2017 (1) TMI 1676 - AT - Income Tax

Deduction of write off of investments - profit on sale of investments was arrived at after providing for write off of investments and this was claimed as deduction in the computation of filed along with the return of income on account of diminution in the value consequent to write off of investments - AO disallowed the claim of business loss on the basis that the same can be allowed as instrument in the nature of investments but not as loan - HELD THAT - CIT (A) confirmed the disallowance following earlier years decision of the Tribunal in assessee s own case for assessment year 1981-82 and 1982-83. She admitted that write off of investment claimed as capital loss is covered against the assessee in earlier assessment year, but business loss as allowed by the CIT (A) on account of investment on conversion of loan arrears is allowable i.e. assessment year 1997-98 wherein Tribunal in assessee s own case for A. Y. 1982-83 allowed it as business loss. No distinction has been brought in facts or legal position by Ld. CIT-DR. Therefore, respectfully following the orders of earlier years, the A O is directed to follow the orders of the earlier years and allow a sum as business loss and the balance amount on account of write-off of investment as capital loss should be disallowed, as held above also. Thus, assessee gets part relief. This ground is partly allowed. AO to partly allow relief as above. This common issue of assessee s appeal is dismissed and that of the Revenue is also dismissed. Deduction under section 10(23G) - interest expenses incurred for earning interest free income from bonds instead being only direct expenses thereby allowing only part expenses u/s 10(23G) - HELD THAT - No interest expense was disallowed by the assessee by claiming that it was the gross income to be allowed as exempt u/s 10(23G). As in the earlier year, now, the assessee before us also filed alternative working of expenses, which was not before the lower authorities. Before us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the mater back to the file of the AO for fresh consideration. The only differential fact in the present case is that the assessee itself has disallowed direct expenses by way of interest expenses for earning of income u/s 10(23G) which has been offered for disallowance - only those expenses which are relatable to earning of exempt income can be claimed as deduction for computing net income u/s 10(23G). In term of the above and in term of the direction of the Coordinate Bench of the Tribunal in assessment year 1997-98 in assessee s own case the AO will decide the issue. Accordingly, this issue of assessee s appeal is allowed for statistical purposes and the issue of Revenue s appeal is dismissed. Disallowance of depreciation claimed on assets leased - HELD THAT - Tribunal in assessee s own case for assessment year 1995-96 i.e. in ICICI Bank Ltd. Vs JCIT, SR-28, Mumbai 2007 (2) TMI 238 - ITAT BOMBAY-I has directed the AO to allow depreciation on all items claimed by the assessee. Respectfully following the said decision of the Tribunal in earlier year in assessee s own case, we direct the AO to allow the claim of the assessee after verifying the facts and figures. This issue of the assessee s appeal is thus allowed in both the years. Disallowance of interest expenses and 1% of managerial and administrative expenses - HELD THAT - AO while examining the assessee s own funds vis- -vis investments in shares will follow the decision of the Hon ble Bombay High Court in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT and Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT . In case, the investment is made out of assessee s funds, then, no interest expenses is to be allocated to the interest income. Accordingly, we set aside this issue to the file of the AO to verify the facts. This issue of the assessee is allowed for statistical purposes and the issue in Revenue s appeal is dismissed. Depreciation on fixed assets - HELD THAT - Let the facts be examined by the AO because none of the authorities below have deliberated on these issues. Learned Counsel for the assessee has not objected to the proposal. In term of the above, we restore these two issues back to the file of the AO for deciding the issue in terms of decision of the Hon ble Supreme Court in the case of Smiffs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT on the issue of depreciation and in term of Tata Chemicals 2002 (4) TMI 42 - BOMBAY HIGH COURT on the issue of interest capitalization on building. Accordingly, these two issues are restored back to the file of the AO. Disallowance of VRS expenses be deferred and amortized expenses over a period of time - HELD THAT - Revenue could not point out how the expenses are capital in nature and could not find fault with the findings of CIT(A). Even otherwise, the expenses on VRS are incurred wholly and exclusively for the purpose of business and hence revenue in nature and allowable entirely in the year in which these are incurred. Admittedly, these expenses are incurred in this very year, which is not in dispute. Accordingly, we confirm the order of CIT(A) and this issue of revenue s appeal is dismissed. Discount on repurchase of foreign currency bonds - HELD THAT - Claim of deduction represents discount on re-purchase of foreign currency borrowings, which is nothing but a capital receipt and it only represents an accounting entry. We find no infirmity in the order of CIT(A). Hence, this issue of revenue s appeal is dismissed. Exclusion of 234 B levy in regard to the deemed tax payable under section 143 (4) - HELD THAT - assessed tax for the purposes of Section 234 B is clearly defined under the Act. This definition does not include the deemed tax payable as per Section 143(4). Thus find that such interest has been deleted in appeal for A.Y. 1996-97. Following the same, while the charging of interest under section 234 B is upheld and is subject to consequent relief in view of my findings above on various grounds, the AO is directed to exclude 234 B levy in regard to the deemed tax payable under section 143 (4) of the Act. Addition on account special reserve withdrawal u/s 41 (4A) - HELD THAT - Amendment introduced in the said section by the Finance Act 1997 is not clarificatory. It has been made effective from AY 1998-99 and therefore must be construed as prospective only. The condition of maintenance of special reserve was made applicable only from 1.4.1998 and did not affect a reserve created prior thereto and consequently withdrawal from special reserve created prior to AY 1998-99 would not attract the deeming provision of Section 41(4A) - in construing a fiscal statute and in determining the liability of a subject to tax, one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. The onus is on the Revenue to satisfy the court that the case falls strictly within the provisions of the law. If the case is not covered by the four corners of the provision of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intention of the Legislature and by considering what was the substance of the matter. If a section in a taxing statute is of doubtful and ambiguous meaning, it is not possible out of that ambiguity to extract a new and added obligation not formerly cast upon the taxpayer. The legal position is well settled that when a provision admits of two interpretations a view which is favourable to the assessee should be adopted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction of write-off of investments.
2. Deduction under section 10(23G) of the Income Tax Act.
3. Disallowance of depreciation claimed on assets leased during the year.
4. Exemption under section 10(33) of the Income Tax Act.
5. Deduction of share issue expenses.
6. Calculation for deduction under section 36(1)(viii) of the Income Tax Act.
7. Disallowance of depreciation on fixed assets.
8. Disallowance of interest on loans for building.
9. Disallowance of deduction for provision for bad debts.
10. Charging of interest under section 234B of the Income Tax Act.
11. Erroneous addition of write-backs previously sought to be taxed.
12. Disallowance of bad debts written off during the year.
13. Disallowance of earlier years' expenditure.
14. Allowing VRS expenses.
15. Deduction of discount on repurchase of foreign currency bonds.
16. Addition of special reserve withdrawal under section 41(4A) of the Income Tax Act.

Detailed Analysis:

1. Deduction of Write-off of Investments:
The Tribunal found that the AO disallowed the claim of business loss of ?228,15,80,396 on the grounds that it could be allowed as an instrument in the nature of investments but not as a loan. The CIT(A) confirmed this disallowance following earlier years' decisions. The Tribunal directed the AO to follow earlier years' orders, allowing ?10,47,95,551 as business loss and disallowing the balance as capital loss.

2. Deduction under Section 10(23G):
The Tribunal noted that the facts and circumstances were identical to previous years. The issue was set aside to the AO to decide afresh, considering only those expenses which are relatable to earning of exempt income. The AO was directed to follow the Tribunal's earlier orders and allow the claim accordingly.

3. Disallowance of Depreciation on Leased Assets:
The Tribunal directed the AO to follow earlier years' orders, which allowed the claim of depreciation on assets leased during the year. The AO was instructed to verify the requisite facts and allow the claim.

4. Exemption under Section 10(33):
The Tribunal found that the AO disallowed interest and managerial expenses, which was partly confirmed by the CIT(A). The Tribunal directed the AO to verify if the investments were made out of the assessee's own funds, following the Bombay High Court decisions in HDFC Bank Ltd. and Reliance Utilities & Power Ltd. If investments were made from own funds, no interest expenses should be allocated.

5. Deduction of Share Issue Expenses:
The assessee did not press this issue, and it was dismissed accordingly.

6. Calculation for Deduction under Section 36(1)(viii):
The Tribunal remitted the matter back to the AO to verify the calculation provided by the assessee and follow earlier years' orders. The AO was directed to remove the non-fund-based commission from the business income for the calculation.

7. Disallowance of Depreciation on Fixed Assets:
The Tribunal restored the issue back to the AO to decide in terms of the Supreme Court decision in Smiffs Securities Ltd. and the Bombay High Court decision in Tata Chemicals.

8. Disallowance of Interest on Loans for Building:
The issue was restored back to the AO for fresh adjudication, following the decision in Tata Chemicals.

9. Disallowance of Deduction for Provision for Bad Debts:
The assessee did not press this ground, and it was dismissed as not pressed.

10. Charging of Interest under Section 234B:
Both parties agreed that charging of interest under Section 234B is consequential, and the issue was dismissed as infructuous.

11. Erroneous Addition of Write-backs Previously Sought to be Taxed:
The Tribunal restored the matter back to the AO for fresh adjudication, following earlier years' decisions.

12. Disallowance of Bad Debts Written Off:
The assessee did not press this issue, and it was dismissed as not pressed.

13. Disallowance of Earlier Years' Expenditure:
The Tribunal allowed the issue following earlier years' decisions against the assessee.

14. Allowing VRS Expenses:
The Tribunal confirmed the CIT(A)'s order allowing VRS expenses, as they were incurred wholly and exclusively for business purposes.

15. Deduction of Discount on Repurchase of Foreign Currency Bonds:
The Tribunal upheld the CIT(A)'s order, considering the discount on repurchase of foreign currency bonds as a capital receipt and an accounting entry.

16. Addition of Special Reserve Withdrawal under Section 41(4A):
The Tribunal decided in favor of the assessee, holding that the amendment to Section 36(1)(viii) is prospective and does not apply to reserves created before AY 1998-99. The withdrawal from special reserves created before this period does not attract Section 41(4A).

Conclusion:
The Tribunal's judgment addressed multiple complex issues, providing detailed directions for the AO to follow earlier years' decisions and legal precedents. Several issues were remanded for fresh consideration, ensuring that only relevant expenses related to exempt income are considered, and that special reserves created before AY 1998-99 are not taxed under Section 41(4A).