TaxTMI 
TaxTMI 
2013 (11) TMI 1233
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..../2011 2003-04 -do- Assessee 6. 152(Asr)/2011 2003-04 -do- Revenue 7. 121(Asr)/2011 2004-05 -do- Assessee 8. 153(Asr)/2011 2004-05 -do- Revenue 9. 122(Asr)/2011 2005-06 -do- Assessee 10. 154(Asr)/2011 2005-06 -do- Revenue 11. 123(Asr)/2011 2006-07 -do- Assessee 12. 155(Asr)/2011 2006-07 -do- Revenue 2. In ITA No.103(Asr)/2006 for the assessment year 2001-02, the Revenue has raised following grounds of appeal: "1. That on the facts of the case and in law, the ld. CIT(A) has erred: a) in accepting the claim of the assessee regarding the conversion of shares from "stock-in-trade" to "Investments" to be genuine. He has not appreciated that the conversion of shares had been made with a view to circumvent the provisions of the Explanation to section 73 as the market price of the shares had gone down substantially leading to loss from dealing in them. Moreover, the shares in question had been purchased by the amalgamated company with an intention to trade in them and the subsequent change of character was only a colorable device to avoid the misch....
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....ors had not endorsed this claim in their report. On the facts of the case and in law, the medical equipment in question could not be treated as computers. 6. The Ld. CIT(A), has, on the facts of the case, erred in accepting the claim of the assessee for depreciation @ 25% on building used as Nursing Home ignoring the fact that the area which could be considered to be part and parcel of plant and machinery was nominal and rest of the building was a normal building. He has also ignored the fact that the enhanced claim was not backed by tax auditors. 7. The Ld. CIT(A) has, on facts of the case and in law, erred in reducing the disallowance out of expenses incurred in relation to income not includible in total income. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed of. It is prayed that the order of the Commissioner of Income-tax (Appeals) be set aside and that of the AO be restored." 3. In ITA No.78 (Asr)/2006 for the assessment year 2001-02, the assessee has raised following grounds of appeal: "1. On the fact and in the circumstances of the case, the ld. CIT(A) has erred bot....
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....ting that investments in instruments which did not yield tax exempt income and/or were held as stock in trade were not required to be taken into consideration for purposes of computing the percentage of borrowed funds alleged to have been used for earning tax exempt income, for the purposes of making disallowance u/s 14A of the Act. 1.3. That the Ld. CIT(A) further erred in law in holding that interest expenditure to the extent of Rs. 4,32,94,905/- incurred by the appellant during the relevant previous year had proximate nexus with the earning of tax exempt income and was disallowable u/s 14A of the Act. 1.3.1. That the Ld. CIT(A) further erred in law in not issuing a show cause notice or affording an opportunity to the appellant to rebut the formula or the basis adopted by him to compute the disallowance on account of interest expenditure u/s 14A of the Act. 1.4 That the Ld. CIT(A) erred in law in disallowing, on adhoc basis, a sum of Rs. 20,00,000/- u/s 14A of the Act, in respect of personnel and administrative expenses alleged to have been incurred for purpose of earning tax exempt income. 1.5 Without prejudice to above, that the Ld. CIT(A) fu....
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....and the circumstances of the case, the ld. CIT(A) has erred in law in treating the assessee's transactions in listed securities to be in the nature of investment of the assessee rather than speculation income/loss. 6. Whether on the facts and the circumstances of the case, the ld. CIT(A) has erred in law in reversing the decision of AO in taxing the consideration received on account of non-compete fee under the head of capital gains. 7. That it is prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. restored. 8. That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of." 6. In ITA No.120(Asr)/2011 for the assessment year 2003-04, the assessee has raised following grounds of appeal: "1. That the Ld. CIT(A)- Jalandhar erred on facts and in law in confirming the disallowance of legal and professional expenses of Rs. 1,544,209/- made by the Ld. A.O. being the retainership fees paid to Max UK Limited for providing various business support services. That the appellant requests for leave to add or amend or alter the grounds of appeal before the app....
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.... tenable. 1.2.1 That the Ld. CIT(A) further erred in law in drawing an adverse presumption that part of the interest bearing borrowed funds were used for the purpose of making investments in instruments yielding tax free income, not appreciating that the appellant had sufficient interest free funds for making investments in instruments yielding tax exempt income. 1.3.2 That the Ld. CIT(A) further erred in no appreciating that interest bearing funds were borrowed by the appellant for a specific business purpose and same was demonstrated by placing on record extensive documentation and details. 1.2.3 That the Ld. CIT(A) further erred in law in drawing a nexus of the interest bearing borrowed funds with the instruments yielding exempt income solely for the reason that bank statements were not furnished b the appellant, not properly appreciating the cash/fund flow statement made available by the appellant and further alleging that the contention of the appellant that the bank statements were not readily available does not appear to be tenable. 1.2.4 That without prejudice the Ld. CIT(A) further erred in law in not appreciating that investments in ins....
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....s raised following grounds of appeal: "1. Whether on the facts and the circumstances of the case, the ld. CIT(A) has erred in law in allowing the payment made on account of non-compete fee of Rs. 84,27,500/-. 2. Whether on the facts and the circumstances of the case, the ld. CIT(A) has erred in law in allowing the disallowance of Rs. 54,13,045/- made by the AO being expenses incurred on expansion of MAXXON Division which are in the nature of capital expenditure. 3. Whether on the facts and the circumstances of the case, the ld. CIT(A) has erred in law in treating the assessee's transactions in listed securities to be in the nature of investment of the assessee rather than speculation income/loss. 4. That it is prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. restored. 5. That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of." 10. In ITA No.122(Asr)/2011 for the assessment year 2005-06, the assessee has raised following grounds of appeal: "1. That the Ld. Commissioner of Income Tax (Appeals) - Jalandhar [hereinafter referred ....
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....00/- incurred by the appellant during the relevant previous year had proximate nexus with the earning of tax exempt income and was disallowable u/s 14A of the Act. 1.3.1 That the Ld. CIT(A) further erred in law in not issuing a show cause notice or affording an opportunity to the appellant to rebut the formula or the basis adopted by him to compute the disallowance on account of interest expenditure u/s 14A of the Act. 1.4. That the Ld. CIT(A) erred in law in disallowing, on adhoc basis, a sum of Rs. 20,00,000/- u/s 14A of the Act, in respect of personnel and administrative expenses alleged to have been incurred for purpose of earning tax exempt income. 1.5 That the Ld. CIT(A) further erred on facts and in law in rejecting the appellant's plea to allow it to withdraw its ground of appeal relating to disallowance u/s 14A of the Act or in the alternative treat it as "not pressed". 1.6. Without prejudice to above, that the Ld. CIT(A) further erred in law in rejecting the appellant's plea to restrict the disallowance of interest and other expenses to Rs. 10,00,000/- u/s 14A of the Act on a 'reasonable basis', as computed by the predec....
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....T(A) further erred in no appreciating that interest bearing funds were borrowed by the appellant for a specific business purpose and same was demonstrated by placing on record extensive documentation and details. 12.3. That the Ld. CIT(A) further erred in no appreciating that interest bearing funds were borrowed by the appellant for a specific business purpose and same was demonstrated by placing on record extensive documentation and details. 1.2.3 That the Ld. CIT(A) further erred in law in drawing a nexus of the interest bearing borrowed funds with the instruments yielding exempt income solely for the reason that bank statements were not furnished b the appellant, not properly appreciating the cash/fund flow statement made available by the appellant and further alleging that the contention of the appellant that the bank statements were not readily available does not appear to be tenable. 1.2.4. That without prejudice the Ld. CIT(A) further erred in law in not appreciating that investments in instruments which did not yield tax exempt income and/or were held as stock in trade were not required to be taken into consideration for purposes of computing the ....
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.... appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of." 14. First of all, we take up appeal of the Revenue in ITA No.103(Asr)/2006 for the assessment year 2001-02 as under: (i) The brief facts regarding first ground of Revenue, which are in three parts are that Max Corporation Limited (MCL), a wholly owned subsidiary of the assessee was incorporated on 12.09.1996 was merged with the assessee w.e.f. 1.7.1999, pursuant to a scheme of merger approved by the Hon'ble Punjab & Haryana High Court. Pursuant to merger, all assets and liabilities of Max Corporation Ltd; including various shares held by Max Corporation Ltd. as stock in trade and as investments, vested in the assessee. On 3.7.2000, as per the decision of management, shares of 11 companies, which were acquired by MCL and were held as 'stock in trade', prior to merger and which vested with the assessee post merger, were decided to be held as 'investment'. Accordingly, the said shares were converted from stock in trade to investment. On the date of conversion, the assessee claimed a loss on account of difference in market value of such shares....
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.... crores arising on sale of shares as normal business loss (Refer page 15 of Ld. CIT(A's order). 15. We may point out that the assessee has accepted the order of the Ld. CIT(A) disallowing notional loss arising on conversion of stock in trade into the investments on 3.7.2000 and no appeal has been filed by the assessee against the aforesaid decision of the Ld. CIT(A). 16. The Revenue has challenged the aforesaid order of the Ld. CIT(A) accepting conversion of stock in trade into investments and allowing loss arising during the relevant previous year on sale of part shares so converted and other shares held as stock in trade. 16.1 The Ld. DR, Sh. Tarsem Lal, in support of ground of appeal filed by the Revenue stated that the assessee has adopted colourable device to evade tax by passing resolution by converting shares received from Max Corporation Ltd. as stock in trade into investments. It was stated that the said conversion was done to avoid application of Explanation to section 73 of the Act because if the conversion had not been done, the loss on sale of shares would have been a speculation loss under that Explanation and not adjustable against other income. It was f....
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....ing account and (ii) on capital account. Whether the shares are held on trading account or capital account, depends upon the dominant intention of the assessee. In this regard, he referred to following decisions: i) G. Venkateswami Naidu and Co. vs. CIT 35 ITR 594 (SC) ii) Raja Bahadur Kamakhya Narain Singh vs. CIT 77 ITR 253 (SC) iii) CIT vs. Associated Development Co. (P) Ltd. 82 ITR 586 (SC) iv) Sutlej Cotton Mills Supply Agency Ltd. 100 ITR 706 (SC) v) CBDT Circular No.4 of 2007 dated 15.6.2007. 17.1. The Ld. counsel further submitted that in the present case, since the assessee had acquired shares held by the erstwhile MCL, pursuant to amalgamation of MCL , the assessee decided to hold such shares on capital account, for which necessary Board Resolution and entry was passed in the books of account to reflect entry of conversion of same from stock in trade to investments. It was further stated that the assessee did not sell the entire converted shares in the year of conversion and sold only few shares during the year and few shares were sold in succeeding years depending upon market conditions. 17.2. The Ld. counsel for the assessee invited our attention to....
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....rned the decision of the Board to convert some of the shares into investments and hold others as stock in trade. As regards the sale of part of shares converted into investments within 4 to 5 months of conversion, it was submitted that the decision was taken to avoid further loss since the share prices had reduced unexpectedly. It was argued that the fact that shares were held for 4 to 5 months and not sold immediately in the market which shows that the assessee did not intend to deal in the same. 17.4. In view of the aforesaid, it was submitted that the order of the Ld. CIT(A) in accepting conversion of 11 shares was correct and was liable to be upheld. 18. As regards to the allegation of conversion of shares having been made to avoid application of Explanation to section 73 of the Act, it was submitted that the said Explanation is attracted where a company carries on business of purchase and sale of shares. It was submitted that the explanation is not applicable in relation to the shares held as investments. For this proposition, reference was made to the following decisions: i) Mysore Rolling Mills (P) Ltd vs CIT 195 ITR 404 (Ker.) ii) CIT vs. VIP Growth Fund Ltd 95 ....
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....n provided in Explanation to section 73 of the Act. 22. We have heard the rival contentions and perused the facts of the case. We are of the view that conversion of part of shares acquired from Max Corporation Ltd; as stock in trade into investments cannot be said to be a device for evading the tax and such conversion cannot be rejected. It is the prerogative of the assessee as to whether it wants to hold the shares as stock in trade or as an investment or partly as stock in trade or partly as an investment. Reference is made in this regard to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Yatish Trading Co. Pvt. Ltd (supra), wherein conversion of shares from stock in trade into investments in case of dealer of shares was upheld. Such decision of the assessee cannot be disregarded on hypothetical assumption that the same is the motivated by the consideration of tax evasion. Reference is made in this regard to the decision of the Hon'ble Supreme Court of India in the case of Union of India vs. Azad Bachao Andolan and Another reported in 263 ITR 706. The bonafides of the assessee are demonstrated by the fact that only 1/3rd of the shares converted into in....
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....tion, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.]" 22.2. The loss arising on the sale of shares held as investment is not only in any manner effected by the Explanation to section 73 of the Act, which deals in relation to shares sold in the course of business The various case laws cited by the assessee are in support of the above proposition. Accordingly, the loss of Rs. 6.52 crores arising on sale of investment has rightly been allowed as capital loss by the ld. CIT(A). 22.3. As regards the application of Explanation to section 73 of the Act to the loss of Rs. 3.72 crores arising on sale of shares by a company has held as stock in trade, we are in agreement with the ld. counsel for the assessee that in the fact of the present case the case of the assessee would fall in the exclusion contained in the said explanation since income of the assessee from sources other than business is more than the business income. As regards the contention of the ld. DR that comparison should be made after setting off of the brought forward losses, we are of view that this approach cannot be followed an....
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....revenue deduction in the computation of income. The A.O. disallowed the aforesaid expenditure by treating the same as capital expenditure on the following grounds: i) The Healthcare Division was not expansion of existing business, since the same was a new line of activity, which was not earlier carried on by the assessee. ii) Separate staff, especially Mr. N.S.Chawla, was appointed to look after the business of healthcare; iii) The assessee intended to run it as a separate business in as much as the same was hived off to a new subsidiary company in the immediately succeeding assessment year. 23.2. On appeal filed by the assessee against the impugned assessment order, the ld. CIT(A) deleted the aforesaid disallowance of expenses by following the order of the Ld. CIT(A) for the assessment year 1999-2000. 23.3. In support of ground of appeal filed by the Revenue, the Ld. DR argued that the Healthcare Division set up by the assessee was not an extension of the existing business of the assessee since the Healthcare business was not being hitherto carried on by the assessee and the assessee could have commenced the same only by procuring licences from the....
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.... of different activities. All major decisions including funding, HR function, critical appointment/promotions relating to various divisions were taken at the corporate level. 24.1. It was submitted that the test for determining whether different ventures constitutes same business, as has been enunciated by the Hon'ble Supreme Court in various decisions (cited infra) interconnection, interlacing, interdependence or unity embracing different ventures. The aforesaid interdependence/interlacing of different ventures can be established by existence of common management, common business organization/administration and common fund. What is relevant is unity of control and not the nature of products dealt with by the two businesses. Reference, in this regard, was made to the following decisions: i) Produce Exchange Corporation Ltd. vs. CIT 77 ITR 739 (SC) ii) Setabganj Sugar mills Ltd. vs. CIT 41 ITR 272 (SC) iii) CIT vs. Prithvi Insurance Co. ltd. 63 ITR 632 (SC) iv) Hoogly Trust (P )Ltd. vs. CIT 73 ITR 685 (SC) v) L.M. Chhabda & Sons vs. CIT 65 ITR 638 (SC) vi) Standard Refinery & Distillery Ltd. vs. CIT 79 ITR 589 (SC) vii) B.R.Ltd. v. V.P. Gupta 113 ITR 647 ....
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....) CIT vs. Tata Chemicals Ltd. 256 ITR 395 (Bom.) viii) Addl CIT vs. Aniline Dye Stuffs & Pharmaceuticals Pvt. Ltd. 138 ITR 843 (Bom.) ix) Kesoram Industries and Cotton Mills Ltd. vs. CIT 196 ITR 845 (Cal) x) Hindustan Aluminium Corporation Ltd. vs. CIT 159 ITR 673 (Cal) xi) CIT vs. Rane (Madras) India 215 CTR 250 (Chenn) xii) Prem Spinning and Weaving Mills Co. Ltd. vs. CIT 98 ITR 20 (All.) xiii) CIT vs. Shah Theatres P. Ltd. 169 ITR 499 (Raj) xiv) CIT vs. Malwa Vanaspati & Chemicals Co. Ltd. 149 CTR 283 (MP) xv) CIT vs. Kerala State Industrial Development Corporation Ltd. 182 ITR 62 (Ker.) xvi) CCIT vs. Senapathy Whitely ltd. 101 CTR 31 (Kar.) xvii) CCIT vs. Hindustan Machine Tools Ltd. 175 ITR 212 (Kar.) 24.4. The Ld. counsel for the assessee also pointed out that the aforesaid issue is squarely covered in favour of the assessee by the decision of this Bench of the Tribunal in assessee's own case for the assessment year 1999- 2000 in ITA No.373(Asr)/2002 dated 15.01.2010 (page 50 to 79 of PB ( at page 72) and assessment year 2000-01 in ITA No.282(Asr)/05 dated 26.02.2010 at pages 107A to 107ZW of PB and 107ZT to 107 ZU of PB wherein similar re....
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....no interference is called for in the well reasoned order passed by the ld. first appellate authority on this issue involving ground No.1. Therefore, this ground raised by the Revenue is dismissed." AY 2000-01 Page 107 ZT to 107ZU of PB) "As regards the expenditure in relation to expansion of healthcare business is concerned, it is observed that the aforesaid expenditure was of revenue nature, being expenditure incurred on salary, travel, printing, repairs and maintenance, rent advertisement etc. It is the CIT's case that the expense pertains to new line of business and this aspect of the matter has not been examined by the A.O. We may point out that the assessee had started the process of setting up healthcare division in assessment year 1999-2000 and has carried on that process in the relevant assessment year. Similar expenses as incurred in the assessment year under consideration were also incurred by the assessee in the assessment year 1999-2000. In that year, the AO disallowed the expense holding the same to be related to new line of business. The aforesaid expense also included expenses paid to Harvard Medical Institute for feasibility study, medical business p....
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....sated that no such license was required and it was merely the case of forward integration of pharma business being carried on by the assessee. 26.1 As regards the decision of the Hon'ble Supreme Court in the case of Produce Exchange Corporation Ltd. vs. CIT (supra) sought to be distinguished by the Ld. DR on the ground that the same pertains to the Income Tax Act, 1922, we find that the ratio of the aforesaid decision is for the purpose of determining if there is two lines of activities carried on by the assessee are part of the same business or not. The decisive test is unity and control and not nature of the two businesses has been applied by the courts in several cases rendered under the Income Tax Act, 1961 in the following cases : i) CIT vs. Tata Chemicals Ltd. 256 ITR 395 (Bom) ii) Kesoram Industries and Cotton Mills Ltd. vs. CIT 196 ITR 845 (Cal.) iii) Jay Engineering Works Ltd. vs. CIT 311 ITR 405 (Del) 26.2. In view of the aforesaid discussion, we are of the view that the issue under consideration is squarely covered by the orders of this Tribunal in assessee's own case for the assessment years 1999-2000 and 2000-01. Following the said orders of the ....
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..... As regards 4(a) & (b), the Revenue has challenged the order of the ld. CIT(A) in deleting disallowance of Rs. 54 lacs made by the AO on account of payment of Non-Compete Fee claimed by the assessee. 29.1. The facts as gathered from the assessment order, the Ld. CIT(A) order and the documents on record are that the assessee was, interlia, engaged in the business of manufacture and marketing of (i) Penicillin and non- penicillin based bulk drugs/drug intermediates' and (i) PCB/GMF Chemicals/electronic component product. Subsequently, in order to provide special focus and bring in further specialization in the aforesaid businesses, the assessee formed joint venture company alongwith foreign partners and transferred the aforesaid businesses to those companies. The penicilline business was transferred to Max-GB Ltd; vide agreement dated June 30, 1997 and electronics business was transferred to Max Atotech Ltd; vide agreement dated January 31, 1996. In terms of the aforesaid JV agreements, the assessee had its direct and indirect affiliates/subsidiaries were obliged not to carry on aforesaid businesses or any activity which could adversely affect the actual or prospective busine....
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...., however, since both the agreements were for a period of four years, proportionate expenditure @ 25% of the total payment of Rs. 0.54 crores per year (Rs.27 lacs each under each agreement). 30. The Assessing Officer, disallowed deduction for the non-compete fee on the following grounds: i) The payment was not made by the assessee, but by the subsidiary company; ii) The payment was not to protect interest of business of the assessee but to facilitate investment in JV's and to protect its interest in the capital investments. iii) The businesses, for which the subject non-compete agreement was entered, was not carried on by the assessee but by the JV companies. iv) Without prejudice to the above, the expenditure was in any case capital expenditure, since the same resulted in enduring benefit to the assessee over a period of four years. (based on the decision of Hon'ble Supreme Curt in CIT vs. Coal Shipments Pvt. Ltd; 82 ITR 902). 31. On appeal, the ld. CIT(A) deleted the disallowance holding that it was clear that non-compete fees was paid for protection of assessee's business interests, being payment towards restrictive covenants....
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....e Tribunal, where the reasons given by the Ld. CIT(A) for disallowance of non-compete fee have been given and the findings given by the Tribunal in paragraph 41 & 42 (pages 45 & 46) of the order at PB 107-ZS & 107ZT, wherein the ITAT allowed the claim of non-compete fee. 33.1. As regards the decision of the Hon'ble Delhi High Court in the case of Pitney Bowes India (P) Ltd. vs. CIT (supra) referred to by the Ld. DR, it was submitted that the said decision on non-compete fee was paid pursuant to the purchase of business and the aforesaid decision is distinguishable since in the assessee's case, the non-compete fee was paid to employee leaving employment and not pursuant to purchase of any business as was the case in Pitney Bows (supra) . 33.2. The Ld. counsel for the assessee relied upon the decision of the ITAT Mumbai Bench in the case of Intervet India (P) Ltd. vs. ACIT ITA No. 315/Hyd/2003 (Mum.) dated 19.10.2012, wherein the decision of Special Bench of the Tribunal in the case of Tecumseh in which case also non- compete fee has been held disallowable as capital expenditure was distinguished by the Mumbai Bench of Tribunal on the ground that in Tecumseh case, the n....
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....ring that the liability ultimately devolved on the assessee, in law, in view of merger of the subsidiary in the assessee.The circumstances in which the payment was made by the subsidiary were also explained in the non-compete agreement. Whether expenditure has been incurred for business purposes or not is to be viewed from the point of view of the businessman. The Hon'ble Supreme Court in the case of S.A. Builders vs. CIT 288 ITR 1 held that the expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incursfor the purpose of business. It was further observed that the expenditure may not have been incurred under any legal obligation, but yet it allowable as business expenditure if it was incurred on the grounds of commercial expediency. 42. In the present case, the assessee's business interest would have suffered if the ex-employee, who was in a senior position and was well conversant with and in fact instrumental in setting up the above business initially, would have come in competition with the joint venture companies, in which the assessee had substantial interest. The assessee may also hav....
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....as admissible instead of higher rate of 60% applicable to computers, as applied by the assessee. 35.1. The Ld. CIT(A) held that since various medical equipments listed by the assessee were controlled by Computers, the same would fall within the meaning of computer and consequently eligible for depreciation @ 60%. 36. The Ld. DR submitted that higher depreciation is available in respect of computers but not in respect of computer controlled medical equipment. The Ld. DR referred to the definition of computer as given in the Information Technology Act to argue that in the said definition there is not even remote suggestion that any equipment controlled by the computer could be termed as computer. 37. The Ld. Counsel for the assessee, Mr. Rupesh Jain referred to the dictionary meaning of the word "Computer" as also the meaning given to the said term by the Institute of Chartered Accountants of India in its study material regarding Information Technology Paper to contend that which process data is to be considered as 'Computer'. It was submitted that medical equipment controlled by the computer processes the date which is put into the equipment and comes out with repor....
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....wed in respect of the computer printing machine and not as printed machine controlled by a computer. The computer in that case was an integral part of the printing machine which is not the case here. Thus, we find no merit in the submissions of the ld. counsel for the assessee and order of the ld. CIT(A) is set aside on the issue. Accordingly, ground No.5 of the appeal of the revenue is allowed. 39. In ground No. 6, the Revenue has challenged the order of the ld. CIT(A) in allowing the claim of the assessee for depreciation @ 25% on building used as Nursing Home treating the same as plant and machinery instead of the normal rate of 10% applicable in respect of building. The facts in relation to this ground of appeal are that the assessee claimed depreciation on the cost of building of the nursing home @ 25%, being the rate applicable to plant and machinery, on the ground that the nursing home building constituted business tool of the assessee and maximum area of the nursing home was occupied by rooms housing equipments for various medical services provided by the company; there was no space for in-house patients. The assessee relied upon the decision of the Hon'ble Supreme C....
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....cal services. It was submitted that the AO has failed to appreciate that the assessee was in the business of providing medical services and in order to do so various other facilities such as reception, toilets, offices etc. are also to be provided. However, that cannot change the underlying character of the hospital building to be regarded as any other building. The assessee has not constructed the building for providing service of conference halls or offices; the underlying objective is to provide medical services which are specialized in nature and require specialized setting to house the medical equipments required to render such services. It is also fact on record that there were no rooms for patients in the hospital. The layout of the hospital was specially designed to house the medical equipments. This fact is further substantiated by the layout plans submitted during the assessment proceedings that certain rooms such as EEG rooms were designed to be sound proof or X-ray/various Radiology rooms were built with adequate protection to guard against exposure to radiation. In view of the above, the nursing home building, unlike any regular building constituted an apparatus or a b....
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....ce u/s 14A to the extent of Rs. 10 lacs. 43. The facts in relation to the aforesaid issues are that during the relevant previous year the assessee had earned dividend income of Rs. 2.11 crores exempt u/s 10(33) of the Act. No disallowance u/s 14A was offered by the assessee in the return of income The AO made ad-hoc disallowance of Rs. 1.5 crore u/s 14A of the Act in respect of various expenses incurred by the assessee on the basis of following grounds: i) Expenditure in relation to investments not yielding any income is not allowable; ii) The investments included lot of strategic investments in the form of subsidiary companies and joint ventures and in these investments there ought to be much energies spent, lot of planning involved and expenses incurred for such investments, unlike investment in simple securities of other companies. iii) Substantial time of executives, expenses like conveyance, traveling, meeting, telephone and incidental expenses would have been spent in managing investments. Reference was also made to the case of Distributors (Baroda) Pvt. Ltd vs. UOI (1985) 155 ITR 120 (SC). 44. The Ld. CIT(A) reduced the disallowance made by t....
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....ted that the AO without establishing the proximate nexus of any expenditure incurred during the year with investments yielding exempt income, made ad-hoc disallowance of Rs. 1.50 crores out of total expenses incurred during the year. The fact that the AO made ad-hoc disallowance only establishes that the AO could not pin point any expenditure, which had proximate nexus with investments resulting in exempt dividend income. In that view of matter it was submitted that the disallowance made by the AO needs to be deleted at the threshold on the aforesaid ground itself. That apart, even otherwise, it was submitted that there was no nexus between the dividend income earned and the various expenses incurred during the year, in the chart of issues filed by the assessee which is reproduced below: "a. Interest expenditure Investments as on 1.4.2000 (Rs.263.13 crores) A.I. Investments vesting on merger of MCL - Rs. 195.48 crores As the beginning of the previous year relevant to assessment year 2000-01 ( i.e. as on 1.4.2000), being the first year of disallowance u/s 14A, the assessee held total investment in shares/mutual funds/government securities/bonds, a....
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.... Out of the aforesaid investments, aggregating to Rs. 31.64 crores, it would be appreciated that, major investment related to investment in shares of MTVL, amounting to Rs. 30 crores. The said total investment in shares of MTVL, it is submitted, was made in the previous year ending 31.03.1996. On perusal of the cash flow statement of the Assessee company for the year ending 31.03.1996. attached as Annexure A to this Chart, it would be noted that the Assessee had made a fresh issue of share capital at a premium, aggregating to Rs. 41.55 cr(Rs. 1.42+40.13 crores). Further, the Assessee received funds of Rs. 22.65 crores from issue of zero coupon fully convertible debentures (FCD), which did not carry any interest. In additional to above, the Assessee generated cash from operations of Rs. 6.34 crores. The aforesaid total interest free receipts, it would be appreciated, were sufficient to make investment in shares of MTVL. That apart, in that year, the Assessee had made additional interest bearing borrowing of Rs. 40.33 crores (Refer Schedule 3 of balance sheet for year ending 31.03.1996) on account of secured redeemable non convertible debentures (NCD). ....
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....e earlier years was ever attributed to investments in the completed Assessments of those years. Reference in this regard is made to the following decisions wherein it has been held that where no portion of the borrowed funds have been attributed to investments made as at the beginning of the relevant previous year, no part of the interest expenditure allegedly relating to such investment, can be disallowed during the relevant year by drawing nexus of outstanding borrowed funds as at the end of the relevant previous year with opening investments: - CIT v. Sridev Enterprises: 192 ITR 165 (Kar.) - CIT vs. Givo Ltd.: ITA No. 941/2010 (Del) - Punjab Wool Combers Ltd. V. ACIT: (2004) 1 SOT 114 (Chandi.) 72 - Motor and General Finance Ltd. Vs. DCIT : 90 ITD 449 (ITAT, Del.) - Meenakshi Synthetics Vs CIT: 84 ITD 563 (ITAT, Lko.) - GR Agencies vs ITO; 79 TTJ 496 (I.T.A.T., Lko) - Malwa Cotton Spinning Mills: 89 ITD 65 (I.T.A.T.-Chd) - Usha Martin Industries Ltd. Vs. DCIT: 86 ITD 261 (I.T.A.T.-Cal.) In view thereof, the aforesaid investments, aggregating to Rs. 31.64 crores, held by the Assessee as on 01.04.2000....
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.... Reliance is also placed on the following decisions, wherein, while following the ratio emanating from the aforesaid decisions, disallowance of interest expenditure under Section 14A has been deleted, where the Assessee was found to have interest free funds, exceeding interest bearing funds for making investment in shares: - Lubi Submeribles Ltd. :ITA No.868 of 2010 (Guj.) (High Court) - CIT vs. K. Raheja Corporation Pvt Ltd: ITA No. 1260 of 2009 (Bom) Furthermore, in the impugned Assessment order, the Ld. AO did not establish the aforesaid nexus of interest paid on borrowed funds with various investments, resulting in exempt income, and only made an ad-hoc disallowance of Rs. 1.50 crores under section 14A of the Act, which was further reduced by the Ld. CIT(A) to Rs. 0.10 crores. In view of the above, there was no proximate nexus of borrowed funds with investment in shares, warranting disallowance under Section 14A, nor has the same been established or pointed by the Ld. AO or Ld. CIT(A). No disallowance for shares held as stock in trade As regards, shares held under the head 'stock in trade', amounting to Rs. 15.89 cr....
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....expenditure. It is submitted that, in fact, no additional efforts/expenses were required to be incurred to deposit a single warrant into the bank as the same was deposited along with the other cheques in the normal course of the business of the Assessee company. Further, there was no specific employee kept by the Assessee to keep record of the dividend income. The same was recorded in the normal course of conduct of the business of the Assessee. Further, during the relevant year, the Assessee has only earned dividend income of Rs. 2.11 crores, out of the total revenue income of Rs. 158.73 crores, earned during the year. Thus, the exempt income is only 1.33% of the total revenue income and balance revenue income is offered for tax. Further, during the year, the Assessee has earned revenue income of Rs. 41.79 crores, from investment activities, out of which exempt income was only Rs. 2.11 crores, and balance was offered for tax. The major revenue is earned by the Assessee from manufacturing business units and the majority of expenses were incurred for that purpose. The Assessee has an internal treasury department, which not only look after the mone....
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....ered. 48. We have heard the rival contentions and perused the facts of the case. The disallowance was made by the AO on ad-hoc basis, proceeding on the assumption that some expenditure must have been incurred by the assessee towards earning exempt dividend income. The order of the ld. CIT(A) also proceeds on the same basis, as the ld. CIT(A) too has reduced the disallowance on ad-hoc basis. We are of the view that no disallowance u/s 14A can be made without establishing proximate nexus on a reasonable basis between the expenditure incurred and the exempt income earned. This position is now well settled by catena of decisions. We also find that cash flow statement was part of the audited accounts filed before the lower authorities and the assessee has before us only submitted a data analysis with reference to the figures available in the audited accounts to support its claim that no part of interest expenditure could be attributed to earning of exempt income and therefore, no disallowance under section 14A of the Act was called for. On perusal of cash flow statement, it is evident that the assessee had sufficient surplus funds available with it for making investments Having regar....
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....ed at page 37 para 10.4 of the order of the Ld. CIT(A) towards various investments held in shares/bonds yielding exempt income and computed disallowance of Rs. 4.32 crores on account of interest expenditure . The basis of disallowance of interest expenditure debited by the Ld. CIT(A) is reproduced as under: Amount (Rs in cores) 1.4.2001 1.4.2002 Average Shareholder's funds A 525.57 517.31 521.44 Loan Funds B 129.15 185.72 157.94 Ratio of borrowed funds to total funds C-Average A/(Avg.A +Avg.B) 0.23 Relaxation in ratio by 50% D+0.5*C 0.12 Interest Expenditure E 15.49 80 Avg. cost of funds F=E/Avg. of B 9.81% Specified Investments G 301.75 448.66 379.71 Investment of borrowed funds in specified investments in specified investments H=D*G 44.13 Intt. Expenditure on borrowed funds invested in specified investments 1=H*For the Petitioner : 4.32 The Ld. CIT(A) also held that administrative expens....
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....n the Registered Sale Deed when the seller, in the statement recorded by the AO, stated the sale price to be on a higher figure. 51.6. The Ld. CIT(A) also distinguished the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles Ltd reported in ITA No. 331 of 2009 dated 04.11.2009 relied upon by the assessee on the ground that in that case it was established by the assessee with evidence that the borrowed funds were not used for making investments whereas in the present case, no such evidence has been produced. The aforesaid decision was held to be not applicable on the facts of the present case. 51.7. The comparison of the balance sheets as on 31.3.2001 & 31.3.2002 shows that during the financial year 2001-02, the assessee's borrowings of interest bearing loan funds increased and its net investments increased whereas shareholders funds as also the net current assets decreased, which raises presumption that increase in borrowings has gone to fund the increase in investments. Also, it has to be presumed that the share capital has first gone into acquiring fixed assets/business assets and therefore in making investments. 51.8. Only some....
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....hares received from Max Corpn. Ltd as investment and borrowed funds of Max Corpn. Ltd have also been taken over by the assessee on merger of Max Corpn. Ltd. with the assessee and thus there was nexus between the borrowed funds and the above investments. 50.12. As regards the disallowance u/s 14A in respect of expenses other than interest expenses, the ld. CIT(A) held that taking into account increased volume of activity relating to the purchase and sale of investment during the relevant previous year, it would be reasonable to estimate the said expenditure at Rs. 20 lacs instead of Rs. 10 lacs estimated by the Ld. CIT(A) on adhoc basis in assessee's own case for the assessment year 2001-02. 51. The assessee challenged the aforesaid order of the ld. CIT(A) in deleting disallowance of Rs. 1.50 crores made by the AO under section 14A and enhancement of the amount of disallowance under the said section by the ld. CIT(A) to Rs. 4.52 crores. In support of ground of appeal raised by the assessee, Sh. Rupesh Jain, the ld. counsel for the assessee submitted that the assessee had made investment in shares which were held as either (a) long- term investment or (b) stock in trade (in....
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....nditure Investments as on 1.4.3000 (Rs.263.13 crores) A.I. Investments vesting on merger of MCL - Rs. 195.48 crores As the beginning of the previous year relevant to assessment year 2000-01 ( i.e. as on 1.4.2000), being the first year of disallowance u/s 14A, the assessee held total investment in shares/mutual funds/government securities/bonds, aggregating to Rs. 263.13 crores. Out of the aforesaid total investments, investments to the extent of Rs. 195.48 crores, vested in the assessee on merger of MCl. It would be pertinent to point out that the erstwhile MCD had not made investment in shares, out of borrowed funds in as much as the MCL did not had any interest bearing borrowed funds, nor any interest expenditure was debited to the profit & loss account of the company, prior to merger with the assessee. Therefore, the investments to the extent of Rs. 19.5.48 crores, held by the assessee as on 1.4.2000 had no nexus with the borrowed funds. A.2 Balance Investments 'Rs.67.65 crores' (Refer PB 87-88 of supplementary PB A.Y.2001-02). A.2.1 Investments, does not resulting in earning of exempt income - Rs. 36.01 crores (Refer....
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.... any interest. In additional to above, the Assessee generated cash from operations of Rs. 6.34 crores. The aforesaid total interest free receipts, it would be appreciated, were sufficient to make investment in shares of MTVL. That apart, in that year, the Assessee had made additional interest bearing borrowing of Rs. 40.33 crores (Refer Schedule 3 of balance sheet for year ending 31.03.1996) on account of secured redeemable non convertible debentures (NCD). It would be pertinent to point out, that the foresaid NCD of Rs. 40.33 cr. (carrying interest) and Zero Coupon FCD (interest free) of Rs. 22.65 cr. Were issued through a same Letter of Offer, which was placed on record before Learned. CIT (A), vide submission dated September 18, 2009. The object of aforesaid proceeds, as per the Letter of Offer, was to meet out the capital expenditure of the existing divisions, working capital requirements, repayment of term loans and investment in joint ventures. However, Note.3 of the Offer Document, stipulated that proceeds of NCD (interest bearing) were not be utilized for investment in shares of group companies of joint ventures. The aforesaid object was ....
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....enakshi Synthetics Vs CIT: 84 ITD 563 (ITAT, Lko.) - GR Agencies vs ITO; 79 TTJ 496 (I.T.A.T., Lko) - Malwa Cotton Spinning Mills: 89 ITD 65 (I.T.A.T.-Chd) - Usha Martin Industries Ltd. Vs. DCIT: 86 ITD 261 (I.T.A.T.-Cal.) In view thereof, the aforesaid investments, aggregating to Rs. 31.64 crores, held by the Assessee as on 01.04.2000, were made out of interest free funds and no portion of the borrowed funds was utilized/attributable to such investments, warranting disallowance under Section 14A of the Act, in any of the succeeding year(s). Investments during the period 01.04.2000 to 31.03.2001 (relevant to ASSESSMENT YEAR 2001-02) On perusal of the cash flow statement for the previous year 2000-01, it would be noticed that, the Assessee had made incremental aggregate investment in various securities (including investment in shares of foreign companies, bonds etc., which do not result in earning of any exempt income) of Rs. 357.29 crores. As against the aforesaid investment, the Assessee realized Rs. 302.26 crores from sale of investments made in earlier year(s) and Rs. 3.44 crores from interest and dividend income, etc. The as....
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....us year, the assessee made investments, as detailed below: "Investments during the period 1.4.2001 to 31.3.2002 (relevant to AY 2002-03 (Refer PB-892) Ref; Cash flow statement: On perusal of the cash flow statement for the relevant previous year ending 31.3.2002, it would be noticed that the assessee had made incremental aggregate investment in various securities (including investment in shares of foreign companies, bonds, etc. which do not result in earning of any exempt income) of Rs. 152.05 crores. The aforesaid aggregate investment made during the year included investment of Rs. 108.295 crores in equity shares, dividend income wherefrom is exempt from tax. The break up of aforesaid investment, which was even submitted in the course of appeal is as under: Particulars Amount in Cr. Max New York Life Ins. Co. Ltd. 107.300 Max Ateev Limited 0.995 Total 108.295 Mutual Funds/Other Equity Shares (Other than strategic) 15.575 Total 123.870 Foreign Subsidiary Companies (income wherefrom not exempt from tax) Max Asia Pac Inc. 28.180 Total 152.050 The assessee realized Rs. 117.97 ....
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.... - - 20.00 The The objective is to meet the working capital requirement of the company and the copy of loan document is enclosed at pg. 320-337 of PB Total Corporate Loan 20.00 Acceptance 0.86 The objective is to meet the working capital requirement of the company and document are voluminous in nature Total acceptance 0.68 Total 171.05 On perusal of the above, it would be appreciated that the objective behind aforesaid various borrowings/loans were towards regular business purposes of the assessee, like meeting working capital requirements, capital expenditure, like purchase of fixed assets for BOPP division etc. and not for making any investment in shares, including subsidiary companies, mutual funds etc. income wherefrom was exempt under the provisions of the Act. For the aforesaid cumulative reasons, it was submitted that interest paid on funds borrowed upto the end of the relevant year had no nexus with various investments held by the assessee, resulting in earning of exempt income, such investments were made out of interest free funds, as established from the aforesaid fund flow p....
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....rily relating to healthcare division, having cost of Rs. 56 crores, from the fixed asset schedule, which were hived off into a wholly owned subsidiary company of the assessee viz. Max Healthcare Institute Ltd; in lieu of fresh allotment of shares, without involving any cash inflow (PB 883, Note No.15). The aforesaid adjustments, it would be appreciated, are non- cash adjustments, which despite positive cash flow of an assessee during the year, is adversely reflected in the balance sheet, prepared as at the end of the relevant year. In view of the same, cash flow statement for the year, which excludes non-cash expenses incurred during the year, and summarizes cash flow position of a company during the year, needs to be considered for the purposes of determining the nexus of borrowed funds/interest free funds with the investments made during the year, instead of drawing such nexus on the basis of the figures in the balance sheet of the company as at the end of the relevant previous year. In the present case, considering the positive cash/fund flow position of the assessee on an year to year basis, which establishes the source of various investments, income wherefrom....
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....sis of formula reproduced above. It is respectfully submitted that establishing nexus of interest free/borrowed funds and investments with reference to entries in the bank statements, is not a correct/appropriate method and leads to fallacious results/conclusion regarding the presence or absence of such nexus. 51.4 Reliance was also placed on the following decisions , wherein the courts/tribunal have held the over-all funds flow position considering the material on record is to be considered for the purpose of determination of nexus of macro funds and funds advanced to sister concern non-business purposes/investment etc.: i) In the case of Maruti Udyog Ltd. vs. DCIT 92 ITD 119 (Delhi), the assessee paid total interest of Rs. 47,47,22,000 during the year against funds borrowed from different sources. The assessee during the year also invested a sum of Rs. 217,80,27,000 in shares of various companies, dividend income arising from which was exempt u/s 10(33) of the Act. The AO applying provisions of section 14A of the Act, disallowed interest @ 18% of the total amount of investment in shares on the ground that borrowed funds were utilized for making investments. O....
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..... CIT 147 ITR 392 9Cal) iv) CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 (Bom.) v) CIT vs. Ashok Commercial Enterprises ITA No. 2958 of 2009 (Bom.) Reliance was also placed on the following decisions, wherein while following the ratio emanating from the aforesaid decisions, disallowance of interest expenditure under section 14A has been deleted, where the assessee was found to have interest free funds, exceeding interest bearing funds or making investment in shares: - Lubi Submeribles Ltd. ITA No.868 of 2010 (Guj) (HC) - CIT vs. K. Raheja Corporation Pvt. Ltd. ITA No.1260 of 2009 (Bom.) 51.5. The Ld. counsel for the assessee filed a chart containing various illustrations to buttress the position that approach of establishing nexus through bank statements in case of mixed pool of funds should not be followed as the same does not take into consideration the over all fund position and would lead to fallacious and misleading result . The aforesaid chart is reproduced for ready reference: Illustration 1: Bank statement of Mr. X Day 1 Assume that Mr. X had an opening interest free funds of Rs. 10,00,000 ....
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....re to be made, the investment of Rs. 9,00,000 would have to be considered as having come out of business receipts deposited in Account B, although there were borrowed funds in Account A. However, that is not the correct position, since in actuality, there is on a net basis and in reality an overdraft of Rs. 10 lacs, on account of investment of 9 lacs in mutual fund. This is the result which would have followed if the business receipts had been deposited in Account A. The position, if funds would have been deposited in Account A would be as under: Bank Statements of Mr. X Date Particulars/Narration Account A Account B Day 1 Assume that Mr. X has an - overdrawn balance of Rs. 10,00,000 in A/c A and Nil balance in Account B Rs.10,00,000 -Rs.10,00,000 Day 2 Mr. X got an interest free receipt of Rs. 9,00,000, which instead of being deposited in Account A was deposited in Account B 9,00,000 (-)1,00,000 Day 3 Mr. X made an investment in mutual funds of Rs. 9,00,000 from Account B (9,00,000) -Rs.10,00,000 If the interest free funds are deposited in Account A (having an overdrawn balance), it could be seen that nexu....
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.... favour of the assessee. Accordingly, it was submitted that the aforesaid decision of the Hon'ble Delhi High Court does not support the case of the ld. CIT(A). 51.8 The Ld. counsel for the assessee distinguished the decision of the Hon'ble Punjab & Haryana High Court in the case of Shashi Kiran vs. CIT reported in 195 Taxman 332 referred to by the ld. CIT(A) to hold that the assessee by not submitting bank statements had failed to discharge the initial onus placed on him to establish nexus of borrowed funds. It was submitted in that case, it was held that the initial burden placed on the Revenue to establish with evidence the actual amount of consideration paid by the assessee for purchase of property stood discharged pursuant to statement of the seller. The burden, thereafter, shifted on the assessee to establish with evidence that the statement of the seller was wrong and that the purchase consideration was not more than the actual consideration. In the aforesaid case, based on the rule of evidence, onus was put on the assessee purchaser to rebut the statement of the seller which was confronted by the Revenue to the assessee by bringing evidence to contrary on record. ....
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...., as pointed above, which has even been accepted by the Ld. CIT(A), at page 33 of his order, the offer document relating to issue of 12% NCD in the year 1995-96, clearly stipulated that the proceeds of said borrowing shall not be utilized for making investment in shares. The relevant portion of the order of CIT(A) readsas under: "Issue of Zero Coupon Fully Convertible Debentures and 12.5% Non-Convertible Debentures in 1995-96 by the assessee company. The issue was for capital expenditure as well as for making strategic investments. The offer documents mentioned that in light of the directions by SEBI, the proceeds of non- convertible debentures could not be utilized for acquisition of shares/or providing loan to any company belonging to the same group" * It wa similarly observed by the ld. CIT(A) qua loan agreement with IDBI. The relevant observations are as under: "Loan agreement dated 22.01.2001 between the assessee company and IDBI for grant of loan in foreign currency of approximately Rs. 18.8 crores. Though, specific utilization of loan is not mentioned, one of the special condition of the loan is that it could not be utilized for subscription or pur....
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....mal course of the business of the assessee company. Further, there was no specific employee kept by the assesee to keep record of the dividend income. The same was recorded in the normal course of conduct of the business of the assessee. During the relevant year, the assessee had earned dividend income of Rs. 3.47 crores out of the total revenue of Rs. 185.02 crores earned during the year. Thus, the exempt income was only 1.87% of the total revenue offered for tax. Further during the year, the assessee had earned revenue of Rs. 19.44 crores from investment activities, out of which exempt income was only 3.47 crores and balance was offered for tax. Major revenue was earned by the assessee form manufacturing business units, as would be clear from the details of major expenses incurred by the assessee, as follows: Amount (Rs in crores) S.No. Expenses Head Total Treasury Deptt. A Manufacturing expenses 86.54 0 1 Raw material consumed 2. Power & Fuel 3. Processing charges B Personnel Expenses 19.38 0.21 C Administration and ....
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....earing borrowing, there was, thus, no nexus of interest expenditure incurred during the year with shares held under the head 'stock in trade'. 51.15. Without prejudice to above, it was submitted by the ld. counsel Mr. Rupesh Jain that the disallowance under section 14A cannot in any circumstances be made with respect of investments held by the assessee as stock in trade. It was submitted that intent behind holding investments as stock in trade is to earn profit from trading therein and not to earn incidental exempt dividend income therefrom, warranting disallowance u/s 14A of the Act. For the aforesaid proposition, the ld. counsel for the assessee relied upon the following decisions wherein disallowance of expenditure under section 14A of the Act in respect of shares held as stock in trade was deleted: - CCI Ltd. vs. Jt. CIT 206 Taxman 563 (Kar) - Apoorva Patni vs. ACIT (2012) 24 Taxman.com 223(Pune) - Ethio Plastics P. Ltd. [TS-882-ITAT-2012 (Ahd.) 51.16. In view of the above without prejudice to the submissions that no portion of the expenditure incurred during the year warranted disallowance u/s 14A of the Act, it was submitted that no expenditure in any c....
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....since in the aforesaid cases bank statements were available on record pursuant to which the proposition regarding presumption to be drawn in favour of the assessee in case of mixed pool propounded. 52.2. The Ld. DR also relied upon the decisions of the Hon'ble Delhi High Court in the case of Orissa Cement Ltd. (supra) and Hon'ble Punjab & Haryana High Court in the case of Shashi Kiran (supra). 52.3. The Ld. DR also distinguished the decision of the Hon'ble Supreme Court in the case of Walfort Share and Stock Brokers (P) Ltd. (supra) relied upon by the assessee for the proposition that only expenditure can be disallowed u/s 14A on the ground that the same was rendered in the context of provisions of section 94(7) of the Act. 52.4. The Ld. DR relied upon the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Co. Ltd.(supra) and argued that the disallowance u/s 14A could be made for the assessment years prior to assessment year 2008-09 on a reasonable basis. 52.5. For the aforesaid cumulative reasons, it was argued by the Ld. DR that the order of the Ld. CIT(A) needs to be upheld and the appeal filed by the assessee needs to be dismis....
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....nd 2005-06 (although subsequently enhanced by the Ld. CIT(A) and challenged in further appeal by the Assessee before I.T.A.T.). Therefore, on the grounds of consistency as well, in the absence of any change in facts, it is submitted, that disallowance under Section 14A of the Act, if any, needs to be restricted to Rs. 0.10 crores only. 54. We have heard the rival contentions and perused the facts of the present case. The main thrust on the order of the ld. CIT(A) in computing/enhancing the amount of disallowance of interest expenditure u/s 14A was of non-furnishing of bank statements by the assessee and drawing adverse inference regarding use regarding use of interest free funds with investments yielding exempt income on that basis. We have gone through the decisions of various courts of law and Tribunal wherein the theory of drawing presumption as regards utilization of interest free/borrowed funds in the manner most favourable to the assessee in the case of mixed pool of funds has been propounded. We have also perused the various illustrations given by the ld. counsel, which clearly demonstrate that the exercise of determination of nexus of funds used for investment purposes o....
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....y of Rs. 398.19 crores including Rs. 180 crores of share capital. In this context, in our opinion, the finding of fact recorded by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal as to availability of interest- free funds really cannot be faulted. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. [1982] 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had n....
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....s of the assessee for the year under consideration alongwith various other disclosures/notes to the accounts, which have been relied upon by the AO while accepting the books of account and completing the assessment for the impugned year. We also find that the assessee is a listed company and is required to publish its accounts and submit the same before various statutory authorities like SEBI, Stock Exchanges, shareholders and Financial Institutions etc. Under these circumstances, we do not find any merit in the contention of the ld. DR that the said fund flow statements are not authentic. We are also in agreement with the arguments advanced by the ld. counsel for the assessee that the cash flow statement is a better guide for determining the results of borrowed funds/interest funds towards investments made during the year instead drawing such nexus on the basis of figures in the balance sheet of a company as at the end of the year, since the figures in the balance sheet are arrived at after making adjustment of non cash items, whereas for cash/fund flow statement for such adjustments is not required to be made. 54.3. We have already vide our order of even date hereinabove for t....
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....cord is hereby reversed and disallowance made on that account is deleted. 55. As regards disallowance in relation to other expenses, we find that as per material available on record in the appeal for the assessment year under consideration, the assessee had separate Treasury Division and one of the main functions of such division as explained hereinabove by the assessee was to invest the funds of the company in various financial instruments. It cannot therefore, be said that no expenditure has been incurred by the assessee for earning exempt income. As per information available on record, total expenditure incurred during the relevant previous year in relation to the Treasury Division was Rs. 1.52 crores. Considering that the assessee has manufacturing operation of BOPP films and pharmaceuticals and it was running clinics, nursing homes etc. which require incurring of substantial personnel and administrative expenses, whereas once a decision is taken to make investment, the income received therefrom is passive income not requiring much effort to earn such income. In our opinion, it would be reasonable to attribute 20% of the expenditure of treasury division as relatable to the i....
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....fit u/s 115JB of the Act. 57.1 Without prejudice to the above, it was submitted that even otherwise the amount of disallowance computed under section 14A of the Act cannot be adopted for the addition to book profits under section 115JB of the Act, since the scope of disallowance of expenses relatable to earning of exempt income under the aforesaid provision was different. 57.2 It was pointed out that in clause (f) of Explanation-1 to section 115JB of the Act, the amount of expenses relatable to earning of income exempt u/s 10(38) of the Act, was not liable to be added to book profit, since the income referred to in that section is liable to taxation as part of book profit. Whereas under section 14A, the amount of disallowance of expenses is computed even with respect to income under the said section 10(38) of the Act, since the income is exempt under normal provisions of the Act. Reliance in this regard placed by the ld. counsel for the assessee on the following decisions where it was held that the amount of disallowance computed u/s 14 on adhoc basis cannot be added to the book profits under section 115JB of the Act: i) Goetze India Ltd. vs. CIT: 32 SOT 101 (Del) ii) A....
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....ming the disallowance of legal and professional expenses of Rs. 1.25 crores paid to Max UK Limited for providing various business support services to the assessee. In this regard, the facts emanating from the order of the AO are that the assessee paid GBP.60,000/- equivalent to Rs. 1.25 crores to Max UK as retainership fee for availing business support services as defined in agreement dated 1.7.1999 with Max UK Limited. The services mainly related to exploring business opportunities outside India for the assessee. In the course of assessment proceedings, the AO asked the assessee to justify the claim of aforesaid expenditure. In response thereof, the assessee relied upon the agreement entered with Max UK Limited and pointed out that the assessee achieved export sales in excess of Rs. 29 crores with the help of information/services received from Max UK Ltd.. The AO , however, did not accept the submissions of the assessee and disallowed the aforesaid expenditure on the ground that the assessee could not prove with evidence that the services were actually rendered by the aforesaid foreign party. 61. The Ld. CIT(A) confirmed the action of the Assessing Officer. 62. The Ld. couns....
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....umulative reasons, we reverse the action of the AO/Ld. CIT(A) in disallowing the aforesaid expenditure and accordingly, we direct the deletion of the said disallowance. Thus, ground No.3 of the assessee is allowed. 65. Now, we take up appeal of the Revenue in ITA No.151(Asr)/2011 for the assessment year 2002-03. As regards ground No.1, the Revenue has challenged the order of the Ld. CIT(A) in allowing deduction of Rs. 54 lacs claimed on proportionate basis on account of non-complete fee paid to Mr. Ashwani Windlass in earlier years. 65.1. The facts of the case are that during the relevant year , the assessee Claimed deduction of Rs. 54 lacs being proportionate amount of non- compete fee paid to Sh. Ashwani Windlass in earlier years under the agreement entered upto with Mr. Windlass. 66. Having heard both parties, that the present issue had come for consideration before this Bench of the Tribunal in the assessment year 1999-2000 to 2000-01, where we have deleted the disallowance on account of non-compete fee paid to Mr. Ashwani Windlass in earlier assessment years i.e. 2001-02 in ITA No.103(Asr)/2006 in assessee's own case following the order of the Tribunal in assessme....
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....g but extension of existing business only. Accordingly, for the reasons given in our order for the assessment year 2001-02 in ITA No.103(Asr)/2006 hereinabove, in assessee's own case for allowing a revenue expenditure incurred by the assessee towards healthcare division, the order of the ld. CIT(A) deleting the disallowance of above expenditure is upheld and the aforesaid ground of appeal of the Revenue is dismissed. 70. As regards ground No.4 of the Revenue, where the Revenue has challenged the order of the ld. CIT(A) in allowing deduction of expenses (i) Rs. 12.05 lacs being product development expenses incurred on MAX FOIL division (ii) Rs. 474 lacs being expenses incurred on expansion of Pharma divison, (iii) Rs. 57.12 lacs being expenses incurred on abandoned project and Rs. 19.66 lacs being expenses incurred on foreign travel of employees which were treated as capital expenditure by the A.O. on the ground that the expenses were incurred for expansion of business. The aforesaid disallowances were made separately in the assessment order and therefore each disallowance is discussed and adjudicated separately hereinbelow: (i) Product Development expenses of Max foil div....
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....d perused the facts on record. We find that the issue under appeal with regard to allowability of expenses incurred on development of new products in the existing business of an assessee was decided in favour of the assessee by this Bench of the Tribunal in assessee's own case for the assessment year 1991-92 reported in 105 TTJ 102. The relevant findings of the Tribunal in that order are as under: "6. We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record and referred to the relevant pages of the paper book to which our attention has been drawn. From the facts discussed above, it is clear that the assessee was already in the business of manufacture of BOPP films and its unit had started commercial production on 6.3.1990 relating to asstt. year 1990-91. This fact is admitted by the AO on page 1 of the assessment order. Page 19 of the paper book which is a copy of Director's report and page 17 of the paper book being explanatory Notes to the financial statements clearly mentioned that the expenditure incurred by the assessee related to improvement in product specification of BOPP films....
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....n the present case, the expenditure incurred could not be considered to fall in the capital field. Therefore, no disallowance u/s 35D in respect of the expenditure incurred by the assessee could be made. 6.1. The A.O. has laid undue emphasis on the treatment given by the assessee for capitalizing and amortising the impugned expendiure in the books of accounts. It is settled position under the law that accounting entries are not the determinant factor in deciding whether expenditure incurred was capital or revenue in nature. Reliance in this regard is placed on the judgment of Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd; Vs. CIT (supra). The same is to be determined by looking to the nature of expenditure whether the same relates to capital or revenue filed. In the case of ACIT Vs. Medicamen Biotech Ltd; (supra), the ITAT, Delhi Bench has held that test of enduring benefit alone was not conclusive for treating any expenditure as capital and it is relevant to find out or ascertain as to whether such expenditure results into an advantage of enduring nature to assessee in capital field or revenue field so as to decide exact nature of such expenditure and allowabil....
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....t expenses of Rs. 20,36,157/- for propagating a new crop among the local farmers and further incurred expenses of Rs. 16,41,125/- for advertisement through visual and print media and also for designing and printing leaflets, brochures etc. All these expenses were held to be in the nature of business expenditure entitled for deduction in computing the assessee's income. 6.3. Now whether the expenditure incurred has resulted in enduring benefit or not has to be seen in the context of today's world where changes in the technological field are taking place at rapid pace. The present time is a time of multinationals. In order to survive in the business, the industry is required to make continuous efforts on Research and Development in order to keep pace with the technological changes that are taking place every day and to strive for improvement in the existing product and also to bring new product attractive in design and better in quality. Therefore, what could be termed as a enduring benefit in the olden days may not be so in the present times. The very fact that the assessee has capitalized or amortised the expenses in the books of account for 8 years would not mean ....
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....this return of income vide Adjustment No.(3i). 73.1 The A.O. disallowed the above said expenditure on the ground that the same provided enduring benefit to the assessee and therefore, the same was capital in nature. 73.2 The Ld. CIT(A) deleted the disallowance made by the AO on the ground that the same was same was incurred in connection with carrying on of existing business of sale of pharmaceutical goods and no new unit came into existence and therefore, the same was allowable revenue expenditure. 73.2(a). The Ld. DR relied upon the AO's order and argued that the expenditure towards FDA approval and patent related expenses provided enduring benefit to the assessee and therefore, the same were clearly of capital in nature, which disallowance should have been confirmed by the Ld. CIT(A). 73.3. The Ld. counsel for the assessee argued that the aforesaid expenses towards FDA approval and patent were necessary for the assessee to sale its Pharma related products which was a existing business division, outside India and no new capital asset was required nor there was any accretion to the profit earning apparatus as a result of the said expenses. It was argued that it is ....
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....ng relating to extension of business and therefore, was claimed as revenue expenditure. 75.1 The AO treated the aforesaid expenditure as capital in nature on the ground that the same was incurred towards setting up of the new healthcare centre prior to commencement. 75.2 The Ld. CIT(A) deleted the disallowance made by the AO on the ground that since projects were abandoned, no capital asset came into existence by virtue of incurring expenses. The Ld. CIT(A) in this regard relied upon the decision of Hon'ble Delhi High court in the case of Indo Rama Synthetics (I) Ltd. vs. CIT 185 Taxman 277 (Del) and CIT vs. Priya Village Road Shows Ltd. 185 ITR 44 (Del). 75.3 The ld. DR, relied upon the order of the A.O. and argued that the ld. CIT(A) has deleted the disallowance without examining the nature of expenditure incurred in this connection. 75.4 The Ld. counsel for the assessee argued that the assessee was already engaged in healthcare business and was running Nursing Home Clinics since assessment year 2001-02. Accordingly, the expenditure incurred in connection with setting up of a new clinics was for extension of existing business, which is an allowable business deduct....
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....of the ld. CIT(A) is accordingly upheld. 76.1 Further, we find that the expenditure of revenue in nature incurred in relation to abandoned project has been held to be allowable by the Jurisdictional High Court in the case of CIT vs. Vardhman Spinning and General Mills (supra) and the Hon'ble Delhi High Court in the case of Indo Rama Synthetics Ltd. (supra). Accordingly, the disallowance cannot be sustained for the aforesaid reasons as well. In view of the above, ground of appeal of the revenue is dismissed. (iv) Expenses incurred on foreign travel of employees 77. The aforesaid issue is discussed at page 7 to 8 of the assessment order. During the relevant previous year, the assessee had incurred expenditure of Rs. 19.66 lacs on foreign traveling of various employees under the Collaboration Agreement dated 1.3.1999 executed with Harvard Medical International, Boston, USA. 77.1 In the course of assessment proceedings, the AO sought justification of allowability of the aforesaid foreign travelling expenditure as business deduction. It was submitted by the assessee that foreign traveling was undertaken under the Collaboration Agreement to pursue quality programmes and s....
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.... (P) ltd vs. ITO 115 TTJ 716 (Ahd.) ii) Cascade Enterprise vs. ACIT 101 TTJ 227 (Delhi -ITAT) 77.6 The Ld. counsel for the assessee also distinguished the decision relied upon by the AO in the assessment order. The arguments of the ld. counsel in this connection which also contained in the chart on issue filed for the present appeal is reproduced hereunder: "In the case of Ambica Mills Ltd.(supra) the assessee company was carrying on the business of textile manufacturer. In the relevant previous year the assessee company had sent its director and superintendent on a tour to Europe to study the latest development in manufacturing, designing and processing of cloth in textile mills in Europe. After their visit to the textile mills, the assessee company imported certain new and improved machinery for United Kingdom. It was categorically observed by the Gujarat High Court that since the foreign tours undertaken by the employees of the company were for the purpose of strengthening the fixed framework of the profit making apparatus of the assessee company, i.e. textile mills and not for carrying on of business, i.e. manufacture and sale of cloth, the same amounted to....
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....rried on by the assessee is allowable revenue deduction. There are sufficient judicial authorities to support the aforesaid proposition. Reference has been made by the ld. counsel that such expenditure does not result in and was not in relation to acquisition of any capital assets and therefore, does not constitute capital expenditure. The decisions referred to by the A.O. have rightly been distinguished by the ld. counsel for the assessee since in those decisions foreign travel expenditure resulted in acquisition of new assets and/or setting up of new business. Accordingly, the order of the ld. CIT(A) is upheld and ground of appeal of the Revenue is dismissed. 79. As regards ground Revenue, No.5 of the where the revenue has challenged the order of the ld. CIT(A) in not treating the loss arising on sale of investment as speculative loss. 80. We find that this issue has come up for our consideration in assessee's own appeal for the assessment year 2001-02 in ITA No.103(Asr)/2006 hereinabove. The loss in question relates to sale of shares held as investments including those shares which were received from MCL in the year 1999-2000 and were converted into investment by the a....
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....d been deemed to be business income under section 28(va) of the Act w.e.f. AY 2003-04 only and therefore, the provisions of that section were not applicable to the year under consideration. The Ld. CIT(A) also observed that, even otherwise, the cost of acquisition of asset in the nature of 'right to carry on business' u/s 55(2) had also been inserted w.e.f. A.Y. 2003-04 and for that reason, too, no capital gains could be brought to tax in the hands of assessee company in the year under appeal. 81.4. The Ld. DR argued that by amendment to section 55(2)(a) by the Finance Act, 2002 w.e.f. 1.4.2003, the legislature has only prescribed that the cost of acquisition in case of 'right to carry on any business' shall be taken as Nil but that does not mean that 'right to carry on business' ceases to be a capital asset. It was further argued that merely because the cost of acquisition of such asset was treated as Nil u/s 55(2)(a) w.e.f. 1.4..2003 does not mean that prior to assessment year 2003-04 such transaction could be brought to tax u/s 45 of the Act. The Ld. DR also referred to the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Tata Co....
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....sessment year 1998-999 (112 TTJ 726). The relevant observations of the Tribunal ( as per para 47-49 at PB 576-578) are as under: "..... 47.We have heard the parties and have perused the material on record.The first dispute here is as to whether the learned CIT(A) was justified in deciding the issue on merits in favour of the assessee, in view of the fact that as recorded in the assessment order, the assessee had not pressed the issue before the A.O. In this regard, we find that the assessee is correct when ir contends that the issue of taxability of non compete fee being a legal one, even if the assessee did not press it before the A.O., it could well have been pressed before the learned CIT(A), as was done. Further, it is also correct that all the facts being before the A.O., the Commissioner having powers co-terminus with those of the A.O., was not incorrect in not remitting the issue to the A.O. for decision. Moreover, evidently, the A.O. duly represented the case of the department before the learned CIT(A) and no objection was raised regarding the assessee having not pressed the issue before the A.O. 48.On merits, evidently, there has been no transfer....
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....that the identical issue was considered by this Bench of the Tribunal in assessee's own case for the assessment year 1998-99 and the Tribunal in that case categorically held that taking over a restrictive obligation does not amount to transfer of right in any business and therefore, non-compete fee cannot be considered as resulting in capital gains. There are several other decisions of the Courts/Tribunal on the issue in question which have been referred to by the ld. counsel for the assessee also support the contentions of the assessee. The contention of the Ld. DR that non-compete fee has to be considered as income under the head capital gains from the transfer of right in a business is without any factual or legal basis. We find that section 55(2)(a), which is prospective in nature, is not applicable to the facts of the present case, in the absence of any capital asset being transferred by the assessee in lieu of which the assessee has received the impugned amount of non-compete fee. Our views are supported by the decision of the Special Bench of ITAT Hyderabad in the case of ACIT vs. B.V.Raju (supra). 82.1 As regards the decision of the Hon'ble Karnataka High Court r....
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....No.152(Asr)/2011 for the assessment year 2003-04. 87. In ground No.1, the Revenue has challenged the order of the ld. CIT(A) in allowing deduction of Rs. 35 lacs claimed by the assessee on account of non-compete fee paid to Sh. Ashwani Windlass in earlier years. The said ground of appeal is identical to ground of appeal No.1 in Revenue's appeal for the assessment year 2002-03. 87.1. Both the parties also did not address and additional arguments with reference to the aforesaid ground in the present appeal and agreed that the facts of this ground are identical to the ground of appeal for the A.Y. 2002-03. Accordingly following our own order for the assessment year 2002-03 hereinabove, the disallowance made has rightly been deleted by the AO. 88. As regards ground No.2 of the Revenue, the revenue has challenged the order of the ld. CIT(A) in allowing deduction of expenses of Rs. 46 lacs incurred by the assessee towards expansion of existing MAXXON division. The facts of the present ground of appeal are identical to the facts in ground No.3 in the appeal of the Revenue for the assessment year 2002-03 where we have decided the aforesaid issue in favour of the assessee by di....
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....tly deleted the addition. Accordingly, ground No.4 of the Revenue is dismissed. 91. Now, we take up the appeal of the assessee for the assessment year 2004-05 in ITA No.121(Asr)/2011. 92. As regards ground No.1, the assessee has challenged the order of the ld. CIT(A) in not deleting the disallowance of Rs. 10 lacs made by the AO u/s 14A of the Act and instead enhanced the amount of disallowance under the said section to Rs. 5.84 crores. 92.1. The aforesaid ground of appeal is identical to ground No.1 of the appeal raised by the assessee in ITA No119(Asr)/2011 for the A.Y. 2002-03. In this year as well, the Ld. CIT(A) did not accept the contention of the assessee qua no nexus of borrowed funds with investment yielding exempt income on the basis of overall positive funds flow position/statement of the year. The Ld. CIT(A) on the ground of the assessee having not established the aforesaid nexus through bank statements drew adverse inference against the assessee and apportioned the interest expenditure on the basis of formula adopted in the assessment year 2002-03 for the purposes of disallowance u/s 14A of the Act. 92.2. We have decided the aforesaid issue in favour of the....
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.... i.e. Rs. 8.8 lacs and direct the deletion of balance disallowance confirmed by the Ld. CIT(A). Accordingly, this ground of appeal of the assessee is partly allowed. 93. As regards ground No.2, where the assessee has challenged the order of the ld. CIT(A) in not deleting disallowance of Rs. 10 lacs made on account of expenses quantified as relatable to earning of exempt income u/s 14A of the Act in computing book profit for the purpose of section 115JB and instead enhancing the disalalowance u/s 115JB to Rs. 5.84 crores. 93.1. The above said ground of the assesse is identical to ground No.2 in assessee's appeal for the A.Y. 2002-03 decided by us hereinabove. Both the parties did not address any additional argument with respect to the present ground and agreed that the identical facts in the present appeal are there as in ground of appeal for the A.Y.2002-03 mentioned hereinabove. In the assessment year 2002-03, we have held that the amount of disallowance of other expenses i.e. other than interest expenditure computed u/s 14A can be adopted for the purposes of addition to book profit u/s 115JB of the Act. Accordingly, following the order for the A.Y.2002-03, the aforesaid....
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....ssment year 2002-03, which has been decided by us in favour of the assessee by dismissing the Revenue's for the assessment year 2002-03 hereinabove. Both the parties did not address any additional argument with respect to the present ground of appeal and agreed that the facts in the present ground are identical to the ground in the assessment year 2002-03. Accordingly, following our own order for the A.Y. 2002-03, we find no infirmity in the order of the ld. CIT(A), who has rightly allowed the ground of the assessee. Thus, this ground of the Revenue is dismissed. 97. As regards ground No.3, the revenue has challenged the order of the ld. CIT(A) in not treating the loss arising on sale of investments as speculative loss. 97.1. We find that this issue came for our consideration in the appeal of the revenue for the assessment year 2001-02 in ITA No.103(Asr)/2006 and in ground No.5, in Revenue's appeal for the A.Y.2002-03 decided by us hereinabove, the loss in question relates to sale of shares held as investment including those shares which were received from Max Corpn. Ltd. in the financial year 1999-2000 and were converted into investments by the assessee in the A.Y. 2....
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....of PB, we have found that against total investment of Rs. 332.79 crores made during the year, the assessee has realized total interest free fund of Rs. 341.46 crores comprising of 203.26 crores from the sale of existing investments, Rs. 12.70 crores from the sale of investment in subsidiary companies, Rs. 81.01 crores from preferential issue of shares, Rs. 8.15 from the issue of warrants, Rs. 29 crores from receipt of option deposit from New York Life International Inc., and Rs. 7.34 crores from operations. 99.3. In view of the above, we are of the view that the facts for the assessment year under consideration are identical to the facts for the A.Y. 2002-03 and both the parties did not address any additional argument with respect to the present ground of appeal. Accordingly, following our own order for the A.Y.2002-03, the disallowance confirmed by the ld. CIT(A) is directed to be deleted on account of interest expenditure u/s 14A of the Act. 99.4 As regards the disallowance in relation to other expenses, as per information available on record, total expenditure incurred during the relevant previous year in relation to the Treasury Division was raised to Rs. 41 lacs as per P....
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....ee and dismissed ground No.1 raised by the Revenue for the A.Y. 2004-05. Accordingly, following our own order for the A.Y. 2004-05, we find no infirmity in the order of the ld. CIT(A) who has rightly deleted the disallowance made by the A.O. Accordingly, the appeal of the revenue for the impugned year is dismissed. 103. Now, we take up appeal of the assessee for the assessmet year 2006- 07 in ITA No.123(Asr)/2011. 104. In ground No.1 of the assessee, the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance made by the A.O. u/s 14A of the Act, to the extent of Rs. 3.38 crores. 104.1. The aforesaid ground of appeal is identical to ground of appeal No.1 in assessee's appeal for the A.Y.2002-03. In this year, the AO computed disallowance under section 14A at Rs. 10.98 lacs by applying provisions of Rule 8D of the I.T. Rules. 104.2. The Ld. CIT(A) held that the provisions of Rule 8D are applicable only w.e.f. the assessment year 2008-09 and were not applicable to preceding assessment years including the assessment year under consideration. Accordingly, the Ld. CIT(A) reversed the action of the A.O. in computing disallowance u/s 14A as per Ru....
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....received from New York Life International Inc. 14.40 cr. 104.4. In view of the above and considering that the facts for the assessment year under consideration are identical to the facts for the assessment year 2002-03, the assessee has a positive over all fund flow statement position. Both the parties did not address any additional argument with respect to the aforesaid ground in the present appeal. Accordingly, following our order for the A.Y. 2002-03, where the facts are identical to the present ground of appeal, decided by us hereinabove, we direct the deletion of disallowance of interest expenditure under section 14A confirmed by the ld. CIT(A). 104.5. As regards disallowance in relation to other expenditure as per information available on record, the total expenditure incurred during the relevant previous year in relation to the Treasury Department was Rs. 41 lacs which is given at PB-122 in assessee's appeal for the A.Y. 2002-03 decided by us hereinabove, we have held 20% of the expenses of Treasury Division/Department are reasonable attribution towards activities of investments yielding exempt income carried on by the assessee. Following our order for....
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....und No.1 in Revenue's appeal for the assessment year 2002-03 which has been decided by us hereinabove and which has been agreed to by both the parties. None of the parties addressed any additional argument with respect to the present ground of appeal. In this appeal, the other issue raised in appeal for the A.Y. 2002- 03 that the payment of non-compete fee is not made by the assessee is not related to the business of the assessee are not there. The disallowance has been made simply on the ground that the payment of non-compete fee is a capital expenditure. The issue is identical to the assessee in the A.Y. 2002- 03 where the issue has been decided in favour of the assessee by dismissing the appeal of the Revenue in that year. Accordingly, following our own order for the A.Y. 2002-03, we find no infirmity in the order of the ld. CIT(A), who has rightly deleted the disallowance made by the A.O. Accordingly, ground of appeal of the Revenue is dismissed. 108. In ground No.2, the Revenue has challenged the order of the ld. CIT(A) in reducing disallowance of Rs. 10.98 crores made by the A.O. u/s 14A as per Rule 8D to Rs. 3.38 crores. As discussed in cross appeals filed by the asse....