2019 (1) TMI 757 - SC - Income Tax

Disallowance of interest being the interest referable to interest free loans and advances given to subsidiary companies - interest free fund available to the assessee is sufficient to meet its investment - Held that - The issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. Claim of depreciation - optional and could not be thrust on the assessee, if it had not claimed it - Held that - Isuue to be governed by the decision of this Court in Plastiblends India Limited Vs. Additional Commissioner of Income Tax, Mumbai and Another 2017 (10) TMI 423 - SUPREME COURT OF INDIA Pre-operative expenses incurred in connection with creation of plant & machinery in units which have not commenced production - allowable revenue expenditure - deduction under Section 80M - transfer pricing adjustment - Held that - As High Court has failed to independently evaluate the merits of the departmental appeals. Hence, we consider it appropriate that the aforesaid questions are considered afresh by the High Court. In order to facilitate a fresh exercise being conducted in relation to the aforesaid four questions (Question Nos.2,3,4 and 5), we allow the appeals and set aside the impugned judgment of the High Court. The appeals stand restored to the file of the High Court for that purpose.

Summary

Issues:
1. Allowability of interest amount as deduction under Section 36(1)(iii) of the Income Tax Act.
2. Claim of depreciation being optional prior to the insertion of Explanation-5 to Section 32 of the Act.
3. Nature of pre-operative expenses incurred in connection with the creation of plant & machinery.
4. Deduction under Section 80M of the Act in relation to expenditure on an estimated basis.
5. Deletion of Transfer Pricing adjustment made to consultancy charges.

Analysis:

Issue 1:
The first issue revolves around the deductibility of interest amount under Section 36(1)(iii) of the Income Tax Act. The High Court upheld the Tribunal's finding that interest-free funds available to the assessee were sufficient to meet its investments, indicating that investments were made from these funds. The Supreme Court found no reason to interfere with this decision and dismissed the appeals concerning this question.

Issue 2:
Regarding the claim of depreciation being optional before the insertion of Explanation-5 to Section 32 of the Act, the Supreme Court noted that this issue is governed by a previous decision of the Court. As the High Court did not have the benefit of this decision, the Supreme Court remanded the issue for a fresh decision, directing the High Court to consider the relevant law laid down in the previous case.

Issue 3, 4, and 5:
The High Court failed to independently evaluate the merits of the departmental appeals concerning pre-operative expenses, deduction under Section 80M of the Act, and Transfer Pricing adjustment. Therefore, the Supreme Court deemed it appropriate to have these questions reconsidered afresh by the High Court. To facilitate this, the Supreme Court allowed the appeals, set aside the High Court's judgment, and restored the appeals to the High Court for reevaluation. The parties were granted the option to seek a consolidated hearing for the pending appeals before the High Court.

In conclusion, the Supreme Court dismissed the appeals related to the first issue, remanded the second issue for fresh consideration by the High Court, and directed the High Court to reevaluate the remaining issues independently.