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2021 (10) TMI 1153 - AT - Income TaxDisallowance u/s 14A r.w.r.8D - disallowance as per formula prescribed under the aforesaid Rules - HELD THAT - CIT(A) deleted the disallowance under Rule 8D(2)(ii) made out of interest expenditure observing that the loan taken by the assessee was for specific purposes and further that the assessee had sufficient own funds in the shape of share capital and surplus to make the investments. He, therefore, relied on the decision in the case of CIT Vs. REI Agro Industries Ltd 2013 (12) TMI 1517 - CALCUTTA HIGH COURT . DR could not point out any error in the above findings of the Ld. CIT(A). Disallowance made under Rule 8D(2)(iii) - CIT(A) relying on the decision in the case of CIT Vs. REI Agro (supra) and in the case of ACB India Ltd 2015 (4) TMI 224 - DELHI HIGH COURT directed the Ld. AO to consider only those investments upon which exempt income had been earned by the assessee. The Ld. DR could not point out any contrary decision on this issue. In view of this, this ground of appeal of the revenue is dismissed. Disallowance being the payment of premium on redemption of FCCB( Foreign Currency Convertible Bonds) - HELD THAT - DR has fairly admitted that the accounting entries are made as per Companies Act, 1956. The expenditure claimed on account of premium is otherwise admissible as per relevant provisions of the Income Tax Act. DR has further admitted that this issue has been decided in favour of the assessee in the earlier assessment year by the Co-ordinate Bench of this Tribunal. In view of this, this ground of the revenue s appeal is hereby dismissed. Claim of bad debts written off from the Renukoot Unit, which was already sold out/transferred - slump sale - HELD THAT - We are not convinced by his argument. The Renukoot Unit in question was sold out by way of slump sale on 23/05/2011, whereas, the assessee has calculated the net worth of the unit as on 31.03.2011 and claimed bad debts in the relevant A.Y 2012-13 - on slump sale, the assets/liabilities get transferred to the purchaser. In our view the assessee deliberately kept the entries continued in its accounts so as to claim the aforesaid loss on account of bad debts at the end of the year, which in our view is not at all justified. This ground of appeal of appeal is accordingly allowed in favour of the department and the order of the Ld. AO on this issue is restored. Deduction of Education Cess - Whether an allowable deduction while computing the income chargeable under the heads of profits and gains of business or profession? - HELD THAT - A perusal of the provisions of the Finance Act 2004 and Finance Act 2011 would show that it has been specifically provided that education cess is an additional surcharge levied on the income-tax. Therefore, in the light of the decision of the Hon ble Supreme Court in the case of CIT Vs. K. Srinivasan 1971 (11) TMI 2 - SUPREME COURT the additional surcharge is part of the income-tax. The aforesaid decision of the Hon ble Apex Court and the provisions of Finance Act, 2004 and the relevant provisions of section 2(11) (12) of the subsequent Finance Acts have not been brought into the knowledge of the Hon ble High Courts in the cases of Sesa Goa Ltd Chambal Fertilisers 2020 (3) TMI 347 - BOMBAY HIGH COURT . Since the decision of the Hon ble Supreme Court prevails over that of the Hon ble High Courts, therefore, respectfully following the decision of the Hon ble Supreme Court in the case of CIT Vs. K. Srinivasan (supra), this issue is decided against the assessee.
Issues Involved:
1. Deletion of disallowance computed under Rule 8D(2)(ii) and restriction of disallowance under Rule 8D(2)(iii). 2. Allowability of premium on redemption of Foreign Currency Convertible Bonds (FCCB) as an expense. 3. Allowability of bad debts written off from the Renukoot unit post slump sale. 4. Deduction of Education Cess as an allowable expenditure. Issue-wise Detailed Analysis: Ground No. 1: Deletion of Disallowance Computed under Rule 8D(2)(ii) and Restriction under Rule 8D(2)(iii) The department contested the deletion of disallowance made by the Assessing Officer (AO) under Section 14A of the Income-tax Act, 1961, read with Rule 8D of the Income-tax Rules, 1962, for expenses incurred to earn tax-exempt income. The AO disallowed ?4,00,13,918/- under Rule 8D(2)(ii) & (iii). However, the CIT(A) deleted the disallowance under Rule 8D(2)(ii) citing that the loan was for specific purposes and the assessee had sufficient own funds. This decision was based on the Hon’ble Calcutta High Court ruling in "CIT Vs. REI Agro Industries Ltd." The CIT(A) also restricted the disallowance under Rule 8D(2)(iii) to only those investments that earned exempt income, relying on the decisions of the Hon’ble Calcutta High Court in "CIT Vs. REI Agro" and the Hon’ble Delhi High Court in "ACB India Ltd Vs. ACIT." The department could not provide any contrary decision, leading to the dismissal of this ground of appeal. Ground No. 2: Allowability of Premium on Redemption of FCCB as an Expense The department contested the deletion of disallowance of ?6,15,27,170/- made by the AO for the premium paid on redemption of FCCB. The AO disallowed the expense, noting it was not routed through the Profit & Loss account and was used for purchasing fixed capital assets. However, the CIT(A) allowed the expense, treating it as interest on borrowed funds used for business purposes. The assessee's counsel argued that interest on capital borrowed for business is deductible under Section 36(1)(iii) of the Act, regardless of accounting entries. The Tribunal upheld the CIT(A)'s decision, noting that the issue was previously decided in favor of the assessee by the Co-ordinate Bench. Ground No. 3: Allowability of Bad Debts Written Off from Renukoot Unit Post Slump Sale The department challenged the CIT(A)'s decision to allow bad debts of ?59,91,093/- written off from the Renukoot unit, which was transferred through a slump sale. The AO noted that the assets and liabilities of the unit were transferred to the purchaser, Aditya Birla Chemicals (India) Ltd., and thus the bad debts should not be claimed. The CIT(A) directed that the bad debts be considered in the net worth calculation of the unit. However, the Tribunal sided with the AO, stating that the assessee's claim was not justified as the unit was sold, and the assets/liabilities were transferred. This ground was allowed in favor of the department. Assessee’s Appeal: The assessee's appeal (ITA No. 2184/Kol/2018) included grounds related to the bad debts written off, which were already discussed and dismissed in the department's appeal. Additional Ground: Deduction of Education Cess The assessee argued that Education Cess should be allowed as a deductible expenditure, relying on the CBDT Circular No. 91/58/66-ITJ(19) and decisions from the Hon’ble Rajasthan High Court and the Hon’ble Kolkata Tribunal. However, the Tribunal referred to the Hon’ble Supreme Court's decision in "CIT Vs. K. Srinivasan," which held that surcharge and additional surcharge are part of income tax. Since Education Cess is considered an additional surcharge, it is not deductible. This additional ground was dismissed. Conclusion: The department's appeal (ITA No. 2439/Kol/2018) is partly allowed, and the assessee's appeal (ITA No. 2184/Kol/2018) is dismissed. The order was pronounced in open court on 26-10-2021.
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