TMI Blog2019 (6) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... as been unable to draw our attention to any distinguishing facts as compared to that in the preceding years and has been unable to controvert the factual contention of the assessee. In view of the same, we hold that the issue stands squarely covered by the decision of the I.T.A.T. in the preceding years, following which we uphold the order of the Ld.CIT(A) in deleting the disallowance of interest expenses made u/s 14A of the Act . Administrative expenses disallowance CIT(A) has not mentioned any fact regarding satisfaction of the AO that there was connection between expenses incurred by the assessee and earning of exempt income. Even the ITAT, we find, had upheld the deletion of disallowance of administrative expenses on this account ,finding absence of satisfaction recorded by the AO vis a vis the incorrectness of the claim of the assessee of having incurred no expenses. We therefore hold that the issue of disallowance of administrative expenses cannot be treated as covered by the order of the ITAT in the preceding years in the case of the assessee, in the absence establishment of identity of facts with the preceding year. The issue is therefore restored back to the CIT(A) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing the claim of interest expenses incurred on FCCB Addition on account of non reconciliation of the account of one M/s ACE Building Technologies Pvt. Ltd. - admission of additional evidence - HELD THAT:- Undoubtedly, the copy of the account of M/s ACE Building Technologies Pvt. Ltd. (supra) submitted by the assessee during assessment proceedings explained the reason for the difference in the balance reflected of the said party in the books of the assessee and as reflected in the books of M/s ACE Building Technologies Pvt. Ltd. (supra). Interest of justice demanded that the same be admitted and considered for adjudicating the issue. Moreover, we find that the books of accounts of the assessee in any case, were produced during assessment proceedings. Therefore, we fail to understand how a copy of the account of the party for the impugned year reflecting the debit notes issued to it, constituted additional evidence - restore the issue back to the Ld.CIT(A) with direction to adjudicate the same in the light of the evidence filed by the assessee. - ITA No.837/Chd/2018, ITA No.1062/Chd/2016, C.O. No.39/Chd/2016 In ITA No.1062/Chd/2016 - - - Dated:- 21-6-2019 - SHRI SANJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at a premium of 3.26% within the stipulated period. The assessee had claimed the premium payable on the redemption of the said bonds as a reduction from the share premium account in its Balance Sheet, but in the computation of income accompanying the return of income, the same was reduced from the income on which the tax was payable, claiming it as a revenue expenditure. The entire amount so claimed, amounting to ₹ 1,75,72,704/-, was disallowed by the A.O., on the ground that the said expenditure was capital in nature. This was upheld by the Ld.CIT(A) following the orders passed by the First Appellate Authority in the case of the assessee itself in subsequent assessment years i.e. assessment years 2011-12 and 2012-13. 7. Before us, the Ld.Counsel for the asssessee at the outset pointed out that identical issue had been dealt with by the ITAT Chandigarh Bench in the case of Vardhman Textiles Ltd. Vs. Addl.CIT in ITA No.787/2015, 894/2015, 483/2016 and 518/2016 dated 14.3.2019 holding the premium on FCCB bonds to be revenue in nature. Reliance was also placed on the decision of the I.T.A.T., Hyderabad Bench in the case of Gati Ltd. Vs. ACIT in ITA No.1467/2017, dated 20.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le foreign currency bonds as Revenue expenditure. 21. The Ld. Counsel for the assessee in this respect has relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT Patiala Vs. Industrial Cables (P) Ltd . reported in (2007) 162 taxman 272 (P H), wherein, the issue is as to whether the premium paid on expiry / redemption of debentures was to be treated as capital expenditure or Revenue expenditure. The Hon'ble Court while relying upon the other case laws held that the said premium paid by the assessee on redemption of debentures as Revenue expenditure. The Ld. counsel has further relied upon the decision of the Hon'ble Supreme Court in the case of Taparia Tools Ltd Vs. JCIT (2015) 7 taxman 361 wherein, the Hon'ble Supreme Court has held that such type of premium / interest paid to debenture holders was to be allowed as Revenue expenditure in the year of payment itself. Admittedly, in the year under consideration, the assessee has booked the aforesaid expenses payable which was paid in the assessment year 2011-12. In view of this, the said expenditure is to be allowed in the year of payment. Subject to the above observation, this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,05,11,097/- was made u/s 14A of the Act. 15. The Ld.CIT(A) deleted the disallowance on finding that identical disallowance made in the preceding years i.e. A.Y. 2008-09 to 2010-11 had been deleted in appeal by the Ld.CIT(A). 16. Before us, the Ld.Counsel for the asssessee at the outset pointed out that the matter had travelled up to the I.T.A.T. in the preceding years since the Department had gone in appeal against the order of the CIT(A) deleting the disallowance and the I.T.A.T. had in turn upheld the order of the Ld.CIT(A) on finding that there were sufficient own funds available with the assessee for the purpose of making the impugned investment, thus raising the presumption that the own funds were used for making the investments, calling for no disallowance of interest expenses u/s 14A of the Act, and also in the absence of any satisfaction recorded by the AO as to the claim of the assessee of not having incurred any expenditure for earning exempt income, the disallowance of administrative expenses was also deleted. Our attention was drawn to the findings of the I.T.A.T. in this regard for assessment year 2008-09 in ITA Nos.372/Chd/2015 dated 19.4.2016 at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Supreme Court in Walfort Share Stock Pvt. Ltd. (supra). The decision was rendered on the issue of dividend stripping and while analyzing the issue the interpretation of section 14A of the Act came before the Apex Court. The finding given by the Hon'ble Supreme Court is that the expenses allowed can only be in respect of earning of taxable income. We do not have any quarrel with the said proposition and bow before the Hon'ble Supreme Court. However, this is what the purport of section 14A is, while the issue or dispute arises as to the computation of amount of expenses incurred in relation to exempt income only. Second case relied on by the learned D.R. is that of Special Bench of I.T.A.T. Delhi in Cheminvest Ltd. (supra). We would like to state here that the said order of the Special Bench of I.T.A.T. Delhi has been reversed by the Hon'ble Delhi High Court in ITA No. 749 of 2014 dated 2.9.2015, whereby it has been held very categorically that disallowance under section 14A of the Act cannot be made in the year in which no exempt income has been earned or received by the assessee. In all the orders of the I.T.A.T., Chandigarh Bench relied on by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had own funds in the form of share capital and reserves amounting to ₹ 17603.45 lacs and income of the year amounting to ₹ 3585.22 lacs, while the investments made amounted to ₹ 13260.07 lacs. The Ld. DR has been unable to draw our attention to any distinguishing facts as compared to that in the preceding years and has been unable to controvert the factual contention of the assessee. In view of the same, we hold that the issue stands squarely covered by the decision of the I.T.A.T. in the preceding years, following which we uphold the order of the Ld.CIT(A) in deleting the disallowance of interest expenses of ₹ 98,38,097/- made u/s 14A of the Act . 22. As for the administrative expenses disallowed amounting to ₹ 6,73,000/-,we find that the Ld.CIT(A) has followed the order passed by the first appellate authority in preceding assessment years on the issue of disallowance made u/s 14A , where the findings of the CIT(A) are that since the assessee has not incurred any expenditure for making investment in purchase of shares, no disallowance is warranted and further that no disallowance can be made without pointing out connection between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding years i.e. A.Y 2008-09 to 2010-11 had been deleted in appeal by the Ld.CIT(A). 27. We have heard the rival contentions . Admittedly disallowance of interest u/s 36(1)(iii) of the Act, has been made on investments in respect of which the interest expenditure incurred was disallowed u/s 14A of the Act also, though for different reasons. The disallowance of interest has been made u/s 14A of the Act attributing the same as having been incurred for earning exempt income in the form of dividend earned from the said investments. Under section 36(1)(iii) interest has been disallowed for the reason that the expenses were not found to have been incurred for the purpose of business of the assessee. In both the cases, however, interest expenditure incurred for making the investment has been disallowed . 28. Since we have held that no interest is to be disallowed u/s 14A of the Act , in the light of the fact that sufficient own funds were available with the assessee which raise the presumption that these interest free funds were used for making the investments, there remains no basis for making disallowance of interest expenses incurred for making the very same investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49,71,78,622/- only. It was stated that in the judgments of Jurisdictional High Court in the case of Bright Enterprises (supra) and Kapsons Associates Investments P. Ltd. (supra), it has been categorically held in the context of section 36(1)(iii) that in the presence of sufficient owned funds with the assessee, it can be presumed that the investments have been made out of owned funds and no borrowed funds have been used in the same. In view of this, it was prayed that the action of the learned CIT (Appeals) in deleting the disallowance under section 36(1)(iii) of the Act may be confirmed. 18. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. From the perusal of record and submissions given by the learned counsel for the assessee, there is no dispute to the fact that the assessee is having more than sufficient owned funds much larger than the total investments made in the share capital of the subsidiary companies. Therefore, we are in agreement with the arguments of the learned counsel for the assessee in view of the judgment of the Jurisdictional High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act on finding that the assessee had sufficient own funds available for the purpose of making the impugned investment. In the impugned case also, the Ld.Counsel for the asssessee demonstrated that the assessee had own funds in the form of share capital and reserves amounting to ₹ 17603.45 lacs and income of the year amounting to ₹ 3585.22 lacs, while the loans/advances made amounted to ₹ 377.85 lacs (161.73 lacs + 216.12 lacs). The Ld. DR has been unable to controvert the factual contention of the assessee. In view of the proposition applied in the preceding years by the ITAT and considering the fact that sufficient own funds were demonstrated to exist by the assessee, we see no reason to uphold the disallowance of interest u/s 36(1)(iii) of the Act. We therefore uphold the order of the Ld.CIT(A) deleting the disallowance of interest expenses made u/s 36(1)(iii) of the Act amounting to ₹ 28,51,182/-. Ground of appeal No.3 raised by the Revenue is, therefore, dismissed. 38. Ground Nos.4 and 5 raised by the Revenue relate to the same issue of disallowance of interest expenditure incurred on Foreign Currency Convertible Bond (in short FCCB ) and read as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign Currency Convertible Bond of ₹ 1,20,92,984/- besides premium payable on redemption of ₹ 1,76,13,971/-. The break-up of interest .and premium payable on redemption was duly produced before the Assessing Officer. The copy of account of interest payment and TDS deposited was filed. The Assessing Officer has discussed the issue of premium on redemption of FCCB and has treated it as a capital expenditure but while making the addition on the said account, has added the component of interest on FCCB also, without discussing the same. The same was not disputed/ questioned by the Assessing Officer as such. Only the premium payable on FCCB has been discussed in the assessment order and not the issue of interest thereon. The FCCB has not been converted into equity share. The company was paying interest to the bond holders. The FCCBs/ were having coupon interest rate of 2% calculated and paid on semi-annual basis/ The appellant company was bound to discharge its obligation of paying the interest on the due dates. The conversion of FCCB into the capital of the company on the consent of the bond holders, when they exercise their option, is a future event. According to the AR, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans taken by it in the form of bonds, we find is correct. The Ld. DR has been unable to draw our attention to any infirmity in the findings of the Ld.CIT(A) in this regard. Further the Ld. DR has been unable to draw our attention /point out, as to why the assessee s claim of interest expenditure was disallowable. In view of the same, we have no hesitation in upholding the order of the CIT(A) in allowing the claim of interest expenses incurred on FCCB amounting to ₹ 1,20,92,984/-. The ground of appeal No.4 and 5 raised by the Revenue are dismissed. In effect, the appeal of the Revenue is partly allowed for statistical purposes. 43. We shall now deal with the assessee s Cross Objection of the assessee in C.O.No.39/Chd/2016. 44. Grounds of appeal No.1 raised by the assessee read as under: 1. That the learned CIT (A)-1, Ludhiana, has erred in disallowing premium pain on redemption of FCCB wrongly holding the same to be in the nature of capital expenditure as against revenue expenditure claimed by the appellant. b. That the action of Ld. CIT(A) is against the law and facts of the case. 45. It was common ground between both the parties that the issue raised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Assessee company has awarded the contract of ₹ 6,66,430,31/- for construction of its building to M/s Ace Build Technologies Pvt Ltd and payment of ₹ 6,66,430,31/- has been made to the said party. The copy of account of M/s Ace Build Technologies Pvt Ltd is enclosed here with at pages no. The Assessee company has been dealing with the contractor since 2008. 2. The Assessing officer has summoned the account statement of the said party and the closing balance as on 31.03.2011 as reflecting in the party's statement is ₹ 14,74,983.72 as borne from the Assessment order dated 28.03.2011 where as the closing balance as per books of the assessee company is ₹ 7,37,987/- and consequently an addition of ₹ 7,36,997/- has been made to the income of the assessee on account of difference. 3. At the outset, it is submitted the assessee has been asked to explain the difference in account statements on 24.03.2015 and the assessee has been asked to submit its reply and reconciliation on 25.03.2015. The assessee company has filed its statement of account along with bank statement and has explained that the difference in account is on account of debit notes ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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