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2015 (11) TMI 747
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....various disallowances made by the Assessing Officer. 3. The first issue relates to the disallowance of part of interest expenditure on the ground that the assessee has diverted interest bearing funds to its subsidiary companies. This issue arises in the assessment years 2003-04, 2007-08 to 2009-10. 4. Both parties have agreed that this issue is covered by the decision of this Tribunal dated June 29, 2012 passed in the assessee's own case in I. T. A. No. 77/Coch/2010. For the sake of convenience, we extract below the operative portion of the order of the Tribunal referred to above : "9. We have heard the rival contentions on this issue. In paragraph 4 supra, we have narrated the methodology adopted by the Assessing Officer in working out the disallowance of interest expenditure relat able to the investments made in subsidiary companies. The said methodology suggests about non-application of mind on the part of the Assessing Officer, i.e., he has made the disallowance in a mechanical manner without analysing whether there was any commercial expediency in making the investment in subsidiary companies or whether the interest bearing funds have actually been diverted. From ....
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....n the case of Bharti Televentures Ltd., referred to supra apply to the facts of the instant case. In view of the foregoing dis cussions, we do not find any infirmity in the decision of the learned Commissioner of Income-tax (Appeals) in deleting the disallowance of interest claim." 5. According to the assessee, the quantum of interest-free funds available with the assessee were more than the investments made in subsidiary companies, as evidenced from the assessment order passed for all these years. For the sake of convenience, we extract below the ratio of funds available with the assessee as worked out by the Assessing Officer : Assessment year Interest-free funds Own funds Average investment in subsidiaries 2003-04 22,638 7,982 4,536 2007-08 31,256 7,665 21,537 2008-09 30,550 8,549 21,742 2009-10 30,830 9,286 21,405 6. However, at the time of hearing, the learned Departmental representative submitted a copy of the order dated August 3, 2012 passed by the hon'ble jurisdictional High Court of Kerala in the assessee's own case in I. T. A. No. 93 of 2000 relating to the assessment year 1992-93. The fo....
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....y the hon'ble High Court has to be considered in preference to that one discussed by the Tribunal. Further, in the years under consideration, we notice that the relevant details relating to the advances given to the subsidiaries, i.e., the details of payment and receipt of advance to/from each subsidiary company, the sources of funds available with the assessee to make the payment etc., are not available on record. For example, if any part of the loan funds meant for business purposes is diverted to the subsidiary companies interest-free, then the same would attract disallowance, in view of the decision of the jurisdictional High Court, referred to above. We notice that the Assessing Officer has not analysed the transactions made with the subsidiary companies and the assessee has also not furnished any account copy of subsidiary companies to show that there was no movement of funds during the year under consideration. Before us, the learned authorised representative made a reference to the aggregate amount of advances outstanding in the name of subsidiary companies. However, the working of average amount of investments given in the assessment order would suggest that there was ....
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....nditure. The said view was reiterated by the Tribunal in its order dated May 12, 2009 relating to the assessment year 2005-06 in I. T. A. No. 60/Coch/2009. We further notice that the learned Commissioner of Income-tax (Appeals) has followed the decisions rendered by the Tribunal in deciding this issue in favour of the asses see. The assessee submitted before us that there was no change in the facts surrounding this expenditure. However, the learned Depart mental representative, by placing reliance on the decision of the juris dictional Kerala High Court in the case of CIT v. Premier Breweries Ltd. [2005] 279 ITR 51 (Ker), submitted that mere existence of an agreement is not sufficient to prove commercial expediency in respect of this payment. There cannot be any dispute that the question of existence of commercial expediency has to be decided on the facts prevailing in each case. In the instant case, the co-ordinate Bench of the Tribunal has examined this payment and has taken the view that this expenditure is allowable and it was so held by the Tribunal in more than one year. Hence, we are inclined to follow the view consistently taken by the Tribunal. Since the learned Commission....
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....hat this issue requires fresh examination in all the years. If the payments have been made before the due date prescribed under section 139(1) of the Act for filing return of income, no disallowance is required to be made. Otherwise, the disallowance should be made in respect of the amounts paid after the due date prescribed under section 139(1) of the Act. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue in all the years referred to above and direct the Assessing Officer to examine the same in the light of discussions made supra. 13. The next common issue urged by the Revenue for the assessment years 2007-08 to 2010-11 relate to the addition of the amount realised on sale of old and unyielding rubber trees. 14. Both parties agreed that this issue is covered by the decision of the co- ordinate Benches of this Tribunal rendered in the assessee's own case in earlier years. The learned authorised representative invited our attention to the order dated June 29, 2012 passed in I. T. A. No. 77/Coch/2010 particularly paras 13 to 15 of the Tribunal order. For the sake of convenience, we extract below the paragraphs referred to ....
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....ived from business, and thirty-five per cent. of such income shall be deemed to be income liable to tax.' On a careful perusal of rule 7A, we notice that the said rule talks about computation of income derived from sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes, etc. The said rule does not talk about the taxability of income from sale of old rubber trees. According to the learned authorised representative, rule 7A provides for ascertainment of business income obtained on sale of centrifuged latex, etc., when manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India, i.e., when there is a combined activity of growing rubber trees and also manufacturing or processing of field latex or coagulum obtained from rubber plants, rule 7A provides for segregation and ascertainment of agricultural income and the business income. On a plain reading of rule 7A, we are inclined to accept the contentions of the learned authorised representative. Thus, the said rule 7A does not take in its ambit the ques tion of sale of old rubber trees. With regard to the position of rubber trees, the ....
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....growing rubber trees is to obtain liquid latex from them. The rubber trees are not used as it is for the purpose of manufacturing or processing, but only the latex obtained from them. Hence, the sale value of old rubber trees cannot be considered as salvage value obtained from the exhausted stock. Since the rubber trees continue to be the capital asset. Accordingly, the examples of sale of old gunny bags or old bottles quoted by the Assessing Officer are not applicable to the case of rubber trees. Hence, the decision of the Supreme Court in holding that the rubber trees constitute capital assets shall hold good even after the introduction of rule 7A in the Income-tax Rules. In view of the above, we agree with the views expressed by learned Commissioner of Income-tax (Appeals) on this issue." 15. We noticed that the learned Commissioner of Income-tax (Appeals) followed the decision rendered by the Tribunal in the assessment year 2006-07. Before us, the learned Departmental representative could not furnish any material/order to show that the order passed by the Tribunal on the abovesaid issue in the earlier years has been reversed by the hon'ble High Court. Hence, we do not fi....
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....considered as part of agricultural activities. 19. The learned Commissioner of Income-tax (Appeals) noticed that the Assessing Officer has disallowed the claim of capital loss in the earlier years by applying the ratio of the hon'ble Supreme Court in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) and also the decision of jurisdictional Kerala High Court in the case of CIT v. Rajagiri Rubber and Produce Co. Ltd. reported in [1991] 189 ITR 182 (Ker) (confirmed by the Supreme Court in Kalpetta Estates Ltd. v. CIT [1996] 221 ITR 601 (SC)). In the case of Rajagiri Rubber and Produce Co. Ltd., it has been held that the capital gains could not be charged/computed under section 45/48 in respect of sale of rubber trees because the cost of acquisition of the trees could not be con ceived with reasonable accuracy. In the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC), it was held that the amount realised on transfer of goodwill cannot be charged to capital gains tax, as the cost of acquisition of goodwill cannot be ascertained with reasonable accuracy. Accordingly, the Assessing Officer, in the preceding years, had held that the capital gains on sale of ....
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.... that the order passed by the Tribunal on the abovesaid issue in the earlier years has been reversed by the hon'ble High Court. Since the learned Commissioner of Income-tax (Appeals) has followed the decision of the Tribunal on this issue, we do not find any infirmity in his order on this issue. 19. The next common issue relates to the addition of provision of gratuity for computing book profits under section 115J/JB of the Act. This issue is contested in the appeals filed for the assessment years 2007-08 to 2010-11. The learned Commissioner of Income-tax (Appeals) has deleted this addition by following the decision of the Tribunal rendered for the assessment year 2006-07. In that year, the Tribunal has made the following observations on this issue : "25. The next issue relates to the addition of provision for gratuity liability amounting to Rs. 5.58 crores while computing the book profit by treating the same as unascertained liability. The learned Commis sioner of Income-tax (Appeals) directed the Assessing Officer to delete the said addition by following the decision of the hon'ble Supreme Court in the case of Metal Box Company of India Ltd. v. Their Workmen [1969] ....