TMI Blog2007 (5) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... e majority decisions it is clear that in case the expenditure incurred on interest on the capital borrowed for acquiring the machinery required to be used for the business of the assessee is eligible for deduction u/s 36(1)(iii) of Income-tax Act irrespective of the fact whether the machinery was put to use or not in the accounting year relevant to assessment year under consideration. Therefore, it is held that the CIT(A) has wrongly upheld the disallowance made by the Assessing Officer in respect of the deduction claimed by the assessee u/s 36(1)( iii ) of the Income-tax Act and the order of CIT(A) in this regard is set aside and Ground No. 2 of the appeal of the assessee is allowed. Disallowance on gratuity payments made to the approved gratuity fund - HELD THAT:- The Hon ble Madras High Court in the case of Synergy Financial Exchange Ltd.[ 2006 (7) TMI 106 - MADRAS HIGH COURT] . In this decision reliance was also placed on the case of CIT v. Udaipur Distillery Co. Ltd.[ 2003 (10) TMI 9 - RAJASTHAN HIGH COURT] , a Division Bench of the Rajasthan High Court, wherein it was held that in order to avail of the benefits of deduction under clause ( b ) of section 43B in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. SINGH, JUDICIAL MEMBER. 1. These two appeals filed by the assessee against the respective orders of the CIT(A), Ghaziabad, passed in Appeal Nos. 61/2003-04/GZB and 88/2004-05/GZB dated 4-1-2005 were heard together and are being disposed of by this single order for the sake of convenience as many issues involved therein are identical. 2. In assessment year 2000-01, the assessee has taken following effective grounds : 1. The learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 12,361 being club subscription and club expenses treating these to be in the nature of non-business expenditure ignoring the fact that these expenses are incidental to the business activities of the company and are, therefore, covered under section 37 of the Income-tax Act, 1961. 2. (a) That the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the learned Assessing Officer in rejecting the claim of Rs. 1,38,23,156 being the interest on capital borrowed for acquiring the fixed assets which were purchased for the purposes of business of the company. (b) That the learned Commissioner of Income-tax (Appeals) has erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals) in the assessment year 1998-99, being the initial assessment year, has held the said project to be a separate Industrial Undertaking, and that once it is held as a separate undertaking in the initial assessment year, there being no change in facts, there is no justification to take a contrary view subsequently. (c) That the learned Commissioner of Income-tax (Appeals) erred in ignoring the facts that the said Power Unit was set up and housed in a separate building which was set up mainly with a view to sell power to UPSEB, that the power which was earlier purchased from UPSEB was now not only own manufactured and supplied by this unit, even the UPSEB became a customer of the Unit by purchasing power from this unit pursuant to a power purchase agreement entered into by the company with UPSEB, that there was investment of substantial capital in setting up the said industrial undertaking, that there was earning of profits clearly attributable to the said undertaking, thereby clearly establishing that a separate and distinct industrial unit was set up. 6. (a) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 2,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax (Appeals) has erred in ignoring the submission made by the assessee that as per the Scheme with LIC, the unpaid amounts are carried forward, by LIC and a new due date is assigned for such payments thus allowing a grace period by LIC for which no penalty is charged. The learned CIT (Appeals) erred in appreciating that once the payment is made as per the grace period allowed by LIC, the amount would be an allowable deduction in the year of payment. The learned CIT (Appeals) also erred in ignoring the confirmation from LIC produced before the CIT (Appeals) to this effect. 3. (a) That the learned Commissioner of Income-tax (Appeals) has erred in not deleting the disallowance of Rs. 27,77,312 towards loss arising on conversion of liability towards foreign currency loan. (b) That the learned Commissioner of Income-tax (Appeals) has erred in remanding the matter to the Assessing Officer to verify the claim despite being given all the evidence showing that these amounts were never claimed as revenue expenditure as the assessee had capitalized these amounts and included these in the actual cost of fixed assets. This is apparent from the foot-notes on the sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable expenditure or not came up for consideration before the High Courts in the following cases and these payments made to clubs were held to be allowable expenditure : 1. CIT v. Sundaram Industries Ltd. [1999] 240 ITR 335 (Madras). 2. Goyal Gases (P.) Ltd. v. Dy. CIT [1992] 42 ITD 135 (Delhi). 3. OTIS Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 (Bom.). 6. Learned DR for the revenue has not cited any decision wherein a view contrary to the view taken in the above-mentioned cases (supra) has been taken on the issue. 7. In this view of the matter and respectfully following the decisions (supra) it is held that the expenditure incurred by the assessee on the subscription and expenses of the club for the working Directors of the company was an allowable expenditure and the tax authorities below have wrongly disallowed the impugned expenditure and, therefore, the order of the CIT(A) in this regard is set aside and the Ground No. 1 of the appeals of the assessee for both the assessment years under consideration is allowed. 8. Now we shall deal with Ground No. 2 of the appeal of the assessee for assessment year 2000-01 pertaining to the issue of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he borrowed capital under the Deferred Payment Scheme for the period till the asset was first put to use would not be eligible for deduction under section 36(1)(iii) or section 37 since it is includible in the actual cost of acquisition of the asset till the asset was first put to use, in view of Explanation 8 to section 43(1). Once the same comes within the purview of section 43(1), Explanation 8, deduction under section 36(1)(iii) or section 37 cannot be claimed which stands clarified by the insertion of the proviso therein under the Finance Act, 2003. As such, the assessee cannot claim any benefit of section 36(1)(iii) or section 37 in this case. 14. Whereas, in the case of Dy. CIT v. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj.), their Lordships have taken a view contrary to the view taken by the Calcutta High Court in JCT Ltd. (supra) by observing that the scope of section 36(1)(iii) and Explanation 8 to section 43(1) are different. They operate in separate fields and though both are relatable to computing income under section 28 yet the nature of deductions are entirely distinct from each other. The concept and the meaning of actual cost which is the definition laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere extension thereof and expenditure incurred on raising funds (debentures) for it was allowable as deduction . 17. Further, their Lordships of Delhi High Court in other cases of Dalmia Cement (Bharat) Ltd. (supra) and Orissa Cement Ltd. (supra) relying upon their decision in the case of Modi Industries (supra) even after considering the Explanation 8 to section 43(1) of Income-tax Act came to a conclusion that the loan raised by the assessee for modernization of existing business and the interest expenditure incurred thereon for the assessee s business was allowable as revenue expenditure. 18. Similar view was taken by the Hon ble Allahabad High Court in the case of CIT v. J.K. Synthetics Ltd. [1988] 169 ITR 267 while holding that interest on amounts borrowed by a running concern in connection with its business was an allowable expenditure . 19. Similarly Madhya Pradesh High Court in the cases of ITO v. Malwa Vanaspati Chemical Co. Ltd. [1997] 226 ITR 253 and CIT v. Bhillai Iron Foundry (P.) Ltd. [1998] 234 ITR 661 held that the interest on loan taken for the purchase of plant and machinery was deductible under section 36(1)(iii) of Income-tax Act though no production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision made during the year and offered for disallowance, payment made during the year (for which the deduction was claimed) and the closing provision which was disallowed. Thus, according to the assessee in accordance with the amended provision of section 43B of the Act, the words referred to in clause (a) or clause (c) or clause (d) or clause (e) or clause (f ) have since been omitted by the Finance Act, 2003. Hence, the effect of such omission is that the amounts disallowed in any earlier year would be allowable in the year of payment. The assessee submitted that this amendment has retrospective effect and hence would be applicable in the instant case. 24. Since the provision of gratuity made in earlier years was not allowed in those years the same was allowable to the assessee in the assessment years under consideration, as the assessee has made these payments in the relevant assessment years. Learned AR for the assessee, thus, concluding his arguments submitted that as the deduction claimed by the assessee is based on the actual payment of gratuity fund in the assessment years under consideration the same is eligible for deduction under the provisions of section 43B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he omission of the proviso the assessee is entitled to the deduction of payment made towards provident fund, etc., when such payment is actually made by the assessee on or before the due date applicable for filing the return, irrespective of whether such payment is made on or before the due date by which the assessee is required to credit the contribution to the employee s account in the relevant fund under the relevant Act. It is not permissible in law to take a liberal view or lenient approach to give retrospective effect to the deletion of the second proviso to section 43B of the Act so as to apply it to earlier assessment years, particularly when there is no indication in the Finance Act, 2003, from the language used and from the object indicated that the Legislature intended expressly or by implication that the second proviso to section 43B was deleted to cure an acknowledged evil for the benefit of the community as a whole or to remove any such hardship, or any express provision in the statute that such deletion of the second proviso to section 43B of the Act would have any retrospective effect. Nor is it possible to hold that without the aid of the subsequent Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ground No. 3 of the appeal for assessment year 2001-02 relating to disallowance of Rs. 9,30,283 and Rs. 27,77,312 respectively, towards loss arising on conversion of liability towards foreign currency loan. 31. In brief, the facts relating to the issue are that the loss has arisen to the assessee on conversion of liability towards foreign currency loans on the borrowed funds from ICICI and Occident Orient Co. Ltd. in foreign currency for the purpose of acquisition of assets. 32. The learned AR for the assessee submitted before us that the exchange loss on the above-mentioned loans is being charged to P L Account pertaining to working capital which has been accepted by the department in the previous years. For the first time foreign exchange fluctuations charged to P L Account was disallowed by the Assessing Officer in assessment year 1998-99 but the same was deleted by the CIT(A). However, the department in this regard has accepted the position because the department has not contested the same before the Tribunal in ITA No. 2179/Del/2002, so, the tax authorities below were not justified in sustaining the disallowance in the assessment year under consideration when there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In the instant case the assessee had set up a new power project in the year relevant to the assessment year 1998-99 for generation and distribution of power mainly with a view to sell power to UPSEB. The Assessing Officer in the assessment year 1998-99 held that the said unit was not a separate industrial undertaking entitled for deduction under section 80-IA. 38. On appeal the CIT(A) held that it was a separate undertaking eligible to deduction under section 80-IA but there was a change in assessment year 1999-2000 wherein the CIT(A) upheld the disallowance made by the Assessing Officer and in the assessment year under consideration i.e., 2000-01 the CIT(A) following the order passed in assessment year 1999-2000 sustained the disallowance made by the Assessing Officer. 39. Now, before us both the parties were fair enough to concede that in view of the decision of ITAT, Delhi Bench-B in the case of this very assessee for assessment year 1998-99 in ITA No. 2179/Del/2002 the issue stands covered in favour of the assessee and against the revenue wherein the Tribunal observed as under : 5. As is evident from the aforesaid observations recorded by the learned CIT(A) in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as keeping in view the case laws discussed above, we hold that there was no infirmity in the impugned order of the learned CIT(A) treating the power unit of the assessee as a separate industrial undertaking eligible for deduction under section 80-IA(2)(iv)( b) and upholding the same on this issue, we dismiss Ground No. 1 of the revenue s appeal. 40. In this view of the matter and respectfully following the order (supra) of the Tribunal the issue stands covered in favour of the assessee and against the revenue. Accordingly, we set aside the order of the CIT(A) in this regard and allow the Ground No. 5 of the appeal of the assessee for assessment year 2000-01. 41. We shall now take up Ground No. 6 of the appeal of the assessee for assessment year 2000-01 and Ground No. 4 of the appeal for assessment year 2001-02 involving the issue of disallowance of Rs. 2 lakhs and Rs. 5 lakhs out of the expenses relatable to bio-tech division of the company by treating the same to be excessive and for want of check and verification in the assessment year under consideration. 42. In brief, the facts relating to the issue are that in the instant cases the impugned disallowances rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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