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2011 (8) TMI 1154 - AT - Income TaxRural Development Expenditure - AO disallowed rural development expenditure on the ground that in the earlier years, an identical claim was disallowed - HELD THAT - We note that a similar issue came before the Tribunal for AY 1994-95, where The AO allowed the claim of the assessee. Accordingly, the claim of the assessee for the AY under consideration is also to be allowed, if the claim is identical on the facts as it was in the earlier years. Accordingly, we restored this issue to the record of the AO for limited purposes to verify, if the facts in respect of the claim of rural development expenses are identical as to the earlier years, then the same shall be allowed - Matter restored back. Interest u/s 244A - Interest along with income tax refund - The assessee has received interest u/s 244A. Such interest may undergo changes as dept. and assessee has appealed against such interest amount and the decision for the same is pending HELD THAT - It is found that this matter is settled by the decision of the Special Bench of the Tribunal in the case of AVADA TRADING CO. (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX, SPL. CIRCLE 18 (1) 2006 (1) TMI 465 - ITAT MUMBAI , where it was viewed that the assessee would not be remediless, if any change or reduction in the amount of interest refund u/s 244A in future; in that eventuality, the assessment can be rectified u/s 154 and therefore, the apprehension and the contention of the assessee was found baseless by the Special Bench. Therefore, respectfully following the decision of the Special Bench of the Tribunal, we do not find any merit or substance in the ground taken by the assessee; accordingly, the same is rejected. However, as observed by the Special Bench, if any change or reduction in the interest, refund to the assessee u/s 244A, the same has to be taken into account u/s 154 - Decision in favour of Assessee. Depreciation of Rollover Charges - Revenue or Capital in Nature? - Assessee s claim for roll over charges was disallowed by the department being capital in nature - HELD THAT - In view of the decision of the jurisdictional High Court in assessee's own case EDELWEISS CAPITAL LTD., MUMBAI VERSUS INCOME TAX OFFICER 3 (1) (1) , MUMBAI 2012 (10) TMI 223 - ITAT, MUMBAI and in view of the facts that in the earlier years, the AO himself has allowed the depreciation on the expenditure, which was treated as capital in nature, the claim of depreciation on such expenditure treated as capital in nature is therefore, allowable. Accordingly, we decide this issue in favour of the assessee. Disallowance u/s 10A (9) - Assessee claimed expenditure incurred being payment made to the School wherein the children of the employees of the assessee are studying. The AO disallowed the expenditure - HELD THAT - We find that the same issue had been considered by the tribunal in assessee s own case in assessment year 1994-95. In that year also disallowance had been made u/s 40A(9). The tribunal, however following the decision in A.Y.1992-93 and 1993-94 allowed the claim. Facts this year are identical. Therefore, we allow the claim of the assessee. Admission of additional grounds Sales Tax exemption benefit to be Excluded from taxable Profit - Assessee raised the additional grounds and for this additional evidences were also submitted in the shape of copy of sales tax exemption scheme HELD THAT - In our considered opinion and in the interest of justice, additional grounds are required to be reconsidered at the levy of the AO. We have one more reason to restore the issue to the AO because an identical issue has already been considered and restored back to the file of the AO in the case of the assessee, M/S. ADITYA BIRLA NUVO LTD. FORMERLY INDIAN RAYON AND INDUSTRIES LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX -3 (2) 2011 (2) TMI 962 - ITAT, MUMBAI , where it was held that, principle relating to admission of additional ground being a legal ground for the first time before the tribunal is settled by the judgment of Hon ble Supreme Court in case of NATIONAL THERMAL POWER COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1996 (12) TMI 7 - SUPREME COURT , in which the Hon ble Supreme Court held that question of law arising from the facts which are on record in the assessment proceedings has to be allowed to be raised if it is necessary to consider the question in order to correctly assess the tax liability of the assessee. Accordingly, the matter is restored to the record of the Assessing Officer to examine the additional evidences filed by the assessee then decide the issue as per law. Expenditure incurred on assets not owned - Revenue or Capital Expenditure? - HELD THAT - Since this is a consequential relief sought by the assessee in case the expenditure incurred on the assets not owned by the assessee claimed as revenue expenditure but such expenditure has already been held by the Tribunal in AY 1995- 96 as capital in nature. -Decision in favour of Assessee. Interest Expenses for period prior to commencement of business - Deduction u/s 36(1)(iii) - Assessee claimed amount being interest paid on capital borrowed funds for its new project. Assessee capitalized and showed the interest under capital work-in progress in the books of account; however, has claimed as deductible revenue expenditure in computing the profits and gains of business u/s 36(1)(iii) - HELD THAT - We find that the facts of this issue are para-material to Assessment Year 1995- 96. Since the Tribunal has adjudicated the issue after considering all the decisions including the decision of the jurisdictional High Court in the case of Tata Chemicals Ltd reported in 256 ITR 395, where it was held that, The only requirement of the sec. 36(1) is that the capital should be borrowed for the purpose of business and the interest expenditure should be incurred. Therefore the point to be considered is whether the new unit was an independent business or part of the existing business. In case the new unit found to be part of the existing business the interest on capital borrowed has to be allowed as deduction. Once these conditions are satisfied the interest has to be allowed as a revenue expenditure irrespective of the fact whether borrowed funds are used for acquisition of capital asset or for setting up of new units Respectfully following the above decisions, we hold that the new unit being set up by the assessee was integral part of the same business and therefore interest on money borrowed has to be allowed as deduction. We therefore decide this issue in favour of the assessee.
Issues Involved:
1. Disallowance of rural development expenditure. 2. Disallowance of interest under Section 244A. 3. Disallowance of depreciation on rollover charges. 4. Disallowance of expenditure under Section 40A(9). 5. Disallowance of deduction under Section 35D. 6. Disallowance of payment to Lodha & Co. 7. Alternative claim regarding debenture issue expenses. 8. Additional grounds regarding sales tax exemption and expenditure on assets not owned. 9. Deductibility of interest expenses under Section 36(1)(iii). Detailed Analysis: 1. Disallowance of Rural Development Expenditure: The assessee claimed Rs. 3,44,461 as rural development expenses, which was disallowed by the AO and confirmed by the CIT(A) based on earlier years' disallowances. The Tribunal noted that similar issues in previous years were restored to the AO, who eventually allowed the claim. Thus, the Tribunal restored the issue to the AO for verification, directing that if the facts were identical to earlier years, the claim should be allowed. 2. Disallowance of Interest under Section 244A: The assessee received Rs. 20,54,935 as interest under Section 244A for AY 1993-94, which was offered to tax in the current year. The AO and CIT(A) confirmed its inclusion in the current year's income. The Tribunal, referencing the Special Bench decision in Avada Trading Co., held that if there is any subsequent reduction in the interest, the assessment can be rectified under Section 154. Thus, the Tribunal rejected the assessee's ground but noted that any future changes should be accounted for under Section 154. 3. Disallowance of Depreciation on Rollover Charges: The AO disallowed Rs. 29,061 claimed as depreciation on rollover charges, treating them as capital in nature. The CIT(A) upheld this, referencing the Tribunal's earlier decision allowing the expenditure as revenue in nature. The Tribunal, considering the High Court's decision against the assessee, allowed the depreciation claim, noting that the AO had allowed it in earlier years. 4. Disallowance of Expenditure under Section 40A(9): The AO disallowed Rs. 29,74,188 paid to schools under Section 40A(9), confirmed by the CIT(A). The Tribunal noted that similar disallowances in earlier years were allowed by the Tribunal. Thus, following its earlier decisions, the Tribunal allowed the claim for the current year. 5. Disallowance of Deduction under Section 35D: The assessee did not press this issue as the deduction was allowed by the AO in AY 1999-00. The Tribunal dismissed this ground as not pressed. 6. Disallowance of Payment to Lodha & Co.: The assessee did not press this issue, acknowledging it related to AY 1994-95. The Tribunal dismissed this ground as not pressed. 7. Alternative Claim Regarding Debenture Issue Expenses: The assessee did not press this issue, noting that the NCD issue expense claim and deduction under Section 35D were already allowed. The Tribunal dismissed this ground as not pressed. 8. Additional Grounds: - Sales Tax Exemption: The Tribunal admitted the additional ground regarding the exclusion of sales tax exemption benefit from taxable profits, noting that similar issues were restored to the AO in earlier years. The Tribunal restored the matter to the AO to examine the additional evidence and decide as per law. - Expenditure on Assets Not Owned: The Tribunal admitted this alternative ground, noting that similar issues were restored to the AO in earlier years. The Tribunal restored the matter to the AO for examination and decision as per law. 9. Deductibility of Interest Expenses under Section 36(1)(iii): The AO disallowed Rs. 37,60,46,864 as interest on borrowed funds for new projects, treating them as separate businesses. The CIT(A) allowed the claim, following earlier decisions. The Tribunal upheld the CIT(A)'s decision, referencing its earlier order for AY 1995-96, noting that the new units were part of the existing business and thus the interest was deductible under Section 36(1)(iii). Conclusion: The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals, restoring certain issues to the AO for verification and examination. The cross-objections by the assessee were dismissed as infructuous.
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