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2018 (9) TMI 139 - AT - Income TaxDisallowance u/s 14A - Held that - Considering the past history of the assessee vis a vis the issue, in our considered opinion, since no fresh investment was made during the year under consideration and no nexus has been proved between the borrowed funds and the investment in tax free PDU Bonds, we do not find any justification in the disallowance made u/s 14A of the Act. Ground No. 1 is allowed. Disallowance of payments made by the Appellant to various clubs - expenditure for busniss purposes - Held that - We further find that in A.Y 2002-03 to 2005-06, the first appellate authority himself has deleted the disallowances made on account of club expenses and the COD denied permission to the department to agitate this issue in further appeal before the Tribunal. We further find that no such disallowances have been made in A.Ys 2006-07 to 2009-10. Respectfully following the findings of the coordinate bench and considering the history of the assessee as mentioned above, we set aside the findings of the CIT(A) and direct the AO to delete the addition. Interest received by the Appellant on refunds of income tax paid - chargeable to tax at rates applicable to the nonresident companies - Held that - We find that under the agreement, the assessee was supposed to pay tax liability of non resident companies and has accordingly paid the same. Subsequently, refund was granted by the department and tax paid by the assessee for non resident companies was refunded. On such refund, interest was granted to the assessee to the tune of ₹ 7,13,702/-. We fail to understand how the tax rate of non resident companies in their respective countries will be applied on this interest income earned by the assessee on the refund of Income tax when the rate of interest is determined by the Income tax Act. We direct the AO to delete the impugned addition Before closing, we find that from A.Y 2002-03 to A.Y 2007-08, the CIT(A) himself had deleted the additions on account of interest on I.T. refunds on similar facts and the COD denied permission to the department to agitate this issue in further appeal before the Tribunal. Foreign currency loss on capital account on accrual basis as well as revenue account - Held that - We find that the amendment in section 43A of the Act is applicable only from A.Y 2003-04 and prior to that the assessee is entitled to deduction on Foreign Exchange Fluctuation loss arising for both Revenue and on capital account. For this proposition, we draw support from the judgment of the Hon ble Supreme Court in the case of Woodward Governor India Pvt Ltd 2009 (4) TMI 4 - SUPREME COURT . Further, the Hon ble Supreme Court in assessee s own case has settled this issue in favour of the assessee and against the Revenue in A.Ys 1991-92 to 1994-95 and 1997-98. Respectfully following the same, we decline to interfere Disallowance being 60% of the royalty and cess paid in respect of PY-3 production sharing contract - Held that - The underlying facts to this issue show that the aforesaid royalty and cess payments were governed by the terms of the PSC entered into between Government of India and contracting parties i.e. joint venture parties. As per the terms of PSC, the assessee was obliged to pay 100% of cess & royalty to the relevant Government. The relevant extracts of PSC are exhibited wherein it has been specifically mentioned that royalty and cess shall be paid by the assessee - once the bonafides of the expenditure have been accepted by the Assessing Officer and the genuineness has not been doubted, the Assessing Officer cannot question the commercial expediency of the expenditure. It is trite law that the Revenue cannot justifiably put itself in the arm chair of the business man and decide how much expenditure is reasonable having regard to the circumstances of the case. Expenditure incurred on furnishing of hired accommodation - Held that - There is no dispute that the boundary wall was constructed to protect helipad and processing facility at Uran near Mumbai which asset belongs to the assessee. We find force in the contention of the ld. DR. The expenditure has been incurred to protect its own assts thereby adding value to its existing asset. In our understanding of the facts, such expenditure is of capital in nature and has been rightly treated as such. However, having said that the assessee is entitled for deprecation as per applicable rate of depreciation on such asset, we accordingly direct the Assessing Officer to allow deprecation as per the provisions of law. Before closing, all the decisions relied upon by the ld. counsel for the assessee are misplaced in as much as in all the cited cases, expenditure was incurred where the general public was also benefitted whereas in the case in hand, only the assessee was benefited and only the asset of the assessee was protected. Ground No. 4 is partly allowed. Claim of deduction u/s 80IA allowed - the assessee is very much entitled for claim of deduction u/s 80IA of the Act. Our view is fortified by the judgment of the Hon ble Delhi High Court in the case of DCM Sriram Consolidated Ltd 2008 (11) TMI 44 - DELHI HIGH COURT
Issues Involved:
1. Admission of additional ground of appeal regarding prior period expenditure. 2. Disallowance of interest paid on borrowings related to tax-free bonds. 3. Disallowance of payments made to various clubs. 4. Taxability of interest received on income tax refunds. 5. Addition in respect of oil bonds. 6. Change in accounting method for project overheads. 7. Allowability of foreign currency loss on capital and revenue accounts. 8. Disallowance of royalty and cess paid in respect of production sharing contracts. 9. Disallowance of dry docking expenses, furnishing of hired accommodation, and construction of boundary wall. 10. Disallowance of prior period expenses. 11. Deduction under section 80-IA for power generation undertaking. Detailed Analysis: 1. Admission of Additional Ground of Appeal Regarding Prior Period Expenditure: The assessee sought to raise an additional ground for deduction of prior period expenditure of ?7,76,23,975/-. The revenue objected, citing no point of law involved. The Tribunal admitted the additional ground, referencing the Delhi High Court's decision in DCM Benetton India Limited, and remitted the matter back to the AO for determination on merits. 2. Disallowance of Interest Paid on Borrowings Related to Tax-Free Bonds: The AO disallowed interest expenditure under section 14A, attributing borrowed funds to investments in tax-free bonds. The CIT(A) restricted the disallowance to the differential interest expenditure. The Tribunal found no fresh investments during the year and no nexus between borrowed funds and investments in tax-free bonds, thus deleting the disallowance. 3. Disallowance of Payments Made to Various Clubs: The AO disallowed ?17,27,225/- spent on club memberships, questioning the business purpose. The CIT(A) upheld the disallowance. The Tribunal, referencing past decisions and consistent deletion of similar disallowances in previous years, directed the AO to delete the addition. 4. Taxability of Interest Received on Income Tax Refunds: The AO taxed interest on refunds at rates applicable to non-resident companies. The CIT(A) confirmed this. The Tribunal found the interest should be taxed at rates applicable to the assessee, directing the AO to delete the addition. 5. Addition in Respect of Oil Bonds: Grounds related to oil bonds were dismissed as not pressed by the assessee. 6. Change in Accounting Method for Project Overheads: Grounds related to the change in accounting method were dismissed as not pressed by the assessee. 7. Allowability of Foreign Currency Loss on Capital and Revenue Accounts: The AO disallowed foreign currency loss on an accrual basis. The CIT(A) deleted the disallowance, following the Tribunal's order. The Tribunal upheld this, referencing the Supreme Court's decision in Woodward Governor India Pvt Ltd and the assessee's own case. 8. Disallowance of Royalty and Cess Paid in Respect of Production Sharing Contracts: The AO disallowed 60% of royalty and cess payments, limiting the assessee's share to 40%. The CIT(A) deleted the disallowance. The Tribunal upheld this, citing the commercial expediency and consistent past decisions. 9. Disallowance of Dry Docking Expenses, Furnishing of Hired Accommodation, and Construction of Boundary Wall: The AO disallowed these expenses as capital in nature. The Tribunal, referencing the Uttarakhand High Court's decision, allowed dry docking expenses as revenue expenditure. For furnishing of hired accommodation, the Tribunal allowed it as revenue expenditure based on business necessity. However, the construction of the boundary wall was considered capital expenditure, allowing depreciation instead. 10. Disallowance of Prior Period Expenses: The AO disallowed prior period expenses of ?10,18,84,612/-. The CIT(A) confirmed this. The Tribunal remanded the matter to the AO for consideration on merits, similar to the additional ground in ITA No. 357/DEL/2005. 11. Deduction Under Section 80-IA for Power Generation Undertaking: The AO denied deduction u/s 80IA for captive power generation. The CIT(A) upheld this. The Tribunal, referencing the Delhi High Court's decision in DCM Sriram Consolidated Ltd, directed the AO to allow the deduction, affirming the eligibility of profits derived from captive power generation. Conclusion: - ITA No. 357/DEL/2005: Partly allowed for statistical purposes. - ITA No. 374/DEL/2005: Dismissed. - ITA No. 358/DEL/2005: Partly allowed for statistical purposes. - ITA No. 375/DEL/2005: Dismissed. The order was pronounced in the open court on 17.08.2018.
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