TaxTMI 
TaxTMI 
2008 (4) TMI 346
X X X X Extracts X X X X
X X X X Extracts X X X X
....Vide letters dated March 1, 2004 and March 4, 2004, it was submitted that the said provision is made in respect of redemption of unsecured subordinated bonds in the nature of mezzanine capital (Tier-II) is provided over the tenure of the bond. It was submitted that the amount of provision is ascertained at the time of issue of bonds and, therefore, the liability is an ascertained liability. Under section 115JA, the liability which could be added is an uncertain liability and not an ascertained liability. However, the Assessing Officer did not accept such submission on the ground that the liability in respect of which provision has been made by the assessee is not an ascertained liability. He referred that the assessee itself has calculated liability at a sum of Rs. 87,76,791 whereas the provision is made for Rs. 88 lakhs. Thus, the Assessing Officer arrived at a conclusion that the liability was unascertained and thus, the Assessing Officer added the said liability while computing the normal income of the assessee. The addition was agitated in appeal filed before the Commissioner of Income-tax (Appeals) and vide para 4.2, the learned Commissioner of Income-tax (Appeals) has held th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e drew our attention towards page 60 of the paper book wherein the basis is given on which liability of Rs. 88 lakhs was computed. He contended that there was a scientific method to calculate such liability. He also referred to the letter of offer, a copy of which is placed at pages 61 to 64 of the paper book to show that liability in respect of each of the year is ascertained liability. Thus, it was pleaded that the learned Commissioner of Income-tax (Appeals) has rightly held that the liability of the assessee in respect of premium on mezzanine capital was an ascertained liability, therefore, the order of the learned Commissioner of Income-tax (Appeals) in this regard is as per provisions of law and should be upheld. We have carefully considered the rival submissions in the light of material placed before us. The calculation of the assessee with regard to the provision for premium on mezzanine capital as described at page 60 of the paper book is reproduced below for the sake of convenience: Details of provision for premium on mezzanine capital (unsecured subordinated bonds) 1. The company has issued 52,66,075 unsecured subordinated bonds in the nature of mezzanine capital (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f redemption of bonds which was not correct. It was submitted that warrants for allotment of shares were separate from the bonds and it was in the shape of an additional incentive to the applicant of the bonds which gave them an option to apply for the shares of the company in return for adequate consideration which would be determined at a later date. Thus, allotment of shares was not at all related to the redemption of bonds for which the premium was payable. The provision was not in respect of allotment of shares to the warrant holders in lieu of redemption of bonds. The provision is with regard to a pre-determination and scheduled liability and thus it was an ascertained liability for which deduction is rightly allowable under the normal provisions of the Act as well as for computing book profit under section 115JB of the Act. Submissions made by the assessee were also forwarded to the Assessing Officer for his comments the Assessing Officer did not comment on such submission and however, he reiterated his stand for making the disallowance. There is no material on record to come to a conclusion that the computation submitted by the assessee for computing liability of Rs. 88 lak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....res on the day-to-day business functions which basically was for upgrading the version of the software used in accounting package. The Assessing Officer did not find such explanation of the assessee acceptable. According to Assessing Officer such expenditure incurred by the assessee is given enduring benefit to the assessee, as the same was for acquisition of computer software. It is, therefore, the Assessing Officer disallowed the said sum and added the same to the income of the assessee. Learned CIT(A) has dealt with this issue in paras 6 to 6.3 of his order. Before learned CIT(A), it was submitted that as per requirements of the customer and to work out monthly EMIs based on prevailing rate of interest, duration of loan etc. necessary changes have to be brought in the existing system of software as the interest rates may vary and tenure of the loan is to be quoted for the different periods as per requirements of the clients, the software was required to be changed. The addition occurring from such change in software was short term and subsisted only till the next change in software was occasioned due to variation in the rate and other economic factors. Thus, it could not be said....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness of the assessee then the expenditure cannot be said to be of capital in nature. That was only to enable the assessee to carryon its business more efficiently. Moreover, it being modification to the existing software cannot be said to be acquisition of new asset to make it capital expenditure. There being no material placed on record to controvert the findings of learned CIT(A), we decline to interfere in his findings that such expenditure were of revenue in nature, therefore, this ground is dismissed. 5. Ground No. 4:- Ground No. 4 is reproduced below:- "On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 18,74,70,856 on account of lease equalization charges for the purpose of computing the book profit." 5.1 While going through computation of income under section 115JB, the Assessing Officer noticed that assessee has debited a sum of Rs. 35,19,14,328 on account of depreciation/lease equalization charges. Out of that, a sum of Rs. 18,74,70,855 was on account of lease equalization charges. It was further noticed that while arriving at profit computed in the normal course of business entire sum was added back ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td (218 ITR 138). Ground (2a) and (2b) of assessee's appeal reproduced below:- (2a) That the learned CIT(A) erred in having upheld the addition of Rs. 1,61,845 made under section 43B read with sections 2(24)(x), 36(1)(va) of the Act on account of employees' and employer's contributions towards PF and ESI holding that the same were deposited to the Government account beyond the grace period inspite of the fact that the whole payment has been made before the due date for filing of the return as prescribed under the Income-tax Act. (2b) That the learned CIT(A) erred in having upheld the addition of Rs. 1,61,845 allegedly for payment beyond the grace period, failed to appreciate the proposition laid down by Hon'ble Supreme Court in Allied Molars Ltd 224 ITR 67 that amendment to section 43B introduced by Finance Act, 2003 would operate retrospectively in order to cure the 'unintended consequences' of the unamended section and hence it is not holding so is uncalled - for and bad in law." 6.1 The relevant dates of payment have been mentioned in the assessment order. None of the date of payment falls beyond the due date of filing the return which in the present case is stated t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the parties, we have carefully examined the above statutory provisions of the Act including definition of section 2(24)(x) and sections 36(1)(va) and 43B(b), which reads thus: 2(24)(x) 'income' includes- any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 employees. 36(1) The deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein in computing the income referred to in section 28. (va) any sum received by the assessee from any of his employees to which the provisions sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation.-For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise'. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., also drew our attention to the deletion of second proviso to section 43B of the Income-tax Act by Finance Act, 2003 which provision has come into force, with effect from 1-4-2004. The reliance placed upon the decision of the Apex Court in the Allied Motors (P.) Ltd. v. CIT and also on the decision in General Finance Co. v. CIT in respect of applicability of section 43B(b) and also omission of clause (a) or (c) or (d) or (f) referred to above occurred in the first proviso to section 43B, supports the case of the assessee and also relevant paragraphs extracted from Allied Motor's case and para 59 referred to supra in this judgment from the Finance Bill with all fours supports the case of the assessee/respondents. Therefore, we have no answer the substantial question of law No. 1 framed by this court in these appeals at the instance of the revenue against them viz. in the negative. Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative." "5. It is crystal clear from the detailed discussion made by the Hon'ble Karnataka High Court that both the employer and employees contribution was considered for allowing as a deduction if paid before last ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relates to a sum of Rs. 88 lakhs, while deciding ground No. 2 of revenue's appeal. It has been held that it is an ascertained liability. If it is considered to be ascertained liability then according to decision of Hon'ble Delhi High Court in the case of CIT v. Eicher Ltd. [2006] 287 ITR 170 could not be added for the purpose of computing book profit. It has been held that as per clause (c) of Explanation to section 115JA, net profit as shown in the profit and loss account is to be increased by the amount or amounts set aside for meeting liabilities other than as ascertained liability. If the liability is ascertained liability, clause (c) of Explanation is not applicable and thus book profit could not be increased by the said amount of ascertained liability. Respectfully following the said decision of jurisdictional High Court, we hold that the said sum of Rs. 88 lakhs could not be added for computing book profit under section 115JB. 7.3 So as it relates to a sum of Rs. 1,03,03,318, provision of this amount was made by the assessee in order to comply with the directions and guidelines laid down by RBI and the foreign financial institution with regard to non performing assets (N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irmed the estimate of notional expenses and disallowance thereof in spite of the settled law that only actual expenses and not any notional expenses are required to be deducted from the figure of net dividend, if at all any expenses was required to be disallowed, and hence this action of the CIT(A) is devoid of any merit, uncalled for and bad in law." 8. While going through the profit and loss account, Assessing Officer noticed that an amount of Rs. 6,40,833 was earned by the assessee as dividend income which was exempted from tax. Similarly interest of Rs. 73,72,394 was shown as interest income. Both these incomes were claimed to be exempted income. The Assessing Officer disallowed a sum of Rs. 4,06,062 being expenditure relating to earning of exempted income by applying the provisions of section 14A of Income-tax Act, 1961 relying on the order of CIT(A) for earlier assessment year. Learned CIT(A) has upheld the disallowance. We found that for assessment year 2000-01, this issue has been dealt with by Tribunal in the aforementioned order in. paras 18 to 22 wherein the Tribunal has remanded back the matter back to the file of Assessing Officer as per observations in para 22 whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Statement of Foreign Exchange Fluctuation: Nature of loss Amount (Rs.) Contract charges paid on FCNR(B) loans to protect Fluctuation in exchange rates 2,49,69,850 Loss due to increase in exchange rate of foreign currency on the date of payment since the date of placement of order in case of import of goods for purchase purpose. 16,84,887 Exchange rate fluctuation difference of valuation as at the end of financial year from the date of receipt of loan on loan from foreign financial institution. ....