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2016 (5) TMI 257 - AT - Income TaxDisallowance of expenditure incurred for obtaining advisory services in connection with the restructuring of bank debts - Held that:- Fee has been paid to the said consultant primarily for rendering advice to reduce the interest burden of the assessee-company by, inter alia, exploring the possibility of identifying a strategic investor/lender. It is a settled proposition that payments made to consultants for obtaining professional services in connection with debt restructuring with banks, etc. is a revenue expenditure within the meaning of Sec. 37(1) of the Act and such proposition is supported by the judgment of the Hon’ble Gujarat High court in the case of CIT vs. Gujarat State Fertilizers & Chemicals Ltd.,(2013 (7) TMI 701 - GUJARAT HIGH COURT ), a decision which was relied upon by the ld. Representative for the assessee in the course of the hearing. However, the ld. Representative for the assessee, quite fairly conceded that insofar as the proportion of fee relatable to the restructuring and raising of equity share capital was concerned, such expense would fall for disallowance as per the ratio of Brooke Bond (India) Ltd. (supra). In this context, having regard to the entirety of facts and circumstances of the case, in our view, it would be in fitness of things that 10% of the expenditure, i.e. ₹ 5,05,080/- be disallowed and balance of the expense be allowed as a revenue expenditure. - Decided partly in favour of assessee Disallowance of expenditure in connection with issuance of shares - Held that:- The facts which emerge from the perusal of the orders of authorities below reveal that the impugned expenditure has been incurred in connection with increase in authorised share capital of the assessee-company and raising of share capital. The said expenditure, in our view, has been rightly disallowed following the ratio of the judgment of the Hon’ble Supreme Court in the case of Brook Bond India Ltd. (1997 (2) TMI 11 - SUPREME Court). Such expenditure is also not covered in the scope of Sec. 35D of the Act, as fairly conceded by the ld. Representative for the assessee. - Decided against assessee Addition u/s. 28(iv) - waiver of the outstanding principal amount of loan - Held that:- As per a working provided by the Ld. Representative for the assessee such amount is crystallized at ₹ 34.99 crores and the balance of ₹ 4.01 crores is considered as being used for trading operations. Therefore, having regard to the facts of the present case, the waiver of loan can be said to be relatable to acquisition of capital asset to the extent of the proportion in which the loan proceeds were utilized for acquisition of capital asset. At the time of hearing, when the aforesaid was put across to the assessee a working thereof was furnished whereby it was submitted that an amount of ₹ 1.57 crores out of the total waiver of ₹ 15.35 crores can only be considered to fall within the scope of section 28(iv) of the Act for the reason that the same related to loan funds used for the purposes of trading/business. Quite clearly, the balance of the waiver is relatable to the proportion of loan funds utilized for acquisition of the shares of M/s. Applisoft Inc. and on this aspect the ratio of the judgement of the Hon’ble Bombay High Court in the case of Mahindra and Mahindra Ltd.(2003 (1) TMI 71 - BOMBAY High Court ) clearly supports the plea of the assessee. In this background of the matter, we, therefore, conclude that so far as the amount used for the purchase of capital asset is concerned, the waiver thereof is a capital receipt not chargeable to tax under section 28(iv) of the Act, which follows that the Assessing Officer is required to restrict the disallowance under section 28(iv) of the Act to the extent of ₹ 1.57 crores only, being the loan waiver which has been used for trading activity. We hold so - Decided partly in favour of assessee MAT applicability on waiver of outstanding principal amount of loan and interest thereof - assessee claimed that the provisions of section 115JB of the Act do not apply to the income accrued or arising from the business so carried on in the SEZ Unit - Held that:- The difference between the assessee and the Revenue on the application of sub-section(6) of section 115JB of the Act relates to the waiver of outstanding principal amount of loan and interest thereof. The stand of the Revenue is that such income is not generated out of the services rendered by the assessee but is on account of a One Time Settlement with the bank and, therefore, it does not fall in the exclusion contained in the sub-section(6) of section 115JB of the Act . The phraseology of sub-section (6) of section 115JB of the Act prescribes that the income referred thereto may arise out from the ‘services rendered’ or from the ‘business carried on’ by the unit. The concept of ‘income arising from services rendered’ is narrower than the ‘income arising from any business carried on’ and viewed in that light in our view, the impugned income can definitely be said to be falling within the expression ‘arising from any business carried on’ in SEZ Unit. Therefore, in our view, the assessee has to succeed on its plea seeking exclusion of the impugned sum from the purview of section 115JB of the Act on account of sub-section (6) thereof. - Decided in favour of assessee Benefit of set off of unabsorbed depreciation against income from other sources denied - Held that:- The only issue agitated by the assessee is in relation to set-off of claim of unabsorbed depreciation, which in our view, is quite well-founded in terms of section 32(2) of the Act. To the aforesaid extent, we set-aside the order of CIT(Appeals) and direct the Assessing Officer to revisit the claim of the assessee in accordance with law, after allowing the assessee a reasonable opportunity of being heard. - Decided in favour of assessee for statistical purposes. ALP determination - adoption of Transactional net margin method (TNMM) selected by the Transfer Pricing Officer/Assessing Officer in preference to the CUP method adopted by the assessee - Held that:- Similar issue has been considered by the Tribunal in assessment year 2004-05 and it is pointed out that the issue has been sent back to the file of the Assessing Officer for determining the arm's length price of international transaction afresh including the selection of the most appropriate method for carrying out comparability analysis
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