration for the both the years relate to treatment of the interest received prior to commencement of commercial operations of the specified mega road projects. As per the Revenue, the same is to be brought to tax under the head "income from other sources." As per the assessee, it is in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head "Capital work in progress" and the same cannot be brought to tax under the head "incom....
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....ementation of the project and no other purpose. The funds are thus inextricably linked to the setting up of the mega road projects and interest earned on such borrowed funds infused in the business could not be classified as income from other sources. We also note a distinguishing feature in the instant case that the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals & Fertilizers (supra) and the interest has to be used solely for the purposes of implementation of the specified projects only. The impunged interest receipt of Rs. 35,39,479/- on such borrowed funds relates to the mega road projects/stretches which were under construction and the completed road projects/stretches upto the date of commencement of commercial operations. Therefore, the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head "Capital work in progress" and the same cannot be brought to tax under the head "income from other sources". Hence, gr....
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....ecision in case of Bokaro steel Ltd (236 ITR 316) has been duly considered. The relevant findings of the Coordinate Bench in assessee's own case in ITA No. 628/JP/2014 for A.Y. 2009-10 dated 11.08.2016 are reproduced as under: "2.18 From the above, it is evident that there are two sets of judgements of Hon'ble Supreme Court, proceedings on different lines of reasonings. The Hon'ble Delhi High court in case of Indian Oil Panipat Consortium Ltd. (supra) has considered and interpreted the decisions of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers (supra) as well as Bokaro Steel Ld. (supra). After analyzing both the decisions of Hon'ble Supreme court, it held that "the test which premeates through the judgement of the Supreme court in Tuticorin Alkali Chemicals & fertilizers Ltd's case (supra) is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head "Income from other sources". On the other hand the ratio of the Supreme court judgement in Bokaro Steel Ltd.'s case (supra) to ....
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....of the Coordinate Bench has been stayed by the Hon'ble High Court. In view of the similar facts and circumstances of the case and respectfully following the decision of Coordinate Bench in assessee's own case (supra), we hold that the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head "Capital work in progress" and the same cannot be brought to tax under the head "income from other sources". 4. However, Mr. Mathur has taken us to the order of the AO wherein the assessing officer while considering the income as observed as under:- "3. However, without prejudice, we would like to reiterate here that even if this is considered as income from other source, the net effect would be that the gross block of the road will be increased by the equivalent amount and whatever is the income from other sources would be set off against the loss from current year's business and profession as company has started operation during the year and there would be no demand of tax. The reply of the assessee has be....
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....on to income which does not part of the total income, it was submitted that the assessee has not earned any tax free income during the year and therefore, the question of disallowance of any expenditure U/s 14A of the Act. In support reliance was placed on the decision of Hon'ble Delhi High Court in case of CIT vs. Holcim India Pvt. Limited and also the decision of Coordinate Bench in case of M/s Rajasthan land Holding Ltd. dated 25.09.2019 which has followed the decision of Hon'ble Delhi High Court in case of Cheminvest Ltd. vs. CIT (2015) 387 ITR 33 and decision of Hon'ble Supreme Court in case of Maxopp Investment Ltd. vs CIT 402 ITR 640. It was accordingly submitted that the assessee has not incurred any expenditure, further no exempt has been earned during the year, hence, the addition made by the Assessing Officer directed to be deleted. 17. Per contra, the ld. DR has relied on the findings of the lower authorities. 18. We have considered the rival submissions and perused the material available on record. Undisputedly, no exempt income has been earned by the assessee during the year under consideration. Further, there is no fresh investment which has been made by the assess....
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....d. 20. In ground No. 4, the assessee has contended that the Assessing Officer as well as ld. CIT(A) has erred in considering an amount of Rs. 1,50,35,287/- as share issue expenses instead of Rs. 1,30,88,710/- and similarly has erred in considering professional and legal fees for IPO amounting to Rs. 97,95,483/- instead of Rs. 1,17,42,030/-. It was submitted that the necessary details were submitted before the lower authorities however, the same has not been considered. The details of expenses incurred in this regard are as under:- S. No. Particulars FY 2008-09 FY 2009-10 Total I IPO Related expenses : 1,17,42,060 (i) Due Diligence 3645970 5783613 (ii) Professional fees 317900 48000 (iii) Other expense 19,46,577 (considered as part of expenses incurred in relation to share capital by the Ld AO) II Expenses incurred in connection with Share Capital 1,30,88,710 (i) Share Registration Fee Miscellaneous Exp. (Increase in Authorized Share Capital from Rs. 50 crores to Rs. 200 crores) 125,88,710 (ii) Stamp Duty on Share Certificates 5,00,000 GRAND TOTAL &n....
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....h Court in case of CIT vs. Kisen Chand Chellaram (India) (P.) Ltd. 5 taxman 58 has since been overruled in the Apex Court verdict in the case of M/s Brooke Bond India Ltd. It was further observed by the Assessing Officer that in spite of the IPO being aborted, as a result of expenditure, it was authorized capital which has increased thereby providing an enduring benefit to the assessee, therefore, the expenditure to the extent of Rs. 1,50,35,287/- related to increase in authorized share capital was disallowed being capital in nature and added to the taxable income of the assessee company, which on appeal, has been confirmed by the ld. CIT(A). Against the said findings, the assessee is in appeal before us. 26. During the course of hearing, the ld. AR reiterated the submissions made before the lower authorities and submitted that the said expenditure should be allowed as revenue expenditure following the decision of Hon'ble Madras High Court in case of CIT vs. Kisen Chand Chellaram (supra). Alternatively, it was submitted that the said expenditure should be allowed as a deduction U/s 35D of the Act. In this regard, our reference was drawn to the provisions of Section 35D of the Act....
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.... of Section 35-D and is eligible for amortization in 5 equal installments, if the same is not allowed as a revenue expenditure. 29. It was further submitted that the Learned Assessing Officer has held the same to be capital in nature and disallowed the same with special emphasis on the case of Brooke Bond India Ltd Vs CIT, 225 ITR 798 (SC). In this connection it is submitted that Section 35D was introduced in the statute book w.e.f. 01-4-1971 and the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd Vs CIT related to assessment year 1969-70, which was prior to incorporation of S.35D in the Income Tax Act and this inclusion altered the legal position thus the Brooke Bond case cannot be applicable in the given context, as also held by the Hon'ble Supreme Court in the case of M/s. Shasun Chemicals And Drugs Ltd. Vs. Commissioner Of Income Tax, Chennai [2016] 73 taxmann.com 293 (SC). In the said case it was held that the expenditure incurred on public issue for the purpose of expansion of the company is a capital expenditure, however, the High Court, disallowed the same following the judgment of this Court in the case of Brook Bond India Ltd in spite of the ar....
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....xpenses incurred on increase in the authorized share capital which results in increase in the capital base of the assessee company is an expenditure on capital account and the matter has long been settled by the Hon'ble Supreme Court in case of Brooke Bond India and subsequent decisions relied upon by the AO. He accordingly supported the findings of the lower authorities and submitted that there is no infirmity in the said findings and the same may be confirmed. 32. We have considered the rival submissions and perused the material available on record. We find that there has been increase in the authorized capital of the company from Rs. 50 Crores to Rs. 200 crores and also increase in the paid up capital of the company from Rs. 50 crores to Rs. 100 crores. The assessee company has incurred an amount of Rs. 125,88,710/- in connection with increase in the authorized capital and an amount of Rs. 5,00,000 in connection with increase in the paid up capital by way of stamp duty charges on share certificates and thus, total expenses of Rs. 1,30,88,710 have been incurred by the assessee company. The contention of the assessee company is that the expenditure is in the nature of revenue ex....
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..... The Rajasthan High Court decision in the case of Aditya Mills [1990] 181 ITR 195 is clear and explicit on the point and we are bound by the same. We, consequently, answer the first question in the negative by saying that the fee paid to the Registrar of Companies for raising the authorised capital was not allowable as revenue expenditure." 34. The decision of the Hon'ble Rajasthan High Court has subsequently been affirmed by the Hon'ble Supreme Court in case of Punjab State Industrial Development Corporation Ltd Vs CIT reported in [1997] 93 Taxman 5 wherein, in view of the conflicting decisions of various High Courts, the following substantial question was admitted for adjudication which reads as under: "Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 1,50,000 paid to the Registrar of Companies, as filing fee for enhancement of capital, was not revenue expenditure ?" And thereafter, referred to the decision of the various High courts, including the Hon'ble Rajasthan High Court in case of Multi Metals and earlier decision in case of Aditya Mills and has held as under: "3. The issue has been answered in favo....
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....eady solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, L.C. in Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned Law Lord stated : '.....when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital'." (p. 10) 5. This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion. Briefly put, it is not a strait-jacket formula and the question will have to be determined in the backdrop of facts of each case....
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.... if it resulted in bringing about capital advantage. The Andhra Pradesh High Court had in Warner Hindustan Ltd.'s case (supra), following the decision of the Madras High Court in Kisenchand Chellaram ( India)( P.) Ltd.'s case (supra) , held that the expenditure incurred was connected with the functioning and financing of the assessee's business and, hence, the fees paid could not be treated as on capital account. However, this line of reasoning was departed from in the subsequent decision in Vazir Sultan Tobacco Co. Ltd.'s case (supra) , wherein it was observed that where the object of incurring an expenditure is to affect a capital structure as a result of which certain incidental advantage flows, the expenditure will be of capital nature. In other words, it followed the decision of the Calcutta High Court referred to earlier. It distinguished the earlier decision in Warner Hindustan Ltd.'s case (supra)holding that it was unable to appreciate the reasoning of the Madras High Court which held it to be a revenue expenditure. It, therefore, refused to extend the ratio of the decision in the earlier case of Warner Hindustan Ltd. ( supra)to expenses incurred directl....
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....d Hon'ble Supreme Court referred supra, we are of the considered view that the expenditure incurred towards increase in the authorized and paid up capital which has resulted in increase in capital base of the assessee company has rightly been treated by the Assessing officer as a capital expenditure and the contention advanced by the assessee company to treat the same as revenue expenditure therefore cannot be accepted. 36. Now, coming to the alternate contention of the assessee company that the expenditure should be allowed to be amoritised over the period of time in terms of section 35D of the Act. Undisputedly, the capital base of the company has been expanded for extension of the assessee's business wherein seven new road stretches will be constructed as per particulars below: Project Name (i) Alwar To Bhiwadi (AB) (ii) Hanumangarh To Sangaria (HS) (iii) Jhalawar to Jhalawar Road (JJ) (iv) Arjunsar To Pallu (AP) (v) Kapren To Mangrol (KM) (vi) Jhalawar to Ujjain (JU) (vii) Khushkheda To KasoulaChowk (KK) 37. We find that the issue of deduction of the fee paid to the Registrar of Companies for raising authorised capital of the assessee-company under sub section (2)(c)(....
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....ion (2)(c)( iii) or sub-section (2)(c)( iv) of section 35D would defeat the obvious intention of the Legislature and would produce a wholly unreasonable result To achieve the obvious intention and produce a reasonable result, we have to hold that under subsection (2)(c)(iv ) of section 35D, the expenditure incurred for obtaining registration would be liable to be deductible. We, consequently, hold that the fee paid to the Registrar of Companies for raising authorised capital of the assessee-company was covered by sub section (2)(c)(iv ) of section 35D of the Income-tax Act." 38. The assessee has also referred to the decision of the Hon'ble Supreme Court in case of M/s Shasun Chemicals (supra) wherein the facts were that the assessee went in for public issue of shares in order to raise funds to meet the capital expenditure and other expenditure relating to expansion of its existing units of production both at Pondicherry and Cuddalore and for expansion of its Research and Development Activity and had incurred a sum of Rs. 45,51,890/- towards the aforesaid share issue expenses and claimed 1/10th of the aforesaid share issue expenses each year under Section 35D of the Act and the s....
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....re, respectfully following the decisions of Hon'ble Rajasthan High Court and Hon'ble Supreme Court referred supra, the assessee is held eligible for amortization of the expenses incurred in terms of fees paid to Registrar of companies towards the increase in authorized and paid up capital as per the provisions of section 35D of the Act and the Assessing officer is directed to allow the same. In the result, the ground of appeal is allowed in favour of the assessee and against the Revenue. 40. In ground No. 6 the assessee has challenged the disallowance of professional and legal fees incurred to bring IPO which was subsequently abandoned. Briefly the facts of the case are that the assessee company engaged the services of M/s Luthra and Luthra law firm, M/s S. Bhandari & Co. Chartered Accountants, M/s Amarchand Mangaldas Law firm and M/s Eman Securities Pvt. Ltd. as legal, financial and book running lead manager in connection with IPO and has incurred expenses of Rs. 97,95,083/- which as per the assessee company should be read as Rs. 1,17,42,060/-. During the course of assessment proceedings, the assessee company was asked to justify the allowability of the said expenses. After consi....
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....nagement had to abandon the proposed IPO and accordingly this expenditure was charged off to the Profit & Loss account and claimed in the return of income. The ld. AR relied on the decision of the Hon'ble Delhi High Court in case of Priya Village Roadshows Ltd. v. CIT [2009] 185 TAXMAN 44 (DELHI) wherein it was held that in case of abondment or dropping off certain projects due to non-viability or uncontrollable reasons, the expenditure incurred on such project would be considered as revenue expenditure. Further, reliance was placed on the decision of Hon'ble Bombay High Court in case of Nimbus Communication (in ITA No. 4244/2010 dated 28.01.2010). Further, reliance was placed on the Coordinate Bench decision in case of M/s Parvar Enterprises, Pune vs. ACIT (in ITA No. 1058 & 673/PUN/2016 dated 8.09.2017). Regarding the observation of the Assessing Officer that the draft red herring prospectus is an extremely vital document and has provided enduring benefit to the assessee company, it was submitted that the Draft Red Herring Prospectus is the first requirement of the SEBI and the Companies Act, which is to be filed with the Authorities, which contains certain information in a presc....
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....es paid to other professionals like auditors to comply with the requirement of Companies Act, 1956 falls within the definition of section 35D. The important fact is that it should be either before start of commercial operation or for extension of business. Our case squarely covered the second limb of Section as the expenditure has been incurred for extension of business for which all the expenditure was incurred. 44. It was submitted that in view of the bad capital market Company has not gone to public but have used the various reports prepared by the various consultants to convince the existing shareholders i.e. GoR/IL&FS to further subscribe the share and have got eight more road stretches for construction, which is direct evidence of extension of existing business, which is covered as per definition of Section 35D. The Authorised Share Capital of the company was increased from Rs. 50 crores in FY 2007-08 to Rs. 200 crores in FY 2008-09 and paid up capital increased by Rs. 50 crores in FY 2008-09 to Rs. 100 crores. In view of this, the amount incurred falls within the definition of Section 35D and is eligible for amortization in 5 equal installments. Hence if the plea of the Ap....
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.... Nimbus Communications Ltd vs ACIT (ITA No. 2361(Mum) of 2007 dated 28.01.2010) had examined the matter in similar factual background of aborted IPO expenses and has held as under: "On a careful consideration of the facts and circumstances of the case, as incurring of the expenditure in question was for the purpose of rising capital by way of public issue and as the public issue got aborted, we are of the humble opinion that the expenditure is in the revenue field. For an expenditure to be considered for amortisation under s. 35D, it should be in the capital field. An expenditure which is incurred in the revenue field is allowable under s. 37 of the Act. The AO at para 6 of the assessment order has not come to a conclusion that the expenditure in question has not been incurred. After collecting the details from the assessee, he concluded that there being no change in the subscribed share capital and as the expenditure was not incurred prior to incorporation and as it could not be substantiated that the issue is in connection with the extension of business or setting up of new industrial undertaking, the assessee is not eligible for claim under s. 35D. The nature of expenses are....
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....future IPO. Therefore, the stand of the Assessing officer that such a document will provide an enduring benefit to the assessee company cannot be accepted. In light of aforesaid discussions and respectfully following the decision of the Hon'ble Bombay High Court in case of Nimbus Communication (supra) and in absence of any contrary authority, the expenses incurred in connection with aborted IPO are allowed as revenue expenditure. The alternate contention regarding amortization u/s 35D has thus becomes infructious and is not adjudicated upon. The matter is thus decided in favour of the assessee and against the Revenue. 49. In ground No. 7, the assessee company has challenged the action of the ld CIT(A) in confirming the lower grant of interest u/s 244A of the Act. 50. In this regard, the ld AR submitted that the assessee company received a refund of Rs. 59,01,080/- comprising of TDS of Rs. 55,15,029/- and interest u/s 244A of Rs. 3,86,051/- vide cheque dated 4th July, 2012. As per the provisions of the said section, the interest for the period of 16 months w.e.f. 1/4/2011 to 4/07/2012 works out to Rs. 4,41,202/- (55,15,029 x 0.5% x 16). However the interest assessed u/s 244A was ....
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....A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at Rs. 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 53. Both the parties fairly submitted that the facts and circumstances of the present appeal are identical to facts and circumstances in ITA No. 668/JP/19 and thus, similar contentions as raised in aforesaid matter may be considered. Therefore, considering that there are no changes in facts and circumstances as so submitted by both the parties, our findings and directions contained in ITA No. 668/JP/19 shall mutatis mutandis to the present appeal and the same is disposed off accordingly. ITA No. 670/JP/2019 54. Now, we take up assessee's appeal for A.Y 2013-14 wherein the assessee has taken following grounds of appeal:- "1. That the order passed by the Ld. Assessing Officer and Ld. CIT(Appeals), Ajmer, is bad in law as well as facts. 2. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer has wrongly considered Rs. 6,50,762/- as Income from Other Sources rather than reducing it form the capital cost of construction of roads, as per accepted acc....
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....disallowance of depreciation of Rs. 1,17,59,016/- claimed by the assessee. 57. In this regard, the ld AR submitted that in respect of disallowance of depreciation of Rs. 1,17,59,016/-, being depreciation on account of Toll Buildings under the block of Building as per Income Tax Act 1961, it is submitted that the Ld. A.O disallowed the depreciation claimed during the year in respect of Buildings (Block-10%) considering the same to be depreciation in case of Toll roads, however the amount of Rs. 150,46,66,419/- comprised of Rs. 149,29,07,403/- being depreciation on account Toll Roads and Rs. 1,17,59,016/- being depreciation on account of Toll Buildings, totaling to Rs. 150,46,66,419/-. The amortization allowed of Rs. 1,05,06,87,579/- was only in respect of Toll roads and did not include Toll Buildings, copy of Annexure A as referred to in the Assessment Order is being enclosed as Annexure II. In this respect, a rectification application was also filed containing all details and supporting documents and workings thereof, however the rectification order is yet to be passed by the Ld. A.O. The aforesaid facts of the case and annexures mentioned therein were also submitted to the Ld. CI....
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....unt of Rs. 5023041/- has been debited in P&L under the head "other expenses" as expenses on 'Socio Economic'. Vide letter dated 11-11-2016 the assessee was required to give justification for its allowability. In response to the same vide letter dated 7-12-2016 written submission was filed stating as under:- "The Company is engaged in construction of Mega Highway Roads, which involves of displacement of various families, domicile of shops car some other inconveniences to the various villages of nearby areas. As per the Partnership & Development agreement (PDA) executed with the Government of Rajasthan, the Company was authorized to undertake, participate and support environmental, community development/social activities viz. develop schools, creation of some infrastructure facilitie s, welfare of commuters or any other activities by which the common man life is improved or made more convenient, alongside the project road." Further operation & maintenance expenses has been defined in the PDA, reads as under:- 7.1 "O&M Expenses" means all costs and expenses, incurred or committed to be made by or on behalf of RIDCOR duly certified by its authors for operations and maintenance of....
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....ations. The assessee has claimed these expenses on the basis of social cause or general public good. Against such expenses there is no definite business liability of assessee. The core logic of assessee for allowability of these expenses is that these expenses will improves living of society and, the society will indirect helpful for the business motives of the assessee. If this contention of assessee is accepted than all donations/application of income items will qualify for deduction which is not the intention of sec. 37(1) of the Income Tax Act, From the plain reading of sec. 37(1), the intention of legislature is amply clear. Relevant part of the section is reproduced hereunder:- "37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". 7.3 The adverb 'wholly in the phrase 'laid out or expended wholly and exclusively' has reference to the object or m....
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....nditions are fulfilled. For example expenditure incurred in organizing a foot ball tournament has been held as allowable deduction under section 37 while computing income of the assessee (Delhi Cloth and General Mills Co. Ltd. Vs. CIT (1999) 240 ITR 9 Del. Further reliance was placed on the decision of Hon'ble Supreme Court in case of CIT Vs. Bharat Carbon & Ribbon Mfg. Co. (P) Ltd., 1999 XII SITC 218 wherein it was held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of accounts be decisive or conclusive in the nature. Further, reliance was placed on CIT Vs Malayalam Plantations Ltd (1960) 53 ITR 140 (SC) and CIT vs Kalyanji Maviji & Co (1980) 122 ITR 49. 65. It was further submitted that wherever the Mega Road Projects are implemented, there are a lot of displacements of the residents, removal of the buildings and various other activities which causes inconvenience and problems to the residents of the area and to address such issues as a national policy, the Government of India while a....
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....lling its obligations under this Agreement; provided any such subcontracting shall not relieve RIDCOR from any of its obligations in respect of the provision of such obligations under this Agreement. It is clarified that RIDCOR shall remain liable for any acts, omissions or defaults of any subcontractor; (f) protect the Project Site from fresh encroachments during the Project Period; in case, RIDCOR is unable to effectively discharge this obligation for reasons beyond its control, then it shall request GoR to provide necessary assistance to mitigate the problem; (g) ensure that at the end of the Project Period, the Facility is transferred to GoR in fair condition, free of cost and free from all encumbrances, subject to normal wear and tear having regard to their use in accordance with Prudent Utility Practices and the terms and conditions of this Agreement; (h) report to GoR during the Project Period, such information as GoR may reasonably require to be informed of material matters relating to the Facility and also as per requirements of statutory agencies, as well as legally constituted entities of GoR, (i) allow representatives duly authorised by relevant Competent Author....
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....purposes and as has been held in the various judgments by the Hon'ble Higher authorities which we have narrated above and the most important the criteria given by the Hon'ble Gujarat High Court in case of CIT vs Navsari Cotton & Silk Mills Ltd (1982) 135 ITR 546 which has laid down certain principles to allow such expenditure u/s 37 of the Income Tax Act which are positive and negative narrated hereunder and Company is well covered in this positive and negative test and fully eligible for reduction u/s 37(1) of the Income Tax Act and hence it is submitted that the disallowance may be deleted as neither this has a personal nature nor it is irrelevant and extraneous consideration and directly connected with the business carried out by the Company and to comply with the Government of India's policy for implementing such action on Mega Projects. It is prayed that the disallowance made by the Ld. Assessing Officer may be deleted. 67. The Hon'ble Gujarat High Court in CIT Vs. Navsari Cotton & Silk Mills Ltd. (1982) 135 ITR 546 (Guj) has evolved some positive and negative tests on first principles to claim deduction of an expenditure as business expenditure: (A) Positive Tests: If th....
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....ntage depending on "ifs' and "buts" and, if at all, to be secured at an uncertain future date which may be considered too remote. No. 68. It was submitted that a reading of the above judgment gives clear understanding that though Section 37(1) in general speaks that an expenditure incurred wholly and exclusively for the purpose of business will be allowed as deduction, however the scope of the abovementioned section is wide enough for claiming a particular deduction, if certain conditions laid down therein are satisfied. The jurisdiction of the Revenue authorities is confined to deciding the reality of the expenditure, namely, whether the amount claimed for deduction was factually expended or not, and whether it was wholly and exclusively for the purpose of the business. Once that conclusion is reached in favour of the appellant, deduction of the entire amount should follow as a matter of course (Sanjeevi & Co. Vs. CIT (1966) 62 ITR 156 (Mad)). It is well settled that the deductions allowed in determining the income enumerated in the Income-tax Act are not exhaustive. A business expenditure is a voluntary act on the part of a businessman to spend money for carrying on his busines....
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.... principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law." 71. It was accordingly submitted that linking with the Corporate Social Responsibility (CSR) and disallowance is totally uncalled for. CSR is mandatory only in the case where the Company earns profit whereas in the instant case the rationale of incurring expenditure has been explained above. It was submitted that the assessee being involved in constructing and maintaining various road stretches, incurring this type of expenditure is must to avoid or minimize the accidents, spread of diseases etc. and to encourage the vehicles to come on the appellant's roads which will help the appellant in generating good revenue. The test of allowing expenditure U/S 37 is decided by the Hon'ble Gujarat High Court as discussed above and the expenditure so claimed may be allowed and the addition so made by the lower authorities be deleted. 72. The ld DR is heard who has relied on the findings of the lower authorities. 73. We have heard the rival conten....