2019 (7) TMI 595 - AT - Income Tax

Disallowance of amortization of premium on leasehold land - HELD THAT - We find that the identical issue has already been decided by the Hon ble ITAT in in assessee s own case 2017 (6) TMI 1173 - ITAT MUMBAI holding that amortization of premium on leasehold land was allowable as a revenue expenditure in the hands of the assessee corporation. Therefore, respectfully following the decision of the Coordinate Bench of Hon ble ITAT and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee stands allowed. Disallowance u/s 14A - HELD THAT - Adhoc disallowance made by the A.O u/s 14A cannot be approved. We thus set aside the orders of the lower authorities and delete the disallowance made in the hands of the assessee u/s 14A. Loss on sale of oil bond - Whether Oil bonds are capital asset? - capital loss OR business loss - HELD THAT - Considering the decision of Co-ordinate Bench in assessee s own case 2017 (10) TMI 1206 - ITAT MUMBAI wherein the similar ground of appeal was restored to the file of CIT(A), hence, keeping in view, the principle of consistency, this ground of appeal is also restored to the file of ld. CIT(A) to decide it afresh, with similar directions. In the result, this ground of appeal is allowed for statistical purpose. Disallowance of prior period expenditure - HELD THAT - As decided in assessee's own case 2017 (10) TMI 1206 - ITAT MUMBAI there the turnover or.he assessee is substantial, some bonafide adjustments in the books of accounts where the accounts for the relevant year may have been closed or the assessee's avenues for claiming these deductions in the relevant year have been exhausted. The assessee would be entitled to claim such deductions.Therefore we are unable to come to any other conclusion and are or the opinion that no interference in the impugned order is called for. Accordingly the ground raised by the Revenue is rejected

Issues Involved:
1. Disallowance of amortization of premium on leasehold land.
2. Disallowance under Section 14A of the Income Tax Act.
3. Classification of loss on sale of oil bonds as capital loss versus business loss.
4. Taxation of interest income from oil bonds as business income.
5. Disallowance of prior period expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Amortization of Premium on Leasehold Land:
The assessee challenged the disallowance of ?1,75,51,156/- being premium on leasehold land, arguing it should be treated as revenue expenditure. The Tribunal referenced a similar case, Bharat Petroleum Corporation Ltd. vs. Additional CIT, where the premium paid for long-term lease was deemed capital in nature and thus not allowable as revenue expenditure. However, the Tribunal allowed the assessee's claim, citing the Bombay High Court judgment in CIT-3 vs. Reliance Industrial Infrastructure Ltd., which held that such expenditures, if paid for carrying on business, should be considered revenue in nature. The Tribunal concluded that the leasehold premium amortized by the assessee corporation was in the nature of rent and thus allowable as revenue expenditure.

2. Disallowance under Section 14A:
The assessee contested the disallowance made by the AO under Section 14A related to interest on tax-free securities and dividends. The Tribunal noted that the issue was covered by its own previous decision in the assessee's case for AY 2004-05. It was established that if the assessee had substantial interest-free funds, it could be presumed that investments in tax-free income-yielding assets were made from these funds, thus no part of the interest expenditure could be related to such investments. The Tribunal found the AO's estimation of disallowance at 10% of the exempt income whimsical and unsupported by a proper satisfaction process as required by law. Consequently, the Tribunal set aside the disallowance under Section 14A.

3. Classification of Loss on Sale of Oil Bonds:
The assessee argued that the loss on sale of oil bonds should be treated as a business loss rather than a capital loss. The Tribunal referenced its earlier decisions for AY 2006-07 and 2007-08, where similar grounds were restored to the file of the CIT(A) for verification and decision based on earlier assessments. Following judicial consistency, the Tribunal restored this ground to the CIT(A) with similar directions.

4. Taxation of Interest Income from Oil Bonds:
The assessee contended that interest income from oil bonds should be taxed as business income. The Tribunal noted that this issue was identical to a ground in the assessee's appeal for AY 2006-07, which had been restored to the CIT(A) for a fresh decision. Following the principle of consistency, the Tribunal restored this ground to the CIT(A) for a fresh decision.

5. Disallowance of Prior Period Expenditure:
The assessee challenged the disallowance of prior period expenditure. The Tribunal referred to its earlier decision for AY 2002-03, where it was held that if the turnover of the assessee was substantial and the amount of prior period expenses was minimal, such expenses should be allowed. Following this precedent, the Tribunal allowed the ground in favor of the assessee.

Conclusion:
The Tribunal allowed the grounds raised by the assessee on the issues of amortization of premium on leasehold land, disallowance under Section 14A, and prior period expenditure. The issues related to the classification of loss on sale of oil bonds and taxation of interest income from oil bonds were restored to the CIT(A) for a fresh decision, following judicial consistency. The appeals were partly allowed in terms indicated above.

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