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2018 (12) TMI 62 - AT - Income TaxDisallowance of interest - assessee claimed net deduction on account of interest - Held that - The Hon ble Punjab & Haryana High Court in CIT Vs. Bhupindra Flour Mills (P) Ltd. (2012 (6) TMI 288 - PUNJAB AND HARYANA HIGH COURT) has held that an amount spent by the assessee on demolition of structure which had caught fire and major repair of the premises during the period when the business was in existence is admissible as a revenue expenditure. In view of the above legal position we are satisfied that the CIT(A) was justified in deleting the addition made by the AO by disallowing the net interest paid. - Decided in favour of assessee Addition of insurance claim received - nature of income - Held that - The Mumbai Bench of the Tribunal in J.R. Enterprises (2008 (6) TMI 604 - ITAT MUMBAI) has held that the provisions of section 45(1A) of the Act are inapplicable because of the receipt of insurance claim of Rs. 1.57 crore against the actual expenditure incurred of Rs. 3.82 crore. The Chennai Bench of the Tribunal in Chemfab Alkalis Ltd. (2012 (8) TMI 1142 - ITAT CHENNAI) also considered a similar situation in which the amount of insurance claim was less than the amount of actual expenditure incurred on reconstruction/ renovation and it was held that no short term capital gain u/s. 45(1A) of the Act can be charged under such circumstances. Validity of assessment - no notice u/s.143(2) was validly served - Held that - We are confronted with a situation in which the assessee did raise objection before the AO during the course of assessment proceedings itself that the notice was not properly served upon him. However the AR of the assessee appearing before the AO gave his no objection for furthering the assessment proceedings. When the second limb of the ld. AR not objecting to the continuation of assessment proceedings despite service of notice on the assessee s manager is considered in conjunction with the first limb of the assessee initially objecting to the service of notice the inference which follows is that the assessee did raise objection initially but withdrew the same before the AO. In such a scenario the initial objection stood withdrawn by the later no objection tendered before the completion of the assessment making it a case of not objecting to the valid service of notice before the AO. Thus the proviso to section 292BB of the Act which was triggered by raising an initial objection before the AO was given a goby and got set to rest by the ld. AR not objecting to such objection in terms of order sheet entry dated 13-08-2012. Once the proviso is held to be inapplicable the main provision of section 292BB gets magnetized which deems proper service of notice on the assessee appearing before the AO in the assessment proceedings thereby debarring it from raising any objection of improper service of notice before any proceedings under the Act including the Tribunal. Power of attorney - Once an assessee empowers his authorised representative to appear before the AO or for that purpose any other appellate court in the income tax proceedings and undertakes to ratify his acts there is no need to ignore any concession made by the ld. Authorised representative and personally call upon the assessee to make concession in every case. The ld. AR could not draw our attention towards any decision under the income-tax proceedings in which the concession given by the ld. AR was successfully challenged by the assessee before the higher court on the ground that such concession by the ld. AR was invalid. In view of the foregoing discussion we are of the considered opinion that there is no merit in the grounds raised by the assessee in this regard which are hereby dismissed.
Issues Involved:
1. Disallowance of interest deduction. 2. Taxability of insurance claim received. 3. Validity of assessment order due to alleged improper service of notice under section 143(2). 4. Expunging remarks made by the CIT(A). Issue-wise Detailed Analysis: 1. Disallowance of Interest Deduction: The first issue concerns the deletion of an addition of Rs. 3,17,318/- made by the Assessing Officer (AO) on account of disallowance of interest. The assessee claimed a net deduction of Rs. 3,17,318/- for interest paid in excess of interest income. The AO disallowed this deduction, arguing that the loan was used for creating an asset, thus making the interest non-deductible under the proviso to section 36(1)(iii) of the Income-tax Act, 1961. The CIT(A) overturned this decision, and the Tribunal upheld the CIT(A)'s order. The Tribunal reasoned that the borrowed capital was used for reconstructing a damaged cold storage, not for acquiring a new asset. Therefore, the interest paid did not fall within the proviso's purview, which applies only to capital borrowed for acquiring an asset. 2. Taxability of Insurance Claim Received: The second issue involves the deletion of an addition of Rs. 1,35,50,851/- related to an insurance claim received by the assessee. The AO had invoked section 45(1A) of the Act, treating the insurance claim as chargeable to tax. The CIT(A) deleted this addition, relying on precedents from the Mumbai and Chennai Benches of the Tribunal, which held that section 45(1A) does not apply when the insurance claim is less than the actual expenditure incurred on reconstruction or renovation. The Tribunal upheld the CIT(A)'s decision, noting that the assessee received Rs. 1.35 crore in insurance but spent Rs. 3.55 crore on reconstruction, thus aligning with the cited precedents. 3. Validity of Assessment Order Due to Alleged Improper Service of Notice: The third issue pertains to the validity of the assessment order based on the alleged improper service of notice under section 143(2). The assessee argued that the notice was not served on the partners but on a manager, which they claimed was invalid. The Tribunal found that the notice was addressed to the assessee firm and served on its manager, and the assessment was conducted with the assessee's participation. The Tribunal referred to section 292BB, which deems proper service of notice if the assessee cooperates in the proceedings, barring objections on improper service. The Tribunal noted that the assessee initially objected but later withdrew this objection, thus validating the service of notice and the subsequent assessment proceedings. 4. Expunging Remarks Made by the CIT(A): The fourth issue involves expunging certain remarks made by the CIT(A) about the conduct of the assessee's Authorized Representatives (ARs). The CIT(A) had advised the ARs to avoid raising frivolous grounds and to verify facts before filing appeals. The Tribunal found these remarks unnecessary and beyond the scope of the CIT(A)'s duty, which is to decide on the issues raised. Consequently, the Tribunal expunged the remarks, emphasizing that appellate authorities should focus on the issues rather than commenting on the conduct of ARs unless specifically challenged. Conclusion: - The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the interest disallowance and the insurance claim addition. - The Tribunal partly allowed the assessee's appeal, validating the service of notice under section 143(2) but expunging the unnecessary remarks made by the CIT(A).
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