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TMI Blog2023 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for both assessment years. Disallowance of interest on borrowed capital u/s. 36(1)(iii) - AO has disallowed interest paid on borrowed capital u/s. 36(1)(iii) as the assessee has borrowed capital for the purpose of acquisition of capital asset and thus, interest paid on said borrowed capital should be capitalized to the asset till such asset is put to use - HELD THAT:- As per provisions of section 36(1)(iii) of the Act, proviso provided thereto, any amount of interest paid in respect of capital borrowed for acquisition of asset shall not be allowed as deduction till the date of such asset first put to use. Therefore, we are of the considered view that, there is no error in the reasons given by the AO to disallow interest paid on borrowed capital u/s. 36(1)(iii) of the Act and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee for both assessment years. Alternate plea of the assessee for depreciation - As we find that when interest paid on borrowed capital is added to the cost of the asset, then the assessee is eligible for depreciation on value of asset including interest paid on borrowed capital, if any capitali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w.r. 8D - As per assessee he has not received any dividend income and hence, there can be no disallowance u/s. 14A - HELD THAT:- It is a well settled principle of law by the decisions of various courts including the case of Redington India Ltd [ 2017 (1) TMI 318 - MADRAS HIGH COURT] where it has been clearly held that in absence of any dividend income, disallowance contemplated u/s. 14A cannot be made. In this case, there is no dispute with regard to the fact that the assessee has not received any dividend income and hence, there can be no disallowance u/s. 14A. Decided in favour of assessee. - ITA Nos.: 1604 & 1605/Chny/2019 and 1696 & 1697/Chny/2019 - - - Dated:- 8-3-2023 - SHRI V. DURGA RAO, HON BLE JUDICIAL MEMBER AND SHRI MANJUNATHA. G, HON BLE ACCOUNTANT MEMBER For the Appellant : Shri. Vikram Vijayaraghavan, Advocate For the Respondent : Shri. S. Senthil Kumaran, CIT ORDER PER MANJUNATHA. G, ACCOUNTANT MEMBER: This bunch of four cross appeals filed by the assessee as well as revenue are directed against separate but identical orders of learned Commissioner of Income Tax (Appeals)-9, Chennai, dated 28.02.2019 and pertains to assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appreciated that the benefit of the deduction given by the Act to the individual undertaking and resultantly flows to the assessee. 5 The Commissioner of Income tax (Appeals) erred in directing the AO while considering the (net) loss on forward contracts Rs. 1,04,01,000/-(net of unrealized gain Rs. 75.56 Lakhs and realized loss Rs. 179.57 lakhs) 5.1 The Commissioner of Income tax (Appeals) erred in directing the AO that while considering the realized loss Rs. 1,04,01,0020/-, whether the forward contract was in excess of the export turnover of the Appellant and also examine whether there was any premature cancellation of forward contract following the order of CIT(A) for the AY 2012-13. 5.2 The CIT(A) ought to have appreciated that loss arising from forward contract in respect of export turnover which did not fructify is also allowable as a business loss and cannot be considered as speculative and therefore CIT(A) should not have remitted the issue back to A0. The cancellation of forward contract is a routine transaction done during the course of business and the CIT(A) ought not to have directed A0 to check whether there were any such cases to allow the above said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2 The Commissioner of lncome tax (Appeals) ought to have appreciated that notional capitalization was as per the requirement of AS 16 and the said amount neither formed part of cost of acquisition of fixed assets not covered by the proviso to section 36(1)(iii). 8.3 Without prejudice to our above contention, the CIT(A) ought to have allowed the depreciation on the said sum since this was held to be an interest paid in respect of the capital borrowed for acquisition of assets. 3. The assessee had also filed a petition for admission of additional grounds in terms of Rule 11 of Income Tax (Appellate Tribunal) Rules, 1963 and relevant additional grounds of appeal filed by the assessee are reproduced as under: 1. The schemes operated under the foreign trade policies are subsidies given to the exporter to enhance the Indian export potential in the international market and with a view to enhance India's export competitiveness and to improve the technology to enable the Indian exporters the foreign countries and hence these subsidies does not amount to revenue during the course of its business but amount to capital receipt to enhance the capacity and competence to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A), for the reasons stated in their appellant order dated 28.02.2019, partly allowed appeal filed by the assessee. Being aggrieved by the CIT(A) order, the assessee as well as the revenue are in appeal before us. 6. Ground no. 1 of assessee s appeal for both assessment years is general in nature and thus, same is not specifically adjudicated. 7. The first issue that came up for our consideration from ground no. 2 of assessee s appeal for both assessment years is disallowance u/s. 14A r.w.r. 8D of IT Rules, 1962. The Ld. Counsel for the assessee, at the time of hearing submitted that the assessee does not want to press this ground, because the assessee has got allowed relief from the A.O while giving effect to order of the ld. CIT(A), for which the Ld. DR has no objection. Therefore, ground no.2 of assessee s appeal for both assessment years is dismissed as not pressed. 8. The next issue that came up for our consideration from ground no. 3 of assessee s appeal for both assessment years is disallowance of weighted deduction claimed u/s. 35(2AB) of the Act, and restricted to the extent of amount approved by DSIR. The AO has allowed deduction claimed u/s. 35(2AB) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 80IC units. The Ld. Counsel for the assessee, submitted that the assessee does not want to press this ground, because the AO has allowed the claim of the assessee, while giving effect to the order of the ld. CIT(A). The ld. DR, on the other hand has no objection for withdrawal of ground. Having heard both the sides and considered the request of the ld. Counsel for the assessee, we dismiss ground no. 4 of assessee s appeal for both assessment years as not pressed. 12. The next issue that came up for our consideration from no. 5 of assessee s appeal for both assessment years is disallowance of loss on forward contract. The Ld. Counsel for the assessee, submitted that the assessee does not want to press this ground, because the AO has allowed relief to the assessee while giving effect to the order of the Ld. CIT(A) by following the decision of ITAT, Chennai benches in assessee s own case for assessment year 2009-10, for which the ld. DR, has not raised any objections. Therefore, ground no. 5 of assessee s appeal for both assessment years has been dismissed as not pressed. 13. The next issue that came up for our consideration from ground no. 8 of assessee s appeal for both as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest paid on borrowed capital is added to the cost of the asset, then the assessee is eligible for depreciation on value of asset including interest paid on borrowed capital, if any capitalized to said asset account. Therefore, we direct the AO to verify the claim of the assessee and allow depreciation as per the law. 17. The next issue that came up for our consideration from additional grounds of appeal filed by the assessee for both assessment years is treatment of focus marketing subsidy received from Government as capital receipt. The Ld. Counsel for the assessee, referring to additional grounds of appeal filed by the assessee submitted that, focus marketing scheme subsidy received by the assessee from Government of India is capital in nature which cannot be treated as revenue income. Since, the assessee could not raise grounds on this issue by inadvertent error, the same has been raised in the form of additional grounds. Thus, additional grounds of appeal filed by the assessee should be admitted and the issue should be decided on merits. 18. The Ld. DR, on the other hand strongly opposing additional grounds of appeal filed by the assessee for both the assessment years su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per said scheme, export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. The assessee being eligible exporter had received licenses/duty credit scrip/ market linked focus scrips amounting to Rs. 150.57 crores for the year under consideration. The assessee has considered amount received under focus market scheme as revenue receipt and offered to tax. However, based on some subsequent decisions of appellate authorities has filed an additional claim seeking exclusion of said receipt from taxation on the ground that it is in the nature of capital receipt and not exigible for tax. Therefore, in order to understand whether amount received from Focus Market Scheme is revenue in nature or capital receipt, which is exempt from tax, one has to understand objectives of Focus Market Scheme announced by Govt. of India. As per Foreign Trade Policy document, the objective of the scheme is to offset high freight cost and other disabilities to select international market with a view to enhance our competitiveness to these countries. On the basis of objectives of the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. It is well settled principles of law that any subsidy given for the purpose of offsetting part of cost of setting up of new industry, as per industrial policy of various State Governments or Govt. of India is considered as part of capital contribution and capital in nature, whereas subsidy given after commencement of production of products and further for enhancing profitability of the assessee is certainly in the nature of assistance given for running of business of the assessee more profitable and hence, it is definitely revenue in nature. 34. In this case, on perusal of facts available on record including foreign trade policy of Government of India, it is very clear from documents that main objective of Focus Market Scheme is to offset high freight cost and other disabilities of exporter to select international market with a view to enhance our export competitiveness to these countries. The expenditure incurred by the assessee under this scheme for exploring new market across the globe is mainly freight cost and other recurring expenses like sales promotion expenses, including manpower cost of staff employed in marketing department. Those expenses are generally in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eight and other disabilities of exporters to be more competitive in exports to certain regions. Thus, the same cannot at any stretch of imagination be considered as capital in nature. Hence, we reject the ground taken by the assessee. 21. In this view of the matter and considering facts and circumstances of this case and also by following the decision of ITAT, Chennai Benches in the case of Hyundai Motors India Ltd vs ACIT (Supra), we are of the considered view that, focus market scheme subsidy received by the assessee from Government of India is revenue in nature, which cannot be considered as capital receipt. Further, in fact the assessee itself has considered subsidy received from Government of India as revenue receipts and thus, there is no merit in additional grounds filed by the assessee for both the assessment years to treat focus market subsidy as capital in nature. Hence, we reject additional grounds of appeal filed by the assessee for both assessment years. 22. In the result, appeals filed by the assessee for assessment years 2013-14 2014-15 are partly allowed. ITA NOS: 1696 1697/CHNY/2019: 23. The Revenue has more or less raised common grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble High Court after considering relevant facts and also by taking into account provisions of section 32(1)(iia) of the Act, held that the assessee is entitled for balance 50% additional depreciation in the year following the previous year in which the said asset is installed and put to use. 24(b). The Ld. DR, on the other hand supporting the order of the AO submitted that as per law, the additional depreciation is allowable in the year of acquisition of asset. 25. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The issue of additional depreciation in subsequent year has been considered by the jurisdictional High Court of Madras in the case of Brakes India ltd vs DCIT 2017-TIOL-710-HC- MAD-IT, where the Hon ble High Court has considered the issue in light of provisions of section 32(1)(iia) of the Act and held that balance additional depreciation in the year following the previous year in which the said asset is installed and put to use is allowable. The ld. CIT(A), after considering relevant facts and also by following the decision of Brakes India Ltd vs DCIT (supra), and also the decision in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the submissions of the AR that the UPS is an energy saving device, therefore, depreciation @ 80% should be granted. However, we are in consonance with the decision of Hon ble Delhi High Court in the case of Orient Ceramics Industries Ltd. (supra), wherein the Hon ble Court has granted depreciation @ 60% by treating UPS as part of computer hardware. Accordingly, we allow depreciation @ 60% on UPS and partly allow the ground of appeal of the assessee. For the reasons recorded above, we hold that the assessee is entitled to claim depreciation @ 60% on the UPS. Accordingly, this ground of appeal of the assessee is partly allowed. 39. Respectfully following the above decision of this Tribunal, we sustain the order of the Commissioner of Income Tax (Appeals) on this issue and reject the grounds of appeal raised by the Revenue. The appeal of the Revenue is dismissed accordingly. 27. In this view of the matter and consistent with the view taken by the Co-ordinate bench in assessee s own case for earlier assessment years, we are of the considered view that the assessee is entitled for higher depreciation of 60% on UPS and thus, we are inclined to uphold the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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