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2017 (7) TMI 917 - AT - Income TaxAddition of amount transferred from deferred income reserves to profit and loss account - Held that - Since the concession was linked to the import of capital goods though conditional on fulfilling export obligation it was a concession on the capital account. The assessee is also not allowed to use the import entitlement in any manner other than for import of capital goods. We agree with the argument of the ld. AR that there is no benefit or perquisite that accrued to the assessee on account of this transaction and it does not have any component of revenue nature and hence the provisions of sec.28(iv) of the Act does not apply. For invoking sec.28(iv) of the Act the pre-requisite conditions are that the benefit / pre-requisite must arise from the business of an assessee and that there must be a nexus or connection between the business of an assessee and the benefit / perquisite sought to be taxed. In this case both the conditions are absent. Therefore we find that the CIT(Appeals) is justified in giving direction the AO to delete the disallowance made. Further in our opinion it is a notional entry in its books of account and not effecting the real profit and loss account of the assessee and the provisions of sec.28(iv) have no application. This ground is dismissed. Disallowance of deduction u/s.43B - Held that - As gone through the findings of the CIT(Appeals) we do not find the basis for disallowance computed by the CIT(Appeals) as above. Hence we remit the issue to the file of the AO to decide the issue afresh. Accordingly this ground of appeal is allowed for statistical purposes. Disallowance of debenture issue expenses - Held that - We find that this issue is covered by the judgment of the jurisdictional High Court in the case of South India Agency Ltd. (2006 (8) TMI 153 - MADRAS High Court ) wherein it was held that the expenditure towards issuance of partly convertible debentures are allowable expenditure. Allowance of deemed interest on loans to subsidiaries - Held that - As decided for the asst. years 2003-04 and 2004- 05 there cannot be any addition of notional interest since it is not the case of the Revenue that the subsidiary companies had misused the funds for any other purpose. In other words since the subsidiary companies used the funds for their business this Tribunal is of the considered opinion there cannot be any addition in the hands of the assessee.
Issues Involved:
1. Validity of Reopening of Assessment 2. Deletion of Addition from Deferred Income to Profit and Loss Account 3. Disallowance of Deduction under Section 43B 4. Disallowance of Debenture Issue Expenses 5. Allowance of Deemed Interest on Loans to Subsidiaries Detailed Analysis: 1. Validity of Reopening of Assessment The primary issue in ITA 1339/Mds/2010 for the assessment year 2001-02 concerns the CIT(Appeals)'s finding that reopening is bad in law. The Assessing Officer (AO) had observed discrepancies in the profit figures and issued a notice under Section 148 of the Income Tax Act, alleging that the assessee failed to disclose all material facts. However, the CIT(Appeals) ruled the reassessment proceedings invalid, a decision upheld by the Tribunal. The Tribunal noted that the reopening was based on a mere change of opinion without new material evidence, thus making it unsustainable in law. This conclusion aligns with the Tribunal's earlier decision in the assessee's case for the assessment year 2000-01, where it was held that reopening after four years requires fresh material indicating income escapement, which was absent in this case. 2. Deletion of Addition from Deferred Income to Profit and Loss Account For ITA Nos. 1340, 1341, 1342/Mds/2010 concerning assessment years 2004-05, 2005-06, and 2006-07, the common issue was the deletion of the addition of amounts transferred from deferred income (reserves) to the profit and loss account. The AO had disallowed the withdrawal of ?3,35,24,771/- from the computation of income, treating it as business income under Section 28(iv) of the Act. The CIT(Appeals) allowed the ground of appeal, stating that the notional entries did not result in actual income or expenditure. The Tribunal upheld this view, citing precedents like CIT v. Mogul Lines Ltd. and CIT v. Shoorji Vallabhdas & Co., which establish that taxability is determined by the actual income, not book entries. The Tribunal also noted that Section 28(iv) did not apply as the transaction did not result in any real benefit or perquisite. 3. Disallowance of Deduction under Section 43B In ITA No.1340/Mds/2010 for the assessment year 2004-05, the issue was the disallowance of deduction under Section 43B. The AO had disallowed certain interest payments, claiming they pertained to earlier years and were not paid before the due date for filing the return. The CIT(Appeals) partially allowed the deduction, reducing the disallowable amount to ?88,91,95,993/-. The Tribunal remitted the issue back to the AO for fresh consideration, as the basis for the CIT(Appeals)'s computation was unclear. 4. Disallowance of Debenture Issue Expenses For ITA No.1341/Mds/2010 concerning the assessment year 2005-06, the AO disallowed debenture issue expenses of ?2,87,18,609/-, treating them as capital expenditure. The CIT(Appeals) allowed the expenses, following the Madras High Court's decision in CIT v. South India Corporation (Agencies) Ltd. The Tribunal upheld this decision, noting that expenditure on issuing partly convertible debentures is allowable. 5. Allowance of Deemed Interest on Loans to Subsidiaries In ITA Nos. 1341 & 1342/Mds/2010, the issue was the allowance of deemed interest on loans to subsidiaries. The AO had added notional interest, arguing that the assessee should have recognized interest income on advances to subsidiaries. The CIT(Appeals) deleted the addition, a decision affirmed by the Tribunal based on its earlier rulings in the assessee's cases for assessment years 2003-04 and 2004-05. The Tribunal held that notional interest could not be added if the funds were used for the subsidiaries' business, aligning with the Supreme Court's judgment in S.A. Builders. Conclusion The Tribunal dismissed ITA Nos. 1339, 1341 & 1342/Mds/2010 and partly allowed ITA No.1340/Mds/2010 for statistical purposes, upholding the CIT(Appeals)'s findings on most issues while remitting one issue for fresh consideration by the AO.
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