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TMI Blog2017 (2) TMI 1440X X X X Extracts X X X X X X X X Extracts X X X X ..... have merged with appellate order. In view of Explanation-C to Sec.263(1) of the Act whereas the assessee had preferred an appeal only on certain points; CIT can revise the assessment order on the other points. The reliance was placed on the judgements of CIT Vs. Farida Prime Tannery in [ 1998 (4) TMI 26 - MADRAS HIGH COURT] and Seshasayee Paper And Boards Limited [ 1998 (3) TMI 78 - MADRAS HIGH COURT] and in the case of Soft Beverages P. Ltd. [ 2000 (12) TMI 80 - MADRAS HIGH COURT] . Hence, in our opinion, the concept of merger with the appellate order cannot be applied; therefore, Ld. CIT is well within his power in exercising revisional jurisdiction on this issue. This ground of assessee is rejected. Disallowance of claim of deduction towards electricity and power generation tax u/s.43B - HELD THAT:- On this issue, in our opinion, electrical tax and power generation tax is statutory liability which requires to be paid before the due date of filing of return of income and as such provisions of the section 43B is applicable and the Ld. CIT is justified in invoking the jurisdiction u/s.263 of the Act to disallow the same. Hence, this ground stands rejected. Claim of dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into account the gross interest paid on borrowals. 3. The Commissioner of Income Tax erred in directing the assessing officer to disallow the appellant s claim of deduction towards Electricity and Power Generation Tax u/s.43B. 4. The Commissioner of Income Tax erred in directing the assessing officer to examine the appellant s claim of deduction u/s.35(2AB) afresh. 5. The Commissioner of Income Tax erred in directing the assessing Officer to assess the relief obtained by the assessee under Corporate Debt Restructuring (CDR) Mechanism under the appropriate provisions of the Act. 3. The facts of the case as narrated for the assessment year are that the assessee company is engaged in the business of manufacture and sale of chemical fertilizers, urea, DAP and chemicals, execution of turnkey projects and electrification contracts, manufacture of bulk drugs and formulations and production of tissue culture plants and enzymes. It filed its return of income for the A.Y. 2005-06 on 27.10.2005 declaring a net loss of ₹ 17,020.02 lakhs. Assessment in this case was completed on 12.12.2008 on a total income of nil after adjusting brought forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee. In response to the notice, the representatives of the assessee filed a detailed written submission and explained the business organization and the background of the issues. 4. Regarding disallowance on account of diversion of interest bearing funds to group concerns, it was noticed that the amount debited to the interest paid account was net of interest received. The total interest income received during the year was ₹ 164.51 lakhs. Therefore, according to the CIT, the order of the AO, was therefore, erroneous to this extent that the interest disallowance was made with reference to the net interest debited and not the gross interest payment of ₹ 18,227.86 lakhs. It was submitted by the ld. AR that the formula adopted by the AO in the assessment order is a scientific one and should not be interfered with, since, only net interest liability was debited to the profit and loss account. The assessee company has also relied on the decision of the Supreme Court in the case of S.A.Builders v. CIT (288 ITR 1). Further, it was submitted that the decision to disallow the interest payment has been taken up before the CIT(A) and if the entire disallowance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 ITR 50(SC) 2. CIT v. Jaykumar B. Patil (236 ITR 469)(SC) 3. CIT v. Panna Knitting Industries (253 ITR 656)(Guj.) 4.3 With regard to the Supreme Court s decision in the case of S.A.Builders cited supra, the CIT observed that it is also devoid of substance, since, while deciding to disallow a portion of interest paid, the AO had considered the aforesaid Supreme Court s decision and concluded that the advances made to the group concerns had no direct nexus with the business activities of the assessee company. Besides, there is also a question of basic principle involved on this issue. The interest receipts have come through deposits and investments made. On the other hand, the advances to the sister concerns have been made out of borrowed funds carrying interest liability. Therefore, according to the CIT, there is no nexus between the interest received and the interest paid. Due to this, the AO should have disallowed a portion of the interest paid out of the gross interest liability in proportion to the interest free loans extended to the group concerns, which works out of to ₹ 14,13,22,330/- and directed the AO to rework the disallowance taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction claimed Electricity Tax (₹ 1,93,03,614/-) and Power Generation Tax (₹ 69,97,512/- ought to have been disallowed by the AO u/s.43B of the Act. 5.3 Further, the CIT observed that the assessee s contention that the liability has not got crystallized during the relevant previous year is accepted, that would result in the liability being classified as a contingent liability , which is not an allowable deduction under the scheme of the Act. Thus, according to the CIT, either way, the assessee s claim of deduction on Electricity Tax and Power Generation Tax ought to have disallowed and, therefore, he directed the AO to disallow the assessee s claim of deduction towards Electricity Tax and Power Generation Tax . 6. In respect of deduction u/s.35(2AB) of the Act, the assessee claimed a total deduction of ₹ 4,11,16,605/- u/s.35(2AB). The deduction is at the rate of 150% of the expenditure incurred on the in-house research and development facility. The claim was allowed by the AO. From the records, it is seen by the CIT that no evidence was furnished to establish that the assessee company had entered into an agreement with the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in the rate of interest. The ld. AR, submitted that the disclosure was made in the accounts as per the requirement of the Company Law and, therefore, no benefit has actually accrued to the assessee company. 7.2 The CIT observed that the CDR exercise carried out by the Financial Institutions and Banks (which had advanced loans) and the assessee company was basically done with the intention to restructure all the parameters of the loans advanced and the repayment schedule and terms, to arrive at new terms which includes downward revision of interest rate, the purpose being to bail out the assessee company from its financial crisis. Thus, this exercise has been carried out by the Financial Institutions and the assessee company based on an understanding between them. Therefore, according to the CIT, the assessee s submission that it has not received the approval from two of the corporate Banks for the reduction in the rate of interest is fundamentally flawed. Further, the assessee has not brought on record any evidence to show that these two Banks have subsequently objected to the CDR exercise. Thus, the submission of the assessee company that the CDR exercise has not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests of the Revenue, when an Assessing Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. Accordingly, he submitted that the disallowance of interest cannot be dealt by the ld. CIT in his order passed u/s.263 of the Act. 9. On the other hand, ld.D.R submitted that interest received cannot be set off with the interest paid by the assessee and interest paid separately to be shown, which used for the purpose of business. Interest received is an income to be assessed separately. Further, he submitted that a portion of fund was advanced to the sister concern free of interest that interest on that advances to its sister concern to be computed and to be allowed which is worked out at ₹ 513.44 crores. He relied on the order of ld. CIT. 10. We have heard both the parties and perused the material on record. Admittedly the interest paid by the assessee on borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .A.R submitted that this claim was made in accordance with the provisions of the section 35(2AB) of the Act and according to him, ld. Assessing Officer /CIT cannot withdraw the claim itself at most, they can refer the matter to the prescribed authority under the provisions of the Act so as to verify the genuineness of claim of the assessee. 16. We have heard both the parties and perused the material on record. The Ld. CIT has not withdrawn the claim of assessee u/s.35(2AB) of the Act. He has only remitted the issue back to the file of AO to examine the issue in accordance with law after providing an opportunity to the assessee. Since the AO allowed the deduction without examining the issue in proper sense and he has not made any enquiry on this issue, the order of the AO is very cryptic and is bad in law as the AO what is required to be looked into was not gone through by him. Hence, it makes the assessment order erroneous and prejudicial to the interest of the Revenue. Being so, the CIT is justified in invoking the provisions of the section 263 of the Act. 17. The last issue is with regard to relief granted to the Corporate Debt Restructuring Mechanism under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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