TaxTMI 
TaxTMI 
2011 (7) TMI 1171
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....at expenses, if any incurred to earn dividend income which is exempt u/s. 10(34) is not to be allowed, the learned CIT (Appeals) erred in confirming the disallowance made by the DCIT in a mechanical manner by applying the provisions of Rule 8D which are not applicable to the present year under appeal." 3. The facts in brief in regard to the above issue are that the A.O. observed that the assessee earned Rs. 2,34,77,794/- as dividend from investments in shares and mutual funds. The assessee claimed that it did not incur any expenditure for earning tax-free dividend income. The A.O. following the decision of Special Bench of I.T.A.T. in the case of ITO vs. Daga Capital Management Pvt. Ltd. [(2009) 312 ITR (AT) 1] disallowed an amount of Rs. 71,37,860/- on estimate basis as inadmissible deduction from business income u/s. 14A of the Act. On appeal, the ld. C.I.T.(A) confirmed the disallowance made by the A.O. 4. At the time of hearing before us, the learned counsel for the assessee submitted that the assessee is in the business of manufacturing cement, jute goods, vinoleum, auto trim parts etc. From time to time, the assessee makes investments out of its own funds in shares of compa....
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.... income. The A.O. following the decision of Special Bench of ITAT in the case of Daga Capital Management Pvt. Ltd. (supra) disallowed the sum of Rs. 71,37,860/- on estimate basis as inadmissible deduction from business income u/s. 14A of the Act, read with Rule 8D of the Rules, which was duly confirmed by the ld. C.I.T.(A). We find that as per decision of Hon'ble. Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd. vs. DCIT [(2010) 328 ITR 81 (Bom.)], Rule 8D is prospective in nature and is applicable for and from assessment year 2008-09, whereas we are concerned with assessment year 2006-07. Considering the above submissions of the ld. counsel and after perusing the orders of the authorities below, we hold that the authorities below were not justified to apply Rule 8D of the Rules for the purpose of making disallowance u/s. 14A of the Act as the dividend income shown by the assessee of Rs. 2,34,77,794/- is exempt from tax u/s. 10(34) of the Act. Be that as it may, we are of the considered view that it will be reasonable to make disallowance @ 1% of the above dividend income earned. We direct the A.O. to calculate the disallowance of expenditure on such exempt income accor....
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....of Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. (supra) :- "Undoubtedly, the Tribunal has the discretion to al low or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. " Further, their Lordships of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT (supra) at pages 386 & 387 observed as under :- "In the case of Jute Corporation of India Ltd. v. CIT[1991] 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has al l the powers which the original authority may have in deciding the quest ion before it subject to the restrictions or l imitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the m....
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....lar in question refers to assessments which are to be made under sect ion 143(3) of the Act. The circular directs that in a particular type of cases, i.e. , in scrutiny cases under section 143(3) of the Act, the income can neither be assessed at a figure lower than the returned income nor the loss assessed at a figure higher than the loss nor further refund given except what was due on the basis of the returned income. Thus, by issuance of the circular, the quasi-judicial officer is directed to assess cases of particular nature in a particular manner. The Assessing Officer being bound by it had abdicated his function and did not act independently and, therefore, there was no question of alternative remedy which was a futile remedy. Infact , the jurisdiction had been exercised by the Central Board of Direct Taxes by issuing the circular and, therefore, the order of the Assessing Officer was without jurisdiction. The court had to exercise its jurisdiction under article 226. The order of the Assessing Officer to the extent it stated that the total income would be the returned income, was to be set aside, wi th a direction to the Assessing Officer to make assessment without keeping in ....
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....mpensation paid in connection with the mining activity for obtaining limestone used as raw material for manufacture of cement. The submissions put forward on behalf of the assessee have been quoted at pages 3 to 5 of the appellate order. After considering the submissions of the assessee, perusing the order of A.O. and other evidences placed before him, the ld. C.I.T.(A) deleted the disallowance made by the A.O. and allowed the claim of the assessee by observing as under :- "I have gone through the submissions of the appellant and also the order of the A.O. As seen from the lease agreement between the Rajasthan Government and the appellant company, land situated at Chittorgarh village of an area of 9.99 Sq. Km was given as lease to the appellant. Liberty and power was given to enter upon the land and use the surface of the allotted land for the purpose of stacking, heaping, storing or depositing therein any produce of the mines etc. For all these activities the appellant was paying rent/royalty which was debited to the profit and loss account. The Learned A.R. argued that, appellant was following the practice of claiming the amount of compensation proportionately over the period o....
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.... As seen from the details filed before me the appellant has applied to the collector for permission to use the land for business purposes and payed compensation as per the collector order. The collector orders filed before me from 1995 to 2005 show that compensation was paid for different use of the land. In some of the cases it is for construction of ropeway, for construction of roads, and other subsidiary activities of mining. In the collector order it is also mentioned that the land will be vested with the Govt. after the mining lease period expires. The compensation was not paid in the f.y 1999-2000, since there was no requirement of land. Hence these payments are for acre by acre in respect of the damage caused for letting down the surface of the land. The compensation was paid for the damage caused on the infringement of right of the land owner and it has no relevance or any direct link to the amount of mineral excavated or removed on account of mining. It was paid on the, basis of commercial expediency and not for getting some additional capital asset or even an enduring benefit. As seen from facts of the case the appellant has not incurred this expenditure for acquiring lea....
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....dition to the rent/royalty, the assessee is also required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. No interest in land is acquired by payment of such compensation. Compensation has to be paid in order to obtain the raw material for the assessee's business, thereby facilitating the carrying on of its business. The ld. counsel further submitted that the assesse has been following the practice of claiming the amount of compensation proportionately over the period of the mining lease in order to avoid any distortion due to claim of the entire amount of compensation in the year of payment. He further submitted that the assessee's Satna Cement Works is located in Madhya Pradesh and Birla Cement Works is located at Chittorgarh in Rajasthan. Copies of statements regarding compensation written off together with compensation orders relating to assessee's units at Satna Cement Works and Birla Cement Works have been filed at pages 129 to 166 and 167 to 268 of the paper book respectively. The material provisions of the State law are section 89 of the Rajasthan Land Revenue Act, 1956 and section 247 o....
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....reopening the assessment u/s. 147 of the Act, but such reopening was not upheld upto the stage of the Tribunal. The disallowance made in the regular assessment for the assessment year 2002-03 was set aside by the Tribunal by its order dated 17/11/2006. A copy of the said order is filed at pages 68 to 76 of the paper book. The learned counsel further brought to our notice that the Department's appeal u/s. 260A of the Act, being ITA No. 482 of 2007 directed against the order dated 24/03/2006 of the Tribunal for the assessment year 2000-01 was rejected on the ground of delay by the Hon'ble Calcutta High Court on 16/08/2007. A copy of the said judgment is placed at pages 77 to 79 of the paper book. He further stated that in the appeal preferred by the revenue u/s. 260A of the Act for the assessment year 2002-03 in respect of the order of the Tribunal dated 17/11/2006 (copy placed at pages 80 to 87 of the paper book), though a ground was taken against the relief granted by the Tribunal with regard to proportionate deduction of compensation, such ground was not admitted by the Hon'ble Calcutta High Court by its order dated 22/6/2007 in ITA No.233 of 2007. A copy of the said judgment is ....
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....nt of the Hon'ble Supreme Court in Enterprising Enterprises vs. DCIT (supra) merely affirmed the decision of the Hon'ble Madras High Court in (2004) 268 ITR 95 (Mad). The said judgment of the Hon'ble Madras High Court was duly considered by the Tribunal in deciding the assessee's case for the assessment year 2000-01. The Hon'ble Supreme Court in the case of Enterprising Enterprises (supra) held that royalty or rent was revenue expenditure, but where the entire amount of lease was paid either at a time or in instalments, it would be a capital expenditure. In the said case, the Hon'ble Supreme Court was concerned with proportionate lease rent paid by the mining lessee for acquiring leasehold right for extracting minerals. In the instant case, the learned counsel submitted, there is no dispute that the rent/royalty paid by the assessee to the State Government is revenue expenditure. The dispute herein is with regard to compensation paid by the assesseee to the persons whose rights are infringed because of the mining activity in terms of the State Land Revenue law, which does not result in acquisition of any interest in the land by the assessee. The payment for mining the raw material ....
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....is thus dismissed. 16. Ground No.2 of the Revenue's appeal reads as under :- "2. That the Ld. CIT(A)-VI, Kolkata has erred in law as well as on facts by deleting the addition made by the A.O. on account of sales tax subsidy received by the assessee as revenue income of Rs. 18,18,46,419/-." 17. At the time of hearing before us, it was pointed out by the ld. counsel for the assessee that this issue is covered in favour of the assessee by the two decisions of I.T.A.T., 'A' Bench, Kolkata in assessee's own case for assessment year 2002-03 vide order dated 17/11/2006, ITA No.1502/Kol/2006 (copy filed at pages 68 to 76 of the paper book) and for assessment years 2003-04 to 2005-06 vide order dated 25/6/2008, ITA Nos.1818 to 1820/Kol/2008 (copy filed at pages 91 to 108 of the paper book). He stated that the facts being identical, the above decisions of I.T.A.T. would be squarely applicable. 18. The ld. Departmental representative was fair enough to accept that the facts of the year under consideration are identical to the facts involved during assessment years 2002-03 to 2005-06. He, however, pointed out that the revenue has not accepted the orders of ITAT for these years and has fil....
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.... a separate heading 'other current assets' with the description "fixed assets held for disposal" in accordance with the requirements of Accounting Standard 10. The assessee had used the assets in question for part of the preceding financial year 2004- 05. In that year, the assessee closed its unit in question, which had become unviable, for the health of its business as a whole and it was decided to sell the assets in question. He further submitted that the action of the A.O. is contrary to the statutory provisions and cannot be sustained. The A.O. should have reduced the sale proceeds from the written down value and allowed depreciation on such reduced written down value. He, therefore, urged for upholding the order of ld. C.I.T.(A) on this issue. 23. We have heard the parties and perused the material placed on record. Section 43(6)(c)(i)(B) specifically requires the reduction of the written down value of the block of assets by the moneys payable in respect of any asset falling within that block which is sold during the previous year. We find that the ld. C.I.T.(A) discussed the facts and legal position in this regard by observing as under :- "I have gone through the submission....