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2013 (11) TMI 278 - AT - Income TaxNature of expenditure - revenue or capital - expenditure incurred during the construction - capital work-in-progress - extension of the existing business. - Held that - Even the Assessing Officer has not mentioned as to what is the new project established by the assessee. If there is an expansion of existing business or increase in the capacity of the existing plant, then the expenditure incurred thereon, has to be treated as revenue expenditure as held by the Tribunal in assessee s own case in the last several years. - matter remanded back for re-examination. Interest u/s 234B - Held that - no interest under section 234B can be levied on account of such retrospective amendment in section 115JB Disallowance of leave of encashment expenses u/s 43B - Held that - matter remanded back to AO for re-adjudication. Disallowance u/s 40(a)(ia) Non-deduction on TDS on interest Held that - CBDT has examined the receipt of interest as per the provisions of section 10(15)(iv)(c) of the Act. Therefore, where the utilization is for purchase outside India of raw material, components or Plant & Machinery, so long as exemption granted is valid, the interest received by the other party is not covered by the IT Act and by virtue of exemption granted by the Central Govt., the question of TDS on the above amount does not arise at all. Since there is no requirement of TDS, question of disallowance under section 40(a)(ia) for non deduction of tax also does not arise - Once the interest income is not taxable in the hands of the recipient and was exempted by the Government of India, then there is no question of TDS on the interest paid and consequently, no disallowance under section 40(a)(i) is called for. Disallowance of depreciation, consequent to adjustments made by AO reducing the cost of plant & machinery to the extent of waiver of amounts, since the borrowed fund was utilized for acquisition of plant and machinery - Assessee company has taken long term advances from a foreign customer, CMC Trading AG, Switzerland in an earlier year. The advance was to be repaid through export of steel manufactured by the company and the outstanding advance was subject to interest payment by the company. These advances were funded by the foreign banks and therefore CMC has assigned all the rights arising out of the above contracts to these banks Held that - Reliance has been placed upon the decision of the Coordinate Bench in the case of Akzo Nobel Coatings India (P.) Ltd. vs. DCIT (LTU), Bangalore 2013 (1) TMI 311 - ITAT BANGALORE - Disallowance of depreciation cannot be sustained - Assessee on the one hand gets the waiver of monies payable on purchase of machinery and claims such receipt as not taxable because it is capital receipt. On the other hand the assessee claims depreciation on the value of the machinery for which it did not incur any cost. Thus, the assessee stand to benefit both ways. As per the law as it prevails as on date, it is held that the revenue is without any remedy Decided in favor of Assessee. Applicability of Rule 8D, read with section 14A of the Income Tax Act Held that - Rule 8D cannot be made applicable prior to the assessment year 2008-09 Reliance has been placed upon the judgment in the case of Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, 2010 (8) TMI 77 - BOMBAY HIGH COURT .
Issues Involved:
1. Disallowance of revenue expenditure included in capital work-in-progress. 2. Levy of interest under section 234B due to retrospective amendment of section 115JB. 3. Disallowance of leave encashment by invoking section 43B. 4. Disallowance of interest payment on external commercial borrowings under section 40(a)(i). 5. Disallowance of depreciation on plant and machinery. 6. Disallowance under section 14A for exempted dividend income. Detailed Analysis: 1. Disallowance of Revenue Expenditure Included in Capital Work-in-Progress: The assessee challenged the disallowance of Rs. 95,70,00,000 as revenue expenditure, arguing it was incurred during the expansion of the existing business. The Assessing Officer (AO) contended that the expenses were capital in nature since they were for new projects, not an extension of the existing business. The Commissioner (Appeals) upheld the AO's decision, citing the proviso to section 36(1)(iii). The Tribunal found that neither the AO nor the Commissioner (Appeals) examined whether the expenses were for expanding the existing business or starting a new line. The case was remanded to the AO for re-examination. 2. Levy of Interest Under Section 234B Due to Retrospective Amendment of Section 115JB: The assessee contested the levy of interest under section 234B due to a retrospective amendment in section 115JB. The Commissioner (Appeals) upheld the interest levy, referencing several judicial pronouncements. The Tribunal, however, agreed with the assessee, citing the Calcutta High Court's decision in Emami Ltd. v/s CIT, which held that interest under section 234B cannot be levied for retrospective amendments. The Tribunal allowed this ground in favor of the assessee. 3. Disallowance of Leave Encashment by Invoking Section 43B: The AO disallowed the leave encashment expenses of Rs. 2,45,46,516, as they were not paid before the due date of filing the return. The Commissioner (Appeals) upheld the disallowance, noting discrepancies in the actual payments versus provisions. The Tribunal, referencing similar cases, remanded the issue to the AO for fresh adjudication, considering the Supreme Court's stay on the Calcutta High Court's decision in Exide Industries. 4. Disallowance of Interest Payment on External Commercial Borrowings Under Section 40(a)(i): The AO disallowed Rs. 25,91,319 for non-deduction of TDS on interest payments to a foreign bank. The Commissioner (Appeals) reversed this, citing earlier appellate orders. The Tribunal upheld the Commissioner (Appeals)'s decision, referencing previous Tribunal decisions in the assessee's favor, confirming that the interest income was exempt and no TDS was required. 5. Disallowance of Depreciation on Plant and Machinery: The AO disallowed depreciation of Rs. 23.24 crores, arguing that loan waivers should reduce the cost of plant and machinery. The Commissioner (Appeals) reversed this, citing judicial precedents. The Tribunal upheld the Commissioner (Appeals)'s decision, referencing its earlier rulings and other judicial decisions, confirming that loan waivers do not reduce the written down value for depreciation purposes. 6. Disallowance Under Section 14A for Exempted Dividend Income: The AO applied Rule 8D to disallow expenses related to exempt dividend income. The Commissioner (Appeals) limited the disallowance to 5% of the dividend income, following Tribunal precedents. The Tribunal remanded the issue to the AO for fresh examination, noting that neither the AO nor the Commissioner (Appeals) had analyzed the nature of the expenses and their relation to exempt income. Conclusion: The Tribunal partly allowed the appeals for statistical purposes, remanding several issues for re-examination by the AO. The Tribunal emphasized the need for detailed factual examination and adherence to judicial precedents in determining the nature and allowability of expenses.
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