TaxTMI 
TaxTMI 
2006 (2) TMI 212
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....sment year 1996-97. ITA No. 454 (Del.)/2000 (A.Y. 1996-97) 2. The first ground in the assessee's appeal is general and covered by subsequent grounds of appeal. Ground of appeal No. 2 is that the learned CIT (Appeals) erred in confirming the disallowance of expenditure of Rs. 11,59,82,000 claimed by the assessee in connection with the swapping of foreign currency fund for augmenting the rupee fund. During the course of hearing before us the learned counsel for the assessee pointed out that identical issue had arisen in the case of the assessee for assessment year 1995-96 and the ITAT, Delhi Bench "A", New Delhi by its order dated 31-5-2005 in ITA No. 1563 (Del.)/99 decided this issue in paragraph 17 in the following words:- "17. In the result, having regard to the aforesaid discussion, the claim of the assessee for allowance of expenditure of Rs. 67,06,33,245 incurred in connection with swapping of foreign currency funds for augmenting the rupee funds required by it for its business is to be allowed in the year of incurrence of the same i.e., during the current assessment year itself. The assessee succeeds on this ground." Respectfully following the aforesaid order of th....
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....nly. He asked the assessee to explain as to why the assessee's claim of deduction under section 36(1)(viii) may not be reduced accordingly. The assessee replied that transfer of Rs. 50 crores was for creating provision against bad and doubtful loans and, therefore, there was no reversal of reserve of Rs. 129.0618 crores created during the year. The assessee argued that provisions of section 41(4A) were inserted by the Finance Act, 1997 w.e.f.1-4-1998only. The learned Assessing Officer held that by merely showing first the amount of Rs. 12,906.18 lakhs transferred to reserve under section 36(1)(viii) and then transferring Rs. 5,000 lakhs out of the same, the assessee could not override the substantial provision of law and the reality that only Rs. 7,906.18 lakhs was transferred to Special Reserve under section 36(1)(viii)- The learned Assessing Officer found that the amount of Rs. 5,000 lakhs had been directly shown under the head 'Provision for bad and doubtful loans'. The argument of the assessee that the provisions of section 41(4A) were introduced only w.e.f. 1-4-1998 was misplaced because it was not a case of utilization of reserve, but in fact a direct provision of Rs. 50 cror....
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.... gross total income. The learned Assessing Officer referred to the proviso to section 36(1)(vii) and held that the assessee should have claimed deduction for bad debts written off reduced by the amount of Rs. 570 lakhs. As per section 36(2)(v) the assessee should have claimed deduction for bad debts written off only after debiting the amount to the provision for bad and doubtful debts account under section 36(1)(viia)(c). The learned Assessing Officer noticed that the assessee had created provision under section 36(1)(viia)(c) in earlier years as well and the total provision created till31-3-1996was Rs. 34,31,90,547. Although the assessee had claimed deduction for provision under section 36(1)(viia)(c) of Rs. 570 lakhs only, the fact remained that aggregate balance was Rs. 34,31,90,547. The learned Assessing Officer, therefore, held that out of bad debt of Rs. 18,624.61 lakhs written off and claimed under section 36(1)(vii), the assessee was not entitled to deduction to the extent of Rs. 34,31,90,547 because the assessee had already claimed deduction of that amount under the provisions of section 36(1)(viia)(c). As to the allowability of remaining amount of Rs. 151,92,70,453 the le....
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....come the learned Assessing Officer accordingly did not allow the assessee any deduction on account of bad debt actually written off, while allowing the assessee deduction under section 36(1)(viia)(c) of Rs. 570 lakhs and deduction under section 66(1)(viii) of Rs. 12,906.18 lakhs. 8. During the course of hearing before the learned CIT (Appeals), the assessee submitted that as far as the amount of provision 36(1)(viia)(c), the assessee had already adjusted the amount of provision against bad debts written off while filing the return of income for assessment year 1998-99. The provision of law in that regard had come into effect from assessment year 1998-99 only. As regards the utilization of Special Reserve under section 36(1)(viii), the assessee argued that during the year there was no provision for the retention of the amounts created as special reserve. Therefore, the assessee could transfer the balances from special reserve to general reserve at any time after the end of the year in which the special reserve was created. The CBDT had also clarified that such special reserve could be utilized for the purpose for which it was created. The assessee placed reliance on CBDT Circular....
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....he end of the previous year under assessment, the assessee was required to create special reserve. The requirement that the assessee should create and maintain special reserve has been laid down by the Finance Act, 1997 w.e.f. 1-4-1998 after inserting the words "and maintained" in the provisions of section 36(1)(viii). Simultaneous amendment made by way of provisions of section 41(4A) was also inserted w.e.f.1-4-1998. These provisions could not be pressed into service by the revenue in relation to any assessment year prior to assessment year 1998-99. In support of this contention the learned AR of the assessee relied upon the judgment of Hon'ble Kerala High Court Kerala Financial Corpn. v. CIT [2003] 261 ITR 708. As to the disallowance of bad debt to the extent of Rs. 570 lakhs being the amount of provision created by the assessee under the provisions of section 36(1)(viia)(c), the learned counsel argued that provisions of section 36(1)(vii) and 36(1)(viia)(c) were two separate and distinct provisions of the Act independent of each other. There was nothing in law to prevent the assessee from availing of deduction in relation to both the provisions. In support of this claim the lear....
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....fined himself to the provision of both kind created by the assessee during the year under assessment and he could not have taken into account the provisions created in earlier assessment years. 13. It will be worthwhile here to state the position as reflected in the assessee's annual accounts for the financial year 1995-96. During the year the assessee created special reserve under section 36(1)(viii) of the Income-tax Act amounting to Rs. 12,906.18 lakhs. The assessee had an opening balance of Rs. 26,963 lakhs as at1-4-1995. Out of these amounts the assessee transferred a sum of Rs. 5,000 lakhs to provision for bad and doubtful loans and thus, the assessee carried forward a sum of Rs. 34,869.18 lakhs by way of special reserve under section 36(1)(viii) of the Act. This balance appears in the annual accounts of the assessee in Schedule II under the head "Reserve & Surplus." The sum of Rs. 12,906.18 lakhs added by the assessee to special reserve has been debited by the assessee by way appropriation of profit as per profit & loss account. In the computation of income chargeable to tax this amount has been claimed as deduction under section 36(1)(viii). As to the "Provision for bad ....
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....the same cannot be given retrospective effect. This is the view held by Hon'ble Kerala High Court in the case of Kerala Finance Corpn., whereby the Hon'ble High Court have reversed the decision of Cochin Bench of the Tribunal in Kerala Financial Corporation v. Addl CIT [2000] 74 ITD 360 (Coch.). Respectfully following, the aforesaid judgment of Hon'ble Kerala High Court, we hold that the deduction to the assessee under section 36(1)(viii) cannot be curtailed on the ground of transfer of the sum of Rs. 5,000 lakhs from special reserve account. 15. As to the argument of the revenue that the amount of bad debt actually written off during the year and claimed by the assessee as deduction under section 36(1)(vii) of the Act should be reduced by the sum of Rs. 5,000 lakhs being the amount transferred by the assessee from special reserve to provision for bad and doubtful loans, we find the question to be difficult one. On the one hand there is the proposition that an assessee cannot claim deduction of both the provision and actual expenditure as it amounts to double deduction. On the other hand, we find that provisions of section 36(1)(viii) are in the nature of a special deduction con....
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....a) apply, no deduction shall be allowed on account of bad debt or part thereof unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful loan account made under clause (viia) of sub-section (1) of section 36. We further find that the learned CIT(A) has erred in restricting the addition made by the Assessing Officer on this count to the amount of Rs. 570 lakhs only. During the course of assessment proceedings the learned Assessing Officer found that the assessee had created provision under section 36(1)(viia)(c) in different assessment years in the following manner:- --------------------------------------- Assessment year 1992-93 4,94,63,176 Assessment year 1993-94 4,97,58,313 Assessment year 1994-95 6,35,18,063 Assessment year 1995-96 12,34,54,934 Assessment year 1996-97 5,70,00,000 ------------ Total &....
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....hose who had become BIFR cases. The learned Assessing Officer found that by no stretch of imagination the provisions of section 36(1)(vii) could be applied though the assessee had booked loss under the head "Investments written off". There was only possibility of deduction under section 37 but that too did not apply because the amount written off did not represent revenue expenditure of the assessee. The investments in shares by the assessee was in the nature of capital expenditure and the same had been treated as capital assets held by the assessee in the balance sheet. Under the provisions of section 45 no capital gain or loss could be computed unless and until there was transfer of a capital asset within the meaning of the provisions of the Act. On this reasoning the learned Assessing Officer disallowed the assessee's claim of loss amounting to Rs. 2,66,33,395. 18. During the course of hearing before the learned CIT (Appeals) the assessee relied upon the judgment of Hon'ble Gujarat High Court in CIT v. Jaykrishna Harivallabhdas [1998] 231 ITR 108. The learned CIT (Appeals) found that in that case extinguishment of the right of shareholders was treated to be an allowable loss.....
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....n paragraphs 18 and 19 of their order dated 31-5-2005 in ITA No. 1563(Del.)/99. Respectfully following that order we restore the matter to the file of the Assessing Officer for passing a fresh order in accordance with the directions of the Tribunal in the case of the assessee for earlier assessment years. 22. Ground of appeal No. 8 is directed against interest charged under sections 234B and 234C. During the course of hearing the learned AR of the assessee submitted that this ground is consequential. We, therefore, direct the Assessing Officer to revise interest levied under sections 234B and 234C of the Act on the basis of the assessee's tax liability computed after giving effect to the present order made by us. ITA No. 2544(Del)/2001 23. We now turn to the assessee's appeal for assessment year 1995-96. It is seen that while completing the assessment order under section 144(3) in the case of the assessee for assessment year 1996-97 on 26-2-1999 the Assessing Officer made substantial disallowance from out of the assessee's claim of deduction on account of bad debts actually written off under the provisions of section 36(1)(vii) of the Act. Though the Assessing Officer adju....
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.... same was bad in law. In support of this contention, the learned AR relied upon the judgment of Hon'ble Delhi High Court in the case of Jindal Foto Films Ltd. v. Dy. CIT [1998] 234 ITR 170. The learned AR argued that the assessee had not with held any facts from the Assessing Officer during the course of original assessment proceedings and, therefore, it was clearly a case of change of opinion. The learned AR relied in this respect on another judgment also of Hon'ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (FB). 25. The learned DR argued that it was a clear case of escapement of income. The assessee had in fact claimed double deduction of the same amount. During the course of original assessment proceedings there was no application of mind on the part of the Assessing Officer to these aspects of the matter. Now under the provisions of section 147 with effect from1-4-1999the Assessing Officer has enlarged powers to take recourse to the provisions of section 147. The proceedings for reassessment were, therefore, validly initiated. 26. We have carefully considered the rival submissions. We find that in this case the assessment has been re....
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....the Income-tax Officer at the time of the original assessment. He also applied his mind to these facts but on account of the complex nature of these facts he could not comprehend their significance or arrive at a definite conclusion on the question whether the amount of Rs. 2,62,277 was assessable in the year 1955-56 or in the year 1957-58. As he could not make up his mind, he completed the assessment for 1957-58 without including the said amount in the assessment of that year. Subsequently, after reconsidering the facts and consulting his superiors he was of the view that this amount was includible in the assessment for the year 1957-58. In our view, this does not amount to a change of opinion on the part of the Income-tax Officer as the assessee's counsel would have us believe. The Income-tax Officer had not formed any definite opinion at the stage of the original assessment which, it may be said, was changed by him subsequently. Under these circumstances we hold that the reopening of the assessment was permissible under section 34(1)(6) of the Act. The question referred to us is answered in the affirmative, i.e., in favour of the Revenue and against the assessee." 29. In the ....
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.... down reopening of an assessment completed under section 143(3) by the subsequent Assessing Officer on the ground of escapement of income. We, therefore, reject assessee's ground of appeal challenging validity of re-opening of assessment under section 147 of the Act. 31. Grounds of appeal Nos. 3 and 4 are directed against the additions made by the Assessing Officer. Various issues relating to these two additions, on merits, have been discussed by us at length while dealing with assessee's grounds of appeal Nos. 4 and 5 for assessment year 1996-97. Following the same we direct deletion of the addition of Rs. 17,500 lakhs made by the Assessing Officer on account of transfer from special reserve created under section 36(1)(viii) to provision for bad and doubtful loans. As to the disallowance of Rs. 12,34,50,934, we uphold the same in view of detailed reasons given by us for assessment year 1996-97. 32. Assessee's ground of appeal No. 5 is directed against the directions of the learned Assessing Officer that the balance amount of Rs. 76,82,99,000 would be chargeable to tax for assessment year 1998-99 under the provisions of section 41(4A) of the Act. We hold that while the learne....
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....Rs. 52,500 lakhs. The assessee claimed for assessment year 1998-99 deduction of a sum of Rs. 2,39,97,000 for the first time. The learned Assessing Officer held that as per the provisions of section 35D share issue expenses can be allowed either prior to commencement of business or on expansion of an industrial undertaking. The assessee had already commenced business and the assessee was not. an industrial undertaking. The learned Assessing Officer, therefore, held that the assessee was not entitled to any deduction under section 35D. On assessee's appeal the learned CIT (Appeals) upheld the disallowance made by the Assessing Officer. 37. During the course of hearing before us the learned AR of the assessee traced the history of the assessee company that it was formerly a statutory corporation not entitled to issue shares for subscription by general public. Subsequently the constitution of the assessee was changed from statutory corporation to a company and thereafter the assessee-company came out with a public issue of shares. The learned AR argued that if the provisions of section 35D did not apply, the assessee was entitled to deduction of the entire expenditure under section ....