TaxTMI 
TaxTMI 
2021 (6) TMI 1082
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....(namely Blue River Capital- LLC) and therefore expenditure relating to such sale are not allowable under section 37. 1.4) The Ld. CIT(A) erred in concluding that his predecessor CIT (A) has given the allowance of expenses considering the proportionate benefit to company. 1.5) The Ld. CIT(A) erred in not giving opportunity to the assessee to rebut various Adverse remark which are not coming out of the matters before him. 2. The learned A.O. erred in (and CIT(A) in confirming) allocating notionally the expenditure of Rs. 42,62,687/- for earning Exempt Income and consequently erred in disallowing such expenditure under section 14A. 2.1) The learned CIT(A) erred in not considering the following facts: i) Assessee has huge non-interest bearing funds. ii) The most of the Investments made by the company were for the Business purpose/strategic investment and not for earning exempt income. iii) Most of the investments have not yield any exempt income during the year. 3. The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case." 3. Briefly, the facts of the case are as under :- The appell....
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....the aborted share issue expenditure as revenue expenditure u/s 37 of the Act. 8. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 9. We heard the rival submissions and perused the material on record. The issue in the present appeal is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of Nimbus Communication Ltd. (supra) wherein the Hon'ble Jurisdictional High Court following its earlier decision in the case of M/s. Essar Oil Limited (supra) confirmed the decision of the Tribunal allowing the aborted IPO expenditure as revenue expenditure u/s 37 of the Act. Similarly, the Hon'ble Madras High Court in the case of Tamilnadu Magnesite Ltd. vs. ACIT, 95 Taxmann.com 239 held that the expenditure incurred for setting up of new project viz. Chemical Beneficiation Plant which is abandoned following State Government Order is allowable as revenue expenditure by holding as follows :- "20. To decide the substantial questions of law framed for consideration, we would have to apply the proper test, which would distinguish capital and revenue expenditure. This question came up for consideration b....
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....pital and circulating capital by holding that fixed capital is what the owner turns to profit by keeping it in his own possession; circulating capital is what he makes profit of by parting with it and letting it change. 24. Bearing the above legal principles in mind, we proceed to examine the facts of the instant case. It is not in dispute that the Chemical Beneficiation Plant was already established by TIDCO and on account of their not being able to achieve the desired result, the assessee was invited to take over the project, as the assessee possessed expertise in the field. This is how the assessee stepped into the project and by turn of events, the Government granted approval during the year 1998. 25. As could be seen from the order passed by the CIT (A), the assessee had entered into an arrangement with TIDCO as well as with IDBI and fixed the project cost with a debt equity ratio, which was approved by the Government of Tamil Nadu and thereafter, steps were taken to acquire land, import machinery etc. In the meantime, 12 years had passed by and the project had not taken off. The IDBI had withdrawn from the project, as it was found to be unviable and another co-promoter ....
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....rred would be revenue in nature. However, if the new asset comes into existence, which is of enduring benefit, then such expenditure would be capital in nature. 29. The Hon'ble Delhi High Court took note of the decision of the Gauhati High Court in Dy. CIT v. Assam Asbestos Ltd. [2003] 263 ITR 357/132 Taxman 808. The High Court of Calcutta in the case of Binani Cement Ltd. (supra), considered a case where the Tribunal disallowed the expenditure allegedly incurred by the assessee for preparing feasibility study report and capital workin- progress in the earlier years but written off during the previous year, since the proposed project was abandoned. The Court affirmed the view taken by the CIT (A), where it was held that the company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business and it was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business and that stage having not reached and no asset having come into existence, the capital work-in-progress had to be wri....
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....no application to the facts of the case, as the expenditure incurred by the assessee were shown in the books of accounts as towards issue expenses incurred during the year and they found there was no justifiable ground to dissect one part of the expenditure as revenue expenditure and another part as capital expenditure. As pointed out by the Hon'ble Supreme Court in Empire Jute Co. Ltd. (supra), we cannot take a decision sans facts and the factual position as set out in the preceding paragraph would clearly show that the abandoned project was not a new one and it was a decision taken by the Government after about 12 years after the petitioner was invited to take over the project, which was already in existence, as they were an expert in the same line of business. Therefore, on facts, we find that the CIT (A) was perfectly right in deleting the addition and holding that the expenditure was revenue not capital expenditure. We may point out that the decision in the case of Ideal Cellulura Ltd. (supra) was also a case where the expenditure was incurred to bring into existence a new asset, which is not so in the case on hand. Therefore, the said decision is also distinguishable on facts....
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....ed that in the year of investment, no borrowed funds were utilized for the purpose of making investment in M/s. OMR Bagla Automotive Systems (I) Ltd.. Thus, no addition is warranted on account of interest expenditure under clause (ii) of sub section (2) of Rule 8D. 15. As regards, to the addition on account of indirect expenditure, he submitted that the issue may be remanded to Assessing Officer with a direction to restrict the amount of disallowance u/s 14A of the Act to lower of (i) the extent of exempt income earned and (ii) 0.5% of the average value of investments, which yielded the exempt income. 16. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 17. We heard the rival submissions and perused the material on record. The present issue relates to the disallowance u/s 14A of the Act. The contention of the appellant that no disallowance of interest is warranted in the year under consideration following the finding of the ld. CIT(A) for earlier facts that no interest bearing funds were utilized for the purpose of making the investment merits acceptance. The relevant finding of the ld. CIT(A) is as under :- "4.5 On an examination this ba....
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....8D of the Income Tax Rules, 1962 ('the Rules'). 18. As regards to indirect expenses incurred for earning exempt income, the submission of the ld. Counsel for the assessee that amount of disallowance should be restricted lower of the exempt income and 0.5% of average value of investment, which yielded the exempt income / merits acceptance. It is very well settled position of law that the amount of disallowance u/s 14A cannot exceed the exempt income. Reliance in this regard can be placed on the following decisions : (i) Principal Commissioner of Income-tax-2 vs. Caraf Builders & Constructions (P.) Ltd., [2019] 112 taxmann.com 322 (SC) - (SLP dismissed against High Court ruling that disallowance under section 14A cannot exceed exempt income of relevant year); (ii) Pragathi Krishna Gramin Bank vs. Joint Commissioner of Income-tax, [2018] 95 taxmann.com 41 (Karnataka); (iii) PCIT vs. Reliance Ports and Terminals Ltd., 114 taxmann.com 529 (Bombay); (iv) PCIT vs. State Bank of Patiala, 393 ITR 476, and, (v) PCIT vs. Envestor Ventures Ltd., 431 ITR 221. (vi) Nirved Traders Pvt. Ltd., Vs. DCIT 421 ITR 142 (Bom). (vii) Pr.CIT Vs. Ajit Ramakant Phatarpekar 429 ITR 319 (Bom). ....