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TMI Blog2018 (9) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest received by the Appellant on refunds of income tax paid - chargeable to tax at rates applicable to the nonresident companies - Held that:- We find that under the agreement, the assessee was supposed to pay tax liability of non resident companies and has accordingly paid the same. Subsequently, refund was granted by the department and tax paid by the assessee for non resident companies was refunded. On such refund, interest was granted to the assessee to the tune of ₹ 7,13,702/-. We fail to understand how the tax rate of non resident companies in their respective countries will be applied on this interest income earned by the assessee on the refund of Income tax when the rate of interest is determined by the Income tax Act. We direct the AO to delete the impugned addition Before closing, we find that from A.Y 2002-03 to A.Y 2007-08, the CIT(A) himself had deleted the additions on account of interest on I.T. refunds on similar facts and the COD denied permission to the department to agitate this issue in further appeal before the Tribunal. Foreign currency loss on capital account on accrual basis as well as revenue account - Held that:- We find that the amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s much as in all the cited cases, expenditure was incurred where the general public was also benefitted whereas in the case in hand, only the assessee was benefited and only the asset of the assessee was protected. Ground No. 4 is partly allowed. Claim of deduction u/s 80IA allowed - the assessee is very much entitled for claim of deduction u/s 80IA of the Act. Our view is fortified by the judgment of the Hon'ble Delhi High Court in the case of DCM Sriram Consolidated Ltd [2008 (11) TMI 44 - DELHI HIGH COURT] - ITA No. 357/DEL/2005, ITA No. 358/DEL/2005, ITA No. 374/DEL/2005 And ITA No. 375/DEL/2005 - - - Dated:- 17-8-2018 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SMT BEENA A. PILLAI, JUDICIAL MEMBER For The Assessee : Shri Ajay Vohra, Sr. Adv Shri Gaurav Jain, Adv Ms. Manisha Sharma, Adv For The Revenue : Shri Shefali Swaroop, CIT- DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, These cross appeals filed by the assessee and revenue are preferred against the separate orders of the Commissioner of Income Tax(A)-I, Dehradun dated 17.09.2004 pertaining to assessment year 200-01 and dated 28.09.2004 pertaining to A.Y 2001-02. All these appeals p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to raise the addition ground by relying upon the decision of the Supreme Court in National Thermal Power Co. Ltd. [1998] 229 ITR 383 as well as the decision of the Andhra Pradesh High Court in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778. It was further held by the Tribunal that since the facts were not before : Tribunal, it could not adjudicate the claim. 8. Learned counsel for the assessee submits that under these circumstances, even though the expenditure incurred by the assessee is a genuine expenditure, it cannot get the benefit thereof either for : assessment year 2003-04 or for the assessment year 2001-02. 9. Learned counsel for the assessee relied upon CIT v. Kerala State Co-operative Marketing Federate / Ltd. [1992] 193 ITR 624 (Ker.) wherein it has been held by the Kerala High Court that in the ever; relevant facts are not on record, the Tribunal can always remand the matter to the file of the Assessing Officer to investigate and determine the facts. It is submitted that the Tribunal ought to have remanded the matter to the file of the Assessing Officer rather than decline to permit the assessee to raise the additional ground. 10. Following the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments in tax free bonds. Invoking the provisions of section 14A of the Act, the AO disallowed the entire interest expenditure of ₹ 20,62,37,789/- on the ground that interest bearing borrowed funds had been invested in tax free PSU bonds giving rise to exempt interest income and further disallowed ₹ 89,55,575/- being 10% of the balance exempt interest income of ₹ 8,95,55,758/- on adhoc basis towards administrative expenses. Accordingly, the AO made total disallowance of ₹ 21,51,93,365/- u/s 14A of the Act. 11. The assessee carried the matter before the CIT(A) who gave partial relief by deleting the adhoc disallowance of ₹ 89,55,575/- by following the appellate order for A.Y 1994-95 and holding that the AO failed to point out any specific expenditure incurred for earning exempt income from tax free bonds. 12. In so far as disallowance of interest expenditure is concerned, the CIT(A) drew support from the findings given by his predecessor for A.Y 1999-2000 and restricted the disallowance of interest expenditure to the difference between rate of interest paid on the borrowing and rate of interest received on investment in tax considering the bonds re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) erred in confirming the disallowance of ₹ 17,27,225/- representing (payments made by the Appellant to various clubs. The CIT(A) failed to appreciate that as the said expenditure was incurred for business purposes, the deduction was admissible . 18. During the course of scrutiny assessment proceedings and on perusal of Annexure of the audited report in Form No. 3CD, the AO noticed that the assessee has made payments to the club amounting to ₹ 17,27,225/-. Though the assessee has placed reliance on the decision of the Hon'ble Madras High Court in the case of Sundaram Industries Ltd 243 ITR 335 and the decision of the Hon'ble Bombay High Court in the case of OTIS Elevators 195 ITR 682, the AO was of the opinion that the liability of these expenses have to be decided with regard to the business expediency. The AO was of the firm belief that the assessee, during the year under consideration, has not be able to state even a single occasion where the expenditure on clubs was made towards business purposes and to promote their business prospects. The AO disallowed ₹ 17,27,225/-. The AO further observed that similar disallowance was made in A.Y 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. Since these non- resident companies were assessable on separate rates other than applicable to the assessee and income of these non resident companies was assessable in the hands of the assessee in its representative capacity, the applicable rate of tax on such interest income of ₹ 7,13,702/- in the opinion of the AO, was assessable at a tax rate of 48% and added the same to the income of the assessee. In further appeal, the CIT(A) confirmed the action of the AO by following his own order passed for preceding A.Y i.e., 1999-2000. 26. Before us, the ld. AR pointed out that in A.Y 1999-2000, order framed u/s 143(3) of the Act and revised by the Commissioner u/s 263 of the Act was set aside by the Tribunal and the assessment order was restored. Therefore, the findings of the CIT(A) based upon his findings given in A.Y. 1999-2000 become otiose. 27. Per contra, the ld. DR relied upon the findings of the AO. 28. We have carefully considered the underlying facts in issue. We find that under the agreement, the assessee was supposed to pay tax liability of non resident companies and has accordingly paid the same. Subsequently, refund was granted by the department and tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing this loss only to the extent of allowability discharged by actual payment. The AO further found that the department has been taking support from the judgment of Tribunal passed in A.Y 1994-95 wherein the Revenue component was held by the Tribunal to have been correctly computed by the AO and as regards capital component, the Tribunal did not accept the case of the department which was held allowable on the basis of accrual method of accounting. The Revenue had challenged the findings of the Tribunal before the Hon'ble High Court and the assessee also challenged the findings of the Tribunal. The AO further observed that the Special Bench of the Tribunal in ITA No. 2472/DEL/1996 for A.Y 1991-92, Foreign Exchange Fluctuation Loss, even on revenue account, has been decided in favour of the assessee. The AO further observed that the department has not accepted the order of the Tribunal for A.Y 1991-92 allowing Foreign Exchange Fluctuation Loss to the assessee on accrual basis. The AO proceeded by computing Foreign Exchange Fluctuation Loss on account of capital component and revenue component as under: Capital Account WDV of capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the judgment of the Hon'ble Supreme Court in the case of Woodward Governor India Pvt Ltd 312 ITR 254. Further, the Hon'ble Supreme Court in assessee's own case has settled this issue in favour of the assessee and against the Revenue in A.Ys 1991-92 to 1994-95 and 1997-98. Respectfully following the same, we decline to interfere. Ground No. 1, accordingly, stands dismissed. 39. Ground No. 2 reads as under: That the ld. CIT(A) erred in law and on facts in directing that difference in the rate of interest paid on borrowings and interest received on investments in tax free PSU Bonds should only be disallowed out of interest liability of ₹ 20,62,37,789/. 40. The underlying facts are identical to the facts considered by us in assessee s appeal in ITA No. 357/DEL/2005 [supra] vide Ground No. 1 of that appeal, wherein we had directed the AO to delete the entire disallowance. For our detailed findings given therein, this ground is dismissed. 41. Ground No. 3 reads as under: That the ld. CIT(A) erred in law and on facts in deleting the disallowance of ₹ 24,09,24,000/- being 60% of the royalty and cess paid in respect of PY-3 production shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 (SC) 3. Hero Cycles Ltd. vs. CIT (2015) 379 ITR 347 (SC) 46. As mentioned elsewhere, similar additions were deleted by the first appellate authority in earlier A.Y and also in subsequent A.Y. Considering the facts in totality, we do not find any error or infirmity in the findings of the CIT(A). Ground No. 3 stands dismissed. 47. In the result, the appeal of the Revenue is dismissed. ITA No. 358/DEL/2005 [Assessee s appeal] 48. Ground No. 1 reads as under: The Ld. Commissioner of Income Tax (Appeals)-I, Dehra Dun [CIT(A)] erred in directing the Assessing Officer to work out the disallowance of the interest paid on borrowings on the basis of the difference between the rate of interest on the borrowings and the rate of interest of the tax free bonds. The CIT(A) failed to appreciate that as the Appellant had sufficient interest-free funds and as there was no nexus whatsoever between the borrowed funds and the investments in the tax-free bonds, there was no scope for any disallowance. 49. The underlying facts are identical to the facts considered by us in assessee s appeal in ITA No. 357/DEL/2005 [supra] vide Ground No. 1 of that appeal, wherein we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing of hired accommodation and ₹ 1,56,73,180/- on construction of boundary wall. The Assessing Officer noticed that these expenses were not claimed as they were not debited to the profit and loss account. When the assessee was asked to explain the liability of these expenses, the assessee stated that it incurred expenses on dry docking and furnishing of hired accommodation in connection with its business purposes. It was explained that the same are amortized and charged to profit and loss account in installments. It was further pointed out that since these expenses are of revenue nature, the same are claimed as allowable expenses for tax purpose in the year of incurrence. 56. The assessee furnished the following details in respect of the aforesaid claim: Offshore Rigs are basically offshore based. These Drilling Rigs are divided into three categories: 1) FLOATERS : The Rigs which keep floating while drilling and have got self propulsion system 2) JACK UP RIGS : Jack up rigs are of two categories: i) Sagar Samrat which is a Ship as it has self-propulsion machinery which can be Jacked up. ii) Jack up Barges: These arc non propelled and are tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illing equipments and engines etc. which cannot be shut down during operations. In view of this, all these repairs are planned in such a way that a planned action can be taken up to take the rig out of operation for some period every 5 yearly (for Jack up rigs) and 2'A Yearly for Floater rigs to carry out surveys, repairs. Your goodself would appreciate that dry docking expenses are basically revenue expenses and therefore, fully allowable in computing the taxable income. ONGC also incurs expenditure on furnishing of accommodation which is not owned by it but is rather hired. Since no capital asset of ONGC comes into existence by incurring this expenditure, the same is revenue expenditure for ONGC and fully allowable in the year of incurrence. In light of the above your goodself is requested to allow deduction for the full amount of dry docking expenses and expenditure on furnishing of hired accommodation as claimed in the return of income. In the alternative and without prejudice to our claim of allowability of the said expenses in the year of incurrence, if your goodself is still of the view that the same are capital expenses, we place on record our cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the expenditure incurred on furnishing of hired accommodation is concerned, we find that the assessee had entered into a MOU with Bengal Chemicals Pharmaceuticals Ltd. [BCPL] on 18.12.1999 to take premises on lease for a period of 36 months. In the agreement it is provided that the expenditure on interior decoration of premises would be incurred by the assessee and BCPL would be required to only reimburse 40% of the cost thereof to the assessee on termination of the agreement. Pursuant to this agreement, the assessee incurred expenditure of ₹ 1,34,65,011/- on account of repair/interior decoration of the lease premises to renovate the same to be used in accordance with the business purpose of the assessee. Since 40% of the expenditure was to be subsequently reimbursed by BCPL on termination of such agreement, the assessee capitalised 40% of the total expenditure and accordingly claimed deduction of the balance amounting to ₹ 80,79,008/-. 63. Before us, the ld. counsel for the assessee vehemently stated that 60% of the total expenditure incurred on renovation of the premises was in the nature of repair and maintenance and did not result in acquisition of any capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as helipad. In order to protect them from water flow, boundary wall was constructed on the sea shore land belonging to the Government after taking necessary permissions from the authorities. The ld. counsel for the assessee concluded by saying that since no new asset was created nor there was any acquisition/construction of any new asset, the expenditure so incurred should be allowed as revenue expenditure. In support of his contention, reliance was placed on the decisions in the following cases: a) CIT Vs. Madras Auto Services [P] Ltd 233 ITR 468 [SC] b) Lakshmiji Sugar Mills Co Pvt Ltd Vs. CIT 82 ITR 376 [SC] c) L.H. Sugar Factory and Oil Mills Pvt Ltd Vs. CIT 125 ITR 293 [SC] d) CIT Vs. Associated Cement Companies ltd 172 ITR 257 [SC] e) CIT Vs. DTTDC Ltd 350 ITR 1 [DEL] 68. Per contra, the ld. DR strongly submitted that the decisions relied upon by the ld. counsel for the assessee are misplaced. It is the say of the ld. DR that the helipad belongs to the assessee and to protect the same from overflow of water, the assessee has constructed boundary wall. The ld. DR vehemently stated that the boundary wall was constructed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder framed u/s 263 of the Act was quashed by the Tribunal and, therefore, the order of the first appellate authority became otiose. 76. Per contra, the ld. DR supported the findings of the lower authorities. 77. In our considered opinion, the under lying facts are identical to the facts of additional ground raised by the assessee in ITA No. 357/DEL/2005 [supra] wherein we have remanded the matter to the file of the Assessing Officer to decide the issue on merits. For similar reasons, we remand the matter to the file of the Assessing Officer to be considered on merits. Ground No. 7 is set aside and treated as allowed for statistical purposes. 78. Ground No. 8 reads as under: The CIT (A) erred in not allowing the Appellant s claim for deduction under section 80- IA of the Act. He failed to appreciate that as the Appellant had set up an undertaking for the generation of power and had satisfied all the conditions of the section, it was eligible for a deduction in respect of the profits derived from such undertaking. 79. During the course of scrutiny assessment proceedings, the assessee claimed deduction u/s 80IA amounting to ₹ 26,69,25,281/-. Audited report i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 85. The afore mentioned sections of the Act now have to be read with clause (8) to Section 80IA of the Act which reads as under: 86. Along with section 80IA(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within its ambit the activity undertaken by the assessee, which is, captive generation of power for its own purposes. The approach of the CIT(A) and, consequently the Tribunal, both in law and on facts cannot be faulted with. We are of the opinion that the Assessing Officer clearly erred in holding that, since the main business of assessee is of manufacture and sale of urea it could not be said to be in the business of generation of power in terms of Explanation (iv) to Section 115JA of the Act. 14. In view of the discussion above, we hold that the assessee is entitled to reduce from its book profits, the profits derived from its CPPs, in determining tax payable for the purposes of Section 115JAof the Act. 88. Though the aforestated judgment is in context to section 115JA of the Act, but the underlying principles clearly apply on the facts of the case in hand. 88. Considering the facts in totality in the light of relevant provisions of law and the decision of the Hon'ble Delhi High Court, we direct the Assessing Officer to allow the claim of deduction u/s 80IA of the Act. Ground No. 8 is accordingly allowed. 89. In the result, the appeal of the assessee is par ..... 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