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TMI Blog2013 (11) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... in its respect, so that it is toward providing an enduring benefit, a part of its capital structure - The deduction u/s.35D is allowed by the statute only for the reason that the said expenditure is capital in nature – Decided against Revenue. Disallowance of interest on bank deposits – Held that:- The interest on bank deposits is considered as assessable u/s.56 - The assessee could be allowed setting off of the interest income against the interest on borrowed capital – Following Sanghvi Jewellery Mfg. Co. (P.) Ltd. v. ITO [2011 (11) TMI 514 - ITAT MUMBAI] - There is no definite finding in the matter on record as to the source of the capital invested in bank deposits, i.e., borrowed or otherwise – The issue was restored for fresh decision. - ITA No.7499/Mum/2011 - - - Dated:- 28-3-2013 - I P Bansal and Sanjay Arora, JJ. For the Appellant : Shri Kantilal B Parekh For the Respondent : Shri Javed Akhtar ORDER:- Per: Sanjay Arora: This is an Appeal by the Revenue agitating the Order by the Commissioner of Income Tax (Appeals)-16, Mumbai ( CIT(A) for short) dated 02.09.2011, dismissing the assessee s appeal contesting its assessment u/s.143(3) of the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction u/s.35D of the Act. The assessee is already in business and, therefore, the expenditure for raising capital is only in the course of its regular business and, thus, revenue in nature, deductible u/s. 37(1). 2.3 The ld. AR would also raise an alternate contention, i.e., that even if these two sums were to be considered as a part of the assessee s income, the same would also be eligible for deduction u/s.10AA inasmuch as the same stand expensed from the profits of a 100% export oriented unit located at SEEPZ-SEZ, eligible for deduction u/s.10AA, and on which aspect there is no dispute. Reliance for the purpose was placed by him on the decision in the case of Sanghvi Jewellery Mfg. Co. (P) Ltd. v. ITO (2012) 68 DTR 177 (Mum.), placing a copy of the same on record. 2.4 The ld. DR, on the other hand, supported the orders of the authorities below, claiming that both the disallowances stand rightly effected in law, and being rather subject matters of settled law. No contention with regard to the assessee s alternate plea was, however, advanced by him. 3. We have heard the parties, and perused the material on record. 3.1 A penalty or fine for a contravention of law can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the face of it. That such expenditure is capital in nature, stands settled by the apex court vide its decisions in the case of PSIDC Ltd. vs. CIT [1997] 225 ITR 792 (SC) and Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 (SC). This is for the reason, as explained by it, that the amount is to form a part of the company s own capital, and there is no repayment obligation in its respect, so that it is toward providing an enduring benefit, a part of its capital structure. The deduction u/s.35D is allowed by the statute only for the reason that the said expenditure is capital in nature. That it limits this allowance to that incurred on the commencement of a project or on substantial expansion of business is an altogether different matter. If anything, the very fact that such expenditure qualifies for deduction u/s. 35D itself proves it to be of capital nature, else would stand to be deductible u/s. 37(1). In fact, we find the A.O. to have allowed deduction u/s.35D at the prescribed ratio of 10% of such expenditure (Rs.7,00,200/-), disallowing the claim for the balance Rs. 6.30 lakhs. 3.3 So, however, we find the assessee s alternate plea, raised per its ground # 3, to be perfect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere required to be kept with the bank in respect of a loan of Rs.52 crores granted to the assessee by it. As explained by the Tribunal in the case of Tessitura Monti India (P.) Ltd. (in ITA No.7127/Mum/2010 dated 11.01.2013), a decision rendered in the context of section 10B of the Act, that a profit to be eligible for being exempt under the said section has to fulfill twin conditions, i.e., it must be derived from an eligible undertaking and, two, derived from exports. The first condition of being derived from an eligible unit itself is not satisfied in the instant case, and for which the ld. CIT(A), we find has, and only rightly so, referred to the facts in the case of Pandian Chemicals Ltd.(supra), as also the relevant part of the decision by the apex court in the case of Liberty India (supra), i.e., representing its ratio, whereby its stands explained that in order to be considered as derived from a relationship of first degree with the source of income should exist. This relationship in the case of interest income is with the bank deposit/s. 5.2 On this being expressed by the Bench, it was submitted by the ld. AR that, even so, i.e., even if the interest on bank deposits i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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