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2013 (6) TMI 186 - ITAT MUMBAISetting up expenses relating to another division - Expenses incurred on HRC division included in the capital work -in- progress - CIT(A) deleted the addition - Disallowance of fees paid to financial institution for loan, Floating Rate Note (FRN) restructuring expenses and HBI Plant repairs and maintenance - Held that:- It is a settled legal position that whether two businesses are one and the same business will not depend upon the nature of business or the product but on the fact whether there is unity of control and integration of the two businesses by common management, administration and finance etc. This view is supported by the judgment of Prithvi Insurance Co. Ltd. (1966 (10) TMI 49 - SUPREME Court) and in case of Veecumsees (1996 (4) TMI 6 - SUPREME Court) which have been relied upon by the CIT(A). In this case, there is clear finding by the CIT(A) that there was integration, interlacing, interdependence and dovetailing of the two division which has not been controverted before us. Therefore we have to hold that HRC project has to be taken as part of the existing business. In view of the above position all expenditure incurred in connection with new project which is of revenue in nature has to be allowed. Debenture issue expenses - CIT(A) confirmed the disallowance on the ground that the debentures were convertible in shares and thus expenditure was for expanding the capital base - Held that:- As out of total expenditure of ₹ 16,48,90,000/- only ₹ 2,64,34,555/- which related to optionally convertible debentures. In the present case the debentures are not compulsorily convertible into shares. These were optionally convertible and therefore the conversion would depend upon option if any exercised by the debenture holders. Therefore it could not be said that intention was clearly to issue shares. Obviously the intention was to raise loan which could be converted into shares in future if any option was exercised. Therefore the debenture issue expenses considering the judgments of Secure Meters Ltd. case [2008 (11) TMI 66 - HIGH COURT RAJASTHAN] and South India Corporation (2006 (8) TMI 153 - MADRAS High Court) have to be allowed. Respectfully following the decision uphold the order of the CIT(A). Disallowance made on account of lease rent for equipment - CIT(A) deleted the addition - Held that:- The lease rent is allowable fully for the year as in the earlier years relating to same assets. There is no revaluation done for purpose of deduction of same under IT Act. The change in the method of treatment of entries in the books will not alter the character of revenue expenditure. Moreover, this change in the method of treatment has not resulted in excess allowance than normally allowable. Therefore, no prejudice is caused to revenue. During the A.Y 1995-96, the entire lease rent was allowed by the Assessing Officer thus direction to delete the addition holding that appellant’s treatment of deferred payment will not alter the character of the expenditure. Interest payable on external borrowings - AO has disallowed the same u/s 40(a)(ia) stating that no TDS has been made from this interest - Assessee has submitted that the interest on the above loan was exempted under section 10(15)(iv)(c) thus no TDS was required to be made - CIT(A) deleted the addition - Held that:- Where the utilization is for purchase outside India of raw material, components or Plant & Machinery, so long as exemption granted is valid, the interest received by the other party is not covered by the IT Act and by virtue of exemption granted by the Central Govt., the question of TDS on the above amount does not arise at all. Since there is no requirement of TDS, question of disallowance under section 40(a)(ia) for non deduction of tax also does not arise. Moreover, as seen from the correspondence with the Ministry of Finance by the assessee company way back in December, 1996 and February, 1997 it can be noticed that the CBDT also insisted on verifying the deployment of funds and assessee vide the letter enclosed the Auditor’s certificate certifying the attached statement showing the deployment of funds equivalent to USD 40.22 million and corresponding invoices for import of capital goods for the hot rolled coils project of the company out of Euro Convertible Bonds issue of USD 75.00 million. Also approval of the RBI for the purpose of financing the Put Option under Euro Convertible Bonds issue of USD 75 Million. After examining the relevant certificates the CBDT Foreign Tax Division granted the approval under section 10(15)(iv)(c). Thus the issue of utilization of the funds was already examined by the CBDT at the time of granting exemption. As already stated once the interest income is not taxable in the hands of recipient and was exempted by the Govt. of India, question of TDS on the interest paid by assessee does not arise. Therefore, the ground has no merit and accordingly rejected. Disallowance of depreciation by reducing the WDV by the amount of principal loan waived - CIT(A) held it to be unjustified - Held that:- As decided in Akzo Nobel Coatings India (P.) Ltd. case [2013 (1) TMI 311 - ITAT BANGALORE] only way by which the written down value on which depreciation is to be allowed as per the provisions of section 32(1)(ii) can be altered is as per the situation referred to in section 43(6)(c)(i) A and B. Neither was there purchase of the relevant assets during the previous year nor was there sale, discarding or demolishing or destruction of those assets during the previous year. Thus, the recourse by the revenue to those provisions on the facts and circumstances of the instant case, it is held, cannot be sustained. Appeal of revenue dismissed.
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