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2014 (1) TMI 1028 - AT - Income TaxLease rent of boiler Held that - This boiler was sold by the assessee to the above corporation in the earlier year and was taken on lease by the assessee - Following assessee s own case for the assessment years 1992-93 and 1993-94 - Decided in favour of assessee. Entertainment expenses Held that - The AO disallowed 70% of the expenses claimed by the assessee on tea, snacks etc. for visitors and the expenses incurred for providing food to employees while on leave at holiday home - Following assessee s own case for the assessment years 1992-93 and 1993-94 Decided against assessee. Taxability of technical know-how fees Held that - The impugned amount has been taxed in the year 1998-99 and the same cannot be taxed again in the year 1990-91 The issue has been restored to the file of the AO with a view to verify that the impugned technical know how fees has been taxed in the year 1998-99 and if the contention is found correct, then the same cannot be taxed again. Deduction u/s 80HHC Held that - Following IPCA Laboratory Ltd. vs. DCIT 2004 (3) TMI 9 - SUPREME Court - As per sub-section (1) of section 80HHC(3) a deduction can be permitted only if there is a positive profit in the exports of both self- manufactured goods as well as trading goods - If there is a loss in either, that loss has to be taken into account for the purpose of computing profits - Section 80AB has been given an overriding effect over all other sections contained in Chapter VIA, including Section 80HHC - If the income has to be computed in accordance with the provisions of the Act, not only profits but also losses have to be taken into account - The term profit means a positive profit - The meaning of the word profit will depend on the context in which it is used - For purposes of computation u/s 80HHC(3), both profits as well as losses have to be taken into account - The word profit in Section 80HHC(3) will mean profit after taking into consideration losses, if any - The term profit in Section 80HHC both in sub-section (1) and sub-section (3) means a positive profit worked out after taking into account the losses, if any - The word profit has the same meaning in Sections 80HHC(1) and (3) Decided against assessee. Taxability of exchange profit on repatriation of GDR funds Held that - The Ld.CIT(A) was correct in holding that the gain which have arisen on account of conversion of foreign currency into Indian Rupees on repatriation of foreign currency held abroad is on account of capital account and as such the said amount is not taxable as revenue receipt - The gains cannot be brought to tax u/s 45 of the Act as the transaction does not come within the purview of the expression transfer as defined u/s 2(47) of the Act - As regards the direction of CIT(A) to reduce cost of capital asset to the extent of gain arose to assessee company on repatriation of foreign currency and accordingly recalculate the depreciation allowance on the relevant blocks of assets as per law, it is pertinent to mention that section 43 A of the Act is not applicable in the case of the assessee - The GDR issue does not relate to any increase or decrease in the liability of the assessee as expressed in Indian Rupees linked with payment Decided in favour of assessee. Expenditure incurred on issue of the first Global Depository Receipts Held that - Following Brooke Bond India Ltd Vs CIT 1997 (2) TMI 11 - SUPREME Court - Though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retains the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company - The expenditure incurred by the assessee is capital expenditure Decided against assessee. Repayment of foreign currency loan and investing in PSU bonds Held that - The said expenditure is related to the expenses incurred by the assessee in connection with modernization of the DMT division of the assessee company - Due to the reason that the plant has been shut down over a period of time to complete the major revamping involved in the expansion, the fact that there is no increase in the production cannot be a decisive test to negatively conclude that there has no modernization of the DMT Division The issue has been restored for fresh adjudication so as to examine whether the amounts of Rs.48.05 crores and Rs.16.76 crores incurred by the assessee in connection with re-payment of foreign currency loan and investing in PSU bonds is for the purpose of modernization of the DMT division of the assessee company as claimed. Expenditure incurred on issue of Non Convertible Debenture (NCD)/ Secured Premium Notes (SPN) Held that - Following Mahindra & Mahindra Ltd. vs. JCIT 2009 (10) TMI 639 - ITAT MUMBAI - The expenses in relation to the issue of debentures are allowable u/s 37(1) of the Act as revenue expenditure Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction on boiler lease rent. 2. Disallowance of entertainment expenses. 3. Taxation of technical know-how fees. 4. Disallowance of deductions under sections 80HH, 80I, and 80IA. 5. Disallowance of notional interest on overdraft. 6. Deduction under section 80HHC. 7. Treatment of gains on cancellation of forward foreign exchange contracts. 8. Taxability of exchange profit on repatriation of GDR funds. 9. Disallowance of expenditure on GDR issue. 10. Disallowance of expenditure on NCD/SPN issue. Detailed Analysis: 1. Disallowance of Deduction on Boiler Lease Rent: The assessee's appeal contested the confirmation by the CIT(A) of the disallowance of Rs.8,10,212/- claimed as boiler lease rent. The Tribunal noted that similar claims had been allowed in the assessee's favor for previous years (1992-93 and 1993-94) and reversed the CIT(A)'s order, allowing the deduction. 2. Disallowance of Entertainment Expenses: The assessee's appeal against the disallowance of Rs.88,213/- for entertainment expenses was dismissed. The Tribunal upheld the CIT(A)'s decision, referencing similar past decisions against the assessee for the years 1992-93 and 1993-94. 3. Taxation of Technical Know-How Fees: The Tribunal restored the issue of Rs.64,12,875/- technical know-how fees to the AO to verify if it was already taxed in 1998-99, following the Tribunal's earlier decision for the year 1990-91. 4. Disallowance of Deductions Under Sections 80HH, 80I, and 80IA: The Tribunal partially allowed the assessee's appeal. It allowed deductions for interest received from customers for delayed payments but upheld disallowances for interest on ICD, dividend on UTI units, and interest on statutory deposits. The issues of sales tax set-off and insurance claims were remitted back to the AO for fresh consideration. 5. Disallowance of Notional Interest on Overdraft: The Tribunal allowed the assessee's appeal, deleting the disallowance of Rs.5,548/- for notional interest on overdraft, consistent with previous years' decisions. 6. Deduction Under Section 80HHC: The Tribunal dismissed the assessee's appeal for Rs.72,45,570/- deduction under section 80HHC. It cited the Supreme Court's decisions in IPCA Laboratory Ltd. vs. DCIT and A.M. Moosa vs. CIT, which held that deductions under section 80HHC require a positive profit. 7. Treatment of Gains on Cancellation of Forward Foreign Exchange Contracts: The Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s decision to treat Rs.21 lakhs as income from speculation business, consistent with past decisions. 8. Taxability of Exchange Profit on Repatriation of GDR Funds: The Tribunal upheld the CIT(A)'s finding that Rs.29.13 lakhs gain on repatriation of GDR funds was capital in nature and not taxable as revenue receipt. However, it rejected the CIT(A)'s direction to reduce the cost of capital assets by this gain, as section 43A was not applicable. 9. Disallowance of Expenditure on GDR Issue: The Tribunal upheld the CIT(A)'s decision that Rs.727.84 lakhs expenditure on GDR issue was capital expenditure and not allowable under section 37(1). However, it remitted the issue back to the AO to verify if the expenditure was for modernization purposes and thus allowable under section 35D. 10. Disallowance of Expenditure on NCD/SPN Issue: The Tribunal allowed the assessee's appeal, deleting the disallowance of Rs.56,80,081/- for expenditure on NCD/SPN issue, following the decisions in Mahindra & Mahindra Ltd. vs. JCIT and CIT vs. Secure Meters Ltd. Revenue's Appeal: 1. Gains on Cancellation of Forward Foreign Exchange Contracts: The Tribunal dismissed the Revenue's appeal, consistent with its decision in the assessee's appeal, treating the gains as capital receipts. 2. Exchange Profit on Repatriation of Euro Issue Fund: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s finding that the gain was capital in nature and not taxable as revenue receipt. It also confirmed that expenses related to NCD issues were allowable as revenue expenditure. Conclusion: The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal's order was pronounced on January 8, 2014.
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