TaxTMI 
TaxTMI 
2015 (2) TMI 1
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....88,87,419 (in order it is mentioned as 2,75,61,076/-) in respect of interest receivable from GSIL on the assumption that right to receive interest from GSIL to whom the appellant had advanced a loan during the A.Y. 1994-95 had accrued to appellant this year. It is submitted that on the facts and circumstances of the appellant's this year. It is submitted that on the facts and circumstances of the appellant's case the CIT(A) ought to have deleted the same. It is submitted it be so held now. 2.1 The learned Commissioner of Income Tax (Appeals) has erred in upholding the additions of Rs. 1,88,87,419 (in order it is mentioned as 2,75,61,076/-) in respect of interest receivable from GSIL without appreciating the fact that rate of interest was subject matter of arbitration proceedings and hence there is no accrual of interest during the year. 2.2 Without prejudice to above the learned Commissioner of Income Tax (Appeals) has erred in upholding the additions of Interest of Rs. 1,88,87,419/- calculated @ 17 % when arbitrator has awarded interest @ 11.5%. ....
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....ed depreciation of Rs. 73,43,97,518/-. The appellant had advanced interest bearing loan to Gujarat State Investment Limited (GSIL) in A.Y. 1994-95 carrying interest @ 17%. The appellant had been accounting for and offering in its return of income the full amount of interest year after year right from A.Y. 1994-95 till A.Y. 2002-03 and however GSIL had disputed the interest liability and not paid any interest after 30.09.1994. The Assessing Officer called for details of accrued interest on loan given to GSIL and whether interest accrued accounting of interest on accrual basis. In response it was submitted by the assessee that till A.Y. 2002-03 the assessee company had expectation of receiving the interest from GSIL. However, considering the fact that no interest whatsoever was received from GSIL, Board of Directors on 14.06.2003 resolved not to account for interest on accrual basis at a contracted rate for A.Y. 2002-03 on GSIL loan. Accordingly, during A.Y. 06-07 also, no interest was accounted in the books of account. Without prejudice it was submitted that an arbitration proceeding was filed against GSIL towards recovery of interest and the arbitrator had directed GSIL to make pa....
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....ward of the arbitrator was passed in September 2006 in previous year under consideration. He relied upon Sarabhai Chemicals Pvt. Ltd. vs. CIT - 257 ITR 572(Guj) for real income theory and it was held by the Hon'ble Gujarat High Court that the concept of real income could not be utilized for whittling down or nullifying or defect the provisions of the statute. The concept of reality of income is not applicable where the income had already accrued. It was in this context the liability for the period prior to the resolution was upheld by the High Court. The Hon'ble Gujarat High Court in Sarabhai Chemicals Pvt. Ltd. vs. CIT (supra) has confirmed the finding on of the Tribunal that interest income accrues and is taxable, where accrual system is followed, whether such amount is received or not. Where a holding company advances loan to its subsidiary and had forgone interest by resolution dated 30.06.1978 shifting the date of charge of interest to 01.08.1979, liability up to this date for accrued interest cannot be avoided by the holding company. He further relied upon in case of CIT vs. Shiv Prakash Janak Raj & Co. Pvt. Ltd. - 222 ITR 583(SC) and in case of Morvi Industried Ltd. vs. CIT ....
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.... then no interest income is required to be accrued during the year. The AO is directed to decide the issue de novo as directed above but by affording opportunity of being heard to the assessee. Thus, Ground no.1 of the assessee's appeal is allowed for statistical purpose." From the side of the Revenue, ld. CIT. D.R. relied upon the orders of authorities below but fairly accepted the proposal of the appellant. 8. We have gone through the orders of authorities below and Co-ordinate 'D' Bench decision in assessee's own case for A.Y. 05-06. The facts are similar and matter has been set aside by the Co-ordinate 'D' Bench on similar issue to the A.O. for re-examination of explanation given by the appellant before us that the interest up to the end of the year has already been provided/accrued in excess, then no interest income is required to be accrued during the year. Accordingly, the matter is set aside to the A.O. on similar directions as given for A.Y. 05-06. 9. Ground No.3 of the assessee's appeal is for disallowance of Rs. 51,49,457/- out of consumption of stores and spares during the previous year. The assessee has claimed expenditure of Rs. 5710.25 lacs on account of consumpti....
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....inery. As per A.O's. observation it has endorsing benefit to the assessee. The matter is required to re-examine with reference to addition confirmed by the CIT(A). The A.O. is directed to re-examine the nature of expenditure item-wise and take decisions as per law. 13. Ground no.4 is against confirming disallowance of depreciation amounting to Rs. 7,93,490/- on the assets leased by the appellant to Western Railways. The appellant had leased certain railway wagons to Western Railway and claimed depreciation on it. The A.O. asked to give justification for claiming of depreciation on those railway wagons. The assessee offered explanation before the A.O. and claimed that lease rent of Rs. 72,15,314/- was credited in P&L account and had shown as income and an amount of Rs. 27,71,806/- being lease equalization amount was debited to the P&L account and shown as reduction from the lease rent. But as in computation of total income, the lease equalization amount of Rs. 27,71,806/- was added in the income and offered for taxation but depreciation as per IT law was claimed. The appellant also claimed if the A.O. did not allow the depreciation on railway wagons then the principal amount of ass....
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....er for A.Y. 2003-04. The pleadings of the appellant on the issue are identical to those made in connection with the case for A.Y.2003-04. On identical issue for A.Y. 2003-04 vide order No.CAB/VI-97/06-07 dated 31-01-2007 at paras 17 to 17.3.6 on page Nos.42 to 56 the claim of the appellant has been disallowed. Relying on my predecessor's order for A.Y. 2003-04 the disallowance of depreciation of Rs. 7, 93,490 is confirmed." 15. Now the assessee is before us. The ld. Counsel for the appellant contended that the railway wagons were given on lease to Western Railway since 1997-98. The lease rent has been offered for taxation and depreciation on assets have been claimed. He further drawn our attention in assessee's own case for A.Y.03-04 to 05-06 in ITA Nos. 1373 & 3993/Ahd/07 & 2401/Ahd/08. The operative part of the Co-ordinate 'D' Bench decision is as under: "35 We have heard the rival contentions and perused the facts of the case. As regards reliance on the decision of the Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd.(supra) by the learned DR, the arguments of the learned DR that the assessee ha....
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....armada Scientific and EducationResearch Society (NE&SRS) Rs. 6,59,845/- 3. Rent Deposit Rs. 22,800/- 4. Deposit with Commercial tax Officer, Orissa Rs. 4,000/- Rs. 21,08,918/- The A.O. has given reasonable opportunity of being heard during the course of assessment proceeding. The appellant had filed the suit which was still pending and ld. A.O. concluded that there was a hope of recovery of money and therefore it cannot be said to have become irrecoverable. The appellant is not a banking company. Therefore, principal amount cannot be claimed as bad debts. Thus, the ld. A.O. made the addition of Rs. 21,08,918/-. 19. Being aggrieved by the order of the A.O., the assessee went in appeal before the CIT(A) who had dismissed the appeal by observing as under :- "17.3 I have carefully considered the rival contentions. In my view the amounts written off by the appellant are not in the nature of bad debts but could be categorized as business loss. The business loss would be allowable only in the assessment year in which the recovered amount is determined. There is a disti....
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....ut of the interest claimed u/s. 36(1)(iii) on account of diversion of borrowed funds to subsidiary and associate concerns, by merely relying on the appellate orders for earlier years (which have been contested by the Department), without appreciating that each year's Income-tax proceedings are independent and the matter had to be decided on merits in the light of the principles settled by authoritative jurisdictional pronouncements. (b) The CIT.(A) failed to appreciate the legal principle, that onus u/s. 36(1)(iii) lies on the assessee to prove that each loan is used for the purposes of the business and there is no presumption in law that it is own capital or surplus funds that were diverted for non-business purposes, as settled in the case of Kishanchand Chellaram Vs. CIT 114 ITR 654 (Bom), R. Dalmiya Vs. CIT 133 ITR 169 (Del.), CIT Vs. M.S. Venkateshwaran 222 ITR 163 (Mad), K.Somasundaram & Brothers CIT 238 ITR 939 (Mad) and CIT Vs. Motor General Finance Ltd. 254 ITR 449 (Del) which was confirmed in principle by the Supreme Court in the case of Motor General Finance vs CIT 267 ITR 381 (SC). &nb....
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....,50,000/- on account of investment made by the assessee in equity share of Gujarat Green Revolution Company Ltd. 6. On the facts and in the circumstances of the case, the Ld. CIT. (A) erred in deleting the disallowance u/s. 40(a)(ia) on account of non deduction of TDS on CHA charges paid of Rs. 6,93,372/- and consignment expenses paid of Rs. 76,00,509/- 23. The first ground of Revenue's appeal is against deleting the addition of Rs. 3,72,84,754/- on account of the interest claimed u/s. 36(1)(iii). The A.O. observed that the appellant had made total interest free advance was Rs. 32.81 crore to its subsidiary and associated concern. The assessee company had paid net interest of Rs. 42.19 crore on fixed loan and to others. The A.O. had worked out how borrowed fund were utilized for making interest free advances as under :- (Amount in Rs. 000s) i) Fixed Assets (Gross block) 2,59,528.58 ii) Capital Work in Progress 4,937.55 iii) Investments 14,865.27 iv) Inventories 31,101.3....
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....en established by the appellant before the A.O. He further claimed that Hon'ble Gujarat High Court in assessee's own case for A.Y. 1992-93 to had deleted the disallowance of interest. The Hon'ble Tribunal also had deleted the disallowance of interest expenses in A.Y. 03-04 to 05-06. Therefore, the same may be allowed in this year. 26. We have perused the order of the authorities below and gone through the submission of the assessee and heard the arguments from both the sides and case relied upon by the assessee in his own case. On verification of the fund, it is found that the appellant had interest free fund for making such advances. Further, these advances were given in commercial expediency. The finding of the Hon'ble Gujarat High Court in assessee's own case for A.Y. 1993-94 is as under: "10. Thus, it is apparent that the Supreme Court was dealing with the question of allowability of interest on borrowed funds which were given as interest free loan to the sister company. It is in the context of the aforesaid facts that the Court held that the test in such a case is whether this was done as a....
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....(A). Thus, Ground no.1 of the Revenue's appeal is dismissed." We respectfully following the decisions of Hon'ble Gujarat High Court as well as Co-ordinate 'D' Bench, Ahmadabad, decision in assessee's own case and we delete the addition made by the A.O. u/s. 36(1)(iii) of IT Act at Rs. 3,72,84,754/- and confirm the order of the CIT(A). The Revenue's appeal is dismissed on this ground. 27. Ground no.2 is against allowing the expenses of Rs. 5,08,764/- by the CIT(A) on protecting the assets of M/s. Gujarat Narmada Auto Ltd. (GNAL), a sister concern of the assessee. The ld. A.O. had given show cause notice on this issue for justification of the expenses. The appellant had taken over GNAL and made it wholly own subsidiary. The subsidiary suffered heavy losses. The financial institution was not providing finance to it. Therefore, the appellant supported the subsidiary. The subsidiary declared sick by the BIFR in 1995. The appellant company only secured creditor had to protect the assets of GNAL because of its huge investment therein. The assessee relied upon Hon'ble Supreme Court decision in case of CIT Vs Birla Cotton Spg & Wvg Mills Ltd (1971) 82 ITR 166 before the A.O. but the reply....
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....el for the appellant vehemently argued that it was decided mutually by both the parties that it would bear its own cost for salary of staffs. The appellant had explained this issue in detail before the A.O. Hon'ble Tribunal in assessee's own case in A.Y. 03-04 to 05-06 had deleted the disallowance of expenditure incurred in IT business. After following the Co-ordinate Bench decision for A.Y.05-06 in assessee's own case. The presumption of the A.O. that these expenses were not recovered from M/s. Infinium (India) Ltd. without any basis. He has not brought on record any contradictory evidence to show that the expenses claimed by the assessee are not genuine. Therefore, we do not find any infirmity in the order of the CIT(A) and confirm the order of CIT(A). The Revenue's appeal is dismissed on this ground. 32. Ground no.5 is against deleting the disallowance u/s.14A of Rs. 1,50,000/- on account of investment made by the assessee in equity share of Gujarat Green Revolution Company Ltd. (GGRCL). The ld. A.O. observed that the appellant had made investment in equity of Gujarat Green Revolution Company Ltd. of Rs. 15,00,000. The A.O. considered this payment from the angle of disallowance....