9911796707
TMI Blog2019 (6) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... w the assessee a reasonable opportunity of being heard and thereafter recompute the depreciation allowable to the assessee keeping in mind the directions of the Tribunal in the earlier years, and as per law. Disallowance of interest expenditure by invoking Sec. 36(1)(iii) - HELD THAT:- A pertinent point which has been brought out by LR is that the interest income earned by the assessee on such Central and State Government securities have all along been assessed as business income and, therefore, there was no justification for disallowing the corresponding interest expenditure on the plea that that the investments are for non- business purpose. Even in the instant assessment year, a reference has been made to the assessment order to point out that the interest income from such securities is lying assessed as business income . Considering the aforesaid aspect, as also the fact that IDBI General Regulations, 1994 prescribe for making investments in securities of Central and State Governments, we do not find any reason to uphold the stand of the income-tax authorities that such investments are not in the course of assessee s business. In fact, there is an apparent contradictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... American Express Bank Ltd. [ 2012 (8) TMI 371 - ITAT MUMBAI] . Considering the decision of coordinate bench of Tribunal, we direct the A.O. to allow the deduction on gross basis, of cource after deducting the direct expenses attributable to earning such income. In the result, the assessee also succeeded on this ground. - ITA No. 3626/Mum/2001 - - - Dated:- 21-6-2019 - Shri G.S. Pannu, Vice President And Shri Pawan Singh Judicial Member For the Appellant : Sh. Satish Mody AR For the Respondent : Sh. Awungshi Ginson (Sr.DR) ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of Income Tax Act is directed against the order of learned Commissioner of Income (Appeals) -XXVI, Mumbai dated 30.03.2011, which in turn arises from the assessment order passed under section 143(3) of the Income tax Act (Act) dated 25.02.2000 for Assessment Year 1997- 98.The assessee has raised following ground of appeal ; Aggrieved by the Appellate Order dated 30tl1 March, 2001 passed by the Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is therefore allowable u/s 36(1)(iii) of the IT Act being interest payable on capital borrowed for the purposes of the appellants business. 2.3 The learned CIT(A) erred in holding that interest attributable to borrowed capital invested In various financial institutions, corporations, etc. is not a deduction admissible u/s 36(1)(iii) of the Income tax Act. He erred in holding that: (a) Since the funds have been utilised for the purposes of the business of the respective financial institutions, corporations, it is not used for the appellant's business. (b) The funds invested in these shares have gone out of circulating capital of the appellant and therefore interest expenditure in respect of those funds could not be said to have been incurred for appellant's business. (c) The proportionate expenses should be allocated under the head income from other sources and consider for deduction under the said head. The factum, the method, tile manner and the conclusion with regard to the apportionment of expenses is totally contrary to law and is wholly unjustified. 3. Deduction u/s 80M : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant craves leave to add to, amend, alter, modify, delete and/or substitute all or any of the above grounds of appeal till the final disposal of the appeal. 2. Before we proceed to adjudicate the aforestated Grounds of appeal, a brief background of the case can be summarised as follows. The appellant before us is a public financial institution which has been constituted under the Act of Parliament by way of IDBI Act, 1964 with the object of financing, promoting and developing industries as well as assisting the development of institutions engaged in such activity. For the assessment year under consideration, the assessee filed return of income declaring a total income of ₹ 118,92,18,700/- which was subject to a scrutiny assessment whereby the total income has been assessed at ₹ 1326,62,24,540/- after making certain additions/disallowances. The additions so made were carried in appeal before the CIT(A), who has allowed partial relief. Not being satisfied with the order of CIT(A), assessee is in further appeal before us by way of the aforestated Grounds of appeal. At the time of hearing, it was pointed out that so far as the appeal preferred by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years. 5. In this background, we have heard the rival stands, perused the relevant material and proceed to dispose of the issue in the following manner. As briefly noted by us earlier, the appellant is a public financial institution which is, inter-alia , engaged in the activity of providing finance including leasing also. In pursuance to such objects, the assessee had leased out assets to various entities and claimed depreciation on the value of such assets leased out. So far as the terms and conditions of the lease are concerned, both the lower authorities have converged that the same are on similar terms and conditions as was in the past years. In fact, there is a convergence between the two sides to the effect that the facts and circumstances of the dispute stand on an identical footing as was considered by the Tribunal in the earlier years, notably in Assessment Years 1994-95 to 1996-97 by way of a combined order dated 29.10.2014 (supra). We have perused the said decision and find that the Tribunal referred to various decisions, inter-alia , the judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. Vs CIT [2013] 350 ITR 527 (SC), wherein H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard and thereafter recompute the depreciation allowable to the assessee keeping in mind the directions of the Tribunal in the earlier years, and as per law. 8. Accordingly, insofar as Ground of appeal nos. 1.1 to 1.3 are concerned, the same are allowed to the above extent. 9. Now, we may take-up Ground of appeal nos. 2.1 to 2.3 which, interalia , arise out of the action of Assessing Officer in disallowing interest expenditure amounting to ₹ 455,70,63,150/- by invoking Sec. 36(1)(iii) of the Act. It has been explained before us that the Assessing Officer was of the opinion that three categories of investments made by the assessee could not be treated as relating to business and, therefore, interest attributable to the borrowing used for making such investments could not be allowed under Section 36(1)(iii) of the Act. The investments so noted by the Assessing Officer totaled to ₹ 4945 crores, whose break-up has been noted by the CIT(A) in para 44 of his order, which reads as under :- The break-up of this investment was as follows: (Rs. In crores) (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Year 2003-04 upto Assessment Year 2008-09, the disallowance made by the Assessing Officer was deleted by the CIT(A) and the Department has not contested the same in further appeal before the Tribunal except for Assessment Year 2007-08. It is further pointed out that from Assessment Year 2009-10 onwards to Assessment Year 2012-13, there has been no disallowance under Section 36(1)(iii) of the Act meaning thereby that even with regard to investments made in State Financial Corporations, corresponding interest has not been disallowed under Section 36(1)(iii) of the Act. 12. The aforesaid has been mentioned before us to emphasise the inconsistency in the approach of the Revenue so far as Assessment Year 1997-98 and upto Assessment Year 2002-03 is concerned. Undoubtedly, the aforesaid factual position relating to the investments made in State Financial Corporations, bears out that there is lack of uniformity in the approach of the assessing authority on a similar issue. Be that as it may, even otherwise on merit, we do not find potency in the stand of the Assessing Officer that investments made in other State Financial Corporations are not in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to such conditions as may be prescribed, accepting, discounting, or re-discounting bills of exchange and 7[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern]; 6[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern; (c) subscribing to or purchasing stocks, shares, bonds or debentures of the Industrial Finance Corporation, any State Financial Corporation or any other financial institution whether within or outside India which may be approved by the Board in this behalf. (ca) granting letters of credit or loans and advances to the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf, for the purpose of any business of such Corporation or institution; (d) granting loans and advances to any industrial concern or subscribing to, or purchasing, or underwriting the issue of, stocks, shares, bonds or debentures of any industrial concern: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bentures of any industrial concern; (ga) granting, opening, issuing, confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder; (gb) providing consultancy and merchant banking services in or outside India; (gc) acting as the trustee for the holders of debentures or other securities; (gd) acquiring, with the approval of the Central Government, the undertaking, including the business, assets and liabilities of any institution the principal object of which is the promotion or development of industry in India, or the grant of financial assistance for such promotion or development;] (h) undertaking research and surveys for evaluating or dealing with marketing or investments and undertaking and carrying on technoeconomic studies in connection with the development of industry; (i) providing technical, legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry; legal, marketing] and administrative assistance to any industrial concern or any person for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s business objects. 14. The only other aspect which is left for determination is interest relatable to investments made in securities of Central and State Governments amounting to ₹ 170 crores. On this aspect, it has been emphasised that in the earlier years, no such disallowance was made by the Assessing Officer. The rival stands on this aspect remain the same as it pertained to the interest relatable to investments made in State Financial Corporations. It was a common point between the parties that the assessing authority has not differentiated between the two items and the disallowance has been made on a consolidated basis in all the years, therefore, the assessing authority has disallowed the expenditure for similar reasoning as advanced for disallowing interest pertaining to investments in State Financial Corporations. 15. On this aspect, a pertinent point which has been brought out by the Learned Representative is that the interest income earned by the assessee on such Central and State Government securities have all along been assessed as business income and, therefore, there was no justification for disallowing the correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. on the borrowings, the assessee has paid interest and debited in Profit Loss Account. Investments in shares are primarily done as part of assessee s lending activities. The Assessing Officer has not given any clear finding. However, the ld. CIT(A) recorded that perusal of assessment order reveals that decision on computation under section 80M is not clear. The ld. CIT(A) concluded his finding in the following manner: 109. A perusal of the assessment order shows that the A.O.s decision and computation of deduction u/s. 80M is not clear. In the computation of income, on p.77, he has shown the deduction u/s. 80M to be ₹ 79,84,44,45/-, as per Annexure A . In the Annexure A , he has computed the deduction u/s.80M at ₹ 79,84,44,450/-. On the other hand, at page 75 of the assessment order, he states that the claim of deduction u/s. 80M of ₹ 82,73,23,090/- is withdrawn . In view of this, the A.O. is directed to pass a clear, speaking order on the appellant s claim of deduction u/s. 80M. While doing so, he should keep note of, and give effect to, my directions relating to the appellant s claim of deduction u/s. 36(1)(iii). 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. AR of the assessee vehemently submitted that the A.O. taxed the income from sale of Joint Stock Company under the head Capital Gain. However, the ld. CIT(A) has treated the profit on sale of Joint Stock Company as Business Profit. We have further noted that the department has accepted the similar profit on sale of investment as a Capital Gain from A.Y. 2002-03 to 2012-13 as the same has not been disputed by ld. DR while making his submission. Considering the fact that similar profit is accepted as Capital Gain from the year 2002-03 till 2012-13, therefore, the revenue should follow the consistency when there is no variance in the facts. Hence, we direct the A.O. to treat the profit on sale on investment as Capital Gain as has been accepted from A.Y. 2002-03 onwards. Therefore, the assessee also succeeded on this ground. 24. Ground No.5 relates to disallowance of Guest House Expenses. We have noted that the ld. AR of the assessee has not argued anything against the disallowance of Guest House Expenses. Therefore, this ground is treated as not pressed. Even otherwise we have noted that the ld. CIT(A) has already held that except depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee raised additional ground of appeal regarding restructuring the assessee s claim under section 10(23G) in respect of infrastructure business to ₹ 1,86,27,921/- as against ₹ 8,36,34,794/- claimed in the return of income. The ld. CIT(A) in para-114 of his order recorded that this ground was not pressed by assessee. Before us, ld. AR of the assessee vehemently submitted that the assessee has raised specific as well as additional ground of appeal and that the finding of ld. CIT(A) that the assessee has not pressed this ground, is factually incorrect. Before us, the ld. AR of the assessee submits that exemption under section 10(23G) is to be allowed on gross basis. The ld. AR strongly makes reliance on the decision of Tribunal in Reliance Industries vs. ACIT (supra). The co-ordinate bench of Tribunal in Reliance Industries vs. ACIT (supra) held as under: 9.6 We have carefully considered the orders of authorities below and the submissions of ld. Representatives of the parties. We have also considered the earlier order of the Tribunal dated 28.5.2012 in the assessee's own case for preceding assessment year 2002-03. We observe that AO disallowed an est ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
