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2007 (9) TMI 450 - AT - Income TaxInterest expenditure u/s 36(1)(iii) - Interest on borrowed capital - Deductions u/s 80M - Intercorporate dividends. Interest expenditure u/s 36(1)(iii) - Interest on borrowed capital - certain assumptions and presumptions - incremental funds of the assessee exceeded the investments made during the year - HELD THAT - We are of the opinion that mere presentation of capital plus reserve funds in the liability side of the Balance Sheet cannot result into a position where the funds can be said to be available with the assessee as these are represented by the corresponding assets appearing on the asset side of the Balance Sheet. It is also noted that assessee s funds are mixed and in the bank accounts relating to working capital requirements of the assessee the trading receipts have been deposited hence one to one nexus between the availability of interest-free funds and investments cannot be established. In this background now we have to look into the legal aspects of the issue. It is a settled proposition that for claiming the expenditure onus lies on the assessee to prove that such expenditure has been incurred for the purposes of the business and this position is applicable both for claims made under sections 36(1)( iii ) 37(1) of the Act. From the perusal of the Balance Sheet as on 31-3-1992 it is observed that there is an increase in the share capital as well as reserve and surplus as compared to previous year to the tune of Rs. 6.92 crores and 2.67 crores respectively. There is also an increase of Rs. 58 crores approx. in the secured loans and un-secured loans. Correspondingly there is an increase in the fixed assets to the tune of Rs. 15 crores and increase in the net current assets to the tune of Rs. 44 crores. Thus the business assets have increased by Rs. 59 crores as against increase in the interest bearing funds by Rs. 58 crores. Hence the logical conclusion which can be drawn is that the borrowed funds have been utilised for investment in business assets. The increase in the investment in the year under consideration is to the tune of Rs. 5.53 crores which apparently stands set off by an corresponding increase in the share capital and reserve and surplus. As stated earlier in case of mixed funds one to one nexus is hardly possible hence the claim of the assessee has to be inevitably examined either on the basis of the capital structure of the company and corresponding changes therein as compared to earlier years and on the basis of cash flow and funds flow statements. In case of the present assessee both are on record and analysis of these statements lead to a conclusion in favour of the assessee. In view of the forgoing we hold that there is no justification for making proportionate disallowance. Thus this ground of the assessee stands accepted. Deduction u/s 80M - expenses to earn intercorporate dividend - HELD THAT - The issue raised in this ground is directly covered in favour of the assessee by the decision in the case of Punjab State Industrial Development Corpn. Ltd. 2006 (4) TMI 187 - ITAT CHANDIGARH held that for the purpose of granting deduction u/s 80M only actual expenditure incurred is to be taken into consideration and there is no question of taking expenditure on estimation or presumption basis. Accordingly this ground of the assessee is also accepted. In the result appeal filed by the revenue for AY 1992-93 stands dismissed.
Issues Involved:
1. Disallowance under section 37(4) on account of Rent for Guest House. 2. Disallowance under section 37(2A) as entertainment expenses. 3. Disallowance of depreciation on residential premises. 4. Addition of lease rentals for machinery. 5. Disallowance of Stamp Duty on issue of Rights shares. 6. Investment allowance on certain assets. 7. Disallowance of reimbursement expenses on public issue. 8. Disallowance of share issue expenses. 9. Disallowance of interest expenditure on funds utilized for making investments. 10. Deduction under section 80M for intercorporate dividends. Detailed Analysis: 1. Disallowance under section 37(4) on account of Rent for Guest House: The issue raised in Ground No. 1 was dismissed as it was covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Britania Industries Ltd. v. CIT [2005] 278 ITR 546. 2. Disallowance under section 37(2A) as entertainment expenses: Ground No. 2 was not pressed by the assessee and hence dismissed as not pressed. 3. Disallowance of depreciation on residential premises: The Tribunal upheld the CIT(A)'s decision to disallow depreciation on the residential premises, as the asset was not actually used for business purposes. This was consistent with the Tribunal's decision in the assessee's own case for the assessment year 1989-90. 4. Addition of lease rentals for machinery: The Tribunal restored this issue to the file of the Assessing Officer to decide in accordance with the conclusions arrived at in the assessment year 1989-90, as the matter was pending before the Assessing Officer. 5. Disallowance of Stamp Duty on issue of Rights shares: This issue was also covered against the assessee by the decision of the Hon'ble Apex Court in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798. Accordingly, this ground was dismissed. 6. Investment allowance on certain assets: The Tribunal restored the issue to the file of the Assessing Officer to be decided in accordance with the directions of the Tribunal in respect of Ground No. 4 of assessee's appeal in ITA No. 1371/Mum./05. 7. Disallowance of reimbursement expenses on public issue: Ground No. 2 in ITA No. 1372/Mum./05 was not pressed by the assessee and hence dismissed as not pressed. 8. Disallowance of share issue expenses: This issue was covered against the assessee by the decision of the Hon'ble Apex Court in the case of Brooke Bond India Ltd. (supra). Accordingly, this ground was dismissed. 9. Disallowance of interest expenditure on funds utilized for making investments: The Tribunal held that the assessee had discharged its onus of proving that the investments were made out of net own funds available with the assessee. The Tribunal found no justification for making proportionate disallowance and accepted the assessee's ground. 10. Deduction under section 80M for intercorporate dividends: The Tribunal held that only actual expenditure incurred for earning dividend income should be considered for deduction under section 80M. The issue was covered in favor of the assessee by the decision of the Special Bench of the Tribunal in the case of Punjab State Industrial Development Corpn. Ltd. Accordingly, this ground was accepted. Summary of Judgments: 1. Assessee's Appeal in ITA No. 1371/Mum./05 for AY 1990-91: Partly allowed for statistical purposes. 2. Revenue's Appeal in ITA No. 642/Mum./05 for AY 1990-91: Allowed for statistical purposes. 3. Assessee's Appeal in ITA No. 1372/Mum./05 for AY 1991-92: Dismissed. 4. Assessee's Appeal in ITA No. 1373/Mum./05 for AY 1992-93: Dismissed. 5. Revenue's Appeal in ITA No. 643/Mum./05 for AY 1992-93: Dismissed.
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