TaxTMI 
TaxTMI 
2024 (1) TMI 1279
X X X X Extracts X X X X
X X X X Extracts X X X X
....tionate interest amounting to Rs. 604.97 lakhs attributable to the amounts advanced to the group companies. 2.1 The CIT(A) / NFAC ought to have appreciated that the appellant has enough reserve and surpluses to give advances to subsidiaries and group companies due to commercial exigency hence no disallowance on proportionate interest is called for. 2.2 The Appellant relies on the decision of Honb'le Supreme court in the case of CIT Vs Reliance Industries Ltd, reported in 307 CTR 121 (SC). 3. The CIT(A) / NFAC erred in confirming the disallowance of bad debts Written off amounting to Rs. 71,56,03,302/-. 3.1 The CIT(A) / NFAC ought to have appreciated that out of the total amount, a sum of Rs. 35,79,61,690/- was due from the government of India towards reimbursement of handling charges not sanctioned by them and Rs. 14,54,74,336/- represents the interest on fertilizer subsidy which was offered as income in the assessment year 2006-07. The government has not accepted the above claims and the same was written off in the books of account. Hence should be allowed u/s 36(1)(vii). 3.2 Without prejudice to the above the Commissioner of Income tax (Appeals) ought to have apprec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enditure amounting to Rs. 8,00,00,000/- in connection with hire charges payable by sical ships guaranteed by the assessee, paid as per the direction of Hon'ble Madras High Court in computing income under normal provisions as well while computing book profits u/s 115JB and treating the same as capital in nature. 8. The CIT(A) / NFAC erred in confirming the disallowance of overdue interest payable to its subsidiary company M/s. Indo Jordan Chemicals amounting to Rs. 3,24,93,585/- on the purchase of raw materials as non-business expenditure in computing income under normal provision. 9. The CIT(A) / NFAC erred in confirming the disallowance of business loss arising out of investments made by the appellant in equity shares in a foreign company M/s. ICS, Senegal Rs. 4,43,43,373/-. As is evident, the additions / disallowance which forms the subject matter of this appeal are i.e., (i) Disallowance of proportionate interest expenditure; (ii) Disallowance of Bad debts written-off; (iii) Disallowance of 50% expenditure towards R&D facility: (iv) Disallowance of Electricity Tax u/s 43B as well as u/s 115JB; (v) Assessment of interest income; (vi) Disallowance of business expenditure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r appeal before us. 3.3 We find that this issue has been decided by us in assessee's favor in ITA No. 204/Chny/2023 for AY 2004-05 as under:- Our findings and Adjudication 11. From the facts, it emerges that impugned advances have been given by the assessee in the ordinary course of business to all these entities. The investments have been made in joint ventures entities though the projects may not have fructified for the assessee. It could be seen that SFCL, FZE is 100% subsidiary of SFCL Mauritius in which the assessee owns stake of 83.54%. The investment made by the assessee was for expansion of assessee's business. This business of this entity is stated to be having direct nexus with the assessee's main business of manufacturing of Urea and fertilizers etc. The assessee has undertaken to buy back the entire production of Urea from this entity. The ministry of chemicals and fertilizers, vide its letter dated 03.12.1998, informed the assessee that import of urea by assessee from this entity will be given preference. The aforesaid facts substantiate the arguments that investments made by the assessee had direct business nexus and therefore, the test of commercial expediency,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee's own case vide ITA No. 170/Chny/2023 for AY 2003-04. Therefore, the assessee's ground would succeed to that extent both on commercial expediency as well as on the ground of having sufficient own funds. M/s NAPCL is a joint venture entity of the assessee to produce Benzene, Ortho xylene, paraxylene and PTA. However, the project has failed to commence production which has led to impugned disallowance. Nevertheless, there is direct business nexus of making the investment. The reason for delay in execution of the project is the fact that there was delay in getting regulatory approvals which is beyond the control of the assessee. The assessee has entered into MOU with Chennai Petroleum Corporation Limited to establish a large petrochemical plant near Chennai. The plant was to produce raw material for the assessee. The same has resulted into formation of this entity. As per the terms of MOU, the expenses of the joint venture are to be shared equally by the joint venture entities. Considering the same, the assessee has advances sum to this entity towards it share of the expenditure of the project. The investment would ultimately convert into equity shares. All these facts would es....
X X X X Extracts X X X X
X X X X Extracts X X X X
....well as sufficiency of own funds. The facts are quite similar in this year. Therefore, taking the same stand, the impugned disallowance stands deleted. The grounds raised in the appeal stand allowed accordingly. 4. Disallowance of bad-debts written-off. 4.1 The assessee wrote-off bad debts for Rs. 7156.03 Lacs and furnished party-wise details. The same include claim of Rs. 3579.61 Lacs. It transpired that the assessee was handling imported fertilizers in earlier years and Government of India was reimbursing the handling charges to the assessee (Agri India claims). Out of such claims made by the assessee, the Government of India did not sanction the impugned amount even after persistent efforts made by the assessee. Accordingly, the same were written-off and claimed as deduction. Another claim was interest on fertilizers subsidy for Rs. 1454.74 Lacs. The interest was stated to be already offered to tax during AY 2006-07. Since the said claim was not accepted, it was written-off. The assessee extended advance against equity to SPEL semi-conductor Ltd. The interest income arising therefrom for Rs. 498.79 Lacs was stated to be offered to tax in earlier years. However, the interest c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nied the deduction of the same on the ground that it was capital in nature whereas Ld. CIT(A) confirmed the same on the ground that this was not written-off in this year. However, this being reversal of interest offered to tax in earlier years, the same could not be held to be capital in nature. The observation of Ld. CIT(A) that this amount was not writtenoff in this year is also not correct since upon perusal of page nos. 170 & 171 of paperbook-2, We find that this amount has been written-off in this year only. This being so, the impugned claimed made by the assessee would be an allowable deduction. We order so. 4.7 The remaining debt of Rs. 1622.87 Lacs pertain to pharma and Agri business divisions. The amounts due from various parties towards sale of goods during the course of income could not be recovered and the same has been written-off in the books of accounts. The Hon'ble Supreme Court in the case of TRF Ltd. (323 ITR 397) held that to make aforesaid claim, it was sufficient that the amount was written-off in the books of accounts. Since the assessee has written-off these amounts, applying the ratio of this decision, this claim would be allowable to the assessee. The corr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arch and development facility and the expenditure incurred on such scientific research, the assessee would be entitled for the expenditure incurred for the whole of the assessment year and cannot be granted in a truncated manner. The facts in case law of Hon'ble Gujarat High Court in CIT V/s Claris Life sciences Ltd. (supra) were quite identical wherein it was noted that DSIR approval was only from 27.02.2001 to 31.03.2003 but the assessee claimed weighted deduction for entire expenses as incurred during the year. The claim was allowed by Ld. AO w.e.f. 27.02.2001. However, Tribunal allowed the claim for the whole of the year. Affirming the decision of Tribunal, Hon'ble Court held as under: - "The Tribunal has also considered rule 6(5A) and Form 3CM and come to the conclusion that a plain and harmonious reading of the rule and Form clearly suggests that once the facility is approved, the entire expenditure so incurred on development of the research and development facility has to be allowed for weighted deduction as provided by section 35AB(2). The Tribunal has also considered the legislative intention behind the above enactment and observed that to boost the research and develo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not be adjusted u/s 115JB. 6.2 However, rejecting the same, the Ld. AO held that these were statutory dues and hit by the provisions of Sec.43B. Further, the final quantification of the electricity tax was continent on the happening of future event. Therefore, the same was to be adjusted u/s 115JB also. 6.3 The Ld. CIT(A) upheld the disallowance on the ground that this deduction was claimed in FY 2013-14 and therefore, this becomes an invalid claim in this year. The adjustment thereof u/s 115JB was also confirmed on the ground that it was contingent liability. Aggrieved, the assessee is in further appeal before us. 6.4 We find that this issue has been decided by us against the assessee in assessee's appeal ITA No. 204/Chny/2023 for AY 2004-05 as under: - 9.4 From the facts, it emerges that the constitutional validity of the state levy is sub-judice before Hon'ble High Court of Madras. The Hon'ble Court has stayed the recovery of demand subject to deposit of Rs. 200 Lacs by the assessee. The same has been deposited by the assessee. The assessee has also computed additional liability of Rs. 98.67 Lacs as per applicable computations. Both these items have been debited in the Pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The directions given in the impugned order are quite apt. The corresponding grounds stand dismissed. 8. Disallowance of business expenditure in connection with hire charges 8.1 It transpired that the assessee sold a chemical tanker to M/s IL&FS on 30.03.1999 for consideration of Rs. 60 Crores and offered the same to tax. M/s IL&FS entered into bareboat charter agreement with Pearl Shipping Ltd. (PSL) to provide said chemical tanker on lease finance. The assessee entered into tripartite agreement with IL&FS and PSL for using the said vessel and extended guarantee to IL&FS on behalf of PSL. In the event of default by PSL, IL&FS invoked bank guarantee against assessee and preferred civil suit which was decided in favor of IL&FS. The assessee preferred appeal before Hon'ble High Court of Madras. The Hon'ble Court, vide interim order dated 24.04.2006, directed the assessee to deposit Rs. 800 Lacs immediately. The same was paid and claimed as deduction. The Ld. AO rejected the same on the ground that the same was merely a deposit and therefore, could not be allowed as business expenditure. Accordingly, the same was added back while computing income under normal provisions as well as w....