TaxTMI 
TaxTMI 
TaxTMI 
2006 (1) TMI 186
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....eals) in fact during the course of hearing of the appeal had required the appellant to advance arguments only with reference to the provisions of section 2(24)(iv) and at no point of time during the hearing of the appeal which lasted over a period of 3 months did she indicate her intention of invoking section 2(24). (B) The Commissioner of Income-tax (Appeals) erred in involving section 2(24) without giving necessary opportunity to the appellant to advance its arguments and in this view of the matter there has been a violation of the principles of natural justice. On this ground itself, the addition is liable to be deleted. (C) The Commissioner of Income-tax (Appeals) has erred in placing reliance on 2 letters the first dated 30-6-2000 written by Escorts Heart Institute & Research Centre Ltd., Chandigarh to the Registrar of Societies, Chandigarh and the other to the Assessing Officer by the appellant in the course of assessment proceedings for assessment year 2001-02 and drawing adverse inference against the appellant while ignoring relevant material on record. (D) The Commissioner of Income-tax (Appeals) erred in not disposing of the grounds pertaining to the applicability o....
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....) the objective of launching activities for relief of the poor, education, other medical relief and advancement of any other object of public utility not involving the carrying on of any activity for profit; (c) that it was a charitable society not started with a view to earn any profit and that all income of the society shall be utilized towards the promotion of the aims and objects of the society. The income of this Society was exempt from tax under section 10(21) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). This Society had obtained the approval of Central Government under section 35(1)(ii) of the Act. During the previous year relevant to assessment year 1982-83, the assessee had made a payment of Rs. 60 lakhs to this Society and claimed deduction in respect of such payment, which was allowed by the Assessing Officer. The assessee and its group companies were the subscribers to the Memorandum of Association of the society at the time of its formation. This Society will hereafter be referred to as "the Delhi Society". 6. Another society by the same name of Escorts Heart Institute and Research Centre, was formed and registered under the Societies Registrati....
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....e assessee. This constituted 80 per cent of the share capital of the paid up capital of Chandigarh Society. The authorised share capital of the Society was 25,00,000 shares of Rs. 10 each. A cheque for Rs. 1,60,00,000 dated 27-5-2000, drawn on Deutsche Bank, had been issued by the assessee, in favour of the Chandigarh Society, a copy of the same is placed at page 81 of assessee's paper book. This cheque was presented for payment only on 20-7-2000. The Bank Statement of the assessee with Deutsche Bank for the period from 1-5-2000 to 20-7-2000, has been filed before us to show that at all material time from the date of issue of cheque till its realization, the assessee had to the credit of its Bank account with Deutsche Bank, balance which was far in excess of Rs. 1,60,00,000. The case of the assessee is that though the cheque was encashed only on 20-7-2000, the same relates back to the date of issuance of the cheque, viz., 27-5-2000. 10. On the above facts, which are not in dispute, the Assessing Officer was of the view that the amalgamation of the Delhi Society with the Chandigarh Society was not legally valid for the following reasons: (a) The Delhi Society was a charitable....
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....e contributed a sum of Rs. 1.6 crores to the share capital of the Chandigarh Society. The Chandigarh Society had no assets of its own whereas the Delhi Society had assets worth several crores. Therefore the assessee would not contribute to share capital of the Chandigarh Society unless the assets of the Delhi Society stood vested in the Chandigarh Society. (e) The provisions of section 12 permitting merger / amalgamation of two societies, is subject to the condition, that the fundamental purpose of a society should not stand altered by reason of the amalgamation, unless such a power is specifically permitted by the memorandum or rules and regulations of the Society. In the case of the assessee, the Assessing Officer found that the Delhi Society with a charitable purpose got merged with the Chandigarh Society, which was a non-charitable society. 11. From the above conclusions drawn by the Assessing Officer, he was of the view that the merger of the Delhi Society with the Chandigarh Society was only for the purpose of using the Chandigarh Society as a conduit for transferring assets worth several crores from the Delhi Society to a limited company viz., EHIRC Ltd. Even after the me....
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....ntribution to 80 per cent of its paid up share capital and it cannot be said that allotment of shares was a return on investment. On this plea, the Assessing Officer held that the entire share capital of M/s. EHIRC Ltd., was held by the assessee and its group companies and by contribution a meagre sum of Rs. 2 crores, they obtained control over assets worth more than Rs. 100 crores of the Delhi Society. (c) The next contention of the assessee was that the merger of the two societies was within the framework of law. That section 13 of the SR Act, 1860, was not violated since neither Government nor the Income-tax Department was a member or a contributor nor otherwise interest in the Delhi Society. That Mr. Anil Nanda was not a member of the Delhi Society in his personal capacity but was representing M/s. Goetze India Ltd., which was a member and that due notice was given to M/s. Goetze India Ltd. Hence, even the provisions of section 12 of the SR Act, 1860, were not violated. The Assessing Officer rejected this plea also and the conclusions of the Assessing Officer in this regard have already been set out above. (d) The next contention of the assessee was that the Chandigarh Soci....
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....l, is better to reproduce as under:- "Thus, the assessee devoted time, money and effort to achieve its end of obtaining control over the assets of charitable society at Delhi. It can, therefore, be said that the assessee was engaged in a vocation which ultimately gave huge returns to the assessee. Since only Rs. 60 lakhs were originally invested in the Delhi Society and subsequently the assessee subscribed to 16,00,000 shares at the rate of only Rs. 10 per share of the Chandigarh Society whereas looking at the net assets (at book value of Rs. 110,14,12,937) the value per share of the Society and later on the company Escorts Heart Institute & Research Centre Ltd. works out to Rs. 550 per share. In this way, the assessee has gained tremendously. The Hon'ble Madras High Court in the case of CIT v. Varadarajan (224 ITR 9) has held that the benefit of capital nature is also taxable as income under clause (iv) of section 2(24) of the Income-tax Act. Since assessee was having 80 per cent shareholding in the society and then the company, i.e., Substantial interest in both of them, it can be said that the difference in the intrinsic value of shares (16,00,000 assessee 550) and the val....
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....hat he was not given notice of the meeting in which the merger of the Delhi Society with Chandigarh Society was approved. The assessee was afforded such opportunity before the CIT(A). Besides Anil P. Nanda, one Mr. Atul U. Sood and Mr. Umesh Banerjee were also cross examined before CIT(A) on behalf of the assessee. We are not narrating those contentions for the reason that the CIT(A) proceeded to decide the issue from a different perspective, rendering the basis of assessment done by the Assessing Officer purely academic. 17. The CIT(A) held that the question of merger/amalgamation of the Delhi Society with the Chandigarh Society being in violation of the Societies Registration Act, 1860 was not relevant. The case of the Assessing Officer that a sum of Rs. 60 lakhs given by the assessee as a donation to the Delhi Society in the year 1982, was an investment by the assessee in the course of an avocation, which resulted in allotment of shares at a concessional rate and the benefit so derived was income chargeable to tax, was also held by the CIT(A) to be without any basis. The CIT(A) also held that there was no provision of law either in the Act or the Societies Registration Act, 186....
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....ithin the list of incomes specified in clauses (1) to (xii) of subsection (24) of section 2 of the Act can still be regarded as income, if the receipt partakes the nature of income. 20. Thereafter the CIT(A) posed the following question viz., when assets are transferred at WDV by a company to its Director and when such value is less than the market value, whether the difference can be said to constitute income in the hands of the Director chargeable to tax under the Act? She answered this question in the affirmative and made a reference to the decision of the Hon'ble Madras High Court in the case of CIT v. S. Varadarajan [1997] 224 ITR 93 where on a similar question, the Court held that on such facts the difference in value was chargeable to tax as income under section 2(24)(iv) of the Act as a benefit received by a director from the company. The Court also held that even if the benefit is of a capital nature, yet the same would be taxable as income. 21. Thereafter the CIT(A) concluded that just as a benefit is taxed in the hands of a Director of a company, in terms of section 2(24)(iv) likewise any benefit received by any person other than a director should also be taxed und....
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....resulted into income? The answer to this question is Yes, as discussed above that when the share is allotted at par while its value is much more, it definitely results into passing of benefit which is assessable as income. The appeJlant company had substantial interest all through in EHIRC in all its form and the benefit which passed to Escorts Ltd. on allotment of shares by EHIRC Ltd. to Escorts Ltd. has resulted into income in the hands of Escorts Ltd. which is covered under section 2(24) of the Act, for the reasons discussed in above paras. In view of the above facts the action of the Assessing Officer is confirmed, however the difference in the value comes to Rs. 540 assessee 16,00,000 = Rs. 86,40,00,000 (cost on the basis of the assets - value at which allotted into number of shares) and not as worked out by the Assessing Officer at Rs. 88,11,30,349. Whether the benefit passed to the Escorts Ltd. On issue of shares also is taxable alternatively under section 2(24)(iv) also remains academic, as the benefit passed on allotment of shares to Escorts Ltd. from EHIRC Ltd. in any case is covered under section 2(24) of the Act itself for the reasons discussed above. Though it has ....
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.... the time of purchase. According to him if at all there is some benefit to the assessee by purchase of shares at a lesser value, then it is at best only notional and illusory. The real point of accrual of income can be only when these shares acquired by the assessee are sold in future. According to him at best, the provisions of section 4(1)(a) of the Gift Tax Act, would be attracted in the case of the Chandigarh Society. Gift is not income within the meaning of section 2(24) of the Act. Gift tax is not leviable on gifts made on or after 1-10-1998. 25. His further submission was that as and when the shares are sold, the cost of acquisition of shares for computing capital gains tax would be only Rs. 10 and would bring to tax the alleged benefit which the assessee received by purchase of shares at a concessional price. According to him by taxing the notional income at the time of purchase, the Assessing Officer is attempting to prepone the taxable event viz., from the event of sale to the event of purchase. Reliance was placed on the decision of the Hon'ble Orissa High Court in the case of B.P.R. Construction v. CIT [1991] 192 ITR 534. Referring to the observations of the Assess....
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....sel for the assessee was that the encashment of cheque dated 27-5-2000 by the Chandigarh Society on 20-7-2000 will relate back to the date of the cheque, more so, when the assessee has established that from the date of the cheque till its encashment, there was sufficient funds available in the bank a/c of the assessee. In support of such legal proposition, he relied on the following decisions:- 1. K. Saraswathy v. PSS Somasundaram Chettiar [1989] 4 SCC 527 2. Kirloskar Bros. Ltd. v. CIT AIR 1952 Bom. 306 3. Sockalinga Tea Co. (P.) Ltd. v. Chairman, Board of Trustees [1982] 1 GLR 316 (Gauhati) 4. Felix Hadlay & Co. v. Hadley 1859 F 2704 Chancery Divn. 680. 28. His concluding submissions on this issue was that on the analogy of section 2(24)(iv) no income can be said to have accrued to the assessee under section 2(24) of the Act, since the shares were originally obtained from the Chandigarh Society in which the assessee was neither a Member nor a shareholder and not from the EHIRC Ltd. The provisions of section 2(24)(iv) will apply only when the assessee becomes a director or substantial shareholder in a company and thereafter a benefit or perquisite is obtained from such co....
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....tial interest has been allotted shares in the Chandigarh Society (after amalgamation) or EHIRC Ltd., as the case may be. The price at which the shares were allotted was much below the real worth of the shares compared to their net worth (i.e., the excess of its assets over its liabilities) of the Chandigarh Society (after amalgamation) or of EHIRC Ltd. The difference between the real worth of these shares and the price paid by the assessee for such shares was a benefit received by the assessee which was of the character of income chargeable to tax under the Act. He submitted that the definition of "Income" under the Act is very exhaustive and is not an inclusive definition. The charging section viz., section 4 of the Act, refers to the charge of income-tax being on the total income of the previous year of every person. Section 5 defines scope of total income and it speaks of income from whatever source derived which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India. He pointed out that under section 17(2) clause (iiia) proviso shares allotted to an employee at a concessional price is considered as a perquisite but is c....
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.... of the Hon'ble Bombay High Court in the case of Emil Webber v. CIT [1978] 114 ITR 515, for the proposition that merely because the inclusive definition of "income" in section 2(24) mentions only certain heads of income it would not follow that any benefits received by an assessee, which are not covered by the stated heads of income, would not be assessable if they can be otherwise fairly regarded as the income of the assessee. Reliance was also placed on the decision of the Hon'ble Bombay High Court in the case of D.M. Neterwalla v. CIT [1980] 122 ITR 880 wherein in the context of the provisions of section 2(6C)(iii) of the Income-tax Act, 1922 equivalent to section 2(24)(iv) of the Act, it was held that the shares allotted to a director, notwithstanding the fact that the allotment of shares was not in his capacity as a director, was nevertheless chargeable to tax. Our attention was drawn to the decision of the Hon'ble Delhi High Court in the case of CIT v. Master Gaurav Dalmia [1987] 168 ITR 458 wherein it was held that shares offered to a relative of a director was taxable as income in the hands of such director. Reliance was also placed on the decision of the Hon....
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.... amalgamation of companies do not render them as commodities which are readily marketable. They cannot be termed as a normal class of stock-in-trade. Such trading activity has to be treated as a class of its own which may itself result in a plain profit if the price paid or cost involved was less than the value of the assets of those companies after deductions of their liabilities. If in these processes, substantial surplus amounts resulted in favour of the present assessees and they were shown in the amalgamation accounts as having accrued to them, then there are no reasons why such amounts should not be treated as gains and profit enjoyed from those well-planned and concerted activities. The Third Judge Mr. Justice Kapur D.K. however, held that difference between the credit and debit side of the balance sheet of the company which was taken over was a mere book entry that such entries which are under consideration which are mere balancing entries are neither revenue receipts nor capital receipts. They would, therefore, in any event, be not taxable. According to the learned D.R. it cannot be said that the aforesaid decision is an authority for the proposition that no income accrues....
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....f shares in the Chandigarh Society (after amalgamation with the Delhi Society). The CIT(A) has concluded that the assessee purchased shares of EHIRC Ltd. directly on the basis of two circumstances (a) on the basis of a letter written by the authorized representative in the course of assessment proceedings which referred to the payment by cheque dated 27-5-2000 issued by the assessee to acquire shares in EHIRC Ltd. (b) on the basis that since EHIRC Ltd., had written to the Registrar of Societies a letter dated 30-6-2000 mentioning that on conversion of the Chandigarh Society into a limited company, the limited company had received only Rs. 7,000 as contribution from members of Chandigarh Society as assets. Thus according to the CIT(A), if assets worth only Rs. 7,000 were possessed by Chandigarh Society prior to its conversion into a limited company but after its amalgamation with the Delhi Society, there was no reason for the assessee to purchase Rs. 1.60 crores worth of shares in the Chandigarh Society (after amalgamation). 36. We are of the view that these findings of the CIT(A) are not correct. The Scheme of amalgamation of the Delhi Society with the Chandigarh Society is placed....
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....counsel in the course of assessment proceedings is therefore, not acceptable as they are contrary to the fact situation on record. The reasoning of the CIT(A) for concluding that 'Income' under section 2(24) accrued to the assessee based on the presumption that the assessee purchased shares of EHIRC Ltd., directly is, therefore, without any basis. 38. What now, therefore, remains for consideration is as to the alternate case of the CIT(A) that even assuming that the assessee was allotted shares of EHIRC Ltd., in lieu of its holding of shares in the Chandigarh Society (after its amalgamation) it would still be a case of income accruing to the assessee, which is taxable. The CIT(A) concluded that the assessee was controlling the Chandigarh Society and allotment of shares of Chandigarh Society at Rs. 10 when its book value was Rs. 550 resulted in passing of benefit to the assessee of Rs. 540 per share which was taxable as income in the hands of the assessee for the reasons already discussed viz., that the assessee had substantial interest in the Delhi Society as well as Chandigarh Society and by the allotment of shares a benefit has arisen to a person who has a substantial in....
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....of share capital. The Chandigarh Society was formed with seven subscribers to the memorandum of association. The assessee was not a signatory to the memorandum of association. Prior to the issue of 16,00,000 shares of Rs. 10 each the assessee never held any shares in the Chandigarh Society. The assessee has already explained that the Chandigarh Society wanted persons known to them to be inducted as shareholders/members and that is the reason why the Chandigarh Society had allotted shares to the assessee. In other words no other considerations like an employer-employee relationship or any other business association/considerations for offer and allotment of shares to the assessee existed. As rightly contended by the learned counsel for the assessee, the issue of shares at a concessional price to a person having substantial interest alone is considered as income. The pre-existing relationship is the consideration for allotment of shares at a concessional price, which is treated as income, even in the context of section 2(24)(iv) of the Act. The same is the case when shares are issued to an employee at a concessional price. There the pre-existing relationship of employer-employee is co....
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....ourt held that it would be a wrong approach to try to place a given receipt under one or the other sub-clause in section 2(24) and if it does not fall under any of the sub-clauses, to say that it does not constitute income. Even if a receipt does not fall within the ambit of any of the sub-clause in section 2(24), it may still be income if it partakes of the nature of the income. The idea behind providing an inclusive definition in section 2(24) is not to limit its meaning but to widen its net. The Supreme Court noted that it has repeatedly said that the word "income" is of the widest amplitude, and that it must be given its natural and grammatical meaning. 43. The charging section viz., section 4 of the Act, refers to the charge of income-tax being on the total income of the previous year of every person. Section 5 defines scope of total income and speaks of income from whatever source derived which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India. The following passage from the book Law of Income Tax by Sampath Iyengar, 9th edition at page 474 may be referred to in this connection: "The concept of income is not i....
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.... the present assessees are concerned and proceed to analyse whether even on that assumption the surplus resulting to the assessee as a result of the amalgamation can be brought to charge. Thereafter the learned Judge gave his conclusions as follows: As already stated though the transfers themselves are complicate, the sum and substance of the position is only this: A company goes into liquidation. Its assets exceed its liabilities, say, by Rs. 10,000. The assessee-company takes over the assets and liabilities but pays to the transferor-company not Rs. 10,000 but only Rs. 8,000. The surplus of Rs. 2,000 is credited to the amalgamation account. If we are correct on this then obviously the illustration given much earlier applies squarely to the facts of the case. All that has happened is that the assessee whose business includes, as we have assumed, the business of taking over of other concerns has been able to take over a concern of the value of Rs. 10,000 by paying only Rs. 8,000 therefor. In other words, this is no different from the case of a dealer in motor cars being able to acquire a motor car of the market value of Rs. 20,000 for Rs. 15,000. The fact of his having made a go....
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....applying the principle of accounting of valuing stock-in-trade, the surplus on amalgamation was to be considered as income of the assessee. 46. It was thus a common view of the Hon'ble Judges that normally at the time of acquisition or purchase at a concessional price no profit (income) accrues. The only exception stated by one of the Judges was a case where purchase of other companies or amalgamations and taking over of other companies is carried out as a trading activity. The Learned Special Counsel for the department probably realized this aspect and has sought to raise a new contention before us, which we will deal with at the appropriate stage. Nevertheless, the aforesaid principle cannot be applied in the present situation. The ld. Judge noted that as a result of the amalgamation process, substantial surplus (i.e., price paid being less than the value of the assets after deduction of liabilities) resulted in favour of the assessee and it was so accounted for as having accrued, and, therefore, opined it to be gains and profit from a trading activity. In other words, the reasoning weighing with the ld. Judge was that surplus arising as a result of amalgamation of two compa....
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....ery basis of estimation of income will vanish. The other case sought to be made out by the Assessing Officer was that the allotment of shares at a concessional price in the Chandigarh Society (after amalgamation) was a return on the investment of Rs. 60 lakhs which the assessee made in the previous year relevant to assessment year 1982-83. The fact situation is that the amount so contributed was a donation which was allowed as a deduction in the hands of the assessee under section 35(1)(ii) of the Act in assessment year 1982-83. The case of the Assessing Officer that by the process of formation of the Chandigarh Society and having it merged with the Delhi Society and thereafter converting the Chandigarh Society (after amalgamation with Delhi Society) into a company viz., EHIRC Ltd., and owning 80% of share capital of the Society, is only a facade meant to gain control over the assets of Delhi Society by the assessee, is also not sustainable. It is a well understood legal proposition that by becoming shareholder in a company, the holder of shares does not acquire a right in the property owned by the Company. The above principle has been well explained by the Hon'ble Supreme Cour....
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.... profits apart from the fixed remuneration from the said companies. There were other agreements between the other persons and other companies. In view of the provisions of section 198 of the Companies Act, 1956, fixing a ceiling on the overall managerial remuneration at 11% of the net profits of the company, it was not possible for the different companies to pay the contracted remuneration to the persons concerned. According to the assessee, if the said persons were not paid the contractual remuneration, it would not have been possible to retain their services in the respective companies. The directors of the assessee, therefore, considered these questions of payment of the contractual remunerations. It was found that the Company Law Administration was not agreeable to the inclusion of the commission payable to the managerial staff in the minimum remuneration provided under section 198 of the Companies Act. It was, therefore, decided by the assessee-company that the payment in excess of what is allowable under section 198 of the Companies Act, in each company would be met out of the resources of the assessee. The assessee accordingly passed a resolution on 23rd April, 1959, accepti....
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....ly in the dealing in or holding of investments'. The Supreme Court pointed out that in such a case the primary activity should be the dealing in or holding of an investment. On the facts the Supreme Court held that the assessee there was not a company whose business consisted wholly or mainly in the holding of or in dealing with investments. In the course of the judgment, the Supreme Court has referred to the decision in Bengal & Assam Investors Ltd. v. CIT [1966] 59 ITR 547 and has also gone into the question as to whether there could be any business of holding of investments. At page 383 the Supreme Court observed as follows: 'We cannot say that the Legislature did not know its own mind when it used that expression in section 23A. We must give some reasonable meaning to that expression. No part of a provision of a statute can be just ignored by saying that the Legislature enacted the same not knowing what it was saying. We must assume that the Legislature deliberately used that expression and it intended to convey some meaning thereby. The expression 'business' is a well-known expression in income-tax law. It means, as observed by this court in Narain Swadeshi W....
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....r of working for and advising its subsidiaries. This is not a case where the assessee contended itself with merely making an investment and looking for the dividend. We would, therefore, hold that there was a business activity in the matter of holding of investments on the facts here." 50. It was submitted that the Hon'ble Supreme Court in the case of CIT v. Amalgamation (P.) Ltd. [1997] 226 ITR 188 has upheld the decision of the Madras High Court agreeing with the view of the Madras High Court that it was possible to conclude that the assessee was in the business of holding investments. 51. The submissions of the ld. Special Counsel is firstly that if an assessee makes investment in shares of different companies and takes active interest in the business of these companies by rendering consultation in respect of finance of such companies through its Director and where the assessee was responsible for promotion of such companies also, then it would be a case of systematic or organized course of activity and in that event the holding of investments would not be merely making in vestment but was a business of holding of investments. On the facts of the present case, the ld. Spec....
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....knowledged. Similar observations are made in the Chairman's message to the shareholders in the Annual report for the year 1998-99 also. Particular emphasis has been made by the ld. Counsel for the revenue on the Chairman's message to the shareholders that all our investments have been made with due considerations and that these investments had a great potential for appreciation and will yield substantial returns in the future. Our attention was drawn to the balance sheet as on 31-3-1999 wherein the details of various investments made by the assessee have been set out. The investments also contain investment made by the assessee in a company called Escorts Research and Development Ltd. Besides the above, assessee has also made investment in the equity shares of several subsidiary companies. Our attention was also invited to the message of the Chairmal1 to the Shareholders for the year 1999-2000 wherein the Chairman has referred to the investment made by the assessee in subsidiaries by name Escorts Yamaha Motors Ltd., Escorts JCB Ltd. Escorts Huge Communications Ltd. The Chairman has referred to the divestments in these companies and the fact that it had passed on the busines....
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....zed course of activity in the matter of working for and advising its subsidiaries. It was thus submitted by the ld. counsel for the revenue that the case of assessee squarely fits into Amalgamations (P.) Ltd. And therefore it should be concluded that the assessee was in the business of holding investments. The further conclusion which the ld. Special Counsel wants us to infer from all these circumstances is that the shares which were allotted to the assessee by the Chandigarh Society (after amalgamation) was a benefit or perquisite which the assessee derived from and out of the business of holding investments. Alternatively it is contended that whatever the assessee derived in the form of a lower share price of the Chandigarh Society (after amalgamation) was a profit and gain that arose to it in the course of business of holding investments. 55. His further submission was that the assessee could be said to be in the business of promoting entities and deriving benefit therefrom. The Delhi Society after its formation as a non-profit organization by the assessee and the subsidiaries and after successful establishment as a reputed institute, had been amalgamated with Chandigarh Societ....
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....he years 1980, 1997-98, 1998-99 and 1999-2000 at pages 1 to 215 of paper book-III filed by the revenue, cannot be said to be evidence available on record before the Assessing Officer. His plea was that looking into those documents to give any finding as contended on behalf of the revenue, would amount to admitting additional evidence. He pointed out that the revenue has not filed any application for admission of any additional evidence as contemplated by rule 29 of the Appellate Tribunal Rules. He contended that under rule 29, it is the discretion of the Tribunal to admit or not to admit an additional evidence. Descretion to admit evidence will be exercised by the Tribunal only where additional evidence has to be considered to enable the Tribunal to pass orders or for any other substantial cause. The expression substantial cause would mean for advancing justice. He referred to the decision of the Hon'ble Bombay High Court in the case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708 wherein the Hon'ble Bombay High Court has held in the context of rule 29 of the Appellate Tribunal Rules that the admission of additional evidence at the appellate stage is not referable to any rig....
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.... XLI Rule 27 of C.P.C. that the discretion to admit additional evidence has to be exercised judiciously and not arbitrarily and that fresh evidence cannot be considered. Nata Singh v. Tax Commissioner 1976 (3) SCC 28 and Gujarat State Pertilisers v. Deepak Nitrate Ltd. AIR 1979 (Guj.) 83 laying down similar proposition." 58. His next submission was that the assessee was a manufacturing company and if the argument of the learned counsel for the Revenue is accepted then the assessee would be taxed on a new source of income viz., from the business of holding' investments, which is beyond the competence of the ITAT. In this regard he relied on the decision of the Full Bench of the Hon'ble Delhi High Court in the case of CIT v. Sardari Lal & Co. [2001] 251 ITR 864, wherein it has been laid down that the principle laid down by Hon'ble Supreme Court in the case of CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 and CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 that CIT(A) has no jurisdiction to travel beyond the subject-matter of the assessment or beyond the record, i.e., the return of income and the assessment order and his power of enhancement relates ....
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....y be available on record. CIT v. Eveline International 243 ITR 493 (P&H) laying down similar proposition. 259 ITR 318 (Mad.) Wilson Industries v. CIT 250 ITR 856 (Delhi) Orissa Cements v. CIT Gedore Tools (P.) Ltd. v. CIT 238 ITR 268 (Delhi) where it was held that Tribunal has discretion to allow or not to allow new grounds of appeal. Where the Tribunal is only required to consider a question of law arising from facts which are on record such question should be allowed to be raised. The Court followed the ruling of Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. 252 ITR 482 (Delhi) Maruti Udyog v. ITAT Where it has been held that where there are no good reasons for not raising a new plea before the Tribunal the same should not be entertained. Ooppootil Kurien & Co. (P) Ltd. v. CIT 266 ITR 409 Ker. where the Hon'ble Kerala High Court followed the ruling of the Supreme Court in the case of National Thermal Power Corporation and directed Tribunal to admit additional ground of appeal for consideration and directed the Tribunal to consider the additional ground on merits. 243 ITR 565 (Mad.) West Coast Electric Supply Corpn. v. CIT where....
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....aise new plea before Tribunal based on a judicial decision, without a factual finding available on record as to applicability of judicial decision to the facts of a case then that would lead to confusion and uncertainty in the process of levy and collection of tax in accordance with law. In short, according to him, judicial decision and legislation stand on a different footing and the attempt by the learned counsel for the Revenue to rely on the decision in the case of Hukumchand Mills Ltd. was not proper in the facts and circumstances of the present case. 61. The further submission of the learned counsel for the assessee was that even these Annual Reports (without prejudice to his contention that they cannot be looked into) are not sufficient to come to the conclusion that the assessee was in the business of holding investments. He submitted that there was nothing unusual in having subsidiaries and given loans and guarantees to subsidiaries. The fact that this information is provided in the Annual report is only in compliance with the requirements of the Companies Act, 1956. This information by itself is not sufficient to hold that the assessee was in the business of holding of i....
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.... also submitted that the additional evidence now sought to be put forth, even on merits, does not establish the case pleaded by the Revenue. On facts it cannot be said that the assessee can be equated with the assessee in the case of Amalgamations (P.) Ltd. In the case of Amalgamations (P.) Ltd., the assessee was an Investment Company and the question arose in the context of allow ability of expenditure. It was a totally different fact situation altogether. He submitted that the assessee in the present case was a manufacturing company. He relied on the decision of the Hon'able Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 and submitted that one cannot pick out words and sentences from a judgment, divorced of the context in which they were used. He also distinguished the various case laws relied upon by the learned counsel for the Revenue. 64. The learned counsel for the Revenue sought leave of the Bench to address rejoinder to the contentions put forth by the learned counsel for the assessee. Despite objection by the learned counsel for the assessee, we proceeded to hear the learned counsel for the Revenue. It was submitted by the learned cou....
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....eon as it thinks fit," The word "thereon", of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words "pass such orders as the Tribunal thinks fit" include all the powers (except possibly the power of enhancement) which are conferred upon the Commissioner of Income-tax (Appeals) by section 251 of the Act. Rule 11 of the Appellate Tribunal Rules, 1963, provides as follows: "The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal; but the Tribunal, in deciding the appeal, shall not be confined to the grounds set for then in the memorandum of appeal or taken by leave of the Tribunal under this rule: Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground: Rule 27 provides that: "The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him." In the present case, the Revenue has also filed an appeal against the order of the CIT(A) in respect of that part of the ....
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....ore the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. ... Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 6. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assess....
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....was pointed out on behalf of the assessee that the contention could not be entertained unless it was found as a fact that the depreciation was actually allowed under the Industrial Tax Rules to the assessee and unless it was also further held that the Industrial Tax Rules were rules which related to income-tax or super-tax, or any law relating to tax on profits of business. In view of this submission made by the parties the Tribunal remanded the matter back to the Income-tax Officer for ascertaining whether any depreciation was allowed under the Industrial Tax Rules and for considering the question whether the said rules related to income-tax or super-tax or any law relating to tax on profits of business and if he decided these questions in favour of the department he should take into consideration such depreciation actually allowed under the said rules for the purpose of computing the written down value. The correctness of the action of the Tribunal was in challenge before the Hon'ble Supreme Court. The Court held as follows: "In the present case, the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the b....
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....al for the first time. The Court also considered the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. The question before the Court was as to whether the Tribunal ought to have considered the plea of the applicant company that it was entitled to the benefit of weighted deduction under section 35B(1)(b)(iv) of the Act in the absence of any appeal or any cross-objection filed by it against the order of the Commissioner of Income-tax (Appeals). The Court after considering the abovenoted and several other judicial pronouncements on the subject held as follows: "We are, therefore, of the view that it is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before it nor had filed a cross-objection in the appeal filed by the other party. We must, however, hasten to add that in order to enable either the assessee or the Department to urge a ground in the appeal filed by the other side, the relevant facts on which such ground is to be founded should be available on record. In the absence of such primary facts, in our opinion, n....
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.... regard wants to rely on the decision of the Hon'ble Madras High Court and the Supreme Court in the case of Amalgamations (P) Ltd. In this connection he referred to the various statements in the Annual report of the Company in the past, the investment pattern, the manner in which it nurtured its subsidiaries and after a while allowed them to be managed on their own, the manner in which guarantees were given by the assessee for the loans availed by the subsidiary or other companies promoted by the assessee, etc. His submission was that to conclude that an assessee is in the business of holding investments what was required to be seen is as to whether there was a real substantial and systematic or organised course of activity or conduct with the set purpose of earning profit which is the test for a business. According to him, examined in this light it would be found that the assessee was not a mere investor in a single company. It has investments in several companies and had taken active interest in the business of these companies. It had promoted several companies and that it held shares in such companies which it actively promoted. 71. In our opinion, as to whether the assesse....
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.... the revenue desires is a remand so that it may, on introduction of fresh facts, if any, examine the taxability from the above stated angle. It is not the case of the revenue that it has come into possession of any fresh fact which has a bearing on taxability or otherwise of income in the hands of the assessee. The Revenue desires to enter upon a mere fishing inquiry hoping that it could sustain the action of the revenue authorities bringing to tax income in the hands of the assessee. Such a course would cause considerable harassment, hardship and expenditure to the assessee and the same cannot be permitted on the mere possibility or hope that some facts may emerge by which the action of the revenue authorities can be sustained. We, therefore, decline to remand the issue back to the Assessing Officer. 73. In conclusion, we are of the view that in the facts and circumstances of the present case it would be proper not to exercise discretion permitting the revenue to raise the new plea for the first time before the Tribunal. 74. Since, the amount in question has been held to be not taxable. We are of the view that the question of valuation of the shares as raised in the revenue'....
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....pect of repairs incurred collectively by the tenants of Shah House Association and it was shared by the assessee with other tenants. No additional or new asset can be said to have been created. Similarly, in relation to expenditure, at Bhopal office, the expenditure was mainly on the interior work. Further, it was submitted by the ld. Counsel that even if a portion of the expenditure is found to be capital in nature but since the expenditure was inseparable, the entire expenditure has to be seen as revenue expenditure deductible under section 37(1) of the Act. 78. On the other hand, the ld. Departmental Representative has relied on the orders of the lower authorities in assailing the stand of the assessee. 79. We have considered the rival submissions. First of all, it would be relevant to understand the import of Explanation 1 to section 32(1), which the Assessing Officer has invoked. The said Explanation reads as under:- "Explanation 1: Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purpose....
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....vely. It is certainly not incurred for acquiring any asset or advantage of an enduring nature. The amount spent on such repairs; and renovation cannot be considered as a capital expenditure, and is thus outside the purview of Explanation 1 to section 32(1). To this extent, the invoking of Explanation to section 32(1) of the Act by the Assessing Officer therefore was unjustified. 81. Now, coming to the expenses incurred by the assessee at its Bhopal Office amounting to Rs. 20,78,622. The nature of expenses, as revealed from the details placed in the paper book, are interior work, painting and polishing, electrical maintenance related work, architect fee for interior decoration etc. The expenditure incurred also relates to paneling, partition work, designing and fabricating office furniture, work stations, flooring work on kitchen, in toilets and office etc. The expenditure incurred, in our view, is clearly incurred in the course of effectuating the business of assessee inasmuch as it only seeks to maintain and set up the office infrastructure. The expenditure is mainly on the interior work in order to make the premises fit for working and none of the items can be said to have resul....
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....aim of the assessee. The CIT(A) has since sustained the disallowance by placing reliance on the decision of the Rajasthan High Court in the case of CIT v. Arawali Constructions Co. (P.) Ltd. [2003] 259 ITR 30. 86. At the time of hearing, the ld. counsel for the assessee has vehemently submitted that the expenditure of Rs. 35,72,400 incurred on the purchase of software was a revenue expenditure. According to the ld. counsel, the assessee did not derive any enduring benefit by incurring such expenditure. In his view, the expenditure incurred was to facilitate the operations of the assessee. It was submitted that it was incurred towards purchase of a new software-ERP Integrated system. According to the ld. counsel, purpose of incurring the expenditure was to replace the already existing system i.e. Oracle version 7.0 with the new ERP Integrated System. According to him, as the new software provided latest techniques to meet the day-do-day requirement of the management and as such it was for the purpose of business thus, the expenditure was allowable under section 37(1) of the Act. The ld. counsel placed reliance on the order of the Jaipur Bench of the Tribunal in Business Information....
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.... an acquisition of software by way of an outright purchase. The plea of the assessee that it was a case of mere upgradation of an existing software, is not borne out from record and neither is there any finding to that effect in the orders of the lower authorities. Considered in this background, the issue for consideration is as to whether the expenditure incurred on acquisition of software is a capital expenditure or not. It is in this light, in our view, the decision of the Delhi Bench of the Tribunal in the case of Maruti Udyog Ltd. is fully applicable. 'The Tribunal therein held that computer software by itself is a capital asset and therefore, was akin to know-how. It accordingly held, by following the decision of the Hon'ble High Court of Rajasthan in the case of Arawali Constructions Co. (P.) Ltd., that the expenditure on purchase of software was capital expenditure. Respectfully concurring with the aforesaid decision, in the instant case, as the facts are identical, we hold that the expenditure of Rs. 35,72,400 is liable to be considered as a capital expenditure. 89. Insofar as reliance placed by the ld. Counsel for the assessee on the Tribunal decision in the case....
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....xpenditure under section 37(1) of the Act in the return of income. The Assessing Officer has disallowed the expenditure on the ground that the expenditure has resulted in imparting of enduring benefit and was thus capital in nature. In appeal before the CIT(A), the assessee contended that the expenditure was incurred only for expansion of existing business and not for starting of any independent line of business activity. The CIT(A) has since noted the details of the impugned expenditure as follows:- 1. Expenses incurred in respect of Rex Lok Project Rs. 6,06,525 2. Expenses incurred in relation to Metro Rail Project, and Rs. 6,86,694 3. Kayaba Project Rs. 13,00,567 The CIT(A) has since held that the impugned expenditure was not for any new business and was thus, in principle, allowable as a revenue expenditure. However, out of total expenditure of Rs. 25,93,786, the disallowance to the extent of Rs. 15,56,511 has been sustained in the absence of evidence of details regarding nature of expenditure. The assessee is thus in appeal before us against the addition that has been sustained by the CIT(A) whereas the revenue is in appeal against the part of addition that has been ....
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....e in question incurred on such project is primarily related to discussions with the technical collaborators. Thus, the expenditure is allowable as a revenue expenditure. The finding of the CIT(A), based on the judgment of the Hon'ble High Court of Delhi in the case of Modi Industries, is thus justified, having regard to the facts and circumstances of the case. Similarly, in relation to the other two projects in question, the nature of the same is similar to the existing business of the assessee. Thus, similar view is liable to be taken in respect of the respective expenditure. We may mention here that the revenue, either in the order of the lower authorities or even before us has not challenged the facts that there existing unity of control, commonality of funds and management in relation to the existing business and the projects in question. Thus, in principle, the stand of the assessee is approved that the new projects are in the existing line of the business of the assessee. Now, coming to the disallowance partly sustained by the CIT(A) for want of details regarding nature of the expenses in relation to M/s. Kayaba Project (to the extent of Rs. 8,69,817) and M/s. Metro Rail ....
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....s (approx.), which was claimed as exempt under sections 10(33) and 10(23G) of the Act respectively. The assessee was asked to show cause as to why expenses attributable to the exempt incomes may not be disallowed in view of the provisions of section 14A of the Act. In response, the assessee submitted that the expenses incurred by the company have no nexus with earning of the dividend income; that most of the investments on which dividend is earned have been made in earlier years and are old investments except in few cases where investments are made during the year in mutual funds for short durations; that assessee-company is a large organization having common bank accounts where it deposits all receipts and all payments are made from the same; the bank accounts are jumbled where no nexus can be made with reference to any investments made by the company; that the assessee-company is a profit making company. Thus, the investments made in earlier years as well as made in mutual funds during the year under reference are out of profits of the company and not out of borrowed funds in view of the facts explained. With respect to the interest income claimed exempt under section 10(23G), it....
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....essee the CIT(A) has held that (i) the investments made during the year have been made from own funds and not by taking loans; (ii) that the proportionate disallowance out of rent, printing and stationery, postage, telegram and telephone and general expenses was not proper and instead confirmed a sum of Rs. 5 lakhs on ad hoc basis as amount sufficient to cover expenses incurred for earning exempted income; (iii) that out of personal expenses, proportionate disallowance was to be restricted to amounts spent in relation to employees other than the manufacturing unit, thus restricting the disallowance to Rs. 16.70 lakhs. In this manner, the CIT(A) has scaled down the disallowance to Rs. 21.70 lakhs as against Rs. 2,01,88,412 made by the Assessing Officer. The assessee is in appeal before us with regard to the disallowance that has been sustained by the CIT(A) whereas the revenue is in appeal against the part of disallowance which has been deleted by the CIT(A). The two grounds, being related, are being decided together. 97. Before us, the ld. counsel for the assessee has reiterated the submissions made before the lower authorities. Firstly, it has been contended that the dividends ha....
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....n relation to such excluded income. In other words, the import of section 14A is that if a particular income is excluded from the purview of the total income under the Act, the related expenditures should not be allowed as deduction even against the income includible in the total income so as to obviate a double benefit to the assessee, viz., first by way of income being excluded from the purview of tax and secondly, by reducing the residual taxable income, if any, by the amount of expenditure related to the excluded income. Now, in order to apply the provisions of section 14A, it envisaged two steps; firstly, the incomes which do not form part of the total income under the act has to be identified. Secondly, the expenditure which is related to such income has to be identified. In the instant case, the dividend income of Rs. 8.9 crores (approximately) and interest income of Rs. 10.13 crores approximately are excludible from the purview of total income under the Act on account of sections 10(33) and 10(23G) of the Act respectively. The next step is to identify the expenditure, if any, which is relatable to such incomes. Broadly speaking, expenditures incurred in relation to an incom....
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....led with its other activities. Thus, an estimation is required to ascertain expenditures which have a relation to the earning of dividend and interest incomes considered exempt. In this regard, in our view, not such activity is required in earning the dividend or the interest income once the investments have been made. Nevertheless, in the absence of separate accounts by way of which the management and administrative expenditure could be segregated, estimation is inevitable. It is in this light that we have considered the orders of the lower authorities. The Assessing Officer as well as the CIT(A) have made an estimation of the expenditure incurred in relation to the impugned exempted incomes. The estimation made by the Assessing Officer is on a thumb rule basis. The Assessing Officer has applied percentage in the proportion of the incomes earned for arriving at the related expenditure. In our view, such an approach cannot be considered as reasonable inasmuch as it does not take into account the relevant factors. The mechanical application of such a principle would only lead to distorted picture. The CIT(A), on the other hand, has taken into consideration the realities of the situa....
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....roportionate premium payable in respect of Secured Premium Notes (referred to as SPNs). The relevant facts are that during an earlier financial year i.e., 1994-95, the assessee-company issued 43,27,322 SPNs of Rs. 100 each for a value of Rs. 43.27 crores purportedly to finance the company's requirements of funds. Each SPN comprised of four parts of Rs. 25 each, which was redeemable at the end of the 4th, 5th, 6th and 7th year from the date of allotment on premium. The total premium payable on redemption of the SPNs over the period of issue was Rs. 52,36,05,962. The assessee claimed premium attributable to the instant assessment years being the 7th and last year at Rs. 7,48,00,851 on accrual basis relying on the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802]. The Assessing Officer has, however, disallowed the claim on the ground (a) that the assessee-company was having surplus funds by way of equity and the raising of funds by way of SPNs was not required, and (b) that SPNs were raised "merely to claim the expenditure incurred on servicing such funds as allowable expenditure". On an appeal by the asses....
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...., thus, affirm the conclusion of the CIT(A) on this ground. Ground No.2 of the Grounds of appeal of revenue is thus dismissed. 108. Ground No.4 of the Grounds of appeal of the revenue is as follows: "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 36 lakhs made by the Assessing Officer on account of prior period expenses ignoring that the assessee-company was following the mercantile system of accounting and as such prior period expenses could not be allowed as deduction in the computation of assessee's total income for the instant assessment year 2001-02." 109. The said ground taken by the revenue is against the action of the CIT(A) in deleting the disallowance of Rs. 36 lakhs made by the Assessing Officer as previous year's expenses. Briefly, the fact is that the Assessing Officer disallowed previous year's expenses of Rs. 36 lakhs, which were claimed as deduction under section 37(1) of the Act on the ground that since the assessee followed mercantile system of accounting, the expenditure pertaining to earlier years cannot be allowed during the assessment year in question. On an appeal by the asses....
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....es. In the appeal proceedings before the CIT(A), the assessee further submitted that the Assessing Officer wrongly observed that in the preceding years the expenses have been disallowed while the fact was that the Assessing Officer himself in assessment year 1999-2000 has allowed all the expenses. 115. The CIT(A) found that for the assessment year 1998-99, the only cause for disallowance by the Assessing Officer was the inability of the assessee to file the confirmations of the parties before the Assessing Officer and that, in any case, the CIT(A) has allowed the said claim. Further, for the assessment year 1999-2000, the Assessing Officer himself did not make any disallowance as the necessary confirmations were filed by the assessee. Considering the fact situation in this year, where the assessee had filed complete confirmations from the parties relating to the impugned expenditure, the CIT(A) has since deleted the addition. Revenue is presently in appeal before us. The ld. DR has primarily placed reliance on the order of the Assessing Officer in support of her submissions. 116. On the other hand, ld. counsel appearing on behalf of the assessee has referred to the paper book whe....
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....d to the authenticity of the same. No such effort has been made by the Assessing Officer. The entire evidence and material brought on record by the assessee has been simply disbelieved by the Assessing Officer without advancing any cogent or sufficient reasons. Under these circumstances, having regard to the facts and the evidence on record, we do not find any infirmity in the conclusions drawn by the CIT(A) that the expenditure stood verified. The addition made by the Assessing Officer has, therefore, been rightly deleted by the CIT(A). Thus, ground No.5 of the grounds of appeal of the revenue is dismissed. 118. Ground No.6 of the Grounds of appeal of the revenue is as under:- "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs. 4.56 crores made by the Assessing Officer on account of interest on interest-free loan given by the erstwhile Escorts Tractors Ltd. to its subsidiary company M/s. Escotrac Finance Tractors Ltd. prior to its amalgamation with the assessee-company in financial year 1995-96." 119. The said ground has been taken by the revenue against the action of the CIT(A) in deleting the addition of Rs.....
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....d this money not been advanced free of interest to the sister concern, to that extent, it may not have been necessary for the assessee to make interest bearing borrowings. Thus, to that extent, the expenditure can be construed as having been spent for non-business purpose. He, therefore, has justified the addition made by the Assessing Officer on this count. The ld. DR has relied upon the decision of the Hon'ble Allahabad High Court in the case of CIT v. H.R. Sugar Factory (P.) Ltd. [1991] 187 ITR 363 in support of the aforesaid proposition. 121. On the other hand, the ld. counsel for the assessee Shri R.M. Mehta has defended the orders of the CIT(A). According to the ld. counsel, the impugned loan has not been advanced during the year under consideration and that there is no material to hold that the same was advanced in the earlier years out of borrowed funds. It is further submitted that no such disallowance has been made in the assessment for any of the earlier assessment years. The ld. counsel, therefore, has argued that such a disallowance could not be made in the year under consideration. Ld. counsel has placed reliance on the decision of the Third Member of the Tribuna....
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....n the earlier years. In the earlier years, indisputably, the impugned loan has been accepted as having been advanced for business purposes in the assessments. This is evident from the fact that no such disallowance has been made in the earlier years. On this count also, we are unable to hold this year that the advance was made for non-business purposes so as to justify the disallowance of any expenditure under section 36(1)(iii) of the Act. It would, therefore, not be feasible to permit the revenue to take a different stand now in respect of the said loan of Rs. 38.01 crores which has already been a subject-matter of the assessment of the preceding assessment years. The decision of the Hon'ble Karnataka High Court in the case of Sridev Enterprises fortifies the aforesaid proposition. 123. Even otherwise, we find that there is no allegation, much less an averment by the Assessing Officer that there existed any nexus between the borrowed funds and the impugned interestfree advances. The fact that there was no disallowance in the earlier years also leads to the presumption that the impugned advances have been made not out of borrowed funds. Therefore, the impugned disallowance wa....
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....the assessee-company. The facts are that the assessee had claimed in its return of income the impugned expenses on its research and development activity undertaken to improve the quality of its products. The Assessing Officer rejected the claim and held that the expenditure was capital in nature on the ground that it resulted in imparting of enduring benefits to the assessee-company. In appeal before the CIT(A), the assessee contended that it has got Research and Development Division which continuously undertakes research activity and that the impugned expenditure has been incurred consistently even in the earlier assessment years. That no disallowance was made in any of the assessment years on this count. The CIT(A), after considering the facts and the pleas of the assessee, allowed the claim of the assessee for treating the impugned expenditure as revenue expenditure. The CIT(A) found that even if the expenditure was to be considered as a capital expenditure, yet the same being in the nature of research and development expenditure, it was an allowable deduction in terms of section 35(1)(iv) of the Act. Revenue is presently in appeal against the aforesaid finding of the CIT(A). 1....