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2023 (1) TMI 1284 - AT - Income TaxCorrect head of income - Interest Income from Temporary Investments and Interest income from FDs - assessee deposited their surplus funds in the bank on which an interest was earned and the same offered to tax under the head ‘income from business and profession’ - AO treated the interest earned from fixed deposits under the head income from other sources - CIT(A) confirmed treated income from FDs as income from other sources and interest income from temporary investments as business income - HELD THAT:- As respectfully following the detailed judgment of Tuticorin Alkali Chemicals & Fertilizers Ltd. [1997 (7) TMI 4 - SUPREME COURT] we hold that the interest earned out of temporary investments made out of borrowed funds not immediately required for utilization in business be treated as business income as the commercial production has started from 29.08.2009. Ergo, the assessee gets relief of an amount accordingly. Earning of interest from FDs - assessee has invested the surplus funds in the FDs has nothing to do with the business connection - In the instant FDs, we find that there was no compulsion on the part of the assessee to invest in bank FDs as a part of an agreement. No business contingency was brought out whether in this case the surplus funds have been kept as fixed term deposits in the bank which yielded interest. It is a passive income which is not directly relatable to the main functions of the business or the venture of oil exploration. This interest would be received even in the absence of lull/cessation of exploration activity. The interest was received is to be treated under a separate head for the purpose of tax as per the provisions of Section 14 of the Income Tax Act, 1961 - Ergo, appeal of the assessee on this ground is dismissed. Prior period expenses - correct assessment year - expenses on account of Exploration - AO disallowed the expense on the basis that the same should be allowed in the year of commercial production i.e. the instant year - HELD THAT:- As AO disallowed the preoperative expenses in the Assessment Years 2003-04 to 2009-10, the assessee went into appeal and subsequently opted for VSV Scheme, thus resting all the litigation. Since, the matter attained finality the payment of tax wherever applicable, this ground cannot be re-entertained at this juncture. Additional Depreciation u/s 32(1)(iia) without its claim made by the assessee - “Mandatory Claim” or an optional claim at the convenience of the assessee - additional depreciation has not been claimed by the assessee and deduction u/s 80IB was recomputed after allowing additional depreciation - CIT(A) held that a general rule, the explanations incorporated in the Income tax act specifically provide that a particular explanation applies to a 'section' or sub-section' or 'clause' or 'sub-clause', therefore, there is no ambiguity in the applicability of a particular explanation in the act - HELD THAT:- The explanation 5 was introduced with effect from 1/04/2002 and clause (iia) was reintroduced from 01/04/2003. The later insertion of clause (iia) con not be the basis for non applicability of explanation 5 to the said clause because if the intention of the parliament was there to restrict the explanation to a particular clause only, it would have amended the phrase "sub-section" to "clause" or "sub-clause" as the case may be. It may be interesting to note that explanation 2 to the sub-section 1 of section 32 was modified from the phrase "[For the purposes of this [clause]" to "For the purposes of this [sub-section]" by the Finance Act, 2002, w.e.f. 1-4-2003. The case laws cited by the assessee do not pertain to Income Tax Act but to Evidence Act and Agriculture Income Tax Act and there may be ambiguity in the scope of applicability of "explanation" in the respective Acts. AO has rightly allowed the additional depreciation in this case even without its claim by the assessee. The appeal of the assessee on this ground is dismissed. TDS on Exploration & Development Expenditure - addition u/s 40(i)(ia) - non deduction of tds - HELD THAT:- As the assessee has furnished tax audit report of the operator CEIL perusal of which shows that TDS requirement have been duly complied with the operator. hence, the disallowance made by the AO on account of exploration & development expenditure per se and on account of infraction of provisions of Section 40(a)(ia) of the Income Tax Act, 1961 are liable to be deleted. Disallowance of Time Cost Expenses u/s 40A - HELD THAT:- In the present case, it is an admitted position that the assessee does not have any other business in India except PI in the block and has not incurred any expenditure itself, rather it has made contribution to the cash calls made by the operator which has incurred the expenditure. It is a settled position of law that for making a disallowance u/s 40A of the Act, the onus is on the AO to establish that the payments made by the assessee were excessive and unreasonable. In the present case, the AO made disallowances without discussing even the nature of expenses and its reasonableness. Hence, the disallowance proposed to be made is bad in law and deserves to be deleted. Disallowance of Overhead Expenses - AO disallowed the Parent Company Overheads as Head office expenditure by treating the same as expenditure under section 44C - CIT(A) deleted the addition holding that the addition made in the earlier years was due to the fact that the commercial production was not started and the AO has not given any reasons as to how the provisions of 44C are applicable - HELD THAT:- AO has not given the reasoning as to how these expenses are hit by the provisions of section 44C and has simply disallowed these expenses on the basis of the stand taken by the Assessing Officer in earlier assessment years. Disallowance of Deduction u/s 80IB(9) - deduction was not allowed by the AO on the sole reason that such claim was not claimed in the return of income and no adverse observations was made by the AO on the veracity of the claim of the Appellant u/s 80IB(9) - HELD THAT:- We are in agreement with the finding of the ld. CIT(A), the AO has simply commented that since deduction has not been claimed in the return of income, it cannot be allowed. This argument is fallacious as when there is no taxable income in the return, then how can the appellant suppose to claim such a deduction. Once the income of the assessee is turns positive (instead of loss) then the deduction eligible should also be allowed in principle. Hence, the appeal of the revenue on this ground is dismissed.
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