AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2022
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....onvenience and disposed off accordingly by a common order. I.T.A. No. 316/Kol/2006 - ASSESSEE's APPEAL 2. Disallowance of Deduction u/s 80HHD - Exclusion of payments received in Indian Rupees from Foreign Airlines and Embassies - Rs. 2,20,87,392/- 2.1. The brief facts of the case are that the assessee claimed deduction u/s 80HHD of the Act in respect of profit derived from the services provided to the foreign tourist s in ac cordance with the provisions of sect ion 80HHD of the Act. The assessee company claimed total foreign exchange receipts of Rs. 182,77,99,427/- for the purpose of computing deduction u/s 80HHD of the Act. Out of this, the Learned Assessing Officer observed that a sum of Rs. 2,20,87,392/- made by the Foreign Embassies received in Indian Rupees and accordingly held that the same should not be considered for deduction u/s 80HHD of the Act as the same was not received in foreign currency. Aggrieved, the assessee preferred an appeal before the Learned CIT(Appeals) who upheld the disallowance of the Learned Assessing Officer. Aggrieved, the assessee preferred further appeal before this Tribunal on the following ground:- "1. That on law as well as on the....
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....dated 29.6.2005 had set aside the matter to the file of the Learned Assessing Officer to verify the nature of receipt with RBI and di rected the Learned Assessing Officer to grant deduction u/s 80HHD i f the RBI confi rms that the said receipt to have come in agreed mode as per the Circular. The Learned AR stated that in the said set aside assessment, the Learned Assessing Officer had granted deduction u/s 80HHD of the Act in respect of the amount received in Indian Rupees by agreeing to the RBI Ci rcular. 2.4. In response to this, the Learned DR argued that the RBI Ci rcular is issued in the context of EPCG scheme and not applicable for income tax purposes and pleaded that the payment s received in Indian currency from foreign airlines and embassies does not fall in the category of convertible foreign exchange as defined in FERA and the Income Tax Act does not permit to go beyond this provision to look for the definition of foreign exchange eligible for deduction u/s 80HHD. He further argued that foreign exchange eligible for a particular scheme of the Ministry of Commerce may not be regarded as foreign exchange for the purpose of Income tax, more so, when the Ci rcular of the ....
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....essment proceedings for the Asst Year 1999-2000 on the same issue to the same assessee. Hence in view of the aforesaid facts and ci rcumstances and provisions of the Act, we direct the Learned Assessing Officer to grant deduction u/s 80HHD of the Act to the assessee. Hence Ground No.1 raised by the assessee is allowed. 3. Disallowance of deduction u/s 80HHC for sale proceeds of Flight Kitchen Services -Rs.1,96,89,591/- 3.1. The brief fact s of this issue are that the assessee derived sale proceeds on account of flight kitchen services (sale of food and beverages) to out bound flights of Foreign Airlines and claimed deduction u/s 80HHC of the Act and proceeds received thereon in Indian Rupees. As the proceeds were not received in convertible foreign exchange, the Learned Assessing Officer denied deduction u/s 80HHC on the said turnover which was also in line with the decision taken by him in the earlier years which was later upheld upto ITAT. However, the assessee had preferred an appeal against ITAT order before the Hon'ble Calcutta High Court and it was pending at that time. The addition made by the Learned Assessing Officer was also upheld by the Learned CIT(Appeal s) on....
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....cumstances of the case the sale proceeds receiv ed for supply of such food and beverages was in convertible foreign exchange within the meaning of section 80HHC of the Act? (c) Whether on the facts and in the circumstances of the case your petitioner is entitl ed to the deduction claimed under section 80HHC of the Act? The relevant operative portion of the said judgement is reproduced below:- "13. After hearing the learned Counsel for the parties and after going through the aforesaid provisions of law, we find that in order to get the benefit of deduction under Section 80HHC of the Act, the assessee must comply with the terms of the said section. In the case before us, the only grounds of refusal of the benefit are that first, that the sale of such food and beverages to the foreign airlines did not amount to export out of India and secondly, that the payment received from the said foreign airlines in India in the form of Indian rupees could not be treated as payment in convertible foreign exchange within the meaning of the provisions of Section 80HHC of the Act. The word "export" has not been defined in the Act and thus, the said word is to be interpreted in the light of t....
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....the Revenue did not lead any evidence. We, therefore, accept the veracity of the statements contained in the additional pieces of evidence as well as the authority of the persons who issued the letters admitted as additional evidence and proceed to consider whether the appellant has complied with the conditions mentioned in both the Explanations (a) and (aa). 23. The Certificate issued by the office of the Commissioner of Customs dated April 13, 2004 certifies that all bonded goods and catering food supplies are carried in a sealed Hl-Lift of M/s. Oberoi Flight Services, the appellant before us, which is escorted by the Customs Preventive Officer on duty, to the Air Crafts of International Airlines catered by them at the tarmac at Chhatrapati Shivaji International Airport, Mumbai, as required under the regulations of the Customs Act, 1963. In our opinion, the aforesaid certificate indicates that the appellant in the process of selling the food and beverage in the said airport has complied with the condition mentioned in Explanation (aa) of the Section 80HHC. 24. Similarly in reply to the letter written by the assessee to the General Manager of the Reserve Bank of India to iss....
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.... s of the case are that the assessee incurred running and maintenance expenditure of its aircraft s to the tune of Rs. 2,14,04,416/- during the assessment year under appeal. The Learned Assessing Officer in line with the decision taken by him in the earlier years sought to disallow 20% of the same amounting to Rs. 42,80,883/-on account of personal element of usage of ai rcrafts by the Directors and their relatives for personal purposes. This was also upheld by the Learned CIT(Appeals). Aggrieved, the assessee had preferred an appeal before us on the following ground:- "4. That on law as well as on the facts and in the circumstances of the case the Learned CIT(A) erred in confirming the estimated disallowance of Rs. 4,280,883/-, being 20% of Rs. 21,404,416 as against the actual maintenance and running expenditure of aircrafts amounting to Rs. 9.465,892 even though the aircrafts were exclusively used for the purpose of business". 4.2. The Learned AR argued that there cannot be any personal element of expenditure in the hands of the company as the company being a non-natural person. He relied on the decision of the Gujarat High Court in the case of Sayaji Iron and Engineering....
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....sessee out of chartering of ai rc rafts was Rs. 2,02,52,452/-(detail s given in page 186 of paper book) and thereby , the assessee had only derived a surplus of Rs. 1,07,87,457/- ( 20252452-9564995). The Learned AR further argued that full details of expenses and the log book of flights undertaken by the aircraft has been provided from where it could be seen that the expenditure was incurred only for business purposes. He further argued that in Asst Years 1999-2000 and in Asst Year 2001-2002, on the same set of fac ts, this tribunal had restored the issue to the file of the Learned Assessing Officer for veri fication of details to find out whether the same has been incurred for business purposes only. He also stated that during the assessment year under appeal, the assessee had furnished all the detail s of the said expenditure before the Learned Assessing Officer and without giving any categorical finding on the same, the Learned Assessing Officer resorted to make the disallowance on estimated basis on the basis of surmise and conjectures. 4.3. In response to this, the Learned DR heavily relied on the written submissions filed by him on this ground. 4.4. We have heard the ri....
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....vs Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) ; (ii) Sukhdayal Rambilas vs CIT (1982) 136 ITR 414 (Bom.); (iii) Madura Knitting Co vs CIT (1956) 30 ITR 764 (Mad); In view of the aforesaid fact s and ci rcumstances and respectfully following the judicial precedent s thereon, we have no hesitation in deleting the addition made in the sum of Rs. 42,80,883/- on an estimated basis. Accordingly, the Ground No. 4 raised by the assessee is allowed. 5. Addition towards notional gain on foreign currency loan - Rs. 4,15,36,381/- 5.1. The brief facts of this issue is that the assessee company availed 2603.99 Million in Japanese Yen on 13th August 2001 (equivalent to Rs. 100 crores) under Foreign Currency Non Resident - Bank Scheme (in short FCNR(B)) Loan for the purpose of its working capital business. Hence this goes to prove that the loan has been obtained for revenue account. This loan was outstanding as on 31.3.2002 and the same was restated at the exchange rate prevai ling at the end of the year in consonance with the Accounting Standard 11 (AS-11) issued by the Institute of Chartered Accountants of India (ICAI) by the assessee company. The assessee derived a notional gain....
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.... on the orders of the lower authorities. 5.4. We have heard the rival submissions and perused the materials available on record. Admittedly, the assessee on 13.8.2001 had availed foreign currency loan of JPY 2603.99 Million (equivalent to Rs. 100 crores) for the purpose of its working capital business. Hence it can be safely concluded that the loan was borrowed on revenue account. Based on this, it could logically be concluded that any exchange fluctuation arising out of restatement of the said loan at the end of the year, be it gain or loss, would also fall on revenue account and hence automatically comes under the ambit of taxation if it is a gain and allowable as an expenditure if it is a loss. This issue is squarely covered by the decision of the Supreme Court in the case of CIT vs Woodward Governor India P. Ltd reported in 312 ITR 254 (SC) wherein the questions raised before thei r Lordships were as under:- (i) Whether, on the facts and circumstances of the case and in law, the additional liability arising on account of fluctuation in the rate of exchange in respect of loans taken for rev enue purposes could be allowed as deduction under section 37(1) in the y ear of ....
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....escribed in Sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "profits and gains of business". In Sections 30 to 36, the expressions "expenses incurred" as well as "allowances and depreciation" has also been used. For example, depreciation and allowances are dealt with in Section 32. Therefore, Parliament has used the expression "any expenditure" in Section 37 to cover both. Therefore, the expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M.P. Financial Corporation v. CIT reported in 165 ITR 765 the Madhya Pradesh High Court has held that the expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is a "loss" even though the said amount has not gone out from the pocket of the assessee. This view of the Madhya Pradesh High Court has been approved by this Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT re....
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....ted loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually. At this stage, we need to emphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where Section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the Acc....
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.....9,50,00,000/- (i) Amounts paid to Lake Palace Hotels & Motels Ltd...Rs.2,50,00,000/- This was paid as security deposit for taking land of the Hotel s at Udaipur, Rajasthan and interest @ 9% has been charged for such deposit. The said party had also duly deducted tax at source on the interest payment made to the assessee . (ii) Amounts paid to Jyoti Pvt Ltd - Rs. 58,28,690/- The amount represents the balance recoverable from the company which was pending for certain disputes. The assessee has duly charged interest @ 18% on the loan amount both for FY 2001-02 & 2002-03 and the amount was received in full in the FY 2002-03. (iii) Amounts paid to Nandi Hills & Resorts Ltd - Rs. 9,01,50,000/- This represent s advance given for the Joint Venture project with Janson Group of Bangalore to construct and operate Golf course in Bangalore. The amount paid is towards advance for acquisition of land for the project. (iv) Amounts paid to Balamurie Island Resort Pvt Ltd - Rs. 69,60,000/- This was paid towards advance for purchase of shares. (v) Amounts paid to Balaji Hotels & Enterprises Ltd.-Rs.15,12,00,000/- The amount was advanced for construction of hotel cum com....
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....Hotel Ltd from whom the assessee had charged interest. Aggrieved, the assessee has preferred further appeal before us on the following ground:- "6. That the Learned CIT(A) was not justified in restricting the addition on account of interest to Rs. 51,401,920/-being 12% of interest free advances given to Associate Enterprises having business connections in operating the hotels owned by such Enterprises". 6.3. The Learned AR argued that the ent ire details as to for what purpose the monies were paid by the assessee company to the aforesaid part ies were given before the Learned Assessing Officer. He argued that the assessee had sufficient own funds at its disposal and hence the borrowed funds were not utilized for advancing monies to aforesaid part ies and hence there should not be any disallowance of interest on borrowed funds. He further argued that all the advances were made in the nature of advances pursuant to ei ther joint venture agreement s or advance for shares and is not paid as loans and hence there is no question of charging any interest on the advances. The Learned AR further argued that all the advances were made as St rategic Investment s to pursue its further....
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....n'ble Apex Court in the case of CIT vs Walchand and Co. (1967) 65 ITR 381 (SC), wherein it was held that in applying the test of commercial expediency whether the expendi ture was excessively laid down for the purpose of business, reasonableness of the expenditure is to be judged from the point of view of a businessman and not that of the revenue. It is well decided that what is to be seen for the purpose of allowability of interest u/s 36(1)(ii i) of the Act is as to whether the borrowed funds were utilized for the purpose of business. In the instant case, the assesee had in fact made borrowings and utilised the same for the purpose of its business. The borrowed funds and the own funds in the form of share capital, reserves & surplus, cash profits derived during the year, etc were inext ricably mixed in the same bank account and hence presumption could be drawn that interest free advances were made out of own funds provided the own funds are more than the amounts advanced interest free to parties. It is relevant to get into the few decisions on this subject:- CIT vs Gopalakrishna Muralidhar reported in (1963) 47 ITR 469 (AP) "The learned counsel maintains that since the capi....
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....t out of the ov erdraft amount and since the amount of the profits for the relevant year far exceeded the liability for advance tax and the entire amount of profits of Rs. 27 lakhs was deposited in the ov erdraft account out of which the bank remitted the advanc e tax, the tax was paid out of the earning of the profits and not out of the overdraft amount taken Jar other business purposes. The revenue contended that the contention, viz. , where there was a mixed account and the profits were sufficient to meet the tax liability from the said account then the presumption should not be drawn that the tax liability was met out of the overdraft account and not out of the profits, was not raised before the Tribunal and, therefore, that contention should not be allowed to be agitated for the first time before the High Court: Held, (i) that though a contention which was not urged before the Tribunal could not be agitated for the first time before the High Court in a re ference, yet it was apparent from the Tribunal's order that the contention that the profits were sufficient to meet the advance tax liability was urged before the I.T. authorities and, therefore, in view of the ampli....
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....where there is a common fund that the money advanced came only out of its own funds. The decision of the Andhra Pradesh High Court in the case of Gopikrishna Muralidar [1963] 47 ITR 469, would support the ease of the Revenue (?) to that extent. In that case, the assessee-a Hindu undivided family-had a large capital of Rs. 20 lakhs and also made large borrowings during the relevant year and had paid interest amounting to Rs. 93,611. During the relevant previous year a sum of Rs. 1,77,984 was withdrawn from time to time for household expenses and the question that arose before the Andhra Pradesh High Court was whethera part of interest paid on the borrowed capital could be disallowed. The Andhra Pradesh High Court held that it was not a case that where any particular sum purported to be borrowed on behalf of the business was spent for household expenses and this was a case where the loans were taken for carrying on the business of the assessee-firm, but the family used to withdraw some amounts from the business and which were within the limit of capital supplied by the family. In that situation the court held that presumption can arise that where the assessee had both his own money a....
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....that there was sufficient credit balance and, therefore, the amount advanced to Savera Hotels (P.) Ltd., were not out of the borrowed amount was not based on valid and relevant materials?" We answer the questions referred to us in the affirmative and against the Revenue. However, in the circumstances, there will be no order as to costs". CIT vs Britannia Industries Ltd reported in 280 ITR 525 (CAL) "The assessee had a packing credit sanctioned by Syndicate Bank, to the extent of Rs. 25lakhs. This was enhanced to Rs. 175 lakhs. One the very dateof enhancement of the packing credit, a sum of Rs. 165 lakhs was advanced to M through a cheque drawn on Syndicate Bank. The Assessing Officer found that the firm to which interest free loan was advanced was constituted by the relatives of the directors of the assessee. The Assessing Officer pointed out that the advance was made to M without any security and without any stipulation for payment of interest, whereas the assessee had paid 12 per cent, interest on the packing credit to Syndicate Bank. The Assessing Officer disallowed the interest. The Tribunal found that the total sale proceed of the relevant financial year were Rs. 114.....
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.... but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. Decisions relating to section 37 will also be applicable to section 36(1) (iii) because in section 37 also the e xpression used is "for the purpose of business". "For the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. ATHERTON (H. M. INSPECTOR OF TAXES) V. BRITISH INSULATED AND HELSBY CABLES LTD. [1925] 10 TC 155 (HL), EASTERN INVESTMENTS LTD. v. CIT [1951] 20 ITR 1 (SC) ; [1951] 21 Camp Cas 194 AND CIT -VS.- CHANDULAL KESHAVLAL AND CO. [1960] 38 ITR 601 (SC) followed. The expression "for the purpose of busines s" is wider in scope than the expression "for the purpose of earning profits". CIT v. MALAYALAM PLANTATIONS LTD. [1964] 53 ITR 140 (SC) and CIT v. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [1971] 82 ITR 166 (SC) followed. To consider whether one should allow deduction under section 36(1)(iii) of interest paid by the assessee on amounts borrowed by it for advancing to a sister concern, the authorities and the courts should ....
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....e Tribunal had taken the view that the said loans given to the firm's sister concerns were for business purposes. Accordingly, the Tribunal had deleted the disallowances during the AYs 1992-93 and 1993-94. It is equally true that for the AY 1994-95 the Tribunal took a contrary view in view of change in law brought about by Finance Act 1992. Prior to 1.4.93 payment of interest to the partner had to be added back to the assessable income of the firm whereas after Finance Act 1992 such payment became an item of deduction for computing the assessable income of the firm and it became part of the business income of the partner. In view of this change of law, the Tribunal disallowed payment of the interest in the present case for AYs 1994-95, 1995-96, 1996-97 and 1997-98. However, the point which has been left out from consideration is that the loans which were given in August/September 1991 to the sister concerns got wiped out only in AY 1997-98. As stated above, for AY 1992-93 and AY 1993-94, the Tribunal held that the loans given to the sister concerns were out of the firm's Funds and that they were advanced for business purposes. Once it is found that the loans granted in August/Septe....
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....ned issue, we hold that the advances were made by the assessee to various parties during the course of its business and are st rategic investment s. We also hold that the borrowed funds were not diverted for non-business purposes as sufficient own funds were available with the assessee to make interest free advances to its group concerns. We also hold that when borrowed funds and own funds were inextricably mixed in the same bank account and i f the own funds are more than the amounts advanced interest free to sister concerns, then the presumption could be drawn in favour of the assessee that those advances were made only out of own funds of the assessee. We further hold that from the aforesaid fact s available on record, the assessee had advanced monies to various concerns during the course of its business to further strengthen its business interests with the said parties and as a measure of commercial expediency. Accordingly we hold that the action of the Learned Assessing Officer in disallowing a sum of Rs. 6,27,16,642/-is not warranted and Ground No. 6 raised by the assessee is allowed. 7. Disallowance of legal expenses - Rs. 38,49,317/- 7.1. The brief fact s of this issu....
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.... were in respect of payments made to various renowned counsels for pursuing the various legal disputes of the assessee arising out of its business. We do not appreciate the view of the Learned CITA that additional evidences filed by the assessee in the form of detail s and bills for legal expenses were not admitted by him after calling for a remand report from the Learned Assessing Officer. In fact the remand report it self was called for from the Learned Assessing Officer only after admission of additional evidences by the Learned CIT(Appeals). Moreover, the assessee had duly filed objections to the remand report that had the original bills for legal expenses been called for by the Learned Assessing Officer, it could have been filed by the assessee. It is also observed that no adverse comments were given by the Learned AO regarding the incurrence of legal expenses except stating that original bills were not filed. In view of this, we have no hesitation in deleting the addition made towards disallowance of legal expenses of Rs. 38,49,317/-and accordingly the Ground No. 7 raised by the assessee is allowed. 8. Disallowance of proportionate management expenses u/s 14A of the Act -R....
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....see had sufficient funds in the form of share capital, reserves and surplus and cash profit for the year which worked out to Rs. 646.65 crores ( being the net owned funds at the beginning of the year to the tune of Rs. 574.46 crores plus cash profit for the year amounting to Rs. 72.19 crores) and the total investment s made by the assessee is only Rs. 280.01 crores and hence it could be easily inferred that the investments were made only out of own funds. In response to this, the Learned DR supported the orders of the lower authorities. 8.3. We have heard the rival submissions and perused the materials available on record. The relevant assessment year under appeal is 2002-03 at which point of time, the provisions of Rule 8D was not in force and the same was made applicable only from Asst Year 2008-09 as decided in the decision of Godrej & Boyce Manufacturing. However, it is not in dispute that the assessee had derived taxable income as well as tax free income and incurred expenditure for deriving both the incomes and hence disallowance is definitely warranted in terms of section 14A which is brought in the statute book with ret rospective effect from 1.4.1962. The disallowanc....
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....grieved, the revenue is in appeal before us on the following ground:- "1. On the facts and in the ci rcumstances of the case Ld. CIT[A] has erred in deleting the Assessing Officer's additions of Rs. 73,61,14,470/- on account of collections of sales tax, expenditure tax, luxury tax, service tax, entertainment tax and work contract tax forms part of total turnover in computing deduction u/s.80HHD of I.T. Act in reliance with provisions of section 145A of I.T. Act and verdict of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau -vs- CIT [87 ITR 542.]". 9.2. The Learned DR vehemently supported the orders of the Learned AO and relied on the decision of the apex court in Chowringhee Sales Bureau vs CIT (87 ITR 542). In response to this , the Learned AR argued that it is now well settled law that computation of deduction under Chapter VIA is an independent code by itself for computing relief available under the relevant provisions and indi rect taxes are not included in the total turnover for computation of deduction u/s 80HHC and 80HHD of the Act as no element of profit is involved in it and placed reliance on the decision of the Supreme Court in the case of CIT vs Laks....
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....in the case of CIT vs Lakshmi Machine Works reported in (2007) 290 ITR 667 while interpreting the similar provision of section 80HHC(3) of the Act. It further appears that copy of Accountant's certificate in Form 10CCAD has also been produced. Therefore, the Assessing Officer wrongly considered the total turnover of Rs. 395,62,34,559/-instead of gross receipt in business amounting to Rs. 390,93,27,318/- certified by the Auditor and accordingly, the relief allowed u/s 80HHD should be enhanced to Rs. 77,62,17,303/- instead of Rs. 77,53,58,471/- allowed by the Assessing Officer." In view of the aforesaid decisions, we are not inclined to interfere with the decision of the Learned CIT(Appeals) on this issue. Accordingly, the Ground No. 1 raised by the revenue is dismissed. 10. Apportionment of common expenses to Bangalore unit for claiming deduction u/s. 80IA of the Act - Rs. 2,70,86,842/- 10.1. The brief facts of this issue are that the assesee had incurred head office expenses and had allocated the same to the respective company or unit of the group. The remaining common expenses which is not directly allocable are apportioned as per ratio of saleable hotel room available in....
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....AR pleaded that no order has been passed by the Learned AO for the Asst Years 2000-01 & 2001-02 pursuant to old tribunal orders. However, he also agreed for set aside of this issue to the file of the Learned AO to consider this issue in line wi th the directions given by this Tribunal for the Asst Years 2000-01 & 2001-02. 10.4. We have heard the rival submissions and perused the materials available on record. We find that this tribunal on a similar issue for the Asst Years 2000-01 & 2001-02 had set aside to the file of the Learned Assessing Officer in ITA No. 833/Kol/2005 and ITA No. 1090/Kol/2005 respectively vide order dated 8.9.2006 with the following di rections :- "Considering the totality of the facts of the case and following the decision of the Tribunal in assessee's own case for A.Y. 2000-01, we restore the matter back to the file of the AO to decide the issue afresh on the basis of the details filed by the assessee. The A.O. should give adequate opportunity of being heard to the assessee as per law. We direct accordingly. Ground of appeal no. 1 by the revenue is allowed for statisti cal purposes." Respectfully following the decision of the co-ordinate bench of th....
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....sessee had set up two seven star hotel s and all the expenses for const ruction of the said hotels were duly capitalized by the assessee. The subject mentioned pre-opening expenses are nothing but expenses incurred on salaries, recruitment, training and development etc of General Managers, Service Engineers etc who are di rectly related to the operation of the Hotel after opening so that no obstruction arises while providing services to the guest s when the hotel commences its business. Hence these are only expendi ture incurred from the time of set up of business to the time of commencement of business. He further argued that these expenses are necessarily to be incurred for smooth functioning of the post commencement of business of the hotel and no way it is connected with the const ruction of the project. He argued that the expenditure incurred on the personnel are considered as revenue expenditure for income tax purposes and treated as deferred revenue expenditure in the books of accounts as the Income Tax Act does not recognize deferred revenue expendi ture other than those contemplated in the speci fic provisions such as section 35D of the Act. He relied on the decision of th....
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....Therefore, the assessee was entitled to depreciation and deduction of expenditure for the assessment year 1966-67 and depreciation for the assessment year 1969-70". CIT vs Ramaraju Surgical Cotton Mills Ltd (1967) 63 ITR 478 (SC) Held that "where a business had been set up by the assessee, the expenses incurred in such setting up could not be disallowed on the ground that the assessee had not commenced commercial production in such business". CIT -vs.- Hughes Escorts Communications Limited [2009] 311 ITR 253 (Delhi) "A plain reading of section 2(34) of the Income-tax Act, 1961, shows that for a new business the previous year is the period beginning with the date of setting up of the business. There is a distinction between setting up and commencement of a business. When a business is established and is ready to compliance business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred during the interregnum after the setting up of the business and before the....
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.... that the new unit was a part of the existing business and there was no dispute that there was unity of control and interlacing of the units. Thus the expenses incurred by the assessee for the setting up of the new unit which was a part of the existing business were therefore to be allowed as a revenue expenditure". The special leave petition filed by the revenue against this order is dismissed by the Supreme Court in CC 12361/2007 dated 3.1.2008. Delhi ITAT - 15 SOT 348 (Del) Hotel Hans P Ltd vs ACIT "It is well-settl ed proposition of law that setting up of business and commencement of business are two separate activities. Once a business is set up, all the exp enses of revenue nature are to be allowed, notwithstanding the fact that commercial operation started subsequently. When a business is established and is ready to be commenced, then it can be said that business is set up, but before it is ready to be commenced, there may be interval between a business which is set up and a business which is commenced. All the revenue expenditures incurred after setting up of the business but before its commencement are permissibl e deductions while computing the income under....
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....ile computing income from technical fees receivable from hotels under the agreement for technical assistance on the ground that such amounts represent provision for repai rs and replacement of bad and doubtful debts which are not allowable under the Act. This addition was deleted by the Learned CIT(Appeals) by relying on the order of his predecessor on the same issue for the earlier year. Aggrieved, the revenue is in appeal before us on the following ground:- "4. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the addition of Rs. 28,91,127/-on account of provision for repairs and replacement of bad and doubtful debts in relying on the decision of Ld. CIT[A)'s order in appeal No.11/CIT[A]-VIII/Cir-8/04-05 dated 07.02.2005 for asstt. year 2001-02 and the decision of Hon'ble ITAT in ITA No.891/Kolkata/2004 dated 29.06.2005 for asstt. year 1999-2000 both in assesses's own case not appreciating the Assessing Officer's addition under the head with reference to specific findings recorded in his asstt. order". 12.2. The Learned DR argued that the provision for repai rs and replacement of bad and doubtful debts is not allowable as deduction under the....
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....old the same. Grounds of appeal No. 2 by the revenue is therefore dismissed". In view of the fact that there is no change in the facts and circumstances of this issue, respect fully following the decision of the coordinate bench of the Tribunal, we are not inclined to interfere with the decision of the Learned CITA on this issue. Accordingly, the ground no. 4 raised by the revenue is dismissed. 13. Addition on account of excess provision of technical fees -Rs.4,62,806/- 13.1. The Learned Assessing Officer added back an amount of Rs. 4,62,806/- on account of excess provision of technical fees for earlier years written back ignoring the clarification given at the time of assessment proceedings that the said amount was provided in accounts of that year on the provisional basis pending audited accounts and as such excess amount was offered for taxation in that year. After audit was over and the amount recovered was determined, the excess provision was written back during the year under assessment and since the amount was deleted and offered for taxation in earlier years it was claimed as deduction. 13.2. The Learned CIT(Appeals) found that the assessee has placed on record ....
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....aim that might arise in the form of compensation due to the death of a guest in the swimming pool of the hotel in the year 1997-98 and this issue was under litigation before the Hon'ble Delhi High Court. During the Asst Year 2002-03, the assessee received the final order from the Delhi High Court wherein, it was held that the advances already paid shall be t reated as compensation paid by the assessee. Accordingly, this advance was written off in the books of the assessee during Asst Year 2002-03 and deduction claimed ac cordingly as expendi ture incurred wholly and exclusively for the purpose of business. The Learned Assessing Officer records this fact but proceeded to disallow the same as the copy of the Delhi High Court order was not placed before him. Aggrieved, the assessee challenged this issue before the Learned CIT(Appeals), before whom the Delhi High Court order was placed by the assessee wherein, the assessee accepted the advance paid of Rs. 86,21,700/- to the respondent of the claim case on thei r agreeing not to lay any further claim in future arising out of the death of the plaintiff. Accordingly, the Learned CIT(Appeal s) deleted this addition. Aggrieved, the revenue ....
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....ddition towards interest disallowance in respect of other parties. Against this relief granted to assessee, the revenue is in appeal before us on the following ground:- "7. On the facts and in the circumstances of the case Ld. CIT[ A] has erred in restri cting the addition to the extent of Rs. 5,14,01,920/- as against Assessing Officer's addition of Rs. 6,27,16,642/- on account of interest paid on loan free advances made to sister concern on accepting fresh explanation made by assessee without appreciating the fact and circumstances of the loan transactions recorded by Assessing Officer in his assessment order". 15.2. We have heard the rival submissions. This issue has been elaborately dealt with in Ground No. 6 raised by the assessee in this order. The decision rendered thereon will be equally applicable to Ground No. 7 raised by the revenue. Accordingly, ground no. 7 raised by the revenue is dismissed. 16. Disallowance on account of s taff welfare expenses -Rs.50,00,000/- 16.1. The brief fact s of this issue is that the assessee company is in the habit of providing free / subsidized meals to i ts employees on duty. The Learned Assessing Officer proceeded to disallow a....
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....Officer. It is seen that the learned counsel for the revenue had sought to withdraw this ground before the Hon'ble High Court while pursuing the appeal in the earlier year based on the inst ructions from the Income Tax Department which is clearly stated in para 2 of the order of the High Court. This only leads to a situation that probably the revenue in its wisdom thought it fit not to pursue this issue before the High Court as the addition made thereon may not get sustained in the High Court. We find that this issue is covered in favour of the assessee by the decision of this Tribunal in assessee's own case for the Asst Year 2001-02 in ITA No. 833/Kol/2005 dated 8.9.2006 . The operative portion of the said judgement is reproduced hereunder:- "32. After hearing both the sides we find that the company has entered into a memorandum of settlement dated 27t h September, 1999 with the employees of Oberoi Tower, and Oberoi Mumbai under section 18(1) read with section 2(P) of the Industrial Dispute Act, 1947 and Rule 62 of the Industrial Disputes (Bombay) Rules, 1957. We find that Clause No. 13 of the said settl ement reads as under:- "13. Outdoor Allowance/Lunch Allowance - ....
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....ceedings. But the assessee submitted the unit wise detail s of expenses incurred on this account. The Learned Assessing Officer felt that the detail s furnished by assessee are of no use as the details simply indicate the amount incurred by an individual unit but the detail s of expenses are not available and hence genuini ty of the same could not be veri fied. Accordingly he disallowed a sum of Rs. 1,07,42,335/- being 2% of total expenditure on that ac count on an estimated basis. On first appeal, the Learned CIT(Appeals) deleted this addition on the ground that the reasons given by the Learned Assessing Officer for making the disal lowance is vague and cannot be sustained. Aggrieved, the revenue is in appeal before us on the following ground:- "9. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the disallowance of Rs. 1,07,42,335/- out of total expenses incurred on repairs, renewals, replacement and advertisement etc. on the basis of fresh explanation made by assessee whi ch was unverifiable during asstt. proceedings for the y ear due to failure on the part of assessee to produce before Assessing Officer". 17.2. The Learned DR relied on th....
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....f the case Ld. CIT[A] has erred in deleting the disallowance u/s.14A of the I.T. Act the proportionate interest on loan fund utilized in shares for earning exempted dividend income on the basis of facts and ci rcumstances pleaded before him which was unverifiable during asstt. proceedings for the year due to failure on the part of assessee to produce before the Assessing Officer". 18.2. The Learned DR relied on the order of the Learned Assessing Officer. In response to this, the Learned AR argued that most of the investment s in shares were made in earlier years and are practically old investment s. He also argued that onus is on the revenue to prove that the interest paid on borrowed funds related to acquisition of shares yielding tax free income. The Learned AR further argued that the assesee had sufficient funds in the form of share capital, reserves and surplus and cash profit for the year which worked out to Rs. 646.65 crores (being the net owned funds at the beginning of the year to the tune of Rs. 574.46 crores plus cash profit for the year amounting to Rs. 72.19 crores) and the total investments made by the assessee is only Rs. 280.01 crores and hence it could be easily ....
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....as to be excluded for the purpose of arriving at disallowance under Rule 8D(iii)". However, when it is found that the assessee has got sufficient own funds in the form of share capital, reserves and surplus to the tune of Rs. 646.65 crores and cash profit for the year amounting to Rs. 72.19 crores and the total investments (including foreign company investment s) is only Rs. 280.01 crores, and more so when these investment s were made years ago by the assessee, it could easily be concluded that no disallowance u/s 14A of the Act could operate in the facts and ci rcumstances of the case. We draw support from the decision of Delhi Tribunal in the case of Marut i Udyog Ltd vs DCIT reported in (2003) 92 ITD 119 (Del), wherein it was held as below:- "Regarding burden of proof, it IS the settled legal position that burden is on the person who alleges the existence of a fact. If the question of genuineness of expenditure is raised, the burden would be on assessee to prove the same Hence, where assessee claims deduction in respect of any expenditure, than onus would be on the assessee to prove that conditions for its allowability are satisfied. Reference can be made to Supreme Court ....
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.... fact that the Learned Assessing Officer had not brought the nexus between the borrowed funds and the amount invested in the shares of domestic companies, and in view of the fact that the investments in subsidiaries were made out of strategic investment s, we are not inclined to interfere with the decision of the Learned CIT(Appeals) on this issue. We al so hold that dividend, if any, derived from investment in shares of foreign companies made by the assessee would become taxable and hence disallowance u/s 14A would not operate in this regard. We place reliance on the following decisions in this regard :- (i) CIT- vs- Suzlon Energy Ltd (2013) 354 ITR 630 (Guj); (ii) Birla Group Holdings Ltd -vs- DCIT (2007) 13 SOT 642 (Mum. Trib); (iii) ITO -vs- Strides Acrolab Ltd (2012) 138 ITD 323 (Mum. Trib). Accordingly, ground no. 10 raised by the revenue is dismissed. 19. Disallowance of proportionate management expenses u/s 14A - Rs. 50,00,000/- 19.1. The brief facts of this issue is that the assessee had earned dividend income of Rs. 2,45,84,822/- out of the investment of Rs. 280,01,93,396/-. The Learned AO disallowed a sum of Rs. 50,00,000/-towards proport ionate mana....
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.... 20.2. The Learned DR relied on the order of the Learned Assessing Officer. In response to this, the Learned AR argued that since no adverse findings were given by the Learned Assessing Officer during remand proceedings towards this issue, he prayed for deletion of this disallowance. 20.3. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the bills for additions to fixed assets were filed by the assessee before the Learned CIT(Appeals) for the first time and accordingly a remand report was called for from the Learned Assessing Officer who had not given any adverse findings with regard to this issue. Hence there cannot be any grievance on the part of the revenue to agitate this ground before us. Accordingly, we are not inclined to interfere with the decision of the Learned CIT(Appeals) on this issue. Accordingly, ground no. 12 raised by the revenue is dismissed. In the result, the revenue's appeal in ITA NO. 426/Kol/2006 is Partly Allowed. ITA No. 1808/KOL/2007 - ASSESSEE's APPEAL 21. This appeal of the assessee arises out of the order of the Learned CIT(Appeals) u/s 154 of the Income Tax Act, 1961 (hereinafter ....
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....der section 80IA in the aggregate did not exceed the profits of the unit eligible for deduction under these sections and hence there was no double deduction. 4. That without prejudice to the grounds taken herein above, the Learned CIT(Appeals) erred in confirming the action of the AO in reducing 36.21% of the eligible profit of the Bangalore unit while computing deduction u/s. 80IA ignoring the fact that the actual relief granted u/s. 80HHD was restri cted to only 30% of the eligible profits. 5. That without prejudice to the grounds taken here-inabove, the Learned CIT(Appeals) should have held that deduction u/s. 80IA should be first computed and deducted from the profits and gains of the business before computing deduction u/s. 80HHD of the Act. 6. That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated here-in-above either before or at the time of hearing of the appeal". 21.2. The Learned AR argued that the issue is covered by the decision of the Supreme Court in the case of JCIT vs Mandideep Engineering & Packaging India P Ltd reported in (2007) 292 ITR 1 (SC) and accordingly pleaded for allowance of the issue und....
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....at the Hon'ble Delhi High Court had failed to consider one of the arguments of the ld. counsel for the revenue in that case. Ld. counsel had argued that in the matter of grant of deduction, the first stage was computation of deduction and second stage was the allowance of deduction, and that computation of deduction had to be made as provided in their respective sections and it was only at the stage in allowing deduction under section 80IA(1) and also under other provisions of Part 'C' of Chapter VIA, that the provisions of section 80IA(9) came into operation. The Hon'ble Bombay High Court noted that the Hon'ble Delhi High Court had not rejected this argument and therefore could not have arrived at the conclusion that indeed without rejecting that argument. The Hon'ble Bombay High Court expressed its decent with the views that Hon'ble Kerala High Court in the case of Olem Exports ( India) Limited -vs.- CIT reported in 229 CTR (Ker.) 206 for the same reasons. 21.7. The Hon'ble Bombay High Court noted that the object of section 80IA(9) was to prevent tax payers from claiming repeated deductions in respect of the same amount of the eligible income and in excess of the eligible prof....
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....profit of an Undertaking or Hotel, it is proposed to provide inbuilt rest rictions in section 80HHD and 80IA, so that such unintended benefits are not passed on to the assessee. This amendment is sought to be int roduced ret rospectively w.e.f. 1.4.1990 (emphasis supplied)". 23. It is also pertinent to get into the provisions of section 80P(3) of the Act at this juncture. Section 80P(3) reads as under:- "In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80I or section 80IA or section 80J the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2) shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80hhB, section 80HHC, section 80HHD, section 80I, section 80IA section 80J, and section 80JJ". 23.1. From the above, it could be seen that similar language "as reduced by" is missing in section 80IA(9). This goes to prove that it was never th....
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....ction 80IA redundant. Such an interpretation should be avoided. 23.5. The Hon'ble MP High court decision in JP tobacco Products Pvt. Ltd. case reported in [1998] 229 ITR 123 held as under: - "Section 80HH(9) as it stood prior to inser tion of section 80-1 by the Finance (No. 2) Act, 1980, with effect from 1-4-1981 originally included only section 80J. Section 80) providing for deduction in respect of the profits and gains from newly established industrial undertakings or ships or hotel business in certain cases did not make any provision for reduction of the gross total income by the amount of deduction admissible to the assessee under section 80HH. It was only by an amendment of the said section 80J that the provision for reducing the gross total income by the amount of deduction under section 80HH by the Direct Taxes (Amendment) Act. 1974. with effect from 1-4-1974 was inserted. Section 80-I was inserted in its present form by the Finance (No. 2) Act, 1980 with e ffect from 1-1-1981, and by the same Finance (No. 2) Act. Section 80HH(9) was amended and the words section 80-I or were inserted to make the same provision applicable to section 80-I as well. However, no provision....
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....be claimed both under Sections 80-HH and 80-I on the gross total. Against this judgment a Special Leave Petition was filed in this Court which was dismissed on the ground of delay on 21.07.2000 [see 245 ITR 71 (St.)]. The decision in J.P. Tobacco Products Pvt. Ltd. (supra) was followed by the same High Court in the case of CIT vs. Alpine Solvex (P) Ltd. in ITA No. 92 of 1999 decided on May 2, 2000. Special Leave Petition against this decision was dismissed by this Court on 12.01.2001 (see 247 ITR 36 (St.)). This view has been followed repeatedly by different High Courts in a number of cases against which no Special leave Petitions were filed meaning thereby that the department has accepted the view taken in these judgments. See CIT vs. Nima Specific Family Trust reported in 248 ITR 29 (Bom.); CIT vs. Chokshi Contacts P. Ltd. 251 ITR 587(Raj.); CIT vs. Amod Stamping 274 ITR 176(Guj.); CIT vs. Mittal Appliances P. Ltd. 270 ITR 65 (MP); CIT vs. Rochiram & Sons 271 ITR 444 (Raj.); CIT vs. Prakash Chandra Basant Kumar 276 ITR 664 (MP); CIT vs. SB Oil Industries 274 ITR 495 (P&H); CIT vs. M/.s SKG Engineering Pvt. Ltd. 119 (2005) DLT 673; and CIT vs. Lucky Laboratories 200 CTR 305 (All.)....