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2022 (4) TMI 96 - AT - Income TaxAddition of interest as paid as advance to one seller for purchase of land - whether the assessee is liable to be charged with interest on account of advance payment of ₹ 13,14,50,000/- made to the seller viz. Ravindrasingh Mittal since 2007 for purchase of land situated at Mouje Sahahwadi, Tal. City, Dist. Ahmedabad admeasuring 64977 sq.yards at the rate of 3500/- per square yard, which ultimately could not materialize due to non-performance of terms of agreement ? - HELD THAT - The assessee has demonstrated before the appellate authority that the assessee has sufficient interest free funds available with it so as to make such dealing, which was not denied by the authority. Even in the earlier years the department has never questioned business advances shown in the books of accounts. In fact, the assessee did make such advances out of the interest free funds in the financial years 2007-08 and 2008-09 for the purchases of the land for the business expansion, which fact has also not been denied by the Department. Case of the department was not borne out from any material evidences, rather out of assumption that the assessee would have earned interest out of such payment and advances were made out of interest bearing fund. But where is the proof to make such an assumption - We are unable to accept this view of the department in the absence of any piece of evidence. The assessee all through contended that the advances were made out of interest free funds, and because of substantial delay in execution and likely non-performance of the deal, the assessee has to forgo the interest, and accept return of money advanced. It is trite law that AO cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee. It is for the assessee to decide, whether the expenses should be incurred in the course of his business. Therefore, the action of both the authorities has no legal justification. In view of the above, and after considering the facts in entirety, we do not find any merit in the action of the Revenue authorities in making addition of interest charge on the impugned advances made to the seller. Accordingly, we delete the impugned addition, and allow this ground of appeal. Disallowance of deduction claimed u/s 80IA - AO held quantum of deduction under section 80IA has to be computed after deduction of the notional brought forward loss, even though they have been set off against earlier years income - whether the profit earned by the assessee during the assessment year 2012-13 would be entitled for deduction under section 80IA of the Act without deducting the losses, which were absorbed in the earlier years or not? - HELD THAT - We would say that the issue is no longer resintegra in view of the judgment of the Madras High Court in a case of Velayudhaswamy Spinning Mills P. Ltd. Sudan Spinning Mills (P). Ltd 2010 (3) TMI 860 - MADRAS HIGH COURT also confirmed by Apex court 2016 (11) TMI 373 - SC ORDER - Decided in favour of assessee. Disallowance under section 40(a)(ia) - payment to one Naroda Enviro Projects Ltd. towards land fill charges of solid waste - HELD THAT - We find that the issue in question stands covered in favour of the assessee by the decision of Hon ble Delhi High Court in the case of CIT Vs. Ansal Landmark Township P.Ltd 2015 (9) TMI 79 - DELHI HIGH COURT held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April 2005, merits acceptance. No substantial question of law arises - thus on the applicability of section 40(a)(ia) order of the ld.CIT(A) does not warrant our interference. Accordingly, this ground of Revenue is rejected. Disallowance of excess depreciation in respect of computer software - assessee has claimed depreciation on computer software at 60% and according to the AO, since software being intangible asset, eligible depreciation rate is 25% - HELD THAT - CIT(A) allowed the claim of depreciation by holding that the software purchased by the assessee is tangible assets, and therefore, as per Appendix-1 to Rule 5 of the IT Rules, assessee is entitled for depreciation at the rate of 60%. While holding so, he also observed that similar claim was allowed by the AO since beginning in the past, and therefore, there was no justification to restrict depreciation at 25%. Though the nature of acquisition, whether computer software was purchased outright or a license for use of any computer software was not clear, but the fact as recorded by the ld.CIT(A) that similar claim from beginning in the past was allowed by the department, and there was no addition during the year, cannot be said unjustifiable. Thus, we are not inclined to reverse the order of the ld.CIT(A) on this issue. This ground of appeal is also dismissed. Disallowance of interest on Foreign Currency Convertible Bonds ( FCCB ) - HELD THAT - We are of the view that both debentures or loan fall within the ambit of loan, and therefore, the assessee is entitled for deduction of the expenditure/loss incurred on redemption of bonds. Further, as recorded by the ld.CIT(A) in his impugned extracted that in the year 2009-10 and 2010-11, when the assessee company redeemed a FCCB, it has earned income and shown the same in the statement of income and offered to tax, which the department has accepted as income. However, when the assessee redeemed the balance bond in the year 2011-12, it has incurred loss and when the same was claimed as deduction in the statement of income, the same was rejected by the AO by treating the same as capital loss. Thus, the AO has taken different and inconsistent stand, which is not permissible in law. After going through the well-reasoned order of the ld.CIT(A), we do not find any merit in the ground of revenue, which we dismiss, and confirm the impugned order Addition u/s 41(1) of the Act in respect of cessation of liabilities - CIT-A deleted the addition - HELD THAT - As resort to section 41(1) can be taken only if the liability of the assessee can be said to have been ceased finally and there is no possibility or reviving it. No doubt, the impugned liability still exists in the books of accounts of the assessee and the same has not been written back. Since there is no evidence of cessation of the liability, the impugned amount cannot be assessed to tax. Since the order of the ld.CIT(A) is based on some authoritative judgments, our interference on this issue is unwarranted. Thus, the order of the ld.CIT(A) on this issue is accordingly confirmed, and this ground of revenue is dismissed. Disallowance of interest u/s.36(1)(iii) of the Act in respect of capital-work-in-process - AO has made the impugned disallowance of interest on the presumption that the assessee would have utilized interest bearing funds for the capital work-in-process - CIT-A deleted the addition - HELD THAT - Presumption by the AO was despite the repeated submission of the assessee that there was no borrowing for acquisition of any of the assets and the company has acquired these assets out of the cash profit generated during the year, and therefore, there was no question of disallowance of interest. This presumption is contrary to the settled position that when there is a sufficient interest free funds available with the assessee, then it can be presumed investment was made out of such funds, no disallowance should be made. This position of the assessee is clearly emerging out of the record, as noted by the ld.CIT(A) in his impugned order - No reason to interfere with the order of the ld.CIT(A) deleting addition of disallowance of interest u/s. 36(1)(iii) of the Act, which we uphold, and this ground of the Revenue stands rejected.
Issues Involved:
1. Addition of interest on advance payment for land purchase. 2. Quantum of interest calculation. 3. Disallowance of employee’s contribution towards ESIC. 4. Disallowance of deduction claimed under section 80IA. 5. Disallowance under section 40(a)(ia) for non-deduction of TDS. 6. Disallowance of excess depreciation on computer software. 7. Disallowance of interest on Foreign Currency Convertible Bonds (FCCB). 8. Addition under section 41(1) for cessation of liabilities. 9. Disallowance of interest under section 36(1)(iii) for capital work-in-progress. Detailed Analysis: 1. Addition of Interest on Advance Payment for Land Purchase: The assessee contested the addition of ?1,97,17,500/- as interest on an advance of ?13,14,50,000/- made for a land purchase that did not materialize. The AO presumed unaccounted consideration and added notional interest at 15%. The Tribunal found no evidence supporting the AO’s assumption and noted that the assessee had sufficient interest-free funds. The addition was deleted, and the ground of appeal was allowed. 2. Quantum of Interest Calculation: Since the addition of ?1,97,17,500/- was deleted, the alternative ground regarding the rate of interest calculation at 9.75% instead of 15% became infructuous and was dismissed. 3. Disallowance of Employee’s Contribution towards ESIC: The assessee did not press this ground, and it was dismissed for want of prosecution. 4. Disallowance of Deduction Claimed under Section 80IA: The AO disallowed the deduction under section 80IA, requiring set-off of earlier years' losses. The CIT(A) allowed the deduction, relying on judicial precedents. The Tribunal upheld the CIT(A)’s order, referencing the Madras High Court judgment in Velayudhaswamy Spinning Mills and the CBDT Circular No.1/2016, confirming that earlier losses set off against other income cannot be brought forward notionally. 5. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS: The AO disallowed ?15,22,527/- for non-deduction of TDS on payments to Naroda Enviro Projects Ltd. The CIT(A) directed verification of Form No.26A and deletion of the addition, referencing the Delhi High Court judgment in CIT Vs. Ansal Landmark Township. The Tribunal upheld the CIT(A)’s decision. 6. Disallowance of Excess Depreciation on Computer Software: The AO allowed 25% depreciation on computer software, treating it as an intangible asset. The CIT(A) allowed 60% depreciation, treating it as part of the computer system. The Tribunal upheld the CIT(A)’s order, noting consistency with past assessments. 7. Disallowance of Interest on FCCB: The AO treated ?41,21,439/- as capital loss on redemption of FCCB. The CIT(A) allowed it as revenue expenditure, noting consistent treatment in past years. The Tribunal upheld the CIT(A)’s order, referencing the Rajasthan High Court decision in Secure Meters Ltd., confirming that debenture-related expenses are revenue in nature. 8. Addition under Section 41(1) for Cessation of Liabilities: The AO added ?1,12,263/- as deemed income under section 41(1). The CIT(A) deleted the addition, noting the liability was not written back and still existed in the books. The Tribunal upheld the CIT(A)’s order, referencing Gujarat High Court judgments confirming that unceased liabilities cannot be taxed. 9. Disallowance of Interest under Section 36(1)(iii) for Capital Work-in-Progress: The AO disallowed ?18,89,259/- interest, presuming use of interest-bearing funds for capital work-in-progress. The CIT(A) deleted the disallowance, noting sufficient interest-free funds. The Tribunal upheld the CIT(A)’s order, referencing judicial precedents confirming no disallowance when interest-free funds are sufficient. Conclusion: The assessee’s appeal was partly allowed, and the Revenue’s appeal was dismissed. The Tribunal upheld the CIT(A)’s decisions on most grounds, emphasizing the need for concrete evidence and consistency with judicial precedents.
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