Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.

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The Tax Publishers2013 TaxPub(DT) 1665 (Guj-HC) : (2013) 356 ITR 0460 : (2013) 215 TAXMAN 0616 Income Tax Act, 1961 --Business deduction under section 36(1)(iii)--Interest on borrowed capital Money borrowed and expended prior to commencement of business--The assessee's claim of deduction under section 36(1)(iii) in respect of money borrowed and expended prior to the commencement of business was disallowed by Revenue. Tribunal deleted the disallowance. Revenue filed appeal against the order of the Tribunal on the ground that Tribunal ignored the fact that proviso to section 36(1)(iii) was only clarificatory in nature and was applicable to all pending proceedings. Held : Relying upon the decision of the Supreme Court in case of Dy. CIT v. Core Health Care Ltd. 2008 TaxPub(DT) 1621 (SC) : (2008) 298 ITR 194 (SC), the deduction claimed by the assessee under section 36(1)(iii) was allowed. Income Tax Act, 1961, Section 36(1)(iii) Income Tax Act, 1961 --*Business expenditure* --Allowability Expenditure on restructuring of term loan--Tribunal deleted the disallowance of the claim of deduction on account of restructuring of term loan. Revenue filed appeal against it on the ground that restructuring of term loan had resulted into enduring benefit, it had to be spread over a period of several years. *Held* : Following the decision of the Supreme Court in Madras Industrial Corporation Ltd. v. CIT 1997 TaxPub(DT) 1209 (SC) : (1997) 225 ITR 802 (SC), the High Court would hold that where the company had undertaken to pay more amount than what it had borrowed, the liability to pay the excess amount undertaken to be paid by the company to fulfill its needs for borrowed money was an allowable expenditure under section 37 of the Income Tax Act. Income Tax Act, 1961, Section 37(1) Income Tax Act, 1961 --*Business deduction under section 35D--Amortization of preliminary expenses Rule of consistency--Assessee claimed deduction under section 35D to the extent of Rs. 87.73. The assessing officer restricted it to Rs. 13.50 lakhs on the ground that only eligible expenses were allowed to be spread over under section 35D and therefore, expenses only to the extent that had nexus to the eligible projects were admissible. Tribunal allowed the expenditure of Rs. 74,23,000 claimed by the assessee on the ground that such claim was not disallowed in earlier years. Revenue filed appeal against the order of Tribunal. Held :* Since assessee's claim for deduction under section 35D had been allowed in last several years, therefore, the Tribunal correctly held that such claim could not have been suddenly disallowed. Income Tax Act, 1961, Section 35D Income Tax Act, 1961 --*Depreciation* --Allowability Leasing of assets--Tribunal deleted the disallowance made on account of depreciation claimed on certain assets. Revenue filed appeal against the order of Tribunal on the ground that the said transactions were mere financial arrangements and that the assessee was not engaged in leasing business. *Held :* Revenue could not prove that the assessee was only a financier and was not interested in the assets and therefore, it could not be said as full payout lease. Therefore, following the rule of consistency, the claim of the assessee was allowed. Income Tax Act, 1961, Section 32 In the Gujarat High Court Akil Kureshi & Sonia Gokani, J.J. Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. Tax Appeal No. 513 of 2012 12 March, 2013 Appellant by : K.M. Parikh Respondent by : Manish J. Shah SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1665 (Guj-HC) : (2013) 356 ITR 0460 : (2013) 215 TAXMAN 0616

Income Tax Act, 1961

--Business deduction under section 36(1)(iii)--Interest on borrowed capital Money borrowed and expended prior to commencement of business--The assessee's claim of deduction under section 36(1)(iii) in respect of money borrowed and expended prior to the commencement of business was disallowed by Revenue. Tribunal deleted the disallowance. Revenue filed appeal against the order of the Tribunal on the ground that Tribunal ignored the fact that proviso to section 36(1)(iii) was only clarificatory in nature and was applicable to all pending proceedings. Held : Relying upon the decision of the Supreme Court in case of Dy. CIT v. Core Health Care Ltd. 2008 TaxPub(DT) 1621 (SC) : (2008) 298 ITR 194 (SC), the deduction claimed by the assessee under section 36(1)(iii) was allowed.

Income Tax Act, 1961, Section 36(1)(iii)

Income Tax Act, 1961

--Business expenditure --Allowability Expenditure on restructuring of term loan--Tribunal deleted the disallowance of the claim of deduction on account of restructuring of term loan. Revenue filed appeal against it on the ground that restructuring of term loan had resulted into enduring benefit, it had to be spread over a period of several years. Held : Following the decision of the Supreme Court in Madras Industrial Corporation Ltd. v. CIT 1997 TaxPub(DT) 1209 (SC) : (1997) 225 ITR 802 (SC), the High Court would hold that where the company had undertaken to pay more amount than what it had borrowed, the liability to pay the excess amount undertaken to be paid by the company to fulfill its needs for borrowed money was an allowable expenditure under section 37 of the Income Tax Act.

Income Tax Act, 1961, Section 37(1)

Income Tax Act, 1961

--Business deduction under section 35D--Amortization of preliminary expenses Rule of consistency--Assessee claimed deduction under section 35D to the extent of Rs. 87.73. The assessing officer restricted it to Rs. 13.50 lakhs on the ground that only eligible expenses were allowed to be spread over under section 35D and therefore, expenses only to the extent that had nexus to the eligible projects were admissible. Tribunal allowed the expenditure of Rs. 74,23,000 claimed by the assessee on the ground that such claim was not disallowed in earlier years. Revenue filed appeal against the order of Tribunal. Held : Since assessee's claim for deduction under section 35D had been allowed in last several years, therefore, the Tribunal correctly held that such claim could not have been suddenly disallowed.

Income Tax Act, 1961, Section 35D

Income Tax Act, 1961

--Depreciation --Allowability Leasing of assets--Tribunal deleted the disallowance made on account of depreciation claimed on certain assets. Revenue filed appeal against the order of Tribunal on the ground that the said transactions were mere financial arrangements and that the assessee was not engaged in leasing business. Held : Revenue could not prove that the assessee was only a financier and was not interested in the assets and therefore, it could not be said as full payout lease. Therefore, following the rule of consistency, the claim of the assessee was allowed.

Income Tax Act, 1961, Section 32

In the Gujarat High Court

Akil Kureshi & Sonia Gokani, J.J.

Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.

Tax Appeal No. 513 of 2012

12 March, 2013

Appellant by : K.M. Parikh

Respondent by : Manish J. Shah