TaxTMI 
TaxTMI 
2014 (4) TMI 517
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. The CIT(A) erred in confirming the addition of Rs. 6,98,926/- made by the AO on account of difference in creditor account in spite of providing the reconciliation before the AO. 4. (i) The CIT(A) erred in confirming the disallowance amounting to Rs.2,52,064/- by holding that the assessee failed to provide the confirmation letter before the AO. (ii) The CIT(A) ought to have deleted the addition as there being no change in the opening and closing balances of these creditors during the year under appeal suggesting any income accrued to the assessee. 5. (i) The CIT(A) erred in confirming the addition amounting to Rs.15,10,000/- written off as bad debt by the assessee pertaining to one of it's ex-staff. (ii) The CIT(A) having in knowledge that the advance given to a staff which remained unrecovered by reason of his leaving the job, ought to have allowed the same as business loss under section 29 of the Act. 6. (i) The CIT(A) erred in confirming the addition in the sum of Rs.3,08,039/-. (ii) Having noticed that the addition was on account of handling loss involving 541 metric tons of ore during transportation from Colomba mine to plant at Cuddegal, the CIT(A) ought to have allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal are general in nature and therefore do not require any adjudication. 3. Ground no. 2 in Assessee's appeal relates to the sustenance of the disallowance u/s 14A r/w Rule 8D of the Income Tax Act. The brief facts relating to this ground are that the Assessee received Dividend income amounting to Rs.13,85,03,376/- being exempt under Income Tax Act. The Assessee claimed that he did not incur any expenditure in respect of the Dividend income. It is only the surplus funds which have been invested through the bankers to have good relation with the banks and financial institutions. The mutual fund officials used to come to the door step of the Assessee and fill up forms. The Assessee only issued the cheque. The AO did not agree and took the view that without analysing the nature of the investment and devoting time, the Assessee could not have made the investment in mutual funds. The AO took the view that the provisions of Sec. 14A were clearly applicable in the case of the Assessee. He also observed that the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, 234 CTR (Bom) 1 held that no deduction shall be allowed in respect of expenditure incurred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on objective basis. Once the satisfaction is made, only then, the applicability of Rule 8D will arise. It was also submitted that the expenditure which have to be disallowed under Rule 8D must have a proximate relationship with the earning of the Dividend income. For this also, reliance was placed on the decision of this Tribunal in the case of ACIT vs. Sesa Goa Ltd. (supra) dt. 8.3.2013 for which the undersigned is the author. It was also pointed out that the decision of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Mum) (supra) has duly been discussed by this Bench in that case. It was submitted that there is no satisfaction whatsoever being recorded by the AO in accordance with Sec. 14A(2) and therefore it is a case where Rule 8D could have not been applied and there could not be any disallowance as per Sec. 14A(2). 3.3 The ld. DR, on the other hand, relied on the order of the AO. 3.4 We have heard the rival submissions and carefully considered the same. We noted from the provisions of Sec. 14A(2) that before making any disallowance u/s 14A, the AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/2001 proviso was added which states that this sec. shall not empower the AO either to re-assess or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with the method as may be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub-sec.(1). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of 34.34 crores u/s 10(33). The AO issued notices for disallowance of interest u/s 14A of the IT Act. The explanation of the assessee was that (i) 95% of the shares were bonus shares for which no cost was incurred; (ii) No investment in shares was made in the current year and no disallowance was made in earlier years and (iii) There were sufficient interest free funds available in the form of share capital, reserves etc. which were more than investment in shares. The AO was not satisfied with the explanation of the assessee and he made disallowance u/s 14A on prorata basis. The CIT(A) following his orders for earlier years, accepted the appeal of the assessee. The Tribunal following the decision of the Special Bench in the case of ITO Vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) restored the matter to the file of the AO for the consideration in the light of the provisions of sub-sec.(2) & (3) of Sec.14A of the IT Act. The assessee, being aggrieved, filed appeal as well as Writ Petition challenging the constitutional validity of sub-sec. (2) & (3) and Rule D. The Hon'ble High Court gave the following findings; 1. The provisions of sec. 14A and Rule 8D are constitutional....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is mandated by law (pages 31-32). 6. In the event that the AO is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion (page-79). 7. The effect of sec.14A is to widen the theory of the apportionment of expenditure (page 49). 8. The expression „expenditure incurred; in Sec.14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (page-50). 9. Sub-sections (2) & (3) of Sec.14A are intended to enforce and implement the provisions of sub-sec (1) (pages 50). 10. Even in the absence of sub-section (2) of sec.14A the AO would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship with exempted income must be proximate. If there is material to establish that there is direct nexus between the expenditure incurred and the income not forming part of total income then disallowance would be justified even where there is no receipt of exempted income u/s 10 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 124 TTJ 577 (Del)(SB). 17. The basic principle of taxation is to tax the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross receipts minus related expenses. Therefore, if any expenditure is directly related to exempted income, it cannot be allowed to be set off against taxable profit. On the same analogy, in our opinion, if any expenditure is directly related to taxable income, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....blished by the revenue, the assessing officer does not have any power to reject the accounts of the assessee and take the shelter of Rule 8D for computing the disallowance out of the exempt income. We are not at all convinced with the submission of the Ld. DR relying on the decision of CIT(Appeal) in respect of Explanation bb to sec. 80HHC that 10% of the receipts under the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being incurred for the earning of that income. Similar views have been taken by Hon'ble Tribunal in the following decisions also. In the case of DCIT Vs. Jindal Photo Ltd. held in I.T.A.T. Delhi bench dated 7.1.2011 it was held as follows: "Now as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee„s total income under the Act, the AO shall de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(A), therefore, erred in partially approving the action of the Assessing Officer". In the case of Avshesh Mercantile P. Ltd. Vs. DCIT in I.T.A.T. Mumbai Bench (I.T. Act No.5779/Mum/2006 & 208/Mum/2009) it was held as follows: "At the time of hearing, the contention raised by the learned DR in this regard is that the appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this contention of the learned DR. It is well settled proposition of judicial precedents that is appeal the Hon'ble High Court considers facts pertaining to the issue and gives approval to the decision of the lower forum, the decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 14A of the Act. As regards the case laws cited by the Learned DR, it is observed that in none of these cases, the facts involved were similar to the case of the present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of jurisdictional High Court in the case of Delite Enterprises (supra) and allow the appeals of all the assessees". 18. We have also gone through the decision relied upon by the learned DR also. The decision of ACIT Vs CITICORP Finance (Ind.) Ltd., 108 ITD 457 (Bom.) is no more relevant, in view of the decision of the Hon'ble Mumbai High Court in the case of Godrej Boyce Mfg Co. Ltd. (Supra). The decision of SPIC Vs DCIT 93 TTJ (Chennai) 161 is not applicable to the facts of the case. As in that case, the assessee was regularly investing in the shares. The assessee ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the decision in the case of Sesa Goa Ltd. vs. JCIT (supra), we delete the disallowance made u/s 14A. Similar view has been taken by this Bench in ITA No. 34/PNJ/2013 & ITA No. 50/PNJ/2013 in the case of M/s. Infrastructure Logistics Pvt. Ltd. vs. ACIT. Thus, this ground is allowed. 4. Ground no. 3 in Assessee's appeal relates to sustenance of the addition of Rs. 6,98,926/-. The AO during the course of the assessment noted that there was a credit balance in the name of M/s. Hiralal Khodidas of Rs.59,40,707/-. The above party in reply to notice u/s 133(6) informed that they have debited balance of Rs.47,43,037/-. When the Assessee was questioned about the difference of Rs.11,97,670/-, the Assessee submitted that TCS of Rs.2,330/- has not been shown by M/s. Hiralal Khodidas in its books of accounts and an amount of Rs.1,09,089/- debited by the creditor has been accounted by the Assessee in the subsequent year and the following payments have not been taken credit by M/s. Hiralal Khodidas : Date of payment Particulars Amount 23.03.1999 Debited to minimum Franchise Rs.6,00,000 31.03.2001 Debited to minimum Franchise Rs.1,00,000 31.03.2008 Written off as prior period expens....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cs, the submission made before CIT(A) were reiterated. The ld. DR, on the other hand, relied on the order of the AO. We have carefully considered the rival submissions, perused the material on record. We have gone through the order of CIT(A). It is a fact that a sum of Rs. 30 lacs included in the Sundry Creditors as on 31.3.2009 has been paid by the Assessee to M/s. Mayur Minerals through cheque no. 238933 dt. 10.4.2012. In view of this undisputed fact, we confirm the deletion of the addition by the CIT(A) to the extent of Rs. 30 lacs. So far the balance sum of Rs. 2,52,064/- is concerned, no evidence whatsoever has been filed by the Assessee whether these creditors still exist. It is also a fact that the Assessee has also not written off these creditors so that it may be treated as cessation of liability and made chargeable to tax u/s 41(1) but while going through the submissions of the Assessee as well as the documents filed before us, we noted that the Assessee has not even given the dates as well as the addresses of these parties so that it can be ascertained whether the Sundry Creditors are genuine or not. Under these facts, we do not find need to interfere with the order of C....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... DR, on the other hand, relied on the order of the authorities below. 6.3 We have heard the rival submissions and carefully considered the same. We have gone through the order of the authorities below. We noted that it has not been denied by the Revenue that Rajendra S. Kakodkar was an employee of the Assessee. The advances were given by the Assessee during the course of the business. These advances have not been recovered by the Assessee. Rajendra S. Kakodkar has left the services of the Assessee and is no more an employee of the Assessee. Under these facts, the Assessee has written off the advance. So far as the other advances are concerned, we noted para 9.1 of CIT(A)'s order which contains details of the advances. A sum of Rs. 600/- is staff advance, Rs. 15,000/- is given to H. Huchaiah and Rs. 290/- and Rs. 50/- were given to Mahesh S Borker and Subhash R Kane and were written off as they were no more employee of the Assessee and rest of the amount has been given to contractor and ore supplier as advance. The sum of Rs. 50,000/- was deposited towards car booking with M/s. Pal Peugeot Ltd. It is not denied that all these advances were given by the Assessee company during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for export. The loss so incurred works out to 2.54% in Greater Ferromet and 3.54% in SFI. The AO was of the opinion that there cannot be different handling loss in Greater Ferromet and SFI. It must be at the same rate. Therefore, he called for explanation of the Assessee. The Assessee gave explanation vide his letter dt. 16.12.2011. The AO did not accept the explanation of the Assessee. The Assessee calculated the ground loss on 18,97,335 MT of iron ore handled in Greater Ferromet at 2.54% and in respect of SFI in which 6,49,975 MT of iron ore was handled at 3.54%. The AO was of the opinion that the ground loss in respect of iron ore handled in Greater Ferromet and SFI unit must be same and accordingly, he disallowed the ground loss shown in the case of SFI unit @ 1%. The quantity thereof was worked out at 6,516 MT and value of the same was worked out at Rs.42,93,066/- and added to the income of the Assessee. The Assessee went in appeal before CIT(A). Before CIT(A) the Assessee contended that the closing stock has been physically verified and on that basis it was accounted for. The Assessee was not having any other closing stock and therefore, there cannot be any addition to arrive....
X X X X Extracts X X X X
X X X X Extracts X X X X
....High Court or that of the Hon'ble Supreme Court which would have taken a contrary view than that taken by the Hon'ble High Court of Bombay in the case of CIT vs. Badri Das Gauridu Pvt. Ltd., 261 ITR 256 (supra). Even it was not the case of the revenue that the said decision was not applicable in this case. Under these facts of the case, we are of the view that no illegality or infirmity is caused in the order of CIT(A) while deleting the disallowance on account of foreign exchange loss on forward contract. We, accordingly, dismiss ground no. 2 taken by the Revenue. 10. Ground no. 3 in Revenue's appeal relates to disallowance of Rs.35,15,625/- incurred by the Assessee by way of contribution for the construction of the Usgao bridge. The brief facts of this ground are that the Assessee contributed a sum of Rs.35,15,625/- to Goa Mineral Ore Exporters'Association for construction of bridge in Usgao for the usage of public. When questioned by the AO, the Assessee submitted that the Assessee is an exporter of iron ore. The ore is procured from various mines located at different locations including the mines at Karnataka. The Assessee is under an obligation to collect, load the or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igation demanded by the local community which cannot be overlooked by the assessee. Even though the ld. DR vehemently relied on the order of the AO, no contrary decision was brought to our knowledge and no material or evidence was brought to our knowledge which may prove that the project belonged to the Assessee and it represents capital expenditure incurred by the Assessee. We have also gone through the decision as relied by the ld. AR in the case of L.H. Sugar Factory and Oil Mills (P) Ltd. vs. CIT, 125 ITR 293 (supra) and that of Hon'ble Madras High Court in the case of CIT vs. Coats Viyella India Ltd., 253 ITR 667 (supra). We noted that these decisions are also equally applicable to the facts of the case of the Assessee. Under these circumstances, we do not have any other alternative except to follow the decision of this Tribunal in the case of Chowgule and Co. Ltd. vs. ACIT in ITA no.162/PNJ/2006 (supra) and accordingly we confirm the order of CIT(A). Thus, this ground stands dismissed. 11. Ground no. 4 in Revenue's appeal relates to deletion of the disallowance of expenses out of Community Development amounting to Rs. 26,24,381/-. The brief facts of this ground are that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Gains amounting to Rs. 12,59,41,410/- on account of relinquishment of rights in the share in partnership firm, M/s. Banashankari Mining Corporation Bangalore. However, after set off of brought forward loss, Long Term Capital Gains declared by the Assessee comes to Nil. There was one partnership firm, M/s. Banashankari Mining Corporation Bangalore consisting of partners, Shri Thakur Dilip Singh and Ms. Bijali Mahalakshmi Singh. On 8.10.2002 the Assessee entered into this partnership firm with a nominal share capital of Rs. 45,000/- and Ms. Bijali Mahalakshmi Singh retired from the said firm. As per the Deed of Reconstitution of the firm, the business of the firm is Mining, Processing and trading (export) of all types of mineral ore. As per the Deed of Reconstitution, the object of introducing Assessee into the partnership firm was seeking technical and marketing assistance to work/operate the proposed mining licence and to sell/export the iron ore mined from the proposed mining licence. The Assessee also agreed to bring the funds required to obtain grant of proposed mining licence as also for the working of the proposed mining licence after grant. The Assessee was having 70% shar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rn business profit. Therefore, show cause notice was issued by the AO to the Assessee. In response thereto, the Assessee vide letter dt. 30.11.2011 submitted as under : a. That the amount received on retirement from M/s Banashankari Mining Corporation (the partnership firm) was shown as receipt from the sale of mining lease. We may clarify that we have received the monies towards our share in the partnership; and b. That the mining lease was obtained by us with an intention of extracting ore and selling the ore so extracted firstly, we have not obtained any mining lease, an application for obtaining concession / mining lease was filed by the partnership firm and not by us (and that too much prior to we being admitted as a partner in partnership firm); secondly, if and when a concession was to be granted or a mining lease was to be allotted, the concessionaire / lessee / allottee would be the partnership firm and not us; secondly, as per our information, until date no lease / concession has been executed by the State Government in favour of the partnership firm. 2. We therefore summarise the correct facts as under., a. The partnership firm had applied to the state government for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-c/s. (i), (ii) and (iii) of clause (b) of 5. 48." 5. We therefore submit that it is incorrect to suggest that what has been transferred by us under the agreement dated July 15, 2008 is the mining lease. We submit that he consideration received by us on retirement is a capital receipt. Reliance is placed on the following. We are fortified in our view by the following decisions, copies whereof are enclosed: a. Prashant S. Joshi Vs. ITO (324 ITR 154) (Bom) b. A. K. Sharafuddin Vs. CIT (39 ITR 333) (Mad) c. CIT Vs. Ganesha Chettiar (133'lTR 103) (Mad) d, Shevanthibhai C. Mehta Vs, ITO [(2004) 4 SOT 94 (Pune)J In the light of our aforesaid submissions, we request you to accept our returned income under the head capital gains and conclude the proceedings accordingly. " The AO did not agree with the explanation of the Assessee and treated the receipt as revenue receipt and added the sum under the head „Income from Business or Profession'. The Assessee went in appeal before the CIT(A). Before the CIT(A), the Assessee contended that the Assessee, as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Assessee's information, till date no lease/concession has been executed by the Central Government in favour of the partnership firm. In the hands of Shri Thakur Dilip Singh, the AO assessed the said receipt under the head Capital Gains. The same treatment should be given in the case of the Assessee. CIT(A) after going through the submission of the Assessee treated the consideration so received as Capital Gains by observing as under : "I have gone through the facts of the case contents of the assessment order and written submission of the assessee. The AO has relied on the following case laws: 1. Eclat Construction Company Pvt. Ltd. Vs. CIT 172 ITR 84 (Pat) In this case assessee is a private limited company incorporated June' 1967 with object to carry on business of engineering and building contract. The object also include buying, selling, manufacturing, repairing and letting out on higher and dealing in all plants and machineries. The bulldozer is acquired after taking loan on various finance institutions and it was let out to Hyderabad Investment Trust Ltd., on a monthly high charges of Rs.12,000/-. The assessee has shown income as a income from business but appellate A....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Banashankari Mining Corporation Bangalore as well as the agreement dt. 23.4.2009 vehemently contended that what the Assessee has sold to M/s. BRN-Black Diamond Oversea & Mining Projects Pvt. Ltd. Bangalore is its right in partnership firm and the consideration received was a capital receipt chargeable to tax under the head „Income from Capital Gains'. The Assessee by becoming partner in the firm got right as a partner and whatever concession/mining lease, if to be allotted to the firm, would be treated as profit earning apparatus for the firm. The Assessee has simply relinquished his right in the partnership firm and relinquishment of a right in a partnership firm is a transfer. The case of the Assessee is duly covered by the decision of the Hon'ble Madras High Court in the case of A.K. Shrafuddin vs. CIT, 39 ITR 333 (Mad). It was also submitted that the AO has wrongly relied on the decision of JCIT vs. Khanna and Anndhanam, 115 TTJ 663 (Delhi). This decision was subsequently reversed by Hon'ble High Court and in this case also ultimately the case was decided in favour of the Assessee by holding that the amount received by the Assessee under terms of Release Agreeme....