TaxTMI 
TaxTMI 
2026 (4) TMI 1621
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....t the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the disallowance of proportionate interest on interest free advances to M/s Em Pee Motors Limited(Auto-Division), Em Pee Motors Limited(PP) and M/s Gupta Global Exim (P) Limited which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating the business exigencies and commercial expediency in respect of the afore mentioned advances in the correct perspective and as such the order passed is arbitrary and unjustified. 3. That the Ld. Commissioner of Income Tax(Appeals) has further erred in sustaining an addition of Rs. 1,90,004/- out of total addition of Rs. 8,44,440/- made by applying the proviso to Section 36(1)(iii) for allegedly not putting to use certain assets which is arbitrary and unjustified. 4. That the Ld. Commissioner of Income Tax (Appeals) has further erred in law as well as on facts in upholding the addition of Rs. 8,62,278/- for alleged non deduction of tax on interest paid to NBFCs and thereafter applying the provisions of section 40(a)(ia) of the Act which is illegal, arbitrary & unjustifi....
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....elationship considerations. The explanation furnished was either not made before the Assessing Officer or was unsupported by verifiable evidence. 9. The Ld. AR submitted that the advances were made out of commercial expediency and in furtherance of business interests of the assessee. It was contended that the assessee had business dealings with the said concerns and the advances were necessitated by business requirements, and therefore, no disallowance of interest was warranted in view of settled judicial precedents including the principle laid down in S.A. Builders. It was further argued that the assessee had sufficient own funds and no direct nexus between borrowed funds and advances had been established by the Assessing Officer. 10. Per contra, the Ld. DR strongly supported the orders of the lower authorities and submitted that the assessee had failed to demonstrate any business exigency for making such interest-free advances. It was contended that the advances were made to related concerns without any commercial justification and the ratio of the Hon'ble Punjab & Haryana High Court in Abhishek Industries Ltd. squarely applied. The DR emphasized that the burden to prove co....
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....was placed on the decision of the Special Bench in the case of Merilyn Shipping and other supporting judicial precedents. It was thus contended that since the amounts had already been paid during the year, no disallowance could be made. It was further submitted that the NBFC have shown the interest paid by the assessee in their return of income and therefore the disallowance made is without any basis. Accordingly, this issue is required to be decided in favour of the assessee. 18. The Ld. DR, however, strongly opposed the contention and submitted that the interpretation sought by the assessee defeats the very purpose of the provision, which is to enforce compliance of TDS provisions. It was argued that the obligation to deduct tax arises at the time of credit or payment and failure to do so attracts disallowance irrespective of whether the amount remains payable at year end or not. 19. We have heard the rival contentions of the parties and perused the material available on record. We find ourselves in agreement with the reasoning given by the Ld. CIT(A). The interpretation that restricts the applicability of section 40(a)(ia) only to amounts outstanding as at the end of the y....
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....his issue were considered in the bunch of appeals in the case of M/s Joshi Automotive Pvt. Ltd. & Othrs Vs. Asst. CIT & Othrs in ITA No. 109/Chd/2016 dt. 20/04/2016 wherein we have held as under: 7. We have given our thoughtful consideration to the rival submissions and the judicial precedents relied upon. There is no quarrel with the settled legal proposition laid down by the Hon'ble Supreme Court in National Thermal Power Co. Ltd. (supra) that the Tribunal has wide powers to entertain a new ground, provided the same is a pure question of law arising from the facts already on record and having a bearing on the tax liability of the assessee. Similarly, the decision in Oswal Woollen Mills Ltd. (supra) also supports the proposition that a claim can be entertained where sufficient material is already available on record. 7.1 However, the applicability of the aforesaid ratio is contingent upon the condition that the additional ground is purely legal and does not require fresh investigation into facts. In the present case, we find that the issue sought to be raised by the assessee is not merely a legal issue simpliciter but is a mixed question of law and fact. The dete....
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....t on the capital structure has not been examined by the lower authorities, and hence the said decision does not advance the case of the assessee. 7.6 We also note that there is a considerable delay in raising the additional grounds. No satisfactory explanation has been brought on record as to why such claim, which is now sought to be raised, was not made either in the return of income or before the Assessing Officer or the Ld. CIT(A). The conduct of the assessee, in our view, indicates that the present claim is an afterthought. 7.7 In view of the foregoing discussion, we are of the considered opinion that the additional grounds sought to be raised by the assessee are not purely legal in nature, but involve investigation into fresh facts and also amount to taking a contradictory stand from that taken earlier. Accordingly, the same are not maintainable. ................................................ 13. We have heard the rival submissions and perused the material available on record. The issue before us is whether the assessee is entitled to claim depreciation on conversion charges paid for the change of land use in respect of land not owned by i....
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.... 13.4 We shall now deal with the contention of the assessee based on Explanation 1 to section 32 of the Act. The said Explanation creates a legal fiction whereby, in a case where the assessee carries on business in a building not owned by it but held under a lease or other right of occupancy, any capital expenditure incurred on construction of a structure or on renovation, extension or improvement of such building is to be treated as a building owned by the assessee for the limited purpose of allowing depreciation. 13.5 However, for invoking the said provision, the sine qua non is that the expenditure must be incurred on a "building" or on any work in or in relation to the building by way of construction, renovation, extension or improvement. In the present case, the impugned expenditure on conversion charges is not in respect of any building or structure, but relates exclusively to change of land use from industrial to commercial purposes. Such conversion is a statutory permission attached to the land itself and does not partake the character of construction or improvement of a building. 13.6 We find that the building in question was admittedly construct....
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....id provision is thus to remove the disability arising on account of the absence of legal ownership and to allow depreciation where the assessee has, in substance, made an investment in a business asset in the nature of a building. However, it is equally well settled that such deeming fiction has to be construed strictly and cannot be extended beyond the purpose for which it has been enacted. A legal fiction, though required to be carried to its logical conclusion, cannot be enlarged by importing another fiction or by extending it to situations not contemplated by the legislature. 13.10 Applying the aforesaid principles, it is clear that Explanation 1 to section 32 is confined in its operation to capital expenditure incurred on a "building" or work in relation thereto. The fiction cannot be extended to cover expenditure which is not relatable to a building or structure. In particular, expenditure which is intrinsically connected with land or with rights in land cannot be brought within the ambit of the said provision, as land is not a depreciable asset under the scheme of the Act. 13.11 Further, the deeming provision does not create a new category of depreciable as....
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....ion was directly relatable to the business asset owned/controlled by the assessee. It was in those peculiar facts that the Tribunal allowed the claim. 14.3 In the present case, however, the assessee is admittedly not the owner of the land and the conversion permission has been granted to the land-owning entity, i.e., M/s Punjab Packages Pvt. Ltd. The expenditure incurred does not result in creation of any depreciable asset in the hands of the assessee but merely facilitates use of land belonging to another entity. Therefore, the factual foundation on which the decision in the case of Chandigarh Bottling Co. Pvt. Ltd. was rendered is absent in the present case. 15. We have carefully considered the reliance placed by the Ld. AR on the decision of the Co-ordinate Bench in the case of M/s Chandigarh Bottling Co. in ITA Nos. 475 & 476/Chd/2019 dated 18.08.2022. On a perusal of the said order, we find that the issue before the Tribunal therein was whether the conversion charges paid for change of land use were allowable as revenue expenditure under section 37(1) of the Act. The Tribunal, on the peculiar facts of that case, held that the expenditure was incurred for the ....
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....e scheme. Therefore, the nature and legal character of the expenditure itself stand on a different footing. 15.5 Moreover, in the present case, as already discussed, the chronology of events shows that the policy for conversion was notified on 11.07.2005, the Letter of Intent was issued on 05.08.2006, the application for conversion was made by the owner on 15.09.2006 and approval was granted on 10.10.2006. Thus, the conversion was embedded in the ownership rights of the land and cannot be equated with a case where an assessee is compelled to incur expenditure merely to remove operational restrictions in an already existing business setup. 15.6 In view of the above distinguishing features, we are of the considered view that the ratio laid down in the case of Chandigarh Bottling Co. is not applicable to the facts of the present case. The reliance placed thereon by the assessee is, therefore, misplaced and is hereby rejected. 15.7 We have also considered the alternative contention of the assessee that the interest component comprised in the instalments of conversion charges be allowed as a deductible expenditure. However, we find ourselves unable to accept t....
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....ITA No. 1184/Chd/2012 and similar contentions raised therein may be considered, therefore, our findings and directions given in ITA No. 1184/Chd/2012 shall apply mutatis mutandis to these two appeals as well. 25. Now we shall deal with the appeal in ITA No. 792/Chd/2013 for A.Y. 2010- 11 wherein Assessee has raised the following grounds: 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the disallowance of proportionate interest on alleged interest free advance to M/s Gupta Global Exim (P) Limited which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income tax(Appeals) has erred in not appreciating the business exigencies and commercial expediency in respect of the afore mentioned advance in the correct perspective and as such the order passed is arbitrary and unjustified. 3. That the Ld. Commissioner of Income Tax(Appeals) has further erred in enhancing the addition to Rs. 2,73,000/- as against Rs. 1,51,514/- made by applying the proviso to Section 36(1)(iii) for allegedly not putting to use certain assets which is arbitrary and unjustified. 4. That the Ld. Commissioner of In....
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....of the Act which is illegal, arbitrary & unjustified. 2. That without prejudice to the above, for argument sake, it is taken that provisions of section 40(a)(ia) are attracted, the said section is applicable only to payments which are payable and not the payments which have been paid off during the year and as such the addition made of the entire payment made is unwarranted and unjustified. 3. That the Ld. Commissioner of Income Tax (Appeals) has further erred in law as well as on facts in upholding the disallowance of proportionate interest on alleged interest free advance to M/s Gupta Global Exim (P) Limited which is arbitrary and unjustified. 4. That the Ld. Commissioner of Income tax(Appeals) has erred in not appreciating the business exigencies and commercial expediency in respect of the afore mentioned advance in the correct perspective and as such the order passed is arbitrary and unjustified. 5. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the disallowance of proportionate interest of Rs. 6,51,563/- on alleged interest free advance to M/s Empee Motors Auto Limited which is arbitrary a....