TaxTMI 
TaxTMI 
2010 (4) TMI 886
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..... 4. The assessee-company is the owner of a building known as Narang House which is rented out to the subsidiary company for a rent of Rs. 57.6 lakhs. The subsidiary company runs from Narang House a business center also being used by the assessee and the assessee-company pays a rent of Rs. 12 lakhs to the subsidiary company. The assessee used to make certain other payments for telephone printing and stationery, etc. The Assessing Officer observed that since the whole building was owned by the assessee- company it there was very little logic in the arrangement of first receiving rent of Rs. 57 lakhs and then paying back a rent of Rs. 12 lakhs in addition to other payments like telephone, printing, etc. The Assessing Officer had held that the payment of Rs. 12 lakhs was excessive compared to any benefit derived from the service. He further held that the amount of only Rs. 3 lakhs per annum to be reasonable amount for the service done/rendered by the subsidiary company and had disallowed the balance amount of Rs. 9 lakhs by applying the provisions of section 40A(2) of the Act. After considering the submissions of the assessee, the CIT(A) deleted the disallowance made by the Assessing....
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....ed. 6. Ground No. 2 is against the action of CIT(A) in allowing deduction of Rs. 9,88,03,025 for interest under section 36(1)(iii) of the Act. 7. The Assessing Officer noticed that the assessee-company changed its method of recognizing profits from the completed contract method to the percentage of completion of method. Consequently, the assessee's recognition of profits has changed. The Assessing Officer was of the view that the assessee's method of following the completed contract method was not acceptable. Hence, the assessee's claim of interest expenditure of Rs. 9,88,03,025 under section 36(1)(iii), which was made on the basis of accounting standard VII of ICAI, was rejected by the Assessing Officer by following the judgment of ITAT in the case of JCT Ltd. v. Asstt. CIT [1998] 65 ITD 169 (Cal.). Before the CIT(A), the assessee followed the judgment of Bombay High Court in the case of CIT v. Lokhandwala Construction Industries Ltd., wherein the Hon'ble Bombay High Court upheld the stand of the assessee that interest on borrowings for the purpose of the business is allowable under section 36(1)(iii) and it will not go to the work-in-progress. The CIT(A) followed the said judgm....
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.... date for payment of contribution to the Provident Fund being 31-5-1997 the payment is found to be made in time. Accordingly, the disallowance made by the Assessing Officer by applying the provisions of section 43B of the Income-tax Act cannot be sustained. The addition of Rs. 2,14,166 on this account is, accordingly, deleted." 11. We have heard the learned representatives of the parties and perused the record. We find that the item of superannuation fund is covered by clause (b) of section 43B of the Act. The first proviso to section 43B is applicable to clause (b), which puts restriction in allowing the deduction on account of superannuation fund that the deduction was not to be allowed unless such sum has actually been paid on or before the due date as defined in the Explanation below clause 5(a) and sub-section (1) of section 36 of the Act. Since the due date for payment of contribution to provident fund being 31-5-1997, the payment is found to be made in time and, therefore, the CIT(A) deletion the disallowance made by the Assessing Officer. We find no infirmity in the order of CIT(A) and the same is hereby upheld. ITA Nos. 2665/M./04 and 2666/M./04 for assessment years 1998....
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.... that the CIT(A) erred in deleting the disallowance of Rs. 3.25 lakhs made by the Assessing Officer under section 40A(2)(b) of the Act. 17. This ground is also similar to the ground No. 1 of revenue's appeal for assessment year 1997-98, which has been decided in paras 3 to 5 of this order. In the light of the discussion in that year, we confirm the order of the CIT(A) on this issue also. ITA No. 2666/M./04 - Appeal by revenue 18. Ground No. 1 is that the CIT(A) erred in directing the Assessing Officer to assess income from 'completion method of accounting', and not on 'percentage method of accounting'. 19. This ground is identical to the ground No. 1 for assessment year 1998-99. Following the conclusions drawn in that ground in para No. 14, we confirm the order of the CIT(A) on the issue for this year also. 20. Ground No. 2 is that the CIT(A) erred in allowing the claim of Rs. 12,65,21,744 by way of interest under section 36(1)(iii) of the Act. 21. This ground is identical to the ground No. 2 for assessment year 1998-99, therefore, following the conclusions drawn therein, we uphold the order of CIT(A) on this issue. ITA No. 6326/M./03 - Appeal by the assessee for assessment ....
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.... any wrong statement therein, he may furnish a revised return. Thus, the revised return can be filed only if any omission or any wrong statement is discovered in the original return. A revised return is used to correct any omission or any wrong statement discovered in the original return and it cannot be filed for any other purpose. . . . it cannot be said that while issuing the intimation the Assessing Officer has accepted the revised return filed by the assessee. Accordingly, it is held that the Assessing Officer was justified in rejecting the revised return filed by the assessee and was also justified to proceed to make assessment on the basis of the original return of income. The action of the Assessing Officer in making the assessment on the basis of the percentage of completion method is also justified because the assessee itself has maintained its accounts for the assessment year under consideration on the basis of that method. The fact that the assessee has been following some other method in the earlier years or in the later assessment years is not relevant for deciding the issue in assessment year under consideration. Accordingly, this ground of appeal of the assessee is ....
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....ome year-to-year basis following 'percentage method of accounting'. In other words, the revenue has taken a continuous stand in subsequent years to follow 'percentage method of accounting'. During the year under consideration to match with the Assessing Officer's finding in assessment year 1983-84 onwards, the assessee changed its method of accounting from 'completion method of accounting' to 'percentage method of accounting' and filed original return. However, the assessee filed revised return on the basis of 'completion method of accounting'. 26.1 Let us see what is the relevant provision of section 139 is (5). The said section reads as under :- "If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier." 26.2 What was contemplated by section 139(5), was filing of revised returns when the assessee "discovered" any "omission" or any "wrong statement". The word "omis....
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....changed its method of accounting from 'completion method of accounting' to 'percentage method of accounting' and filed original return. However, the assessee filed revised return on the basis of 'completion method of accounting' to maintain its consistency and in accordance with issue settled by the ITAT. From the facts and circumstances of the case, we noticed that the assessee unable to take one stand whether he should stick to their own stand to follow 'completion method of accounting' or to follow the Assessing Officer by following 'percentage method of accounting', that situation itself is sufficient to prove the bona fide of the assessee. The second reason for filing revised return of income was that the assessee wrongly calculated capital gain on 1810 shares of PPTL whereas in fact 1792 shares were sold. The Assessing Officer found that selling of 1792 shares was the correct fact. The Assessing Officer himself has utilized certain facts of the revised return while making assessment. There were bona fide omission and wrong statement in original return of income which was discovered by the assessee, therefore, the revised return of income filed by the assessee is in accordance....
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....ns including a judgment of Apex Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802. The CIT(A) though confirmed the disallowance but simultaneously observed that an identical issue came up before him in assessment year 1996-97 wherein he has allowed assessee's ground vide order dated 14-3- 2003 in appeal for assessment year 1996-97. However, thereafter the decision of Kolkata ITAT in the case of Shaw Wallace & Co. Ltd. v. Asstt. CIT [2003] 86 ITD 315 , which directly deals with the issue. The CIT(A) noted that the ITAT has held that the expenditure has the effect for the period of loan. Following the said decision of ITAT, the CIT(A) upheld the order of Assessing Officer. 29. The learned AR submitted that on identical set of facts the CIT(A) in assessee's own case for assessment year 1996-97 has decided the issue after a detailed discussion in favour of the assessee. The learned AR further submitted that the CIT(A) has distinguished the judgment of the Apex Court in the case of Madras Industrial Investment Corpn. Ltd. (supra) wherein the issue of debenture on discount, which was redeemable after a period of 10 years. The learned AR further subm....
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....y confined to the money which has been actually paid out. It covers a liability which has accrued or which has been incurred, although it may have to be discharged at a future date. However, a contingent liability which may have to be discharged in future cannot be considered as expenditure. Although expenditure primarily denotes the idea of spending or paying out, it may, in given circumstances, also cover an amount of loss which has not gone out of the assessee's pocket but which is all the same, an amount which the assessee has had to give up. It also covers a liability which the assessee has incurred in praesenti although it is payable in futuro. A contingent liability that may arise in future is, however, not 'expenditure'. It would also cover not just a one-time payment but a liability spread out over a number of years. The Court further held that when a company issues debentures at a discount, it incurs a liability to pay a larger amount than what it has borrowed, at a future date. It is not necessary to go into the question whether this additional liability equivalent to the discount, which is incurred in praesenti but is payable in future, represents deferred interest or n....
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....vestment Corpn. Ltd.'s case (supra). 30.2 In the light of above discussions if we considered the facts of the case under consideration we find there are no material on record basis on which it can be said the there is inbuilt condition of the liability for a number of years. It is also not the case of revenue that the assessee incurred a liability to pay a larger amount than what it has borrowed, at a future date. From the facts of the case, we noticed that the case under considered is covered by the judgment of the Apex Court in the case of India Cement Ltd. ( supra) wherein it was held that a loan obtained cannot be treated as an asset or advantage for the enduring benefit of the business of the assessee. A loan is a liability and has to be repaid and, it is erroneous to consider a liability as an asset or an advantage. The nature of the expenditure incurred in raising a loan would not depend upon the nature of purpose of the loan. A loan may be intended to be used for the purchase of raw material when it is negotiated, but the company may, after raising the loan, change its mind and spend it on securing capital assets. Therefore, the purpose for which the new loan was required ....
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....ing Officer was of the view that such sale of shares is only an outer shell and the reality of the transaction is construction and sale of building. The Assessing Officer held that by looking at the actual nature of transaction the income of Rs. 6,19,02,450 is taxable as part of the business income arising on sale of the flats in the previous year under consideration. The Assessing Officer has, accordingly, taxed the amount of Rs. 6,19,02,450 as business income for assessment year 1997-98. The CIT(A) discussed this issue at pages 12 to 17 of his order and held that the entire income is taxable as business income and the Assessing Officer's action in taxing the business income at Rs. 6,19,02,450 as against assessee's claim of capital gains of Rs. 5,75,33,970 in respect of the alleged conversion of capital asset into stock-in-trade is upheld. 33. The learned AR submitted that in assessment year 1993-94, the assessee converted shares of subsidiary company from investment to stock-in-trade. The conversion done at fair market value and, accordingly, capital gains of Rs. 6,19,02,450 was calculated and shown in computation of total income for assessment year 1993-94 and put a note on the....
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....ansaction; therefore, the profit from such business transaction is assessable under the head 'Income from businesses'. The learned DR submitted that the Assessing Officer and CIT(A) have discussed the matter in detail in their orders that the real nature of the transaction is a business transaction and not conversion of investment into stock-in-trade or otherwise. 34. We have heard the learned representatives of the parties and perused the record. The admitted facts of the case under consideration are that the assessee has converted shares of subsidiary companies from investment to stock-in-trade in assessment year relevant to assessment year 1993-94. In assessment year 1993-94, this conversion has been accepted by the revenue which is evident from the material on record, relevant assessment order and order passed by the Assessing Officer under section 154 of the Act. In the year under consideration, i.e., assessment year 1997-98, the assessee has sold the said shares, which were converted from investment into stock-in-trade in assessment year 1993-94. On the basis of admitted facts, the question to be examined in assessment year 1997-98 is whether the Assessing Officer can examin....
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....e date of conversion and original cost of acquisition could not be capital gains because in order to be assessable capital gains, the amount in question should represent 'gains' and such 'gains' should have arisen as a result of 'transfer' both of which envisage existence of two different persons, transferor and transferee while in the act of conversion, there are not two persons and non 'gains' arise on the person making the conversion. Thus, said difference escaped assessment altogether. As there was lacuna in the statutory provisions where the conversion of investment into stock-in-trade was not transferred and, therefore, was not subject to capital gain. This lacuna has been plugged by insertion of sub-clause (iv) in section 2(47) defining 'transfer' and sub-section (2) in section 45 providing for charging of capital gains. Sub-clause (iv) of section 2(47) enlarged the definition of 'transfer' so as to include such conversion and sub-section (2) of section 45 brought the said difference to charge as capital gains. It is provided in sub-section (2) that when such conversion takes place and subsequently when said asset is sold as stock-in-trade, the difference in question would b....