2013 (9) TMI 50 - AT - Income Tax

Allowability of premium payable redemption of bond Disallowance is made of Rs. 3,65,60,673/- - Held that - Relying upon the Tribunal s own decision in the earlier years in favor of assessee, it is held that proportionate premium payable is allowed as deduction Decided in favor of Assessee. Depreciation - Disallowance of depreciation on assets acquired under scheme of arrangement to be allowed adopting IT WDV of the Transferor Company Held that - Ld.CIT(A) has correctly taken into account of the provisions of explanation 7 to section 43(1) on computation of depreciation allowance and the relevant definition of amalgamation as provided in section 2 (1B) of the Act. Also, the findings of the Ld.CIT(A) on this ground is fortified by the decisions of the Hon ble Supreme Court in the cases of Challappalli Sugars Ltd 1974 (10) TMI 3 - SUPREME Court . Decided in favor of Assessee. Accrued interest as part of sale consideration for computing capital gains - During the year under consideration, the assessee had sold 1,50,000 (in numbers) NTPC Bonds and 1,50,000 (in numbers) IRFC Bonds. The AO added the interest accrued on such bonds of Rs.23,36,301/- to the sale price for computing capital gains Held that - Interest to be taxed, either on accrual basis or as part of sale consideration for computation capital gain. In the instant case accrued interest should be considered as part of sale consideration for computing capital gains since the accrued interest was not being taxed as interest Decided against the Assessee. Taxability of interest received from the Income Tax Department of Rs.22,35,44,844/- for various assessment years Held that - Ground raised by the revenue is misconceived as the same is raised with the wrong perception as if the Ld.CIT(A) has directed the AO to exclude the interest where the said interest is taxable under the provisions of Income Tax Act - Hence dismissed this ground Decided in favor of Assessee. Expenditure towards legal and professional fees allowability Capital of revenue expenditure Held that - Perusal of the details of expenditure reveals that the assessee has not added any new assets - Said expenditure is not incurred for acquiring any enduring benefit or income-yielding asset - Expenditure is legally permissible as a deduction under section 37(1) of the Act being expenditure of revenue in nature Depreciation is not allowed.

Issues Involved:
1. Disallowance of proportionate premium payable on redemption of bonds.
2. Disallowance of contributions to local organizations.
3. Depreciation on assets acquired under the scheme of arrangement.
4. Exclusion of profit from the USA Branch from taxable profit.
5. Disallowance of brokerage paid for arranging foreign currency loan.
6. Treatment of accrued interest as part of sale consideration for computing capital gains.
7. Disallowance of penalty paid in respect of sales tax and excise matters.
8. Disallowance of estimated expenditure for earning exempt dividend income.
9. Disallowance of expenditure on medical camps, construction of wells, and rural dispensary expenses.
10. Disallowance of exchange fluctuation loss.
11. Taxation of interest received from the Income Tax Department.
12. Deduction of export profit under section 80HHC.
13. Deduction of profits from power-generated units.
14. Carried forward unabsorbed depreciation under section 115JA.
15. Deduction under section 43(b) for liabilities disallowed in earlier years.
16. Depreciation on assets acquired under the scheme of arrangement.
17. Subway and powerline expenses.
18. Proportionate amount of debenture issue expenses.
19. Legal and professional fees as capital expenditure.
20. Computation of book profit under section 115JA.
21. Sales tax exemption as a capital receipt.
22. Disallowance of royalty and interest on royalty under section 43(b).

Detailed Analysis:

1. Disallowance of Proportionate Premium Payable on Redemption of Bonds:
The ITAT consistently ruled in favor of the assessee, following earlier decisions in the assessee's own cases for previous assessment years. The Tribunal upheld the CIT(A)'s decision to allow the disallowance, referencing the Supreme Court judgment in Madras Industrial Investment Corporation Ltd. vs. CIT.

2. Disallowance of Contributions to Local Organizations:
The CIT(A) allowed the disallowance, and the ITAT upheld this decision, noting that similar issues were decided in favor of the assessee in previous years.

3. Depreciation on Assets Acquired Under Scheme of Arrangement:
The CIT(A) allowed the claim, considering provisions of explanation 7 to section 43(1) and relevant Supreme Court decisions. The ITAT upheld this decision, finding no infirmity in the CIT(A)'s reasoning.

4. Exclusion of Profit from USA Branch from Taxable Profit:
The ITAT ruled in favor of the assessee, noting that the USA Branch's income was taxable only in the USA under the Indo-US DTAA. The CIT(A)'s direction to exclude this profit from taxable income in India was upheld.

5. Disallowance of Brokerage Paid for Arranging Foreign Currency Loan:
The CIT(A) allowed the disallowance, relying on decisions from the Bombay High Court and Supreme Court. The ITAT upheld this decision, finding it consistent with precedent.

6. Treatment of Accrued Interest as Part of Sale Consideration for Computing Capital Gains:
The ITAT allowed the ground, agreeing with the Revenue's stand that accrued interest should be considered part of the sale consideration for computing capital gains.

7. Disallowance of Penalty Paid in Respect of Sales Tax and Excise Matters:
The CIT(A) allowed the disallowance, and the ITAT upheld this decision, noting that similar issues were decided in favor of the assessee in previous years.

8. Disallowance of Estimated Expenditure for Earning Exempt Dividend Income:
The CIT(A) allowed the disallowance, and the ITAT upheld this decision, noting that the assessee had sufficient capital and reserves for making investments.

9. Disallowance of Expenditure on Medical Camps, Construction of Wells, and Rural Dispensary Expenses:
The CIT(A) allowed the disallowance, and the ITAT upheld this decision, following earlier rulings in the assessee's favor.

10. Disallowance of Exchange Fluctuation Loss:
The CIT(A) allowed the disallowance, and the ITAT upheld this decision, referencing the Supreme Court decision in the case of Wood Ward Governor India P Ltd.

11. Taxation of Interest Received from the Income Tax Department:
The ITAT dismissed the Revenue's ground, noting that the CIT(A)'s direction pertained only to excluding interest subsequently withdrawn from taxable income.

12. Deduction of Export Profit Under Section 80HHC:
The CIT(A) directed the AO to recompute the deduction of export profit for section 115JA purposes, and the ITAT upheld this direction, finding it consistent with the provisions of the Act and Supreme Court precedent.

13. Deduction of Profits from Power-Generated Units:
The ITAT dismissed the Revenue's ground, following earlier decisions in favor of the assessee.

14. Carried Forward Unabsorbed Depreciation Under Section 115JA:
The ITAT set aside this ground to the AO for fresh consideration, noting the Revenue's merit in the grounds raised.

15. Deduction Under Section 43(b) for Liabilities Disallowed in Earlier Years:
The ITAT found this ground infructuous as the department's stand had been rejected in earlier years.

16. Depreciation on Assets Acquired Under Scheme of Arrangement:
This ground was also found infructuous as related grounds were decided in favor of the assessee.

17. Subway and Powerline Expenses:
The ITAT allowed this ground, following earlier decisions in favor of the assessee and the consistent stand taken by the department in earlier years.

18. Proportionate Amount of Debenture Issue Expenses:
The ITAT allowed this ground, following earlier decisions in favor of the assessee.

19. Legal and Professional Fees as Capital Expenditure:
The ITAT allowed this ground, finding the expenditure to be revenue in nature and directing the AO to withdraw depreciation benefits already given.

20. Computation of Book Profit Under Section 115JA:
The ITAT allowed the sub-grounds related to gratuity liability, leave salary liability, and debenture redemption reserves, finding them to be ascertained liabilities. The ITAT directed the AO to recompute profits for Vikram Power Unit, following earlier decisions in favor of the assessee.

21. Sales Tax Exemption as a Capital Receipt:
The ITAT remanded this issue to the AO for fresh examination, directing the AO to consider the Special Bench decision in the case of Reliance Industries Ltd.

22. Disallowance of Royalty and Interest on Royalty Under Section 43(b):
The ITAT allowed this ground, following earlier decisions in favor of the assessee.

Conclusion:
The appeals filed by the revenue were partly allowed for statistical purposes, and the appeals filed by the assessee were partly allowed. The ITAT upheld several decisions of the CIT(A) in favor of the assessee, following earlier rulings and Supreme Court precedents. The ITAT also remanded certain issues to the AO for fresh consideration.

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