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2013 (11) TMI 1234 - AT - Income TaxAllowability of interest expense on debenture - accrual of interest liability - Such payment was made on 24/03/1995, i.e. the date of allotment in that case, hence the funds were used in that case for only a few days during AY 1995-96. In spite of this, the assessee in that case claimed deduction for the entire amount of interest paid on the date of allotment. The argument on behalf of the Revenue was that this interest should accrue on day-today basis - Held that - the entire interest payment made in the initial year of allotment cannot be artificially spread over the period of six years for the purposes of allowing deduction. - no part of this interest expenditure is disallowable whether it is covered by 43B or not. - Decided in favor of assessee. Project expenses written off - Held that - in the interest of justice, this matter should go back to the file of CIT(A) for a clear finding regarding the facts - matter remanded back. Depreciation on Wind Turbine Generating Sets - Held that - the term use has a wide connotation and even trial production of a machinery would fall within the ambit of used for the purpose of business . It was also held that the Statute does not prescribe a minimum time-limit for use of the machinery and hence the assessee cannot be denied the benefit of depreciation on the ground that the machinery was used for a very short duration for trial run - Decided against the revenue. Depreciation on machinery purchased and leased by the assessee - Held that - even the transaction is apparently genuine as the equipment was purchased by M/s.PIL from TISCO. Thus, it would not be proper to disallow the depreciation claimed on these assets in respect of which sale and lease back transaction was entered into. The claim of the appellant is, therefore, allowed - Decided against the revenue. Interest expenses - disallowance of claim under sec.43B - Held that - BIFR is only to consider various extra benefits to be allowed to the assessee which is sick company, but not for curtailing any benefit allowable to the assessee as per law. Since there is no question raised by the ld.DR of the Revenue regarding allowability of the claim of the assessee as per law, the same cannot be denied to the assessee on the basis of a letter of Directorate Income-tax before BIFR which is also agreed by the assessee before BIFR - Decided against the revenue. Deduction u/s 80M - Held that - t in addition to receiving eight dividend warrants, the decision making is also required as to whether the investment is to be retained or to be sold out and, therefore, some expenses had to be reduced from dividend income on account of administrative expenditure, etc. But in our considered opinion, estimate of the AO at 5% of the dividend income is excessive and considering the facts of the present case, we are of the opinion that 0.5% expenditure will be sufficient to take care of administrative and management expenses in respect of dividend income. - Decided partly in favor of revenue.
Issues Involved:
1. Disallowance of interest paid to Citi Corp and ICICI Ltd. 2. Disallowance of project expenses written off. 3. Disallowance of depreciation on Wind Turbine Generating Sets. 4. Disallowance of depreciation on machinery purchased and leased back. 5. Disallowance of deferred revenue expenses. 6. Allocation of expenses to Export Oriented Units (EOUs). 7. Disallowance of deduction under section 43B. 8. Disallowance of administrative expenses from dividend income under section 80M. 9. Capital gains on sale of business undertaking. 10. Disallowance of loan arrangement fees. 11. Disallowance of interest on borrowings used for acquiring uninstalled plant & machinery. Issue-wise Detailed Analysis: 1. Disallowance of Interest Paid to Citi Corp and ICICI Ltd: The assessee claimed the entire amount of interest paid to Citi Corp as a deduction, which was disallowed by the AO, limiting the deduction to interest accrued during the year. The CIT(A) upheld the AO's decision. However, the Tribunal found that the issue was covered in favor of the assessee by the Gujarat High Court's judgment in Mohit Marketing Ltd., which allowed the entire interest payment as a deduction in the year of payment. Consequently, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal on this issue. 2. Disallowance of Project Expenses Written Off: The assessee claimed project expenses related to establishing facilities in Sri Lanka and Mauritius. The AO disallowed the claim, stating that the expenses were capital in nature. The Tribunal found that the CIT(A) did not establish whether the expenses were related to the existing line of business or whether the projects were abandoned. The Tribunal remanded the matter back to the CIT(A) for a fresh decision after establishing the facts. 3. Disallowance of Depreciation on Wind Turbine Generating Sets: The AO restricted the depreciation claim to 50%, arguing that commercial production had not started by 30/09/1994. The CIT(A) allowed the full depreciation, stating that the machinery was used for trial production, which qualifies as use for business purposes. The Tribunal upheld the CIT(A)'s decision, citing the Gujarat High Court's judgment in Ashima Syntex Ltd., which held that trial production qualifies as use for business purposes. 4. Disallowance of Depreciation on Machinery Purchased and Leased Back: The AO disallowed the depreciation claim, suspecting the genuineness of the transaction. The CIT(A) allowed the claim, noting that the machinery was purchased from TISCO and physically verified by a Chartered Engineer. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's argument that the transaction was not genuine. 5. Disallowance of Deferred Revenue Expenses: The AO disallowed the claim for deferred revenue expenses. The Tribunal noted that similar issues were decided in favor of the assessee in earlier years. The Tribunal upheld the CIT(A)'s decision to allow the expenses, citing the Tribunal's earlier decision in the assessee's own case for AY 1994-95 and the Gujarat High Court's judgment in Core Healthcare Ltd. 6. Allocation of Expenses to Export Oriented Units (EOUs): The AO allocated expenses to EOUs, reducing the deduction available under section 10B. The Tribunal found that similar issues were decided in favor of the assessee in earlier years. The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenses, citing the Tribunal's earlier decision in the assessee's own case for AY 1994-95. 7. Disallowance of Deduction Under Section 43B: The AO disallowed the deduction claimed under section 43B for various statutory liabilities. The Tribunal found that similar issues were decided in favor of the assessee in earlier years. The Tribunal upheld the CIT(A)'s decision to allow the deduction, citing the Tribunal's earlier decision in the assessee's own case for AY 1994-95 and the Supreme Court's judgment in Alom Extrusions Ltd. 8. Disallowance of Administrative Expenses from Dividend Income Under Section 80M: The AO estimated administrative expenses at 5% of the dividend income and reduced the deduction under section 80M. The Tribunal found that the estimate was excessive and directed the AO to reduce 0.5% of the dividend income as expenses. The Tribunal upheld the CIT(A)'s decision to allow the deduction, with the modification that 0.5% of the dividend income should be considered as expenses. 9. Capital Gains on Sale of Business Undertaking: The AO added the difference between the capital gains offered by the assessee and the capital gains calculated by the AO. The Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's judgment in PNB Finance Ltd., which held that section 45 is not applicable where the computation provisions could not apply. The Tribunal upheld the CIT(A)'s decision to delete the addition. 10. Disallowance of Loan Arrangement Fees: The AO disallowed the claim for loan arrangement fees, treating it as capital expenditure. The Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's judgment in India Cements Ltd., which held that expenditure on borrowing is revenue in nature. The Tribunal upheld the CIT(A)'s decision to allow the deduction. 11. Disallowance of Interest on Borrowings Used for Acquiring Uninstalled Plant & Machinery: The AO disallowed the interest on borrowings used for acquiring uninstalled plant & machinery. The Tribunal found that the proviso to section 36(1)(iii), which disallows such interest, was applicable from AY 2004-05 and not relevant for the years under consideration. The Tribunal upheld the CIT(A)'s decision to allow the deduction, citing the Tribunal's earlier decision in the assessee's own case for AYs 1992-93 and 1993-94. Summary of Results: 1. Assessee's appeal for AY 1995-96 is allowed. 2. Revenue's appeal for AY 1995-96 is partly allowed. 3. Assessee's appeal for AY 1997-98 is allowed. 4. Revenue's appeal for AY 1997-98 is partly allowed. 5. Revenue's appeal for AY 1996-97 is partly allowed. 6. Revenue's appeal for AY 1999-2000 is dismissed.
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