TaxTMI 
TaxTMI 
2009 (4) TMI 529
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....00 made by the JCIT is contrary to law and the facts of the case. 2. On the facts brought on record, the CIT(A) ought to have allowed the claim of depreciation of Rs. 1,00,11,600 as all the requirements for claim of depreciation were satisfied. 3. The entire assessment under section 148 read with section 143(3) of February 2000 is void ab initio being violative of principles of natural justice as the report on the basis of which the notice under section 148 was issued, had no relevance with regard to appellant's claim of depreciation and the Assessing Officer had not granted an opportunity to cross-examine certain parties whose statements were relied upon in the assessment order." 3. Briefly stated, the facts are that regarding the claim of depreciation by the assessee of Rs. 100,11,600 in respect of 486 Industrial Gas Cylinders, it is noted by the Assessing Officer on page No. 1 of the re-assessment order under sections 148/143(3) that the cylinders were supplied from M/s. Thriuvallur Multipurpose Workers Industrial Co-operative Society Ltd. for short (TMWICSL) vide invoice No. 2922 dated 30-9-1994 and leased to M/s. Grounders Rice Exporters (P.) Ltd. by delivery challan No. 19....
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.... by the then ACIT, Central Circle-III at the premises of M/s. GREPL to find out whether the assets said to have been sold by M/s. TMWICSL did exist in the factory premises of M/s. GREPL and as per the result of this survey, the factory did not have so many numbers of cylinders and only 5 oxygen cylinders without any marks or identification were found. On the basis of these facts, it was held by the Assessing Officer that M/s. GREPL and M/s. TMWICSL were used by Shri Rajaratnam and on this basis, it was held by the Assessing Officer that the depreciation claimed by the assessee cannot be allowed. He disallowed the claim of the assessee regarding depreciation. Being aggrieved, the assessee carried the matter in appeal before ld CIT(A) but without success and now the assessee is in appeal before us. 4. It is submitted by the ld AR of the assessee that on page No. 36 of the paper book is a letter dated 29-11-1999 said to be written by Shri C. Muthuswami to the DCIT, Central Circle-III, Chennai and as per which, the transaction of M/s. GREPL with TFCI i.e., the assessee and two other concerns are financial loan transactions. It is also submitted that on page No. 144 to 146 are the invo....
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.... not confronted with the assessee in a proper manner before completing the assessment but we are of the considered opinion that it is an irregularity in the assessment order not an illegality. We feel that in the interest of justice, this matter should go back to the file of the Assessing Officer for a fresh decision after allowing the assessee a reasonable opportunity to rebut these evidences which are collected by him behind the back of the assessee and if the assessee wants cross-examination of any concerned party, the same should also be provided to the assessee if it is relevant. We, therefore, set aside the order of the ld CIT(A) and restore this matter back to the file of the Assessing Officer for afresh decision as per above discussion after providing adequate opportunity of being heard to the assessee. 7. In the result, the appeal of the assessee stands partly allowed for statistical purposes. 8. Now, we take up the appeal of the assessee for assessment year 1997-98 i.e., in ITA No. 2612/Delhi/2002. 9. Ground Nos. 1, 2 and 3 are inter-connected which read as under :- "1. Ld CIT(A) in holding that deduction under section 36(1)(viii ) of the Income-tax Act, 1961 will hav....
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....sessing Officer had not correctly computed deduction under section 36(1)(viii) and 36(1)(viia). It is also held by the ld. CIT(A) that deduction under section 36(1)(viii) should be allowed at the rate of 40 per cent of taxable income out of interest on rupee term loan amounting to Rs. 83,64,34,381. He has directed the Assessing Officer that on this amount, the Assessing Officer will determine the profit from business of providing long term finance as computed under the head Profits and Gains of Business or Profession before allowing deduction under clause 36(1)(viii) of the Income-tax Act, 1961 and on the profits so determined, the assessee will be eligible for deduction at the rate of 40 per cent of such income under section 36(1)(viii) of the Income-tax Act, 1961. For deduction under section 36(1)(viia), it is held by him that the same should be allowed at the rate of 5 per cent of total income after deducting the amount of deduction allowable under section 36(1)(viii). Now, the assessee is in further appeal before us regarding computation of deduction under section 36(1)(viia) and 36(1)(viii) of the Act. 12. It was the submission of ld. AR of the assessee that section 36(1)(vii....
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....is, then any other deduction which is allowable under any section of the Income-tax Act, 1961 which is coming after section 36(1)(viia) cannot be reduced from total income such as section 37(1), section 43B etc. This is an absurd proposition. Regarding judgment of Hon'ble Patna High Court rendered in the case of Bihar State Financial Corpn. (supra), we find that the issue involved in that judgment was regarding deduction allowable to the assessee under section 36(1)(viii) and it was held in this case by Hon'ble Patna High Court that the statutory deduction under section 36(1)(viii) of the Income-tax Act, 1961 available to the financial corporation providing long term finance for housing should be calculated on the total income before deduction of the amount allowable under section 36(1)(viii). Computation of deduction allowable under section 36(1)(viii) is not the subject matter in this case and hence this judgment of Hon'ble Patna High Court is not relevant in the case in hand before us. Moreover, it is provided in section 36(1)(viia) itself that deduction allowable under this clause is not to be reduced from total income for the purpose of computing deduction under section 36(1)(....
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....term finance and hence the assessee is not eligible for deduction under section 36(1)(viii) on account of these incomes. It is further held by Ld. CIT(A) that the only income which will be eligible for deduction under section 36(1)(viii) is interest on rupee term loan amounting to Rs. 83,64,34,381 which is from the business of long term finance. It is further held by Ld. CIT(A) that on this amount, the Assessing Officer will determine the profits from business of providing long term finance as computed under the head profits & gains of business or profession before allowing deduction under section 36(1)(viii) of the Income-tax Act, 1961 and on the profits so determined, the assessee will be eligible for deduction at the rate of 40 per cent of such income under section 36(1)(viii) of the Income-tax Act, 1961. Now, the assessee is in further appeal before us. 18. It is the submission of the Ld. AR of the assessee that interest on deposits, interest on debentures, lease rentals, consultancy and other professional charges, legal fees, guarantee commission, appraisal fee, financial charges, legal fees, interest on guarantee commission and misc. income consisting of interest of staff ho....
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....(viii) In respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head 'Profits and gains of business or profession' (before making any deduction under this clause) carried to such reserve account." 22. From the above, it is seen that for the purpose of allowing deduction under this section, we have to consider profits derived from business of providing long term finance computed under the head 'profits & gains of business or profession". The long term finance is defined under clause (h) of Explanation to section 36(1)(viii) as per which, the long term finance means any loan or advance where the terms under which moneys are loaned or advanced provided for repayment along with interest there on during the period of not less than five years. From the above, it is clear that profits derived from long term finance only can be considered for the purpose of allowing deduction under section 36(1)(viii) and hence these receipts as interest on deposits, lease rentals, consultancy and other professional charges, legal fees, guarantee commission, appraisal fees, finan....
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.... 24. It is submitted by Ld. AR of the assessee that this is now covered in favour of the assessee by the Tribunal decision in assessee's own case for assessment year 1996-97 as per ITA No. 2611/Delhi/2002 dated 12-12-2008. He submitted a copy of the Tribunal decision. It is pointed out that the equipment leased to M/s. Prakash Industries Ltd., were in fact leased out in assessment year 1996-97 and because in that year, the assets were put to use for less than 180 days, 50 per cent depreciation was claimed in that year and balance 50 per cent depreciation is being claimed in the present year i.e., assessment year 1997-98. It is pointed out that in assessment year 1996-97, the claim of the assessee regarding depreciation has been allowed by the Tribunal and hence in the present year also, the claim of the assessee regarding balance depreciation should be allowed. 25. Ld. DR of the revenue supported the orders of the authorities below. 26. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that the asset in question was leased out to M/s. Prakash Industries Ltd. in assessment year 1996-9....
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....e excess deduction claimed at Rs. 276,74,370, the Assessing Officer has considered the provision for bad debts for assessment year 1995-96 at Rs. 125 lakhs, for assessment year 1996-97 at Rs. 144,67,125 and for the present assessment year also i.e., assessment year 1997-98 at Rs. 66,07,245. This disallowance of Rs. 276,74,370 has been confirmed by Ld. CIT(A) on the basis that as per the proviso to section 36(1)(vii) in the case of the assessee to which clause (viia) of section 36(1) applies, the amount of deduction relating to write off of bad debt shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debt account made under section 36(1)(viia). Now, the assessee is in further appeal before us. 29. It is submitted by Ld. AR of the assessee that this issue is now covered in favour of the assessee by the Tribunal decision rendered in the case of Oman International Bank SAOG v. Dy. CIT [2005] 92 ITD 76 (Mum.). It is submitted that as per this Tribunal decision, the provision under section 36(1)(viia) for the current year is not required to be considered for the purpose of quantifying deduction allowable to t....
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....r :- "That on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the amount of Rs. 64,96,000 spent by the assessee company for raising funds for the purpose of business by increasing authorized capital; was a capital expenditure and not an allowable revenue expenditure." 37. Briefly stated, the facts are that it is noted by the Assessing Officer that the assessee has debited Rs. 65,10,340 as filing fees in the P&L A/c as compared to Rs. 2220 debited in the last year. The Assessing Officer asked the assessee to file details which are reproduced by the Assessing Officer on page No. 3 of the assessment order. From the same, it is noted by the Assessing Officer that Rs. 64.96 lakhs was paid by the assessee for increase in authorized capital from 100 crores to Rs. 255 crores. The same was disallowed by the Assessing Officer by following two judgments of Hon'ble Apex Court rendered in the case of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792 and Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 . Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now the assessee is in further app....
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....00 incurred in respect of shares held under the head current investment was not even a capital loss, though held in an earlier paragraph of the appellate order as a capital loss." 42. Briefly stated, the facts are that it is noted by the Assessing Officer in Para No. 5 of the assessment order that the assessee company has shown Rs. 104.27 lakhs as diminution in the value of investment written off and deducted this amount from the total income. The Assessing Officer asked the assessee to give details and to justify his claim for deduction of this amount in the light of the facts that on sale of investment, profit or loss is assessable under the head capital gains. In reply, it was submitted by the assessee before the Assessing Officer that during this year, shares/units worth Rs. 11.03 crores were sold. As per the assessee following shares were neither yielding any income by way of dividend nor they were able to be sold in market as same were not quoted. It was also submitted that the assessee company had been talking to these companies for buy back the same but none of them responded and hence, these shares were written off in the books of account with the approval of Directors :-....
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....he assessee in its return of income filed on 30-10-2000 at Rs. 20,02,98,223 and not on the basis of net profit shown by the assessee in the P&L A/c and since this gross total income has been worked out by the assessee in computation of income after deducting this claim of the assessee regarding write off of investment of Rs. 104.27 lakhs, it cannot be said that there is any double addition. In reply, Ld. AR of the assessee had nothing to say. 45. Ld. DR of the revenue supported the orders of the authorities below. 46. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that Ld. CIT(A) has decided these issues on the basis that the loss or fall in the market value of these shares cannot be allowed as business loss because these shares were acquired by the assessee as capital asset and not as stock in trade. Such loss cannot be allowed under the head capital gains until and unless the shares are transferred because section 45 is applicable only when the capital asset is transferred. Under these facts, we are of the considered opinion that no interference is called for in the order of Ld.....
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....n be allowed because the said fixed asset has already been discarded and not being used for the purpose of business. It is also submitted that the provision of section 32(1)(iii) is independent of section 43(6)(c)(1) of the Act. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now the assessee is in further appeal before us. 49.It is submitted by the Ld. AR of the assessee that the Assessing Officer has wrongly interpreted the provisions of section 32(1)(iii) and hence the claim of the assessee should be allowed. 50.Ld. DR of the revenue supported the orders of the authorities below. 51. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that in this regard the provisions of section 32(1) is relevant hence the same is reproduced below :- "32. (1) In respect of depreciation of- (i)buildings, machinery, plant or furniture, being tangible assets; (ii)know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets required on or after 1-4-1998, ow....
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....g sale proceeds/scrap value. In the cases of those undertakings, which are engaged in generation and distribution of power, where depreciation is allowable on actual cost of individual asset, clause (iii) of section 32(1) takes care of those instances where a building, machinery, plant or furniture is sold, discarded, demolished or destroyed. In the light of these provisions, we are of the considered opinion that clause (iii) of section 32(1) is applicable for those undertakings which are engaged in generation and distribution of power and for them, section 43(6)(c)(1) is not applicable. For other undertakings, depreciation is allowable on WDV of block of assets and for these undertakings, section 32(1)(iii) is not applicable and section 43(6)(c)(1) is applicable as per which, sale value or scrap value as the case may be of the asset sold, discarded, demolished or destroyed is to be reduced from WDV of the particular block. Ld CIT(A) has also decided this issue on the same lines and hence we find no reason to interfere in the order of the ld. CIT(A) on this issue for disallowance of this claim. For alternative claim of depreciation, we feel that the same should be allowed. The same....
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....ted. In the present year also, these issues are decided on similar lines and these grounds of the assessee are partly allowed for statistical purposes as in assessment year 1997-98. 55. Ground No. 8 of the appeal reads as under :- "8. That on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the deduction of Rs. 1,88,75,365 and Rs. 65,64,721 from the claim of bad debts written off was rightly made by the Assessing Officer." 56. Regarding this issue it was agreed by both sides that this issue is identical to ground Nos. 8 and 9 in assessment year 1997-98 and can be decided on similar lines. In assessment year 1997-98, this issue has been decided by us as per Para No. 30 above and it was held that provisions for bad and doubtful debts for the current year cannot be reduced from actual write off of bad debts in the current year and the same is to be reduced from actual write off of bad debts in the subsequent year only. Accordingly, in this year also, this issue is decided on similar lines and it is held that the Assessing Officer is justified in reducing the opening balance of provision for bad debts from actual write off of bad debts but the Assessi....
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....his issue is decided on similar lines. Regarding second aspect as to whether for the purpose of deduction under section 36(1)(viii), other incomes such as interest on deposits, interest on debentures, lease rentals, legal fees, guarantee commission, appraisal fees, interest on guarantee commission, misc. income, dividend received, profit on sale of investment etc., are eligible or not for deduction under section 36(1)(viii), it has been held in assessment year 1997-98 that except interest on debentures other receipts are not eligible for deduction under section 36(1)(viii). Regarding interest on debentures, it has been held that the Assessing Officer has to examine and verify the period of repayment of debentures and if it is found that it is for long term as per clause (h) of Explanation to section 36(1)(viii), interest on debentures should be considered as income from long term finance. In the present year also, this issue is decided on similar lines. Ground No. 2 of the appeal of the assessee is rejected whereas ground No. 3 is partly allowed for statistical purposes. 65. Ground No. 4 of the appeal reads as under :- "4. That on the facts and in the circumstances of the case, t....
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....d to Rs. 1 lakh being the disallowance made in the impugned assessment order because the Tribunal has no power to enhance the income. This ground of the assessee is allowed for statistical purposes. 71. In the result, this appeal of the assessee is partly allowed. 72. Now we take up the assessee's appeal for assessment year 2002-03 i.e., in ITA No. 2574/Delhi/2006. 73. Ground No. 1 of the appeal is general in nature. 74. Ground Nos. 2 & 3 are inter-connected which read as under :- "2. That the Ld CIT(A) has erred in following the appellate order for the assessment year 2001-02 instead of following the decision of the Hon'ble Rajasthan High Court ( 251 ITR 587 ) on the issue of deductions under section 36(1)(viia) and 36(1)( viii) and thereby confirming the deduction of reduced amounts under the said sections at Rs. 21,48,394 and Rs. 1,32,56,607 instead of the amounts claimed by the assessee at Rs. 28,10,625 and Rs. 2,24,84,998 respectively. 3. That the Ld CIT(A) has erred in following the appellate order for the assessment years 1997-98 to 2001-02 while considering the issue relating to the determination of income from the business of providing long term finance whereby certa....
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....he Special Bench of Tribunal rendered in the case of Daga Capital Management (P.) Ltd. (supra), we set aside the order of the CIT(A) on this issue and restore this matter back to the file of the Assessing Officer for a fresh decision in the light of this decision of Special Bench of the Tribunal. The Assessing Officer should recompute the disallowance as per this decision of the Special Bench of the Tribunal but if the disallowance so computed by the Assessing Officer exceeds the amount of disallowance of Rs. 12,000 made by the Assessing Officer in the impugned assessment order, in that situation, the disallowance to be made by the Assessing Officer should be restricted to this amount of Rs. 12,000 because the Tribunal has no power to enhance the income. This ground of the assessee is allowed for statistical purposes. 78A. Ground No. 5 of the appeal reads as under :- "5. That on the facts and in the circumstances of the case, the Ld CIT(A) has erred in upholding the disallowance of Rs. 27,50,000 being the 1/10th of the share issue expenses incurred during September - October, 1994 for public issue of equity shares." 79. Briefly stated, the facts are that during this year, the as....
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....234D." 82. It is submitted by the Ld AR of the assessee that this issue is now covered in favour of the assessee by the decision of Special Bench of the Tribunal rendered in the case of ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi) wherein it was held that section 234D has been brought on statute book from 1-6-2003 and hence has application only with effect from assessment year 2004-05. The assessment year in the present case is assessment year 2002-03 and hence for this year section 234D is not applicable. Respectfully following the judgment of Special Bench of the Tribunal, this issue is decided in favour of the assessee. 83. Ground No. 7 is general in nature. 84. In the result, this appeal of the assessee is partly allowed. 85. Now, we take up the revenue's appeal for assessment year 1997-98 i.e., in ITA No. 2633/Delhi/2002. 86. The grounds raised by the revenue read as under :- "1. That on the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 1.85 crores on account of accrued interest from M/s. Fair Growth Finance Services and Fair Growth Investment Ltd. 2. That on the facts and in the circumstances of the ca....
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....ich is not accounted for by the assessee. In the present year also, the assessee preferred an appeal before Ld CIT(A) who has deleted this addition in this year also and now the revenue is in appeal against this order of Ld CIT(A) as per ground No. 2. 88. Ld DR of the revenue supported the assessment order whereas Ld AR of the assessee supported the order of Ld CIT(A). It is also submitted by him that section 43D was inserted by the Finance No. 2 Act, 1991 with effect from 1-4-1991 and as per this section read with Rule 6EA, interest on sticky loans and advances is chargeable to tax in the previous year in which it is credited in the P & L A/c or when actually received whichever is earlier. It is also submitted that the assessee is a notified public financial institution under section 4A of the Companies Act, 1956. It is also submitted that in the earlier years, the Assessing Officer has relied on the judgment of Hon'ble Apex Court rendered in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 but this judgment is over-ruled by the Hon'ble Apex Court rendered in the case of UCO Bank v. CIT [1999] 237 ITR 889. It is also submitted that section 43D was not in statute boo....