TaxTMI 
TaxTMI 
2013 (9) TMI 450
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....onvenience. We first take up Assessee's appeal (in ITA No. 2572/Ahd/2006 for AY 2004-05) 2. The facts as culled out from the order of lower authorities are as under: 3. Assessee is a company engaged in the business of banking. It filed its return of income for A.Y. 2004-05 declaring income of Rs. 465,59,74,060/-. The case was selected for scrutiny and thereafter the assessment was framed u/s 143(3) vide order dated 31.01.2006 and the total income was determined at Rs. 664,36,99,320/-. Aggrieved by the order of Assessing Officer (AO), Assessee carried the matter before CIT(A). CIT(A) vide order dated 25.09.2006 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A) both the Assessee as well as Revenue are in appeal before us. Ground no 1 and its sub grounds are with respect to depreciation on windmills. 4. During the course of assessment proceedings, AO noticed that Assessee had shown purchase of windmills amounting to Rs. 27,54,00,000/- and the same was shown as put to use on 19.03.2004 and Assessee had also claimed depreciation at 80% amounting to Rs. 11,01,60,000/-. The Assessee was asked to justify its claim. The submissions made by....
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....tanding dues from NEPC Ltd., and for this purpose M/s. WESCARE INDIA LTD., was assured a commission of Rs. 2,00,000/- per WEG. However, due to backing out of Sundaram Clayton Ltd., there was delay in completion of the project and hence the payment of commission was resented. On similar facts in A.Y. 2002-03 and on similar submission made by the assessee in that year, the issue was decided by CIT(A) vide order dt: 18/11/2005. The main findings were as under:- "iv) From the contents of the tripartite agreement dt:22-9-2000, the statement of Shri V.R. Raghunathan and papers found in survey which are discussed in detail by the AO in the asst. order and in brief reproduced in para 7.1 above, it is evident that actually M/s. Wescare India Ltd.(WIL) approached UT1 Bank for financing their business in which tax saving benefit was to be passed on to UTI Bank. Thereafter, the tripartite agreement was signed. The tripartite lease agreement suggests that the payment for assets has been made by UTI Bank in the capacity of financier and not real owner. The lessee and W1L is required to suffer the losses arising out of purchase of assets and they are only amenable to all risks attached t....
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....e discussions made above and the finding brought out on record by the A.O. and discussed in details in the asst. order, which are produced above in earlier paras, it is evident that this was not a lease transaction, but only finance transaction. Hence, the depreciation is not allowable." "x) As per the decision of Hon. Supreme Court in the Case of McDowell & Co. Vs. CIT., 154 ITR 148, to ascertain the real nature of transaction, the veil has to be lifted. As per the decision of Hon. Karnataka High Court in the case of Avasarala Automation Ltd. Vs. JCIT 266 ITR 178, it has been held that while it is permissible for an assessee to have the tax planning, it is not permissible to prepare documents and to give the colour of real transactions on the basis of said documents, which would enable the assessee to evade the payment of tax. When an assessee makes a claim of depreciation on the ground allowed by law, it would always be open to the AO to pierce the veil of transactions put forward and find out as whether the transaction put forward for the purpose of claiming depreciation is genuine transaction or only a make believe, one intended to avoid payment of tax." As th....
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.....2006 the issue has been decided in favour of Assessee by holding as under: 25. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the income from lease has been considered by Assessee as income it is an undisputed fact that the A.O. has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the Assessee is not entitled to depreciation. We find that the issue of depreciation on leased assets has been decided by Honourable Apex Court in the case of ICDS Ltd (supra). One of the question before the Hon. Supreme Court was "whether the Assessee is entitled to depreciation vehicles finance by it which is neither owned nor used by the Assessee by virtue of the business" the Hon. Supreme Court held as under: "The provision on depreciation in the Income-tax Act, 1961, reads that the asset must be "owned, wholly or partly, by the assessee and used for the purposes of the business". Therefore, it imposes a twin requirement of "ownership" and "usage for business" for a successful claim under section 32 of the Act. The section requires that the assessee must use the asset for the "p....
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....ies applying McDowell's case and arguing that it is a devise for lowering the tax effect and relying on the Board's circular (supra), and more importantly, that, that case also pertained to assessment year 1996-97. The Hon'ble Delhi Court took the view that SLB transactions are genuine and cannot be considered to be sham. 29. On appreciation of the records, as produced before us, the decision of Hon'ble Delhi High Court in the case of Cosmo Films Ltd. (supra) has arguments of the assessee on the impugned issue, thereby, impliedly, reversed the ratio in the decisions of MidEast (supra) and Induslnd (supra). We find that tests laid down in MidEast case was primarily to ascertain the genuineness of the transaction entered by the assessee with its lessee, which was done by the CIT(A) in each case. 31. In any case, the issue of SLB transaction and in particular the issue of ownership of asset, also has been laid to rest by the Hon'ble Apex Court in the case of ICDS Ltd. Vs CIT, in CA No. 3286 to 3290 of 2008, wherein the question that was sought to be answered was whether the appellant (assessee) is the owner of the vehicles which are leased out by ....
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....unds amounting to Rs. 24,76,97,844/- as exempt income. The assessee had also made suo motto disallowance under Section 14A of Rs. 2,20,000,000/-. He further noted that on identical facts in A.Y. 2003-04, the claim of Assessee was rejected. He accordingly worked out the disallowance of interest and other expenditure by working out the disallowance of Rs. 30.78 Cr. by holding as under: a) Total borrowed fund at year end available for investment 16720 b) Total interest free funds of the appellant comprising of shares, capital, reserves, demand deposits and other liabilities 7430 Less:- Funds deployed for CRR and SLR (Rs. 725 + 4837) 5562 c) Interest free funds available for investment 1868 d) Total borrowed funds available for investment 14852 e) Ratio of borrowed funds to interest free funds available for investment is, therefore, 87.43 (borrowed) 12.57 (interest free) 87.43:12.57 f) Tax free investment s as per Balance Sheet 311 Add: Share Application Money as at 31/03/200 3 g) ....
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....nt expenses are required to be deducted while computing the exempted income. The appellant has submitted that even if earlier year appellate order is followed, the disallowance out of operating expenses comes to Rs. 4.47 Cr. This submission is not accepted. The Assessing Officer has already given detailed working in asst. order for calculating Rs. 11.76 Cr., which is justified. Hence, the disallowance is confirmed to be extent of Rs. 11.76 Cr. and the balance amount is deleted. 10. Aggrieved by the order of CIT(A) the Assessee and Revenue are in appeal before us. 11. Before us, the learned A.R. submitted that the interest free funds available with the Assessee in the form of Capital, Reserves and Surplus and interest free demand deposit are far in excess of the Tax Free Investment at the end of the year and therefore no disallowance under Section 14A is called for. He further submitted that on identical facts in the Assessee's own case, the Hon. Tribunal had deleted the addition made under 14A and which has also been upheld by Hon. Gujarat High Court in Tax Appeal No. 118/Ahd/2013. He therefore submitted that in the present case no disallowance under Section 14A was calle....
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.... 32.76 crore. After giving the credit of disallowance of Rs. 5.53 crore made by the Assessee, the AO disallowed Rs. 27.23 crore u/s 14A. As on 31 March 2003, the interest free funds available with the assessee was to the tune of Rs. 3404 crore (comprising of share capital of Rs. 230 crore, Reserves of Rs. 689 crores and interest free demand deposits of Rs. 2485 crores) as against which the tax free investments were to the tune of Rs. 589 crore. Thus the interest free funds were far in excess of the investments. CIT (A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly he has followed the decision of CIT (A) for AY 2002-03. These facts have not been controverted by the Ld. D.R. nor have they brought on record any facts to the contrary. Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities & Power Ltd (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assessee has suo moto dis....
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....sessee is allowed for statistical purposes. 15. Since the facts in the year under appeal are identical to that of A.Y. 2002-03, as admitted before us by both the parties, we for similar reasons remit the matter back to the file of AO for examining the issue afresh with directions similar to that given while deciding the appeal for AY 2002-03 and direct him to decide the issue afresh on merits as per law and after considering the submissions made by the Assessee and after giving reasonable opportunity of hearing to the Assessee. Assessee is also directed to furnish promptly the details called for by the AO to decide the issue. Thus this ground of Assessee is allowed for statistical purposes. Ground No. 3 is with respect to disallowance u/s 36(1)(vii) 16. During the course of assessment proceedings, AO noticed that Assessee has claimed write off under Section 36(1)(vii) at Rs. 156,42,85,257/- and had not considered the provision in the bad and doubtful debt account at the end of accounting year amounting to Rs. 162.51 Crore. The Assessee was asked to substantiate its stand. The Assessee interalia submitted during the year as per the Income Tax Account, there was no increment....
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....ly dispute remains is that of restricting the disallowance u/s. 36(1)(vii) by applying the proviso to this sec., whether it should be restricted by the opening balance of the provisions for bad and doubtful debts u/s. 36(1)(viia) or by the closing balance of provision for bad and doubtful debts u/s. 36(1)(viia) of the I.T. Act. In earlier assessment year, i.e. A.Y. 2002-03 and 2003-04, it was held by CIT(A) that it should be restricted by closing balance of the provision for bad and doubtful debt u/s. 36(1)(viia) of the I.T. Act. Following the same order to adopt a consistent view, it is held for this year also that it should be restricted by closing balance of provision of bad and doubtful debt u/s. 36(1)(viia) of the I.T. Act. Therefore, in my view the correct deduction allowable to the appellant is as under:- Deduction allowable u/s. 36(1)(vii): Gross bad debt actually written off during previous year. Rs. 157.43 Cr. Less: closing balance in the provision for bad & Doubtful debts u/s. 36(1)(viia) as on 31-03-04. Rs. 37.76 Cr. Balance allowable u/s. 36(1)(vii).. Rs. 119.67 Cr. Hence, the allowable deduction u/s. 36(1)(vii) is ....
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....ch account. 16.We notice that in this respect the provision is silent. We may therefore record that the interpretation adopted by the Tribunal in the impugned judgment would ordinarily give rise to a question of law particularly when it is pointed out that there is no previous decision of any High Court on the subject. However, the issue has been made sufficiently clear by the CBDT Circular No.17/2008 dated 26-11-2008. In the said circular, this very issue has been examined and clarified in the following manner:- "2. In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession, deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the I.T, A....
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....and proper administration and application of the provisions of the Act. (Refer to UCO Bank v. CIT(1999) 4 SCC 599). " 18. In case of UCO Bank vs. Commissioner of Income Tax reported in 237 ITR 889 the Supreme Court in connection with effect of circulars issued by the Board under section 119 of the Act observed: "Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board, thus, has powers inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in the manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and ....
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....he order of CIT(A), Assessee is now in appeal before us. 23. Before us, the learned A.R. strongly submitted that the losses were genuine and were incurred during the course of business and therefore submitted the same should be allowed. The Ld. D.R. on the other hand submitted that in the absence of details the expenditure cannot be allowed and thus supported the order of AO and CIT(A). 24. We have heard the rival submissions and perused the material on record. We find that the Assessee did not furnish details of loss of Rs. 22.80 lacs before the Lower Authorities nor were the same submitted before us. In view of these facts, we find no reason to interfere with the order of CIT(A). Thus this ground of Assessee is dismissed. ITA No. 2737/AHD/2002006 (for A.Y. 2004-05) Revenue's Appeal) 25. The grounds raised reads as under:- 1. The Ld. CIT(A) has erred in law and on facts in restricting the disallowance u/s. 14A at Rs. 11.76 Crores as against Rs. 30.78 Crores made by the Assessing Officer, thereby granting relief of Rs. 19.02 Cr. 2. The Ld. CIT(A) has erred in law and on facts in restricting the disallowance u/s. 36(1)(viia) at Rs. 22.92 Cr. as agai....
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.... not renew the agreement as per the original terms but however continued to pay the increased rent on month to month basis. Thereafter, the landlord was asked to return the security deposit initially given. The landlord did not return the security deposit but on the contrary made a claim of rent for period from 2003 to 2006 as if the leave and licence agreement was extended for another 5 years with effect from 2001. The bank entered into a compromise with the landlord and forego the deposit and paid compensation of Rs. 32 lakhs which included 6 months rent equivalent to Rs. 16,08,936/- ( inclusive of opportunity cost on security deposit ) for the notice period (b) an estimated cost of Rs. 12 lakhs towards restoration and (c) the reminder for other expenses. AO did not accept the contention of the Assessee as he was of the view that there was no legal obligation on the part of Assessee to pay such compensation. He was further of the view that no businessman will forego the right to recover the deposit as there were no arrears of rent and accordingly disallowed the security deposit of Rs. 32 lacs which was claimed by Assessee as revenue expenditure. Aggrieved by the order of AO, Asse....
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.... 31. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. Before us, the learned D.R. relied on the order of AO, on the other hand the learned A.R. supported the order of CIT(A). 32. We have heard the rival submissions and perused the material on record. We find that CIT(A) while deleting the addition has noted that the landlord claim compensation and demanded Rs. 80 lakhs which was ultimately settled for 32 lakhs and it was paid to landlord to avoid future litigation cost etc. He has further held that the cost was necessary to avoid litigation cost and the expenditure was genuine and incurred in the course of business. Before us, the Revenue could not controvert the findings of CIT(A). Thus we find no reason to interfere with the order of CIT(A). Thus this ground of Revenue is dismissed. ITA No: 4386/Ahd/2007 (Assessee's appeal) and ITA No 236/Ahd/2008 (Revenue's appeal) for AY 2002-03 33. These two appeals, one by the Assessee and the other by the Revenue, arise out of the order of CIT(A) dated 5.10.2007 wherein the dispute is with respect to penalty u/s 271(1)(c). 34. The appeal of Assessee is against the order of AO dated 25.01.2007 fo....
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.... conclusion of concealment and or furnishing of inaccurate particulars. He further submitted that the disallowance involved a legal proposition on understanding or interpretations where two views were possible. He further submitted that the Assessee had disclosed and made all particulars and facts material to the computation of its income accurately the claim made in the return was bonafide and based on honest and bonafide understanding of law and judicial precedent. The learned A.R. further submitted that the Assessee has discharged its burden of satisfactorily explanation of its claim. He further submitted that no penalty was leviable as the Assessee was neither guilty of contumacious conduct nor any element of mens rea was present. He further submitted that mere difference of opinion as primarily law based debatable complex question of interpretation cannot be a ground for sustaining penalty. He further relied on the decision of the Apex Court in the case of Reliance Petroproducts (2010) 322 ITR 158 (SC). He thus urged that the penalty levied be deleted. The learned D.R. on the other hand relied on the order of Assessing Officer. 39. We have heard the rival submissions and pe....
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.... to the AO all the particulars and facts material to computation of its income accurately. The impugned amount represented loss incurred in the normal course of business. He further submitted that each of the claims made in the return was bonafide and based on honest understanding of law or judicial precedents as also was made under the guidance of professional. He further submitted that the impugned disallowance involved a legal proposition on understanding or interpretation whereof two views were possible. He further submitted that penalty proceedings are materially different from the assessment proceedings and that mere assessment of an item as income does not per se justify conclusion of concealment and or furnishing of inaccurate particulars. He further submitted that the disallowance involved a legal proposition on understanding or interpretations where two views were possible. He further submitted that the Assessee had disclosed and made all particulars and facts material to the computation of its income accurately the claim made in the return was bonafide and based on honest and bonafide understanding of law and judicial precedent. The learned A.R. further submitted that th....
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....hall be considered as the income in respect of which particulars have been concealed, for the purposes of cl. (c) of s. 271(1), and the penalty follows. On the other hand, if the assessee is able to offer an explanation, which is not found by the authorities to be false, and assessee has been able to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, then in that case penalty shall not be imposed. 48. In the present case the assessee had disclosed all the material facts before the AO and CIT(A). When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. This is a case of bona fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and Department. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so....
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....ed superannuation fund, Rs. 8.62 crores was in respect of employees having per employee contribution of less than Rs. 1 lac per year and therefore Rs. 8.62 crore was not liable for FBT. It was further submitted that of the balance contribution of Rs. 51.36 lacs (Rs 9.14 crore less Rs. 8.62 crore) , in case of 29 employees the contribution was Rs. 1 lac or more and therefore the threshold of Rs. 1 lac per employee for 29 employees was reduced and the amount of contribution liable to Rs. 22,36,132 was worked out. It was further submitted that the assessement was framed by the AO u/s 115WE(3) after due application of mind and verification and therefore the order of the AO cannot be considered as erroneous and prejudicial to the interest of Revenue. CIT did not accept the contentions of the Assessee and held the order of the AO passed u/s 115WE(3) to be erroneous and prejudicial to the interest of Revenue and accordingly cancelled the order and directed the AO to frame fresh order. 52. Aggrieved by the order of the CIT, the Assessee is now in appeal before us. 53. Before us the Ld.A.R. submitted reiterated the submissions made before CIT and also placed on record the details of c....