TaxTMI 
TaxTMI 
2013 (1) TMI 135
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....-05 is filed by assessee which is directed against the order of Ld. CIT(A)-I Baroda dated 03-11-2010 which is arising out of appeal effect order passed by Assessing Officer on 10-12-2007 as per the direction of Ld. CIT(A) in his order dated 14-09-2007. Remaining two appeals are for A.Y. 2005-06, which are cross-appeals filed by the assessee and Revenue and are directed against the order of Ld. CIT(A)-I Baroda dated 16-09-2008. For the sake of convenience, all these appeals are being disposed of by way of this common order. First we take up assessee's appeal in ITA No.4522/Ahd/2007 for A.Y. 04-05. 2. It is arising out of assessment order passed by Assessing Officer u/s 143(3) of the Act. Ground No.1 of appeal is as under:- "1. The learned CIT(Appeals) erred in law and on facts in confirming disallowance of Rs.641.53 Lacs under the nomenclature "Take or P[assessment year lease rental charges to GCPTCL". The learned CIT(Appeals) erred in holding that payments / expenditure in question is contingent in nature and had not crystallized during the year. It is submitted that the expenditure having been incurred during the year under consideration, the same may please be all....
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....resentative of the assessee that issue involved in this ground is squarely covered against the assessee by the journal decision rendered in the case of Schrader Duncan Ltd. v. ACIT (2012) reported inn 18 Taxman.com 287 (Mum). Respectfully following this Tribunal decision, this ground of assessee is also rejected. 8. Ground No.4 and 4.1 read as under:- "4. The learned CIT(Appeals) erred in confirming disallowance of Rs.7 Crores on account of liability in respect of wages payable to 490 contract labourers pursuant to Order dated 13-06-2003 of the Industrial Tribunal, on the ground that the said liability has not crystallized during the year. Your appellant submits that since the liability has crystallized during the year, it is allowable under the mercantile basis from the profit of the year and the same may please be allowed. It is submitted that it be so held now. 4.1 The learned CIT(Appeals) has erred ion not giving direction to allow when payments made. It is submitted that direction be given to allow on payment basis, if held not allowable in the present year." 9. It was submitted by Ld. Authorized Representative of the assessee that admittedly, these expenditures we....
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....d CIT(Appeals) erred in confirming disallowance of Rs.263.20 Lacs under the head "Prior Period Expenses" it is submitted that in the facts and circumstances of the case, the liability was known / crystallized during the year and hence deduction as claimed may please be allowed. It is submitted that it be so held now. 5.1 Without prejudice to above, appellant submits that in view of carried forward losses and even losses for the year, allowability of the year in academic and considering that no disallowance was required to be made. It be so held now." 13. It was submitted by Ld. Authorized Representative of the assessee that break up of prior period expenditure is available at page 81 to 82 of the P.B. He also submitted that liability has crystallized during the present year and there was no disallowance in any earlier years. Ld. DR of the Revenue supported the orders of authorities below. 14. We have considered the rival submissions, perused the material on record and gone through the orders of authorities below. In the details appearing at page 81 to 83 of the P.B., we find that the previous year expenditure includes Rs.270.11 lakhs on account of salary, wages, bonus and ....
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....red the rival submissions, perused the material on record and gone through the orders of authorities below. We find that a clear finding is given by Ld. CIT(A) that the provisions regarding take or pay lease rental charges of Rs.6,41,53,000/- is a contingent liability. Regarding the provisions for wage revision of Rs.10,08,49,000/- also, a clear finding given by Ld. CIT(A) and also by the Assessing Officer that the same is unascertained liability. This is also submitted by assessee before us that this provision was written back in A.Y. 2006-07 and in that year, reduction was allowed in MAT computation. Considering all these facts, we decline to interfere in the order of Ld. CIT(A) on this issue also. This ground is also rejected. 18. Ground No. 7 and 7.1 read as under:- "7. The learned CIT(Appeals) erred in upholding the addition of Rs.6,41,25,924/- to the book profit u/s. 115JB while computing the book profit u/s 115JB. It is submitted that in the facts and circumstances, the amount credited back to Profit & Loss Account being excess provision for doubtful advances made in the earlier year ought to have been reduced. It be so held now. 7.1 The learned CIT(Appeals) failed ....
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....it was increased in the year when the reserve or provision was created by way of debit to profit and loss account and then only deduction can be allowed from book profit in the year of withdrawal from such reserve or provision. As per the working of computation of book profit u/s 115JB as available at page 121-122 of the P.B, it is seen that same amount was added in book profit of Rs.6,41,25,924/- but in view of the contradictory finding of Assessing Officer in assessment order, we feel it proper that in the interest of natural justice, this matter should go back to the file of AO for fresh decision. Accordingly, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of AO for fresh decision. AO should examine this again that while computing book profit for A.Y. 2003-04, this addition was made in the book profit or not. Thereafter, AO should pass necessary order as per law. Before parting, we would like to observe that as per copy of assessment order for A.Y. 2003-04 which is available at pages 306 and 307 of the P.B, it is seen that total loss as per regular provision was assessed by AO at Rs.334.96 crores and there is no working of book profit ....
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....ure, with the observation that these expenses were necessary for complying with the Government regulations and did not result in the creation of any asset, without appreciating that these are not the relevant considerations for determining the capital vis-à-vis revenue nature of an expenditure and the expenses, being in capital field and giving an advantage of enduring nature, constitute capital expenditure as settled in the case of Ballimal Naval Kishore vs. CIT 224 ITR 414 (SC)." 28. Ld. DR of Revenue supported the order of Assessing Officer whereas Ld. AR of the assessee supported the order of Ld. CIT(A). He further submitted that in the earlier years for A.Y. 2001-02 to 2003-04 as were cited in respect of ground No.1 of Revenue's appeal, this issue was decided by the Tribunal in favour of the assessee. Since Ld. DR could not show that there is any difference in the facts in the present year, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue also. Ground No.2 is also rejected. 29. Ground No.3 is as under:- "3(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.91.80....
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.... made u/s. 14A of the Act without showing any direct nexus between the interest bearing borrowed funds and investment in shares. He fairly conceded that a disallowance of Rs.5 lakh can be made in respect of administrative expenses. 31. We have considered the rival submissions, perused the material on record and gone through the orders of authorities below. We find that disallowance was made by Assessing Officer mainly on this basis that assessee could not establish that the investment was made out of own fund and no borrowed funds have been utilized for making such investments. The Assessing Officer has categorically stated in para-7 of his assessment order that it is held that assessee has utilized interest bearing borrowed funds for non-business purpose i.e. for making the investments. He also observed that disallowance is to be made for administrative expenses also. He made disallowance to the extent 10% of dividend income. So far interest expenditure is concerned for earning dividend income, we are of the considered opinion that the own fund is much higher than investment and therefore, it cannot be said that interest bearing borrowed funds were used for making investments i....
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....following these very judgments of Hon'ble Apex Court which are cited by the Ld. AR of the assessee before us and considering the facts of the present case, we do not find any good reason to interfere in the order of Ld. CIT(A) on this issue. We therefore decline to interfere in the order of Ld. CIT(A) on this issue. This ground of Revenue is also rejected. 35. Ground No.5 of the Revenue's appeal is as under:- "5(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in excluding the waived amount of Rs.60.13 crores out of the principal loans, from the total income, disregarding the inclusive definition of income u/s. 2(24) and of the profits and gains of business in section 28 and the ratio settled in the landmark decision in the case of CIT vs. T.V. Sundaram Iyengar &Sons Ltd. 222 ITR 344 (SC), holding that waiver of such loans received in the course of business constitutes income receipt on being written off, by virtue of section 28(i) itself. (b) The ld. CIT(A) failed to appreciate that, when section 28(iv) charges the value of any benefit or perquisite, whether convertible into money or not, arising from business, it presupposes that any ....
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....arely applicable, wherein it was held that if the assessee is not carrying money lending business and earlier the loan do not give a benefit arising out of business than remission of the same cannot be taxed u/s. 41(1) of the Act or u/s. 28(iv) of the Act. Respectfully following this judgment of Hon'ble jurisdictional High Court rendered in the case of Chetan Chemicals Pvt. Ltd. (supra), we decline to interfere in the order of Ld. CIT(A) of this issue also. This ground of Revenue's appeal is also rejected. 38. Ground No. 6 & 7 of the Revenue's appeal are as under:- "6(a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the adjustment of book profit u/s. 115JB by the estimated gratuity provision of Rs.5,35,80,234/- made on the basis of actuarial valuation, which is an unascertained liability as specifically settled in the case of Shree Sajjan Mlls Ltd. vs. CIT 156 ITR (SC) (b) The Ld. CIT(A) wrongly equated this liability with that of leave encashment which accrues yare to year on account of the eligible employees not availing of leave during the year whereas gratuity liability provided in respect of all the employees on actuarial ....
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....ted as reserve even under rule 7(2) of Schedule VI of the Companies Act without the extension of meaning as in clause (b) of the aforesaid Explanation." 41. Ld. DR of the Revenue supported the order of Assessing Officer whereas Ld. AR of the assessee supported the order of Ld. CIT(A) He also submitted that this issue was decided by the Tribunal against the assessee in assessee's own case in A.Y. 2003-04. But there is a decision of Tribunal in favour of assessee rendered in the case of CIT v. Yokogawa India Ltd. (2012) 17 taxman.com 15 (Kar). 42. We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below and judgments cited by Ld. AR of the assessee. We find that retrospective amendment was made by (Finance Act, 2002) with effect from 1-4-2001 as per which the amount set aside for a provision for diminution in the value of any asset is to be added back in book profit. We reverse the order of Ld. CIT(A) on this issue and restore that of the Assessing Officer. This ground of Revenue's appeal is allowed. 43. Ground No.9 of Revenue's appeal is as under:- "9.(a) On the facts and in the circumstances of the....
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.... AR of the assessee supported the order of Ld. CIT(A). He further submitted that in the present case, even after making adjustments, there was nil taxable income as per the regular provision and the tax was payable by the assessee on book profit u/s. 115JB of the Act only. He further submitted that out of these two additions for which penalty was imposed by Assessing Officer, no addition was made in computing book profit by the AO and hence, there is no impact on tax payable by the assessee. Even out of these two additions in regular income, in fact only one addition was made by the AO in the regular income also of Rs.37,64,700/- regarding depreciation on co-generation power plant. Regarding the claim of the assessee for long term capital loss of Rs.7,49,49,713/-, it was submitted that the claim was made only through notes to return income for adjudication by the AO and not in the return of income itself. He further submitted that under these facts, penalty is not justified and in support of this contention, reliance was placed on the judgment of Hon'ble Delhi High Court rendered in the case of CIT v. Nalwa Sons Investments Ltd. (2010) as reported in 327 ITR 543 (Del) and also on j....
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....s in regular assessment, income-tax payable by the assessee remained the same being on book profit. Under these facts, it is held by Hon'ble Delhi High Court in the case of Nalwa Sons Investments Ltd. (supra) that when the computation was made u/s 115JB of the Act, alleged concealment has no role to play on tax payable and therefore, the concealment did not lead to tax evasion at all and by making this observation, penalty was deleted in that case. In the case of Vijay Mistry Construction & Rajakamal Builders Pvt. Ltd. (supra), it was held by Hon'ble jurisdictional High Court that even after making some disallowance, tax finally required to be paid as per Section 115JB of the Act, remains the same. It cannot be said that the assessee evaded tax. Facts in the present case are similar with these two judgments and hence, respectfully following these two judgments of Hon'ble Delhi High Court and Hon'ble jurisdictional High Court, we decline to interfere in the order of Ld. CIT(A) on this issue. This ground of Revenue's appeal is dismissed. 50. In the result, Revenue's appeal is dismissed. 51. Now we take up the 4th appeal of A.Y. 2004-05 i.e. arising in course of appeal effect or....
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..... In the result, this appeal of the assessee stands allowed. 56. Now we take up assessee's appeal for A.Y. 2005-06 in ITA No.3688/Ahd/2008. 57. Ground No.1 of assessee's appeal is as under:- "1. The learned CIT(Appeals) erred in law and on facts in confirming disallowance of Rs.903.65 Lacs under the nomenclature "Take or Pay lease rental charges to GCPTCL". The learned CIT(Appeals) erred in holding that payments / expenditure in question is contingent in nature and had not crystallized during the year. It is submitted that the expenditure having been incurred during the year under consideration, the same may please be allowed to be deducted. Without prejudice to the above, if at all any portion of the expenditure is held to be not allowable; the same may please be directed to be deducted from the income of the assessment year where the remission in respect of such expenditure has been offered for tax." 58. It was submitted by Ld. Authorized Representative for the assessee that this issue is identical to ground No.1 of assessee's appeal in A.Y 2004-05 in ITA No.4522/Ahd/2007. He also submitted that in A.Y. 2006-07, reversal of this liability has been held to be not ta....
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.... alternative contention of giving direction to allow in the year of payment. It is submitted that if the claim is rejected, then direction be given to allow in the subsequent years when paid. It is submitted that it be so held now." 62. It was submitted by Ld. AR of the assessee that this issue is also identical to ground No.4 of assessee's appeal in A.Y. 2004-05 and same can be decided on similar line in the present year. We have decided this issue against the assessee at paras No. 9 to 11 of this order and hence, in the present year also, this issue is decided against the assessee on similar line. This ground of assessee is also rejected. 63. Ground No.4 is as under:- "4. The learned CIT(Appeals) erred in confirming addition of Rs.903.65 Lacs being "Take or Pay" lease rental charges, made in the accounts during the year under consideration while calculating Book profit u/s. 155JB of the Act. It is submitted that this kind of addition to the Book profit is not envisaged in the Explanation provided u/s. 115JB of the Act and hence should not have been made. It is submitted that it be so held now and addition of the amounts made to the Book profit u/s. 115JB be deleted." ....
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....and in law, the ld. CIT(A) erred in allowing the expenditure of Rs.87.50 lacs on the release of water and discharge of effluent and pollution control, as revenue expenditure, with the observation that this expenditure did not result in the creation of any specific asset, without appreciating that the expenditure gave an advantage of enduring nature and fell in the capital field, and, for being capital expenditure, it is not always necessary that it results in creation of a new, depreciable asset for the assessee, as settled in the case of CIT vs. Hoogly Mills Co. Ltd. 287 ITR 333 (SC)." 72. Ld. DR of the Revenue supported the assessment order whereas Ld. AR of the assessee supported the order of Ld. CIT(A). He further submitted that this issue is identical to Ground No.1 of Revenue's appeal for A.Y. 2004- 05 in ITA No.4557/Ahd/2007. 73. We have considered rival submissions and we find that similar issue was decided in favour of assessee in A.Y. 2004-05 while deciding ground No.1 of the Revenue's appeal, in that year, and the same was by following various Tribunal decisions in assessee's own case for earlier three years. Hence in the present year also, we do not find any reaso....
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.... The ld. CIT(A) erred in accepting the assessee's plea that the investment in shares being less than the assessee's own funds in the balance sheet, no disallowance of interest was called for, without appreciating that the assessee's own funds already stood invested in fixed assets or as working capital when the relevant borrowings were made; otherwise, there was no need for such borrowings and hence it is these borrowings which were utilized to earn exempted income and the co-relation between the borrowings and utilization can not be reflected in the balance sheet prepared on a particular date. (c) The ld. CIT(A) failed to appreciate that, it was up to the assessee to prove by furnishing day-to-day cash flow that no interest-bearing funds were deployed to earn exempted income and, in the absence of the same, the Assessing Officer was justified in drawing inference as per the ratio settled in the case of CIT vs Motor General Finance Ltd. 254 ITR 449 (Del) since confirmed in principle by the Supreme Court in the case of Motor General Finance vs. CIT 267 ITR 381 (SC). (d) The ld. CIT(A) erred in deleting the disallowance by putting arbitrary and narrow meaning on the term....
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....take a contrary view in the present year. Hence, this ground of Revenue's appeal is also rejected. 83. Ground No.5 of Revenue's appeal is as under:- "5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in excluding the waived amou9nt of Rs.11.63 crore out of principal loans, from the total income. Disregarding the inclusive definition of income U/s.2(24) and of the profits and gains of business in section 28 and the ratio settled in landmark decision in the case of CIT vs. t.v. Sundaram Iyengar & Sons Ltd. 222 ITR 344 (SC), holding that waiver of such loans received in the course of business constitutes income receipt on being written off by virtue of section 28(1) itself. (b) The learned CIT(A) failed to appreciate that when section 28(iv) charges the value of any benefit or perquisite, whether convertible into money or not, arising from business, it presupposes hat any monetary benefit so arising is already covered by section 28(i) as held in the case of T.V Sndaram Iyengar & Sons Ltd. (supra); otherwise, there is no rationale for excluding monetary benefits or perquisites when nonmonetary benefits or perquisites are also included in....
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....ing the Tribunal's order in assessee's own case for A.Y. 2002-03 and no difference in facts could be pointed out by Ld. DR of the Revenue. Hence, we do not find any reason to take a contrary view in the present year. This ground of Revenue's appeal is also rejected. 89. Ground No.7 is as under:- "7(a) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in negating the adjustment of provision for doubtful debts in the computation of book profit u/s 115JB, on the ground that it was not a liability for expenses but a liability relating to assets, without appreciating that the word 'liability'' in clause (c) of the Explanation below section 115JB(2) does not distinguish between a liability towards expenses and a liability relating to assets, both of which are equally a charge on the profits. (b) Without prejudice, the ld CIT(A) failed to appreciate that if the amount did not constitu9te liability, it was a reserve 'by whatever name called' within the meaning of clause (b) of the Explanation below section 115jB(2) in view of not being actual amount of debts written off but only an arbitrary provision at an estimated fraction of total debts, ....