TaxTMI 
TaxTMI 
2015 (10) TMI 2022
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....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 facts and in the circumstances 'of the case the Lear....
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....he 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 Commerce Minist ry seeks for a larger definition of foreign....
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.... 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 the similar grounds mentioned hereinabove. Aggrieved, the assessee is....
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....ges 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 the language of Section 80HHC of the Act including the explanation added thereto and if the ....
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....ed 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 issue a certificate showing that the payments made in Indian rupees to the hotels by Foreign Airlines and ....
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....f 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 Co. -vs.- CIT reported in 253 ITR 749 in support of this contention. He further argued that even assuming without conc....
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....he 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 rival submissions and perused the materials available on record. It is seen that the net expenditure towards running and main....
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....g 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 on such restatement in view of dec rease in liability payable on the loan account amounting to Rs. 4,15,36,381/-. This is worked out as un....
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....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 fluctuation in the rate of exchange or whether the same could only be allowed in the y ear of repayment of such loans? (ii) Whether, the assessee is entitled to adjust ....
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....rofits 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 reported in 225 ITR 802. According to the Law and Practice of Income Tax by Kanga and Palkhivala, Section 37(1) is a residuary section extending the allowance to items of business e....
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....ease 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 Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under Section 209 of the Companies Act, mercantile system of accounti....
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....or 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 commercial complex at Chennai in Tamilnadu. The Hotel was under const ruction but due to financial problem the owner could not complete the same and was in litigation with the Financial Institutions who had initially lent fund for the....
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.... 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 business interest s and those companies were also using the brand of the assessee, rendering technical services and assessee's staff were used by the group companies and hence had to be construed as advances made during the course of assessee's business.....
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....e 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 capital borrowed was utilised by the family for personal use, no relief could be claimed under that clause. We do not think that we can give effect to this argument. Indisputably, these amounts were borrowed only for the purpose of the business of the family. The assess....
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.... 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 amplitude of the question posed before the High Court it could not be said that the content ion was not urged before the I.T. authorities. (ii) That, on the facts of the case, the profits were sufficient to meet the advance tax liability. The entire profits were deposited in the ove....
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....amily-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 as well as borrowed capital, the money lent came out of his own funds. The above decision of the Andhra Pradesh High Court was followed by the Gujarat High Court in the case of Shree Digvijay Cement Co. Ltd. v. CIT [19821 158 ITR 45, and the Gujarat High Court held that where the material o....
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.... 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. 114.08 crores and that the entire sale proceeds used to be deposited in the mixed account and the advance was also granted from the mixed account. Therefore, there were sufficient funds for making advance of Rs. 1.65 crores out of total transaction ofRs.114.08 crores. The Tribunal also found that out of the total export of the cashew-nut ke....
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....ercial 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 examine the purpose for which the assessee advanced the mone y and what the sister concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the poin....
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....o 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/September 1991 continued upto AY 1997-98 and that the said loans were advanced for business purposes and that interest paid thereon did not exceed 18/12% per annum, the assessee was entitled to deductions under Section 36(1)(iii) read with Section 40(b)(iv) of the 1961 Act. 17. One aspect needs to be mentioned during the AY 1995- 96, apart from the loan given in August/September 1991, the assessee a....
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....xed 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 issue is that the assessee debited a sum of Rs. 1,18,63,401/- in its profi t and loss ac count and out of this, the Learned AO disallowed a sum of Rs. 38,49,317/- for want of bills / evidences. The bills / evidences were filed by the assessee during the course of appellate proceedings before the Learned CIT(Appeals) which were verified by the Learned Assessing Officer during remand proceedings. However, the Learned As....
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....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 -Rs.10,00,000/- 8.1. The brief fact s 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 Assessing Officer disallowed a sum of Rs. 50,00,000/- towards proport ionate management expenses for earning dividend income which was brought down to Rs. 10,00,000/- by the Learned CIT(Appeals) in fi rst appeal. Aggrieved, the assessee has prefer....
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....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 disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income. The Hon'ble Jurisdictional High Court in the case of CIT vs M/s R.R. Sen & Brothers P Ltd in GA No. 3019 of 2012 in ITAT NO. 243 of 2012 dated 4.1.2013 had held as under:- "The assessee did not show any expenditure incurred by him for the purpose of earning the money whi ch is exempted under income tax. The Tr....
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....f 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 Lakshmi Machine Works Ltd (2007) 290 ITR 667 (SC). 9.3. We have heard the rival submissions and we find that this issue is now squarely covered by the decision of the apex court in the case of CIT vs Lakshmi Machine Works Ltd (2007) 290 ITR 667 (SC) wherein it was held that "Section 80HHC(3) is a benef icial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined busi....
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.... 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 the respective unit s, average room rate of such unit, nature and mixture of inward traffic -whether domestic or foreign tourist, corporate client or free inward tourist etc. Based on the aforesaid ratio, the common expenses are allocated to different unit s and recovered out of thei r Gross Operating Profi t. Accordingly such cont ributions towards common expenses are considered as expenditure chargeable to the Gross Operating Profit of the respective units. Accordi....
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....00-01 & 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 the Tribunal, we restore this issue to the file of the Learned Assessing Officer to decide the issue afresh on the basis of detail s filed by the assessee. Needless to ment ion that the assessee be given reasonable opportunity of being heard. Accordingly, the ground no. 2 raised by the revenue is allowed for statistical purposes. 11. Disallowance of Pre-opening expenses as capital in nature relating to Vanyavilas - Rs. 1,61,98,830/- and relating to Udayvilas - Rs. 1,42,67,177/- 11.1....
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....ce 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 the Jurisdictional High court in the case of CIT vs Kanoria General Dealers P Ltd reported in 159 ITR 524 (CAL) and the decision of the Delhi High Court in the case of CIT vs Relaxo Footwears Ltd reported in (2007) 293 ITR 231 (Del) in support of his contentions. He further argued that the Special Leave Petition preferred by the revenue against this Delhi High Court order has been dismissed by the Hon'ble Supreme Court in CC No. 12361/2007 dated 3.1.2008. Accordingly, he pleaded for allowance....
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....09] 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 commencement of the business, all expenses would be permissibl e deductions". Held, dismissing the appeal, that the business of the assessee involved different activities in which the first step was the purchase of the VSAT equipment. There was no question of the assessee having to place a purchase order with H, for a purpose other than that of its business. The purchase order was placed on July 28, 1994. The application to the Department of Telecommunications for licence and the receipt of the satelli....
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.... 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 the head 'Income f rom business and profession. Thus, a business can be said to have commenced as soon as it is being set up. In the instant case, the assessee was already in hotel and the hotel building was already in existence. After renovation, the hotel rooms were l et out with effect f rom 16-9-2000 and, thus, the same were also put for commercial use. Therefore, there was no reason to disallow the expenditure incurred after 16-9-2000. If the date of 16-9-2000 was taken as the date of setting up of the business, the ....
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....ting 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 Act and accordingly pleaded for setting aside of Learned CITA's order on this issue. In response to this, the Learned AR argued that technical assistance fees were determined by the terms of the contract s with the hotel owning companies. He further argued that this issue was covered by the decision of this t ribunal in ITA No. 833/Kol/2005 dated 8.9.2006 for the Asst Year 2001-02 in assessee's own case. 12.3. We have heard the rival submissions and perused the materials available on record. It is seen that this issue is squarely covered by th....
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....f 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 a statement showing that a provision of Rs. 1,31,58,251/- from which Rs. 4,09,037/- had been adjusted on account of excess provision of earlier years and that the technical fees for the year was determined and certified by a Chartered Accountant at Rs. 1,32,12,020/-. The learned CITA al so held that the assessee had pleaded that the difference of Rs. 4,62,806/- has been similarly accounted for in the next year. Aggrieved, the revenue is in appeal before us on the following ground:- "5. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deletin....
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....y 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 is in appeal before us on the following ground:- "6. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the addition of Rs. 86,21,700/-on account of advance written off on accepting fresh evidence and fresh explanation made by assessee in violation of Rule 46A of I.T. Rules". 14.2. The Learned DR argued that the order of Delhi High Court in the claim case was filed before the Learned CIT(Appeal s) by the assessee and the Learned CIT(Appeals) did not resort to obtain the remand report from the Learned Assessing Officer for his comment s and the....
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....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 sum of Rs. 50,00,000/-on account of staff welfare expenses on an ad hoc basis based on the disallowances made in the earlier years i.e. Asst Years 2000-01 & 2001-02. On first appeal, the Learned CIT(Appeals) on the basis of earlier year's order of his predecessor deleted the addition made towards staff welfare expenses on an ad hoc basis wi th a finding that it is quite usual and standard practice in hotel business to provide meals to its employees and there was no dispute on the fact s that expenditure on such meal was allowable business expenditure. He also gave further finding that the Learne....
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....n 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 - The Lunch allowance of the staff who are required to go on outdoor duty during lunch hours will be increased from Rs. 40/- to Rs. 75/- per day from the date of signing the Settl ement, subject to having their meals outside the hotel". 32.1. Further we find that Clause No. 22 of the said settlement reads as under:- "22. It is agreed by and between the parties that a sum of Rs. 70/- per month will be d educted towards breakfast, tea, snacks and meals serv ed in the cafeteria from the salaries of the employees w.e.f. 1s t January, 2000". 32.2. We further find that the ITAT in assessee's own case vide ITA No. ....
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....s 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 the order of the Learned Assessing Officer. In response to this, the Learned AR argued that no disallowance could be made on an ad hoc basis and placed reliance on the decisions of Mumbai ITAT in the case of ACIT vs Arthur Andersen & Co (2005) 94 TTJ 736 (Mumbai) and assessee's own case in DCIT vs EIH Ltd in ITA No. 1760/Cal/1999 for Asst Year 1996-97 in support of his contentions. 17.3. We have heard the rival submissions and perused the materials available on record. We find that the addition of Rs. 1,07,42,335/- has been made only on an ad hoc basis which is not in accordance with law. We also find that this issue has been dealt with by this Tri....
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....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 inferred that the investment s were made only out of own funds. Even assuming without conceding, he further argued that out of the total investments of Rs. 280.01 crores, a sum of Rs. 120.91 crores has been invested in foreign companies, wherein the dividend derived , if any, would become taxable and hence is automatically outside the ambit of disallowance of section 14A of the Act. 18.3. 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 decide....
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....td 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 judgment 111 the case of ClT v Calcutta Agency Ltd. [1951 19 ITR 191 On the other hand. If the revenue wants to disallow an e xpenditure under a particular provision, then the onus would be on the department to prove that conditions for disallowance are satisfied. Reference can be made to Judgment of Punjab & Haryana High Court 111 the case of Saraswati Industrial Syndicate Ltd. vs. CIT[1982] 136 ITR 361. In the present case, it is the revenue who wants to disallow the expenditure under section 14A. Hence the onus is on the revenue to prove that interest paid by assessee on borrowed funds related to acquisition of shares yielding tax free income". 62. .............Admitte....
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....roup 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 management expenses for earning dividend income which was brought down to Rs. 10,00,000/- by the Learned CIT(Appeals) in fi rst appeal. Aggrieved, the revenue is in appeal before us on the following ground:- "11. On the facts and in the circumstances of the case Ld. CIT[A] has erred in restri cting the disallowance u/s.14A of the I.T. Act to the extent of Rs.I0,00,000/- on account or proportionate management expenses as against Assessing Officer's disallowance of Rs. 50,00,000/- without appreciating the finding recorded by Assessing Officer in his assessment order". 19.2. We have heard the rival submissions and we find that this issue is elaborately dealt with in this order in Ground No. 8 ra....
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....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 referred to as the "Act") dated 16.5.2007 for the Asst Year 2002-03. The brief background of this appeal is that the assessment was framed u/s 143(3) of the Act for the Asst Year 2002-03 on 28.3.2005 making various additions to the returned income. All the additions were contested by the assessee before the Learned CIT(Appeal s). The Learned CIT(Appeals) had disposed off the appeal in Appeal No. 44/CIT(A)-VIII/KOL/CIR.8/2005-06 dated 22.12.2005 without disposing off Ground No. 4 raised by the assessee before him. This mistake was brought to the notice of the Learned CIT(Appeals) by preferring a rectification petition u/s 154 of the Act by the assessee on 21.2.2006 and in response to the same, the Learned CIT(A....
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....uction 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 under appeal. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 21.3. We have heard the rival submissions and perused the materials available on record. Chapter VI-A of the Income Tax Act, 1961 deal s with various deductions. Part 'A' of this Chapter detail s the scheme of deduction, while Part 'C' contains the provisions for allowing certain deductions in respect to profit s and gains from a business. Section 80A falling in Part 'A', provides that deductions are to be made from the gross total income, and that the aggregate amount of the deductions shall not exceed the gross total income. 21.4. Section 80AB, also falling in Chapter of VIA, provides that where any deduction is require....
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....ing 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 profits, and not to curtail deduction allowable under various provisions of Part 'C' of Chapter VIA. The Hon'ble Bombay High Court, therefore, held that section 80IA(9) did not affect the computation of deduction under various provisions of Part 'C of Chapter VIA, but affected the allowability of such deductions, so that the aggregate deduction under section 80IA and other provisions under part 'C' of Chapter VI-A did not exceed 100% of the profit s of the business of the assessee. We hold that a provision introduced for restrict ing the scope of a benefit another provision has to contain a non-obstante clause which is found in sect ion 80HHD and on this count alone, any attempt to curtail the basis of the profi t eligible for deduction under se....
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....l 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 the intention of the legislature that the deductions under section 80IA should be granted on the profits after reducing the deduction under section 80HHD of the Act. 23.2. We are al so of the opinion that deductions under Chapter VI-A are objective specific. It is possible that an assessee's business fulfils more than one object sought to be achieved. In such a situation, an assessee should be entitled to claim deduction under another section covering the different objective, although with reference to each of the objectives, he cannot claim more than one deduction. In other words, for different objectives, separate deduction may be simultaneously claimed. What is prohibited is that in respect of the same objective, more than one deduction should not be clai....
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.... 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 was made in section 80-I to provide for deduction of the gross total income by deduction allowed under section 80HH for the purpose of allowing deduction under section 80-I. It would thus, be seen that when section 80J already existed in sub-section (9) of section 80HH, an amendment was made in section 80J in the y ear 1974 but no such provision was made in so far as section 80-I was conc erned. This clearly contraindicates that section 80HH(9) by itself meant that deduction allowed under section 80HH is to be reduced from the gross total income for granting the benefit of section 80J and, for the matter, of section 80-I. It was provided in section 80J itself by later amendment while no such provision was made in section 80-I even though inserted on a later date. Th....