TMI Blog2013 (6) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... Held that:- Once the expenditure is held to be revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. However, considering the the decision in the case of Madras Industrial Investment Corporation Ltd. (1997 (4) TMI 5 - SUPREME Court ), when the spreading is done for over a period of six years and as the assessee-respondent has no objection to such revenue expenditure being spread out, though it could have insisted for this amount allowed in the year under consideration, with no such objection having been raised, the Revenue would not succeed in this issue as the expenditure is held to be revenue in nature. Waver of principal amount of loan - Held that:- Amount of loan waived by the Financial Institution cannot be brought to tax as appellant's income u/s.28(iv) and/or sec.41(1) of I.T. Act. Addition is deleted Addition under Section 115JB being the expenditure estimated on earning of dividend income under Section 14A - Held that:- The addition under Section 115JB of the Act of a sum of ₹ 1,14,43,040/- when was made as an expenditure estimated on earning of dividend income unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and circumstances of the case, the Appellate Tribunal was right in restricting the disallowance of interest expenses on exempted income of dividend on ad hoc basis of ₹ 1,14,43,040/- being 10% of the total income in computation of income u/s.115JB of the Act to ₹ 5 lacs without appreciating that the assessee was maintaining mixed funds and failed either to furnish day-to-day cash-flow statement or to establish that it had its own surplus funds for investment in dividends ? 2. We have exhaustively heard Shri K.M. Parikh, learned counsel appearing on behalf of Revenue and Shri Manish J. Shah, learned counsel appearing on behalf of respondent-Assessee and with their assistance examined the orders of the Revenue authorities and other material brought on record. 3. The first question concerns disallowance made by the Assessing Officer of the sum of ₹ 1,14,43,040/- under Section 14A of the Act towards interest and other expenses incurred in relation to exempted income of dividend. The Assessing Officer on the ground that the respondent-assessee utilised the interest bearing borrowed funds for non-business purpose disallowed such expenses to the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court while calculating such expenses. He has relied on the decision of the Delhi High Court in the case of Commissioner of Income-Tax v. Ms.Sushma Kapoor, reported in (2009) 319 ITR 299 (Delhi), wherein the assessee had taken a loan from the bank on which she paid interest of huge amount, but she had granted interest-free advances. The Assessing Officer held that there was no business transaction to those whom the assessee gave loan and he disallowed the proportionate interest which had been paid to the assessee by the bank. The Tribunal held that to the extent it could be proved that investment was made from the borrowed funds, the expenses had been disallowed under Section 14A of the Act. When the Revenue carried it in appeal, the High Court dismissed it on the ground that the issues raised by the Revenue were factual in nature where findings of facts were recorded in favour of the assessee. The Court also held that the investment was made in the preceding year and no part of the investment was correlated with the borrowed funds. 3.4 The Delhi High Court in the case of Maxopp Investment Ltd. v. Commissioner of Income-Tax, reported in (2012) 347 ITR 272, was examini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any expenditure incurred in relation to the income under total income, nor would arise the question of applying method for determining the amount of expenditure in relation to the income not includable in total income under Rule 8D. He has also argued that this Court has held that Rule 8D is prospective in nature and even otherwise considering the availability of funds, this would not have any application. 3.6 On thus having heard both the sides, it can be said that the object behind insertion of Section 14A is amplified by the Supreme Court in the case of Walfort Share and Stock Brokers P. Ltd., reported in (2010) 326 ITR 1 (SC), which clarifies that the expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In absence of Section 14A, the expenditure incurred in respect of exempt income was also being claimed against taxable income and such practice since was to be curbed, Section 14A has been inserted. It is clarified that sub-section (1) of Section 14A of the Act clearly stipulates that for the purpose of computing total income under Chapter IV, no deduction is permissible in respect of the expenditure incurred in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the first question merits no consideration. 3.10 Needless to specify at this stage that when from the facts that have emerged from record, the employment of Section 14A of the Act is not found correct, there does not arise any question of determining the amount of expenditure in absence of Rule 8D, on the basis of reasonable and acceptable method of apportionment as pressed into service by the Revenue basing on the judgment of the Delhi High Court. 4. Insofar as the second question is concerned, it pertains to Corporate Debt Restructuring (hereinafter referred to as 'the CDR') expenses of ₹ 2.57 crore on payment to financial consultants in connection with waiver of loans, the Assessing Officer noted that the respondent-assessee paid the sum of ₹ 2.57 crore to the financial consultant M/s.Brescon Corporate Advertisers Ltd., who provided their professional services in connection with the scheme of CDR by negotiating with the banks and financial institutions, which eventually helped the reduction of interest burden of the assessee. They were claimed to be the revenue expenditure aimed at reduction of recurring revenue expenditure of interest. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial consultants. This was for the purpose of business and the same was held to be allowable under Section 37(1) of the Act. Having held the said amount to be revenue in nature applying the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra), when the amount has been spread over a period of six years, no error is committed by both the authorities. Once the expenditure is held to be revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. However, considering the the decision in the case of Madras Industrial Investment Corporation Ltd. (supra), when the spreading is done for over a period of six years and as the assessee-respondent has no objection to such revenue expenditure being spread out, though it could have insisted for this amount allowed in the year under consideration, with no such objection having been raised, the Revenue would not succeed in this issue as the expenditure is held to be revenue in nature. Thus, the second question also does not merit any consideration. 5. The third question pertains to excluding the waived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the decision of Gujarat High Court in the case of Chetan Chemicals (P) Ltd. (2004) 267 ITR 770 (Guj.) and Mumbai Tribunal's decision in the case of Helios Food Improvers Pvt Ltd fully apply to appellant's case and the amount of loan of ₹ 11.63 crores waived by the Financial Institution cannot be brought to tax as appellant's income u/s.28(iv) and/or sec.41(1) of I.T. Act. Addition of ₹ 11.63 crores is deleted. 5.4 This issue was carried to the Tribunal. The Tribunal also concurred with the findings of the CIT (Appeals) in the following manner : 85. We have considered the rival submissions and perused the materials on record and gone through the orders of authorities below. We find that we have decided identical issue in A.Y. 2004-05 while deciding the ground No.5 of the Revenue's appeal in that year. Since no difference in facts could be pointed out by Ld.DR of the Revenue in present year, we do not find any reason to take a contrary view in the present year. Hence, this ground of Revenue's appeal is also rejected. 5.5 On thorough examination of the issue, we are of the firm opinion that the issue is squarely covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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