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TMI Blog2021 (6) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... ilized for the purpose of making any investment which yielded the exempt income - HELD THAT:- We direct the Assessing Officer not to make any addition on account of interest expenditure under Rule 8D of the Income Tax Rules, 1962 ( the Rules ). As regards to indirect expenses incurred for earning exempt income, the submission the assessee that amount of disallowance should be restricted lower of the exempt income and 0.5% of average value of investment, which yielded the exempt income / merits acceptance. It is very well settled position of law that the amount of disallowance u/s 14A cannot exceed the exempt income. While computing the amount of disallowance under clause (iii) of Rule 8D(2) of the Rules, the average value of investments which yielded the exempt income alone to be considered for the purpose of arriving at average value of investment - Therefore, this ground of appeal is remitted to the file of the Assessing Officer to calculate the amount of disallowance under clause (iii) of Rule 8D(2) on the above lines indicated above. Thus, this ground of appeal is partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... laring total income of ₹ 37,29,50,685/- and the same was revised on 27.11.2013 at a total income of ₹ 36,31,29,840/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Circle-8, Pune ('the Assessing Officer') vide order dated 03.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 ('the Act') at a total income of ₹ 37,65,57,863/- after making the following additions :- (i) Disallowance of Initial Public Offer (IPO) expenses of ₹ 88,84,356/- (ii) Disallowance u/s 14A of the Act of ₹ 42,62,687/-. 4. Disallowance of Initial Public Offer (IPO) expenses of ₹ 88,84,356/- :- During the year under consideration, the appellant company incurred an expenditure of ₹ 88,84,356/-, the details of which were set out by the Assessing Officer in the assessment order vide para 4. However, the appellant had not gone for IPO considering the share from prevailing market conditions then prevailing. The Assessing Officer was of the opinion that the said expenditure is capital in nature placing reliance on the decisions in the case of (i) The Brook Bond (225 ITR 798) and (ii) Punjab State Industrial Develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no all-embracing formula, which can provide a ready solution to the problem; no touchstone has been devised. It was pointed out that every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. After referring to the decision of Lord Radcliffe in CIT v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), it was held that it would be misleading to suppose that, in all cases, securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so transitory as to have no endurance at all". 21. Further, it was held that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It was pointed out that it is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, the Government took a decision to sell the project and consequently, cancelled the allotment of 47 acres of land in favour of the assessee. The above facts clearly demonstrate that the assessee though had entered into arrangement with the banks and co-promoters and took action for acquisition of land, import of machineries, etc., no new venture was established by the assessee. The venture, which was to be taken over by the assessee and operated did not fructify, not on account of the conduct of the assessee, but on account of the decision of the Government of Tamil Nadu. In our considered view, the decision of the Government of Tamil Nadu to sell the project is a very important fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature. 26. The Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in pursuance of a claim is receivable, he is entitled to claim the said amount incurred as expenditure in implementing the contract as a set off under Section 37(1) read with 28 of the Income Tax Act, 1961. 31. Insofar as the abandoned feature films are considered, a Division Bench of this Court in the case of Tiruvengadam Investments (P.) Ltd. v. Asstt. CIT [2016] 95 CCH 0024, referring to a circular issued by the CBDT in Circular No.16/2015 dated 06.10.2015, held that film production expenses of abandoned films should be treated as revenue expenditure. This decision was followed in the case of Asia Power Projects P. Ltd. (supra). 32. The learned counsel for the Revenue strenuously contended that a new project had emerged and it is immaterial whether machinery was reduced to scrap and ordered to be sold and what is required to be seen is that the expenditure was incurred from the capital account. 33. In our considered view, reliance placed on the decision of this Court in the case of E.I.D. Parry (India) Ltd. (supra) and the Kerala High Court in the case of Malabar & Pioneer Hosiery (P.) Ltd. (supra) is of little avail, as in both cases, it was for a new project, in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure, no new asset had come into existence nor had any benefit of enduring nature accrued. Therefore, ratio of above decision is squarely applicable to the facts of present case. Accordingly, we direct Assessing Officer to allow the expenditure incurred on abandoned IPO as revenue expenditure. Accordingly, this ground is allowed. 11. Disallowance u/s 14A of the Act of ₹ 42,62,687/- :- The Assessing Officer made an addition of ₹ 42,62,687/- u/s 14A of the Act rejecting the contention of the appellant that no interest bearing funds were utilized for the purpose of making any investment which yielded the exempt income. It must be noted that the major investment is made in a group company viz. M/s. OMR Bagla Automotive Systems (I) Ltd. amounting to ₹ 16,35,50,000/- in the year 2007. 12. Being aggrieved, an appeal was preferred before the ld. CIT(A) against the order of the Assessing Officer, who vide his impugned order upheld the addition made by the Assessing Officer following his earlier decision for the assessment years 2009-10 to 2011-12 in appellant's own case. 13. Being aggrieved, the appellant is before us in the present appeal. 14. It is submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance meaning that it was not overdrawn. Similar, is the case with the next payment of ₹ 2,17,40,000 on 4/11/2007 as also the subsequent payments on 6/11/2007 and 14/11/2007. It is evident on facts therefore, that the investment in Associated Brakes Ltd (subsequently called OMR Bagla), was sourced out of a current account which always had a positive balance. It is to be further noted that the money received as part of the BTA dtd.27/10/2007 (for sale of plant 8 by the assessee to Associated Brakes Ltd), was also credited into the same current account with Axis Bank. The transactions from the bank account have been extracted in the form of table submitted by the assessee above. It is therefore evident on facts that the entire strategic investment in OMR Bagla has been sourced out of the sale consideration for plant 8 and is therefore sourced out of the own funds of the assessee. On these facts, it cannot be held that interest bearing funds have been diverted for this strategic investment. On a perusal of the assessment order, I find that the AO has mixed up the dates holding the investment to be prior to the sale, when the facts indicate the exact opposite. The AO has also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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