2017 (9) TMI 1349 - AT - Income Tax

Disallowing the interest - whether it is a normal business expenditure - Held that - Undisputedly during asstt. Year 2012-13 Ld. CIT(A) has allowed the interest being interest on the loan from Govt. of India by following the decision rendered by coordinate bench of the Tribunal in assessee s own case for asstt. year 2005-06. When the interest on the same component of loan taken by the assessee company from Govt. of India for day to day running of the company and the loan repayable on interest has been allowed in asstt. year 2005-06 and 2012-13, there is no ground to disallow the interest claimed by the assessee during the year under assessment. Furthermore when winding up proceedings are undisputedly pending before the Hon ble High Court loan taken by the assessee company is to be treated as a loan to run the entire business and the interest component can not be restricted to BFF unit as has been done by AO/CIT(A). So there is not iota of evidence of record that the loan taken on which interest has been claimed and disallowed by the revenue was not utilized for running day to day business of the company and the loan is repayable alongwith interest and as such are revenue expenses for all intents and purposes so we hereby delete the addition on account of interest - Decided in favour of assessee. Revision u/s 263 - Addition on account of capital gain - Held that - In the instant case the revenue has neither invoked provisions contained u/s 147/148 nor provisions contained u/s 263 to tax the new source of income and as such the order passed by Ld. CIT(A) to the extent of making addition on account of long term capital gain is beyond jurisdiction and as such is not sustainable.So without entering into the merits of this issue we are of the considered view that the addition made by Ld. CIT(A) to the tune of ₹ 92,52,933/- on account of long term capital gain is not sustainable.

Issues Involved:
1. Disallowance of interest expenses.
2. Taxation of capital gains.
3. Jurisdiction of CIT(A) to assess new sources of income.

Detailed Analysis:

1. Disallowance of Interest Expenses:
The appellant, a public sector undertaking, challenged the disallowance of interest expenses amounting to ?19,40,28,714 by the Assessing Officer (AO). The AO had disallowed the interest on the grounds that the majority of the loan pertained to closed units, and thus the expenditure was related to discontinued business. The CIT(A) reduced the disallowance to ?16,61,03,405 but did not fully allow the claimed interest.

The Tribunal noted that the interest of ?14,87,50,000 was on a loan taken for the Voluntary Retirement Scheme (VRS) and that this principal loan was undisputedly taken by the assessee. It was observed that in the assessment years 2005-06 and 2012-13, similar interest expenses were allowed by the CIT(A) and were not challenged by the Revenue. The Tribunal emphasized that the interest on the loan taken for VRS is an allowable expenditure as it is of a revenue nature, citing the Bombay High Court's decision in Bhor Industries 264 ITR 180 (Bom) which held that VRS expenditure should be allowed in its entirety in the year it was incurred.

Furthermore, the Tribunal found that since the winding-up proceedings were pending before the Delhi High Court, the loan should be treated as a loan to run the entire business, and the interest component should not be restricted to the operational unit alone. Consequently, the Tribunal deleted the disallowance of ?16,61,03,405, ruling in favor of the assessee.

2. Taxation of Capital Gains:
The CIT(A) had made an addition of ?92,52,933 on account of long-term capital gains, which was not originally claimed by the assessee in its return of income nor considered by the AO. The assessee contended that the CIT(A) had no jurisdiction to assess new sources of income, relying on the Full Bench decision of the Delhi High Court in CIT vs. Sardari Lal and Co. 251 ITR 864 (Delhi).

The Tribunal upheld this contention, referencing the Full Bench decision which stated that the jurisdiction to deal with new sources of income lies under sections 147/148 or 263 of the Act, and not with the first appellate authority. Since the AO did not consider the issue of capital gains and no proceedings under sections 147/148 or 263 were invoked, the addition made by the CIT(A) was deemed beyond jurisdiction and thus unsustainable. The Tribunal deleted the addition of ?92,52,933 on account of long-term capital gains.

3. Jurisdiction of CIT(A) to Assess New Sources of Income:
The Tribunal addressed the additional grounds raised by the assessee, which argued that the CIT(A) had no jurisdiction to assess a new source of income not disclosed in the return or considered by the AO. The Tribunal agreed, citing the Delhi High Court's decision in Sardari Lal & Co., which clarified that the CIT(A) cannot introduce a new head of income. Thus, the Tribunal found that the CIT(A)'s actions were beyond jurisdiction and ruled in favor of the assessee on this issue as well.

Conclusion:
The Tribunal concluded that the impugned order passed by the CIT(A) was not sustainable in law. The appeal filed by the assessee was allowed, with the Tribunal ruling in favor of the assessee on the disallowance of interest expenses and the improper addition of capital gains. The order was pronounced in the open Court on 22nd September 2017.

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