2024 (1) TMI 1279 - AT - Income Tax

Disallowance of proportionate Interest Expenditure - Allowable business expenditure or not? - HELD THAT - In the above order, detailed findings have been rendered by us with respect to each of the parties under consideration. We have concurred with the plea of business nexus as well as sufficiency of own funds. The facts are quite similar in this year. Therefore, taking the same stand, the impugned disallowance stands deleted. The grounds raised in the appeal stand allowed accordingly. Disallowance of bad-debts written-off - HELD THAT - After careful consideration of material facts, it could be noted that assessee was handling imported fertilizers in earlier years and Government of India was reimbursing the handling charges to the assessee. Out of such claims made by the assessee, the amount of Rs. 3579.61 Lacs was not sanctioned even after persistent efforts made by the assessee. As per the submissions, this income was booked during the period from September, 1992 to 1993 and the same has been written-off after a considerable period of time in this year. Since considerable time has elapsed and the claim has not been received by the assessee till date, the write-off of the same has to be allowed as bad debts. Disallowance of Agri India claim - write-off of interest on fertilizer subsidy - HELD THAT - It could be noted that assessee was handling imported fertilizers in earlier years and Government of India was reimbursing the handling charges to the assessee. Out of such claims made by the assessee, the amount of Rs. 3579.61 Lacs was not sanctioned even after persistent efforts made by the assessee. As per the submissions, this income was booked during the period from September, 1992 to 1993 and the same has been written-off after a considerable period of time in this year. Since considerable time has elapsed and the claim has not been received by the assessee till date, the write-off of the same has to be allowed as bad debts. The directions given by Ld. CIT(A) with respect to interest on fertilizer subsidy is quite apt and no further directions are required in the matter. Regarding equity advance , the undisputed fact that emerges is that the same has been offered to tax in earlier years. AO denied the deduction of the same on the ground that it was capital in nature whereas Ld. CIT(A) confirmed the same on the ground that this was not written-off in this year. However, this being reversal of interest offered to tax in earlier years, the same could not be held to be capital in nature. The observation of Ld. CIT(A) that this amount was not written-off in this year is also not correct - We find that this amount has been written-off in this year only. This being so, the impugned claimed made by the assessee would be an allowable deduction. For remaining debt pertain to pharma and Agri business divisions - The amounts due from various parties towards sale of goods during the course of income could not be recovered and the same has been written-off in the books of accounts. The Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT held that to make aforesaid claim, it was sufficient that the amount was written-off in the books of accounts. Since the assessee has written-off these amounts, applying the ratio of this decision, this claim would be allowable to the assessee. The corresponding grounds raised by the assessee stand allowed accordingly. Disallowance of 50% expenditure towards R D facility u/s 35(2AB) - assessee filed letter for renewal of recognition of in-house R D facility as granted by DSIR recognizing the R D facility up-to 31.03.2009, but the assessee did not furnish any evidence to show that it had entered into an agreement with DSIR for cooperation in R D facility - HELD THAT - We find that this issue stood covered in assessee s favor by the decision of this Tribunal in M/s Caplin Point Laboratories Ltd. 2022 (8) TMI 450 - ITAT CHENNAI wherein as held de hors any specific dates specified in the certificate of the prescribed authority, namely DSIR, once the prescribed authority approved the existence of research and development facility and the expenditure incurred on such scientific research, the assessee would be entitled for the expenditure incurred for the whole of the assessment year and cannot be granted in a truncated manner. Disallowance of Electricity Tax u/s 43B as well as u/s 115JB - assessee debited contingent liability towards power generation and electricity tax - HELD THAT - We find that this issue has been decided by us against the assessee in assessee s appeal 2024 (1) TMI 1278 - ITAT CHENNAI wherein as held this liability has not yet crystallized and the same is merely in the nature of contingent and an unascertained liability only which may or may not arise. Undoubtedly, the same is covered under the provisions of Sec.43B. Therefore, the same has to be disallowed in normal computations as well as while computing Book Profits u/s 115JB also. Assessment of interest income - assessee underwent Corporate Debt Restructuring (CDR) and got relief of Rs. 507.16 Lacs as reported by statutory auditor - assessee submitted that they have accounted interest expenditure at the reduced rates instead of normal rates. Therefore, the question of adding the same would not arise - HELD THAT - From the facts, it emerges that the assessee has accounted interest expenditure at reduced rates only and the separate reporting made by Auditor is part of statutory disclosure only. The Ld. CIT(A) has well appreciated the plea of the assessee and observed that the assessee did not provide the requisite documents and computations to support its stand. AO has been directed to verify the claim of the assessee. Therefore, no further directions are required in the matter. The directions given in the impugned order are quite apt. The corresponding grounds stand dismissed. Disallowance of business expenditure in connection with hire charges - AO rejected the same on the ground that the same was merely a deposit and therefore, could not be allowed as business expenditure, thus the same was added back while computing income under normal provisions as well as while computing book profits u/s 115JB - HELD THAT - We concur with the adjudication of Ld. CIT(A) that the impugned amount was in the nature of deposit only. The said liability has neither crystalized not quantified in this year. The same is dependent on a future event and the same may not even accrue against the assessee. The same is merely in the nature of contingent and an unascertained liability only which may or may not arise. Undoubtedly, the same is covered under the provisions of Sec.43B. Therefore, the same has to be disallowed in normal computations as well as while computing Book Profits u/s 115JB. Therefore, we confirm the stand of lower authorities and dismiss the grounds raised by the assessee. The assessee is free to claim the deduction thereof in case the liability crystalizes in subsequent years. Disallowance of overdue interest payable to subsidiary company - HELD THAT - Assessee has purchased Phosphoric Acid from this entity during financial years 1999-2000 to 2001-02. The copies of invoices and bill of lading has also been placed on record. The same run contrary to the observations made by Ld. CIT(A) that there was no business transactions. Therefore, this issue is restored back to Ld. AO for verification and re-adjudication with a direction to the assessee to substantiate its claim. The ground, to that extent, stands allowed for statistical purposes. Disallowance of business loss on equity investment - CIT(A) confirmed the disallowance on the ground that business nexus was not established - AO held that it was a long-term capital loss which was upheld - HELD THAT - Before us, the assessee has not established any business nexus with the impugned investment. Therefore, the investments so written-off could not be allowed as business loss. The Ld. CIT(A) has erred in noting that the said loss has been allowed as long-term capital loss by Ld. AO. In fact, no such computation has been made by Ld. AO in the assessment order. Therefore, the aforesaid claim would be assessable as capital loss and be allowed to be carried forward. The Ld. AO is directed to compute the same in accordance with law. The alternative claim made by the assessee stand allowed.

Summary

Issues Involved:
1. Disallowance of proportionate interest expenditure.
2. Disallowance of bad debts written-off.
3. Disallowance of 50% expenditure towards R&D facility.
4. Disallowance of electricity tax under normal provisions and u/s 115JB.
5. Assessment of interest income.
6. Disallowance of business expenditure in connection with hire charges.
7. Disallowance of overdue interest payable to subsidiary company.
8. Disallowance of business loss on equity investment.

Summary:

1. Disallowance of Proportionate Interest Expenditure:
The assessee claimed interest expenditure against loan liabilities, which was disallowed proportionately by the AO due to advances made to group entities. The CIT(A) reduced the disallowance but the Tribunal found that the investments had a business nexus and sufficient own funds were available. The Tribunal, referencing the Supreme Court's decision in CIT V/s S.A. Builders, deleted the disallowance, allowing the assessee's grounds.

2. Disallowance of Bad Debts Written-off:
The assessee's claim for bad debts, including amounts due from the Government and interest on fertilizer subsidy, was disallowed by the AO. The CIT(A) upheld most disallowances but directed verification for the interest subsidy. The Tribunal allowed the write-off of handling charges and interest on subsidy, finding them to be genuine bad debts. The remaining bad debts were also allowed based on the Supreme Court's decision in TRF Ltd.

3. Disallowance of 50% Expenditure towards R&D Facility:
The assessee's claim for R&D expenses was disallowed due to lack of approval in Form 3CM. The Tribunal, referencing the decision in M/s Caplin Point Laboratories Ltd., directed the AO to grant full deduction, finding the R&D facility was approved, and the expenditure incurred was eligible for deduction.

4. Disallowance of Electricity Tax u/s 43B and u/s 115JB:
The AO disallowed the electricity tax claimed as contingent liability. The CIT(A) upheld this, stating it was an invalid claim for the year. The Tribunal confirmed this disallowance, noting the liability had not crystallized and was contingent, thus covered under Sec.43B.

5. Assessment of Interest Income:
The AO added interest expenditure relief from CDR to income, which the CIT(A) directed to verify. The Tribunal found the CIT(A)'s directions apt, noting the assessee had accounted for interest at reduced rates and upheld the verification process.

6. Disallowance of Business Expenditure in Connection with Hire Charges:
The AO disallowed the deposit made as per court direction, treating it as non-business expenditure. The CIT(A) upheld this as a contingent liability. The Tribunal confirmed the disallowance, noting the liability had not crystallized and was contingent.

7. Disallowance of Overdue Interest Payable to Subsidiary Company:
The AO disallowed overdue interest payable due to lack of documentation. The CIT(A) upheld this, finding no business nexus. The Tribunal restored the issue to the AO for verification, noting the assessee had provided evidence of business transactions.

8. Disallowance of Business Loss on Equity Investment:
The AO disallowed the business loss claim on investment write-off, not allowing the alternative capital loss claim. The CIT(A) upheld the disallowance. The Tribunal allowed the alternative claim for long-term capital loss to be carried forward, directing the AO to compute it accordingly.

Conclusion:
The appeal was partly allowed, with specific directions for each issue. The order was pronounced on 10th January, 2024.