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2013 (11) TMI 773 - AT - Income TaxCapital expenditure or revenue expenditure - Corporate Debt Restructuring expenses - Held that - Expenditure incurred should be allowed proportionately during the period during which the assessee will continue to get the benefit in respect of reduction in interest liability because of restructuring. Therefore, we hold that the impugned expenditure is not capital expenditure but revenue expenditure but the same should be allowed proportionately during the period during which the assessee will get benefit in the present year as well in future in the light of this judgement of Hon ble Apex Court rendered in the case of Madras Industrial Development Corporation Ltd. (1997 (4) TMI 5 - SUPREME Court) and hence, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision in the light of above discussion after providing adequate opportunity to the assessee. - Decided against Revenue. Disallowance of provisions for take or pay rental charges - ascertained liability or not - Held that - Payment on account of shortfall in quantity can be offset within any of the five subsequent years against excess quantity which may be lifted by GCPTCL and, therefore, the liability to pay in respect of shortfall in quantity will crystallize only after the lapse of five years and till then, even if this amount is paid, it is in the nature of advance payment only and not an expenditure incurred. Under this factual position, we do not find any merit in the main contention of the assessee and therefore, the same is rejected. Regarding the alternative contention, we find force in the submission of the Ld. A.R. because once the liability is disallowed in the present year, no income is taxable in the subsequent year when the amount is credited in the P & L account by writing back the liability already disallowed. Hence, the A.O. is directed to verify this aspect in the next year and if it is found that on the write back of this liability in the next year, any amount was taxed then to this extent, income should be reduced in such next year - Decided partly in favour of Revenue. Disallowance of interest to UTI - Contigent liability - Held that - UTI has not agreed with the CDR package regarding payment of lower rate of interest ultimately, the assessee had to pay agreed rate of interest, without any benefit from the CDR package. Under these facts, it cannot be said that liability has not accrued and not crystallized. Hence, this disallowance is deleted - Decided against Revenue. The A.O. should verify the fact as to whether the amount of Rs.95.54 lacs debited by the assessee in the present year is the proportionate amount of Rs.1886.82 lacs paid by the assessee in assessment year 1999-2000 for 20 years and whether any deduction was allowed in that year and subsequent years on this basis that the same is deferred revenue expenditure. He should also verify this aspect as to whether this issue was decided by the Tribunal or by Ld. CIT(A) against the assessee in any earlier year as has been noted by Ld. CIT(A) in the present year. After verifying all these facts and after providing reasonable opportunity of being heard to the assessee, the A.O. should pass necessary order as per law. Disallowance u/s 14A - Nexus between the investment and interest bearing borrowed funds - Held that - Since the own funds of the assessee are much more than the investment and there is no nexus established by the A.O. between the investment and interest bearing borrowed funds, it cannot be said that any interest expenditure is incurred by the assessee for earning exempt dividend income and hence, no disallowance can be made u/s 14A out of interest expenditure. Regarding other expenditure, it cannot be said that there is no expenditure incurred by the assessee at all for earning dividend income because admittedly, the assessee was holding these investments in Dmat account and, therefore, there must be some expenditure incurred in respect of such Dmat account. Normally, we restore this type of matter to the file of the A.O. for deciding the disallowance of expenditure on a reasonable basis but in the facts of the present case, considering the smallness of the mount, we feel that this will be a futile exercise and hence, we hold that a disallowance of Rs.50,000/- will meet the ends of justice - Decided partly in favour of Revenue.
Issues Involved:
1. Disallowance of Corporate Debt Restructuring (CDR) expenses. 2. Disallowance of 'take or pay rental' charges to GCPTL. 3. Disallowance of provision for interest to Unit Trust of India (UTI). 4. Disallowance of amortization of lease rent paid for land. 5. Disallowance of contributions to GACL Employees Welfare Trust and Benevolent Fund. 6. Disallowance of expenses incurred on Membrane Cell. 7. Disallowance of right issue expenses. 8. Disallowance of water and service charges. 9. Disallowance of stamp duty paid for availing term loan from UTI. 10. Addition to book profit under section 115JB. 11. Disallowance under section 14A towards interest and other expenses. 12. Adjustment of provision for bad debts in the computation of book profit under section 115JB. 13. Adjustment of book profit under section 115JB by the liability towards provision for gratuity and superannuation benefits. 14. Adjustment of provision for interest on debentures issued to UTI under section 115JB. 15. Computation of deduction under section 80HHC in the computation of deemed total income under section 115JB. 16. Disallowance towards lease rent paid, considering it as a financial lease. 17. Claim under section 80-IA(4) for taking the price of electricity supplied by GEB. Issue-wise Detailed Analysis: 1. Disallowance of Corporate Debt Restructuring (CDR) expenses: The Tribunal held that the expenditure incurred on account of CDR is revenue in nature but should be allowed proportionately over the period during which the benefit is derived. The matter was restored to the Assessing Officer (AO) for fresh decision in line with the judgment of Madras Industrial Development Corporation Ltd. vs CIT. 2. Disallowance of 'take or pay rental' charges to GCPTL: The Tribunal upheld the disallowance of Rs.3,05,17,835/- as the liability had not crystallized during the year. However, it directed the AO to exclude the income declared in the next year for the reversal of this liability if it was taxed. 3. Disallowance of provision for interest to Unit Trust of India (UTI): The Tribunal allowed the deduction of Rs.1,52,92,991/- as the liability had accrued and crystallized during the year. The payment was made before the due date of filing the return, qualifying for deduction under section 43B. 4. Disallowance of amortization of lease rent paid for land: The Tribunal rejected the assessee's claim, stating that the lease rent was not nominal and the issue was covered in favor of the revenue by the Tribunal's order in the assessee's own case for the assessment year 2003-04. 5. Disallowance of contributions to GACL Employees Welfare Trust and Benevolent Fund: The Tribunal upheld the disallowance of Rs.1,80,15,960/- as the issue was covered in favor of the revenue by the Tribunal's order in the assessee's own case for the assessment year 2003-04. 6. Disallowance of expenses incurred on Membrane Cell: The Tribunal allowed the claim of Rs.10,53,35,222/- as revenue expenditure, following the Tribunal's decision in the assessee's own case for the assessment year 2003-04. 7. Disallowance of right issue expenses: The assessee did not press this ground, and it was rejected as not pressed. 8. Disallowance of water and service charges: The Tribunal restored the matter to the AO for fresh decision, directing verification of facts and compliance with the Tribunal's earlier decisions. 9. Disallowance of stamp duty paid for availing term loan from UTI: The Tribunal held that the expenditure is revenue in nature but should be allowed proportionately over the period during which the benefit is derived. The matter was restored to the AO for fresh decision. 10. Addition to book profit under section 115JB: The Tribunal upheld the addition of Rs.3,05,17,835/- to book profit, treating it as a provision for unascertained liability. 11. Disallowance under section 14A towards interest and other expenses: The Tribunal confirmed the disallowance of Rs.50,000/- towards other expenses incurred in relation to exempted income, considering the smallness of the amount. 12. Adjustment of provision for bad debts in the computation of book profit under section 115JB: The Tribunal decided this issue against the assessee, following clause (i) of Explanation 1 to Section 115JB. 13. Adjustment of book profit under section 115JB by the liability towards provision for gratuity and superannuation benefits: The Tribunal upheld the deletion of adjustments made by the AO, following the judgment of Hon'ble Delhi High Court in the case of CIT Vs Hewlett Packard India (P) Ltd. 14. Adjustment of provision for interest on debentures issued to UTI under section 115JB: The Tribunal upheld the deletion of adjustment, considering the provision as an allowable expenditure. 15. Computation of deduction under section 80HHC in the computation of deemed total income under section 115JB: The Tribunal restored the matter to the AO for fresh decision, directing consideration of the latest judgment of Hon'ble Apex Court in the case of Ajanta Pharma Ltd. vs CIT. 16. Disallowance towards lease rent paid, considering it as a financial lease: The Tribunal restored the matter to the AO for fresh decision in light of the Special Bench decision in the case of Indusind Bank, allowing deduction on account of interest payment and depreciation if the assets are put to use. 17. Claim under section 80-IA(4) for taking the price of electricity supplied by GEB: The Tribunal upheld the order of Ld. CIT(A), allowing deduction under section 80-IA based on the market rate of Rs.4.55 per unit of power, following various Tribunal decisions. Conclusion: The appeals were partly allowed for statistical purposes, with specific issues being restored to the AO for fresh decision and others being decided in favor of either the assessee or the revenue based on the Tribunal's earlier decisions and relevant case laws.
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