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TMI Blog2022 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the sale of shares by PE partner (namely Blue River Capital-LLC) and therefore expenditure relating to such sale are not allowable under section 37. 1.4) The Ld. CIT(A) erred in concluding that his predecessor CIT(A) has given the allowance of expenses considering the proportionate benefit to company. 2. The Ld. AO erred in ( and CIT(A) in confirming) allocating notionally the expenditure of Rs. 30,29,773/- for earning exempt income and consequently erred in disallowing such expenditure under section 14A. 2.1) The learned CIT(A) erred in not considering the following facts: i) Assessee has huge non-interest bearing funds. ii) The most of the investments made by the company were for the business purpose/strategic investment and not for earning exempt income. iii) Most of the investments have not yield any exempt income during the year. 3. The appellant craves its right to add, to or alter the grounds of appeal at any time before or during the course of hearing of the case." 2.1 The assessee has also raised additional ground which reads as follows: "The Ld. AO be directed to allow deduction of Rs. 18,50,000/- paid towards Education Cess under Finance Act while co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nesite Ltd. vs. ACIT, 95 Taxmann.com 239 held that the expenditure incurred for setting up of new project viz. Chemical Beneficiation Plant which is abandoned following State Government Order is allowable as revenue expenditure by holding as follows :- "20. To decide the substantial questions of law framed for consideration, we would have to apply the proper test, which would distinguish capital and revenue expenditure. This question came up for consideration before the Hon'ble Supreme Court in Empire Jute Co. Ltd. (referred supra). It was pointed out that from time to time cases have evolved various tests for distinguishing between capital and revenue expenditure, but, no test is paramount or conclusive. Further, there is no all-embracing formula, which can provide a ready solution to the problem; no touchstone has been devised. It was pointed out that every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. After referring to the decision of Lord Radcliffe in CIT v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), it was held that it would be misleading to supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be seen from the order passed by the CIT (A), the assessee had entered into an arrangement with TIDCO as well as with IDBI and fixed the project cost with a debt equity ratio, which was approved by the Government of Tamil Nadu and thereafter, steps were taken to acquire land, import machinery etc. In the meantime, 12 years had passed by and the project had not taken off. The IDBI had withdrawn from the project, as it was found to be unviable and another co-promoter viz., M/s. Khaltan Supermag Limited was brought in and a joint sector company was formed with the assessee subject to certain conditions. However, the said co-promoter, M/s. Khaltan Supermag Limited expressed inability to be a part of the project and after 12 years, the Government took a decision to sell the project and consequently, cancelled the allotment of 47 acres of land in favour of the assessee. The above facts clearly demonstrate that the assessee though had entered into arrangement with the banks and co-promoters and took action for acquisition of land, import of machineries, etc., no new venture was established by the assessee. The venture, which was to be taken over by the assessee and operated did not fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business and it was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business and that stage having not reached and no asset having come into existence, the capital work-in-progress had to be written off as such. 30. In the case of Asia Power Projects (P.) Ltd. (supra), the High Court of Karnataka held that, if the assessee incurs a liability and when the contract under which that liability was incurred was terminated and when no amounts under the or in pursuance of a claim is receivable, he is entitled to claim the said amount incurred as expenditure in implementing the contract as a set off under Section 37(1) read with 28 of the Income Tax Act, 1961. 31. Insofar as the abandoned feature films are considered, a Division Bench of this Court in the case of Tiruvengadam Investments (P.) Ltd. v. Asstt. CIT [2016] 95 CCH 0024, referring to a circular issued by the CBDT in Circular No.16/2015 dated 06.10.2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were an expert in the same line of business. Therefore, on facts, we find that the CIT (A) was perfectly right in deleting the addition and holding that the expenditure was revenue not capital expenditure. We may point out that the decision in the case of Ideal Cellulura Ltd. (supra) was also a case where the expenditure was incurred to bring into existence a new asset, which is not so in the case on hand. Therefore, the said decision is also distinguishable on facts." 10. It can be noticed that the Hon'ble Madras High Court also placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Idea Cellular Ltd., 76 Taxmann.com 77. It is admitted fact in the present case that as result of subject expenditure, no new asset had come into existence nor had any benefit of enduring nature accrued. Therefore, ratio of above decision is squarely applicable to the facts of present case. Accordingly, we direct Assessing Officer to allow the expenditure incurred on abandoned IPO as revenue expenditure. Accordingly, this ground is allowed." 8. We find that the facts of the present appeal are identical to the facts in the earlier assessment year. Since there is no ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has mixed up the dates holding the investment to be prior to the sale, when the facts indicate the exact opposite. The AO has also erroneously held that the account is a cash credit account, when in fact it is a current account. I am therefore of the view that the facts emphatically indicate that no part of the strategic investment in OMR Bagla is sourced from borrowed funds. There is no cause for any disallowance of interest under rule 8D(2)(ii) on this count. The rest of the investment apart from Rs. 16.35 crores is miniscule compared to the other free funds of the assessee as has been discussed in the A.Y. 07-08. I am therefore of the view that no interest bearing funds have been diverted to either the strategic investment or to the other sundry investment yielding tax free income. On these facts, the disallowance computed under R8D(2)(ii) is deleted for the A.Ys 08-09 to 11-12." The above findings of fact returned by CIT(A) remain undisturbed till date. Therefore, we direct the Assessing Officer not to make any addition on account of interest expenditure under Rule 8D of the Income Tax Rules, 1962 ("the Rules‟). 18. As regards to indirect expenses incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of assessee‟s own case (supra.). Thus, Ground No.2 raised in appeal by the assessee is partly allowed. 12. The assessee also raised additional grounds of appeal seeking deduction paid towards Education Cess under Finance Act while computing the taxable income. The ld. AR submits that the above ground raised by the assessee is purely legal ground and raised for the first time before this Tribunal. Since, the Education Cess paid by the assessee available with the respondent revenue which does not require any further examination of facts and prayed to allow the additional ground. Further, he submitted that this Tribunal taking support from the decision of Hon'ble High Court of Bombay in the case of Sesa Goa Ltd. reported in 423 ITR 426 directed the AO to allow deduction paid towards Education Cess. 13. After hearing both the parties, we note that the assessee paid Education Cess while computing the taxable income under normal provision of the I.T. Act. The Hon'ble High Court of Bombay in the case of Sesa Goa Ltd. (supra) was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act. The relevant portion of the said judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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