TMI Blog2024 (1) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... es nothing but business loss for the assessee. Provisions of Sec.43A would have no applicability since the assessee has not imported any capital asset and there would be no occasion to capitalize the impugned amount along with the cost of imported assets. What remains in the account is nothing but a business loss for the assessee which would be an allowable loss incurred in ordinary course of business. How the funds have been utilized in earlier years would not have much relevance and would not have any bearing on the claim of the assessee in this year. It is not the case that the funds were obtained for non-business purposes. The ratio of decision of Hon ble High Court of Madras in the case of B. Nagi Reddy [ 1991 (6) TMI 9 - MADRAS HIGH COURT] would apply wherein it has been held that the cost of project given up by the assessee would be an allowable expenditure on commercial expediency. Similar is the decision of Hon ble Court in M/s Chemplast Sanmar [ 2018 (9) TMI 75 - MADRAS HIGH COURT] wherein the assessee charged expenditure incurred on abandoned projects in Profit Loss Account which was held by authorities to be capital losses. The Hon ble Court, distinguishi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the eyes of law. The ratio of decision of Hotel Savera [ 1997 (11) TMI 37 - MADRAS HIGH COURT] would apply wherein it has been held that when the mixed funds are used, no interest disallowance is called for. In the decision of Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT] has held that in case interest free funds as available with the assessee are sufficient to meet the investment made in subsidiaries, the deduction of interest expenditure would be allowed to the assessee. Respectfully following the same, the impugned disallowance stand deleted. Whether gross interest is to be considered or net interest is to be considered while computing the interest disallowance ? - We find that the assessee has claimed only net expenditure in the Profit Loss Account., The interest income is not separately assessed as Income from other sources which would mean that the interest income has business nexus. In such a case, the ratio of decision of Hon ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. [ 2012 (2) TMI 101 - SUPREME COURT] would apply. The interest disallowance has to be computed by taking net interest expenditure only. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 263 of the Act on 26.12.2008. The grounds taken by the assessee are as under: 1. The order of National Faceless Appeal Centre (NFAC), Delhi / CIT(A) is contrary to law, facts and in the circumstances of the case. 2.1 The CIT(A) / NFAC erred in confirming disallowance of interest and Exchange Fluctuation amounting to Rs. 116,27,84,000/-. 2.1 The CIT(A) / NFAC ought to have appreciated that the interest and Exchange Fluctuation were accounted under capital work in progress in the earlier years and charged to the profit and loss account during the current assessment year and should have allowed as revenue expenditure. 3. The CIT(A) / NFAC erred in confirming the disallowance of the written down value of diesel generator set written off in the books of account amounting to Rs. 2,02,42,000/- 3.1 The CIT(A) / NFAC ought to have appreciated that the crank shaft is one of the components in DG set, during the assessment year the crank shaft got destroyed in fire and the appellant made an insurance claim and the difference between the carrying values (Rs.290. 99 lakhs) and insurance claim was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident corporate assessee is stated to be engaged in manufacturing and marketing of fertilizers, pharma, biotech products and providing engineering services. The assessee was assessed u/s 143(3) on 30.03.2006. However, the assessment was subjected to revision u/s 263 and accordingly, another assessment was framed on 26.12.2008 which, after confirmation by learned first appellate authority, is in further challenge before us. The assessee challenged the validity of revisionary proceedings u/s 263 before this Tribunal which got rejected vide ITA No.937/Chny/2008 order dated 12.12.2019. 3. Interest and Exchange Fluctuations 3.1 The revisionary authority directed Ld. AO to disallow interest and foreign exchange fluctuations of Rs. 11627.85 Lacs in terms of the decision of Hon ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (82 ITR 363) and Kalinga Tubes Ltd. (218 ITR 164). The Ld. AO noted that this item of expenditure pertained to earlier assessment years and therefore, the same could not be allowed as revenue expenditure in this year. Accordingly, the same was disallowed and added back as per revisionary directions. 3.2 During appellate proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide any explanation as to how these funds were utilized since 1996 until AY 2003-04. This aspect was not clarified in the assessment proceedings. Though the assessee filed the details of the abandoned project, however, it had no explanation regarding the steps taken for undertaking the abandoned projects and the status of said projects which were envisaged to be implemented, the nexus of these projects with business of the assessee and reasons for their abandonment. As per the provisions of Sec. 43A, forex fluctuation loss after the acquisition of capital asset was to be added to the cost of acquisition of the capital asset in the year of repayment. Once the project was abandoned, the assessee had charged such capital loss in the Profit Loss Account which would be nothing but capital loss for the assessee. Therefore, the same would not be allowable to the assessee. 3.4 The substantive findings of Ld. CIT (A) were as under: - Whether the forex fluctuation loss on the CWIP pertains to the year concerned or to the previous years, the treatment under the Income Tax Act is clear - the forex fluctuation loss after the acquisition of capital asset is to be added to the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for general corporate purposes was also charged-off to Profit Loss Account as revenue expenditure in respective years and the same has also been allowed. The remaining impugned amount is lying under CWIP account and the same represent interest and foreign exchange fluctuation on the borrowed funds which have not been allocated to any specific projects. 3.6 During AYs 1997-98 to 2002-03, the total foreign exchange loss incurred by the assessee was Rs. 18492 Lacs out of which an amount of Rs. 7498.52 Lacs has been capitalized based on allocation of funds for capital expenditure. The amount of Rs. 6117.57 Lacs has been charged to Profit Loss Account for funds utilized for general corporate purposes. The remaining unclaimed amount is Rs. 4875.91 Lacs which has been capitalized under CWIP for the purpose of capitalization as and when FRN funds would be utilized for the purpose of purchase of capital goods / expansion schemes. Out of the remaining amount of Rs. 4875.91 Lacs, foreign gains have been adjusted to the extent of Rs. 1008.55 Lacs and the assessee has claimed net forex fluctuation loss of Rs. 3867.35 Lacs. 3.7 Similarly, the interest expenditure during AYs 1997-98 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining whether the expenditure is revenue or capital and each case must be dealt with on the broad principles as accepted by various courts. The Hon ble Court further held that the unity of control, management and common fund is the decisive test and not the nature of two lines of business. Finally the issue was decided in assessee s favor and the expenditure was allowed as revenue expenditure. Respectfully following the ratio of these decisions, we direct Ld. AO to delete the impugned disallowance and allow the expenditure as claimed by the assesseee. The alternative argument of Ld. AR that the impugned amount may be allocated to other projects has been rendered infructuous. The grounds of appeal stand partly allowed. 4. Diesel Generator (DG) Set written-off 4.1 The assessee wrote-off an amount of Rs. 202.42 Lacs under this head and claimed the same as revenue expenditure. The revisionary authority viewed the loss as capital loss . The assessee submitted that the claim was made as per the provisions of Sec. 32(1)(iii). However, rejecting assessee s submissions, the same was disallowed by Ld. AO. 4.2 It transpired that crankshaft was one of the components in DG Set. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an assessment framed u/s 143(3), Ld. AO computed disallowance by taking net interest expenditure i.e., after adjusting the interest income of Rs. 139.96 Lacs credited by the assessee. As per revisionary directions, Ld. AO enhanced the same by Rs. 24.80 Lacs. During appellate proceedings, the assessee relied on the decision of Hon ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd . ( 18 Taxmann.com 137) to plead that only net interest expense was to be considered for the purpose of disallowance. However, Ld. CIT(A) confirmed the disallowance by considering the decision of Tribunal for AYs 2005-06 2006-07, ITA No.961 962/Mds/2011 dated 09.02.2017 rendered in the context of challenge to revisionary jurisdiction u/s 263. The bench held that the interest paid and claimed as deduction in the computation of profit and gains of the business could not be set-off against interest received under the head income from other source . 5.3 It also transpired that the assessee advanced sum of Rs. 16.78 Crores to its sister concern viz. M/s SPEL semiconductor Ltd. Pursuant to revisionary directions, Ld. AO computed disallowance of Rs. 129.94 Lacs rejecting assessee s re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It could also be seen that no new advances have been made during this year. It is trite law that when mixed funds are used in the business, a presumption would arise in assessee s favor that the interest free funds have been utilized to make the investments unless the nexus of borrowed funds vis- -vis those investments is establish by Ld. AO. In the absence of such an exercise, the impugned disallowance could not be sustained in the eyes of law. The ratio of decision of Hon ble High Court of Madras in the case of CIT vs. Hotel Savera (239 ITR 795) would apply wherein it has been held that when the mixed funds are used, no interest disallowance is called for. In the decision of Reliance Industries Ltd. (102 Taxmann.com 52), Hon ble Apex Court has held that in case interest free funds as available with the assessee are sufficient to meet the investment made in subsidiaries, the deduction of interest expenditure would be allowed to the assessee. Respectfully following the same, the impugned disallowance of Rs. 129.94 Lacs stand deleted. 5.6 Regarding the second question i.e., whether gross interest is to be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-00 (Page-42) 675 14054.77 51259.78 65314.55 We find that own funds as available with the assessee are quite sufficient to meet the quantum of ICDs. Further, in that year also, the assessee has used mixed funds. The observation of Ld. AO that there was increase in borrowed funds during AY 2003-04 has no relevance since the ICDs were placed by the assessee during financial year 1999- 2000 and it was impossible to make investment in 1999-2000 out of funds borrowed in subsequent years. Further, the nexus of borrowed funds with the ICDs have not been established by Ld. AO. Therefore, the stand of Ld. AO could not be upheld. Applying the same reasoning as given in para 5.5 with respect to interest disallowance, we delete the impugned disallowance and allow the corresponding grounds raised by the assessee. 7. Disallowance of interest relief given by the bankers. 7.1 It transpired that the restructuring of assessee s debt portfolio under Corporate Debt restructuring mechanism (CDR) was implemented during this year. Consequently, there was interest relief of Rs. 883.98 Lacs to the assessee from various ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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