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2016 (10) TMI 807 - ITAT CHENNAI

2016 (10) TMI 807 - ITAT CHENNAI - TMI - Nature of loss on sale of joint venture - allowability of the interest on borrowed funds - assessee borrowed the fund from the bank and lent it to its sister-concern, which is a wholly owned subsidiary - Held that:- The DRP for the assessment year 2008-09, held that loss arising out of transfer of 50% interest in the joint venture was a capital loss. Hence, subsequent reduction in this sale consideration from ₹ 13 crores to ₹ 9.5 crores would .....

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oncern as a measure of commercial expediency. - The Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. [2001 (9) TMI 48 - DELHI High Court] is applicable to the facts of the present case, wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of t .....

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en the interest expenditure should be allowed u/s.36(1)(iii) of the Act. - ITA Nos. 585/Mds/2015 & 267/Mds/16, ITA Nos. 927/Mds/2015 & 668/Mds/2016 - Dated:- 14-9-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Appellant : Shri P. Murali Mohan Rao, FCA For The Respondent : Shri Anurag Sahay, CIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These are cross appeals for the assessment years 2010- 11 and 2011-12 emanating from the assessment order da .....

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out proper appreciation of the facts and information on record. 2. The Ld. AO has grossly erred in not allowing carry forward of capital loss of Rs. 3,47,00,000 on account of loss on sale of joint venture in the computation of the assessed income even when the same was allowed as long term capital loss in conformity with the directions of Ld. DRP. 3. Ld DRP grossly erred in directing inclusion of the income from letting out of building under the head "Income from House Property" as aga .....

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t refurbished rig was not put to use. 5.The Ld. AO/ Ld. DRP grossly erred in directing disallowance Rs. 1,44,50,789 u/s. 14A r.w.r. 8D. In doing so, a) he disallowed Rs. 1,34,18,595 u/r 8D(2) towards interest even when the appellant had total capital and reserves were ₹ 2,172.91 crores as against investment of Rs. 25.11 crores. b) Without prejudice to a) above, the Ld. AO grossly erred in not excluding the interest of Rs. 1,935,718,053 treated by him as have been incurred for funding the f .....

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on facts, in disallowing interest expenditure of Rs. 57,46,43,700 debited to profit and loss account incurred by the appellant in the course of business. 2.1 The assessee has raised the additional grounds as follows : 9. We would like to submit that as per the ratio laid down by the Honourable Supreme Court of India in the case of National Thermal Power Co. Ltd v. CIT (1998) 229 ITR 383 (SC) the IT AT has jurisdiction to examine issues which though not arose before the first appellate authority .....

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tion 92C before referring the transfer pricing issues to the learned TPO. The assessee prays that the same is in violation of principles of natural justice as the AO has not independently applied his judgment to the order of the TPO with due cognizance to the assessee's various rebuttals and has mechanically accepted the conclusions stated in the TPO's order. 3. At the time of hearing, the ld. Counsel made an endorsement that the additional grounds (9 to 12) are not pressed. Accordingly, .....

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the assessee before the Department furnished varying explanations that it has withheld the tax @ 15% on one occasion and later on claimed that it has withheld the tax @ 4.0478%. Further, when called for the details like the residency certificate of deductee, the assessee could not furnish the same. Hence, the AO opined that the amounts are not allowable in view of the provisions contained u/s.40(a)(i) r.w.s.195 of the Act. In addition, the assessee also failed to furnish the details of the natu .....

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isallow the same. 4.1 Further, the assessee claimed in its submission before the AO that the amount of tax withheld was @ 4.0478% was an intended error. The assessee explained that the actual amount of tax withheld was ₹ 4,45,81,999/-, being @ 15% on ₹ 28,15,18,658/- and the above payment of management fee of ₹ 28,15,18,658/- will not be hit by the provisions of sec.40(a)(i) of the Act. 5. The DRP observed that submission of residency certificate of the non-residents is a manda .....

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f the residency certificate is not available, it may not be possible for the AO to determine the residence of the non-resident and hence, the AO will not be in a position to apply the proper Double Taxation Avoidance Agreement. Since the assessee has filed a residency certificate on 31.3.2014, before the AO, no adverse inference can be drawn in this regard. 5.1 The next issue is regarding the genuineness of the expenditure. As per the assessee, there was a collaboration agreement between the ass .....

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n a hurried manner. The assessee was given sufficient time to furnish its explanations and the details. In fact, there was an enquiry by the Investigation Wing in the case of the assessee on 05.07.2011. During the course of verifications the DRP required the assessee to furnish the nature of tile services rendered by India Offshore Inc., copies of the invoices, the details of the tax withheld, residency certificate, etc. From the date of enquiry u/s.131 till the date of draft assessment order on .....

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ons, the assessee tried to explain that once the Assessing Officer disallows an amount u/s.40(a)(i) of the Act, it is not open to the Assessing Officer to disallow the same under an alternative plea. This contention of the assessee is not acceptable to DRP. An expenditure can be disallowed for more than one reason. It is not the intention of the legislature that if the expenditure which is disallowed under a particular provision should not be examined from the point of violations, if any, under .....

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ve sections. Therefore, the DRP observed that the Assessing Officer has to examine the provisions of each section and the assessee's claim should fulfil the requirements provided under various sections. 5.4 The DRP observed that the assessee has not furnished any details like copies of invoices, nature of the services rendered by India Offshore Inc. etc. either before the AO or before the panel. Mere making of the payment through banking channel is not a conclusive proof for the incurrence o .....

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a Offshore Inc. are required for the business of the assessee and also the nature of the services rendered by it. In the absence of any such details, the AO has rightly concluded that the claim of payments of management fee of ₹ 28,15,18,658/- as non-genuine expenditure and without any commercial expediency. Hence, in the absence of any evidences, the DRP observed that it is not possible for the Panel to come to a conclusion that the above payments are genuine or commercially expedient. Th .....

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ribunal in earlier years and there was no addition on this count. The payment has been made originally, vide agreement dated 15.12.1986 and it was further extended upto 15.12.2014. Therefore, there is no question of raising invoices for each assessment year and the payment is made in terms of approved agreement. Further, in our opinion, the genuineness agreement cannot be questioned by the assessing authorities when it is duly approved by the Central Govt., Ministry of Commerce & Industry, D .....

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en the Department has given No Objection Certificate for remittance made to Indian Offshore Inc for earlier years which is placed on record at page Nos.211-212 of the paper book. Further, it is brought on record that there was no addition in earlier assessment years as evident from the copies filed before us for the assessment years 2005-06 to 2008- 09 which is kept on record at pages 1 to 146 of the paper book. Therefore, it is not possible to hold that the payment is not genuine. 6.1 Further, .....

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royalty payment to its parent AE. 6.2 It is pertinent to note that the Tribunal, Hyderabad Bench in the case of Air Liquid Engineering India P. Ltd. In ITA Nos.1040 & 1159/Hyd/2011 and 1408/Hyd/2010, vide order dated 13.2.2014 held that in transfer pricing proceedings TPO could not sit in judgment on business and commercial expediency of assessee company so as to conclude that payment of royalty made by assessee to its AE was unreasonable and thus ALP of said payment was to be taken as nil. .....

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ries, Department of Industrial Policy and Promotion. 6.4 The Tribunal also held in the case of Abhishek Auto Industries Ltd. in ITA No.1433/Del/2009 dated 12.11.2010, that it is a settled proposition of the law that legally binding agreements between unrelated parties cannot be disregarded without assigning any cogent reasons thereto. In this case, it has agreements that are duly approved by RBI and other regulatory agencies. It is also a settled proposition that commercial transactions are in t .....

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carry forward of capital loss of ₹ 3,47,00,000 on account of loss on sale of joint venture in the computation of the assessed income even when the same was allowed as long term capital loss in conformity with the directions of Ld. DRP. 8. The facts of the case are that the next objection of the assessee is regarding the proposed disallowance of loss on account of sale of business interest and addition on account of sale of business in joint venture. The objections has two parts : (i) disal .....

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crores on account of sale of the joint venture. However, the assessee has not furnished the details of the working of the loss of ₹ 3.47 crores. Hence, the AO proposed to disallow the loss claimed of ₹ 3.47 crores. In addition, the AO also proposed to bring the entire sale consideration of ₹ 9.50 crores to tax as long term capital gains. Against this, the assessee carried the matter before the DRP. 9. The DRP observed that the assessee entered into a joint venture business wit .....

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in 2007-08 was ₹ 13,64,91,065/-. Hence the assessee, in the return of income for the A.Y.2008-09 claimed a net loss of ₹ 64,91,005/-. The Assessing Officer, in A.Y.2008-09 disallowed the assessee's claim. On appeals, the CIT(A)-III, Chennai (vide ITA Nos. 514, 515 and 516/11-12/(A)-III dated 28.03.2012), had allowed the losses of ₹ 64,91,065/-, but held that the share capital losses and could be set off only against the capital gains if any. 9.1 Subsequently, during the F.Y .....

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the CIT(A) in A.Y.2008-09, the loss on the sale of 50% interest in the joint venture was a capital loss. Since the above was the reduction (on account of revision of the sale agreement) of the very same sale consideration, the additional loss suffered by the assessee on account of the revision of the sale consideration also constitutes a capital loss. Therefore, it was observed by the DRP that the assessee is not justified in claiming ₹ 3.47 crores as a business expenditure in the current .....

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interest of 50% of the joint venture for ₹ 13 crores (or revised value of ₹ 9.50 crores), the business value of ₹ 13.64 crores has been reduced from the assessee's balance sheet in the A.Y. 2008-09. Hence, the question of offering the sale consideration separately once again in the return of income of A.Y. 2008-09 or 2010-11 will not arise. Further, the actual sale of 50% interest in the joint venture has actually happened in the F.Y. 2007-08 for a consideration of ₹ .....

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010-11. Therefore, the DRP observed that the AO is not justified in bringing the revised sale consideration of ₹ 9.50 crores to tax as long term capital gains is not justified and deleted. Now the assessee is in appeal before us with regard to the findings of the DRP that loss of ₹ 3.47 crores is a long term capital loss, as held by the CIT(Appeals) in A.Y. 2008-09 and allow the above loss as a long term capital loss only. 10. We have heard both the sides and perused the material on .....

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s being entrusted to purchaser and to complete the exclusion of the assessee with a non-compete clause fell within the realm of sec.28(va) of the Act. In our opinion, the argument of the ld. AR is totally misplaced. The total transaction relating to sale of business interest under joint venture agreement with Prize Petroleum Ltd. and subsequent transfer of right of development of ONGC s Oil Field in favour of Valdel Oil & Gas Ltd. was subject matter of dispute in the assessment year 2008-09. .....

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e ld. AR has no application to the present case. Accordingly, this ground is dismissed. 11. The next ground is with regard to inclusion of the income from letting out of building under the head income from house property as against income from business offered by the assessee. 12. At the time of hearing, the ld. AR submitted that the assessee did not press this ground and the same is dismissed as not pressed. 13. The next ground is with regard to in treating preference share issue expenses of &# .....

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he assessee s claim u/s.35D of the Act. 15.1 On the other hand, the ld. AR relied on the order of the Tribunal in assessee s own case for the A.Y. 2007-08 in ITA No 90/Mds/2012 dated 26.6.2016, wherein the Tribunal allowed the claim of the assessee u/s.35D of the Act on the same issue. 16. We have heard both the parties and perused the material on record. The ld. AR relied on the judgment of Rajasthan High Court in the case of Secure Meters Ltd. reported in 175 Taxman 567, for the proposition th .....

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for repayment of capital after a particular period of redemption. Whereas in the case of equity, there is no commitment on the part of the company in making the repayment. The expenditure is incurred towards increased debt funding for the benefit of the company and not towards increase in the capital base. Therefore, any expenditure incurred on raising of the debt should be admissible revenue expenditure. Admittedly, this issue came before the Tribunal in earlier years. Specifically, in the ass .....

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6.6.2015 for assessment year 2007-08. In our opinion, there is a mistake in the order of the Tribunal for assessment year 2008-09 on the basis of ITAT order for assessment year 2007-08. As such, the assessee is entitled for deduction u/s 35D for assessment year 2008-09. Accordingly, we rectify para 23 and 24 the order dated 31.12.2015 as follows by following the ITAT order for assessment year 2007-08 and it is to be read as follows: 23. We have heard both the parties and perused the material on .....

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d the facts of the case and the submission of the Id. AR. I have also gone through the decisions relied on by the AO and AR. Similar issue had come up for consideration in appellant's own case for A.Y. 2006-07. After considering the facts and rival submissions, it was held in ITA No.573/08··09/A.1I1 dated 23.06.2010 for A.Y. 2006- 07 that the expenditure on issue of shares is not deductible because it is directly related to the expansion of the capital base of the company. The .....

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ther examine as to whether it satisfies the conditions laid down in section 350 of the Act. Since the appellant had only purchased the oil rig but had not put it to use during the year and had classified it as "capital work-in-progress" in its book, the extension of the industrial undertaking was held to be in-complete. Accordingly, the contention of the Id. AR that extension of the industrial undertaking was completed on purchase of the oil rig was not accepted and the ground was dism .....

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llant has completed the refurbishment and installation works during the previous year relevant to the subject assessment year. In fact, the rig was surveyed by the American Bureau of Shipping on 27.05.2006 and certificate of classification was also issued on 26.06.2006. Hence, the appellant is eligible for deduction in respect of the Rig Aban VII which is complete in all respects. The appellant had also been awarded a contract to drill in the East Coast of India by Hindustan Oil Exploration Ltd. .....

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titled to claim deduction u/s 35D. The ground is partly allowed. 12. After hearing both the parties and going through the said paragraph of the CIT(A) s order and following the order of the Tribunal in assessee s own case (supra), we decide the issue in favour of the assessee. Accordingly, the ground raised by the Revenue is dismissed. 24. In view of the above, the ground raised by the Revenue is dismissed. 16.1 In view of the above order of the Tribunal, the claim of the assessee u/s.35D of the .....

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03.2010. The assessee also derived dividends income of ₹ 2,19,07,337/- and the same was claimed as exempt u/s.l0(34) of the Act. However the assessee has not segregated any expenditure attributable to such investments. Hence the Assessing Officer invoked the provisions of sec.14A of the Act read with rule 8D and determined the expenditure attributable for earning such exempt income at ₹ 1,44,50,789/- and proposed to disallow the same. 18.1 Before the DRP, the assessee company submitt .....

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e total investments in shares/funds during the financial year 2009-10 was ₹ 25.63 crores (closing balance as on 31.03.2010) as could be seen from the investments of the balance sheet of the financial year. 18.3 The assessee is not maintaining any separate books of accounts for the investments in shares. Nor there was a separate establishment to look after the investments in shares/funds. The assessee may be having substantial interest free own funds (in the form of capital/reserves and sur .....

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st bearing borrowed funds, are put into a common pool of funds, they will loose their distinction and all types of funds will be treated alike. In such a situation, the only way to ascertain the investments made from the borrowed funds, if any, is on a proportionate basis. Therefore, the interest expenses, which could not be directly linked to any activity, are to be treated as common interest expenses and considered in the step-2 of the formula given in Rule 8D for the purpose of attributing th .....

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ent Year 2008-09 . 18.4 According to the DRP, the disallowance of expenses u/s.14A r.w. rule 8D is in relation to the earning of the exempt income and not in relation to the exempt income earned as such. The disallowance of expenses is always in relation to the efforts made for earning such exempt income and not proportionate to the exempt income earned. It is particularly so because, in some years the income so earned may be less or nil. Therefore, the disallowance to be computed should always .....

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worked out proportionate to the investments made and the expenses (either direct or indirect) involved in the process, even if there are no such exempt income earned during the year. 18.5. It is seen from the P & L account that the assessee has several activities including investments in shares. For the purpose of making these investments etc. the same management, manpower, machinery and infrastructural facilities of the assessee are being used. Hence, there is an element of expenditure inv .....

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ses incurred in earning income which does not form part of total income, disallowance has to be made on some basis. Morezban Bharucha v. Asstt. CIT (2007) 12 SOT 133(Mum-Trib) : Where an expenditure is composite one, i.e., relating to taxable receipts as well as non-taxable receipts, Assessing Officer is duty-bound to disallow proportionate amount of expenditure relatable to nontaxable or exempted income by invoking provisions of section 14A. 18.6 According to the DRP, in order to arrive at a re .....

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d and introduced the Rule-8D. 18.7 It was observed by the DRP that the AO has analyzed the assessee s activity of investing in shares and observed that there will be some element of expenditure, both in terms of financial burden (interest element) as well as in terms of use of manpower and infrastructural facilities in making the investments in shares/funds. Hence, there was a satisfaction of the AO that there was some element of expenses incurred by the assessee in relation to the investments i .....

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are invoked, the AO has no option but to arrive at the expenses @ 0.5% as per step-3 of the formula which is mandatory. In fact, the AO in his order has clearly stated these facts before invoking the provisions of section 14A r.w.r.8D. Hence the AO rightly invoked Rule 8D and arrived at the disallowance of expenses u/s.14A r.w.Rule 8D. 18.9 In view of the above, the DRP observed that the AO s action of determining the expenses attributable for earning exempt income at ₹ 1,44,50,789/-, u/s. .....

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y interest income with interest expenditure. If netting of interest income is allowed, it would be equivalent to adding something which is not there in the Rule book, accordingly impermissible. Thus, we uphold the AO s application of Rule 8D(2)(ii) read with sec.14A on gross interest, through AO did not consider interest receipts as income from other sources ; the treatment of interest by AO would not change the nature of transaction or character of receipts. Accordingly, we reverse the finding .....

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Pvt. Ltd. In ITA Nos.2102 & 2103/Mds/2015 dated 8.1.2016, wherein it was held as under : 5.1 Coming to the merits of the issue regarding disallowance u/s.14A r.w. Rule 8D of the I.T.Rules, in our opinion, similar issue was considered by this Tribunal in the case of ACIT v. M/s. Best & Crompton Engineering Ltd. in ITA No.1603/Mds/2012 dated 16.7.2013, wherein it was observed that interest on borrowings used for the business purpose cannot be considered for the purpose of computing disallo .....

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f Income Tax (Appeals) held as under:- 5.2.1 Having held that provisions of rule 8D are applicable, let us now examine whether the amount has been correctly quantified. The AO had calculated the disallowance at Rs. Nil, Rs. 1,04,38,000/- and Rs. 26,87,000/- under (i), (ii) & (iii) of rule 80 (2)respectively. There is no dispute regarding the first component, because it is Nil. With regard to the second component being the expenditure by way of interest which is not directly attributable to a .....

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have been utilized towards the same, then obviously they could not have been utilized for making any investments having tax-free incomes. From the copy of the sanction letters from State Bank of Bikaner & Jaipur it can be seen that the loan was granted with a specific requirement that the loan shall be utilized for purchase of imported machinery while in the case of loan from Federal Bank, it is seen that the loan was to be utilized for expansion of projects. Sanction of both these loans pr .....

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nted for specific projects/expansion and no amount from the same has been directly utilized for investments, then the first and second limb of rule 80 attributing the interest payments to the investments will not be applicable. Accordingly, interest on bank loan and term loan amounting to Rs. 67,92,000/- and Rs. 3,82,11,000/- respectively are to be excluded from the calculation to determine the disallowance under rule 8D(2)(ii). The AO is, therefore, directed to take into account only the remain .....

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these loans were specifically sanctioned for specific project and such loans were also used for the purpose for which they were sanctioned. In the circumstances, we find that the Commissioner of Income Tax (Appeals) has rightly excluded such interest from the purview of computation of disallowance under Rule 8D(2)(ii). 12. The decision of Calcutta Bench of this Tribunal in the case of Champion Commercial Co. Ltd. (supra) also supports the view of the Commissioner of Income Tax (Appeals). The Tr .....

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at the Assessing Officer and the CIT(A) have different approaches. This provision admittedly deals with a situation in which the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt . Clearly, therefore, this sub clause seeks to allocate common interest expenses to taxable income and tax exempt income. In other words, going by the plain wordings of rule 8D(2)(ii) what is sought to be allocated is expe .....

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f variable A embedded in formula under rule 8D(2)(ii) is clearly incongruous inasmuch while it specifically excludes interest expenditure directly related to tax exempt income, it does not exclude interest expenditure directly related to taxable income. Resultantly, while rule 8D(2)(ii) admittedly seeks to allocate expenditure by way of interest, which is not directly attributable to any particular income or receipt it ends up allocating expenditure by way of interest, which is not directly attr .....

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or factory building construction which clearly relates to the taxable income. The interest expenditure which is not directly attributable to any particular receipt or income is thus only Rs. 10,000. However, in terms of the formula in rule 8D (2)(ii), allocation of interest which is not directly attributable to any particular income or receipt will be for Rs. 90,000 because, as per formula the value of A (i.e. such interest expenses to be allocated between tax exempt and taxable income) will be .....

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e 8D(2)(ii) exist, out of total interest expenses, interest expenses directly relatable to tax exempt income are excluded, interest expenses directly relatable to taxable income, even if any, are not excluded. 14. The question then arises whether we can tinker with the formula prescribed under rule 8D(2)(ii) of the Income Tax Rules, or construe it any other manner other than what is supported by plain words of the rule 8 D (2)(ii). 15. We find that notwithstanding the rigid words of Rule 8D(2)(i .....

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icular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.) . Therefore, it is not only the interest directly attributable to tax exempt income, i.e. under rule 6D(2)(i), but also interest directly relatable to taxable income, which is to be excluded from the definition of variable A in formula as per rule 6D(2)(ii), and rightly so, because it is only then that common interest expenses, which are to be allocated as indirectly relatable to taxable .....

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uld be difficult to allocate the actual quantum of borrowed funds that have been used for making taxfree investments. It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt (for example- any aspect of the assessee's business such as plant/machinery etc.)…&helli .....

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cability of formula set out in rule 8 D(2)(ii), and based on such a stand constitutional validity is upheld by Hon ble High Court, it cannot be open to revenue authorities to take any other stand on the issue with regard to the actual implementation of the formula in the case of any assessee. Viewed thus, the correct application of the formula set out in rule 8D(2)(ii) is that, as has been noted by Hon ble Bombay High Court in the case of Godrej and Boyce (supra), amount of expenditure by way of .....

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located under rule 8D(2)(ii). 17. To the above extent, therefore, we have to proceed on the basis that rigour of rule 8 D (2)(ii) is relaxed in actual implementation, and revenue authorities, having taken that stand when constitutional validity of rule 8 D was in challenge before Hon ble High Court, cannot now decline the same. Ideally, it is for the Central Board of Direct Taxes to make the position clear one way or the other either by initiating suitable amendment to rule 8D(2)(ii) or by adopt .....

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dance with the strict wording of rule 8D(2)(ii), we have to hold that, for the reasons set out above, this rigid stand cannot be applied in practice. 13. In view of the decision of the Calcutta Bench of this Tribunal cited above, we uphold the order of the Commissioner of Income Tax (Appeals) in excluding the interest on bank loan and term loans for the purpose of computing disallowance under Rule 8D(2)(ii). The grounds raised by the Revenue are rejected on this issue. 21.1 In view of the above .....

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Mds./15 & 1578 to 1579/Mds/15 wherein held that:- 12. We have considered the rival submissions on either side and perused the relevant material available on record. The main contention of the assessee is that the available share capital including reserves and surplus was (2385.7 Crores as on 31.03.2010. The available share capital is (1970.4 Crores and Reserves and surplus is ( 21,886.7 Crores. The investments made in mutual funds including subsidiary companies are only ( 541.11 Crores. Ther .....

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e borrowed funds and investment made by the assessee in the share capital and mutual funds. In the absence of any nexus, the presumption is that the assessee has invested the available interest-free funds in share capital and mutual funds. Furthermore, making investment in sister concerns is for commercial expediency in view of the judgment of Apex Court in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1. It is not the case of the Revenue that the sister concern or any of the Directors has misused th .....

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ition made by the Assessing Officer is deleted. 21.3 Further, we also make it clear that the own funds which is in the form of share capital and reserves and surplus, which was available to the assessee to make investments which is yielding exempted income have no cost and therefore, it is to be given due weightage while applying the formula of Rule 8D. This view of ours is fortified by the order of the co-ordinate Bench in the case of Beach Miners Co. Pvt Ltd. Vs. ACIT in ITA No.2110/Mds./14 da .....

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unds by which the investment is made is assessee s own funds. Further, these investments are made only with sister companies of the assessee and no cost can be attributed for the management of such funds. Therefore, we hereby delete the addition of ( 3,11,34,630/- made by the Ld. Assessing Officer invoking the provisions of section 14A of the Act. This ground raised by the assessee is allowed in its favour. 21.4 In view of the above judgments, the AO has to consider the assessee s own fund i.e. .....

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he Act of ₹ 17,63,24,330/- and ignoring the direction of the DRP without verifying the facts on records. 23. We have heard both the parties and perused the material on record. This issue came for consideration in assessee s own case in I.T.A.No.1159/Mds/2012 challenging the action of the CIT(A) in restricting the assessee s claim of relief u/s 90 of the Act of ₹ 224,67,411/- to the extent of tax payable in India on net income of ₹ 516,93,732/- i.e difference between interest ea .....

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e branches in the other contracting states i.e the source country, credit of such taxes shall be given. Thereafter, the Tribunal in this case remitted the issue to the file of the Assessing Officer to decide afresh in the light of the above order of the Tribunal in the case of Bank of Baroda in I.T.A.No.2927/Mum/2011 dated 25.7.2014. Later assessee filed MA in MA Nos. 95 & 96/Mds/2016 stating that the direction given by the Tribunal is not appropriate. Since the assessee has no income from a .....

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the extent the tax was paid in foreign country. In other words, once the income is included either in the Profit & Loss Account or in the return of income, the corresponding tax credit on the same income has to be given. Accordingly, we are of the opinion that there is no need of apprehension for the assessee that the Assessing Officer will misinterpret the order of the Tribunal. Therefore, we do not find any merit in the argument of the ld. AR. Accordingly, the miscellaneous petition is di .....

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rse of business. 25. Regarding the proposed disallowance of expenses of ₹ 57,46,43,000/- is concerned, the facts are that the assessee borrowed funds from banks/other financial institutions and advanced to its subsidiary concern M/s. Aban Holdings Pte. Ltd, Singapore. The total amount of term loans availed by the assessee (as on 01.04.2009) was ₹ 2773 crores, out of which an amount of ₹ 1760 crores was advanced to M/s. Aban Holdings Pvt. Ltd, Singapore. The total interest paid .....

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d the post conversion. As per the details furnished by the assessee, ₹ 57,46,43,700/- pertains to the post conversion (into equity) period, and the balance pertains to the period where the amounts were remaining as loans only. Hence the Assessing Officer proposed to disallow ₹ 57,46,43,700/-, as it represents expenses on the loans for purchasing equity of another company, where the expenses becomes capital expenses, by relying on the decision of the jurisdictional High Court in the c .....

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The assessee's business is offshore drilling activities. Therefore only the expenses incurred in relation to the offshore drilling are to be allowed as business expenses. The loans advanced (or the investments) to the subsidiary company will not form part of the business of offshore drilling, even if the subsidiary is engaged in the same line of business. If the assessee claims that the investments itself is a separate business activity, then the resulting gains from such investments should .....

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'business activity'. 26.1 The DRP, further observed that each and every activity, which is aimed at earning income, either directly or indirectly, immediately or on a long run, is a business activity. But, when it comes to Income Tax Act and for the purpose of determining tile allowability or chargeability to tax, the same is governed by various provisions of the Income Tax Act. As per the Income Tax Act, all the incomes and their sources are to be classified into one of the five heads .....

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ity for general purposes like registration of the firm, etc. [as held by the High Court of Karnataka in the case of 'Balaji Enterprises Vs. ClT, [225 ITR 471]. However, when it comes to assessability of rental incomes, the same (rental income) is to be assessed under the head 'income from house property' (The head note given in the case of Balaji Enterprises cited supra, is not correct. The actual judgment is to be seen). Further, the Supreme Court in the cases of East India Housing .....

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re : i) Whether it is incurred during the course of business and for the purpose of business. ii) The business process, in relation to which the expenses are incurred / claimed, is capable of generating income. iii) Whether income so generated (or likely to be generated) is assessable to tax. iv) If assessable to tax, whether assessable under the head 'income from business / profession' and v) In whose hands the said income is assessable. Further, if a particular income is assessable und .....

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wn status. Further, M/s. Aban Holdings Pte Ltd., Singapore, being a foreign company is not assessable tax in India, but under the laws in Singapore. In other words, the income earned by the said subsidiary is assessable in the hands of the said subsidiary company only (that too in Singapore) and not in the hands of the instant assessee. 26.5 It is also observed by the DRP that there should be "principle of matching" between the expenditure incurred and income earned/accrued. Any expend .....

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siness can never be deduced or computed. 26.6 When the resulting income (whether in the current year or likely to be in future years) is likely to be in the hands of some other person (the subsidiary company in the present case), there is no provision in the I.T.Act which permits the allowability of such expenses in the hands of the holding company. Also, one has to remember that like every assessment year is independent, every assessee is separate and independent from each other. Hence, any exp .....

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not well founded. The DRP observed that, each assessment year and every assessee is independent. The income earned by a person is to be assessed in the hands of that person only. Further, how the ultimate benefits from the subsidiary companies will reach the assessee? These benefits will be either by way of dividends or by way of appreciation in the value of shares (held by the assessee in the subsidiary companies). If the assessee gets the benefit by way of dividends, the same goes to the head .....

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ins, no other expenses (especially, the present claim of expenses) are allowable. Therefore, the DRP observed that the present claim of interest expenses by the assessee is not allowable in the hands of the assessee, in any manner. 26.8 According to the DRP, in order to make the expenses eligible to be claimed as expenditure under the head 'income from business', under sections 28 to 37 of the I.T. Act, the expenditure must have been incurred wholly, solely and exclusively for the purpos .....

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ee. 26.9 The assessee further claimed before the DRP that the investments in the subsidiary company were [or the furtherance of its business activities. The assessee also relied on certain case laws, wherein it was held that protection of the assessee's interest in the group companies is a business activity and any expenses incurred in that connection, is allowable expenditure. This argument of the assessee is also not well founded. It is observed by the DRP that protecting the interest of t .....

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t under the provisions of Income Tax Act, each assessee and each assessment year is independent. If the expenses incurred are in relation to a business activity, whose resulting income is assessable to tax in the hands of some other person, are to be allowed in the hands of the assessee, the very purpose of principles of matching in accountancy and the concept of "independence of each assessee and every assessment year" will be defeated. If this is permitted, the expenses of one assess .....

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und that investments in the subsidiaries and making them viable itself is the "business model" in its case. 'The Assessing Officer disallowed the expenses as the expenses are not going to result any income, which is assessable under the head income from business in the hands of M/s. IFMR Trust. The CIT(A) confirmed the disallowance of expenses made by the Assessing Officer. On further appeals by the assessee, the Tribunal vide order dated 7.7.2014 in ITA No. 1035/Mds/2013 held that .....

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sides in detail. It is admitted that the assessee is a private trust formed with the object of carrying on certain specific targets. The activities of the assessee trust is to identify the sectors, where small entities can be set up especially stressing on the requirement of rural population. The assessee is selling up such micro units in different sectors and handing over to the entrepreneur's to carry on such units in a viable manner. The main object of the assessee trust is the ultimate f .....

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ee trust, we find that incubation expenses, consultancy, legal and professional charges are all incurred for conducting studies and research in setting up of individual productive units in different sectors. In fact, the assessee is creating productive assets for its subsidiary units. The assessee is engaged in the process of asset creation for such units, so that they may survive and flourish thereon. The assessee is not carrying on any other activities by themselves. The assessee is acting as .....

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t possible to accept the argument of the learned senior counsel that the assessee is carrying on the business of "business of investment". The assessee is not carrying on any activities of investment as already stated. The assessee trust is carrying on its activities as an organizer, as a provider and as a facilitator. Its main objects are not corporeal / physical; rather its objects are supportive. The assessee is striving for financial inclusion and. market inclusion. It does not car .....

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to the establishing the subsidiary company and/or making the subsidiary company operational/viable, the interest expenses under consideration are attributable to the concerned subsidiary company only and not in relation to the earning of any income in the hands of the instant assessee company. In other words, there is no link or nexus between the assessee's incurrence of the expenses and the receipts accounted in the profit and loss account, during the year under consideration. Hence, it is .....

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he action of the AO in proposing in the draft assessment order to disallow the interest expenses of ₹ 57,46,43,700/- was confirmed by the DRP. Consequently, the AO passed the final assessment order. Against this, the assessee is in appeal before us. 27. The ld. AR submitted that the assessment company has invested share capital in its wholly owned subsidiary, M/s. Aban Holdings Pte. Ltd., Singapore, which is engaged in the similar line of business. He submitted that the investment was made .....

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t equity ratio. iv) The investment is made in subsidiary in order to facilitate them to raise money in their home country. It is pertinent to mention here that cost of borrowing for the assessee to invest in the subsidiary would have been substantially higher in India rather than borrowings at subsidiary level outside India. This has saved asssessee s costs resulting into higher profits and benefits to the assessee. v) The growth of the subsidiary ompany results in growth of overall wealth of th .....

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iness and c) Interest should have been paid on the borrowing. 27.1 Further, the ld. AR placed reliance on the following decisions: (i) In the case of Hero Cycles Pvt. Ltd. V. CIT (63 Taxmann.com 308)(SC), the Supreme Court held that the provisions of sec.36(1)(iii) are not applicable once it is established that the loan is given to a subsidiary for its business purpose. (ii) In the case of SA Builders Ltd. V. CIT (288 ITR 1)(SC), it was held by the Supreme Court that when the assessee has advanc .....

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ly proves that the assessee has given advances and investments made in AE is out of the interest free funds the interest expenditure claimed by the assessee should not be disallowed. (iv) The Delhi High Court in the case of CIT v. Dalmia Cement (P) Ltd.(121 Taxman 706), held that if all requisite conditions for allowance of interest are fulfilled, it is not open to revenue to make a part disallowance, unless there is a positive finding recorded that a part of amount borrowed is not used for purp .....

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re an amount was advanced to sick subsidiary company out of borrowed funds on account of commercial expediency, as well as in accordance with orders of BIFR, interest on loan could not be disallowed under section 36(1)(iii) on ground that it was not utilized for purpose of assessee s business. (vii) The Tribunal, Hyderabad Bench in the case of Ambience Properties Ltd. Vs. DCIT in ITA No.58/Hyd/2013 dated held that if the assessee has advanced the amounts to the subsidiaries in view of the commer .....

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advanced to sister concerns and interest incurred on borrowings, notional interest cannot be disallowed on ground of non-utilization for purpose of business. (ix) The Tribunal in the case of Toll (India) Logistics (P) Ltd. V. DCIT(48 Taxmann 78), has held that where assessee had advanced interest free loan to its subsidiary company as a measure of commercial expediency and funds were used by subsidiary for purpose of business only, no disallowance of interest under sec.36(1)(iii) of the Act on .....

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eld to be personal diversion of funds and interest paid on such funds could not be disallowed. (xi) The Madras High Court in the case of Premier Poly Sacks P. Ltd. (321 ITR 450), has held that the AO has disallowed @ 18% interest on borrowed capital stating that investment was not relating to the business. But the Tribunal stated that assessee would get orders from the company for existence and investment made is of commercial interest therefore deleted the addition. The High Court also contende .....

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reme Court in the case of CIT v. Rajendra Prasad Moody (115 ITR 519) held that it is not necessary that any income should in fact have been earned as a result of expenditure. Therefore, interest paid on money borrowed for investment in shares, which had not yielded any dividend, was admissible u/s.57(iii). (xiv) The Bombay High Court in the case of CIT v. Modi (P) Ltd. (79 Taxmann 428) held that interest paid by an assessee on borrowings for purchasing shares from which assessee expected to rece .....

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s and perused the material on record. The question involved in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In this connection, we refer to s. 36(1)(iii) of the IT Act, 1961 which states that "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the income-tax under s. 28 of the Act. 29.1 In our considere .....

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o share capital. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 29.3 In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. 36(1)(iii) because in s. 37 also the expression used is "for the purpose of business". It has been consistently held in decisions relating to s. 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial ex .....

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1 (SC), CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), SA Builders Ltd. v. CIT (supra) etc. 29.5 In our opinion, the lower authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the lower authorities should have enquired as to whether the interest-free loan was given to the sister company which is a wholly owned subsidiary of the assessee as a measure of commercial expediency, and if it was, it should .....

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ld be for commercial expediency if it is sought to be allowed under s. 36(1)(iii) of the Act. 29.8 In the present case, the lower authorities have not examined whether the amount advanced to the sister-concern was by way of commercial expediency. It has been repeatedly held by Supreme Court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), .....

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o its sister-concern and later converted into share capital. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister-concern as a measure of commercial expediency. 30. The Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. 254 ITR 377 (Del) is applicable to the facts of the present case, wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business (w .....

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ust not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister-concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Further, it is also to be noted that the income earned by the assessee from foreign subsidiary is taxed in India which is evident from the income offered by the assessee in its return of .....

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31. We find that the reliance placed on by the ld. DR on the judgment of Madras High Court in the case of Trishul Investments (supra) is misplaced. The main contention of the ld. DR is that the interest expenditure on borrowings used for investment in wholly owned subsidiary cannot be allowed as deduction u/s.36(1)(iii) of the Act instead it should be added to the cost of investment, in view of the above judgment of the Madras High Court. In our opinion, when activity is undertaken as an invest .....

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ized as part of the investment in shares. The contention of the DR was that it is to be added to the cost of the investment so as to increase the value of the capital asset. 31.3 In the present case, there is no dispute that the assessee has borrowed funds for the purpose of investment in shares and thereafter the assessee has incurred interest on it. In our opinion, the interest is to be considered as part of the cost of investment till date of acquisition and interest paid by the assessee comm .....

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According to this section, the only deductions which are allowable are - (1) the cost of acquisition of the asset, (2) the cost of any improvement thereto and (3) expenditure incurred wholly and exclusively in connection with the transfer of the asset. The cost of acquisition, in our opinion, means the amount paid for acquiring the asset. Once the asset is acquired, then any expenditure incurred thereafter cannot be considered as the cost of acquisition, since such expenditure would not have any .....

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ot;, the deduction account of interest on borrowed fund is provided under section 36(1)(iii) the Act, where the business assets are acquired out of borrowed funds. At this stage, it may be pertinent to note that depreciation is also allowable as deduction under section 32 in respect of business assets on the cost of acquisition. In determining the cost of acquisition, the interest component after bringing the asset into existence is not taken into consideration as Explanation 8 to section 43 of .....

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e as deduction against dividend income. The Supreme Court has gone a step further in the case of CIT vs. Rajendra Prasad Moody [1978] 115 ITR 519, wherein it has been held that deduction on account of interest paid on borrowed funds is allowable as deduction in computing the income under the head Income from other sources , even where the dividend is not received in a particular year. If this is the legal position, then we are afraid, how the interest paid by the assessee can be considered as pa .....

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te of sale cannot be treated as the cost of acquisition. It is only allowable as a revenue deduction on year to year basis against the income generated from such asset or likely to be generated to the extent provided by the Legislature under different heads. 31.6 The above view is also fortified by the decision of the coordinate Bench of the Tribunal in the case of Macintosh Finance Estates Ltd. vs. ACIT(12 SOT 324), wherein it has been held "once we find that interest expenses is an allowa .....

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the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets . 31.7 A bare look at the above observations reveals that actual cost would include all expenditure necessary to bring the assets into existence and put them in working condition. Nowhere in the above observations, the Supreme Court held that the expenditure incurred after the acquisition of asset would be included in the cost of assets. The terminal poi .....

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pitalized, has to be added to the cost of asset for the purpose of deprecation. 31.8 Thus in our opinion if the money was borrowed for purchase of shares of subsidiary company for the purpose of acquiring controlling interest and acquisition of such controlling interest was of thebusiness of the assessee and it resulted in promote the business of the assessee as well as helpful to the assessee for having management control oversaid such subsidiary company, then the interest expenditure should be .....

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investment of own fund. It is also to be noted that while computing disallowance if any u/s.36(1)(iii) of the Act, interest considered for disallowance u/s.14A of the Act was required to be excluded. With this observation, we restore the issue to the file of the Assessing Officer for fresh consideration after necessary examination and after allowing opportunity of hearing to the assessee. In the result, ITA No.585/Mds/2016 is partly allowed for statistical purpose. ITA No.927/Mds/15. 32. The fir .....

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antee to the AEs and the resulting adjustments proposed by the TPO are that the adjustments proposed by the TPO are on account of the service charges/commission of the guarantee extended to the AEs. The assessee extended guarantee of US $ 462.24 Million (= ₹ 2166.89 crores) to its AEs, but has not charged any commission on the guarantee extended. Hence, after verifying the assessee's submissions the TPO has determined based on the risks assumed and functions of the assessee, that 1% ra .....

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v. JCIT (ITA No.513/Mds/2014). 33.2 The DRP observed that the assessee is found to have extended corporate guarantees to its AEs during the year without receiving any service charges / commission from the said AEs. Hence, the TPO considered 1% of the corporate guarantee as service charges / commission and determined the ALP accordingly. 33.3 Further, the DRP observed that the issue of determining the ALP on corporate guarantee has already been examined by the Tribunal, Chennai Bench in the case .....

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involve any cost to the assessee and, therefore, it is not "an international transaction", even under the definition of the said term as amended by the Finance Act 2012. This is because, the guarantee provided by an assessee does not have any bearing on profits, income, loss or assets of the assessee. 95. In view of the nature of corporate and bank guarantees given by the assessee company and in the light of the above order of the ITAT, Delhi Bench, we hold that the TP addition made ag .....

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8,13,99,814/- was deleted by the DRP. Against this, the Revenue is in appeal before us. 34. We have heard both the parties and perused the material on record. Admittedly, this issue came for consideration before this Tribunal in the case of Redington, cited supra, and held that guarantees will not constitute international transaction for the purpose of determining ALP. Being so, following the order of the Tribunal, this ground of appeal of the Revenue is to be dismissed. The contention of the ld .....

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ch is staring at us and it is to be followed on this issue instead of the decision of Mumbai Bench. More so, the decision in favour of the assessee is followed in view of judgment of Vegetable Products (88 ITR 192)(SC). 35. The next ground is that the DRP has erred by contending that foreign currency neither a share/stock nor a commodity for the purpose of sec.43(5) of the Act and by extension the transactions of foreign exchange contract cannot be viewed as speculative transaction and the conse .....

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ellation of forward contracts. The Assessing Officer opined that the cancellation of forward contracts are speculative transactions u/s. 43(5) of the Act and the result losses are speculative losses. Hence he disallowed the same and added to the total income. 36.1 Before the DRP, the assessee company submitted that the 'forward contracts are entered into by the assessee to reduce the incidence of unforeseen losses and depreciation of rupee value thereby protecting the interests of business. .....

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of sec.43(5) of the Act. Therefore, the transactions of foreign exchange contracts cannot be viewed as speculative transactions. Consequently, assessee s losses from the forward contract transaction is not a speculative losses for the purpose of sec.43(5). Therefore, the AO is not justified in treating the losses from the forward contract transaction as speculative losses. The AO is directed to consider the losses from the forward contract transactions as regular business losses and allow their .....

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case of DCIT vs Asvini Fisheries P. Ltd in I.T.A.No. 2246/Mds/2014 and the Tribunal vide its order dated 18.12.2015 has observed as under: 4. We have heard both the parties and perused the material on record. Similar issue was considered by this Tribunal where one of the Members is a party, in the case of M/s Majestic Exports vs The Joint CIT in I.T.A.Nos.1336 and 3072/Mds/2014, dated 24.7.2015, wherein it has been held as under: 7. We have heard both the parties and perused the material on rec .....

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come of the assessee. According to the ld. Authorised Representative for assessee, the derivative transaction cannot fall under sec.73. Explanation to sec.73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meaning of sec.73 of the Act, notwithstanding the fact that the definition of speculative transaction mentio .....

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tions are having the same meaning, so far as sec.43(5) of the Act is concerned. Again, in view of the fact that both delivery transactions and derivative transactions are non-speculative as far as sec.43(5) is concerned, it follows that both will have the same treatment as far as application of Explanation to sec.73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to sec.73 is applied. The above view has .....

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at both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of speculative transaction exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which .....

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) wherein held as under:- Clause (d) of Section 43(5) became effective with effect from 1st April, 2006. Therefore, prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction. Sub-section 1 of Section 73 provides as follows: (1) Any loss, computed in respect of a speculation busines .....

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een dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arise whether the losses arising out of the dealings and transaction in which the assessee did not ultimately take delivery of the shares or give delivery of the shares could be set off against the income arising out of the dealings and transactions in actual buying and selling of shares. An answer to this question is to be .....

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d to be carrying on a speculation business to the extent to which the business consists of the purchase. In order to resolve the issue before us, the section has to be read in the manner as follows: Explanation : Where any part of the business of a company (… … … … … … … … … … … … … … …. … … … … … …. … … … … … &helli .....

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f the purchase and sale of such shares. It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and .....

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pra, the issue stands covered in favour of the assessee. However, we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative tran .....

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ansactions entered into by it were not speculative transactions. ITAT found that the amount involved in the forward contract (FC) was more than 100% of the turnover of the assessee, that FC were not relatable to specific bills, that the assessee had not related any single bill to any of the contract and had not provided any purchase order during the assessment or appellate proceedings. ITAT found that in the case under consideration assessee was not dealing in Foreign Exchange, therefore transac .....

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pon him by the statute. It was also not able to contradict the finding of fact that booking and cancellation of FC of foreign exchange were not in respect of specified export or import. Besides, finding of fact given by the Revenue Authorities remained un-contravened that loss in question, shown by it pertained to those FC transactions, against which no actual delivery of foreign exchange was made. On appreciation of the facts surrounding the transaction ITAT had reached at the conclusion that t .....

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ansactions relatable to Foreign Exchange. ITAT was of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. Therefore, considering the peculiar facts and circumstances of the case, ITAT confirmed his order FAA and decide effective ground against the assessee. 6. In view of the above orders of the Tribunal, we are of the opinion that the Assessing Officer has to consider the foreign exchange derivative in proportion to export turnover as regular business trans .....

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that transaction should be taken out for the purpose of considering the business loss and only the transactions which are completed to be considered for the purpose of determining the business loss from these foreign exchange forward contract. With this observation, we remand this issue to the file of the Assessing Officer for fresh consideration. 7. Before us, the ld. Representative relied on the judgment of Gujarat High Court in CIT vs Friends and Friends Shipping P. Ltd, [2013] 217 Taxman 26 .....

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n in the case of Araska Diamond P. Ltd, 152 ITD 203, and after following the judgments of Calcutta High Court in the case of Bengal & Assam Co. Ltd vs CIT 227 CTR 399, and Bombay High Court judgment in the case of CIT vs Badridas Gauridu P. Ltd 261 ITR 256, the Tribunal came to the conclusion that the transactions, which were prematurely cancelled, cannot be considered as business transaction and it is to be considered as speculative transaction. 12. In view of the above order of the Tribuna .....

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oss arising out of hedging contracts entered into by the assessee in the course of business has to be allowed as business loss and not to be considered as speculation loss. While holding so, the Tribunal has placed reliance on various decisions of Co-ordinate Bench including the decision in the case of M/s Majestic Exports vs JCIT in I.T.A.Nos.1336 & 3072/Ms/2014, dated 24.7.2015. Before us also, the Ld. AR placed his reliance on the decision in the case of Majestic Exports (supra) and reque .....

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directions. 38.2 In the result, the appeal of the assessee in ITA No.585/Mds/15 and the appeal of the Revenue in ITA No.927/Mds/15 are partly allowed for statistical purposes. ITA No.267/Mds/16 39. At the time of hearing, the ld. AR submitted that the assessee did not press the following grounds and the same is dismissed as not pressed : 1. Erred in law by making a reference to the TPO without meeting the preconditions for such reference under section 92CA of the Act. 2. Ought to have appreciate .....

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rious rebuttals and has mechanically accepted the conclusions stated in the TPO s order. 40. The next ground is with regard to disallowance of management fees paid to India Offshore Inc., USA of ₹ 28,44,58,896/-. 41. This issue is covered by the order of the Tribunal in ITA No.585/Mds/2015 in earlier para. Following the same, this issue is allowed. 42. The next ground is with regard to upholding adjustment of ₹ 1,95,81,130/- towards charges on corporate guarantee issued on behalf of .....

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We remit this issue to the file of the Assessing Officer on similar line. 46. The next ground is with regard to disallowance of tax credit u/s.90 of the Act. 47. This issue is disposed of as discussed in earlier para for the assessment year 2010-2011. We remit this issue to the file of the Assessing Officer on similar line. 48. The next issue is with regard to disallowance of interest u/s.36(1)(iii) of the Act. 49. This issue came for consideration before this Tribunal for the A.Y. 2010-2011. A .....

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