AI Drafter 
TaxTMI 
TaxTMI 
2026 (5) TMI 1777
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....ound No. 8 in the application. 3.1 The assessee, in the application for admission of additional grounds, argued that the issues raised may not arise from the appellate order but the same is fundamental and necessary to correctly assessee the tax liability to the resolution of the case. Consequently, the assessee's learned AR requested that the additional ground be admitted for adjudication. 3.2 On the other hand, the learned (DR) opposed the admission of the additional grounds of appeal, arguing that these grounds had not been raised before the lower authorities. 4. We have heard the rival submissions of both the parties and perused the materials available on record. The Hon'ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT reported in 229 ITR 383 has held as under: "Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to asses....
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....a valid and specific authorization under section 120(4)(b) of the Act. 7.1 At the outset, we note that the learned AR before us submitted that issue raised in the captioned ground of appeal is not pressed. Hence, we hereby dismiss the same as not pressed. 8. The issue raised by the assessee through Ground No. 4 is that the learned CIT(A) erred in restricting the allowances of expenditure towards connectivity charges to the extent of Rs. 37,80,100/- instead of allowing the same in full amounting to Rs. 1,12,31,385/- only. 9. The relevant facts are that the AO during the assessment proceedings noted that the assessee had claimed amortisation of Rs.1,12,31,385 towards connectivity charges paid to M/s Bele Tele Services India Pvt. Ltd. for acquiring a right to use optical fibre cables for broadband services for a period of 15 years. These expenses were treated by the assessee as prepaid and amortised over time. After examining the submissions, the AO held that the expenditure was capital in nature since it resulted in an enduring benefit by securing long-term rights to use optical fibre infrastructure. The AO further observed that section 37 of the Act does not permit deductio....
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....nditure as recognised in accounting practice to justify amortisation of a revenue outlay whose benefits extend over more than one year. 10.4 Without prejudice, the assessee argued that even if the payment were to be regarded as capital in nature, the same represented a business or commercial right similar to licenses or franchises and would therefore qualify for depreciation under section 32(1)(ii) of the Act at the applicable rate. It was accordingly pleaded that the disallowance made by the AO under section 37 of the Act be deleted and the amortised amount be allowed as revenue expenditure, or alternatively that depreciation be granted on the connectivity charges. 10.5 However, the learned CIT(A) after considering facts in totality partly allowed the appeal of the assessee by observing as under: 5.3 Considering the facts of the case and submissions made by the appellant, it is observed that the appellant has charged a onetime lump-sum payment of Rs. 1,12,31,385/- towards obtaining connectivity charges for the relevant A.Y. It is seen that the appellant has entered into an "Agreement for Right to Use Optical Fibres" with Bell Teleservices India Pvt. Ltd. This agreem....
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....ted that the assessee is engaged in the business of providing broadband and internet services and, for this purpose, requires access to optical fibre infrastructure. Since such infrastructure was not owned by the assessee, it entered into an agreement with Bele Teleservices India Private Limited in AY 2010-11 for a limited right to use optical fibres for a period of 15 years. Under the agreement, only the right to use the optical fibres was granted and ownership was with Bele Teleservices only. 12.1 The Ld. AR further submitted that the assessee made a lump-sum payment towards connectivity charges, which was recorded as prepaid expenses and amortised over the tenure of the agreement following the matching concept. Accordingly, for AY 2016-17, the assessee amortised and claimed Rs.1,12,31,385 as revenue expenditure under section 37 of the Act. The Assessing Officer, however, disallowed the claim by treating the expenditure as capital in nature and on the grounds that it did not pertain to the year under consideration. 12.2 The learned AR submitted that the learned CIT(A) rightly held that the expenditure is revenue in nature, as it was incurred only for a limited right to use ....
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....e assessee the "Right to Use" the two core (i.e. one pair) of specified dark fibres network (OFC-optical fibres infrastructure), covering a continuous rout distance of 405 KM out of route map shown in annexure-A of the agreement for a period of 15 years. As per clause 2 of the agreement, the assessee for grant of such "Right to Use" in its favour required to pay BELL a fee of Rs. 1,40,004/- per pair per KM for a period of 15 years aggregating to Rs. 5,67,01,620/- only. The impugned fee was payable in two instalments. In addition to the fixed fee of Rs. 5,67,01,620/-. The assessee, as per relevant clause 3 of the agreement also required to pay annual maintenance fee of Rs. 4000/- per Km which was due to be increased by 7% every year plus applicable taxes. 15.2 Thereafter, the assessee further entered into multiple addendum agreement to the original agreement for grant of "Right to Use" additional KMs of OFC. The first addendum agreement was entered into as on 18th November 2011 for grant of Right to Use of additional 100 KM of OFC for a period of 15 years from the date of this agreement. For which fee at the rate of Rs. 1,40,004/- per pair per KM for a period of 15 years aggregat....
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....eement. On principle, therefore, such upfront fee has to be amortised evenly over the contractual period of 15 years, starting from the date on which the respective agreement or addendum came into force. 15.8 However, the record before us shows that there were several agreements and addenda entered into on different dates-namely in December 2009, November 2011 and September 2013 and further agreement thereafter each granting right to use additional fibre routes for 15 years from those dates. The total payment up to the year under consideration is stated to be Rs.19.58 crore, but the exact portion of such amount relatable to the relevant previous year cannot be determined without agreement-wise working of the amortisation, taking into account the commencement date and remaining tenure of each contract. This factual exercise has not been properly carried out either by the Assessing Officer or by the learned CIT(A), who proceeded on assumptions regarding only one agreement and an incorrect fraction. 15.9 In these circumstances, we consider it appropriate to set aside this issue to the file of the Assessing Officer for a limited purpose. The Assessing Officer shall verify all the....
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....he form of share application money and securities premium. Therefore, interest expenses cannot be disallowed under the provisions of section 14A r.w.r. 8D of the Rules. 18.2 The assessee further claimed that there was no expenditure incurred in relation to the exempt income. Therefore, in the absence of expenditure incurred for earning exempted income, no disallowance can be made under section 14A of the Act. 18.3 Furthermore, the assessee submitted that investment in subsidiary companies is in nature of strategic business investment and not for earning the dividend income. Also, no dividend income earned during the year form those investments. Therefore, the same cannot be considered for making disallowances as per rule 8D of income tax rule. 18.4 Without prejudice the assessee submitted that the disallowances under section 14A r.w.r. 8D of the Rule cannot exceed the exempted income. 18.5 However, Ld. CIT(A) found that the assessee has earned exempt of Rs. 64,000 only from investments in mutual funds and it settled position of law by the various judicial pronouncement including the ruling of Hon'ble Supreme Court in the case of M/s Maxopp Investment Ltd that the disall....
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....ordance with Rule 8D and only with reference to investments yielding exempt income. 21. On the other hand, the Ld. DR before us submitted that the Assessing Officer was justified in invoking the provisions of section 14A read with Rule 8D of the Act, as the assessee had admittedly earned exempt income during the year under consideration. It was contended that once exempt income is earned, disallowance under section 14A becomes mandatory and the Assessing Officer is duty-bound to apply Rule 8D where the assessee's claim regarding expenditure is not acceptable. 22. Both the ld. AR and the Ld. DR before us vehemently supported the order of the authorities below to the extent favourable to them. 23. We have heard the rival contentions of both the parties and perused the materials available on records. The issue before us relates to the disallowance under section 14A read with Rule 8D of the Income-tax Rules, in respect of interest expenditure under Rule 8D(2)(ii) and administrative expenditure under Rule 8D(2)(iii), arising from exempt dividend income earned by the assessee from investment in HDFC Cash Management Mutual Fund during the year under consideration. 23.1 So far ....
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....ted under Rule 8D(2)(iii) shall be restricted to the extent of exempt income earned during the year and cannot exceed such exempt income. 23.5 In view of the above discussion, we hold that (i) no disallowance of interest expenditure under Rule 8D(2)(ii) is called for in the given facts, (ii) disallowance of administrative expenditure under Rule 8D(2)(iii) is liable to be made, but only with reference to investments which yielded exempt income during the year, namely investment in HDFC Cash Management Mutual Fund, and (iii) the total disallowance under section 14A shall, in any case, be restricted to the amount of exempt income earned during the year. The AO is directed to recompute the disallowance accordingly. Hence the ground of appeal raised by the assessee is allowed for statistical purposes whereas the ground of appeal of the revenue is hereby dismissed. 24. The Ground No. 6 of the assessee relates disallowance of depreciation on network acquisition. 25. The necessary facts are that in the schedule of depreciation, the assessee had shown "network acquisition" as an intangible asset and claimed depreciation of Rs.2,35,83,242/- at the rate of 25 per cent. During the ass....
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....ew of the above statutory analysis and judicial authorities, the AO held that the assessee was not entitled to depreciation on the so-called network acquisition. Accordingly, the claim of Rs.2,35,83,242 was disallowed and added back to the total income of the assessee. 26. The Aggrieved assessee preferred an appeal before Ld. CIT(A). 26.1 Before the Ld. CIT(A), the assessee submitted that during the subjected AY it made payments towards acquisition of new customer rights, commonly referred to as network acquisition, from various LCOs. The payments were made for acquiring the right to distribute cable signals to end subscribers/consumers. The details of additions to network acquisition during the year were furnished along with agreements as enclosed in the paper book. 26.2 Further, the assessee submitted that such network acquisition was capitalized as an intangible asset in the books of account and depreciation of Rs.2,35,83,242/- was claimed at the rate of 25% u/s 32 of the Act. 26.3 The assessee contended that the consideration paid to LCOs was not for acquisition of any tangible assets but solely for acquiring the right to access and to provide service to customers' ....
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....in the books of account. Depreciation of Rs.2,35,83,242 was claimed at the rate of 25% U/s 32(1)(ii) of the Act. 28.1 Further, it was submitted that the AO and the Ld. CIT(A) erred in disallowing the depreciation on the ground that the assessee failed to establish that the consideration was paid only for intangible assets and not for tangible assets. The learned AR contended that when an LCO network is acquired, the consideration is paid exclusively for the right to access and service customers' homes or networks and not for acquisition of any tangible assets, as evident from the business transfer agreements placed on record. 28.2 The learned AR further submitted that section 32(1)(ii) of the Act allows depreciation on business or commercial rights of similar nature and that the right to provide services to customers' homes or networks constitutes such a commercial right. Reliance was placed on the decision of the Hon'ble Delhi High Court in CIT v. Hindustan Coca Cola Beverages (P.) Ltd. reported in 198 Taxman 104, wherein it was held that any right obtained for carrying on business more effectively would fall within the scope of intangible assets eligible for depreciation. ....
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....t broadband business of the various LCOs and during the year made aggregate payment of Rs. 5,19,97358/- toward such acquisitions of internet broadband business of local operator. 30.1 For better understanding, we perused a sample copies of the agreement dated 1st day of September 2015 for such acquisition of network entered between the assessee and M/s Guru Video a proprietary concern of Shri Rajendra Eshwarappa. We note that Shri Rajendra Eshwarappa or M/s Guru Video was carrying on the trade and business of providing internet broadband services through his cable network to around 45 customers. The assessee purchased and acquired all rights, titles and interest in the business of M/s Guru Video as a going concern which consisted of following: i. The list of areas to which the promoter has been providing internet broadband services detailed in Annexure 1 of the Agreement. ii. Total subscriber base of the Promoter consisting of 45 (Forty-Five only) subscribers as on the date of execution of this agreement, whose details have been detailed in Annexure 2 of the agreement. iii. The network diagram of his entire network as detailed in Annexure 3 of the agre....
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....cial right to operate broadband services in that territory and to exploit the acquired customer base for earning income on a continuing basis. Such rights are clearly capable of being owned, transferred and used in business and are not in the nature of routine revenue contracts. 30.6 In our view, rights of this nature are commercially comparable to licences or franchises, because they permit the holder to operate in a particular area, access customers and derive recurring income therefrom. The acquisition therefore satisfies the essential attributes of an intangible asset contemplated in section 32(1)(ii) of the Act, namely that it represents a business or commercial right, acquired for consideration, owned by the assessee and deployed in the business for generating revenue. 30.7 At the same time, we observe that identical acquisition of assets was made in earlier year and capitalized as network acquisition. The depreciation of Rs. 2,35,83,242/- claimed during the year is on opening WDV as well as on the new acquisition made during the year. The Revenue has also raised doubts regarding whether any part of the consideration related to tangible infrastructure, it is necessary t....
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....d based on the period of use of the assets. 32.3 It was observed that M/s Beam Telecom Private Limited, the amalgamating company, had not claimed depreciation on goodwill prior to amalgamation. Therefore, if the amalgamation had not taken place, no depreciation on goodwill would have been allowable. In such circumstances, the assessee, being the amalgamated company, could not claim depreciation on goodwill arising on amalgamation. 32.4 The AO further held that the consideration paid under the scheme of amalgamation was for acquisition of the business as a whole and not for acquisition of individual assets, and therefore the assessee could not claim depreciation on goodwill in excess of what would have been allowable to the amalgamating company. 32.5 Reliance was also placed on the decision of the Bangalore Bench of the Tribunal in United Breweries Ltd. v. Addl. CIT in ITA No. 722, 801 &. 1065/Bang/2014. Accordingly, the AO concluded that the claim of depreciation on goodwill was hit by the fifth proviso to section 32(1) of the Act and disallowed the depreciation of Rs.12,21,56,682 claimed by the assessee as disallowed in earlier years also. 33. The aggrieved assessee pr....
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....Smifs Securities Ltd. has held that goodwill is an intangible asset eligible for depreciation, the said judgment does not override the operation of the fifth proviso to section 32(1) of the Act. According to the learned CIT(A), the proviso restricts the depreciation claimed in cases of amalgamation and mandates that the amalgamated company cannot claim depreciation on assets acquired under the scheme in excess of what would have been allowable to the amalgamating company. 33.7 The learned CIT(A) further observed that the Tribunal in United Breweries Ltd. had categorically held that the consideration paid for acquiring shareholding or business in earlier years is not relevant for the purpose of allowing depreciation on assets taken over under amalgamation, insofar as the restriction under the fifth proviso to section 32(1) is concerned. 33.8 Holding that the facts of the present case are similar to those in United Breweries Ltd., the Ld. CIT(A) respectfully followed the said decision and upheld the action of the AO. Accordingly, the ground raised by the assessee challenging the disallowance of depreciation on goodwill was dismissed. 34. Being aggrieved by the order of the L....
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....lgamation was rightly disallowed by invoking the fifth proviso to section 32(1) of the Act, as the assessee had stepped into the shoes of the amalgamating company. 36.1 The learned DR contended that the scheme of amalgamation is a tax-neutral reorganisation and, therefore, no additional benefit by way of depreciation can be claimed merely by revaluing or recognising goodwill in the books of the amalgamated company. It was submitted that the purchase consideration paid over and above the net assets represents nothing but an accounting adjustment and does not give rise to a new depreciable asset for the purposes of the Act. 36.2 The learned DR further argued that allowing depreciation on such goodwill would defeat the very purpose of the fifth proviso to section 32(1) of the Act, which seeks to restrict depreciation in the hands of the amalgamated company to the amount that would have been allowable had the amalgamation not taken place. According to the learned DR, permitting depreciation on goodwill created pursuant to amalgamation would result in an unintended tax advantage and effectively allow depreciation on an asset that did not independently exist prior to the restructur....
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....sure that, in cases of succession or amalgamation, depreciation on the same asset is not claimed twice and that the aggregate depreciation does not exceed what would have been allowable had the amalgamation not taken place. The said proviso primarily operates in respect of existing depreciable assets transferred from the predecessor to the successor. It cannot be mechanically extended to a situation where a new intangible asset, namely goodwill, comes into existence for the first time on amalgamation in the hands of the amalgamated company. 37.3 We also find merit in the contention of the learned AR that the legislative intent behind the proviso, as explained in the Memorandum to the Finance Bill, 1996, was to curb enhanced depreciation by revaluation of transferred assets and to prevent duplication of depreciation. Since no goodwill was appearing in the books of the amalgamating company and no depreciation had ever been claimed thereon, there was no question of double deduction or inflation of depreciation in the present case. 37.4 In this regard we also find support and guidance from the judgment of Hon'ble Jurisdictional High Court of Karnataka in the case of Padmini Produ....
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....had to be examined in the first year when the block was created. In later years, when depreciation is claimed merely on the carried-forward WDV of the block, the same cannot ordinarily be disturbed unless the allowance in the initial year is set aside in accordance with law. 37.6 We note that the AO in his findings has noted that the claim of depreciation on goodwill in earlier years has been disallowed. We further note that the ld. AR of the assessee before the Tribunal on previous hearing date (13th May 2025) have sought adjournment citing reason that on the very same issue i.e. disallowance of deprecation on goodwill pertaining to A.Y. 2014-15 i.e. first year of claim, the assessee is in appeal before the learned CIT(A) which is pending. However, afterward, the learned AR before us furnished the copy of the common order of the learned CIT(A) for A.Y. 2012-13 to 2015-16 dated 30th July 2025. On perusal of the learned CIT(A) finding for A.Y. 2014-15 in respect of claim of depreciation on goodwill arising on the amalgamation, we note the learned CIT(A) confirmed the disallowances by placing reliance on the decision given by the learned CIT(A) for the year under consideration. He....
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....e assessee in March 2009 entered into non-competition agreement with promoters of the said partnership firm and it was agreed that the promotor of the said partnership firm will not enter into similar business. For the said non-compete agreement, the assessee made payment of Rs. 2.55 crores. The amount paid was capitalised by the assessee by treating the same as intangible asset and claimed deprecation @ 25%. Accordingly, in the year under consideration, the assessee claimed deprecation on the same for Rs, 15,12,817/- only. 39.1 The AO observed that section 32(1)(ii) of the Act permits depreciation only in respect of specified intangible assets such as know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. Though payment of non-compete fees is capital in nature, depreciation thereon is allowable only if such payment results in creation of an intangible asset falling within the scope of section 32(1)(ii) of the Act 39.2 According to the AO, payment of non-compete fees does not result in creation of any intangible asset akin to intellectual property rights or other business or commercial rights contemplated ....
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....s and commercial right, as it enables the assessee to carry on its business more efficiently by eliminating competition, at least for a stipulated period. Such rights are akin to other intangible assets specifically mentioned in section 32(1)(ii) of the Act, as all such assets confer an advantage to carrying on business with greater effectiveness. 40.4 Reliance was placed on the decision of the jurisdictional Karnataka High Court in Ingersoll Rand International Ltd. v. CIT reported in 48 taxmann.com 349, wherein it was held that non-compete rights constitute business or commercial rights eligible for depreciation under section 32(1)(ii) of the Act. Reliance was also placed on the decision of the Chennai Bench of the Tribunal in ACIT v. Real Image Tech (P.) Ltd. reported in 177 taxman 80, wherein it was held that payment of non-compete fees results in acquisition of a commercial right similar to know-how, licence or franchise and qualifies as an intangible asset eligible for depreciation. 40.5 The assessee further relied on the decision of the Hon'ble Delhi High Court in CIT v. Hindustan Coca Cola Beverages (P.) Ltd. (supra), wherein it was held that the scope of section 32(1)....
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....period. It would be the right of the person to carry on a business in competition but for such agreement of non-compete. Therefore the right acquired under a non-compete agreement is a right for which a valuable consideration is paid. This right is acquired so as to ensure that the recipient of the non-compete fee does not compete in any manner with the business in which he was earlier associated. The object of acquiring a know-how, patents, copyrights, trade marks, licences, franchises is to carry on business against rivals in the same business in a more efficient manner or to put it differently in a best possible manner. The object of entering into a non-compete agreement is also the same i.e., to carry on business in a more efficient manner by avoiding competition atleast for a limited period of time. On payment of non-compete, the payer acquires a bundle of rights such as restricting receiver directly or indirectly participating in a business which is similar to the business being acquired, from directly or indirectly soliciting or influencing clients or customers of the existing business or any other person either not to do business with the person who has acquired the busines....
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....d respectfully following the judgement of Hon'ble Karnataka High Court in the case of Ingersoll Rand International Ltd vs Commissioner of Income-tax [2014] 48 taxmann.com 349 (Karnataka). Therefore, the depreciation on the said non-compete fee paid by the appellant is hereby allowed. 41. Being aggrieved by the order of the learned CIT(A), both the assessee and the Revenue are in appeal before us. The assessee is in appeal through additional ground number as Ground No. 8 contending alternatively that payment for non-compete be allowed as business expenses. On the contrary, the revenue is in appeal against the allowances of deprecation on the same. The relevant ground of appeal of the Revenue in ITA No. 1206/Bang/2025 reads as under: "6. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in deleting the addition made on account of depreciation on non-compete fee by following the judgment of Hon'ble Karnataka High Court in the case of Ingersol Rand International Limited Vs CIT [2014] 48 taxmann.com 349." 42. The learned AR before us reiterated the assessee's contention as made before the lowe authorities and further submitted that the issue o....
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....er of Income-tax. 44.2 We find that the issue is no longer valid. The Hon'ble Karnataka High Court in Ingersoll Rand International Limited (supra) has categorically held that the right acquired under a non-compete agreement is a valuable business or commercial right, which enables the assessee to carry on its business more efficiently by avoiding competition and, therefore, falls within the expression "any other business or commercial rights of similar nature" used in section 32(1)(ii) of the Act. The Hon'ble High Court has further held that depreciation is allowable on such non-compete fees. 44.3 It is also not in dispute that in the assessee's own case for an earlier assessment year, the claim of depreciation on non-compete fees has been allowed by the ld. CIT(A) and the Revenue has not shown any change either in facts or in law warranting a different view in the year under consideration. Further, the depreciation claimed during the year is on the written down value of the same intangible asset and represents a continuation of the claim allowed in earlier years. 44.4 Respectfully following the binding decision of the Hon'ble Karnataka High Court in Ingersoll Rand Interna....
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....making stages. It was submitted that the assessee was a majority shareholder in those companies and had funded them to meet capital and operational requirements so that their businesses could be stabilized. The assessee also claimed that borrowed funds were not utilized for granting such advances and furnished CA certificates to demonstrate the end-use of borrowings. Reliance was placed on the judgment of the Hon'ble Supreme Court in SA Builders Ltd 288 ITR 1. and other decisions to argue that where advances are made for business considerations, interest on borrowings cannot be disallowed. It was further stated that only real income can be taxed and that the total interest debited to the profit and loss account was Rs.4,387.19 lakhs. 50.2 The AO, however, was not convinced with the explanation of the assessee. He held that the assessee failed to establish, with documentary evidence, that there was no nexus between the borrowed funds and the interest-free advances made to subsidiaries. According to him, the plea of commercial expediency was only general in nature and not supported by specific facts. The AO observed that the subsidiaries were operating independently in their own a....
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....g bank ledgers and end-use certificates, and proceeded to presume diversion of borrowed funds without establishing any direct nexus. 51.4 Without prejudice, it was submitted that the advances to subsidiaries were made out of commercial expediency. The subsidiaries are engaged in the same line of business and are largely wholly owned entities of the appellant. Many of them were in their gestation period and required financial support to meet capital and operational requirements. Charging interest at such stage would have adversely impacted their business. Some of the loans were subsequently converted into equity, demonstrating the commercial intent behind the advances. 51.5 It was reiterated that the Hon'ble Supreme Court in S.A. Builders Ltd. v. CIT (surpa), has held that interest-free advances to sister concerns are allowable if made on grounds of commercial expediency and that the Revenue cannot substitute its judgment for that of a prudent businessman. Reliance was also placed on other judicial precedents. 51.6 It was further submitted that the AO erred in including advances made to ACT Digital Home Entertainment Pvt. Ltd., on which interest was admittedly charged, whil....
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....ned DR contended that the AO was justified in making the disallowance on a proportionate basis. 61.2 The learned DR also submitted that the plea of commercial expediency has not been substantiated with cogent evidence. According to the learned DR, advancing interest-free loans to subsidiaries, particularly when they are in their gestation period, cannot automatically be regarded as commercially expedient unless the assessee establishes tangible business benefits accruing to it. The learned DR therefore prayed that the order of the learned CIT(A) be set aside and that of the AO be restored. 63. On the other hand, the learned AR before us reiterated the submissions made before the lower authorities and strongly supported the order of the learned CIT(A). It was submitted that the CIT(A) has recorded clear factual findings regarding availability of sufficient interest-free funds, absence of nexus between borrowed funds and advances, and incorrect computation adopted by the AO. It was further submitted that these findings have not been controverted by the Revenue with any material evidence. The learned AR submitted that the disallowance was made purely on presumption and the learn....
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.... Rs.43,048.45 lakhs and the closing balance at Rs.35,437.22 lakhs, which were far in excess of the interest-free advances made to subsidiaries. In view of these undisputed figures emerging from the audited financial statements, a clear presumption arises that the advances to subsidiaries were made out of the assessee's own funds and not from borrowed monies. It is well settled by a long line of judicial precedents that where both interest-free funds and borrowed funds are available, and the interest-free funds are sufficient to cover the advances, a presumption must follow that such advances are out of own funds and no disallowance of interest can be made under section 36(1)(iii) of the Act. 65.3 We also note that the assessee had placed on record bank statements and Chartered Accountant-certified end-use certificates to demonstrate that the loans raised from banks and financial institutions were subject to strict contractual conditions and were utilized only for specified purposes such as capital expenditure, redemption of debentures and preference shares issued pursuant to amalgamation, and for placement in fixed deposits for earmarked uses. These contemporaneous documents cle....
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..... 66.1 At the outset, we note that the issue raised by the revenue has been adjudicated along with the assessee's grounds of appeal in ITA No. 1094/Bang/2024. The assessee's relevant ground of appeal has been decided by us vide paragraph nos. 23 to 23.5 of this order wherein we have decided the issue favouring the assessee and against the revenue. Hence the ground of appeal raised by the revenue is hereby dismissed. 67. The Ground No. 6 of revenue's appeal pertains to depreciation on non-compete fees treating as intangible assets. 67.1 At the outset, we note that the issue raised by the revenue has been adjudicated along with the assessee's additional ground of appeal in ITA No. 1094/Bang/2024. The assessee's relevant ground of appeal has been decided by us vide paragraph nos. 44 to 44.5 of this order wherein we have decided the ground of appeal of assessee as infructuous and against the revenue. Hence the ground of appeal raised by the revenue is hereby dismissed. 68. The Ground No. 7 of revenue's appeal pertains to allowances of expenses of services and bandwidth charges of Rs. 9,21,99,045/- only. 69. The relevant facts are that the AO during the assessment noted t....
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....lete ledger break-ups and party-wise details had already been furnished during the assessment proceedings. It was pointed out that such details were filed on 18 December 2018 and enclosed as annexures, clearly showing the nature of services, the parties to whom payments were made and the amounts involved. The assessee contended that the AO ignored these materials and mechanically proceeded to make an ad-hoc disallowance of 25% merely on the allegation that PAN and address details were not furnished, without properly appreciating the evidence already placed on record. 70.2 The assessee further submitted that, in appellate proceedings, it had filed additional documentary evidence comprising party-wise particulars, PAN and address details and copies of invoices to substantiate the genuineness of the expenses, and that these were furnished in response to notices issued by the jurisdictional AO during remand proceedings. It was emphasized that invoices covering nearly 83% of the total expenditure had been collated and produced subsequently, thereby removing the very basis on which AO had proceeded to make the ad-hoc disallowance. According to the assessee, the expenses were wholly an....
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....at the learned CIT(A) erred in deleting the disallowance merely on the ground that the AO did not bring any adverse material in the remand report. It was argued that the primary responsibility to prove the allowability of expenditure rests on the assessee and cannot be shifted to the Revenue. 72.3 The learned DR further submitted that the plea of double disallowance is misconceived, as the disallowance under section 40(a)(ia) operates in a different field and does not automatically render the balance expenditure allowable under section 37 of the Act. The learned DR therefore prayed that the order of the learned CIT(A) be set aside and that of the AO be restored. 73. On the contrary, the learned AR before us submitted that during the assessment year, the assessee had claimed expenditure towards support services of Rs.6.79 crore, bandwidth charges of Rs.28.26 crore and business-promotion expenses of Rs.1.82 crore, for which complete ledger copies and break-ups had already been furnished before the AO, with specific references to pages of the paper book. It was argued that despite these details, the AO proceeded to make an ad-hoc disallowance of 25% amounting to Rs.9.21 crore me....
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....he AO estimated that 25% of the total expenses of Rs.36.87 crore were not allowable and added the same under section 37(1) of the Act. 75.1 We note that the learned CIT(A), after examining the entire record and calling for a remand report, deleted the disallowance by observing that the AO had not brought any concrete or clinching material on record to show that the expenses were bogus or unverifiable, except for the fact that all original bills were not produced at the assessment stage. Before us also, the assessee has demonstrated that during the assessment proceedings itself it had furnished ledger accounts and detailed break-ups of bandwidth charges and support services, and in appellate proceedings it placed further party-wise details, PAN and address particulars and voluminous invoices covering nearly 83% of the total expenditure. These documents were also examined during remand proceedings, and the AO has not pointed out any specific defect or falsity therein. 75.2 We further observe that the disallowance made by the AO is purely ad-hoc in nature. It is well settled that additions under section 37(1) of the Act cannot be sustained merely on suspicion or estimates unless....
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....es premium account. In the revised computation, the assessee claimed deduction of Rs.17,44,84,900 in respect of such premium and relied upon certain judicial precedents in support of the claim. 77.1 The AO, however, held that the said amount had not been claimed in the return of income and, relying upon the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. (284 ITR 323), concluded that such a claim could not be entertained otherwise than by filing a revised return. He therefore rejected the additional claim made during assessment proceedings. 78. The aggrieved assessee preferred an appeal before the learned CIT(A). 78.1 Before the learned CIT(A), the assessee submitted that during AY 2016-17 it had redeemed non-convertible debentures at a total premium of Rs.34.46 crore, out of which Rs.17.01 crore was adjusted against the Debenture Redemption Reserve and the balance Rs.17.44 crore against the Securities Premium Account. It was explained that the entire premium represented the cost of borrowing incurred wholly for business purposes and that only part of the amount had remained unclaimed in the return due to an omission, for which an additional claim was made dur....
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....as held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the appellate authorities. 12.3 Respectfully following the Hon'ble ITAT's judgment, the AO is directed to allow this claim of expenditure of Rs. 17,01,11,111/-. Therefore, this grounds of appeal is allowed. 79. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 80. The learned DR before us supported the order of the AO and submitted that the learned CIT(A) erred in entertaining and allowing a fresh claim of expenditure which was admittedly not made in the original or revised return of income. It was contended that the assessee, having consciously restricted its claim during assessment proceedings, cannot be permitted to enlarge the claim at the appellate stage without foll....
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....urities premium, which showed that the expenditure was genuine and allowable in nature, and therefore denial of the balance Rs.17.01 crore was unjustified. On these grounds, the learned AR supported the order of the ld. CIT(A) and prayed that the Department's appeal be dismissed. 82. Both the learned DR and AR before us vehemently supported the order of authorities below as favourable to them. 83. We have heard the rival contention of both the parties and perused the materials available on record. From the preceding discussion, we note that the Assessing Officer had rejected the assessee's additional claim of Rs.17,01,11,111/- relating to premium on redemption of debentures only on the grounds that the same was not claimed in the return of income and that no revised return had been filed. The AO relied solely on the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. and did not dispute either the fact of redemption of debentures or the payment of premium thereon, nor did he doubt that such premium related to the business of the assessee. 83.1 We further observe that the assessee before the learned CIT(A) explained the full facts of redemption of debentures and de....