TMI Blog2014 (12) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 28(iv) - Thus the Tribunal was right in holding that the receipt by way of gain on cancellation of foreign exchange contracts is a capital receipt not liable to tax and was accordingly justified in directing the AO to make necessary adjustment to the cost of the acquisition/WDV of the plant and machinery to which the receipt pertains and to make consequential adjustment to the depreciation granted – Decided against revenue. - TAX APPEAL NO. 37 of 2001 - - - Dated:- 28-11-2014 - MR. KS JHAVERI AND MR. K.J.THAKER, JJ. FOR THE APPELLANT : MR KM PARIKH, ADVOCATE FOR THE RESPONDENT : MR JP SHAH, ADVOCATE JUDGEMENT Per: K S Jhaveri: 1. This Tax Appeal u/s.260A of the Income-tax Act, 1961 is filed against the judgment and order dated 21.06.2000 passed by the Income Tax Appellate Tribunal in ITA No.4259/AHD/1994 whereby, the appeal filed by the Revenue was partly allowed. 2. Briefly stated, the facts are that the return of income was filed on 30.12.1991 for the Assessment Year 1991-92 by the assesse-company declaring total income at Rs. Nil. However, the Nil income has been arrived after setting off the brought forwarded investment allowance to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest bearing funds to interest free advances? 2. In so far as the first question is concerned, the same involves inquiry into the facts which do not emanate from the order of the Tribunal. The Tribunal has taken into consideration findings of fact recorded by the Assessing Officer and on such undisputed facts, claim of investment allowance has been held to be available to the assessee. 3. The first appellate authority has arrived at the finding after considering the assessment order in the following terms. The A.O. has not disputed the claim of the appellant that plant machinery aggregating to ₹ 108.84 crores in respect of Nitro Phosphate project and ₹ 37.05 crores in respect of Methanol project were installed upto 31.3.1990... This finding has been taken into consideration by the Tribunal. It was contended before us on behalf of the Revenue that that the aforesaid figures of machinery installed pertain to some machineries installed even prior to financial year 1989-90 and hence, there was an error in the order passed by the Tribunal which gives rise to the substantial question of law. We find that no such ground was taken or argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad also been admitted by formulating identically worded questions, except that the figure in the first question should be ₹ 10,49,64,986/- instead of ₹ 9,39,10,092/- as reflected in the question. 4. Tax Appeal No.400 of 2000 has been admitted by formulating three questions of law. The first two being identically worded to the other appeals except that in the first question the figure is ₹ 8,48,22,775/- The third question is as under: E. Whether on the facts and in the circumstances of the case, the ITAT was right in law in directing to allow depreciation of Butachlor Plant, when the depreciation was not claimed at the assessment stage and also in view of the fact that the plant was not used for the year under consideration? 5. The first question pertains to disallowance of interest free advances of ₹ 9,39,10,192/-, ₹ 10,49,64,986/- and ₹ 8,48,22,775/- respectively under section 36(1)(iii) of the Act. The Tribunal took note of the fact that this issue was also involved in assessment year 199596 wherein the Assessing Officer had disallowed sum of ₹ 1,61,69,397/as according to him the assessee had made advances to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence that the interest bearing loans taken by the assessee company for the purposes of its own business have been diverted for nonbusiness purposes. No direct nexus has been proved either by the AO or by the CIT(A) between the interest bearing loans taken and the interest free advances given. In the circumstances, we find that the ratio of the decisions relied upon by the ld. Counsel for the assessee (vide para 7.1) (supra) is squarely applicable to the facts of the present case. In this view of the matter, we direct the AO to delete the addition. 7. Adverting to the facts of the present cases, before the Tribunal the learned counsel for the assessee filed a detailed chart to show that profit for each of the years and share capital far exceeded the advances made by the assessee to the three concerns and there was no need to divert borrowed funds. The Tribunal held thus: 6.2 The facts and circumstances in the three years under appeal have been admitted by both the parties to be identical with facts and circumstances considered by the Tribunal in assessment year 1995-96. The assessee has also furnished evidence to show that it had sufficient funds of its to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld in decisions relating to Section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 25. Thus in Atherton v. British Insulated Helsby Cables Ltd, (1925) 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. The above test in Atherton case2 has been approved by this Court in several decisions e.g. Eastern Investments Ltd. v. CIT, (1951) 20 ITR 1, CIT v. Chandulal Keshavlal Co, (1960) 38 ITR 601, etc. 26. In our opinion, the High Court as well as the Tribunal and other Income Tax Authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interestfree loan was given to the sister company (which is a subsidiary of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diversion of interest bearing funds to interest free advances. In the circumstances, the Tribunal was justified in deleting disallowance made under section 36(1)(iii) of the Act. 11. Another notable aspect of the matters is that the Tribunal has followed its earlier decision for assessment year 199596. Against the order of the Tribunal in relation to assessment year 199596, revenue has preferred appeal before this Court being Tax Appeal No.770 of 1999. However, in the said appeal no question has been raised nor formulated challenging the order of the Tribunal in relation to the said issue. In the circumstances, the revenue appears to have accepted the decision of the Tribunal on the said issue in relation to assessment year 199596; hence the order of the Tribunal has become final qua the said issue. The Supreme Court in the case of Radhasoami Satsang, Saomi Bagh, Agra v. CIT, (1992) 1 SCC 659, has held thus: 16. We are aware of the fact that strictly speaking resjudicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating throu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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