9911796707
TMI Blog2024 (12) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the disallowance on account of administrative expenditure, when pointed out, the Ld. AR fairly submitted that there has been slight rise in the administrative expenses owning to the rise in the salary of staff, the administrative expenses disallowable could be Rs. 17,50,000/-. The Ld. DR could not controvert the proposition. Hence, the disallowance is restricted to Rs. 17,50,000/-. Capitalization of interest-WIP - computed the amount of capitalization of interest expenditure in excess of actual interest by taking into account notional interest rate 12% on the closing balance of CWIP - CIT(A) upheld the disallowance made by the AO on account of disallowance of interest debited treating the same as capitalization of interest attributable to Capital Work in Progress - HELD THAT:- We find that the assessee had term loan of External Commercial Borrowing (ECB) taken for acquisition of shares of a foreign company, namely, Kamalyte Resources Inc., Canada and the loan is secured by pledge on shares of the said company. The Assessee also had as short-term loan from Gujarat State Financial Services Ltd. for a period of 90 days for the purpose of financing working capital.It can be found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the assessee is rightly eligible for claim of deduction under 80G as claimed and accounted in the books of accounts as per the final accounts drawn. Re-computation 115JB and 14A - By now it has been settled by the order in the case Vireet Investments Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] that the disallowance made u/s 14A cannot be considered for calculating book profit u/s 115JB of the Act. Hence, the appeal of the Revenue on this ground is dismissed. - Dr. B.R.R. Kumar, Vice-President And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Manish J. Shah, Shri Jimi Patel And Shri Rushin Patel, ARs For the Revenue : Shri Durga Dutt, CIT (DR) And Shri B.P. Srivastava, Sr. DR ORDER PER DR. B.R.R. KUMAR, VICE-PRESIDENT : These two appeals - one filed by the assessee being ITA No.348/Ahd/2020 and other filed by the Revenue being ITA No.538/Ahd/2020, are cross appeals which are directed against the order of learned Commissioner of Income-tax (Appeals)-1, Vadodara ( CIT(A) in short) dated 04.03.2020 for Assessment Year 2016-17 and the same are being disposed of along with Cross Objection filed by the assessee being CO No.9/Ahd/2021. ITA No. 348/Ahd/2020 Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of Book Profit u/s 115 JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation 1 to section 115JB(2) and it is required that any expenditure in relation to the exempt income also to be taken into consideration while computing the book profit under section 115JB, thus, said amount has to be added back while computing amount of book profits?. 4. The brief facts of the case are that the Assessee is engaged in the business of manufacturing and selling of fertilizers and chemicals. The Assessee filed its return of income on 29.11.2016 declaring income of Rs. 4,53,30,15,020/- and book profit of Rs. 5,38,85,05,347/- and paid tax on normal income while filing return of income. The Assessing Officer has passed the assessment order under Section 143(3) of the Act making several additions in the normal computation of total income and book profit which resulted into a total disallowance of Rs. 54,57,00,943/- under normal provisions of the Act, and accordingly calculated tax liability of the assessee. 5. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT (A) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd had incurred total interest amounting to Rs. 25,22,37,355/- during the year under consideration. The interest expenditure debited to the statement of Profit and Loss comprises of interest on short-term borrowings and interest on term loan, being External Commercial Borrowings. It was argued that External Commercial Borrowing (ECB) are taken only for the purpose of acquisition of shares of a foreign company which are not secured by charge on immovable properties, movable assets and hypothecation of movable properties, both present and future. It was submitted that the assessee had already disallowed the interest on term loan while computing the income under head Profits and gains from business or profession and had claimed the same while computing income under head Income from Other Sources . Disallowing the interest on ECB once again will lead to double disallowance. 9.2 Ld. AR argued that the assessee only has a cash credit facility which is secured by hypothecation of stock of raw materials, finished products, packing materials, general stores, spares, book debts etc. and not against the immoveable properties of the assessee and the Assessing Officer has not provided any basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays for the purpose of financing working capital. Further, it can be found from the record that the assessee had cash credit account, overdraft facility, commercial paper, buyers credit, bill discounting, etc. for the purpose of financing working capital. 9.6 We have examined the details of the loans taken, nature purpose of utilization and the payment of interest by the assessee. The details are as under: Particulars of Interest Expense Amount in Rs. Nature and Purpose Interest - Inter Corp. Deposit (Short Term - 90 days) 3,83,60,656 For Working Capital Interest - Short Term Deposit 1,05,34,019 Overdraft Interest for working capital Interest On Cash Credits Charged 6,13,06,364 CC Interest for working capital Interest - Sales Bill Discount 21,84,045 Interest on Bill Discounting - working capital Interest - Purchase Bill Discount 2,65,75,802 Interest on Bill Discounting - working capital Interest on C.P. 3,22,20,500 Interest on Commercial papers - working capital Interest Rate Swap - Loss A/c 1,28,14,287 External Commercial Borrowing Interest Interest Rate Swap Floating Interest A/c 5,48,45,719 External Commercial Borrowing Interest Total Interest on borrowings 23,88,41,392 Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deemed to be not an expenditure incurred by the assessee for the purpose of the business or profession. 10.2 The Ld. AR succinctly argued that unlike Explanation 1, there is no phrase in Explanation 2 stating and no deduction or allowance shall be made in respect of such expenditure. The Ld. AR submitted that the assessee is not in the business of making gardens, event organizing, education, etc. but are incurred for the purpose of its business. Therefore, the expenditure is also not adversely hit by Rule 4(1) of the Companies (Corporate Social Responsibility) Rules, 2014 as alleged by the Assessing Officer. 10.3 On the other hand, the Ld. DR relied on the order of the Ld. CIT(A). For the sake of ready reference, the operative portion of the relevant part of the order of the Ld. CIT(A) is reproduced hereunder: I have carefully considered the material facts of the case and the submissions of the assessee. First of all, the assessee claimed the entire expenditure being donations and contributions and debited the P L Account. However, a major part of it was disallowed and added back by the assessee. The amount which was spent for the above was treated as the expenditure for business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pits and soils and where such activity was undertaken. In view of these facts, the decisions of the Hon'ble Madras High Court and also the Hon'ble ITAT Mumbai cannot be applied to the facts of the case. Similarly, I have also perused the decision of the Hon'ble ITAT Chennai in the case of Velumanickam Lodge on which the assessee placed reliance and found the same is also not applicable to the facts of the case. In that case, the Ld. CIT(A) during the appellate proceedings, found some evidence as filed by the assessee with regard to getting contracts soon after the assessee agreed to construct the hockey stadium. Hence, the allowance was given by the Hon'ble Tribunal. In the present case, there is no such evidence, as stated above, filed by the assessee to prove that the business of the assessee increased subsequent to the said expenditure incurred by the assessee. Hence, this ratio is also not applicable to the facts of the case and all these case laws are rendered before insertion of explanation 2 of section 37(1) of the Act and hence, on this count also, these ratios cannot be applied to the facts of the case. Section 37(1) r.w. Explanation 2 clearly speaks that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession. It states that, CSR expenses shall not be deemed to be expenditure for the purposes of business. The language of the Act is very clear and unambiguous hence does not call for any interpretations of the statute or inferences contrary to the legislative intention. In the result, the appeal of the assessee on this ground is dismissed. Disallowance u/s 35(2AB) : 11. During the year, the assessee claimed weighted deduction under Section 35(2AB) of the Act on the revenue expenditure of Rs. 366.36 lakhs. However, as evident from Form 3CL dated 15.03.2017, the DSIR approved revenue expenditure of Rs. 326.15 lakhs. The Assessing Officer disallowed the amount of Rs. 40,21,000/-, the difference between the revenue expenditure and the expenditure approved by the DSIR. 11.1 The Rule 6(7A)(b) of the Income-tax Rules, 1962 reads as under:- [(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the decision of the Hon'ble ITAT Mumbai and Pune as referred in its submission and stated that the addition made by the AO is not warranted. I have carefully considered the facts of the case and provisions on the issue. Section 35(2AB) of the Act was amended by Finance Act 2015 and the amendment was with effect from 01.04.2016. As per sub section 3 of that section, from 01.04.2016, the company has to fulfill conditions with regard to maintenance of accounts and audit thereof and also furnish reports in the prescribed manner. Prior to the amendment, sub section 3 speaks about audit of accounts maintained for the facility. Rule 6 of IT Rules were amended with effect from 01.07.2016 to enable the provisions amended in section 35(2AB) of the Act were carried. Amendment to section 35(2AB) of the Act was a substantive amendment and the appellant was put to notice the requirement of the law to claim deduction under that section by virtue of Finance Act, 2015 w.e.f. 01.04.2016 well in advance. The requirement of maintenance of accounts and getting it audited and also furnishing report was brought in the statute and this in the knowledge of the appellant. Rules are procedural one a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
