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2020 (1) TMI 217 - AT - Income TaxDepreciation - Determination of value / cost of assets - reduction of the value received by it in the form of forfeiture of amount in an earlier agreement for sale of asset - HELD THAT - A plain reading of Sections 51 and 43(6) of the Act in a harmonious manner, and keeping in mind learned CIT(A) s finding that assessee has indulged in dubious transaction of claiming forfeiture, it would show that the amount involved has been correctly reduced from the value of assets of the assessee. It is settled law that revenue authorities are not supposed to put on blinkers. It is also settled that quoting a wrong section would not be fatal in making a correct disallowance. The assessee has retained a large amount of receipt under the original agreement partly by way of forfeiture and also received partly by way of subsequent sale of part assets. Hence, there is no reason why assessee s claim of depreciation to the extent of entire amount of receipt should not be reduced. In the case of Kapurchand Shrimal vs CIT, 1981 (8) TMI 2 - SUPREME COURT the Hon'ble Apex Court held that it is the duty of the appellate authority to correct the errors in the order of the authorities below, and remit the matter to them with or without direction unless prohibited by law. Considered from the above perspective, the learned DR s plea for taxing the whole amount of forfeiture does merit consideration. However, we also find that if the impugned amount was to be reduced from the cost of assessee s assets, there would be corresponding reduction in assessee s depreciation claim over a few years. Hence, the overall impact would be tax neutral. Hence, we do not find any infirmity in the order of the learned CIT(A) sustaining the disallowance of depreciation by the Assessing Officer. Addition u/s 14A - disallowance on account of interest - HELD THAT - Hon'ble Jurisdictional High Court in the case of CIT vs HDFC Bank Ltd., 366 ITR 505 2014 (8) TMI 119 - BOMBAY HIGH COURT and CIT vs Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT had expounded that if interest free funds are sufficient to cover the impugned investment, no disallowance on account of diversion of interest needs to be done and the assessee is not required to show any one-to-one nexus. In this view of the matter, in our considered opinion, there is no infirmity in the order of learned CIT(A) wherein he has directed that disallowance under Rule 8D(ii) of the Rules be deleted. Disallowance under Rule 8D(iii) - It is the claim of the assessee that it will accept 0.5% disallowance sustained by the learned CIT(A) if it s claim for the strategic investment and some of the investment not yielded any exempt income is considered and proportionate reduction is done - HELD THAT - We note that the assessee s plea of relief on account of strategic investment is no longer sustainable in view of the Hon'ble Court s decision in the case of Maxopp Investment Ltd. vs CIT 2018 (3) TMI 805 - SUPREME COURT . As regards the claim to consider only those investments which yield exempt income, the same is acceptable on the touchstone of the Special Bench decision in the case of ACIT vs Vireet Investments (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI Since the assessee has not accepted the learned CIT(A) s order and the learned CIT(A) has not adjudicated the issue of lack of satisfaction, we remit this aspect of the issue to the file of the learned CIT(A). The learned CIT(A) is directed to pass a speaking order on this issue raised by the assessee. Disallowance under Section 80IB - AO excluded sale proceeds of packing materials from the profits of the Silvassa Unit - HELD THAT - Items of receipts which go to reduce the cost should not be dealt with separately. But, it should be credited to the respective head of cost, and profits of the industrial undertaking should be computed accordingly. Under these circumstances, it would not be legally permissible to deny the benefit of deduction u/s 80IB on such receipts. Thus, respectfully following the aforesaid judgment of MEGHALAYA STEELS LTD 2016 (3) TMI 375 - SUPREME COURT , we direct the AO to grant the benefit of deduction u/s 80IB on the sale proceeds of packing material - Decided in favour of assessee Disallowance of expenses incurred in relation to reduction of share capital base of the company - assessee had incurred share buyback expenses on lead management fees and other charges and advertisement for the purpose of buying back the shares of the company from the public - HELD THAT - As decided in SELAN EXPLORATION TECHNOLOGY LTD. 2009 (9) TMI 989 - DELHI HIGH COURT held that assessee had not acquired benefit or addition of an enduring nature, because after buyback benefit of addition of an enduring nature would not arise and capital employed had, in fact, gone down and, therefore, expenses were of revenue nature - Decided in favour of assessee.
Issues Involved:
1. Disallowance of interest expenditure under Rule 8D(ii). 2. Computation of book profit under Section 115JB. 3. Allowance of depreciation. 4. Disallowance under Section 14A. 5. Disallowance under Section 80-IB. 6. Disallowance of expenses under Section 37(1). Detailed Analysis: 1. Disallowance of Interest Expenditure under Rule 8D(ii): The Revenue's appeal contested the deletion of the disallowance of interest expenditure of ?1,67,27,608/- made under Rule 8D(ii). The CIT(A) found that the assessee had sufficient own funds to cover the investments, thus directing the deletion of the interest disallowance. The Tribunal upheld the CIT(A)'s finding, referencing the jurisdictional High Court decisions in CIT vs HDFC Bank Ltd. and CIT vs Reliance Utilities & Power Ltd., which state that if interest-free funds are sufficient to cover investments, no disallowance on account of interest diversion is necessary. 2. Computation of Book Profit under Section 115JB: The Revenue also challenged the CIT(A)'s direction to restrict the addition to ?16,98,745/- against the disallowance of ?1,84,26,413/- made by the AO for computing book profit under Section 115JB. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance under Rule 8D(iii) was reasonable and aligned with the facts of the case. 3. Allowance of Depreciation: The assessee's appeal challenged the CIT(A)'s decision not to allow depreciation of ?2,97,23,700/-. The AO had reduced the Written Down Value (WDV) of assets by ?19,81,58,000/- under Section 51, which the CIT(A) upheld under Section 43(6). The Tribunal found that the forfeited amount should reduce the WDV of the assets, agreeing with the CIT(A) that the transaction was a colourable device to avoid tax. The Tribunal also noted that the forfeited amount should be treated as a revenue receipt based on the Supreme Court decision in CIT vs T.V. Sundaram Iyengar & Sons Ltd., but since this was not the case made by the Revenue, the disallowance of depreciation was upheld. 4. Disallowance under Section 14A: The assessee's appeal also contested the disallowance of ?16,98,745/- under Section 14A. The CIT(A) had found that the assessee's own funds were sufficient to cover the investments, thus deleting the interest disallowance. However, the CIT(A) upheld the disallowance of ?16,98,745/- under Rule 8D(iii) for administrative expenses. The Tribunal upheld the deletion of the interest disallowance but remitted the issue of administrative expenses to the CIT(A) for a speaking order, considering the assessee's plea for proportionate reduction for strategic investments and investments not yielding exempt income. 5. Disallowance under Section 80-IB: The assessee's appeal also contested the disallowance of ?2,94,609/- under Section 80-IB. The AO had excluded the sale proceeds of packing materials from the profits of the Silvassa Unit. The CIT(A) upheld this, citing the Supreme Court decision in Liberty India Ltd. The Tribunal, however, followed its earlier decision in the assessee's case for previous years, which relied on the Supreme Court decision in CIT vs Meghalaya Steel Ltd., and directed the AO to grant the benefit of deduction under Section 80-IB for the sale proceeds of packing materials. 6. Disallowance of Expenses under Section 37(1): The assessee's appeal also contested the disallowance of ?52,77,156/- incurred on share buyback expenses. The AO treated these expenses as capital in nature, which the CIT(A) upheld. The Tribunal, however, found that the expenses were revenue in nature, referencing the Delhi High Court decision in CIT vs Selan Exploration Technologies Ltd., and set aside the orders of the authorities below, allowing the expenses under Section 37(1). Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing relief on several issues while upholding some of the CIT(A)'s findings. The decision emphasized the importance of substance over form in tax matters and the need for harmonious interpretation of tax provisions.
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