TaxTMI 
TaxTMI 
2006 (1) TMI 183
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....01 in which this issue has been decided in favour of the assessee. A copy of the order was also filed. A perusal of the assessment order for the year under appeal shows that the AO disallowed the depreciation on the basis of the reasons given by him in the earlier years. The CIT(A) has brought on record the facts relating to the dispute. The assessee made additions to televisions, refrigerators, music systems, etc. which were provided to its employees with an option given to them to purchase the same at the WDV after five years. This was in accordance with a scheme framed by the assessee in this regard. The reason for the disallowance of the depreciation as recorded by the CIT(A), is that these items have not been used for the purpose of the assessee's business. The CIT(A) following his predecessor's order for the asst. yr. 1997-98, deleted the disallowance. A perusal of the order of the Tribunal for the asst. yr. 1997-98 shows that it has followed the earlier order of the Tribunal in the assessee's own case for the asst. yrs. 1993-94 and 1994-95. The issue is thus squarely covered by the orders of the Tribunal in the assessee's own case for the asst. yrs. 1993-94, ....
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.... while computing the book profit under s. 115JA The assessee took up the plea before the CIT(A) that book profit for the purpose of the section means the profit ascertained as per the P&L a/c prepared by the assessee in accordance with Parts II and III of Sch. VI to the Companies Act, subject only to the adjustments specified in the Explanation below the section. It was pointed out that the cl. (c) of the Explanation provided for adding back the provision, made for meeting liabilities other than ascertained liabilities and that a provision made for bad and doubtful debts is not a provision made for meeting any unascertained liability and, therefore, the said clause cannot be invoked to add back the provision for bad and doubtful debts. It was further pleaded that the provision in the present case has been made not ad hoc but in respect of specific and identified debts which had become bad or doubtful of recovery. It was, therefore, submitted that at any rate the provision cannot be considered as provision for unascertained liabilities so that it can be added back to the book profit. Reliance was placed on the order of the Delhi Bench of the Tribunal in the case of Modi Rubber Ltd. ....
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....entified debts which were doubtful of recovery satisfies the above definition of a provision. It is not expected of the company to determine accurately the amount in respect of which it is allowable and it is sufficient that the liability is ascertained. Accordingly, the CIT(A) seems right in saying that the provision for doubtful debts is really in the nature of a provision for meeting an ascertained or known liability. 7. Before us, the learned counsel for the assessee raised a plea that this is not a provision for meeting a liability at all. No doubt, this plea was not taken before the CIT(A), but having regard to the nature of the plea, which is purely a legal plea requiring no investigation into facts, we permit him to raise the same. A provision for bad and doubtful debts is made with the view to guarding against the non-recovery of certain debts which are considered by the company as bad or doubtful. It implies that monies receivable by the company may not be realised. Explanation (c) refers to amount set aside to provisions made "for meeting liabilities". By making the provision for bad and doubtful debts, the assessee is not guarding against any liability which it may b....
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....an be made under s. 14A on estimate basis and that only those expenses which have been actually incurred to earn the exempted income can be disallowed. Notional or proportionate expenses cannot be disallowed in the absence of material on record to support the same. He accordingly, deleted the disallowance of Rs. 5 lakhs. 10. Sec. 14A of the IT Act is as under: "Expenditure incurred in relation to income not includible in total income. 14A. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the AO either to reassess under s. 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under s. 154, for any assessment year beginning on or before the 1st day of April, 2001." The section was introduced by the Finance Act, 2001 with retrospective effect from1st April, 1962. The Memorandum Explaining the Provisions of the Finance Bill, 2001 [(200....
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....nce profits or losses on the disallowance in the Mysore Government securities were assessed under the head "Business", no part of the interest could be disallowed as interest attributable to borrowings made tor producing exempted income. The Supreme Court accepted this contention, but also proceeded to examine the validity of the action of the AO as to whether a part of the expenditure attributable to the exempted income can at all be disallowed. It was held by the Supreme Court as under: "We are concerned with the interpretation of s. 10. Let us then took at the language employed. Sub-s. (1) directs that an assessee be taxed in respect of the profits and gains of business carried on by him. What is the business of the assessee must first be looked at. Does he carry on one business or two businesses or along with the business carried on by him some activity which is not a business? If he is carrying on an activity which is not business, we must leave out of account the receipts of that activity. That is the first step. Secondly, we must look at s. 10(2) and deduct all the allowances permissible to him. In allowing a deduction which is permissible the question arises: Do we....
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....tivation of sugarcane, and (2) the manufacture of sugar. The former part being agricultural operation, the income therefrom is not exigible to tax and therefore, any expenditure incurred in respect of that activity is not deductible. This contention proceeds on the basis that only expenditure incurred in respect of a business activity giving rise to income, profit or gains taxable under the Act can be given deduction to and not otherwise. We see no basis for this contention. To find out whether a deduction claimed is permissible under the Act or not, all that we have to do is to examine the relevant provisions of the Act. Equitable considerations are wholly out of place in construing the provisions of a taxing statute. We have to take the provisions of the statute as they stand. If the allowance claimed is permissible under the Act then the same has to be deducted from the GP. If it is not permissible under the Act, it has to be rejected. As mentioned earlier, it is not disputed that the cultivation of sugarcane and the manufacture of sugar constituted one single and indivisible business. Sec. 10(2) says that profits under s. 10(1) in respect of a business should be computed after ....
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....le expenditure in earning the income from that head is deductible; and (iii) in computing 'Profits and gains of business or profession' when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allowability of the expenditure under s. 37 of the Act will depend on: (a) fulfilment of requirements of that provision noted above; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do, the entire expenditure will be a permissible deduction but if they do not, the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee." Since the finding was that the exempted income and taxable income were earned from one individual business, the Court held that the apportionment of the expenditure cannot be sustained. 14. Sec. 14A gives the AO the power to disallow expenditure incurred by the assessee ....
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....estricting the power of the AO to estimate a part of the expenditure incurred by the assessee as relatable to the exempted income. It seems to us that implicit in the expression "in relation to" is the concept that the AO should be in a position to pin point, with an acceptable degree of accuracy, the expenditure which was incurred by the assessee to produce non-taxable income. The word "incurred" signifies that the expenditure must have been actually incurred, not notionally. 15. Reading both the abovementioned expressions together, the conclusion seems inescapable that the expenditure which the AO seeks to disallow under s. 14A should be actually incurred and so incurred with a view to producing non-taxable income. If this much is clear from the section, it follows that it is the duty of the AO to pin point such expenditure on the basis of the material on record. 16. Reference was made on behalf of the Department to the judgment of the Supreme Court in CIT vs. United General Trust Ltd. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC). To understand the judgment of the ratio laid down therein, we must refer to the judgment of the Bombay High Court in CIT vs. United General ....
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....ch the High Court had issued the rule can be said to deal with one of the aspects of the legal contention urged before the Tribunal and in this connection reliance was made on the amendment placed to s. 80M by s. 10 of the Finance Act, 1968. The High Court examined the contention with reference to the statement of objects and reasons and the Notes on Clauses of the Finance Bill and found that the reason for omitting certain words from the section was different from what was sought to be urged on behalf of the Department. Therefore, ultimately, the Bombay High Court discharged the rule with costs. 17. The CIT took up the matter in appeal before the Supreme Court and it is the judgment of the Supreme Court which is reported in CIT vs. United General Trust Ltd. Before the Supreme Court, both counsel for the Revenue and the assessee agreed that the question sought to be raised by the Revenue, which was not allowed by the Bombay High Court, was concluded against the assessee and in favour of the Revenue by the decision of the Supreme Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC). The Supreme Court also held that the same r....
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....he question whether a particular type of expenditure could or could not be deducted from the gross dividend or whether the AO did or did not have the power, in the absence of any material on record, to estimate a part of the expenditure incurred by the assessee as having been incurred for the purpose of earning the dividend income and proceed to deduct the same from the gross amount of the dividend in order to calculate the deduction available to the assessee. In our humble understanding of the judgment of the Supreme Court, read along with the judgment of the Bombay High Court from which the appeal arose, these controversies were not before the Supreme Court. 19. Sec. 80AA introduced by the Finance (No.2) Act, 1980 with retrospective effect from 1st April, 1968 as well as s. 80AB which was inserted by the same Finance Act, but w.e.f. 1st April, 1981, have the same effect. The only difference was that s. 80M applied specifically to cases of deduction under s. 80M and s. 80AB applied to all cases of deduction other than s. 80M. This distinction has since been obliterated by an amendment made by the Finance Act, 1997 w.e.f. 1st April, 1998. By this amendment, s. 80M has been omitt....
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....hich we have already quoted above, seeks to nullify the effect of certain judgments in which it has been held that in the case of an indivisible business, no part of the expenditure incurred by the assessee can be disallowed as relating to the exempted income. Obviously, the decisions which the Finance Bill sought to nullify are those in the case of Indian Bank, Maharashtra Sugar Mills Ltd. and Rajasthan State Warehousing Corporation. Both, the Memorandum Explaining the Finance Bill and the section as enacted say that only where the expenditure has been actually incurred by the assessee in relation to the exempt income, can the AO refuse to allow deduction in respect of the same. To the extent the earlier judgments held that the AO had no power to do so, they stand nullified by s. 14A without any doubt. The section confers power or authority upon the AO to disallow such expenditure as satisfies the requirements of the section. What the AO could not do earlier, in view of the three binding judgments of the Supreme Court on the question, he can now do under s. 14A. The power is, however, subject to the rider that he must show that the assessee in fact incurred expenditure which is re....
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.... of expenditure has got to be deducted in accordance with the procedure prescribed under the Act. But when there is nothing on record to show that any expenditure is incurred by an assessee while earning/depositing the dividend, then it is difficult for us to hold that some hypothetical and/or notional expenditure can be made basis for deduction. In other words, we have not been able to notice any provision which may entitle the taxing authorities to work out by way of expenditure any notional figure for the purpose of s. 80M though, in fact, it has not been so incurred by an assessee while encashing the dividend." Having held as above, the High Court proceeded to hold that the view that they have taken "is not in conflict with the decision of Supreme Court in Distributors (Baroda) (P) Ltd. 's case. Indeed, we may make it clear that in case, if the taxing authorities or assessee as the case may be is able to prove or show that a particular amount was actually incurred by an assessee in earning dividend income, then certainly to the extent the amount actually incurred has got to be deducted from gross dividend income and then the same is to be taken into consideration under s....
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....y. CIT (2005) 92 TTJ (Del) 987 : (2005) 92 ITD 119 (Del) in which a question of disallowance under s. 14A arose and was considered. A perusal of the order of the Tribunal shows that the purely legal aspect of the matter has been discussed in paras 59-61 of the order. The question before the Tribunal was whether any part of the interest paid by the assessee on borrowed funds can be disallowed under s. 14A on the ground that the assessee had received dividend income exempt under s. 10(33). It appears to have been contended before the Tribunal that s. 14A does not override the provisions of s. 36(1)(iii) of the Act. This contention was rejected by the Tribunal by holding that the language employed by s. 14A is very wide and includes every expenditure irrespective of the head under which it is claimed. The Tribunal further proceeded to hold and we are respectfully in agreement with the same that the burden under s. 14A is on the Revenue to prove that interest paid by the assessee on borrowed funds related to the acquisition of shares yielding tax-free income. In para 61, the Tribunal further held that the words "in relation to" appearing in the section would include any expenditure whi....